<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 1, 1996
REGISTRATION NO. 333-12219
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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HOMECOM COMMUNICATIONS, INC.
(Exact name of issuer as specified in its charter)
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<S> <C> <C>
DELAWARE 7371 58-2153309
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer Identification
Classified Code Number) Number)
</TABLE>
BUILDING 14, SUITE 100
3535 PIEDMONT ROAD
ATLANTA, GEORGIA 30305
(404) 237-4646
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------------------------
HARVEY W. SAX
CHIEF EXECUTIVE OFFICER
BUILDING 14, SUITE 100
3535 PIEDMONT ROAD
ATLANTA, GEORGIA 30305
(404) 237-4646
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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<S> <C>
OBY T. BREWER III, ESQ. NEIL NOVIKOFF, ESQ.
RANDALL W. JOHNSON, ESQ. WILLKIE FARR & GALLAGHER
MORRIS, MANNING & MARTIN, L.L.P. ONE CITICORP CENTER
1600 ATLANTA FINANCIAL CENTER 153 EAST 53RD STREET
3343 PEACHTREE ROAD, N.E. NEW YORK, NEW YORK 10022-4669
ATLANTA, GEORGIA 30326 (212) 821-8000
(404) 233-7000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
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 earlier
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER , 1996
1,250,000 SHARES
[LOGO]
HOMECOM COMMUNICATIONS, INC.
COMMON STOCK
---------------------
All of the shares of Common Stock offered hereby are being issued and sold
by HomeCom Communications, Inc. (the "Company"). It is anticipated that the
initial public offering price will be between $6.00 and $7.00 per share. Prior
to this offering, there has been no public market for the Common Stock of the
Company. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. An application has been filed to
list the Company's Common Stock on The Nasdaq SmallCap Market under the trading
symbol "HMCM."
---------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share......................... $ $ $
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Total(3).......................... $ $ $
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</TABLE>
(1) For information regarding indemnification of the Underwriter by the Company
and certain compensation payable to the Underwriter, see "Underwriting."
(2) Before deducting expenses of the offering estimated at $450,000.
(3) The Underwriter has been granted a 30-day option to purchase up to an
additional 187,500 shares of Common Stock from the Company, solely to cover
over-allotments, if any, on the same terms and conditions as the shares
offered hereby. If the Underwriter exercises such option in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ _______ , $ _______ and $ _______ , respectively. See
"Underwriting."
The shares of Common Stock are offered by the Underwriter when, as and if
delivered to and accepted by the Underwriter, subject to its right to reject
orders in whole or in part and to certain other conditions. It is expected that
delivery of the certificates representing the shares of Common Stock will be
made on or about , 1996 at the offices of Ladenburg Thalmann & Co.
Inc., New York, New York.
LADENBURG THALMANN & CO. INC.
The date of this Prospectus is , 1996.
<PAGE> 3
[OUTSIDE FLAP OF FOLDOUT]
HomeCom's logo appears across the top of the page, consisting of the word
"HomeCom" in reverse bold print with the word "Communications" spelled out in
normal text underneath. Adjacent to the Company's name is a sphere with a line
that increases in thickness and wraps around the sphere ending in an arrowhead
across the front of the sphere.
The page is divided into three parts, (i) the top three-quarters of the
left two-thirds of the page, (ii) the bottom one-quarter of the left two-thirds,
and (iii) the right one-third.
In the center of the first section are the captions "Software products" and
"HomeCom's Post-On-The-Fly Conference Highlights."
DESCRIPTION OF PHOTOGRAPH:
To the left and above the caption are three computer screens showing
examples of HomeCom's Post-on-the-Fly(TM) Conference Web pages, each consisting
of a computer screen window with graphical text and menu buttons appearing
throughout the body of the Web page. The text and menu options offer a variety
information and interactive choices for the Web site user.
Under the illustrations is the following text:
-- HomeCom's Post-On-The-Fly Conference Highlights:
-- Conferences are fully searchable on conference title, conference
description, subject, author, and text.
-- Upload and attach any type of file to any posted text.
-- Conferences can be unmoderated, moderated manually by the conference
administrator, or moderated automatically by the software.
-- Password-protected user accounts.
-- Each user has a fully customizable, searchable home page.
-- The 'private conference' option keeps your sensitive posts secure
using complex Triple DES encryption.
-- Integration with Netscape's Cooltalk(TM) internet phone package
allows real-time conversations free of charge via the Internet.
-- Sub-administrators can administer and moderate each separate
conference.
-- Full web-based administration allows on-line creation, modification,
and deletion of conferences, messages, users, and subadministrators."
At the top of the bottom left portion of the page are the captions
"Security issues" and "HomeCom's Security Division."
Under the headings is the following text:
HomeCom addresses the three essential aspects of security:
-- Privacy - protecting against information "leaks."
-- Integrity - ensuring that stored information has not been and can not
be altered.
-- Availability - ensuring that information is readily accessible by
authorized users.
On the top of the right one-third of the page is the heading "Custom
applications."
i
<PAGE> 4
DESCRIPTION OF PHOTOGRAPH:
Under the heading is an illustration of a computer screen showing a Web
site for Real Estate Loan Services, consisting of a computer screen window with
various menu options relating to the Real Estate Loan Services Automated Order
and Delivery Service program.
DESCRIPTION OF DIAGRAM:
Immediately beneath the illustration is a schematic drawing of a HomeCom
product ordering application solution using names; circles and arrows to show
the relationship between real estate professionals with customer product orders,
the Company's Web Server application and various service providers.
Under the diagram is the caption "Norwest." Beneath the caption is the
following text: "Using a Sybase database, HomeCom Communications built a complex
Internet-based service called "The Automated Order and Delivery Service for Real
Estate Loan Services." RELS, a national real estate organization, is a
subsidiary of Norwest Corporation, the nation's largest mortgage origination
firm."
DESCRIPTION OF PHOTOGRAPH:
Immediately beneath the text is an illustration of a Web page for Norwest
Insurance Inc. which includes the Norwest logo and the slogan "Leverage Our
Technology And Expertise."
---------------------
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by an independent accounting firm and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET(TM), IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
---------------------
ii
<PAGE> 5
[INSIDE LEFT FLAP OF FOLDOUT]
The page is divided vertically into a left two-thirds column and a right
one-third column. In the middle of the left two-thirds of the page is the large
caption "Web site creation." On the top of the left two-thirds of the page is
the caption "Synovus."
Under the caption is the text "Electronic annual reports are only a small
fragment of what has become one of the most interactive financial sites on the
Internet."
DESCRIPTION OF PHOTOGRAPH:
Immediately to the left of the caption "Synovus" is an illustration of a
Synovus Financial Corp. Web page. The Web page includes a field showing a
collage of items including a key, a magnifying glass, a newspaper, and a map of
the Southeastern United States, with the terms "Corporate Profile,"
"Financials," "Request Info.," "Acquisitions," "Locator," "Stock Quote,"
"Shareholder Activity," "Search," and "Analyst Book" throughout the collage.
Beneath the collage is an illustration of a stock quote "Ticker."
DESCRIPTION OF PHOTOGRAPH:
Immediately to the left of the caption "Web site creation" is an
illustration of a Web page with the title "Stock Quotes." Beneath the title is a
graph depicting stock prices over a two hundred day period for a company with
the ticker symbol "SNV."
On the bottom left side of the page is the caption "TH.Q Games."
Beneath the caption is the following text:
-- Online catalog of game software.
-- Interactivity through contests and "game tips."
-- Strong visual display of packaging and game content."
DESCRIPTION OF PHOTOGRAPH:
Immediately to the right of the caption T-HQ Games is an illustration of a
Web site for T-HQ Inc. showing its name and graphic illustrations of the names
of various game software, such as "ROBO PIT," "BASS MASTERS," "ALONE IN THE
DARK," "IN THE HUNT," and "OLYMPIC SUMMER GAMES."
At the top right one-third of the page is the heading "The interactive
environment."
DESCRIPTION OF PHOTOGRAPH:
Under the caption is an illustration of a Web site for the Rainforest Cafe,
showing a variety of wild animals, a menu option entitled "Recipe," and text
describing the features available on the Web site.
Below the photograph is the caption "Rainforest Cafe."
Under the caption is the following text:
-- An online experience of the sites and sounds of the Rainforest Cafe.
-- Creating an audience for a publicly traded restaurant company.
-- A forum for locating restaurants and providing shareholder
information.
iii
<PAGE> 6
[INSIDE RIGHT FLAP OF FOLDOUT]
The page is divided vertically into a left two-thirds portion and a right
one-third portion. On the top of the left portion of the page is the heading
"Meeting client expectations."
On the left side of the page underneath the above caption is the caption
"SouthTrust."
Underneath the caption "SouthTrust" is the following text:
-- Another example of the broadening base of clients in the financial
services area.
-- A vehicle for distributing shareholder information.
-- Quick access to banking information such as credit, account and trust
services.
DESCRIPTION OF PHOTOGRAPH:
To the right of the text is an illustration of a Web site for SouthTrust
Bank showing a textual description of SouthTrust and services offered by
SouthTrust. At the bottom of the illustration are fields labeled "Home,"
"Locations," "Request Information," "Account Services," "Credit Services,"
"Business Services," "Investor Relations," and "Trust Services."
In the middle of the left two-thirds of the page is the caption "Brinker."
Under the caption is the following text: "Utilizing the power of the
Internet to collect Human Resources, create visibility and reinforce brand
identity."
DESCRIPTION OF PHOTOGRAPH:
Immediately to the left of the text is an illustration of a Web page for
Brinker International showing the logo for Brinker International and text
describing services available on the Web page.
DESCRIPTION OF PHOTOGRAPH:
Immediately beneath the Brinker International illustration is an
illustration of a Web site for Chili's Grill & Bar. This illustration includes
the logo for Chili's Grill & Bar above the text "Like No Place Else!" and a
graphic image of a baseball cap with the name "Chili's" written across its
front.
DESCRIPTION OF PHOTOGRAPH:
At the top of the right one-third of the page is an illustration of a
HomeCom Web site with the caption "Web Hosting" above four photographs of actual
conference rooms.
Beneath the illustration is the heading "Accolades and innovations."
DESCRIPTION OF PHOTOGRAPH:
Immediately beneath the above heading is an illustration of a HomeCom Web
site with the captions "HomeCom Customer Showcase" and "HomeCom's clients have a
Web room full of Awards." This Web site contains images of general industry
awards won by Web sites created by the Company for several of its clients.
Under the illustration is the following text: "HomeCom and its clients have
won several awards for Web sites created by HomeCom, including:"
-- MGM-UA "Top 10"
-- Point "Top 5% of All Web Sites"
-- Magellan "Four Star Site"
iv
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and the related notes thereto appearing
elsewhere in this Prospectus. In this Prospectus, the term "Company" or
"HomeCom" refers to HomeCom Communications, Inc., a Delaware corporation.
Investors should carefully consider the information set forth under the heading
"Risk Factors." Unless otherwise indicated, the information in this Prospectus
gives effect to a 93.07-for-1 stock split and recapitalization of the Company's
Common Stock from no par value to $.0001 par value per share, and assumes no
exercise of the Underwriter's over-allotment option. See "Underwriting." Certain
technical terms used in this Prospectus are defined in the Glossary on Page 50.
THE COMPANY
HomeCom develops and markets specialized software applications and products
and provides services that enable businesses to use the Internet and Intranets
to obtain and communicate important business information, conduct commercial
transactions and improve business productivity. HomeCom provides
Internet/Intranet solutions in five areas: customized software applications
design, development and integration; World Wide Web site development; Internet
outsourcing services; specialized Internet-enabled software products; and
security consulting and integration services. HomeCom's objective is to be a
leading provider of business communications solutions using Internet standard
protocol technologies.
According to International Data Corporation ("IDC"), the number of Internet
users with Web access increased from 1.1 million in 1994 to 8.3 million in 1995
and is expected to reach 31.4 million by the end of 1996. IDC estimates that the
number of individuals worldwide with access to the Internet will reach
approximately 200 million by the end of 1999. The explosive growth of the
Internet and World Wide Web has led to the rapid development of increasingly
sophisticated and advanced TCP/IP-enabled software applications such as Web
browsers and HTML compatible server software. These Internet tools enable users
to obtain and communicate information more efficiently and effectively.
The Company believes that there is a rapidly growing need for businesses to
expand and integrate their existing information and communications systems to
take advantage of the global communications framework and advanced graphics
capabilities of Internet-enabled systems. The Company also believes that
businesses today face a paradigm shift from proprietary protocol based local
area networks and wide area networks to Internet-enabled global communications
systems. HomeCom intends to capitalize on these changes by providing a suite of
integrated products and services.
HomeCom employs a team of highly trained Internet/Intranet software
developers and multimedia and graphics professionals who design and develop
specialized Internet/Intranet software applications. These applications enable
companies to obtain and communicate vital business information, such as sales
reports, order status systems, employee directories and client account
information. The Company works closely with its customers to analyze and design
Internet-based software solutions that facilitate the interactive exchange of
business information. Through its experience in designing custom Internet
solutions for businesses, HomeCom believes that it has developed and continues
to develop in-depth knowledge concerning industry-specific Internet applications
and requirements. The Company plans to leverage this knowledge to develop
additional Internet-enabled applications for targeted vertical industries,
including banking and financial services, retailing and entertainment.
The Company believes that it has established a reputation as a provider of
sophisticated interactive Web sites. The Company has developed more than 100 Web
sites for clients in many diverse industries, including sites for AT&T, Synovus,
SouthTrust Bank, Norwest, Rainforest Cafe, Brinker International, Executrain,
T-HQ and AFLAC. The Company has a highly trained staff able to
1
<PAGE> 8
design Web sites ranging from basic "inquiry only" sites to complex, interactive
sites capable of providing on-line commerce, database integration and
manipulation and sophisticated graphics, animation, sound and video. The Company
uses its proprietary Post On The Fly(TM) software in designing and developing
many of its Web sites.
HomeCom also provides Internet outsourcing services and presently hosts
more than 700 Web sites for clients in over a dozen countries. HomeCom
establishes and maintains the resources and facilities necessary to create and
support a customer's Internet server. As a provider of Internet outsourcing
services, HomeCom advises its clients as to the appropriate hardware, including
servers and routers, and software necessary to create an Internet server,
coordinates the purchase of this hardware and software, including operating
system and Internet server software, and provides the facilities to house and
maintain the server. HomeCom provides network management, including all network
functions, the maintenance of an environmentally conditioned, secure facility
and access to the Internet.
The Company has developed advanced software products that it presently
includes in its custom applications and that it intends to develop further for
retail sale. The Company has developed software, called Post On The Fly(TM),
which enables non-technical users to add, retrieve and update information
through the Internet or an Intranet using standard browser software. Post On The
Fly(TM) Conference permits intuitive and easy conferences among employees,
customers and business partners. The product utilizes database technology to
archive user-inputted data, ideas and innovations for later retrieval and
review. Post On The Fly(TM) Store facilitates the creation and updating of an
on-line store or catalog. Post On The Fly(TM) Q&A is being designed to
facilitate the creation and updating of examinations and training courses in
question and answer format. Post On The Fly(TM) Publisher is being designed to
permit the publisher of a magazine or newsletter to design an electronic
publication layout where reporters, editors and writers can insert articles,
graphics and other content.
HomeCom recently established an Internet security division to provide
security solutions for businesses connecting to the Internet. The Company plans
to develop and integrate advanced value-added security features into its custom
software applications and products and to provide consulting and integration
services to companies seeking to communicate securely and to transact business
over the Internet.
The Company markets its products and services through its direct sales
force, print advertising and its own Web site. The Company also generates
customer leads through its business partner relationships with leading
technology companies such as AT&T, BBN Planet, Oracle, Sybase, Microsoft and
Netscape.
The Company intends to become a leading provider of Internet-standard
business communications solutions by: (i) increasing marketing of
industry-specific Internet-enabled applications; (ii) expanding software product
development and distribution; (iii) developing advanced security services; and
(iv) acquiring Internet-related software and services companies.
The Company's executive offices are located at 3535 Piedmont Road, Building
14, Suite 100, Atlanta, Georgia 30305. The Company's telephone number is
404/237-4646 and its Web site is located at http://www.homecom.com.
2
<PAGE> 9
THE OFFERING
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Common Stock offered by the Company................... 1,250,000 shares.
Common Stock to be outstanding after the
offering(1)......................................... 3,249,977 shares.
Use of proceeds....................................... For general corporate purposes,
principally additions to working
capital, continued product
development, repayment of
indebtedness and possible future
acquisitions. See "Use of Proceeds."
Proposed Nasdaq SmallCap Market(TM) symbol............ HMCM
</TABLE>
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(1) Excludes (i) 300,000 shares reserved for issuance under the Company's Stock
Option Plan, of which options to acquire 79,167 shares of Common Stock are
issuable upon the exercise of outstanding options granted at a weighted
average exercise price of $5.92 per share, (ii) 300,000 shares reserved for
issuance under the Company's Non-Employee Directors Plan, of which options
to acquire 150,000 shares of Common Stock are issuable upon the exercise of
outstanding options granted at an exercise price of $6.50 per share, and
(iii) 125,000 shares of Common Stock reserved for issuance upon the exercise
of warrants to be granted to the Underwriter and its designees, exercisable
at 120% of the public offering price (the "Underwriter's Warrants"). See
"Management - Incentive Plans," "Description of Capital Stock" and
"Underwriting." Also excludes shares that may be issued in connection with
the Company's August 1996 acquisition of HomeCom Internet Security Services,
Inc. See "Certain Transactions."
3
<PAGE> 10
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The Summary Financial Data below has been taken or derived from the
historical financial statements and other records of the Company, and should be
read in conjunction with the Financial Statements and the Notes thereto included
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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<CAPTION>
DECEMBER 2 NINE MONTHS ENDED
(INCORPORATION) YEAR ENDED SEPTEMBER 30,
TO DECEMBER 31, DECEMBER 31, -----------------------
1994 1995 1995 1996
--------------- ------------ ---------- ----------
(UNAUDITED)
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STATEMENTS OF OPERATIONS DATA
Net sales............................... -- $ 327,574 $ 173,399 $1,471,324
Cost of sales........................... -- 59,871 39,442 386,439
---------- ---------- ---------- ----------
Gross profit............................ -- 267,703 133,957 1,084,885
Operating expenses...................... $ 17,452 269,527 157,834 1,189,033
---------- ---------- ---------- ----------
Operating loss.......................... (17,452) (1,824) (23,877) (104,148)
Interest expense, net................... -- 3,469 3,140 26,833
Other expense........................... -- 147 -- --
---------- ---------- ---------- ----------
Loss before income tax benefit.......... (17,452) (5,440) (27,017) (130,981)
Income tax benefit(1)................... -- -- -- --
---------- ---------- ---------- ----------
Net loss................................ $ (17,452) $ (5,440) $ (27,017) $ (130,981)
========== ========== ========== ==========
UNAUDITED PRO FORMA NET LOSS DATA
Loss before income tax benefit.......... $ (17,452) $ (5,440) $ (27,017) $ (130,981)
Pro forma adjustment to reflect federal
and state income tax benefit (actual
for period subsequent to February 8,
1996)(1).............................. -- -- -- --
---------- ---------- ---------- ----------
Pro forma net loss...................... $ (17,452) $ (5,440) $ (27,017) $ (130,981)
========== ========== ========== ==========
Pro forma net loss per common and common
equivalent share...................... $ (.01) $ (.00) $ (.01) $ (.07)
========== ========== ========== ==========
Pro forma weighted average common and
common equivalent shares outstanding.. 1,858,157 1,858,157 1,858,157 1,870,156
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
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PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
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BALANCE SHEET DATA
Working capital............................... $ (139,084) $ (139,084) $7,032,730
Total assets.................................. 1,209,883 1,209,883 7,856,921
Long-term obligations......................... 606,708 106,804 --
Total liabilities............................. 1,335,950 836,046 458,084
Stockholders' equity (deficit)................ (126,067) 373,837 7,398,837
</TABLE>
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(1)
For the period from December 2, 1994 (date of incorporation) to February 8,
1996, the Company was taxed as an S Corporation under the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and generally was
not subject to corporate income taxes. Effective February 9, 1996, the
Company terminated its S Corporation election, subjecting the Company to
corporate income taxes. The pro forma adjustment to reflect federal and
state income tax benefit, pro forma net loss and pro forma net loss per
common share represent the Company's income tax position had the Company
been subject to corporate income taxes for all periods presented. No income
tax benefit has been recorded due to the deferred tax asset arising from
operating loss carryforwards and temporary differences being fully offset by
a valuation allowance.
(2)
Pro forma balance sheet data give effect to the issuance immediately prior
to the date of this Prospectus of 76,907 shares of Common Stock (based upon
an assumed initial public offering price of $6.50 per share) in repayment of
$499,904 in outstanding indebtedness. See "Capitalization" and "Certain
Transactions."
(3)
Adjusted to give effect to the sale of 1,250,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $6.50 per
share and the application of the net proceeds therefrom after deduction of
underwriting discounts and commissions and estimated expenses of the
offering. See "Use of Proceeds," "Capitalization" and "Underwriting."
4
<PAGE> 11
RISK FACTORS
In evaluating an investment in the Common Stock, prospective purchasers
should consider carefully the following risk factors in addition to the other
information presented in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors."
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT. The Company was
incorporated in December 1994 and commenced sales in January 1995. Consequently,
the Company has only a limited operating history upon which to base an
evaluation of the Company and its prospects. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving industries. To address these risks, the
Company must, among other things, respond to competitive developments, continue
to attract, retain and motivate qualified persons, and continue to upgrade and
commercialize products and services. There can be no assurance that the Company
will be successful in addressing such risks. The Company has incurred net losses
since its incorporation and as of September 30, 1996 had an accumulated deficit
of approximately $154,000. For the nine months ended September 30, 1996, the
Company had negative cash flows from operations of approximately $89,000. There
can be no assurance that the Company will achieve or sustain profitability.
NEW AND UNCERTAIN MARKET. The market for Internet and Intranet products
and services has only recently developed. Because this market is relatively new
and because current and future competitors are likely to introduce competing
Internet and Intranet products and services, it is difficult to predict the rate
at which the market will grow or at which new or increased competition will
result in market saturation. If the Internet and Intranet markets fail to grow,
grow more slowly than anticipated or become saturated with competitors, the
Company's business, financial condition and operating results will be materially
and adversely affected.
DEPENDENCE ON THE INTERNET. Although a portion of the sales of the
Company's products and services will depend upon growth of private Intranet
networks, sales of the Company's Internet related products and services will
depend in large part upon an adequate infrastructure for providing Internet
access and carrying Internet traffic. The Internet may not prove to be a viable
commercial marketplace because of inadequate development of the necessary
infrastructure or timely development of complementary products such as high
speed modems. Because global commerce and on-line exchange of information on the
Internet and other similar open wide area networks are new and evolving, it is
difficult to predict with any assurance whether the Internet will prove to be a
viable commercial marketplace. There can be no assurance that the infrastructure
or complementary products necessary to make the Internet a viable commercial
marketplace will be developed, or, if developed, that the Internet will become a
viable commercial marketplace. If the necessary infrastructure or complementary
products are not developed, or if the Internet does not become a viable
commercial marketplace, the Company's business, financial condition and
operating results will be materially and adversely affected.
RISK OF CHANGING TECHNOLOGY. The Internet software and services markets
are characterized by rapid technological change, evolving industry standards,
emerging industry competition and frequent new service, software and other
product introductions. The Company's future success will depend in significant
part on its ability to anticipate industry standards, continue to apply advances
in Internet and Intranet technologies, enhance its current services and
products, and develop and introduce new services and products on a timely basis.
The introduction of services and products embodying new technologies and the
emergence of new industry standards can render existing services and products
obsolete and unmarketable. There can be no assurance that the Company will be
successful in developing and marketing product enhancements or new services and
products
5
<PAGE> 12
that respond to technological change or evolving industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these services or
products, or that its new services and products will adequately meet the
requirements of the marketplace and achieve market acceptance. If the Company is
unable, for technological or other reasons, to develop and introduce new
services or products in a timely and cost-effective manner or to address
compatibility, inoperability or other issues raised by technological changes or
new industry standards, the Company's business, financial condition and
operating results will be materially and adversely affected. See
"Business - Products and Services."
MANAGEMENT OF A DEVELOPING BUSINESS. The Company has experienced
substantial change and expansion in its business and operations since its
incorporation in 1994 and expects to continue to experience periods of rapid
change. The Company's past expansion has placed, and any future expansion will
place, significant demands on the Company's administrative, operational,
financial and other resources. The Company expects to expend resources in
connection with planned marketing and sales programs, future expansion of its
accounting and internal management systems and implementation of a variety of
new systems and procedures. As a consequence, the Company expects operating
expenses and staffing levels to increase substantially in the future.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to attract, assimilate or retain additional highly
qualified personnel. In addition, the Company expects that future expansion will
continue to challenge the Company's ability to train, motivate, and manage its
employees, and to attract and retain qualified Internet applications engineers
and programmers, graphic artists, creative directors and security applications
specialists. If the Company cannot generate sufficient revenues to offset its
higher operating expenses, the Company's management and financial systems do not
expand to meet increasing demands, the Company fails to attract, assimilate and
retain qualified personnel, or the Company's management otherwise fails to
manage the Company's expansion effectively, the Company's business, financial
condition and operating results will be materially and adversely affected. See
"Business - Employees" and "Management."
DEPENDENCE ON KEY PERSONNEL. The Company depends to a significant extent
upon its senior management and the loss of any member of senior management could
have a material adverse effect upon the Company's business, financial condition
and operating results. No assurance can be given that the Company can retain its
senior management or other key personnel. Although the Company has entered into
employment agreements with each of its executive officers which contain
non-competition and non-disclosure provisions, the Company's ability to benefit
from them is uncertain because such provisions typically must be limited in
geographic scope to be enforceable. Restrictions limited in geographic scope may
not effectively prohibit competition with the Company because of the global
nature of the Internet. See "Management."
INTENSE COMPETITION. The Company's current and prospective competitors
include many companies that have longer operating histories, longer customer
relationships and substantially greater financial, management, technical,
development, sales, marketing and other resources than the Company. Many
nationally known companies and regional and local companies across the country
are involved in Internet and Intranet applications, including the development
and support of Web sites, and the number of these companies is increasing.
Companies competing directly or indirectly with the Company include Web site
service boutique firms, communications, telephone and telecommunications
companies, computer hardware and software companies, established on-line
services companies, advertising agencies, direct access Internet and
Internet-services and access providers as well as specialized and integrated
marketing communication firms. The Company also competes with the internal
information technology departments of prospective customers who are choosing
whether to outsource design and support. The Company competes on the basis of
creative talent, price, reliability of services and responsiveness. See
"Business - Competition."
6
<PAGE> 13
PRICE EROSION. The market for Internet and Intranet products and services
is highly competitive and is characterized by pressures to reduce prices,
incorporate new capabilities and accelerate completion schedules. Increased
competition could result in significant price competition, which in turn could
result in significant reductions in the average selling price of the Company's
products and services. There can be no assurance that the Company will be able
to offset the effects of any such price reductions through an increase in the
number of its customers, higher revenue from enhanced services or cost
reductions.
LENGTH OF SALES CYCLE. The development and implementation of interactive
Web sites may require the Company to engage in a lengthy sales cycle. The
pursuit of sales leads typically involves an analysis of the prospective
customer's needs, preparation of a written proposal, one or more presentations
and contract negotiations. The Company often provides significant education to
prospective customers regarding the use and benefits of Internet or Intranet
technologies and products. Extensive Web site development or licensing of the
Company's products may also involve a substantial commitment of capital by
potential customers as well as the attendant delays frequently associated with
approving larger capital expenditures and reviewing new technologies that affect
key operations.
RISK OF DEFECTS. Web site services and other services based on software
and computing systems often encounter development and completion delays and the
underlying software may contain undetected errors or failures when introduced
and, in the case of Web sites, when the volume of traffic on a site increases.
In addition, there can be no assurance that errors found in the software
underlying a Web site or other project will not result in delays in completion,
commercial release or market acceptance of such Web site or other project.
Likewise, there can be no assurance that the Company will not incur
unanticipated costs to cure any defect or be obligated to refund money paid to
the Company or to pay for damages caused by any delay or defect. Software
applications and products as complex as those being developed by the Company may
contain undetected errors or failures when first introduced. If software errors
are discovered after introduction, the Company could experience delays and lost
revenues during the period required to correct these errors. There can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found in new applications, products or releases
after commencement of installation or shipment, resulting in loss of or delay in
receiving revenues.
SECURITY RISKS. The Company's software and equipment are vulnerable to
computer viruses or similar disruptive problems caused by customers or other
Internet users. Computer viruses or problems caused by third parties could lead
to interruptions, delays or cessation in service to the Company's customers.
Furthermore, inappropriate use of the Internet by third parties could also
jeopardize the security of customers' confidential information that is stored in
the Company's computer systems. The Company does not have product liability or
other insurance to protect against risks caused by computer viruses or other
misuse of software or equipment by third parties. Although the Company attempts
to limit its liability to customers for these types of risks through contractual
provisions, there can be no assurance that these limitations will be
enforceable.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY. The Company relies primarily
on a combination of copyright, patent and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company seeks to protect its software, documentation and other
written materials principally under trade secret and copyright laws, which
afford only limited protection. The Company does not hold any registered trade
or service marks at this time, but has applied for federal registration of the
names "HomeCom," "Post On The Fly(TM)" and the Company's logo. 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 the Company's competitors will not independently develop competing
products and services. In distributing its software products, the Company
intends to rely primarily on "shrink wrap" licenses that are not signed by
licensees and,
7
<PAGE> 14
therefore, may be unenforceable under the laws of certain jurisdictions. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to as great an extent as the laws of the United States. The
Company does not believe that any of its proposed products infringe 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 its
products. 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, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company. In addition, Web site developers such as the Company face
potential liability for the actions of customers and others using their
services, including liability for infringement of intellectual property rights,
rights of publicity, defamation, libel and criminal activity under the laws of
the United States and foreign jurisdictions. An imposition of liability could
have a material adverse effect on the Company. See "Business - Intellectual
Property Rights."
BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS. The Company intends to
use approximately $225,500 of the net proceeds of this offering to repay
indebtedness of approximately $56,500 to the Company's Chief Executive Officer
and approximately $169,000 to three other stockholders. See "Use of Proceeds"
and "Certain Transactions." Assuming the issuance immediately prior to the date
of this Prospectus of 76,907 shares of Common Stock (based upon an assumed
initial public offering price of $6.50 per share) in repayment of $499,904 in
outstanding indebtedness, the current stockholders will have paid an average of
$.50 per share for their 1,999,977 shares of Common Stock. See "Dilution." The
972,008 shares of Common Stock currently owned by the Company's executive
officers and directors, which were acquired at a total cost of approximately
$360,704, will have a market value of approximately $6,318,000 based on an
assumed initial public offering price of $6.50 per share. While the completion
of the offering would create a public market for the Common Stock, there can be
no assurance that an active trading market will develop or continue after
completion of this offering or that the market price of the Common Stock will
not decline below the initial public offering price. None of the Company's
stockholders are selling shares of Common Stock in the offering.
BROAD DISCRETION IN APPLICATION OF PROCEEDS; UNSPECIFIED ACQUISITIONS. The
Company has not determined specific uses for a substantial portion of the net
proceeds of this offering. The Company anticipates that a majority of the
estimated net proceeds from this offering will be used for working capital and
other general corporate purposes. However, such uses are subject to change
depending upon a number of factors, including future revenue growth, the amount
of cash generated by the Company's operations, the length of the sales cycle of
the Company's products and services and the rapidly changing industry in which
the Company operates. A portion of the net proceeds of this offering may be used
to acquire later-stage development or existing products from other companies or
to acquire complementary businesses. Although the Company has not entered into
any agreement or commitment and is not a party to any negotiations for any such
acquisitions, it has explored and plans to continue to evaluate opportunities to
purchase, license or otherwise acquire the right to market products, services or
businesses that complement the Company's business. Acquisitions of other
businesses entails significant risks relating to proper selection and valuation
of targeted businesses, the ability to manage and integrate acquired businesses
with the Company's business and the potential need to fund future development
and operations of acquired businesses. See "Use of Proceeds."
LACK OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE. Prior to
this offering, there has been no public trading market for the Common Stock. The
initial public offering price of the Common Stock will be determined through
negotiations between the Company and the Underwriter and will not necessarily be
related to the Company's book value, net worth or any other established criteria
8
<PAGE> 15
of value. Factors to be considered in determining the initial public offering
price may include prevailing market conditions, the market capitalization and
stages of development of other companies that the Company and the Underwriter
believe to be comparable to the Company, the results of operations of the
Company in recent periods, estimates of the business potential of the Company,
the present stage of the Company's development and other factors deemed
relevant. There can be no assurance that an active trading market will develop
or continue after completion of this offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
market price of the Common Stock is likely to be highly volatile. The Company
believes factors such as actual or anticipated quarterly fluctuations in
financial results, changes in earnings estimates by securities analysts and
announcements of material events by the Company, its major customers or its
competitors may cause the market price for the Common Stock to fluctuate,
perhaps substantially. These fluctuations, as well as general economic,
political and market conditions, such as recessions, may have a material adverse
effect on the market price of the Common Stock.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. As a result of the Company's
limited operating history, the Company does not have historical financial data
for a significant number of periods on which to base planned operating expenses.
Accordingly, the Company's expense levels are based in part on its expectations
as to future revenues and to a large extent are fixed. However, the Company
typically operates with no significant backlog. As a result, quarterly sales and
operating results generally depend on the volume and timing of and ability to
perform services requested within the quarter, and are difficult to forecast.
The Company may be unable to adjust spending in a timely manner to compensate
for any unexpected revenues shortfall. Accordingly, any significant shortfall of
demand for the Company's products and services in relation to the Company's
expectations would result in fluctuations in future quarterly operating results.
The Company may also experience significant fluctuations in future quarterly
operating results as the result of many factors, including demand for the
Company's products and services, introduction or enhancement of products by the
Company and its competitors, market acceptance of new products and services, mix
of products and services sold and general economic conditions. As a result, the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as any indication
of future performance.
CONCENTRATION OF STOCK OWNERSHIP. Upon completion of this offering, the
Company's present directors and executive officers will beneficially own
approximately 30% of the outstanding Common Stock. As a result, these
stockholders, if they act together, will be able to exercise significant
influence over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. Such
concentration of ownership may also have the effect of delaying, preventing or
deterring a change in control of the Company. See "Principal Stockholders."
SENIORITY OF PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS. The Board of
Directors has authority to issue up to 1,000,000 shares of preferred stock and
to fix the rights, preferences, privileges and restrictions, including voting
rights, of the preferred stock without further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. While the Company has no present intention to
issue shares of preferred stock, such issuance, while providing desired
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. See
"Description of Capital Stock - Preferred Stock." In addition, the Company's
Restated Certificate of Incorporation provides that the Board of Directors be
divided into three classes of directors, with each class serving a staggered
three-year term. The division of the Board of Directors into three classes may
tend to discourage a third party from making a tender offer or otherwise
attempting to obtain control of the Company and may maintain the incumbency of
the Board of Directors, because such a division generally makes it
9
<PAGE> 16
more difficult for stockholders to replace a majority of directors. See
"Description of Capital Stock - Limitations on Liability of Directors."
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SMALLCAP MARKET; DISCLOSURE
RELATING TO LOW-PRICED STOCKS. The Company has applied to have the Common Stock
listed on The Nasdaq SmallCap Market. In order to continue to be included in The
Nasdaq SmallCap Market, a company must maintain $2,000,000 in total assets, a
$200,000 public float market value and $1,000,000 in total capital and surplus.
In addition, continued inclusion requires two market-makers and a minimum bid
price of $1.00 per share; provided, however, that if a company falls below such
minimum bid price, it will remain eligible for continued inclusion in The Nasdaq
SmallCap Market if the market value of the public float is at least $1,000,000
and the company has $2,000,000 in capital and surplus. Failure to meet these
maintenance criteria in the future may cause the Common Stock to be delisted
from in The Nasdaq SmallCap Market, and trading, if any, in the Common Stock
would thereafter be conducted in the over-the-counter market. As a result, an
investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of the Common Stock. In addition, if the
Common Stock were delisted from trading on The Nasdaq SmallCap Market and the
trading price of the Common Stock was less than $5.00 per share, trading in the
Common Stock would also be subject to certain rules promulgated under the
Securities Exchange Act of 1934, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
"penny stock" (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stock to
persons other than established customers and accredited investors. For these
types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transactions prior to sale. The additional burdens imposed upon
broker-dealers by such requirements may discourage broker-dealers from effecting
transactions in the Common Stock, which could severely limit the market
liquidity of the Common Stock and the ability of purchasers in this offering to
sell the Common Stock in the secondary market.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY. The Company's Restated
Certificate of Incorporation provides, as permitted by Delaware law, that its
directors shall have no personal liability for certain breaches of their
fiduciary duties to the Company. In addition, the Company's Restated Bylaws
provide for mandatory indemnification of directors and officers to the fullest
extent permitted by Delaware law. These limitations on personal liability do not
apply to liabilities under federal securities laws. However, these provisions
may reduce the likelihood of derivative litigation against directors and may
discourage stockholders from bringing a lawsuit against directors for a breach
of their fiduciary duties. See "Description of Capital Stock - Limitations on
Liability of Directors."
GOVERNMENT REGULATION. The Telecommunications Act of 1996 (the "1996
Telecommunications Act"), which became effective on February 8, 1996, imposes
criminal liability on persons sending or displaying in a manner available to
minors indecent material on an interactive computer service such as the
Internet. The 1996 Telecommunications Act also imposes criminal liability on an
entity knowingly permitting facilities under its control to be used for those
activities. The constitutionality of these provisions is being challenged in
federal court and, as of the date of this Prospectus, enforcement of certain
provisions has been enjoined. However, this legislation may decrease demand for
Internet access, chill the demand for Internet content or have other adverse
effects on Web site service providers such as the Company. In addition, in light
of the uncertainty of the interpretation and application of this law, there can
be no assurance that the Company would not have to modify its operations to
comply with the statute.
Except for the 1996 Telecommunications Act, the Company does not believe
that it is currently subject to direct regulation by any government agency,
other than regulations applicable to businesses generally, and believes that
there are currently few laws or regulations directly
10
<PAGE> 17
applicable to Web site service companies. It is possible that a number of
additional laws and regulations may be adopted with respect to the Internet,
covering issues such as user privacy, pricing and characteristics and quality of
products and services. The adoption of any such laws or regulations may decrease
the growth of the Internet, which could in turn decrease the demand for the
Company's products and services, increase the Company's cost of doing business,
cause the Company to modify its operations, or otherwise have an adverse effect
on the Company's business, financial condition or operating results. Moreover,
the applicability to the Internet of existing laws governing issues such as
property ownership, libel and personal privacy is uncertain. The Company cannot
predict the impact, if any, that future regulation or regulatory changes may
have on its business. In addition, Web site developers such as the Company face
potential liability for the actions of customers and others using their
services, including liability for infringement of intellectual property rights,
rights of publicity, defamation, libel and criminal activity under the laws of
the United States and foreign jurisdictions. Any imposition of liability could
have a material adverse effect on the Company.
The Company's network services are transmitted to its customers over
dedicated and public telephone lines. These transmissions are governed by
regulatory policies establishing charges and terms for communications. Changes
in the regulatory environment relating to the telecommunications and media
industry, including regulatory changes which directly or indirectly affect use
of or access to the Internet or increase the likelihood or scope of competition
from regional telephone companies, could have a material adverse effect on the
Company.
DILUTION. Purchasers of shares of Common Stock in this offering will
experience immediate and substantial dilution in net tangible book value per
share. In addition, the Company may issue a substantial number of additional
shares of Common Stock in the future. The issuance of a material number of such
shares may have the effect of increasing the dilution to new investors in this
offering. See "Dilution."
11
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,250,000 shares of
Common Stock offered by the Company hereby (at an assumed initial public
offering price of $6.50 per share and after deducting underwriting discounts and
commissions and estimated offering expenses) are estimated to be approximately
$7,025,000 ($8,146,250 if the Underwriter's over-allotment option is exercised
in full). The Company currently intends to apply the net proceeds from this
offering for general corporate purposes, principally additions to working
capital, continued product development, repayment of indebtedness (including
indebtedness to the Company's Chief Executive Officer) and possible future
acquisitions.
The Company intends to use (i) approximately $56,500 of the net proceeds of
this offering to repay indebtedness to the Company's Chief Executive Officer
pursuant to a promissory note payable on September 12, 2000, with interest
payable annually at the prime rate plus 1% per annum on the unpaid principal
amount, (ii) approximately $62,500 to repay indebtedness to a financial
institution, which is payable in equal monthly installments through January
2001, with interest payable annually at the rate of 10% per annum, (iii)
approximately $45,000 to repay indebtedness to a private investor pursuant to a
promissory note payable in August 1997, with interest payable at maturity at the
rate of 8% per annum, (iv) approximately $100,000 to repay indebtedness to a
private investor pursuant to a promissory note payable in October 1997, with
interest payable at maturity at the rate of 8% per annum and (v) approximately
$24,000 to repay interest owed under 8% per annum interest promissory notes due
September 1997 held by two private investors. See "Certain Transactions."
A portion of the net proceeds of this offering may be used to acquire
later-stage development or existing products from other companies or to acquire
complementary businesses. Although the Company has not entered into any
agreement or commitment and is not a party to any negotiations for any such
acquisition, it has explored and plans to continue to evaluate opportunities to
purchase, license or otherwise acquire the right to market products, services or
businesses that complement the Company's business.
The Company has not determined the exact amount it plans to expend on each
of such uses or the timing of such expenditures. The amounts actually expended
for each such use, if any, are at the discretion of the Board of Directors and
may vary significantly depending upon a number of factors, including future
revenue growth, the amount of cash generated by the Company's operations, the
length of the sales cycle and the rapid changes in the Internet and Intranet
marketplaces. To the extent that the net proceeds of this offering are not used
immediately, they will be invested in United States government and governmental
agency securities and other short-term, investment-grade, interest-bearing
instruments.
DIVIDEND POLICY
The Board of Directors intends to retain any of the Company's earnings to
support operations and to finance expansion and does not intend to pay cash
dividends on the Common Stock in the foreseeable future. Any future
determination to pay dividends will be at the discretion of the Board of
Directors, and will depend on the Company's financial condition, results of
operations, capital requirements and such other factors as the Board of
Directors deems relevant.
12
<PAGE> 19
DILUTION
At September 30, 1996, the Company had a pro forma net tangible book value
of approximately $120,219 or $.06 per share, after giving effect to the issuance
immediately prior to the date of this Prospectus of 76,907 shares of Common
Stock (based upon an assumed initial public offering price of $6.50 per share)
in repayment of $499,904 in outstanding indebtedness. See "Capitalization" and
"Certain Transactions." Pro forma net tangible book value per share is
determined by dividing the pro forma net tangible book value (tangible assets
less liabilities) of the Company by the number of shares of Common Stock
outstanding. After giving effect to the issuance and sale of the 1,250,000
shares of Common Stock offered hereby (at an assumed initial public offering
price of $6.50 per share) and the application of the estimated net proceeds
therefrom as set forth in "Use of Proceeds," the adjusted pro forma net tangible
book value of the Company at September 30, 1996 would have been $7,398,837 or
$2.28 per share. This represents an immediate increase in pro forma net tangible
book value of $2.22 per share to the existing stockholders and an immediate
dilution of $4.22 per share to new investors purchasing shares of Common Stock
at the assumed initial public offering price. The following table illustrates
this dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $6.50
Pro forma net tangible book value per share as of September 30,
1996............................................................. $0.06
Increase in pro forma net tangible book value per share attributable
to new investors................................................. 2.22
-----
Adjusted pro forma net tangible book value per share after offering... 2.28
-----
Dilution per share to new investors................................... $4.22
=====
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1996 (giving effect to the items listed above), the number of shares of Common
Stock previously purchased from the Company, the total consideration paid to the
Company and the average price paid per share by the existing stockholders and
new investors, assuming sale by the Company of 1,250,000 shares of Common Stock
at an assumed initial public offering price of $6.50 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 1,999,977 61.5% $ 995,714 10.9% $ .50
New investors....................... 1,250,000 38.5% 8,125,000 89.1% 6.50
--------- ----- ---------- -----
Total..................... 3,249,977 100.0% $9,120,714 100.0%
========= ===== ========== =====
</TABLE>
Immediately following completion of this offering, the Company will have
outstanding options to acquire approximately 229,167 shares of Common Stock at
exercise prices ranging from $4.55 to $6.50 per share and a weighted average
exercise price per share of $6.30. In addition, in connection with the Company's
acquisition of HomeCom Internet Security Services, Inc., the Company may issue
shares of Common Stock in the future in payment of all or a portion of the
purchase price. See "Certain Transactions." The issuance of a material number of
shares of Common Stock in the future may have the effect of increasing the
dilution to new investors in this offering.
13
<PAGE> 20
CAPITALIZATION
The following table sets forth as of September 30, 1996 (i) the actual
short-term borrowings and capitalization of the Company, (ii) the pro forma
short-term borrowings and capitalization of the Company after giving effect to
the issuance immediately prior to the date of this Prospectus of 76,907 shares
of Common Stock (based upon an assumed initial public offering price of $6.50
per share) in repayment of $499,904 in outstanding indebtedness and (iii) the
pro forma short-term borrowings and capitalization of the Company, as adjusted
to give effect to the issuance and sale by the Company of the 1,250,000 shares
of Common Stock offered hereby at an assumed initial public offering price of
$6.50 per share, after deducting underwriting discounts and commissions and
estimated offering expenses, and the application of the estimated net proceeds
therefrom. See "Use of Proceeds," "Certain Transactions," and Note 6 to the
Financial Statements. This table should be read in conjunction with the
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA ADJUSTED
-------- -------- ----------
<S> <C> <C> <C>
Short-term borrowings...................................... $ 57,314 $ 57,314 $ 0
======== ========= ==========
LONG-TERM DEBT:
Note payable, net of current maturities.................. 50,199 50,199 0
Notes payable to stockholders, net of current
maturities............................................ 556,509 56,605 0
-------- --------- ----------
Total long-term debt............................. 606,708 106,804 0
-------- --------- ----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding.......................... -- -- --
Common stock, $.0001 par value, 15,000,000 shares
authorized, 1,923,070 shares issued and outstanding,
actual; 1,999,977 shares issued and outstanding, pro
forma; 3,249,977 shares issued and outstanding, pro
forma as adjusted(1).................................. 192 200 325
Additional paid-in capital............................... 495,618 995,514 8,020,389
Stock subscriptions...................................... (468,004) (468,004) (468,004)
Accumulated deficit...................................... (153,873) (153,873) (153,873)
-------- --------- ----------
Total stockholders' equity (deficit)............. (126,067) 373,837 7,398,837
-------- --------- ----------
Total capitalization........................ $480,641 $480,641 $7,398,837
======== ========= ==========
</TABLE>
- ------------------------------
(1)
Excludes (i) 300,000 shares reserved for issuance under the Company's Stock
Option Plan, of which options to acquire 79,167 shares of Common Stock are
issuable upon the exercise of outstanding options granted at a weighted
average exercise price of $5.92 per share, (ii) 300,000 shares reserved for
issuance under the Company's Non-Employee Directors Plan, of which options
to acquire 150,000 shares of Common Stock are issuable upon the exercise of
outstanding options granted at an exercise price of $6.50 per share, and
(iii) 125,000 shares of Common Stock reserved for issuance upon the
exercise of the Underwriter's Warrants. See "Management - Incentive Plans,"
"Description of Capital Stock" and "Underwriting." Also excludes shares
that may be issued in connection with the Company's August 1996 acquisition
of HomeCom Internet Security Services, Inc. See "Certain Transactions."
14
<PAGE> 21
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical and pro forma financial data relating to
the Company have been taken or derived from the historical financial statements
and other records of the Company. The statements of operations and balance
sheets for the period from December 2, 1994 (date of incorporation) to December
31, 1994, and for the year ended December 31, 1995, have been audited by Coopers
& Lybrand L.L.P., independent public accountants. The statements of operations
and balance sheets for the nine month periods ended September 30, 1995 and 1996
have been derived from the unaudited financial statements that have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting of only normal
recurring entries, necessary for a fair presentation of the financial position
and results of operations of the Company for the unaudited interim period. The
selected historical and pro forma financial data should be read in conjunction
with the Company's historical financial statements and related notes and other
financial information included elsewhere in this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
DECEMBER 2 NINE MONTHS ENDED
(INCORPORATION) YEAR ENDED SEPTEMBER 30,
TO DECEMBER 31, DECEMBER 31, -----------------------
1994 1995 1995 1996
--------------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
NET SALES:
Service sales......................... $ -- $ 327,574 $ 173,399 $1,318,675
Equipment sales....................... -- -- -- 152,649
---------- ---------- ---------- ----------
Total net sales............... -- 327,574 173,399 1,471,324
---------- ---------- ---------- ----------
COST OF SALES:
Cost of services...................... -- 59,871 39,442 271,887
Cost of equipment sold................ -- -- -- 114,552
---------- ---------- ---------- ----------
Total cost of sales........... -- 59,871 39,442 386,439
---------- ---------- ---------- ----------
GROSS PROFIT............................ -- 267,703 133,957 1,084,885
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Sales and marketing................... 1,045 124,253 70,211 408,131
Product development................... -- 20,239 6,739 63,823
General and administrative............ 16,407 121,313 79,726 664,244
Depreciation.......................... -- 3,722 1,158 52,835
---------- ---------- ---------- ----------
Total operating expenses...... 17,452 269,527 157,834 1,189,033
---------- ---------- ---------- ----------
OPERATING LOSS.......................... (17,452) (1,824) (23,877) (104,148)
OTHER EXPENSES:
Interest expense, net................. -- 3,469 3,140 26,833
Other................................. -- 147 -- --
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAX BENEFIT.......... (17,452) (5,440) (27,017) (130,981)
INCOME TAX BENEFIT...................... -- -- -- --
---------- ---------- ---------- ----------
NET LOSS................................ $ (17,452) $ (5,440) $ (27,017) $ (130,981)
========== ========== ========== ==========
PRO FORMA NET LOSS(1)................... $ (17,452) $ (5,440) $ (27,017) $ (130,981)
========== ========== ========== ==========
Pro forma net loss per common and common
equivalent share...................... $ (.01) $ (.00) $ (.01) $ (.07)
========== ========== ========== ==========
Pro forma weighted average common and
common equivalent shares
outstanding........................... 1,858,157 1,858,157 1,858,157 1,870,156
========== ========== ========== ==========
</TABLE>
15
<PAGE> 22
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------
DECEMBER 31, DECEMBER 31, PRO PRO FORMA
BALANCE SHEET DATA 1994 1995 ACTUAL FORMA(2) AS ADJUSTED(3)
------------ ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Working capital............. $ 8,455 $133,792 (139,084) (139,084) 7,032,730
Total assets................ 10,254 247,382 1,209,883 1,209,883 7,856,921
Long-term obligations....... -- 160,792 606,708 106,804 --
Total liabilities........... -- 242,568 1,335,950 836,046 458,084
Stockholders' equity
(deficit)................. 10,254 4,814 (126,067) 373,837 7,398,837
</TABLE>
- ------------------------------
(1)
For the period from December 2, 1994 (date of incorporation) to February 8,
1996, the Company was taxed as an S Corporation under the provisions of the
Code and generally was not subject to corporate income taxes. Effective
February 9, 1996, the Company terminated its S Corporation election,
subjecting the Company to corporate income taxes. The pro forma adjustment
to reflect federal and state income tax benefit, pro forma net loss and pro
forma net loss per common share represent the Company's income tax position
had the Company been subject to corporate income taxes for all periods
presented. No income tax benefit has been recorded due to the deferred tax
asset arising from operating loss carryforwards and temporary differences
being fully offset by a valuation allowance.
(2)
Pro forma balance sheet data reflect the issuance immediately prior to the
date of this Prospectus of 76,907 shares of Common Stock (based upon an
assumed initial public offering price of $6.50 per share) in repayment of
$499,904 in outstanding indebtedness. See "Capitalization" and "Certain
Transactions."
(3)
Adjusted to give effect to the sale of 1,250,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $6.50 per
share and the application of the net proceeds therefrom. See "Use of
Proceeds," "Capitalization" and "Underwriting."
16
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was incorporated in December 1994 and commenced sales in
January 1995 when it began marketing its Web site development and hosting
services. Revenues from service sales have increased each quarter, through 1995
and 1996. The Company markets its services through a direct sales force,
advertisement, referrals, and active business partner relationships with
organizations such as AT&T Corporation ("AT&T"), BBN Planet Corporation ("BBN
Planet"), Oracle Corporation ("Oracle") and Microsoft Corporation ("Microsoft").
The Company generates revenues through Internet and Intranet customized
software applications, Web site development, Web site hosting services, computer
hardware resales, consulting services and fees charged for the maintenance of
Web sites. Most customized software application projects are generally completed
within six to eight weeks, although certain past, current and future projects
have taken and are expected to take longer to complete. Revenues on customized
application and Web site projects are recognized using the percentage of
completion method. Web site maintenance and hosting revenues represent recurring
annual revenues and are deferred and recognized ratably over the period. Because
the Company will continue to develop and market new products and services, the
results of operations for the fiscal year ended December 31, 1995 and the nine
months ended September 30, 1996 are not necessarily indicative of future
operating results.
During the first nine months of 1996, custom Internet and Intranet
applications and integration services accounted for approximately 21% of the
Company's revenues, of which sales of computer and communications hardware
represented approximately 10% of the Company's revenues. The Company believes
that custom applications will represent an increasing percentage of its total
revenues as the Company continues to market its custom applications services to
larger businesses.
During the first nine months of 1996, Web site design and development
services accounted for approximately 54% of the Company's revenues. The Company
expects that revenues from such services will increase, but believes that fees
for such services will represent a smaller percentage of total revenue over the
foreseeable future.
During the first nine months of 1996, Internet outsourcing services
generated approximately 23% of the Company's total revenues. The Company
believes that its total Internet solution marketing focus, together with the
recurring nature of outsourcing fees, will lead to an increase in outsourcing
fees as a percentage of total revenues during the foreseeable future.
During 1995 and the first nine months of 1996, expenses exceeded net sales
as the Company developed its products and services, instituted its marketing and
sales programs and began implementation of the operational and administrative
support structure necessary to support its business. HomeCom expects to
experience increased operating expenses and capital investments during 1996 as
it continues to expand its infrastructure to support its growth. See "Risk
Factors - Management of a Developing Business."
The Company's revenues and operating results have varied substantially from
quarter to quarter, and should not be relied upon as an indication of future
results. See "Risk Factors - Potential Fluctuations in Quarterly Results." The
Company historically has operated with no significant backlog because its
services are provided as requested by customers. As a result, revenues in any
quarter are substantially affected by the amount of services requested by its
customers. Because the Company is incurring expenses in anticipation of future
revenue growth and a high percentage of the Company's expenses are relatively
fixed, a small variation in the timing
17
<PAGE> 24
of recognition of specific revenues could cause significant variations in
operating results from quarter to quarter.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
of net sales by certain items reflected in the Company's statements of
operations.
<TABLE>
<CAPTION>
NINE MONTHS
DECEMBER 2 ENDED
(INCORPORATION) YEAR ENDED SEPTEMBER 30,
TO DECEMBER 31, DECEMBER 31, ----------------
1994 1995 1995 1996
--------------- --------------- ------ -----
<S> <C> <C> <C> <C>
NET SALES:
Service sales....................... -- 100.0% 100.0% 89.6%
Equipment sales..................... -- -- -- 10.4
----- ----- ----- -----
Total net sales............. -- 100.0 100.0 100.0
----- ----- ----- -----
COST OF SALES:
Cost of services.................... -- 18.3 22.7 18.5
Cost of equipment sold.............. -- -- -- 7.8
----- ----- ----- -----
Total cost of sales......... -- 18.3 22.7 26.3
----- ----- ----- -----
GROSS PROFIT.......................... -- 81.7 77.3 73.7
----- ----- ----- -----
OPERATING EXPENSES:
Sales and marketing................. -- 37.9 40.5 27.7
Product development................. -- 6.2 3.9 4.3
General and administrative.......... -- 37.1 46.0 45.2
Depreciation........................ -- 1.1 0.7 3.6
----- ----- ----- -----
Total operating expenses.... -- 82.3 91.1 80.8
----- ----- ----- -----
OPERATING LOSS........................ -- (0.6) (13.8) (7.1)
OTHER EXPENSES:
Interest expense, net............... -- 1.1 1.8 1.8
Other expense....................... -- 0.0 0.0 0.0
----- ----- ----- -----
LOSS BEFORE INCOME TAX BENEFIT........ -- (1.7) (15.6) (8.9)
INCOME TAX BENEFIT.................... -- 0.0 0.0 0.0
----- ----- ----- -----
NET LOSS.............................. -- (1.7%) (15.6%) (8.9%)
===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
Net Sales
Net sales increased from $173,399 in the first nine months of 1995 to
$1,471,324 in the first nine months of 1996. This increase of $1,297,925 was due
to increases in hosting revenues of $179,019, Web site development revenues of
$668,618, customized applications revenues of $164,286, consulting and
maintenance revenues of $113,698, equipment sales revenues of $152,649 and
miscellaneous revenues of $19,655.
Cost of Sales
Cost of sales for services includes salaries for programmers and technical
staff, customer support and other direct costs. Cost of sales for services
increased from $39,442 in the first nine months of 1995 to $271,887 in the first
nine months of 1996. The increase in cost of sales was a result of the hiring of
additional technical personnel in 1996.
18
<PAGE> 25
Gross Profit
Gross profit increased by $950,928 from $133,957 in the first nine months
of 1995 to $1,084,885 in the first nine months of 1996. Gross profit margins
decreased from 77.3% during the first nine months of 1995 to 73.7% during the
first nine months of 1996. This decrease was primarily due to changes in
utilization of technical staff.
Selling and Marketing
Selling and marketing expenses include salaries, variable commissions and
bonuses for the sales force and advertising and marketing materials. Selling and
marketing expenses increased from $70,211 in the first nine months of 1995 to
$408,131 in the first nine months of 1996. The increase was primarily due to an
increase in the size of the sales force. As a percentage of net sales, these
expenses decreased from 40.5% in the first nine months of 1995 to 27.7% in the
first nine months of 1996. The Company intends to continue to increase its
marketing expenditures in the last quarter of 1996.
Product Development
Product development expenses consist of personnel costs required to conduct
the Company's product development efforts. Management believes that significant
continuing investments in product development are required to compete
effectively in the Company's industry. As a consequence, the Company has
increased expenditures on product development through the employment of
additional development personnel. Total expenditures for product development
were $117,068, or 8.0% of net sales, in the first nine months of 1996, of which
$53,245 were capitalized. Capitalized software development costs are amortized
over a period of three years and charged to cost of sales. Product development
expenses incurred during the first nine months of 1996 were $63,823 as compared
to $6,739 in the first nine months of 1995.
General and Administrative
General and administrative expenses include salaries for administrative
personnel, rent, telephone charges, insurance and other administrative expenses.
General and administrative expenses increased from $79,726 in the first nine
months of 1995 to $664,244 for the first nine months of 1996. As a percentage of
net sales, these expenses decreased from 46.0% of revenues for the first nine
months of 1995 to 45.1% of revenues for the first nine months of 1996. The
increase in general and administrative expenses was primarily due to increased
salaries and related expenses and increased rent expense resulting from the
Company's move to new facilities in March 1996.
Depreciation
Depreciation includes depreciation of computers, network equipment and
office equipment. Depreciation increased from 0.7% of net sales in the first
nine months of 1995 to 3.6% of net sales for the first nine months of 1996, as a
result of increased expenditures on capital equipment. The Company expects
additional capital investments during the remainder of 1996 as it continues to
develop the infrastructure needed to support a higher level of operations.
Interest Expense
Interest expense increased from $3,140 in the first nine months of 1995 to
$26,833 in the first nine months of 1996, principally due to increased debt
levels associated with notes payable to stockholders entered into in February
1996.
Income Taxes
The Company currently does not pay income taxes as it does not have taxable
income.
19
<PAGE> 26
YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales
The Company was formed on December 2, 1994, and recognized no revenues
during 1994. During 1995, the Company had net sales of $327,574, with associated
cost of sales of $59,871.
Operating Expenses
For the year ended December 31, 1994, the Company had operating expenses of
$17,452, which consisted of $1,045 in marketing expenses and $16,407 in general
and administrative expenses. Operating expenses during 1995 were $269,527.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current primary focus is on increasing revenues and expanding
operations. The Company continues to hire additional personnel and to increase
expenses related to administration, production, technical resources, marketing,
customer support and infrastructure to enhance and expand its operations. The
Company may from time to time issue debt or equity securities and otherwise
raise long-term capital to finance the expansion of its business.
Since its incorporation, the Company has financed its operations through
private debt financing. Cash used in operating activities was $19,251 and $6,415
for the years ended December 31, 1994 and 1995, respectively. For the nine
months ended September 30, 1996, net cash used in operating activities was
$88,572. As of September 30, 1996, the Company had negative working capital of
$139,084, and had $50,000 in deposits to its landlord under the Company's office
lease and $7,599 in other lease deposits.
In 1995, the Company generated $163,497 through loans from a private
investor and its Chief Executive Officer. In the first nine months of 1996, the
Company generated cash from financing activities of $439,712, primarily through
the issuance of promissory notes.
The Company spent $33,737 and $329,569 during the year ended December 31,
1995 and the first nine months of 1996, respectively, for the purchase of
capital equipment. These amounts were expended primarily for computer equipment,
communications equipment and software necessary for HomeCom to increase its
presence in the Internet and Intranet applications marketplace.
The Company's commitments as of September 30, 1996 consisted primarily of
an approximately five year lease on its headquarters facility, a promissory note
commitment to Harvey Sax, the Company's Chief Executive Officer, in the
principal amount of approximately $56,605, a loan commitment to a financial
institution in the principal amount of approximately $62,513, and promissory
note commitments to outside investors in the aggregate principal amount of
approximately $544,904. At September 30, 1996, there were no material
commitments for capital expenditures. In connection with the Company's recent
acquisition of HomeCom Internet Security Services, Inc. ("HISS"), the Company is
obligated to pay cash and/or issue shares of Common Stock in the future in
payment of the purchase price. See "Certain Transactions." The Company believes
that its current cash balances, credit line, cash flow from operations and the
net proceeds of this offering will be sufficient to meet its working capital and
capital expenditure needs for the foreseeable future. The Company may from time
to time issue debt or equity securities and otherwise raise long-term capital to
finance the expansion of its business.
Accounts receivable, net of an allowance for doubtful accounts of $36,000,
totaled $436,440 as of September 30, 1996. Trade receivables are monitored by
the Company through ongoing credit evaluations of its customers' financial
condition. The allowance for doubtful accounts is considered by management to be
an adequate reserve for known and estimated bad debts of the Company. A revision
in this reserve due to actual results differing from this estimate could have a
material impact on the results of operations, financial position and liquidity
of the Company.
20
<PAGE> 27
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of" ("SFAS 121"), was issued. Under SFAS 121, an impairment loss must
be recognized for long-lived assets and certain identifiable intangibles to be
held and used by an entity, whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS 121 is
effective for financial statements issued for fiscal years beginning after
December 15, 1995, and must be adopted on a prospective basis. Restatement of
previously issued financial statements is not permitted. The Company adopted
SFAS 121 effective January 1, 1996. Such adoption did not have a material effect
on the financial condition or results of operations of the Company.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), was issued. SFAS 123
requires that an entity account for employee stock compensation under a fair
value based method. However, SFAS 123 also allows an entity to continue to
measure compensation cost for employee stock-based compensation using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("Opinion 25"). Entities electing to
continue accounting under Opinion 25 are required to make pro forma disclosures
of net income and earnings per share as if the fair value based method of
accounting under SFAS 123 had been applied. The Company has elected to measure
compensation cost under Opinion 25 and will adopt the disclosure requirements of
SFAS 123 in its 1996 annual financial statements.
21
<PAGE> 28
BUSINESS
GENERAL
HomeCom develops and markets specialized software applications and products
and provides services that enable businesses to use the Internet and Intranets
to obtain and communicate important business information, conduct commercial
transactions and improve business productivity. HomeCom provides
Internet/Intranet solutions in five areas: customized software applications
design, development and integration; World Wide Web site development; Internet
outsourcing services; specialized Internet-enabled software products; and
security consulting and integration services. HomeCom's objective is to be a
leading provider of business communications solutions using Internet standard
protocol technologies.
HomeCom employs a team of highly trained Internet/Intranet software
developers and multimedia and graphics professionals who design and develop
specialized Internet/Intranet software applications. These applications enable
companies to obtain and communicate vital business information, such as sales
reports, order status systems, employee directories and client account
information. The Company works closely with its customers to analyze and design
Internet-based software solutions that facilitate the interactive exchange of
business information. Through its experience in designing custom Internet
solutions for businesses, HomeCom believes that it has developed and continues
to develop in-depth knowledge concerning industry-specific Internet applications
and requirements. The Company plans to leverage this knowledge to develop
additional Internet-enabled applications targeted for vertical industries,
including banking and financial services, retailing and entertainment.
The Company believes that it has established a reputation as a provider of
sophisticated interactive Web sites. The Company has developed more than 100 Web
sites for clients in many diverse industries, including sites for AT&T, Synovus
Financial Corporation ("Synovus"), SouthTrust Bank Corporation ("SouthTrust"),
Norwest Corporation ("Norwest"), Rainforest Cafe, Incorporated ("Rainforest"),
Brinker International ("Brinker"), Executrain Corporation ("Executrain"), T-HQ,
Inc. ("T-HQ") and American Family Life Assurance Corporation ("AFLAC"). The
Company has a highly trained staff able to design Web sites ranging from basic
"inquiry only" sites to complex, interactive sites capable of providing on-line
commerce, database integration and manipulation and sophisticated graphics,
animation, sound and video. The Company uses its proprietary Post On The Fly(TM)
software in designing and developing many of its Web sites.
HomeCom also provides Internet outsourcing services and presently hosts
more than 700 Web sites for clients in over a dozen countries. HomeCom
establishes and maintains the resources and facilities necessary to create and
support a customer's Internet server. As a provider of Internet outsourcing
services, HomeCom advises its clients as to the appropriate hardware, including
servers and routers, and software necessary to create an Internet server,
coordinates the purchase of this hardware and software, including operating
system and Internet server software, and provides the facilities to house and
maintain the server. HomeCom provides network management, including all network
functions, the maintenance of an environmentally conditioned, secure facility
and access to the Internet.
The Company has developed advanced software products that it presently
includes in its custom applications and that it intends to develop further for
retail sale. The Company has developed software, called Post On The Fly(TM),
which enables non-technical users to add, retrieve and update information
through the Internet or an Intranet using standard browser software. Post On The
Fly(TM) Conference permits intuitive and easy conferences among employees,
customers and business partners. The product uses database technology to archive
the user's data, ideas and innovations for later retrieval and review. Post On
The Fly(TM) Store facilitates the creation and updating of an on-line store or
catalog. Post On The Fly(TM) Q&A is being designed to facilitate the creation
and updating of examinations and training courses in question and answer format.
Post On The Fly(TM)
22
<PAGE> 29
Publisher is being designed to permit the publisher of a magazine or newsletter
to design an electronic publication layout where reporters, editors and writers
can insert articles, graphics and other content.
HomeCom recently established an Internet security division to provide
security solutions for businesses connecting to the Internet. The Company plans
to develop and integrate advanced value-added security features into its custom
software applications and products, and to provide consulting and integration
services to companies seeking to communicate securely and to transact business
over the Internet.
The Company markets its products and services through its direct sales
force, print advertising and its own Web site. The Company also generates
customer leads through its business partner relationships with leading
technology companies such as AT&T, BBN Planet, Oracle, Sybase, Incorporated
("Sybase"), Microsoft and Netscape Communications Corporation ("Netscape").
The Company's staff of 35 full-time software engineers design and develop
custom applications and software products as well as run the Company's
outsourcing services and design Web sites. The Company's software engineers have
experience with various computer operating systems, including Sun Solaris, SGI's
IRIX, Windows NT, Digital's Unix on the Alpha platform, Intel's Pentium Pro on
BSDI Unix, Hewlett Packard's HP 9000 and Apple's Macintosh operating system. The
software engineers write software programs using various tools and languages,
including Perl, JAVA, CGI Programming, C and C++. The software engineers also
have database expertise in Oracle, Informix, Sybase and SQL, and many software
development tools. The Company's multimedia artists and engineers utilize many
of the generally available software programs and tools such as Adobe Photoshop,
MacroMedia Shockwave, RealAudio, VRML and VDOLive.
INDUSTRY OVERVIEW
The Internet and the World Wide Web
The Internet represents a global network of thousands of interconnected
computers and computer networks. By using the Internet, businesses, individuals,
educational institutions and government agencies communicate electronically to
access and share information and conduct business. Open communications on the
Internet are enabled by TCP/IP, an inter-networking protocol software standard.
Advances in microprocessor technology and the development of Web technologies,
such as Hypertext Markup Language ("HTML") technology (which allows users to
move directly from one Web site to another) and advanced graphical user
interface browser and search engine software, have made the Internet easier to
navigate and more accessible to a larger number of users and for a broader range
of applications. These recent technological advances have led to dramatic
increases in the use of the Internet by businesses and individuals.
The fastest growing portion of the Internet is the World Wide Web. The Web
is the worldwide network of computer services that uses a special communications
protocol, Hypertext Transfer Protocol ("HTTP"), that links different servers
throughout the Internet and enables non-technical users to move from Web site to
Web site easily and to access information using browser software. According to
IDC, the number of Internet users with Web access increased from 1.1 million in
1994 to 8.3 million in 1995 and is expected to reach 31.4 million by the end of
1996. IDC estimates that the number of individuals worldwide with access to the
Internet will reach approximately 200 million by the end of 1999.
The development of the Web and Internet-based technologies has allowed
fundamental and structural changes in the way information is published,
distributed and retrieved, thereby lowering the cost of publishing information
and expanding its potential reach. By facilitating the publishing and exchange
of information, the Web dramatically increases the amount of information
available to users. Businesses are increasingly recognizing that the Internet
can enhance the delivery and exchange of information, both among their
geographically dispersed locations and employees and
23
<PAGE> 30
with their business partners and customers. Businesses are also realizing that
the Internet can facilitate relatively inexpensive, standards-based and
easy-to-use methods for accessing and delivering business information, such as
sales, marketing and distribution data. As a result, many businesses are using
Web sites as a new medium for advertising, promotion, conferencing, technical
support and exchange of information.
Web Sites
A Web site is a collection of one or more electronic documents or "Web
pages," which may contain graphics, text, audio and video information which is
available to a visitor accessing the Web site. Web sites can contain from one to
hundreds of pages, and can be searched, retrieved and viewed through the use of
widely available "browsers," such as Netscape Navigator or Microsoft Internet
Explorer. Using Web browser software, computer users can connect to a Web site
by entering the site's unique electronic Web address, known as its Universal
Resource Locator ("URL"). Users can navigate the Web sites by utilizing
hypertext link capabilities contained in Web pages. Hypertext links are active
areas on a Web page which, when selected by a user, automatically identify and
display a specific page, which can be located anywhere else on the Web, thus
enabling users to move from one Web page to another without specifying the
underlying URL address. Web sites can vary significantly in complexity and
interactivity. A simple Web site may display only text, and more complex sites
may display colored text, graphics, pictures, sound, animation, video and
database information.
The Company believes that increased processor speed, higher
telecommunications bandwidth (resulting in increased transmission speed) and the
development of software standards have led to the growing acceptance of the
Internet as a communications tool. As a result, many businesses are choosing to
re-engineer their distribution, logistics, customer service and marketing
functions into "Information Depots" accessible through their Web sites.
Consequently, the Company believes that there is an expanding market for
developers of sophisticated, graphically enhanced, interactive Web sites.
Enterprise Networks and Intranets
As network technology has advanced, business-wide networking has evolved.
Organizations have developed local area networks ("LANs") and have connected
geographically dispersed LANs into wide area networks ("WANs"). Many LANs employ
proprietary communications software, such as Novell NetWare. Today, in addition
to proprietary protocols, an increasing number of businesses are using the
Internet protocol TCP/IP for communications. TCP/IP facilitates communications
over internal networks using Internet software tools and applications. An
Intranet is a TCP/IP network inside a company that links the company's people
and information in a way that makes information more accessible and facilitates
navigation through all the resources and applications of the company's computing
environment.
Enterprise networks have increasingly used high-cost leased data lines to
create private and secure LANs and WANs. Internet protocol network software now
allows organizations to use the Internet for a lower-cost communications system
by reducing long distance and leased line charges. Businesses now can expand the
reach of and access to their internal information systems and enterprise
applications to allow geographically dispersed facilities, remote offices,
mobile employees, customers and business partners to access their networks
through the Internet at lower communications costs. The integration of LANs and
WANs through the Internet, plus the advancement of encryption security
capabilities, has promoted the use of high-speed virtual private networks
("VPNs"), which may be maintained at a fraction of the operating cost of
dedicated, leased line networks. VPNs that facilitate Internet banking, sales
entry and express delivery shipment tracking services are examples of this
fast-growing segment of the computing industry. The rapid growth of Intranets
and VPNs has increased the need for specialized software applications that
facilitate information delivery and communication using TCP/IP protocol.
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Internet Security
An integral part of developing Internet based software applications for
businesses is protecting against unauthorized access to enterprise networks and
corporate data. Examples of valuable corporate data include financial results,
medical records, personnel files, research and development projects, marketing
plans and credit information. Businesses are vulnerable to unauthorized access
to this information both by employees and outside persons. Unauthorized access
may go undetected by the computer user or network administrator. The Company
believes that concerns about the security of data transmitted over the Internet
have limited growth in the Internet's commercial use. As a result, the Company
believes that there is a rapidly expanding need for the services of Internet
security specialists.
The Internet-Enabling Products and Services Market
The explosive growth of the Internet and World Wide Web has led to the
rapid development of increasingly sophisticated and advanced TCP/IP-enabled
software applications such as Web browsers and HTML compatible server software.
These Internet tools enable users to obtain and communicate information more
efficiently and effectively. Forrester Research, Inc. estimates that the
combined Internet and Intranet worldwide software market will increase from $382
million in 1996 to $8.5 billion in 1999.
The Company believes that there is a rapidly growing need for businesses to
expand and integrate their existing information and communications systems to
take advantage of the global communications framework and advanced graphics
capabilities of Internet-enabled systems. The Company also believes that
businesses today face a paradigm shift from proprietary protocol based local
area networks and wide area networks to Internet-enabled global communications
systems. However, the Company believes that there is a need for high quality
software applications designed to support these new systems.
THE HOMECOM SOLUTION
HomeCom was established to provide advanced software applications and
integration services to businesses seeking to take advantage of the Internet.
Integration of existing business operations with new Internet technologies is a
costly and complex undertaking which the Company believes requires a high level
of expertise to complete effectively. HomeCom believes that many businesses do
not have the in-house experience and expertise to establish effective
Internet-based communications in order to increase their productivity and
compete more effectively in the marketplace. Also, HomeCom believes that the
growth of electronic commerce over the Internet has been impeded by the
perceived lack of effective security components. Finally, the Company believes
that there presently is a lack of specialized software applications to support
the growing Internet market. Therefore, the Company believes that businesses
will engage specialized firms like HomeCom to implement Internet solutions.
HomeCom believes it is well positioned to become a leading Internet solutions
provider for the following reasons:
- HomeCom focuses on creating Internet "Information Depots" for clients,
including sophisticated database integrated software applications and
interactive Web sites, to provide valuable information to business'
customers, prospects, employees, stockholders and business partners.
This is in contrast to the public relations material that represents
much of the content currently on Web sites.
- The Company has assembled a team of professional programmers, database
experts and graphic artists that is able to create advanced
interactive Web sites with database integration that function as
effective Information Depots. Through developing specialized Internet
applications for clients in vertical industries, HomeCom's team
attains valuable knowledge about industry specific Internet needs and
solutions, which it uses to provide efficient, value-added services to
its customers.
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- HomeCom's recent establishment of its Internet security division has
furthered the Company's knowledge of, and expertise in, Internet
security. As a result, the Company is able to include advanced
security features to create a complete Internet solution.
- The Company provides businesses with a "one stop shop" for Internet
communications applications. The Company can provide applications
development, Web site creation, Internet security and Web server
outsourcing. By combining its advanced programming, database and
security expertise with outsourcing capabilities, the Company intends
to create next generation Internet business solutions.
HOMECOM BUSINESS STRATEGY
The Company's objective is to be a leading provider of business
communications solutions using Internet standard protocol technologies. The
Company intends to achieve this position by implementing the following key
elements of its growth strategy:
Develop and Market Industry-Specific Applications
The Company will develop specialized software applications and market these
applications to large businesses. The Company intends to focus on
industry-specific applications such as insurance and real estate sales force
data systems, financial institution client account access systems, inventory
order entry systems, human resources information directories, and collaborative
and groupware environments. The Company's goal is to develop a reputation as a
leading full-service Internet applications developer for specific vertical
industries, including banking and financial services, retailing and
entertainment.
Expand Software Product Development
By developing specific Internet-based applications, the Company expects to
continue to obtain valuable industry-specific data and knowledge of the
Internet-based software needs in such industries. The Company will seek to
retain the rights to use important elements of specific business applications in
order to develop other custom applications. For example, the Company has
developed software, which it calls Post On The Fly(TM), which enables
non-technical users to add, retrieve and update information through the Internet
or an Intranet using standard browser software. The Company expects to continue
to develop, integrate and offer Post On The Fly(TM) products such as Post On The
Fly(TM) Conference, Post On The Fly(TM) Store, Post On The Fly(TM) Q&A and Post
On The Fly(TM) Publisher.
Develop and Integrate Advanced Security Services
HomeCom's Internet security division will provide advanced security
integration consulting services and develop Internet applications with high
levels of integrated security. HomeCom's Internet security division is staffed
by Internet software and integration security consultants with a broad range of
Internet and Intranet security applications and integration experience to both
commercial and government users. HomeCom intends to market these advanced
services and applications both as part of a total package of Internet conversion
services and as a single service. The Company's objective is to become a leading
provider of integrated security services and applications to large business
enterprises and to government agencies.
Expand by Acquisition
The Internet/Intranet products and services market is highly fragmented.
The Company is one of numerous Internet software applications and advanced
multimedia developers who design, develop and provide Internet software products
and services. In addition, a substantial number of client/server developers,
database systems integrators and resellers provide services to established
clients but do not provide Internet-based solutions for those clients. The
Company will seek to
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make strategic acquisitions of companies that have developed specific industry
expertise or have existing relationships with large businesses needing
Internet/Intranet solutions. However, the Company has not entered into any
agreement or commitment and is not a party to any negotiations for any such
acquisition.
PRODUCTS AND SERVICES
HomeCom provides Internet/Intranet solutions in five integrated areas:
custom software applications design, development and integration; World Wide Web
site development; Internet outsourcing services; specialized Internet software
products; and security consulting and integration services.
Customized Software Applications for the Internet
HomeCom designs and develops specialized software applications that enable
companies to obtain and communicate important business information through
Internet standard protocol communications. To date, the Company has completed
custom applications projects for clients such as Data Track Systems, Inc.,
Coverdell Insurance, Inc., AFLAC and Vital Integration Solutions, Inc.
The Company works closely with its customers to analyze and design
specifications for Internet standard software applications. To begin a custom
applications project, the Company's customers generally either request a
proposal from the Company or meet with Company personnel to discuss their
Internet/Intranet communications needs. The Company generally analyzes the
customers' present system and provides a recommendation and a quotation. A
typical quotation specifies a fixed fee for significant design and development
activities, a variable fee for maintenance support services, and includes
pricing for equipment, software and communications. Criteria for pricing these
services include the complexity of the project, the amount of custom programming
required, the anticipated usage and traffic and the level of security required.
The Company's custom application projects have generated fees ranging from
approximately $40,000 to approximately $200,000.
Following are examples of how HomeCom uses its integrated services to
create specialized Internet and Intranet based software solutions for large
businesses:
- Sales Force Information System. A Fortune 250 insurance company hired
HomeCom to design and implement a system to allow its agents across the
United States to search and retrieve insurance product descriptions,
prices and other product data and to update the agents' personal
profiles on a continuous basis. To meet the customer's needs, HomeCom
designed and implemented an Internet-based custom software solution
using its Post On The Fly(TM) technology. The customer advised HomeCom
that this new system could increase the customer's revenues by allowing
the public direct access to information about its products and
assisting prospective customers in locating agents who meet their
personal needs. The Company expects to complete implementation of the
first phase of this project in the fourth quarter of 1996.
- Real-Time Public Viewing System. HomeCom was hired by a contractor to
an international telecommunications company to design and implement a
real-time video of selected 1996 Olympic Games venues for the
telecommunications company's Web site. HomeCom designed and implemented
software which integrated the video feed from various sites at the
Centennial Olympic Games in Atlanta, Georgia to allow Internet users
throughout the world to view specified venues. As part of this project,
the Company supplied computer and communications hardware to the
customer.
- Order Entry System. HomeCom was engaged by a contractor to the
nation's largest mortgage origination firm to create an Intranet order
entry system to allow the customer's geographically disbursed
employees to communicate important information
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relating to real estate mortgages. HomeCom presently is developing an
Intranet system for the customer through which employees and business
partners will be able to access a variety of title-related
information, including title insurance, escrow information, public
records and flood plain information. Users will be able to request
title policies and services, report expected delivery dates, update
order information and view order executions by other employees. The
system, called "The Automated Order and Delivery Service for Real
Estate Loan Services," uses a Sybase database to collect and process
orders and Netscape's Commerce Server's Secure Socket Layer to provide
secured transactions. The customer believes that this system will
increase the speed at which its employees can process mortgage
information, and will reduce paperwork, without requiring the customer
to incur the cost of expensive leased phone lines, banks of modems and
cost-prohibitive WAN systems. The first phase of this project was
completed in the third quarter of 1996.
- Interactive Insurance Quotation System. A regional insurance company
approached HomeCom with the need to develop an electronic commerce
system to allow the public to enter personal and financial information
and to obtain competing quotes for life insurance policies and
annuities. HomeCom is presently developing a secure interactive
system, using a Microsoft SQL database and Netscape Enterprise server
software to allow the public to obtain competing quotes for life
insurance policies and annuities through the Internet. The customer
has advised HomeCom that it believes this system will enhance the
customer's marketing presence for its brokerage services and increase
its sales by allowing customers to obtain quote information without
utilizing an agent. The customer has advised the Company that it plans
to market this system to the banking industry.
During the first nine months of 1996, custom Internet and Intranet
applications and integration services (including hardware resales) accounted for
approximately 21% of the Company's revenues. The Company believes that special
applications services will represent an increasing percentage of its total
revenues as the Company continues to market its custom applications services to
larger businesses.
Web Site Development and Design
HomeCom is an established provider of advanced Web site design and
implementation services, having developed more than 100 Web sites for clients in
many industries. The Company has a highly trained staff able to design Web sites
ranging from basic "inquiry only" sites to complex, interactive sites capable of
providing on-line commerce, data base integration and manipulation,
sophisticated graphics, animation, sound and other multimedia content.
The Company has developed a standard process for the design and
implementation of Web sites. Initially, the Company's creative director and
project manager meet with the customer to discuss its current methods for
serving its customers, employers and suppliers, as well as its objectives and
marketing needs. Prices for the design of relatively simple Web sites, without
additional software applications, currently range from $5,000 to more than
$50,000.
The Company's staff of 22 full-time software engineers uses a variety of
computer operating systems, tools and language to develop Web sites. In
particular, the Company's software engineers have developed a high level of
expertise using C, C++, Perl, JAVA and CGI programming. These programmers write
complex computer programs to create special features on a Web site. In addition,
they regularly assess new applications and tools that may assist the Company in
providing leading edge Web site services.
The Company's graphics designers create sophisticated Web sites which
include functions such as interactive on-line commerce, 3-D modeling, virtual
reality and audio and video creation and editing. The Company's staff of
professional artists, multimedia programmers and graphic designers
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develops Web sites to meet the customers' creative needs. HomeCom and its
clients have won several awards for Web sites created by HomeCom, including the
MGM-UA "Top 10," Point "Top 5% of All Web Sites" and Magellan "Four Star Site."
The Company intends to continue to recruit the best available multimedia
artistic talent.
A business' decision to begin marketing and communicating through the
Internet generally involves the expenditure of substantial funds and can result
in major changes to its marketing and communications systems. Forrester
Research, Inc. estimates that the typical annual costs for establishing and
operating a business Web site currently ranges from approximately $304,000 for a
"promotional" site to nearly $3.4 million for a full transactional site.
Consequently, HomeCom believes that businesses generally prefer companies such
as HomeCom that have established track records, professional staffing and good
reputations to provide these services.
During the first nine months of 1996, Web site design and development
services accounted for approximately 54% of the Company's revenues. The Company
expects that revenues from such services will increase, but believes that fees
for such services will represent a smaller percentage of total revenue over the
foreseeable future.
Internet Outsourcing Services
HomeCom provides full service Internet network outsourcing services,
consisting of Web site and Internet application hosting and facilities, which it
markets both as an integrated part of its full-service Internet solution and as
a separate service. HomeCom's customers utilize the Company to maintain the
customer's Internet servers and network functions at facilities located at
HomeCom's main office. HomeCom presently hosts approximately 700 Web sites.
HomeCom's Internet Network Development Center is housed in Class A office space
with 24-hour manned on-premises security. Access to the NDC computer room is
24-hour double secured. HomeCom provides its Internet outsourcing services
through multiple leased T1 data lines. See "Facilities."
Because the Company is an established provider of these services, conducts
its operations using sophisticated technologies and operates in Class A office
space, it believes it can compete effectively to provide Internet outsourcing
services for large businesses. At the same time, because the Company prices its
outsourcing services competitively, it believes it can compete effectively for
the hosting services of small business and individuals.
The Company maintains the file servers for a customer's Web site for a
monthly fee. Presently, the monthly fees range from approximately $25 to $900.
Pricing levels vary depending on the amount of storage used on the file server.
The Company also provides ongoing maintenance, problems correction and periodic
updates, as well as outsourcing services for customers who own their equipment.
Following are examples of HomeCom's outsourcing services:
- HomeCom presently maintains the interactive Web site for one of the
nation's largest film processing companies. This Internet-based
customer service system allows customers to review and order pictures
from film which has been developed by the company. This system is
integral to the company's operations, and is maintained and operated
by HomeCom on a 24-hour basis.
- HomeCom presently hosts the interactive Web site for a publicly traded
restaurant chain. This Web site provides up-to-date company and
stockholder information, on-line job resources and employment
information.
- HomeCom is hosting a Web site for a publicly traded insurance company
that provides information about its insurance products and services,
including an on-line agent location and profile system.
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- HomeCom is hosting a regional bank's interactive Web site
communications system which enables the public to receive stockholder
information, branch location information and press releases, and to
participate in on-line interviews with the company's chief executive
officer. The customer has advised the Company that it intends to
include all its approximately 34 subsidiary banks in its Web site.
- Prior to and during the recent 1996 Olympic Games in Atlanta, Georgia,
HomeCom hosted the server for an international telecommunications
company's Web site, which enabled the public to view real-time
pictures of selected venues of the Olympic Games.
During the first nine months of 1996, Internet outsourcing services
generated approximately 23% of the Company's total revenues.
Internet-Enabling Software Products
Post On The Fly(TM) Products. The Company has developed advanced
Internet-enabled software products based on the Company's Post On The Fly(TM)
technology. Post On The Fly(TM) is software which enables non-technical users to
add, retrieve and update information through the Internet or an Intranet using
standard browser software. The Company uses this technology as an integral part
of many of its custom applications services and believes that there are valuable
potential retail applications for this technology. The Company has used Post On
The Fly(TM) technology to create the following software application products:
Post On The Fly(TM) Conference. In September 1996, the Company began
selling Post On The Fly(TM) Conference ("Conference"), an Internet Web
conferencing software product designed to operate on Web servers. Conference
allows users to create their own conference sessions and allows discussion
groups to be created and administered by non-technical personnel. Conference
utilizes Post On The Fly(TM) technology to store and search all user profiles
and discussions. Each conference participant is required to have only a Web
browser and an Internet connection. Conference operates on a Web server and
allows users of many different types of computers to communicate interactively
in the same conference. Conference stores all responses to a HomeCom created
database, which allows the business and participants to search, locate and
retrieve all posts, replies and user profiles. Conference integrates the user
profiles into the conference so that participants have access to the education
and job experience of each other participant and other historical information
necessary to assess a participant's responses. Conference allows users to add
photos, videos, word processing files and sound bites to conferences and to
their profiles.
Conference may be customized by the user to define the scope and subject of
the conference, the conference participants and the persons who may administer
the conference. Conference administrators are permitted to update the conference
and evaluate persons who apply to participate. Conference also has powerful
administrative features that enable a principal conference administrator to
distribute all or certain administrative functions to sub-administrators quickly
and easily. Conference provides a dynamic business tool for interactive
conference communications, including soliciting employee comments on business
initiatives, proposals, group projects and topics of mutual interest to
participants.
For example, one of the nation's largest film processing companies
presently uses Conference for three distinct types of interactive communication
through its Web site. First, it establishes "open" conferences for its customers
and the general public, soliciting their input on its present services and
products and certain proposed future services and products. Second, it
establishes conferences for its employees to solicit their input on topics of
importance to them. Third, it establishes private conferences for its store
managers to discuss topics relating to store operations and proposed future
services and products. HomeCom's customer believes that the implementation of
the Conference software application has allowed it to obtain valuable feedback
from its employees and managers, as well as its present and potential customers,
and has given it a valuable
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marketing tool by increasing the usefulness of its Web site. Conference is
presently sold at a retail price of $495.
The Company believes that there are presently several other publicly
available software products that offer Internet-based group discussion,
including Lotus Notes and Digital's AltaVista(TM) Forum. The Company believes
Conference will be competitive with these software products because Conference
offers ease of use, a multiplicity of features and an attractive price. The
Company is presently preparing and intends to file a U.S. patent application
covering certain aspects of Conference.
Post On The Fly(TM) Store. In February 1996, the Company completed
development of its first version of Post On The Fly(TM) Store ("Store"), an
Internet Web server database product that enables businesses to sell products
over the Internet in a secure on-line catalog environment. Store also allows a
customer's non-technical employees to create and update the on-line store or
catalog using any Internet World Wide Web connection and standard browser
software. HomeCom's customer, the "store merchant", can enter and later modify
the descriptions and prices of products to be sold in the on-line store. Product
descriptions can include graphics, pictures and product, shipping and pricing
information. The store merchant can add to or delete its product inventory at
any time without any special training or programming skills. A Post On The
Fly(TM) Store can be a simple 12 item store for a small merchant or a large
on-line catalog.
Store customers can purchase products using standard Web browser software.
Store customers also can search for specific types of products based on
description, name, price or product ID number, and retrieve the relevant product
information. After deciding to purchase a product, a customer can point and
click to select the product for purchase and place that product into the
customer's shopping basket list. After selecting all purchases, the customer can
checkout and purchase the products in the shopping basket list by using a credit
card. The order entry system will summarize the total purchase price for the
products purchased and the exact shipping charges through automatic reference to
UPS's rate information system. Store notifies the merchant of all customer
orders by secure Web sites, encrypted e-mail or facsimile to the merchant.
Merchants are also able to access Store's accounting system to review the
purchases of their customers. The Company believes that Store will be
competitive with other existing Internet store creation products such as
Netscape Merchant software because Store is competitively priced and requires no
programming skills once installed. HomeCom anticipates that Store will be
released in the first quarter of 1997 and will be sold at an initial retail
price of between $2,000 and $2,500.
Post On The Fly(TM) Q&A. The Company is developing Post On The Fly(TM) Q&A
("Q&A"), a testing and training software application product that will enable
users to create and revise complicated examinations, training courses, and
simple question and answer forms. A customer will be able to use Q&A to create
an examination by typing or pasting a series of questions and answers into the
program using standard Web browser software. The user will be able to specify
the number of questions, the time allowed to answer each question, the score
necessary for a passing grade, and other testing and training criteria to create
a highly customized test or training course. The user also will be able to
determine who should be entitled to see the results of the Q&A tests or training
courses. All user information, scores and examination answers will be stored in
the database for later viewing and analysis. The Q&A software will allow
non-technical persons to create sophisticated training courses and examinations
without any programming experience. Encryption technology will maintain the
confidentiality of the tests and training courses. HomeCom anticipates that Q&A
will be released in the first quarter of 1997 and will be sold at an initial
retail price of between $3,500 and $5,000.
Post On The Fly(TM) Publisher. The Company is developing Post On The
Fly(TM) Publisher ("Publisher"), a proposed database software product designed
to provide customized publishing templates, including text and graphics
placement, headings, background colors, text colors and font sizes. As currently
designed, this product will allow publishers to design an electronic publication
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and to create an Internet Web magazine or other electronic publication.
Publisher will allow reporters, editors, writers and other non-technical people
to utilize the Internet to insert articles, graphics, video clips, sound clips
and other content to create a multimedia publication. Content will be able to be
inserted into the publication simply by typing or pasting into the proper areas
of the template. Reporters and others submitting content to an electronic
magazine from the field will be able to access a secure section of the Publisher
software, using log-in and password protection, and paste their articles or
graphics into the proper sections. Content submitted in this manner will be
converted into HTML format ready for viewing on the Web without further
intervention. Information submitted by a user will automatically be stored in a
database for later use.
Publisher will be designed to provide users with two possible versions of
an electronic publication. One version will contain all of the content. A second
version will be customized "on the fly" to contain only the information that is
of interest to an individual user, based on content placed in the user's
profile. Publisher will determine the content of the custom version based on its
built-in intelligent agent rules that match user interests with select articles
and other content.
Although there are numerous HTML editing products such as Netscape
Navigator Gold and Microsoft Front Page, the Company believes its products will
allow non-technical users to create a customized version of their publication in
real time for each reader. The Company will seek to compete against other
products by offering Publisher as a ready-to-run application with easy-to-use
features at a competitive price.
The Company intends to market its Post On The Fly(TM) software products by
offering a free limited use demonstration license through its Web site, similar
to programs offered by other software developers, and through print media and
reseller agreements. The Company has not conducted market studies for its Post
On The Fly(TM) products and, consequently, cannot determine whether there will
be a substantial market for such products or whether such products will compete
effectively against present and future competing products. HomeCom anticipates
that Publisher will be released in the second quarter of 1997. As of the date of
this Prospectus, the Company has not determined a price or price range for
Publisher.
During the first nine months of 1996, the Company's Post On The Fly(TM)
products other than Conference were under development and not available for
retail sale.
Internet Security Services
In August 1996, HomeCom established an Internet security division to
provide security solutions for businesses connecting to the Internet. See
"Certain Transactions." The Company plans to develop and integrate advanced
value-added security features into its custom software applications and
products, and provide consulting and integration services to companies seeking
to communicate securely and transact business over the Internet.
The Company's objective is to provide its customers with a comprehensive
family of integrated network security solutions. The Internet security division
will assess the customer's needs and recommend and install "firewalls,"
encryption and authentication applications, other repudiation techniques and
secured networks. The Company expects to begin generating revenues from security
integration services during the fourth quarter of 1996. Management of the
Internet security division has experience in performing Internet security
services for the federal government.
SALES AND MARKETING
The Company markets its products and services through its direct sales
force, print advertising and its own Web site. The Company also generates
customer leads through its business partner relationships with leading
technology companies such as AT&T, BBN Planet, Oracle, Sybase, Microsoft and
Netscape.
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The Company has instituted an in-depth two-week training program for its
sales staff to enable them to market the Company's Internet-based services and
products effectively. During the first week, the Company teaches an overview of
basic Internet and Intranet technology and current and developing hardware and
software. This allows its sales staff to become conversant in the terms and
technology of the Internet industry, and provides in-depth training about the
Company's services and products. During the second week, the Company teaches its
direct sales system, using role playing to teach its staff how to locate
prospective customers, define their needs, overcome obstacles to sales and
finalize sales.
The Company is focusing its marketing on large businesses with
industry-specific applications needs in areas such as insurance and real estate
sales force data systems, financial institution client account access systems,
inventory order entry systems, human resources information directories, parts
databases and collaborative and groupware environments. The Company also intends
to utilize traditional print and media marketing strategies to enhance Company
and product name recognition.
CUSTOMERS
During the first nine months of 1996, the Company earned approximately 13%
of its revenues from Modem Media, Inc. Other than the foregoing, no customer
accounted for more than 10% of the Company's total revenues during the first
nine months of 1996.
Because substantially all of the Company's customers have retained the
Company for a single project, customers from whom the Company generated
substantial revenue in one quarter generally have not been a substantial source
of revenue in a subsequent quarter.
FACILITIES
The Company occupies approximately 10,000 square feet in an office building
in Atlanta, Georgia under a lease expiring in March 2001. The facility serves as
the Company's headquarters and computer center. The Company also has an office
in McLean, Virginia occupying approximately 450 square feet under a lease
expiring in July 1997.
The Company's Internet services are maintained in secured, environmentally
conditioned premises at its Internet Network Development Center ("NDC") at the
Company's principal offices. Company personnel monitor server and network
functions on a 24-hours per day, 7 days per week basis, and access to the NDC is
24 hour double secured. Back-up servers replace production services in the event
of failure or down time. Tape back-ups are performed on a weekly basis and
transported for off-site storage. Each server is SNMP managed and utilizes
devices located on a separate network to notify NDC personnel by pager in the
event of problems that are not otherwise detected by HomeCom's own SNMP.
All power supplied to the NDC computer room is supplied by two separate
power substations through American Power Conversion Matrix UPS lines, with
back-up battery power. Telecommunications are provided to the computer room
through multiple leased T1 lines directly connected to the T3 Internet provided
by interexchange carriers. Each T1 line is provisioned on separate local carrier
fiber optics using the latest SONET and FDDI technology. Telecommunications
lines are provided through two physically diverse entrance facilities. The
Company has acquired and installed multiple Cisco routers for connection to the
Internet, which automatically redistribute traffic load in the event of
telecommunications failure.
The Company believes that the properties which it currently has under lease
are adequate to serve the Company's business operations for the foreseeable
future. The Company believes that if it were unable to renew the lease on either
of these facilities, it could find other suitable facilities with no material
adverse effect on the Company's business.
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COMPETITION
The market for specialized Internet applications and products is highly
competitive, and the Company expects that this competition will intensify in the
future. In providing specialized software design and development, the Company
competes with numerous businesses that also provide software design and
development services, companies that have developed and market application
specific Internet software products, companies that provide software tools that
enable customers to develop specific Internet-enabled software applications and
companies that choose to develop Internet application products internally.
Andersen Consulting, L.L.P., Electronic Data Systems Corporation ("EDS"),
International Business Machines Corporation ("IBM") and Cap Gemini America are
significant custom software developers, integrators and resellers whose services
include a broad range of Internet and Intranet software applications design and
development services. Companies such as Broadvision, Inc., Edify Corporation and
Security First Network Bank have developed application specific Internet
software products that are broadly marketed and licensed and perform such
functions as interactive one-to-one marketing, human resources benefits inquiry,
enrollment and training and Internet banking. In addition, companies that offer
and sell client/server based Internet-enabled software products, such as
Netscape and Microsoft, may in the future bundle software capabilities and
applications with existing products in a manner which may limit the need for
software capabilities and application services such as those offered by the
Company. The Company also competes with the information technology departments
of significant business enterprises who may choose to design and develop their
Internet applications internally. The emergence of sophisticated software
products and tools that enable companies to build customized Internet-enabled
software applications internally also may have the effect of encouraging
internal development and, thus, may materially reduce the demand for the
Company's custom software application services.
The Company's Web site development services face competition from a variety
of sources, from small operations to large global competitors like EDS and
Computer Sciences Corporation. The Company believes Web site development
presently is a fragmented market, with no business commanding a dominant share.
HomeCom believes that as Web sites increase in interactivity and complexity, Web
site development companies will increasingly need to maintain an integrated team
of Intranet-enabled software engineers, advanced graphics programmers,
multi-media artists and Internet security experts in order to compete
effectively for large business customers. Consequently, HomeCom believes that it
will need to continue to expand its personnel and work to maintain leading edge
technology capabilities in order to remain competitive. Although there is likely
to be a continuing market for individual Web site development, the Company
intends to continue to focus its Web site development services on large
businesses with complex interactive requirements.
The Company's Internet outsourcing services face competition from numerous
large and small competitors that provide comparable outsourcing services. Such
competition includes BBN Planet, AT&T, MCI Communications Corporation ("MCI"),
IBM, EDS and UUNET Technologies, Inc., as well as numerous regional Internet
outsourcing services providers.
The Company's security services division faces competition from many
sources, including companies that provide security consulting services and
companies that market specific Internet-based security solutions. Such
competitors include Digital Equipment Corporation, IBM, Andersen Consulting,
L.L.P. and EDS. In addition, many companies currently market Internet-based
application-specific software products that incorporate security and
confidentiality features and functions.
The Company believes that the rapid expansion of the market for Internet
software applications will foster the growth of many significant competitors
performing comparable services and offering comparable products to those offered
by the Company. The Company competes on the basis of creative talent, price,
reliability of services and responsiveness. Many of the Company's current and
prospective competitors have substantially greater financial, technical,
marketing and other resources than the Company. The Company believes that it
presently competes favorably with respect
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to each of its various service offerings. There can be no assurance that the
Company's present and proposed products will be able to compete successfully
with current or future competitors or that competitive pressures faced by the
Company will not have a material adverse effect on the Company's business,
financial condition and operating results.
INTELLECTUAL PROPERTY RIGHTS
In accordance with industry practice, the Company relies primarily on a
combination of copyright, patent and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company seeks to protect its software, documentation and other
written materials principally under trade secret and copyright laws, which
afford only limited protection. The Company does not hold any registered trade
or service marks at this time, but has applied for federal registration of the
names "HomeCom(TM)," "Post On The Fly(TM)" and the Company's logo. 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 the Company's competitors will not independently develop competing
products and services. In distributing software products, the Company intends to
rely primarily on "shrink wrap" licenses that are not signed by licensees and,
therefore, may be unenforceable under the laws of certain jurisdictions. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to as great an extent as the laws of the United States. The
Company does not believe that any of its proposed products infringe 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 its
products. 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, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company. In addition, Web site developers such as the Company face
potential liability for the actions of customers and others using their
services, including liability for infringement of intellectual property rights,
rights of publicity, defamation, libel and criminal activity under the laws of
the United States and foreign jurisdictions. The Company routinely enters into
non-disclosure and confidentiality agreements with employees, vendors,
contractors, consultants and customers. The Company is presently preparing and
intends to file a U.S. patent application as to certain aspects of its Post On
The Fly(TM) Conference software.
There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology. The Company believes that, due to the
rapid pace of Internet innovation 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 industry than are
the various legal protections of its technology.
EMPLOYEES
At October 15, 1996, the Company employed 62 full-time employees, of whom
35 were technical personnel engaged in maintaining or developing the Company's
products or performing related services, 19 were marketing and sales personnel
and 8 were involved in administration and finance.
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INSURANCE
The Company maintains liability and other insurance that it believes to be
customary and generally consistent with industry practice. The Company believes
that such insurance is adequate to cover potential claims relating to its
existing business activities.
GOVERNMENT REGULATION
The Telecommunications Act of 1996 (the "1996 Telecommunications Act"),
which became effective on February 8, 1996, imposes criminal liability on
persons sending or displaying in a manner available to minors indecent material
on an interactive computer service such as the Internet. The 1996
Telecommunications Act also imposes criminal liability on an entity knowingly
permitting facilities under its control to be used for those activities. The
constitutionality of these provisions is being challenged in federal court and,
as of the date of this Prospectus, enforcement of certain provisions has been
enjoined. However, this legislation may decrease demand for Internet access,
chill the demand for Internet content, or have other adverse effects on Web site
service providers such as the Company. In addition, in light of the uncertainty
of the interpretation and application of this law, there can be no assurance
that the Company would not have to modify its operations to comply with the
statute.
Except for the 1996 Telecommunications Act, the Company does not believe
that it is currently subject to direct regulation by any government agency,
other than regulations applicable to businesses generally, and believes that
there are currently few laws or regulations directly applicable to Web site
service companies. It is possible that a number of additional laws and
regulations may be adopted with respect to the Internet, covering issues such as
user privacy, pricing and characteristics and quality of products and services.
The adoption of any such laws or regulations may decrease the growth of the
Internet, which could in turn decrease the demand for the Company's products and
services and increase the Company's cost of doing business or cause the Company
to modify its operations, or otherwise have an adverse effect on the Company's
business, financial condition and operating results. Moreover, the applicability
to the Internet of existing laws governing issues such as property ownership,
libel and personal privacy is uncertain. The Company cannot predict the impact,
if any, that future regulation or regulatory changes may have on its business.
In addition, Web site developers such as the Company face potential liability
for the actions of customers and others using their services, including
liability for infringement of intellectual property rights, rights of publicity,
defamation, libel and criminal activity under the laws of the U.S. and foreign
jurisdictions. Any imposition of liability could have a material adverse effect
on the Company.
In addition, the Company's network services are transmitted to its
customers over dedicated and public telephone lines. These transmissions are
governed by regulatory policies establishing charges and terms for
communications. Changes in the regulatory environment relating to the
telecommunications and media industry could have an effect on the Company's
business, including regulatory changes which directly or indirectly affect use
or access of the Internet or increase the likelihood or scope of competition
from regional telephone companies, could have a material adverse effect on the
Company.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- ---- ---------------------------------------------------------
<S> <C> <C>
Harvey W. Sax................ 45 President, Chief Executive Officer and Director
R. Douglas MacIntyre(1)...... 45 Chairman of the Board of Directors
Nat Stricklen................ 53 Senior Vice President, Sales and Marketing, Chief
Operating Officer and Director
Vinod Keni................... 30 Treasurer, Chief Financial Officer, Secretary and
Director
Krishan Puri................. 31 Executive Vice President and Director
Gia Bokuchava, Ph.D. ........ 32 Chief Technical Officer and Director
Roger Nebel.................. 42 Vice President and Director
Gregory Abowd, Ph.D.(1)...... 31 Director
Winn Schwartau(1)............ 44 Director
</TABLE>
- ------------------------------
(1) Member of the Audit and Compensation Committees.
HARVEY W. SAX is a founder of the Company and has served as President and
Chief Executive Officer of the Company since January 1995. He was Secretary of
the Company from December 1994 until January 1995. From October 1994 until
December 1995, when he began working as a full-time employee of the Company, Mr.
Sax served as a Vice President of Oppenheimer & Co., Inc. From February 1993
until September 1994, Mr. Sax served as a Senior Vice President of D. Blech &
Co. From July 1992 until February 1993, Mr. Sax was a Vice President of Paine
Webber, Inc. From January 1989 until July 1992, Mr. Sax was a Vice President of
Bear, Stearns & Co. Inc. Mr. Sax received a Bachelor of Arts degree from Emory
University in 1972. Mr. Sax has been a member of the Board of Directors since
December 1994.
R. DOUGLAS MACINTYRE has served as Chairman of the Board of Directors of
the Company since October 1996. Mr. MacIntyre has been President and Chief
Executive Officer of Dun & Bradstreet Software since June 1994. From April 1993
until June 1994, Mr. MacIntyre was a private business consultant. From June 1990
until April 1993, Mr. MacIntyre served as President and Chief Operating Officer
of Software 2000, Inc., a business software company. Mr. MacIntyre received a
Bachelor of Science degree from the U.S. Military Academy at West Point in 1973
and a Master of Science in Business Administration degree from Boston University
in 1976. Mr. MacIntyre is President of the American Software Association, a
member of the Board of Directors of the Information Technology Association of
America and the Southeastern Software Association, and is a member of the
advisory board of Georgia Institute of Technology's College of Computing. Mr.
MacIntyre has been a member of the Board of Directors since September 1996.
NAT STRICKLEN has served as Senior Vice President, Sales and Marketing, and
Chief Operating Officer of the Company since January 1996. Mr. Stricklen was
President of the Company from December 1994 until January 1995, and Vice
President and Secretary of the Company from January 1995 until January 1996. For
more than 25 years prior to joining the Company in December 1994, Mr. Stricklen
was employed by IBM where from 1988 until November 1994 he was the senior
product manager for the IBM Link product used for electronic communication for
IBM employees and business partners. Mr. Stricklen was a member of the team that
developed the original IBM Internet home page. Mr. Stricklen received a Bachelor
of Science degree in Data Processing and Application Systems Design from
Washington University in 1975. Mr. Stricklen has been a member of the Board of
Directors since December 1994.
VINOD KENI has served as Treasurer, Chief Financial Officer and Secretary
of the Company since February 1996. Before joining the Company, Mr. Keni was a
Senior Financial Analyst with
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Harvard Pilgrim Health Care, an HMO, from February 1995 until February 1996.
From May 1994 until February 1995, he was a Financial Analyst with Kent County
Memorial Hospital in Providence, Rhode Island. From April 1993 until April 1994,
he was a Financial Coordinator with IVF America, Inc., a healthcare research and
products company. From August 1991 until April 1993, Mr. Keni was a student at
Johnson & Wales University. Mr. Keni received a Master of Business
Administration degree from Johnson & Wales University in 1993 and a Master of
Science degree in Finance and Accounting from Bangalore University, India in
1987. Mr. Keni has been a member of the Board of Directors since September 1996.
KRISHAN PURI has served as Executive Vice President of the Company since
February 1996, and was a member of its former Board of Advisors from May 1995
until August 1996. From March 1994 until January 1996, Mr. Puri was a Senior
Management Consultant with Deloitte & Touche Consulting Group in its
telecommunications practice. From March 1992 until March 1994, Mr. Puri served
as a Senior Engineer for International Communications Network Services for
British Telecom and MCI's Concert joint venture in Atlanta, Georgia. From March
1990 until March 1992, Mr. Puri was a network analyst with Sprint Corporation, a
long distance telecommunications company. Mr. Puri received a Bachelor of
Science degree in Electrical Engineering from Georgia Institute of Technology in
1987 and a Master of Business Administration degree from Georgia State
University in 1992. Mr. Puri has been a member of the Board of Directors since
September 1996.
GIA BOKUCHAVA, PH.D., has served as the Company's Chief Technical Officer
since August 1995. Dr. Bokuchava served as a visiting professor at Emory
University from September 1994 until August 1995 and was employed by the
National Library of Medicine, assisting in the development of Internet based
applications, from January 1995 until August 1995. From July 1990 until
September 1994, Dr. Bokuchava was the Director of The Computer Center at the
Institute of Mechanical Engineering at Georgia Technical University, Tblisi,
Georgia (formerly a part of the Soviet Union). Dr. Bokuchava has taught computer
science as a visiting associate professor at the Universities of Moscow and
China. Dr. Bokuchava received a doctorate in theoretical physics from Georgia
Technical University, Tblisi, in 1990. Dr. Bokuchava has been a member of the
Board of Directors since September 1996.
ROGER NEBEL has served as Vice President of the Company since August 1996.
From May 1991 until July 1996, Mr. Nebel was a Department Manager (May 1991 to
February 1993) and Senior Manager - Enterprise Assurance (March 1993 to July
1996) for PRC, Inc., a subsidiary of Litton Industries, Inc., which provides
information technology consulting and systems integration services for
governments and businesses. Mr. Nebel received a Bachelor of Science degree in
Engineering from California Coast University in 1990 and a Master of Science
degree in Management from National-Louis University in 1993. Mr. Nebel has been
a member of the Board of Directors since September 1996.
GREGORY ABOWD, PH.D., has been an assistant professor in the College of
Computing at the Georgia Institute of Technology since August 1994, where he is
a member of the Software Systems Design Group. From October 1989 until August
1994, Dr. Abowd held post-doctoral positions with the Human Computer Interaction
Group at the University of York in England (October 1989 until September 1992)
and with the Software Engineering Institute and Computer Science Department at
Carnegie Mellon University (September 1992 until August 1994). From October 1989
until September 1992, Dr. Abowd was a student at the University of Oxford, where
he attended as a Rhodes Scholar. Dr. Abowd received a Bachelor of Science degree
in Mathematics from the University of Notre Dame in 1986 and a Master of Science
degree in Computation and a Doctorate of Philosophy in Computation from the
University of Oxford in 1987 and 1991, respectively. Dr. Abowd has been a member
of the Board of Directors since September 1996.
WINN SCHWARTAU has been President of Interpact, Inc., a provider of
consulting services for electronic privacy and related issues to industry and
governments, since August 1990. Since August 1990, Mr. Schwartau also has been
an architectural security consultant to Hughes STX,
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providing services related to enterprise security network architectures, design
and implementation. Mr. Schwartau has been a member of the Board of Directors
since September 1996.
The Company's Board of Directors is divided into three classes. The Class I
directors (Dr. Abowd and Messrs. MacIntyre and Schwartau) will serve an initial
term until the 1997 Annual Meeting of Stockholders, the Class II directors (Dr.
Bokuchava and Messrs. Puri and Nebel) will serve an initial term until the 1998
Annual Meeting of Stockholders and the Class III directors (Messrs. Sax,
Stricklen and Keni) will serve an initial term until the 1999 Annual Meeting of
Stockholders. Each class will be elected for three-year terms following its
respective initial term. The classification of the Board of Directors could have
the effect of making it more difficult for a third party to acquire control of
the Company. Officers are elected at the first Board of Directors meeting
following the stockholders meeting at which directors are elected and serve at
the discretion of the Board of Directors Each executive officer of the Company
was chosen by the Board of Directors and serves at the pleasure of the Board of
Directors until his or her successor is appointed or until his or her earlier
resignation or removal in accordance with applicable law. There are no family
relationships between any of the directors or executive officers of the Company.
BOARD COMMITTEES
The Board of Directors has two standing committees: a Compensation
Committee and an Audit Committee. The Compensation Committee provides
recommendations to the Board of Directors concerning salaries and incentive
compensation for officers and employees of the Company. The Audit Committee
recommends the Company's independent auditors and reviews the results and scope
of audit and other accounting-related services provided by such auditors.
DIRECTOR COMPENSATION
Directors do not receive any cash compensation for their services as
members of the Board of Directors but are reimbursed for their reasonable travel
expenses in attending Board of Directors and committee meetings. Directors who
are not employees of the Company are eligible to receive automatic grants of
stock options under the Company's Non-Employee Directors Stock Option Plan, and
may receive additional grants of options under such plan at the discretion of
the Compensation Committee of the Board of Directors. See "Stock Option
Plan - Non-Employee Directors Stock Option Plan." The Company may in the future
establish a policy for compensating members of the Board of Directors for
attending Board of Directors or committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, compensation of executive officers of the Company was
determined by Harvey W. Sax, the Company's President and Chief Executive
Officer. In September 1996, the Company established a Compensation Committee to
review the performance of executive officers, establish overall employee
compensation policies and recommend salaries and incentive compensation for
officers and employees of the Company. No member of the Compensation Committee
is or will be an executive officer of the Company.
EXECUTIVE COMPENSATION
During 1995, the Chief Executive Officer of the Company received no
compensation for his services to the Company. No other executive officer of the
Company received compensation in excess of $100,000 during 1995. As of October
15, 1996, the annual salaries for the Company's executive officers were as
follows: Harvey W. Sax, President and Chief Executive Officer ($150,000); Nat
Stricklen, Senior Vice President, Sales and Marketing and Chief Operating
Officer ($75,000); Vinod Keni, Treasurer and Chief Financial Officer ($55,000);
Krishan Puri, Executive Vice President ($100,000); Gia Bokuchava, Ph.D., Chief
Technical Officer ($65,000); and Roger Nebel, Vice President ($100,000).
Pursuant to the employment agreements with Dr. Bokuchava and
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Messrs. Keni and Puri, each is eligible to receive cash bonuses to repay certain
promissory notes issued by them to the Company in connection with their purchase
of shares of Common Stock from the Company in August 1996. See "Certain
Transactions." Each of the Company's executive officers also is eligible to
receive cash bonuses to be awarded at the discretion of the Compensation
Committee of the Board of Directors.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Harvey W. Sax,
its President and Chief Executive Officer, which provides a five year term
commencing on January 1, 1996, subject to automatic extension for an additional
one year on each one-year anniversary of the agreement. This employment
agreement is subject to early termination as provided therein, including
termination by the Company "for cause" (as defined in the employment agreement).
The employment agreement provides for an annual base salary of $100,000 and for
bonus compensation to be awarded at the discretion of the Compensation Committee
of the Board of Directors.
STOCK OPTION PLANS
Employee Stock Option Plan. The Company's Stock Option Plan (the "Stock
Option Plan") was adopted by the Company's stockholders in September 1996. The
purpose of the Stock Option Plan is to provide incentives for officers and key
employees to promote the success of the Company, and to enhance the Company's
ability to attract and retain the services of such persons. The Company has
reserved 300,000 shares of Common Stock for issuance under the Stock Option
Plan. Options granted under the Stock Option Plan may be either (i) options
intended to qualify as "incentive stock options" under Section 422 of the Code
or (ii) non-qualified stock options. Stock options may be granted under the
Stock Option Plan for all employees of the Company, or of any present or future
subsidiary or parent of the Company. The Stock Option Plan is administered by
the Compensation Committee of the Board of Directors. The Compensation Committee
has the authority to determine exercise prices applicable to the options, the
eligible employees or consultants to whom options may be granted, the number of
shares of Common Stock subject to each option and the terms upon which options
are exercisable. The Compensation Committee has the authority to interpret the
Stock Option Plan and to prescribe, amend and rescind the rules and regulations
pertaining to the Stock Option Plan. No option is transferable by the optionee
other than by will or the laws of descent and distribution, and each option is
exercisable during the lifetime of the optionee only by such optionee.
Any incentive stock option that is granted under the Stock Option Plan may
not be granted at a price less than the fair market value of the Common Stock on
the date of grant (or less than 110% of fair market value in the case of holders
of 10% or more of the total combined voting power of all classes of stock of the
Company or a subsidiary or parent of the Company). Non-qualified stock options
may be granted at the exercise price established by the Compensation Committee,
which will not be less than 85% of the fair market value of the Common Stock on
the date of grant.
Each option granted under the Stock Option Plan is exercisable for a period
not to exceed ten years from the date of grant (or five years in the case of a
holder of 10% or more of the total combined voting power of all classes of stock
of the Company or a subsidiary or parent of the Company) and shall lapse upon
expiration of such period, or earlier upon termination of the recipient's
employment with the Company, or as determined by the Compensation Committee.
As of October 15, 1996, options to purchase approximately 79,167 shares of
Common Stock were outstanding under the Stock Option Plan, all of which vest 25%
per year from their date of grant. Of such grants, options to purchase 23,615
shares were granted at an exercise price of $4.55 per share and options to
purchase 55,552 shares were granted at an exercise price of $6.50 per share.
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Non-Employee Directors Stock Option Plan. The Company's Non-Employee
Directors Stock Option Plan (the "Non-Employee Directors Plan") was adopted by
the Company's stockholders in September 1996 and amended in October 1996. The
Company has reserved 300,000 shares of Common Stock for issuance under the
Non-Employee Directors Plan.
The Non-Employee Directors Plan provides for the automatic granting of
non-qualified stock options to directors who are not officers or employees of
the Company ("Non-Employee Directors"). Each Non-Employee Director who is first
appointed or elected to the Board of Directors is granted an option to purchase
10,000 shares of Common Stock. Also, each Non-Employee Director automatically
receives an option to purchase 5,000 shares of Common Stock on the date of each
annual meeting of the Company's stockholders. The Non-Employee Directors Plan
also allows the Compensation Committee to make extraordinary grants of options
to Non-Employee Directors. All options granted under the Non-Employee Directors
Plan vest 50% per year of service by the Non-Employee Director on the Board of
Directors. No option is transferable by the optionee other than by will or laws
of descent and distribution, and each option is exercisable, during the lifetime
of the optionee, only by such optionee. The exercise price of all options will
be the fair market value of the shares of Common Stock on the date of grant, and
the term of each option may not exceed seven years. The Non-Employee Directors
Plan will continue in effect for a period of ten years unless sooner terminated
by the Board of Directors.
During September 1996, each of Dr. Abowd and Messrs. MacIntyre and
Schwartau was granted an option under the Non-Employee Directors Plan to
purchase 10,000 shares of Common Stock at an exercise price of $6.50 per share.
During October 1996, in consideration of his agreement to serve as Chairman of
the Board of Directors, Mr. MacIntyre was also granted an option under the
Non-Employee Directors Plan to purchase 120,000 shares of Common Stock at an
exercise price of $6.50 per share.
AGREEMENTS WITH EMPLOYEES
Principal employees of the Company, including executive officers, are
required to sign an agreement with the Company (i) restricting the ability of
the employee to compete with the Company during his or her employment and for a
period of eighteen months thereafter, (ii) restricting solicitation of customers
and employees following employment with the Company, and (iii) providing for
ownership and assignment of intellectual property rights to the Company.
CERTAIN TRANSACTIONS
During the period December 1994 through December 1995, Harvey W. Sax, the
Company's President and Chief Executive Officer, loaned a total of approximately
$63,497 to the Company pursuant to a promissory note payable by the Company on
September 12, 2000, which accrues interest at the prime rate plus 1% per annum.
The Company intends to use approximately $56,500 of the net proceeds of this
offering to repay the remaining outstanding amounts owed under this promissory
note.
In February 1996, in connection with a recapitalization of the Common
Stock, the Company issued 707,332 shares of Common Stock to Harvey W. Sax, its
President and Chief Executive Officer and then its sole stockholder, for $.001
per share. In December 1994, the Company granted Nat Stricklen, a co-founder and
director of the Company, an option to acquire, for an aggregate exercise price
of $10.00, shares of Common Stock which, when issued, would represent
approximately 10% of the issued and outstanding Common Stock. Mr. Stricklen
exercised this option in February 1996 and received 93,070 shares of Common
Stock.
In a privately negotiated financing transaction, (i) in February 1996, the
Company sold for $.0001 per share 335,052 shares to Margery Germain, 111,684
shares to Sanford Zweifach, 148,912 shares to Esther Blech and 297,824 shares to
the Edward A. Blech Trust, (ii) in February 1996, the
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Company issued to Mark Germain for $200,000 an unsecured promissory note due
September 1997 in the principal amount of $200,000 and bearing interest at the
rate of 8% per annum, (iii) in March 1996, the Company issued to the Edward A.
Blech Trust for $199,904 an unsecured promissory note due September 1997 in the
principal amount of $199,904 and bearing interest at the rate of 8% per annum,
and (iv) in May 1996, the Company issued to Esther Blech for $100,000 an
unsecured promissory note due September 1997 in the principal amount of $100,000
and bearing interest at the rate of 8% per annum. In September 1996, Esther
Blech transferred her promissory note to the Edward A. Blech Trust. Pursuant to
the terms of these promissory notes, immediately prior to the date of this
Prospectus the Company will issue an aggregate of 76,907 shares of Common Stock
(based upon an assumed initial public offering price of $6.50 per share) to the
holders of these notes in repayment of their outstanding principal amounts. The
Company intends to use approximately $24,000 of the net proceeds of this
offering to repay the accrued interest under these promissory notes. Margery
Germain is the wife of Mark Germain. Esther Blech is the grandmother of Edward
A. Blech, the sole beneficiary under the Edward A. Blech Trust.
In August 1996, Harvey W. Sax, the Company's President and Chief Executive
Officer, contributed 3,956 shares of Common Stock to the Company.
In August 1996, the Company issued and sold to six of its employees an
aggregate of 102,855 shares of Common Stock for a total of $468,004, payable
through the issuance of promissory notes payable in four equal annual
installments, bearing interest at 8% per annum and secured by the shares of
Common Stock purchased therewith. Also in August 1996, the Company entered into
employment agreements with such persons which provide that for each of the first
four years of employment, the Company will issue a bonus to the employee in the
amount necessary to repay the annual amount due under such promissory note (plus
the taxes due by the employee as a consequence of receiving such bonus).
Pursuant to the terms of the employment agreements, the Company will continue to
make these annual payments if the employee is terminated other than "for cause,"
as defined in the employment agreements. Pursuant to the terms of the
subscription agreements for such shares, if the employee's employment is
terminated within such four-year period, the Company has the right to repurchase
that percentage of the shares purchased by the employee which shall equal the
percentage of the promissory note which is not yet due, payment for such
repurchase to be made by canceling the applicable outstanding amount of the
promissory note. Vinod Keni, Treasurer, Chief Financial Officer, Secretary and a
director, Gia Bokuchava, Ph.D., Chief Technical Officer and a director, and
Krishan Puri, Executive Vice President and a director, purchased 3,956, 39,560
and 29,670 shares of Common Stock, respectively, in this transaction.
In August 1996, Krishan Puri, Executive Vice President and a director,
exercised a warrant to purchase 9,307 shares of Common Stock for a total
exercise price of $1.00. Mr. Puri was granted the warrant in June 1995 in
connection with his agreeing to serve on the Company's former Board of Advisors.
In August 1996, HomeCom acquired all of the outstanding capital stock of
HomeCom Internet Security Services, Inc. ("HISS"), a Delaware corporation formed
in July 1996 to provide Internet and Intranet security system consulting
services. In the transaction, the former holders of HISS's capital stock
received the right to receive their pro rata share of four annual earnout
payments to be paid not later than October 30 of 1997, 1998, 1999 and 2000
(each, an "Annual Earnout"). Each Annual Earnout will be one-fourth of an amount
equal to 30% of HISS's gross revenues for the 12 month period ending September
30, 1997; provided, however, that (i) the amount of each Annual Earnout will be
limited to the amount of HISS's net profits for the 12-month period ended
September 30 immediately preceding the payment date (the "Profit Cap"), (ii)
amounts not paid in a year as a result of the Profit Cap will be carried forward
to the subsequent year, and (iii) amounts not paid in the fourth year as a
result of the Profit Cap will be forfeited. Each Annual Earnout can be paid in
whole or in part in cash or, at HomeCom's option, in shares of Common Stock
based upon the average trading price of the Common Stock for the ten trading
days immediately preceding payment of the Annual Earnout. An Annual Earnout will
not be paid if the recipient is then in violation
42
<PAGE> 49
of the non-solicitation and non-competition provisions contained in the Stock
Purchase Agreement to which the former holders of HISS's capital stock are
subject. Roger Nebel, Vice President and a director of the Company, owned 48% of
HISS's outstanding capital stock and will be entitled to receive 48% of the
Annual Earnouts. HISS was merged with and into the Company on September 11,
1996.
In August 1996, HomeCom borrowed $45,000 from Esther Blech and issued to
her a promissory note due August 1997, bearing interest at 8% per annum. In
October 1996, the Company borrowed $100,000 from the Edward A. Blech Trust and
issued to it a promissory note due October 1997, bearing interest at 8% per
annum. The Company intends to repay the principal and interest owed under these
notes out of the net proceeds of this offering.
In October 1996, the Company granted to R. Douglas MacIntyre, Chairman of
the Board and a Director of the Company, a ten-year option to purchase 120,000
shares of Common Stock at an exercise price of $6.50 per share under the
Company's Non-Employee Directors Plan, in consideration of Mr. MacIntyre's
agreement to serve as Chairman of the Board of Directors. This option vests 50%
per year of service as Chairman of the Board, but vesting will accelerate upon a
change in control of the Company.
The Company believes that the foregoing transactions between the Company
and its officers, directors and stockholders were on terms no less favorable to
the Company than those which could have been obtained from unaffiliated parties.
Future transactions between the Company and its officers, directors and five
percent or greater stockholders will be on terms no less favorable to the
Company than could be obtained from unaffiliated parties. In addition, any
future loans or advances to officers, directors or five percent or greater
stockholders will be for a bona fide business purpose and will be approved by a
majority of the disinterested members of the Board of Directors.
43
<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth, with respect to (i) each stockholder known
by the Company to be the beneficial owner of more than 5% of the Common Stock,
(ii) each director, and (iii) all executive officers and directors as a group,
certain information with respect to the beneficial ownership of the Common Stock
as of October 15, 1996 and as adjusted to reflect (a) the issuance immediately
prior to the date of this Prospectus of 76,907 shares of Common Stock (based on
an assumed initial public offering price of $6.50 per share) in repayment of
$499,904 in outstanding indebtedness, and (b) the sale by the Company of the
Common Stock offered hereby.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES PERCENTAGE OF SHARES
BENEFICIALLY BENEFICIALLY OWNED BENEFICIALLY OWNED
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) BEFORE OFFERING AFTER OFFERING
- --------------------------------------- ---------------- -------------------- --------------------
<S> <C> <C> <C>
Harvey W. Sax.......................... 796,445 41.4% 24.5%
Nat Stricklen.......................... 93,070 4.8% 2.9%
Vinod Keni............................. 3,956 * *
Krishan Puri........................... 38,977 2.0% 1.2%
Gia Bokuchava, Ph.D. .................. 39,560 2.1% 1.2%
Roger Nebel............................ 0 * *
Gregory Abowd, Ph.D. .................. 0 * *
R. Douglas MacIntyre................... 0 * *
Winn Schwartau......................... 0 * *
Mark Germain(3)........................ 335,052 17.4% 11.3%
81 Main Street
White Plains, NY 10601
Margery Germain(4)..................... 335,052 17.4% 11.3%
6 Olmstead Road
Scarsdale, NY 10583
Sanford Zweifach....................... 111,684 5.8% 3.4%
2420 Steiner, No. 11
San Francisco, CA 94115
Esther Blech........................... 148,912 7.7% 4.6%
2404 Avenue O
Brooklyn, NY 11210
The Edward A. Blech Trust(5)........... 297,824 15.5% 10.6%
c/o Rabbi Mordechai Jofen
418 Avenue I
Brooklyn, NY 11230
All executive officers and directors as 972,008 50.5% 29.9%
a group (9 persons)..................
</TABLE>
- ---------------
*
Less than 1%.
(1) Except as otherwise noted, the street address of the named beneficial owner
is Building 14, Suite 100, 3535 Piedmont Road, Atlanta, Georgia 30305.
(2) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
of Common Stock beneficially owned, subject to community property laws
where applicable.
(3) Includes 335,052 shares of Common Stock owned by Margery Germain, the wife
of Mr. Germain, as to which shares Mr. Germain disclaims beneficial
ownership. Percentage of shares beneficially owned after the offering gives
effect to 30,769 shares of Common Stock to be issued to Mr. Germain
immediately prior to the date of this Prospectus (based upon an
44
<PAGE> 51
assumed initial offering price of $6.50 per share) in repayment of $200,000
in outstanding indebtedness. See "Certain Transactions."
(4) Percentage of shares beneficially owned after the offering gives effect to
30,769 shares of Common Stock to be issued to Mark Germain, the husband of
Mrs. Germain, immediately prior to the date of this Prospectus (based upon
an assumed initial offering price of $6.50 per share) in repayment of
$200,000 in outstanding indebtedness, as to which shares Mrs. Germain
disclaims beneficial ownership.
(5) Percentage of shares beneficially owned after the offering gives effect to
46,138 shares of Common Stock to be issued immediately prior to the date of
this Prospectus (based upon an assumed initial public offering price of
$6.50 per share) in repayment of $299,904 in outstanding indebtedness. See
"Certain Transactions."
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 15,000,000 shares of
Common Stock, $.0001 par value, and 1,000,000 shares of preferred stock, $.01
par value. As of October 15, 1996, the Company had issued and outstanding
1,923,070 shares of Common Stock. As of such date, there were 16 holders of
record of shares of Common Stock. No shares of preferred stock have been issued.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share for
the election of directors and all matters to be submitted to a vote of the
Company's stockholders. Subject to the rights of any holders of preferred stock
which may be issued in the future, the holders of shares of Common Stock are
entitled to share ratably in such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of dissolution,
liquidation or winding up of the Company, holders of shares of Common Stock are
entitled to share ratably in all assets remaining after payment of all
liabilities and the aggregate liquidation preference of outstanding shares of
preferred stock. Holders of shares of Common Stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of Common
Stock are, and the shares of Common Stock to be issued by the Company in this
offering will be, duly authorized, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Restated Certificate of Incorporation authorizes the issuance
of preferred stock with designations, rights and preferences determined from
time to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to issue preferred stock with
dividends, liquidation, conversion, voting and other rights that could adversely
affect the voting power or other rights of the holders of Common Stock. In the
event of issuance, the preferred stock could be used, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company.
LIMITATIONS ON LIABILITY OF DIRECTORS
The Company's Restated Certificate of Incorporation contains provisions
which eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty, other than liability for a
breach of the duty of loyalty, acts or omissions not in good faith that
constitute a breach of the director's duty to the Company, acts that involve
intentional misconduct or a knowing violation of the law, transactions in which
the director receives an improper benefit and acts or omissions for which
liability is expressly provided by an applicable statute. While the Restated
Certificate of Incorporation provides directors with protection from awards for
monetary damages for breach of duties to the Company, it does not eliminate
those duties. Accordingly, the
45
<PAGE> 52
Restated Certificate of Incorporation should not affect the availability of
equitable remedies, such as injunction or rescission, based on a director's
breach of the duty of care. However, equitable remedies may not provide
stockholders adequate monetary compensation for damages caused by breach of
duties to the Company. The Company's Restated Bylaws contain provisions
requiring the indemnification of the Company's directors and officers, and
persons serving at the request of the Company as a director or officer of
another corporation, to the fullest extent permitted under the Delaware General
Corporation Law. These provisions do not apply to liabilities under federal
securities laws. The Company believes that these Restated Certificate of
Incorporation and Bylaws provisions are necessary to attract and retain
qualified persons as directors and officers of the Company.
STATUTORY BUSINESS COMBINATION PROVISION
Upon completion of the offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person, or affiliate or associate of such person, who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved by
the board of directors of the corporation before the person becomes an
interested stockholder, (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation and shares held by certain
employee stock ownership plans) or (iii) on or after the date the person becomes
an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined (with certain limited exceptions) as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation that was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the date on which it
is sought to be determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws by action of
its stockholders to exempt itself from coverage, provided that such charter or
bylaw amendment shall not become effective until twelve months after the date it
is adopted. Neither the Restated Certificate of Incorporation nor the Restated
Bylaws of the Company contains any such exclusion, although the Board of
Directors has excluded the stockholders of the Company prior to the offering
from the coverage of Section 203.
LISTING
The Company has applied for listing its Common Stock on The Nasdaq SmallCap
Market under the trading symbol "HMCM."
TRANSFER AGENT AND REGISTRAR
The transfer agent for the Common Stock is American Stock Transfer & Trust
Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock, and no assurance can be given that a public market for the Common Stock
will develop or be sustained after the offering. Future sales of substantial
amounts of Common Stock in the public market could have a material effect on the
market price of the Common Stock from time to time.
46
<PAGE> 53
Upon completion of this offering, the Company will have outstanding
approximately 3,249,977 shares of Common Stock, giving effect to the issuance
immediately prior to the date of this Prospectus of 76,907 shares of Common
Stock (based upon an assumed initial public offering price of $6.50 per share)
in repayment of $499,904 in outstanding indebtedness. See "Certain
Transactions." Of these shares, the 1,250,000 shares sold in this offering will
be freely tradable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), unless they are
purchased by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act (which sales would be subject to certain limitations
and restrictions described below).
The remaining 1,999,977 shares of Common Stock may be sold in the public
market only if registered under the Securities Act or pursuant to an exemption
from registration such as Rule 144 or 144(k) promulgated thereunder. Certain
shares of Common Stock outstanding after the offering will be subject to
contractual lock-up agreements with the Underwriters. Specifically, all
officers, directors and 5% or greater stockholders have agreed to execute
lock-up agreements providing that they will not, directly or indirectly, offer,
sell, contract to sell, grant any option to purchase or otherwise dispose of, or
agree to dispose of, any shares of Common Stock (other than gifts) until 180
days after the consummation of this offering, at which time their shares will be
released from the lock-up.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned shares for a least two years (including the holding
period of any prior owner except an affiliate) is entitled to sell in "brokers'
transactions" or to market makers, within any three-month period, a number of
shares that does not exceed the greater of (a) one percent of the number of
shares of Common Stock then outstanding (approximately 32,500 shares immediately
after this offering) or (b) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the required filing of a Form 144
with respect to such sale. Sales under Rule 144 are subject to the availability
of current public information about the Company. Under Rule 144(k), a person who
is not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least three years, is entitled to sell such shares without having to
comply with the manner of sale, public information, volume limitation or notice
filing provisions of Rule 144. Unless otherwise restricted, "144(k) shares" may
therefore be sold immediately upon the completion of this offering. Under Rule
701 under the Securities Act, persons who purchase shares upon exercise of
options granted prior to this offering are entitled to sell such shares 90 days
after this offering in reliance on Rule 144, without having to comply with the
holding period requirements of Rule 144 and, in the case of non-affiliates,
without having to comply with the volume limitation or notice filing provisions
of Rule 144. In addition, Rule 144A would permit the resale of restricted
securities to qualified institutional buyers, subject to compliance with
conditions of the Rule. The Company is unable to estimate accurately the number
of "restricted" shares that will be sold under Rule 144 because this will depend
in part on the market price for the Common Stock, the personal circumstances of
the seller and other factors.
After the completion of this offering, the Company intends to file a
Registration Statement on Form S-8 under the Securities Act to register the
300,000 shares of Common Stock reserved for issuance under the Company's Stock
Option Plan and the 300,000 shares of Common Stock reserved for issuance under
the Company's Non-Employee Directors Plan. After the date of such filings, if
not otherwise subject to a lock-up agreement, shares purchased pursuant to the
Company's Stock Option Plan and its Non-Employee Directors Plan generally would
be available for resale in the public market. As of October 15, 1996, the
Company had granted options under such Plans to purchase an aggregate of 229,167
shares of Common Stock. See "Management - Stock Option Plans." In addition, in
connection with the Company's acquisition of HISS, the Company may issue
additional shares of Common Stock. See "Certain Transactions."
47
<PAGE> 54
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part, Ladenburg Thalmann & Co. Inc. (the "Underwriter") has
agreed to purchase from the Company, and the Company has agreed to sell to the
Underwriter, 1,250,000 shares of Common Stock. The Underwriter is committed to
take and pay for all of the shares of Common Stock offered hereby, if any are
purchased.
The Underwriter has advised the Company that it proposes to offer all or
part of the Common Stock offered directly to the public initially at the price
to the public set forth on the cover page of this Prospectus, that they may
offer shares to certain dealers at a price that represents a concession of not
more than $ _______ per share and that the Underwriter may allow, and such
dealers may re-allow, a concession of not more than $ _______ per share to
certain other dealers. After the commencement of this offering, the price to the
public and the concessions may be changed.
The Company has granted the Underwriter an option, exercisable within 30
days after the date of this Prospectus, to purchase up to 187,500 additional
shares of Common Stock at the initial public offering price, less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriter may exercise such option solely to cover over-allotments, if any,
made in connection with the sale of the shares offered hereby.
The Company has agreed to indemnify the Underwriter and certain related
persons against certain liabilities, including certain liabilities under the
Securities Act, and to contribute to payments the Underwriter may be required to
make in respect thereof.
The Company and its officers, directors and 5% or greater stockholders have
agreed that they will not, directly or indirectly, offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of, or agree to dispose
of, any shares of Common Stock (other than gifts) for a period of 180 days after
the date of this Prospectus, without the prior written consent of the
Underwriter.
The Company has agreed to issue to the Underwriter and its designees, for
their own accounts, warrants to purchase an aggregate of 125,000 shares of
Common Stock. The warrants will be exercisable during the five-year period
commencing on the date of this Prospectus, at an exercise price per share equal
to 120% of the initial public offering price. The warrants will contain
customary anti-dilution provisions and certain rights to register the shares
issuable upon exercise of the warrants under the Securities Act.
Prior to this offering, there has been no public market for the Common
Stock. The initial offering price will be determined by negotiations between the
Company and the Underwriter. Among the factors to be considered in such
negotiations will be the Company's historical results of operations and
financial condition, prospects for the Company and for the industry in which the
Company operates, the Company's capital structure and the general condition of
the securities market.
The Underwriter has informed the Company that the Underwriter does not
expect sales to discretionary accounts to exceed 5% of the total number of
shares offered hereby, and the Underwriter does not intend to confirm sales of
shares to any account over which it exercises discretionary authority.
The Company has granted the Underwriter a right of first refusal, expiring
on the second anniversary of the date of this Prospectus, on any future
financings with respect to the Company.
LEGAL MATTERS
The validity of the issuance of the shares of the Common Stock offered
hereby will be passed upon for the Company by Morris, Manning & Martin, L.L.P.,
Atlanta, Georgia. Morris, Manning & Martin, L.L.P. beneficially owns 9,307
shares of Common Stock. Certain legal matters in connection
48
<PAGE> 55
with this offering will be passed upon for the Underwriter by Willkie Farr &
Gallagher, New York, New York.
EXPERTS
The financial statements as of and for the periods ended December 31, 1994
and 1995 included in this Prospectus have been included herein in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (of which this Prospectus is
a part) under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
the exhibits and schedules filed therewith. Statements contained in this
Prospectus regarding the contents of any contract or any other document referred
to herein are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including exhibits and schedules
thereto, filed by the Company with the Commission may be inspected, without
charge, and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024; 7 World
Trade Center, New York, New York 10048, Room 1400; and 500 West Madison Street,
Chicago, Illinois 60661, Suite 1400. Copies of such materials also may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, Room 1024, at prescribed rates. In
addition, the Company is required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data Gathering, Analysis
and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
49
<PAGE> 56
GLOSSARY OF CERTAIN TECHNICAL TERMS
<TABLE>
<S> <C>
FDDI: Fiber distributed data interface. A standard for distributing data on
optical fiber cables at a rate of approximately 100 million
bits-per-second.
HTML: Hypertext markup language. The computer language in which electronic
information is published on the Web.
HTTP: Hypertext transfer protocol. The standard communications protocol used
to retrieve information on the Web. Hypertext transfer protocol makes
browsing possible. The user clicks on hypertext links in a Web document
and moves within that document or to another document that may be
located on a different computer.
Hypertext links: Text in a Web site that links to other documents within that Web site or
to other unrelated Web sites, allowing movement through information on
the Web.
Internet: An open global network of interconnected commercial, educational and
government computer networks that allows any interconnected computer to
communicate with any other interconnected computer utilizing a common
communications protocol, TCP/IP.
Intranet: Network inside a company or organization that employs a TCP/IP network
protocol for internal communications rather than using a proprietary
protocol, facilitating communications using Internet tools and
applications.
Protocol: The rules two or more machines must follow in order to exchange
information.
Server: A computer in a network shared by multiple users (or clients). A high
speed computer in a LAN that stores the programs and data files shared
by users on the network.
SNMP: Simple network management protocol. A protocol for managing devices such
as servers and routers.
SONET: Synchronous optical network. A circuit transmission technology that
allows the building of high speed fault tolerant networks.
TCP/IP: Transmission Control Protocol/Internet Protocol. A compilation of
network and transport-level protocols that allow computers with
different architectures and operating system software to communicate
with other computers on the Internet or an Intranet.
World Wide Web, The world wide network of computer servers that uses a special
or the Web: communications protocol (i.e., HTTP) that links different servers
throughout the Internet and enables non-technical users to access
graphic information, including graphics, video, photographs, audio and
text contained therein.
</TABLE>
50
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
HomeCom Communications, Inc.
We have audited the accompanying balance sheets of HomeCom Communications,
Inc. as of December 31, 1995 and 1994, and the related statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1995 and for
the period from December 2, 1994 (date of incorporation) to December 31, 1994.
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 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 financial statements referred to above present fairly,
in all material respects, the financial position of HomeCom Communications, Inc.
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the year ended December 31, 1995 and for the period from December 2,
1994 (date of incorporation) to December 31, 1994, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
March 11, 1996
F-1
<PAGE> 58
HOMECOM COMMUNICATIONS, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 8,455 $129,095 $ 97,421
Accounts receivable, net........................ -- 86,325 436,440
Other current assets............................ -- 148 4,811
-------- -------- -------------
Total current assets.................... 8,455 215,568 538,672
FURNITURE, FIXTURES AND EQUIPMENT, NET............ -- 30,015 306,749
SOFTWARE DEVELOPMENT COSTS, NET................... -- -- 53,245
DEPOSITS.......................................... 1,799 1,799 57,599
DEFERRED OFFERING COSTS........................... -- -- 253,618
-------- -------- -------------
Total assets............................ $ 10,254 $247,382 $ 1,209,883
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses........... $ -- $ 14,287 $ 292,097
Accrued salaries and payroll taxes payable...... -- 25,010 172,019
Accrued vacation................................ -- -- 29,533
Current portion of notes payable................ -- -- 57,314
Unearned revenue................................ -- 42,479 126,793
-------- -------- -------------
Total current liabilities............... -- 81,776 677,756
NOTE PAYABLE...................................... -- -- 50,199
NOTES PAYABLE TO STOCKHOLDERS..................... -- 160,792 556,509
OTHER LIABILITIES................................. -- -- 51,486
-------- -------- -------------
Total Liabilities....................... -- 242,568 1,335,950
-------- -------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value at December 31, 1994
and 1995, $.0001 par value at September 30,
1996; 1,500 shares authorized and 1,000
shares issued and outstanding at December 31,
1994 and 1995; 15,000,000 shares authorized,
1,923,070 shares issued and outstanding at
September 30, 1996........................... 27,706 27,706 192
Additional paid-in capital...................... -- -- 495,618
Subscriptions receivable........................ -- -- (468,004)
Accumulated deficit............................. (17,452) (22,892) (153,873)
-------- -------- -------------
Total stockholders' equity (deficit).... 10,254 4,814 (126,067)
-------- -------- -------------
Total liabilities and stockholders'
equity (deficit)...................... $ 10,254 $247,382 $ 1,209,883
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 59
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 2, 1994 (DATE OF INCORPORATION)
TO DECEMBER 31, 1994, THE YEAR ENDED DECEMBER 31, 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 2 TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -----------------------
1994 1995 1995 1996
---------------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES:
Service sales......................... $ -- $ 327,574 $ 173,399 $1,318,675
Equipment sales....................... -- -- -- 152,649
---------- ---------- ---------- ----------
Total net sales............... -- 327,574 173,399 1,471,324
---------- ---------- ---------- ----------
COST OF SALES:
Cost of services...................... -- 59,871 39,442 271,887
Cost of equipment sold................ -- -- -- 114,552
---------- ---------- ---------- ----------
Total cost of sales........... -- 59,871 39,442 386,439
---------- ---------- ---------- ----------
GROSS PROFIT............................ -- 267,703 133,957 1,084,885
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Sales and marketing................... 1,045 124,253 70,211 408,131
Product development................... -- 20,239 6,739 63,823
General and administrative............ 16,407 121,313 79,726 664,244
Depreciation.......................... -- 3,722 1,158 52,835
---------- ---------- ---------- ----------
Total operating expenses...... 17,452 269,527 157,834 1,189,033
---------- ---------- ---------- ----------
OPERATING LOSS.......................... (17,452) (1,824) (23,877) (104,148)
OTHER EXPENSES:
Interest expense, net................. -- 3,469 3,140 26,833
Other................................. -- 147 -- --
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAX BENEFIT.......... (17,452) (5,440) (27,017) (130,981)
INCOME TAX BENEFIT...................... -- -- -- --
---------- ---------- ---------- ----------
NET LOSS................................ $ (17,452) $ (5,440) $ (27,017) $ (130,981)
========== ========== ========== ==========
UNAUDITED PRO FORMA NET LOSS DATA:
Loss before income tax benefit........ $ (17,452) $ (5,440) $ (27,017) $ (130,981)
Pro forma adjustment to reflect
federal and state income tax
benefit (actual for period
subsequent to February 8, 1996).... -- -- -- --
---------- ---------- ---------- ----------
Pro forma net loss.................... $ (17,452) $ (5,440) $ (27,017) $ (130,981)
========== ========== ========== ==========
Pro forma net loss per common and
common equivalent share............ $ (.01) $ (.00) $ (.01) $ (.07)
========== ========== ========== ==========
Pro forma weighted average common and
common equivalent shares
outstanding........................ 1,858,157 1,858,157 1,858,157 1,870,156
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 60
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM DECEMBER 2, 1994 (DATE OF INCORPORATION)
TO DECEMBER 31, 1994, THE YEAR ENDED DECEMBER 31, 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
-------------------- PAID-IN SUBSCRIPTIONS ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT (DEFICIT)
--------- -------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ISSUANCE OF STOCK,
December 2, 1994..... 1,000 $ 27,706 $ 27,706
Net loss............... $ (17,452) (17,452)
--------- -------- --------
BALANCE, December 31,
1994................. 1,000 27,706 (17,452) 10,254
Net loss............... (5,440) (5,440)
--------- -------- --------
BALANCE, December 31,
1995................. 1,000 27,706 (22,892) 4,814
Issuance of stock
(unaudited).......... 19,663 468,104 $(468,004) 100
Net loss (unaudited)... (130,981) (130,981)
93.07-for-one stock
split and
recapitalization
(unaudited).......... 1,902,407 (495,618) $ 495,618
--------- -------- ------- -------- -------- ---------
BALANCE, September 30,
1996 (unaudited)..... 1,923,070 $ 192 $ 495,618 $(468,004) $(153,873) $(126,067)
========= ======== ======= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 61
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 2, 1994 (DATE OF INCORPORATION)
TO DECEMBER 31, 1994, THE YEAR ENDED DECEMBER 31, 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 2 TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ----------------------
1994 1995 1995 1996
--------------- ------------ -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................... $ (17,452) $ (5,440) $(27,017) $(130,981)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation.............................. -- 3,722 1,158 52,835
Provision for bad debts................... -- 2,485 -- 33,515
Deferred rent expense..................... -- -- -- 51,486
Change in operating assets and
liabilities:
Accounts receivable.................... -- (88,810) (49,372) (383,630)
Other current assets................... -- (148) -- (4,663)
Deposits............................... (1,799) -- -- (55,800)
Accounts payable and accrued
expenses............................. -- 14,287 5,532 87,810
Accrued salaries and payroll taxes
payable.............................. -- 25,010 30,818 147,009
Accrued vacation....................... -- -- -- 29,533
Unearned revenue....................... -- 42,479 36,038 84,314
-------- --------- -------- ---------
Net cash used in operating activities......... (19,251) (6,415) (2,843) (88,572)
-------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and
equipment................................... -- (33,737) (27,729) (329,569)
Software development costs.................... -- -- -- (53,245)
-------- --------- -------- ---------
Net cash used in investing activities......... -- (33,737) (27,729) (382,814)
-------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock...................... 27,706 -- -- 100
Payment of deferred offering costs............ -- -- -- (63,618)
Proceeds from note payable.................... -- -- -- 70,000
Repayment of note payable..................... -- -- -- (7,487)
Proceeds of notes payable to stockholders..... -- 163,497 63,497 444,904
Repayment of notes payable to stockholders.... -- (2,705) (1,134) (4,187)
-------- --------- -------- ---------
Net cash provided by financing activities..... 27,706 160,792 62,363 439,712
-------- --------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... 8,455 120,640 31,791 (31,674)
CASH AND CASH EQUIVALENTS at beginning of
period........................................ 0 8,455 8,455 129,095
-------- --------- -------- ---------
CASH AND CASH EQUIVALENTS at end of
period........................................ $ 8,455 $129,095 $ 40,246 $ 97,421
======== ========= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest...... $ 0 $ 3,469 $ 3,141 $ 5,190
======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 62
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIOD
THEN ENDED IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business
HomeCom Communications, Inc. (the "Company") develops and markets
specialized software applications and products and provides services that enable
businesses to use the Internet and Intranets to obtain and communicate important
business information, conduct commercial transactions and improve business
productivity. HomeCom provides Internet/Intranet services in one business
segment in five integrated areas: customized software applications design,
development and integration; World Wide Web site development; Internet
outsourcing services; specialized Internet-enabled software products; and
security consulting and integration services.
Cash and Cash Equivalents
For purposes of the statement of cash flows, management considers all
highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents.
Accounts Receivable, Net
Accounts receivable are shown net of the allowance for doubtful accounts.
The allowance was $0, $2,485 and $36,000 at December 31, 1994, December 31, 1995
and September 30, 1996, respectively.
Furniture, Fixtures and Equipment, Net
Furniture, fixtures and equipment are recorded at cost less accumulated
depreciation, which is computed using the straight-line method over the
estimated useful lives of the related assets (three to five years). Maintenance
and repairs are charged to expense as incurred. Upon sale, retirement or other
disposition of these assets, the cost and the related accumulated depreciation
are removed from the respective accounts and any gain or loss on the disposition
is included in income.
Income Taxes
Prior to February 9, 1996, the Company qualified as an S Corporation for
federal and state income tax purposes. Accordingly, no provision was made for
income taxes for its operations prior to February 9, 1996. Individual
stockholders report their share of the Company's taxable income or loss on their
respective individual income tax returns. The Company's taxable income or loss
allocated to the stockholders differs from book income primarily due to the use
of accelerated methods for depreciating furniture, fixtures and equipment for
income tax purposes.
Effective February 9, 1996, the Company converted from an S corporation to
a C corporation for income tax purposes and is, therefore, subject to corporate
income taxes. Deferred income tax assets and liabilities will be recorded to
reflect differences between the bases of the Company's assets and liabilities
for financial reporting and income tax purposes. The net deferred income tax
asset of approximately $56,000 at September 30, 1996 is primarily due to
operating loss carryforwards generated since February 9, 1996 and is fully
offset by a valuation allowance. The effect of a change in the valuation
allowance that results from a change in circumstances that causes a change in
judgment about the realizability of the related deferred tax asset in future
years would be included in income in that period. The statements of operations
include a presentation of the unaudited pro forma effects of income taxes on the
Company's operations as if the Company had been subject to corporate income
taxes for all periods presented.
F-6
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIOD
THEN ENDED IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Software Development Costs, Net
The Company capitalizes internal software development costs in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting For Costs
of Computer Software To Be Sold, Leased, or Otherwise Marketed". The
capitalization of these costs begins when a product's technological feasibility
has been established and ends when the product is available for general release
to customers. Amortization is computed on an individual product basis and is the
greater of (a) the ratio of current gross revenues for a product to the total
current and anticipated future gross revenues for the product or (b) the
straight-line method over the estimated economic life of the product. As of
September 30, 1996, amortization had not begun on any of the Company's products.
Deferred Offering Costs.
Costs incurred in connection with the Company's proposed initial public
offering of securities have been deferred and will be netted against the gross
proceeds of the offering. As of September 30, 1996, costs deferred totaled
$253,618.
Interim Financial Statements (Unaudited)
The unaudited balance sheet as of September 30, 1996 and the unaudited
statements of operations, stockholders' equity (deficit) and cash flows for the
nine months ended September 30, 1995 and 1996, in the opinion of management,
have been prepared on the same basis as the audited financial statements and
include all significant adjustments, consisting only of normal recurring
entries, necessary for a fair presentation of the results of the interim
periods. The data disclosed in these notes to the financial statements for these
periods are also unaudited. Operating results for the nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1996.
Revenue Recognition
The Company recognizes revenues on web page development and specialized
software application contracts using the percentage-of-completion method. The
percentage of completion is determined by relating the actual hours of work
performed to date to the current estimated hours at completion of the respective
contracts. Earned revenue is based on the percentage that incurred hours to date
bear to total estimated hours after giving effect to the most recent estimates
of total hours. Earned revenue reflects the original contract price adjusted for
agreed upon claim and change order revenue, if any. If estimated total costs on
any of these contracts indicate a loss, the entire amount of the estimated loss
is recognized immediately. Revenues related to other services are recognized as
the services are performed. Revenues from equipment sales and related costs are
recognized when products are shipped to the customer. Unearned revenue, as
reflected on the accompanying balance sheet, represents the amount of billings
recorded on contracts in advance of work being performed.
F-7
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIOD
THEN ENDED IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Recently Issued Accounting Standards
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of" ("SFAS 121"), was issued. Under SFAS 121, an impairment loss must
be recognized for long-lived assets and certain identifiable intangibles to be
held and used by an entity, whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS 121 is
effective for financial statements issued for fiscal years beginning after
December 15, 1995, and must be adopted on a prospective basis. Restatement of
previously issued financial statements is not permitted. The Company adopted
SFAS 121 effective January 1, 1996. Such adoption did not have a material effect
on the financial condition or results of operations of the Company.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), was issued. SFAS 123
requires that an entity account for employee stock compensation under a fair
value based method. However, SFAS 123 also allows an entity to continue to
measure compensation cost for employee stock-based compensation using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("Opinion 25"). Entities electing to
continue accounting under Opinion 25 are required to make pro forma disclosures
of net income and earnings per share as if the fair value based method of
accounting under SFAS 123 had been applied. The Company has elected to measure
compensation cost under Opinion 25 and will adopt the disclosure requirements of
SFAS 123 in its 1996 annual financial statements.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for the Company's cash,
accounts receivable, accounts payable and debt approximate fair value due to the
short-term nature of these instruments.
Advertising Expenses
All advertising costs are expensed when incurred.
Loss Per Common Share
Loss per common share is based on the Company's common stock and is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Dilutive common equivalent
shares consist of stock options and warrants (calculated using the treasury
stock method at the assumed initial public offering price of $6.50 per share).
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83,
common stock issued for consideration below the assumed initial public offering
price per share and stock options issued with exercise prices below such price
during the twelve-month period preceding the proposed date of the initial filing
of the registration statement have been included in the calculation of common
shares, using the treasury stock method, as if they were outstanding for all
periods presented. All per share data has been retroactively adjusted to reflect
the 93.07-for-one stock split approved by the Board of Directors on September
11, 1996 and effective September 11, 1996.
F-8
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIOD
THEN ENDED IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Basis of Presentation - Going Concern
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplate the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has incurred cumulative losses since its incorporation
through September 30, 1996, and has not established revenues sufficient to cover
its operating costs. Management believes that cash generated through operations
and a public offering of its common stock and the conversion of debt to equity
will generate the required capital necessary to continue as a going concern.
2. FURNITURE, FIXTURES AND EQUIPMENT, NET:
Furniture, fixtures and equipment, net, are comprised of the following as
of:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Furniture and fixtures........................ $ 3,187 $143,583
Computer equipment............................ 30,550 219,723
------- --------
33,737 363,306
Less: accumulated depreciation................ (3,722) (56,557)
------- --------
$30,015 $306,749
======= ========
</TABLE>
3. NOTES PAYABLE:
Notes payable are comprised of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER
1994 1995 30, 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Promissory notes payable to stockholders and
affiliates (interest accrues at 8%), payable
September 1997, non-collateralized, payable in
cash and/or through issuance of shares of
common stock at the effectiveness of an initial
public offering at the initial public offering
price per share. The Company intends to issue
shares in payment of the principal amounts
payable under the notes........................ -- $100,000 $ 499,904
Promissory note payable to stockholder
(interest accrues at 8% per annum), payable
August 1997, non-collateralized................ -- -- 45,000
</TABLE>
F-9
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIOD
THEN ENDED IS UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
1994 1995 30, 1996
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
3. NOTES PAYABLE, CONTINUED:
Promissory note payable to a stockholder
(interest accrues at the prime rate plus 1%),
payable September 12, 2000..................... -- 60,792 56,605
Promissory note payable to a bank (interest
accrues at 10%), payable in 60 equal monthly
installments through February, 2001,
collateralized by certain trade receivables and
equipment...................................... -- -- 62,513
-------- -------- --------
-- 160,792 664,022
Less current maturities of notes payable....... -- -- 57,314
-------- -------- --------
-- $160,792 $ 606,708
======== ======== ========
</TABLE>
Future principal payments on notes payable at December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996.................................. $ 0
1997.................................. 100,000
1998.................................. 0
1999.................................. 0
2000.................................. 60,792
</TABLE>
Interest expense on the notes payable to stockholders and affiliates during 1995
and the nine months ended September 30, 1996 was $3,469 and $24,984,
respectively.
4. COMMITMENTS AND CONTINGENCIES:
The Company leases office space and equipment under noncancelable operating
lease agreements expiring through 1999. Future minimum lease payments under
operating leases are as follows as of December 31, 1995:
<TABLE>
<S> <C>
1996................................... $22,585
1997................................... 22,598
1998................................... 7,389
1999................................... 6,470
</TABLE>
During January 1996, the Company executed a five-year lease for new office
space. Future minimum annual lease payments are approximately $110,000 for the
year ending December 31, 1996 and approximately $241,000 per year for the
remainder of the lease term. The total amount of the base rent payments is being
charged to expense on a straight-line method over the term of the lease. The
Company has recorded a deferred credit to reflect the excess of rent expense
over cash payments since inception of the lease.
Rental expense under such operating leases for the period December 2, 1994
to December 31, 1994, the year ended December 31, 1995 and the nine months ended
September 30, 1995 and 1996 was $1,299, $22,188, $16,218 and $157,800,
respectively.
Various legal proceedings may arise in the normal course of business.
Management does not believe that there are currently any asserted or unasserted
claims that will have a material adverse effect on the financial position,
results of operations or cash flows of the Company.
F-10
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIOD
THEN ENDED IS UNAUDITED)
5. CONCENTRATION OF CREDIT RISKS:
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable.
The Company places its cash and cash equivalents with quality financial
institutions.
Concentration of credit risk with respect to trade receivables is monitored
by the Company through ongoing credit evaluations of its customers' financial
condition. The Company's sales to its five largest customers represented
approximately 46% and 31% of total revenues for the year ended December 31, 1995
and the nine months ended September 30, 1996, respectively. The five most
significant customer balances represented approximately 73% and 47% of the
accounts receivable balance at December 31, 1995 and September 30, 1996,
respectively. For the period ended September 30, 1996, the Company generated
approximately 13% of its revenues from Modem Media Advertising. No other company
accounted for more than 10% of the revenues of the Company.
6. EQUITY TRANSACTIONS:
All share and per share amounts presented below have been adjusted to
reflect the 93.07-for-one stock split effective September 11, 1996.
During 1995, the Company issued warrants to its former Board of Advisors to
purchase 37,228 shares of common stock for total consideration of $4.00. The
warrants were granted at the fair market value of the common stock at the time
of issuance. These warrants were exercised in August 1996.
During February 1996, the Company issued 707,332 additional shares to the
previous sole stockholder, 93,070 shares to an executive officer of the Company
pursuant to the exercise of options granted in connection with the founding of
the Company, and 893,472 shares to four private investors.
In August 1996, the Company sold to certain key employees an aggregate of
102,855 shares of common stock for an aggregate consideration of $468,004,
payable through the issuance of promissory notes payable in four equal
installments, bearing interest at 8% per annum and secured by the shares of
common stock purchased therewith. Also in August 1996, the Company entered into
employment agreements with such persons which provide that, assuming continued
employment with the Company, for each of the first four years of employment, the
Company will issue a bonus to the employee in the amount necessary to repay the
annual amount due under such promissory note (plus the taxes due by the employee
as a consequence of receiving such bonus). Pursuant to the terms of the
employment agreements, the Company will continue to make these annual payments
if the employee is terminated other than "for cause," as defined in the
employment agreements. Pursuant to the terms of the subscription agreements for
such shares, if the employee's employment is terminated within such four-year
period, the Company has the right to repurchase that percentage of the shares
purchased by the employee which shall equal the percentage of the promissory
note which is not yet due, payment for such repurchase to be made by canceling
the applicable outstanding amount of the promissory note. For financial
reporting purposes, these notes receivable have been presented as a separate
component of stockholders' equity.
In September 1996, the Company amended and restated its Certificate of
Incorporation (i) to reclassify its common stock from no par value stock to
stock with a par value of $0.0001 per share, (ii) to increase the authorized
shares of common stock to 15,000,000, and (iii) to authorize the
F-11
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIOD
THEN ENDED IS UNAUDITED)
6. EQUITY TRANSACTIONS, CONTINUED:
issuance of 1,000,000 shares of $0.01 par value preferred stock. No preferred
stock has been issued.
In September 1996, the Board of Directors approved a 93.07-for-one stock
split effected in the form of a stock dividend, whereby each common stockholder
of record as of September 11, 1996 received on September 11, 1996, 92.07
additional shares of common stock for each share owned as of the record date. As
a result of the stock split and the above recapitalization, 1,902,407 shares
were issued and $495,618 was transferred from Common Stock to Paid-In Capital.
Weighted average common shares outstanding and per share amounts for all periods
presented have been restated to reflect the stock split.
In September 1996, the Company established the Company's Stock Option Plan
(the "1996 Plan") whereby the Company may issue to officers, employees,
consultants and other key persons options to purchase up to 300,000 shares of
common stock. The 1996 Plan allows for grant of incentive and nonqualified stock
options. Options granted under the 1996 Plan are granted at an exercise price
which is determined by the Board of Directors. The exercise price of the
incentive stock options shall not be less than the fair market value of the
common stock on the date of grant. Options are exercisable in installments as
designated by the Board of Directors. Incentive options granted under the 1996
Plan shall expire no later than 10 years after date of grant. In September 1996,
79,167 options were granted under the 1996 Plan, of which 23,615 are exercisable
at $4.55 per share and 55,552 are exercisable at $6.50 per share. These options
vest ratably over a four-year period.
In September 1996, the Company established the Company's Non-Employee
Director Stock Option Plan (the "Directors' Plan") whereby the Company may issue
to non-employee directors options to purchase up to 300,000 shares of common
stock. Options granted under the Directors' Plan are intended to be incentive
stock options. Consequently, options granted under the Directors' Plan are
granted at an exercise price which is determined by the Board of Directors which
shall not be less than fair market value of the common stock on the date of
grant. Options are exercisable in installments as designated by the Board of
Directors, and shall expire no later than 10 years after the date of grant. In
September and October 1996, an aggregate of 150,000 options were granted under
the Directors' Plan. These options vest over a two-year period and are
exercisable at $6.50 per share.
Options historically have been granted based on an amount greater than or
equal to the fair value of the shares at the date of grant. Since no quoted
market price was available prior to the Company's proposed initial public
offering, the best estimate of the fair value of the stock was determined by the
Board of Directors.
7. ACQUISITION:
In August 1996, HomeCom acquired all of the outstanding capital stock of
HomeCom Internet Security Services, Inc. ("HISS"), a Delaware corporation formed
in July 1996 to provide Internet and Intranet security system consulting
services. In the transaction, the former holders of HISS's capital stock
received the right to receive their pro rata share of four annual earnout
payments to be paid not later than October 30 of 1997, 1998, 1999 and 2000
(each, an "Annual Earnout"). Each Annual Earnout will be one-fourth of an amount
equal to 30% of HISS's gross revenues for the 12 month period ending September
30, 1997; provided, however, that (i) the amount of each Annual Earnout will be
limited to the amount of HISS's net profits for the 12-month period ended
September 30 immediately preceding the payment date (the "Profit Cap"), (ii)
amounts not paid in
F-12
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIOD
THEN ENDED IS UNAUDITED)
7. ACQUISITION, CONTINUED:
a year as a result of the Profit Cap will be carried forward to the subsequent
year, and (iii) amounts not paid in the fourth year as a result of the Profit
Cap will be forfeited. Each Annual Earnout can be paid in whole or in part in
cash or, at HomeCom's option, in shares of Common Stock based upon the average
trading price of the Common Stock for the ten trading days immediately preceding
payment of the Annual Earnout. An Annual Earnout will not be paid if the
recipient is then in violation of the non-solicitation and non-competition
provisions contained in the Stock Purchase Agreement to which the former holders
of HISS's capital stock are subject.
HISS was formed in July 1996 and was in its start-up phase at the date of
acquisition. The purchase consideration is contingent on achieving specified
earnings levels in future periods and is not currently estimable. When such
amounts are determinable, the consideration, if any, will be recognized and
amortized over the remaining life of the intangible assets acquired.
8. RELATED PARTY TRANSACTIONS:
In October 1996, the Company borrowed $100,000 from a stockholder under the
terms of a one year promissory note bearing interest at eight percent per annum.
The Company has entered into an employment agreement with its Chief
Executive Officer and principal stockholder which expires December 31, 2000.
9. PRO FORMA INCOME TAXES (UNAUDITED):
As described in Note 1, the Company previously elected S Corporation status
under the provisions of the Internal Revenue Code. In February 1996, the Company
elected C Corporation status.
The following unaudited pro forma information has been determined based
upon the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". This information reflects income tax expense that
the Company would have incurred had it been subject to Federal and state income
taxes. The Company would not have a Federal and state income tax provision
because of net operating loss carryforwards for all periods presented.
The pro forma income tax benefit differs from the amounts computed by
applying the Federal statutory rate of 34% to loss before taxes as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 2 TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ---------------------------
1994 1995 1995 1996
-------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Tax benefit at the statutory
rate.......................... $ 5,934 $ 1,850 $ 9,186 $ 44,534
Valuation allowance............. (5,934) (1,850) (9,186) (44,534)
------- ------- -------- --------
$ 0 $ 0 $ 0 $ 0
======= ======= ======== ========
</TABLE>
F-13
<PAGE> 70
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN SO AUTHORIZED BY THE
COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE ANY OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Use of Proceeds....................... 12
Dividend Policy....................... 12
Dilution.............................. 13
Capitalization........................ 14
Selected Historical and Pro Forma
Financial Data...................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 22
Management............................ 37
Certain Transactions.................. 41
Principal Stockholders................ 44
Description of Capital Stock.......... 45
Shares Eligible for Future Sale....... 46
Underwriting.......................... 48
Legal Matters......................... 48
Experts............................... 49
Additional Information................ 49
Glossary of Certain Technical Terms... 50
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,250,000 SHARES
HOMECOM COMMUNICATIONS, INC.
COMMON STOCK
[LOGO]
------------------------------------------------
PROSPECTUS
------------------------------------------------
[LADENBURG THALMANN & CO. INC. LOGO]
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 71
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............................. $ 3,470
National Association of Securities Dealers, Inc. fee............................. $ 1,506
Nasdaq SmallCap Market(TM) listing fee........................................... $ 8,250
Accountants' fees and expenses................................................... $130,000
Legal fees and expenses.......................................................... $188,000
Blue Sky fees and expenses....................................................... $ 25,000
Transfer Agent's fees and expenses............................................... $ 2,500
Printing and engraving expenses.................................................. $ 90,000
Miscellaneous.................................................................... $ 1,274
---------
Total Expenses................................................................... $450,000
=========
</TABLE>
- ------------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law (the "DGCL") permits a corporation to
eliminate or limit the personal liability of a director to the corporation or
its stockholders for monetary damages for breach of duty of care or other duty
as a director, provided that no provision shall eliminate or limit the liability
of a director: (A) for an appropriation, in violation of his duties, of any
business opportunity of the corporation; (B) for acts or omissions which involve
intentional misconduct or a knowing violation of law; (C) for unlawful corporate
distributions; or (D) for any transaction from which the director received an
improper personal benefit. This provision pertains only to breaches of duty by
directors in their capacity as directors (and not in any other corporate
capacity, such as officers) and limits liability only for breaches of fiduciary
duties under Delaware corporate law (and not for violation of other laws, such
as the federal securities laws). The Company's Restated Certificate of
Incorporation (the "Restated Certificate") exonerates the Company's directors
from monetary liability to the extent permitted by this statutory provision.
The Company's Restated Certificate of Incorporation and Restated Bylaws
(the "Restated Bylaws") also provide that the Company shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including any action by or in the right of the
Company), by reason of the fact that such person is or was a director or officer
of the Company, or is or was serving at the request of the Company as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including reasonable attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, 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 with respect to any criminal
action or proceeding, if such person had no reasonable cause to believe such
person's conduct was unlawful), to the maximum extent permitted by, and in the
manner provided by, the DGCL.
Notwithstanding any provisions of the Company's Restated Certificate of
Incorporation and Restated Bylaws to the contrary, the DGCL provides that the
Company shall not indemnify a director or officer for any liability incurred in
a proceeding in which the director is adjudged liable to the Company or is
subjected to injunctive relief in favor of the Company: (1) for any
appropriation, in violation of his duties, of any business opportunity of the
Company; (2) for acts or omissions which involve intentional misconduct or a
knowing violation of law; (3) for unlawful corporate distributions; or (4) for
any transaction from which the director or officer received an improper personal
benefit.
II-1
<PAGE> 72
Section 6 of the Underwriting Agreement filed as Exhibit 1.1 hereto also
contains certain provisions pursuant to which certain officers, directors and
controlling persons of the Company may be entitled to be indemnified by the
underwriter named therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following list describes sales by the Registrant of securities in the
past three years which were not registered under the Securities Act of 1933, as
amended (the "Securities Act").
All share amounts have been adjusted to reflect the Registrant's September
1996 recapitalization and 93.07-for-1 stock split.
1. In December 1994, in connection with the incorporation of the
Registrant, the Registrant issued and sold to its sole stockholder 93,070
shares of Common Stock for $27,706.
2. In February 1996, in connection with the recapitalization of the
Registrant, the Registrant issued and sold 707,332 shares of Common Stock to
its President, Chief Executive Officer and sole stockholder for a total
purchase price of $760.
3. In February 1996, the Registrant issued and sold 93,070 shares of
Common Stock to its Senior Vice President for a total purchase price of $10
upon the exercise of stock options granted in connection with the founding
of the Registrant.
4. Pursuant to a privately negotiated transaction with five investors, the
Registrant issued and sold to four of the investors in February 1996 an
aggregate of 893,472 shares of Common Stock for a total purchase price of
$96, and issued and sold to three of the investors in February, March and
May 1996 promissory notes in the aggregate principal amount of $499,904.
Pursuant to the terms of such promissory notes, immediately preceding the
effectiveness of this Registration Statement, the Registrant intends to
issue a total of 76,907 shares of Common Stock (based on an assumed public
offering price of $6.50 per share) to the holders of such notes in repayment
of the principal amounts owed thereunder.
5. In August 1996, the Company issued an aggregate of 37,228 shares of
Common Stock to four members of its former Board of Advisors upon exercise
of warrants, for a total purchase price of $4.00.
6. In August 1996, the Registrant issued and sold an aggregate of 102,855
shares of Common Stock to six of its employees for a total purchase price of
$468,004.22, paid through delivery of 8% promissory notes, payable 25% per
year, secured by the shares purchased thereby.
7. In August 1996, in connection with the Registrant's acquisition of all
of the stock of HomeCom Internet Security Services, Inc., a Delaware
corporation ("HISS"), the Registrant and the stockholders of HISS entered
into a Stock Purchase Agreement which provides that the Registrant may, at
its option, issue shares of its Common Stock as all or part of the earnout
payments to be paid to such former stockholders pursuant to the Stock
Purchase Agreement.
8. In September 1996, the Registrant granted stock options (i) to three
directors under its Non-Employee Directors Stock Option Plan to purchase an
aggregate of up to 30,000 shares of Common Stock and (ii) to 24 employees
under its Stock Option Plan to purchase an aggregate of up to 79,167 shares
of Common Stock.
9. In October 1996, the Registrant granted stock options to a director
under its Non-Employee Directors Stock Option Plan to purchase up to 120,000
shares of Common Stock.
The sales and issuances of securities listed above were exempt from
registration under the Securities Act pursuant to Sections 4(2) and 3(b) thereof
and regulations promulgated thereunder.
II-2
<PAGE> 73
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.**
3.1 Restated Certificate of Incorporation of the Registrant.*
3.2 Restated Bylaws of the Registrant.*
4.1 See Exhibits 3.1 and 3.2 for provisions of the Restated Certificate of Incorporation
and Restated Bylaws of the Registrant defining rights of the holders of Common Stock
of the Registrant.*
4.2 Specimen Stock Certificate.**
4.3 Form of Warrant.**
5.1 Opinion of Morris, Manning & Martin, L.L.P., Counsel to the Registrant, as to the
legality of the shares being registered.**
10.1 HomeCom Communications, Inc. Stock Option Plan and form of Stock Option
Certificate.**
10.2 HomeCom Communications, Inc. Non-Employee Directors Stock Option Plan and form of
Stock Option Certificate.**
10.3 Employment Agreement between the Registrant and Harvey W. Sax, dated January 1,
1996.**
10.4 Form of Employment Agreement entered into between the Registrant and each of its
executive officers except Harvey W. Sax.*
10.5 Lease Agreement between Property Georgia OBJLW One Corporation and the Registrant,
dated January 22, 1996.*
10.6 Lease and Services Agreement between Alliance Greensboro, L.P. and the Registrant,
dated June 25, 1996.*
10.7 Business Alliance Program Agreement between Oracle Corporation and the Registrant,
dated May 30, 1996, together with the Sublicense Addendum, Application Specific
Sublicense Addendum, Full Use and Deployment Sublicense Addendum and License Transfer
Policy, each dated May 30, 1996.**
10.8 Network Enrollment Agreement between Apple Computer, Inc. and the Registrant,
effective May 1996.*
10.9 Member Level Agreement between Microsoft Corporation and the Registrant, effective
May 1996.**
10.10 Master Agreement for Internet Services and Products between BBN Planet Corporation
and the Registrant, dated February 1, 1996.*
10.11 Authorized Business Partners Agreement between BBN Planet Corporation and the
Registrant, dated May 14, 1996.*
10.12 Stock Purchase Agreement between the Registrant and the stockholders of HomeCom
Internet Security Services, Inc., dated August 31, 1996.*
10.13 Form of Promissory Notes issued by the Registrant and held by Mark Germain and the
Edward A. Blech Trust.*
10.14 Form of Promissory Notes issued by the Registrant and held by Esther Blech and the
Edward A. Blech Trust.**
</TABLE>
II-3
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
23.1 Consent of Coopers & Lybrand L.L.P.**
23.2 Consent of Morris, Manning & Martin, L.L.P. (included in Exhibit 5.1).**
24.1 Powers of Attorney (included on signature page).*
27.1 Financial Data Schedule (for SEC use only).**
</TABLE>
- ------------------------------
* Previously filed.
** Filed with Amendment No. 1.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
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 Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
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 Registrant 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.
(c) The Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
(ii) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant 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 Atlanta, State of Georgia, on the 1st day of November, 1996.
HOMECOM COMMUNICATIONS, INC.
By: /s/ Harvey W. Sax
------------------------------------
Harvey W. Sax
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------- ------------------
<S> <C> <C>
/s/ Harvey W. Sax President, Chief Executive November 1, 1996
- --------------------------------------------- Officer and Director
Harvey W. Sax (Principal Executive
Officer)
/s/ R. Douglas MacIntyre Chairman of the Board of November 1, 1996
- --------------------------------------------- Directors
Harvey W. Sax as attorney-in-fact for
R. Douglas MacIntyre
/s/ Nat Stricklen Senior Vice President, November 1, 1996
- --------------------------------------------- Sales and Marketing,
Harvey W. Sax as attorney-in-fact for Chief Operating Officer
Nat Stricklen
/s/ Vinod Keni Treasurer, Chief Financial November 1, 1996
- --------------------------------------------- Officer, Secretary and
Harvey W. Sax as attorney-in-fact for Director (Principal
Vinod Keni Financial and Accounting
Officer)
/s/ Krishan Puri Executive Vice President November 1, 1996
- --------------------------------------------- and Director
Harvey W. Sax as attorney-in-fact for
Krishan Puri
/s/ Gia Bohuchava, Ph.D. Chief Technical Officer November 1, 1996
- --------------------------------------------- and Director
Harvey W. Sax as attorney-in-fact for
Gia Bohuchava, Ph.D.
</TABLE>
II-5
<PAGE> 76
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------- ------------------
<S> <C> <C>
/s/ Roger Nebel Vice President and November 1, 1996
- --------------------------------------------- Director
Harvey W. Sax as attorney-in-fact for
Roger Nebel
/s/ Gregory Abowd, Ph.D. Director November 1, 1996
- ---------------------------------------------
Harvey W. Sax as attorney-in-fact for
Gregory Abowd, Ph.D.
/s/ Winn Schwartau Director November 1, 1996
- ---------------------------------------------
Harvey W. Sax as attorney-in-fact for
Winn Schwartau
</TABLE>
II-6
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.**
3.1 Restated Certificate of Incorporation of the Registrant.*
3.2 Restated Bylaws of the Registrant.*
4.1 See Exhibits 3.1 and 3.2 for provisions of the Restated Certificate of Incorporation and
Restated Bylaws of the Registrant defining rights of the holders of Common Stock of the
Registrant.*
4.2 Specimen Stock Certificate.**
4.3 Form of Warrant.**
5.1 Opinion of Morris, Manning & Martin, L.L.P., Counsel to the Registrant, as to the legality of
the shares being registered.**
10.1 HomeCom Communications, Inc. Stock Option Plan and form of Stock Option Certificate.**
10.2 HomeCom Communications, Inc. Non-Employee Directors Stock Option Plan and form of Stock Option
Certificate.**
10.3 Employment Agreement between the Registrant and Harvey W. Sax, dated January 1, 1996.**
10.4 Form of Employment Agreement entered into between the Registrant and each of its executive
officers except Harvey W. Sax.*
10.5 Lease Agreement between Property Georgia OBJLW One Corporation and the Registrant, dated
January 22, 1996.*
10.6 Lease and Services Agreement between Alliance Greensboro, L.P. and the Registrant, dated June
25, 1996.*
10.7 Business Alliance Program Agreement between Oracle Corporation and the Registrant, dated May
30, 1996, together with the Sublicense Addendum, Application Specific Sublicense Addendum, Full
Use and Deployment Sublicense Addendum and License Transfer Policy, each dated May 30, 1996.**
10.8 Network Enrollment Agreement between Apple Computer, Inc. and the Registrant, effective May
1996.*
10.9 Member Level Agreement between Microsoft Corporation and the Registrant, effective May 1996.**
10.10 Master Agreement for Internet Services and Products between BBN Planet Corporation and the
Registrant, dated February 1, 1996.*
10.11 Authorized Business Partners Agreement between BBN Planet Corporation and the Registrant, dated
May 14, 1996.*
10.12 Stock Purchase Agreement between the Registrant and the stockholders of HomeCom Internet
Security Services, Inc., dated August 31, 1996.*
10.13 Form of Promissory Notes issued by the Registrant and held by Mark Germain and the Edward A.
Blech Trust.*
10.14 Form of Promissory Notes issued by the Registrant and held by Esther Blech and the Edward A.
Blech Trust.**
23.1 Consent of Coopers & Lybrand L.L.P.**
23.2 Consent of Morris, Manning & Martin, L.L.P. (included in Exhibit 5.1).**
24.1 Powers of Attorney (included on signature page).*
27.1 Financial Data Schedule (for SEC use only).**
</TABLE>
- ------------------------------
* Previously filed.
** Filed with Amendment No. 1.
<PAGE> 1
EXHIBIT 1.1
DRAFT - SUBJECT TO NEGOTIATIONS
1,250,000 Shares
HOMECOM COMMUNICATIONS, INC.
Common Stock ($.0001 Par Value)
UNDERWRITING AGREEMENT
____, 1996
LADENBURG THALMANN & CO. INC.
540 Madison Avenue
New York, New York 10022
Dear Sirs:
1. Introductory. HomeCom Communications, Inc., a
Delaware corporation (the "Company"), proposes to sell, pursuant to the terms
of this Agreement, to Ladenburg Thalmann & Co. Inc. (the "Underwriter"), an
aggregate of 1,250,000 shares of Common Stock, $.0001 par value (the "Common
Stock"), of the Company. The aggregate of 1,250,000 shares so proposed to be
sold is hereinafter referred to as the "Firm Stock". The Company also proposes
to sell to the Underwriters, upon the terms and conditions set forth in Section
3 hereof, up to an additional 187,500 shares of Common Stock (the "Option
Stock"). The Firm Stock and the Option Stock are hereinafter collectively
referred to as the "Stock".
2. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with, the Underwriter that:
(i) A registration statement on Form
S-1 (File No. 333-12219) in the form in which it
<PAGE> 2
became or becomes effective and also in such form as it
may be when any post-effective amendment thereto shall become
effective with respect to the Stock, including any
pre-effective prospectuses included as part of the
registration statement as originally filed or as part of any
amendment or supplement thereto, or filed pursuant to Rule 424
under the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, copies of which have heretofore been
delivered to you, has been carefully prepared by the Company
in conformity with the requirements of the Securities Act and
has been filed with the Commission under the Securities Act;
one or more amendments to such registration statement,
including in each case an amended pre-effective prospectus,
copies of which amendments have heretofore been delivered to
you, have been so prepared and filed. Such registration
statement is referred to hereinafter as the "Registration
Statement". If it is contemplated, at the time this Agreement
is executed, that a post-effective amendment to the
Registration Statement will be filed and must be declared
effective before the offering of the Stock may commence, the
term "Registration Statement" as used in this Agreement means
the Registration Statement as amended by said post-effective
amendment. The term "Registration Statement" as used in this
Agreement shall also include any registration statement
relating to the Stock that is filed and declared effective
pursuant to Rule 462(b) under the Securities Act. The term
"Prospectus" as used in this Agreement means the prospectus in
the form included in the Registration Statement, or, (A) if
the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Securities Act
and such information is included in a prospectus filed with
the Commission pursuant to Rule 424(b) under the Securities
Act, the term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement
as supplemented by the addition of the Rule 430A information
contained in the prospectus filed with the Commission pursuant
to Rule 424(b) and (B) if prospectuses that meet the
requirements of Section
-2-
<PAGE> 3
10 (a) of the Securities Act are delivered pursuant to Rule
434 under the Securities Act, then (i) the term "Prospectus"
as used in this Agreement means the "prospectus subject to
completion" (as such term is defined in Rule 434 (g) under the
Securities Act) as supplemented by (a) the addition of Rule
430A information or other information contained in the form of
prospectus delivered pursuant to Rule 434(b)(2) under the
Securities Act or (b) the information contained in the term
sheets described in Rule 434 (b) (3) under the Securities Act,
and (ii) the date of such prospectuses shall be deemed to be
the date of the term sheets. The term "Pre-effective
Prospectus" as used in this Agreement means the prospectus
subject to completion in the form included in the Registration
Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such
prospectus shall have been amended from time to time prior to
the date of the Prospectus.
(ii) The Commission has not issued or
threatened to issue any order preventing or suspending the
use of any Pre-effective Prospectus, and, at its date of
issue, each Pre-effective Prospectus conformed in all material
respects with the requirements of the Securities Act and
did not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and,
when the Registration Statement becomes effective and at all
times subsequent thereto up to and including the Closing
Date[s], the Registration Statement and the Prospectus and any
amendments or supplements thereto contained and will contain
all material statements and information required to be
included therein by the Securities Act and conformed and will
conform in all material respects to the requirements of the
Securities Act and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, included
or will include any untrue statement of a material fact or
omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
provided,
-3-
<PAGE> 4
however, that the foregoing representations, warranties and
agreements shall not apply to information contained in or
omitted from any Pre-effective Prospectus or the Registration
Statement or the Prospectus or any such amendment or
supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by or on your
behalf specifically for use in the preparation thereof; there
is no franchise, lease, contract, agreement or document
required to be described in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration
Statement which is not described or filed therein as required;
and all descriptions of any such franchises, leases,
contracts, agreements or documents contained in the
Registration Statement are accurate and complete descriptions
of such documents in all material respects.
(iii) Subsequent to the respective dates as of
which information is given in the Registration
Statement and Prospectus, and except as set forth or
contemplated in the Prospectus, the Company has not incurred
any liabilities or obligations, direct or contingent, nor
entered into any transactions not in the ordinary course of
business, and there has not been any material adverse change
in the condition (financial or otherwise), properties,
business, management, prospects, net worth or results of
operations of the Company or any change in the capital stock,
short-term or long-term debt of the Company.
(iv) The financial statements, together with the
related notes and schedules, set forth in the Prospectus and
elsewhere in the Registration Statement fairly present, on the
basis stated in the Registration Statement, the financial
position and the results of operations and changes in
financial position of the Company at the respective dates or
for the respective periods therein specified. Such statements
and related notes and schedules have been prepared in
accordance with generally accepted accounting principles
applied on a consistent basis except as may be set forth in
the Prospectus. The selected financial and pro forma financial
data set forth in the Prospectus under the
-4-
<PAGE> 5
caption "SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA"
fairly present, on the basis stated in the Registration
Statement, the information set forth therein.
(v) Coopers & Lybrand L.L.P., who have
expressed their opinions on the audited financial statements
and related schedules included in the Registration Statement
and the Prospectus, are independent public accountants as
required by the Securities Act and the Rules and
Regulations.
(vi) The Company has been duly organized and is
validly existing and in good standing as a corporation under
the laws of its jurisdiction of organization, with power and
authority (corporate and other) to own or lease its properties
and to conduct its business as described in the Prospectus;
the Company is in possession of and operating in compliance
with all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders required
for the conduct of its business, all of which are valid and in
full force and effect; and the Company is duly qualified to do
business and in good standing as a foreign corporation in all
other jurisdictions where its ownership or leasing of
properties or the conduct of its business requires such
qualification. The Company has all requisite power and
authority, and all necessary consents, approvals,
authorizations, orders, registrations, qualifications,
licenses and permits of and from all public regulatory or
governmental agencies and bodies to own, lease and operate its
properties and conduct its business as now being conducted and
as described in the Registration Statement and the Prospectus,
and no such consent, approval, authorization, order,
registration, qualification, license or permit contains a
materially burdensome restriction not adequately disclosed in
the Registration Statement and the Prospectus. The Company
does not own or control, directly or indirectly, any
corporation, association or other entity.
(vii) The Company's authorized and outstanding
capital stock is on the date hereof, and will be on the
Closing Date[s], as set forth under the
-5-
<PAGE> 6
heading "Capitalization" in the Prospectus; the outstanding
shares of Common Stock conform to the description thereof in
the Prospectus and have been duly authorized and validly
issued and are fully paid and nonassessable and have been
issued in compliance with all federal and state securities
laws and were not issued in violation of or subject to any
preemptive rights or similar rights to subscribe for or
purchase securities and conform to the description thereof
contained in the Prospectus. Except as disclosed in and or
contemplated by the Prospectus and the financial statements of
the Company and related notes thereto included in the
Prospectus, the Company does not have outstanding any options
or warrants to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments
to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The
description of the Company's stock option and other stock
plans or arrangements, and the options or other rights granted
or exercised thereunder, as set forth in the Prospectus,
accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and
rights.
(viii) The shares of Stock to be issued and sold
by the Company to the Underwriter hereunder have been
duly and validly authorized and, when issued and delivered
against payment therefor as provided herein, will be duly and
validly issued, fully paid and nonassessable and free of any
preemptive or similar rights and will conform to the
description thereof in the Prospectus. The shares of Common
Stock issuable upon exercise of the Warrants (as hereinafter
defined) have been duly and validly authorized and, when
issued and delivered against payment therefor in accordance
with the terms thereof, will be duly and validly issued, fully
paid and nonassessable and free of any preemptive or similar
rights.
(ix) Except as set forth in the Prospectus,
there are no legal or governmental proceedings pending to
which the Company is a party or of which any property of the
Company is subject, which,
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<PAGE> 7
if determined adversely to the Company, might individually or
in the aggregate (i) prevent or adversely affect the
transactions contemplated by this Agreement, (ii) suspend the
effectiveness of the Registration Statement, (iii) prevent or
suspend the use of the Pre-effective Prospectus in any
jurisdiction or (iv) result in a material adverse change in
the condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of
the Company; and to the best of the Company's knowledge, no
such proceedings are threatened or contemplated against the
Company by governmental authorities or others. The Company is
not a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory
body or other governmental agency or body. The description of
the Company's litigation under the heading "Business -- Legal
Proceedings" in the Prospectus is true and correct and
complies with the Rules and Regulations.
(x) The execution, delivery and performance of
this Agreement and the consummation of the transactions
herein contemplated will not result in a breach or violation
of any of the terms or provisions of or constitute a default
under any indenture, mortgage, deed of trust, note agreement
or other agreement or instrument to which the Company is a
party or by which it or any of its properties is or may be
bound, the Certificate of Incorporation, By-laws or other
organizational documents of the Company or any law, order,
rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its properties
or will result in the creation of a lien.
(xi) No consent, approval, authorization or
order of any court or governmental agency or body is
required for the consummation by the Company of the
transactions contemplated by this Agreement, except such as
may be required by the National Association of Securities
Dealers, Inc. (the "NASD") or under the Securities Act or the
securities or "Blue Sky" laws of any jurisdiction in
connection with the purchase and distribution of the Stock by
the Underwriter.
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<PAGE> 8
(xii) The Company has the full corporate power
and authority to enter into this Agreement and to
perform its obligations hereunder (including to issue, sell
and deliver the Stock), and this Agreement has been duly and
validly authorized, executed and delivered by the Company and
is a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except to
the extent that rights to indemnity and contribution hereunder
may be limited by federal or state securities laws or the
public policy underlying such laws. The Company has the full
corporate power and authority to execute and deliver the
Warrants on the terms and conditions set forth in this
Agreement and in the Warrants, and such execution and delivery
of the Warrants has been duly and validly authorized, and when
executed and delivered pursuant to this Agreement, the
Warrants will be enforceable against the Company in accordance
with their terms.
(xiii) The Company is in all material respects in
compliance with, and conducts its business in conformity with,
all applicable federal, state, local and foreign laws, rules
and regulations of each court or governmental agency or body
having jurisdiction over the Company; to the knowledge of the
Company, otherwise than as set forth in the Registration
Statement and the Prospectus, no prospective change in any of
such federal or state laws, rules or regulations has been
adopted which, when made effective, would have a material
adverse effect on the operations of the Company.
(xiv) The Company has filed all necessary
federal, state, local and foreign income, payroll,
franchise and other tax returns and has paid all taxes shown
as due thereon or with respect to any of its properties, and
there is no tax deficiency that has been, or to the knowledge
of the Company is likely to be, asserted against the Company
or any of its properties or assets that would adversely affect
the financial position, business or operations of the Company.
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<PAGE> 9
(xv) No person or entity has the right to
require registration of shares of Common Stock or other
securities of the Company because of the filing or
effectiveness of the Registration Statement or otherwise,
except for persons and entities who have expressly waived such
right or who have been given proper notice and have failed to
exercise such right within the time or times required under
the terms and conditions of such right.
(xvi) Neither the Company nor any of its
officers, directors or affiliates has taken or will take,
directly or indirectly, any action designed or intended to
stabilize or manipulate the price of any security of the
Company, or which caused or resulted in, or which might in the
future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any
security of the Company.
(xvii) The Company has provided you with
all financial statements since _____________________,
1996 to the date hereof that are available to the officers of
the Company.
(xviii) The Company owns or possesses all patents,
trademarks, trademark registrations, service marks,
service mark registrations, tradenames, copyrights, licenses,
inventions, trade secrets and rights described in the
Prospectus as being owned by it or necessary for the conduct
of its business, and the Company is not aware of any claim to
the contrary or any challenge by any other person to the
rights of the Company with respect to the foregoing. The
Company's business as now conducted and as proposed to be
conducted does not and will not infringe or conflict with any
patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses or other intellectual property or
franchise right of any person. No claim has been made against
the Company alleging the infringement by the Company of any
patent, trademark, service mark, tradename, copyright, trade
secret, license in or other intellectual property right or
franchise right of any person.
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<PAGE> 10
(xix) The Company has performed all material
obligations required to be performed by it under any
indenture, mortgage, deed of trust, note agreement or other
agreement or instrument to which it is a party or by which it
or any of its properties may be bound, and neither the Company
nor any other party to such indenture, mortgage, deed of
trust, note agreement or other agreement or instrument is in
default under or in breach of any such obligations.
(xx) The Company is not involved in any labor
dispute nor is any such dispute threatened. The
Company is not aware that (A) any executive, key employee or
significant group of employees of the Company plans to
terminate employment with the Company or (B) any such
executive or key employee is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or
similar agreement that would be violated by the present or
proposed business activities of the Company. The Company does
not have and does not expect to have any liability for any
prohibited transaction or funding deficiency or any complete
or partial withdrawal liability with respect to any pension,
profit sharing or other plan which is subject to the Employee
Retirement Income Security Act of 1974, as amended (ERISA), to
which the Company makes or ever has made a contribution and in
which any employee of the Company is or has ever been a
participant. With respect to such plans, the Company is in
compliance in all material respects with all applicable
provisions of ERISA.
(xxi) The Company has obtained the written
agreement described in Section 8(j) of this Agreement from
each of its officers, directors and holders of Common Stock
listed on Schedule A hereto.
(xxii) The Company has, and the Company as of the
Closing Date[s] will have, good and marketable title in fee
simple to all real property and good and marketable title to
all personal property owned or proposed to be owned by it
which is material to the business of the Company, in each case
free and clear of all liens, encumbrances and defects, except
such as are described in the Prospectus or such as would not
have a
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<PAGE> 11
material adverse effect on the Company; and any real property
and buildings held under lease by the Company or proposed to
be held after giving effect to the transactions described in
the Prospectus are, or will be as of the Closing Date[s],
held by it under valid, subsisting and enforceable leases with
such exceptions as would not have a material adverse effect on
the Company, in each case except as described in or
contemplated by the Prospectus.
(xxiii) The Company is insured by insurers of
recognized financial responsibility against such losses and
risks and in such amounts as are customary in the business in
which it is engaged or proposes to engage after giving effect
to the transactions described in the Prospectus; and the
Company does not have any reason to believe that it will not
be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business
at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business
or operations of the Company, except as described in or
contemplated by the Prospectus.
(xxiv) Other than as contemplated by this
Agreement, there is no broker, finder or other party that is
entitled to receive from the Company any brokerage or finder's
fee or other fee or commission as a result of any of the
transactions contemplated by this Agreement.
(xxv) The Company has complied with all
provisions of Section ___ of the Delaware General Corporation
Law.
(xxvi) The Company maintains a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance
with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles and to maintain accountability
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<PAGE> 12
for assets; (iii) access to assets is permitted only in
accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(xxvii) To the Company's knowledge, neither the
Company nor any employee or agent of the Company has made any
payment of funds of the Company or received or retained any
funds in violation of any law, rule or regulation.
(xxviii) The Company is not an "investment company"
or an entity "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of 1940,
as amended.
(xxix) Each certificate signed by any officer of
the Company and delivered to the Underwriter or counsel for
the Underwriter shall be deemed to be a representation and
warranty by the Company as to the matters covered thereby.
3. Purchase by, and Sale and Delivery to,
Underwriter-Closing Date[s]. The Company agrees to sell to the Underwriter
the Firm Stock, and on the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Underwriter agrees, severally and not jointly, to purchase the
Firm Stock.
The purchase price per share to be paid by the Underwriter to
the Company will be $___ per share (the "Purchase Price").
The Company will deliver the Firm Stock to the Underwriter
(in the form of definitive certificates, issued in such names and in such
denominations as the Underwriter may direct by notice in writing to the
Company given at or prior to 12:00 Noon, New York Time, on the second full
business day preceding the First Closing Date (as defined below),
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<PAGE> 13
against payment of the aggregate Purchase Price therefor by
certified or official bank check or checks in Clearing House funds (next day
funds), payable to the order of the Company, all at the offices of Willkie Farr
& Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York
10022. The time and date of the delivery and closing shall be at 10:00 A.M.,
New York Time, on ____, 1996, in accordance with Rule 15c6-1 of the Securities
Exchange Act of 1934 (the "Exchange Act"). The time and date of such payment
and delivery are herein referred to as the "First Closing Date". The First
Closing Date and the location of delivery of, and the form of payment for, the
Firm Stock may be varied by agreement between the Company and the Underwriter.
The First Closing Date may be postponed pursuant to the provisions of Section
12.
The Company shall make the certificates for the Stock
available to the Underwriter for examination not later than 10:00 A.M., New
York Time, on the business day preceding the First Closing Date at the offices
of the Underwriter, 540 Madison Avenue, New York, New York 10022.
The Underwriter agrees to make an initial public offering of
the Firm Stock at the initial public offering price as soon after the
effectiveness of the Registration Statement as in their judgment is advisable.
The Underwriter shall promptly advise the Company of the making of the initial
public offering.
For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Stock as contemplated by the
Prospectus, the Company hereby grants to the Underwriter an option to purchase
up to an aggregate of 187,500 shares of Option Stock. The price per share to
be paid for the Option Stock shall be the Purchase Price.
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<PAGE> 14
The option granted hereby may be exercised as to all or any part of the Option
Stock at any time, and from time to time, not more than thirty (30) days
subsequent to the effective date of this Agreement. No Option Stock shall be
sold and delivered unless the Firm Stock previously has been, or simultaneously
is, sold and delivered. The right to purchase the Option Stock or any portion
thereof may be surrendered and terminated at any time upon notice by the
Underwriter to the Company.
The option granted hereby may be exercised by the Underwriter
by giving written notice to the Company setting forth the number of shares of
the Option Stock to be purchased by them and the date and time for delivery of
and payment for the Option Stock. Each date and time for delivery of and
payment for the Option Stock (which may be the First Closing Date, but not
earlier) is herein called the "Option Closing Date" and shall in no event be
earlier than two (2) business days nor later than ten (10) business days after
written notice is given. (The Option Closing Date and the First Closing Date
are herein called the "Closing Dates".) Upon exercise of the option by the
Underwriter, the Company agrees to sell to the Underwriter the number of shares
of Option Stock set forth in the written notice of exercise and the Underwriter
agrees to purchase the number of such shares determined as aforesaid.
The Company will deliver the Option Stock to the Underwriter
(in the form of definitive certificates, issued in such names and in such
denominations as the Underwriter may direct by notice in writing to the Company
given at or prior to 12:00 Noon, New York Time, on the second full business day
preceding the Option Closing Date, against payment of the aggregate Purchase
Price therefor by certified or official bank check or checks in Clearing House
funds (next day funds), payable to the order of the Company
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<PAGE> 15
all at the offices of Willkie Farr & Gallagher, One Citicorp Center, 153 East
53rd Street, New York, New York 10022. The Company shall make the
certificate[s] for the Option Stock available to the Underwriter for
examination not later than 10:00 A.M., New York Time, on the business day
preceding the Option Closing Date at the offices of the Underwriter, 540
Madison Avenue, New York, New York 10022. The Option Closing Date and the
location of delivery of, and the form of payment for, the Option Stock may be
varied by agreement between the Company and the Underwriter. The Option
Closing Date may be postponed pursuant to the provisions of Section 12.
In order to induce you to enter into this Agreement, the
Company, in consideration of the receipt of $___ for each Warrant and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, shall execute and deliver to you, or your assignees, in
compliance with the rules of the NASD, warrants exercisable during the five -
year period commencing on the date of this Agreement (the "Warrants") to
purchase an aggregate of 125,000 shares of Common Stock at an exercise price
per share equal to 120% of the initial public offering price per share set
forth on the cover page of the Prospectus. The Warrants shall be in the form
of Exhibit 4.3 to the Registration Statement. Execution and delivery of
Warrants, registered in your name or the names in which you shall notify the
Company in writing, shall be made to you, at your offices at 540 Madison
Avenue, New York, New York 10022, at the First Closing Date. The cost of
original issue tax stamps, if any, in connection with the execution and
delivery of the Warrants shall be borne by the Company.
4. Covenants and Agreements of the Company. The
Company covenants and agrees with the Underwriter that:
(a) The Company will (i) if the Company and
the Underwriter have determined not to proceed pursuant to
Rule 430A, use its best efforts to cause the Registration
Statement to become effective, (ii) if the Company and the
Underwriter have determined to proceed pursuant to Rule
430A, use its best efforts to comply with the provisions of
and make all requisite filings with the Commission pursuant to
Rule 430A and Rule 424 of the Rules and Regulations and (iii)
if the Company and the Underwriter have determined to
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<PAGE> 16
deliver Prospectuses pursuant to Rule 434 of the Rules and
Regulations, to use its best efforts to comply with all the
applicable provisions thereof. The Company will advise the
Underwriter promptly as to the time at which the
Registration Statement becomes effective, will advise the
Underwriter promptly of the issuance by the Commission of
any stop order suspending the effectiveness of the
Registration Statement or of the institution of any
proceedings for that purpose, and will use its best efforts to
prevent the issuance of any such stop order and to obtain as
soon as possible the lifting thereof, if issued. The Company
will advise the Underwriter promptly of the receipt of any
comments of the Commission or any request by the Commission
for any amendment of or supplement to the Registration
Statement or the Prospectus or for additional information and
will not at any time file any amendment to the Registration
Statement or supplement to the Prospectus which shall not
previously have been submitted to the Underwriter a
reasonable time prior to the proposed filing thereof or to
which the Underwriter shall reasonably object in writing or
which is not in compliance with the Securities Act and the
Rules and Regulations.
(b) The Company will prepare and file with the
Commission, promptly upon the request of the Underwriter,
any amendments or supplements to the Registration Statement or
the Prospectus which in the opinion of the Underwriter may
be necessary to enable the Underwriter to continue the
distribution of the Stock and will use its best efforts to
cause the same to become effective as promptly as possible.
(c) If at any time after the effective date of
the Registration Statement when a prospectus relating to the
Stock is required to be delivered under the Securities Act any
event relating to or affecting the Company occurs as a result
of which the Prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact,
or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under
which they were made, not misleading, or if it is
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<PAGE> 17
necessary at any time to amend the Prospectus to comply with
the Securities Act, the Company will promptly notify the
Underwriter thereof and will prepare an amended or
supplemented prospectus which will correct such statement or
omission; and in case the Underwriter is required to deliver a
prospectus relating to the Stock nine (9) months or more after
the effective date of the Registration Statement, the Company
upon the request of the Underwriter and at the expense of
such Underwriter will prepare promptly such prospectus or
prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Securities Act.
(d) The Company will deliver to the
Underwriter, at or before the First Closing Date, signed
copies of the Registration Statement, as originally filed with
the Commission, and all amendments thereto, including all
financial statements and exhibits thereto, and will deliver to
the Underwriter such number of copies of the Registration
Statement, including such financial statements but without
exhibits, and all amendments thereto, as the Underwriter
may reasonably request. The Company will deliver or mail to
or upon the order of the Underwriter, from time to time
until the effective date of the Registration Statement, as
many copies of the Pre-effective Prospectus as the
Underwriter may reasonably request. The Company will
deliver or mail to or upon the order of the Underwriter on
the date of the initial public offering, and thereafter from
time to time during the period when delivery of a prospectus
relating to the Stock is required under the Securities Act, as
many copies of the Prospectus, in final form or as thereafter
amended or supplemented, as the Underwriter may reasonably
request; provided, however, that the expense of the
preparation and delivery of any prospectus required for use
nine (9) months or more after the effective date of the
Registration Statement shall be borne by the Underwriter.
(e) The Company will make generally available
to its stockholders as soon as practicable,
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<PAGE> 18
but not later than fifteen (15) months after the effective
date of the Registration Statement, an earnings statement
which will be in reasonable detail (but which need not be
audited) and which will comply with Section 11(a) of the
Securities Act, covering a period of at least twelve (12)
months beginning after the "effective date" (as defined in
Rule 158 under the Securities Act) of the Registration
Statement.
(f) The Company will cooperate with the
Underwriter to enable the Stock to be registered or
qualified for offering and sale by the Underwriter and by
dealers under the securities laws of such jurisdictions as the
Underwriter may designate and at the request of the
Underwriter will make such applications and furnish such
consents to service of process or other documents as may be
required of it as the issuer of the Stock for that purpose;
provided, however, that the Company shall not be required to
qualify to do business or to file a general consent (other than
that arising out of the offering or sale of the Stock) to
service of process in any such jurisdiction where it is not now
so subject. The Company will, from time to time, prepare and
file such statements and reports as are or may be required of
it as the issuer of the Stock to continue such qualifications
in effect for so long a period as the Underwriter may
reasonably request for the distribution of the Stock. The
Company will advise the Underwriter promptly after the
Company becomes aware of the suspension of the qualifications
or registration of (or any such exception relating to) the
Common Stock of the Company for offering, sale or trading in
any jurisdiction or of any initiation or threat of any
proceeding for any such purpose, and in the event of the
issuance of any orders suspending such qualifications,
registration or exception, the Company will, with the
cooperation of the Underwriter, use its best efforts to
obtain the withdrawal thereof.
(g) The Company will furnish to its stockholders
annual reports containing financial statements certified by
independent public accountants and with quarterly summary
financial information in reasonable detail which may be
unaudited. During the
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<PAGE> 19
period of five (5) years from the date hereof, the Company
will deliver to the Underwriter, as soon as they are available,
copies of each annual report of the Company containing the
balance sheet of the Company as of the close of such fiscal
year and statements of income, stockholders' equity and cash
flows for the year then ended and the opinion thereon of the
Company's independent public accountants and each other report
or communication furnished by the Company to its stockholders
and will deliver to the Underwriter, (i) as soon as they
are available, copies of any other reports or communication
(financial or other) which the Company shall publish or
otherwise make available to any of its stockholders as such,
(ii) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the
Commission, the NASD or any national securities exchange and
(iii) from time to time such other information concerning the
Company as you may request.
(h) The Company will use its best efforts to
list the Stock, subject to official notice of issuance,
on the Nasdaq SmallCap Market.
(i) The Company will maintain a transfer
agent and registrar for the Common Stock.
(j) Prior to filing its quarterly statements
on Form 10-Q, the Company will have its independent
auditors perform a limited quarterly review of its
quarterly numbers.
(k) The Company will not offer, sell, assign,
transfer, encumber, contract to sell, grant an option to
purchase or otherwise dispose of any shares of Common Stock or
securities convertible into or exercisable or exchangeable for
Common Stock during the 180 days following the date on which
the price of the Common Stock to be purchased by the
Underwriter is established, other than the Company's sale of
Common Stock hereunder, the issuance of the Warrants and the
Company's issuance of Common Stock upon the exercise of the
warrants and [upon the exercise stock options which
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<PAGE> 20
are presently outstanding and described in the Prospectus.
(1) The Company will apply the net proceeds
from the sale of the Stock as set forth in the description
under the heading "Use of Proceeds" in the Prospectus, which
description complies in all respects with the requirements of
Item 504 of Regulation S-K.
(m) The Company will supply you with copies
of all correspondence to and from, and all documents issued to
and by, the Commission in connection with the registration of
the Stock under the Securities Act.
(n) Prior to the Closing Date[s] the
Company will furnish to you, as soon as they have been
prepared, copies of any unaudited interim financial statements
of the Company for any periods subsequent to the periods
covered by the financial statements appearing in the
Registration Statement and the Prospectus.
(o) Prior to the Closing Date[s] the
Company will issue no press release or other communications
directly or indirectly and hold no press conference with
respect to the Company, the financial condition, results of
operation, business, prospects, assets or liabilities of the
Company or the offering of the Stock, without your prior
written consent. For a period of twelve (12) months following
the Option Closing Date, the Company will use its best efforts
to provide to you copies of each press release or other public
communications with respect to the financial condition, results
of operations, business, prospects, assets or liabilities of
the Company at least twenty-four (24) hours prior to the public
issuance thereof or such longer advance period as may
reasonably be practicable.
5. Payment of Expenses. (a) The Company will pay
(directly or by reimbursement) all costs, fees and expenses incurred in
connection with expenses incident to the performance of its obligations under
this Agreement and in connection with the transactions contemplated hereby,
including but not limited to (i) all expenses and taxes incident to the
issuance and delivery of
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<PAGE> 21
the Stock to the Underwriter; (ii) all expenses incident to the registration
of the Stock under the Securities Act; (iii) the costs of preparing stock
certificates (including printing and engraving costs); (iv) all fees and
expenses of the registrar and transfer agent of the Common Stock; (v) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Stock to the Underwriter; (vi) fees and expenses of the
Company's counsel and the Company's independent accountants; (vii) all costs
and expenses incurred in connection with the preparation, printing filing,
shipping and distribution of the Registration Statement, each Pre-effective
Prospectus and the Prospectus (including all exhibits and financial statements)
and all amendments and supplements provided for herein, the Master
Selected Dealers' Agreement, the Underwriters' Questionnaire, the Blue Sky
memoranda and this Agreement; (viii) all filing fees, attorneys' fees and
expenses incurred by the Company or the Underwriter in connection with
exemptions from the qualifying or registering (or obtaining qualification or
registration of) all or any part of the Stock for offer and sale under the Blue
Sky or other securities laws of such jurisdictions as the Underwriter may
designate; (ix) all fees and expenses paid or incurred in connection with
filings made with the NASD; and (x) all other costs and expenses incident to
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section 5.
(b) In addition to its other obligations under Section
6(a) hereof, the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding arising out of
or based upon (i) any statement or omission or any alleged statement or omission
or (ii) any breach or inaccuracy in its representations and warranties, it will
reimburse the Underwriter on a quarterly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Company's obligation to reimburse the Underwriter for such expenses and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriter shall
promptly return it to the Company together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial
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<PAGE> 22
lending rate for borrowers of the highest credit standing) announced from time
to time by _______ , New York, New York (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriter in a timely manner
as provided below shall bear interest at the Prime Rate from the due date for
such reimbursement. This expense reimbursement agreement will be in addition
to any other liability which the Company may otherwise have. The request for
reimbursement will be sent to the Company.
(c) In addition to its other obligations under Section
6(b) hereof, the Underwriter agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, described in Section 6(b) hereof which relates to
written information furnished to the Company by the Underwriter specifically
for inclusion in the Registration Statement and the Prospectus, it will
reimburse the Company (and, to the extent applicable, each officer, director
or controlling person) on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Underwriter's obligation to reimburse the Company (and, to the extent
applicable, each officer, director or controlling person) for such expenses and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company (and, to
the extent applicable, each officer, director or controlling person) shall
promptly return it to the Underwriters together with interest, compounded
daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement will be in addition to any
liability which the Underwriter may otherwise have.
(d) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in paragraph (b)
or (c) of this Section 5, including the amounts of any requested reimbursement
payments and the method of determining such amounts, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of
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<PAGE> 23
the Board of Governors of the New York Stock Exchange, Inc. or pursuant to the
Code of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or written notice of
intention to arbitrate, therein electing the arbitration tribunal. In the
event the party demanding arbitration does not make such designation of an
arbitration tribunal in such demand or notice, then the party responding to
said demand or notice is authorized to do so. Such an arbitration would be
limited to the operation of the interim reimbursement provisions contained in
paragraph (b) or (c) of this Section 5 and would not resolve the ultimate
propriety or enforceability of the obligation to reimburse expenses which is
created by the provisions of Section 6.
6. Indemnification and Contribution. (a) The Company
agrees to indemnify and hold harmless the Underwriter and each person,
if any, who controls the Underwriter within the meaning of the Securities Act
and the respective officers, directors, partners, employees, representatives
and agents of the Underwriter (collectively, the "Underwriter Indemnified
Parties" and, each, an "Underwriter Indemnified Party"), against any losses,
claims, damages, liabilities or expenses (including the reasonable cost of
investigating and defending against any claims therefor and counsel fees
incurred in connection therewith), joint or several, which may be based upon
the Securities Act, or any other statute or at common law, on the ground or
alleged ground that any Pre-effective Prospectus, the Registration Statement or
the Prospectus (or any Pre-effective Prospectus, the Registration Statement or
the Prospectus as from time to time amended or supplemented) includes or
allegedly includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, unless such statement or omission was made in reliance upon,
and in conformity with, written information furnished to the Company by the
Underwriter specifically for use in the preparation thereof; provided, that
with respect to any untrue statement or omission or alleged untrue statement or
omission made in any Pre-effective Prospectus, the indemnity agreement
contained in this subsection (a) shall not inure to the benefit of any
Underwriter Indemnified Party from whom the person asserting any such losses,
claims, damages or liabilities purchased the shares of Stock concerned to the
extent that any such loss, claim, damage or liability of such Underwriter
-23-
<PAGE> 24
Indemnified Party results from the fact that a copy of the Prospectus was not
sent or given to such person at or prior to the written confirmation of the
sale of such shares of Stock to such person as required by the Securities Act
and if the untrue statement or omission concerned has been corrected in the
Prospectus. The Company will be entitled to participate at its own expense in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Company elects to assume the defense,
such defense shall be conducted by counsel chosen by it. In the event the
Company elects to assume the defense of any such suit and retain such counsel,
any Underwriter Indemnified Parties, defendant or defendants in the suit, may
retain additional counsel but shall bear the fees and expenses of such counsel
unless (i) the Company shall have specifically authorized the retaining of such
counsel or (ii) the parties to such suit include any such Underwriter
Indemnified Parties and the Company and such Underwriter Indemnified Parties
have been advised by counsel to the Underwriter that one or more legal defenses
may be available to it or them which may not be available to the Company, in
which case the Company shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of such counsel.
This indemnity agreement is not exclusive and will be in addition to any
liability which the Company might otherwise have and shall not limit any rights
or remedies which may otherwise be available at law or in equity to each
Underwriter Indemnified Party.
(b) The Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement and each person, if any,
who controls the Company within the meaning of the Securities Act
(collectively, the "Company Indemnified Parties"), against any losses, claims,
damages, liabilities or expenses (including, unless the Underwriter or
Underwriter elects to assume the defense, the reasonable cost of investigating
and defending against any claims therefor and counsel fees incurred in
connection therewith), joint or several, which arise out of or are based in
whole or in part upon the Securities Act, the Exchange Act or any other
federal, state, local or foreign statute or regulation, or at common law, on
the ground or alleged ground that any Pre-effective Prospectus, the
Registration Statement or the Prospectus (or any Pre-effective Prospectus, the
Registration Statement or the Prospectus, as from time to time amended and
supplemented) includes an untrue
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<PAGE> 25
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading, but only
insofar as any such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by the
Underwriter, specifically for use in the preparation thereof; provided,
however, that in no case is such Underwriter to be liable with respect to any
claims made against any Company Indemnified Party against whom the action is
brought unless such Company Indemnified Party shall have notified the
Underwriter in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon the Company Indemnified Party, but failure to notify the
Underwriter of such claim shall not relieve it from any liability which it may
have to any Company Indemnified Party otherwise than on account of its
indemnity agreement contained in this paragraph. The Underwriter shall be
entitled to participate at its own expense in the defense, or, if it so elects,
to assume the defense of any suit brought to enforce any such liability, but,
if such Underwriter elects to assume the defense, such defense shall be
conducted by counsel chosen by it. In the event that the Underwriter elects to
assume the defense of any such suit and retain such counsel, the Company
Indemnified Parties and any other Underwriter or Underwriters or controlling
person or persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, respectively. The
Underwriter shall not be liable to indemnify any person for any settlement of
any such claim effected without the Underwriter's consent. This indemnity
agreement is not exclusive and will be in addition to any liability which the
Underwriter might otherwise have and shall not limit any rights or remedies
which may otherwise be available at law or in equity to any Company Indemnified
Party.
(c) If the indemnification provided for in this Section 6
is unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits
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<PAGE> 26
received by the Company on the one hand and the Underwriter on the other from
the offering of the Stock. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand
and the Underwriter on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting, in each case
as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the Underwriter and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriter agree that it would not be just and
equitable if contribution were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to above. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to above shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating, defending, settling or compromising any such
claim. Notwithstanding the provisions of this subsection (c), the Underwriter
shall not be required to contribute any amount in excess of the amount by
which the total price at which the shares of the Stock underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which the Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be
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<PAGE> 27
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
7. Survival of Indemnities, Representations,
Warranties, etc. The respective indemnities, covenants, agreements,
representations, warranties and other statements of the Company and the
Underwriter, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless
of any investigation made by or on behalf of the Underwriter, the Company or
any of its officers or directors or any controlling person, and shall survive
delivery of and payment for the Stock.
8. Conditions of Underwriter's Obligations. The
respective obligations of the Underwriter hereunder shall be subject
to the accuracy, at and (except as otherwise stated herein) as of the date
hereof and at and as of the Closing Date[s], of the representations and
warranties made herein by the Company, to compliance at and as of the Closing
Date[s] by the Company with its covenants and agreements herein contained and
other provisions hereof to be satisfied at or prior to the Closing Date[s], and
to the following additional conditions:
(a) The Registration Statement shall have
become effective and no stop order suspending the
effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to
the knowledge of the Company, shall be threatened by the
Commission, and any request for additional information on the
part of the Commission (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the
Underwriter. Any filings of the Prospectus, or any supplement
thereto, required pursuant to Rule 424(b) or Rule 434 of the
Rules and Regulations shall have been made in the manner and
within the time period required by Rule 424 (b) and Rule
434 of the Rules and Regulations, as the case may be.
(b) The Underwriter shall have been
satisfied that there shall not have occurred any change prior
to the Closing Date [s], in the condition (financial or
otherwise), properties, business, management, prospects, net
worth or results of
-27-
<PAGE> 28
operations of the Company, or any change in the capital stock,
short-term or long-term debt of the Company, such that (i) the
Registration Statement or the Prospectus, or any amendment or
supplement thereto, contains an untrue statement of fact
which, in the opinion of the Underwriter, is material, or
omits to state a fact which, in the opinion of the
Underwriter, is required to be stated therein or is
necessary to make the statements therein not misleading, or
(ii) it is unpracticable in the reasonable judgment of the
Underwriter to proceed with the public offering or purchase
the Stock as contemplated hereby.
(c) The Underwriter shall be satisfied
that no legal or governmental action, suit or proceeding
affecting the Company which is material and adverse to the
Company or which affects or may affect the Company's ability to
perform its obligations under this Agreement shall have been
instituted or threatened and there shall have occurred no
material adverse development in any existing such action, suit
or proceeding.
(d) At the time of execution of this
Agreement, the Underwriter shall have received from Coopers
& Lybrand L.L.P., independent certified public accountants, a
letter, dated the date hereof, in form and substance
satisfactory to the Underwriter.
(e) The Underwriter shall have received
from Coopers & Lybrand L.L.P., independent certified public
accountants, letters, dated the Closing Date[s], to the effect
that such accountants reaffirm, as of the Closing Date[s],
and as though made on the Closing Date[s], the statements made
in the letter furnished by such accountants pursuant to
paragraph (d) of this Section 8.
(f) The Underwriter shall have received
from Morris, Manning & Martin, L.L.P., counsel for the Company,
an opinion, dated the Closing Date [s] , to the effect set
forth in Exhibit I hereto. In rendering such opinion, Morris,
Manning & Martin, L.L.P. may rely as to all matters governed
other than by the laws of
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<PAGE> 29
the State of Georgia, the Delaware General Corporation Law or
federal laws on the opinion of local counsel of good standing
in such jurisdictions, provided that such local counsel is
satisfactory to the counsel to the Underwriter and that in
each case Morris, Manning & Martin, L.L.P. shall state that
they believe that they and the Underwriters are justified in
relying on such other counsel.
(g) The Underwriter shall have received
from Willkie Farr & Gallagher, counsel for the Underwriter,
their opinion or opinions dated the Closing Date[s] with
respect to the incorporation of the Company, the validity of
the Stock, the Registration Statement and the Prospectus and
such other related matters as it may reasonably request, and
the Company shall have furnished to such counsel such documents
as they may request for the purpose of enabling them to pass
upon such matters. In rendering such opinion, Willkie Farr &
Gallagher may rely as to all matters governed other than by the
laws of the State of New York, the Delaware General Corporation
Law or federal laws on the opinion of counsel referred to in
paragraph (f) of this Section 8.
(h) The Underwriter shall have received
a certificate, dated the Closing Date[s], of the chief
executive officer or the President and the chief financial or
accounting officer of the Company to the effect that:
(i) No stop order suspending the
effectiveness of the Registration Statement has
been issued, and, to the best of the knowledge of the
signers, no proceedings for that purpose have been
instituted or are pending or contemplated under
the Securities Act;
(ii) Neither any Pre-effective
Prospectus, as of its date, nor the Registration
Statement nor the Prospectus, nor any amendment or
supplement thereto, as of the time when the
Registration Statement became effective and at all
times subsequent thereto up to the delivery of such
certificate, included any untrue statement of
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<PAGE> 30
a material fact or omitted to state any material fact
required to be stated therein or necessary to make
the statements therein, in light of the
circumstances under which they were made, not
misleading;
(iii) Subsequent to the respective
dates as of which information is given in the
Registration Statement and the Prospectus, and except
as set forth or contemplated in the Prospectus, the
Company has not incurred any material liabilities or
obligations, direct or contingent, nor entered into
any material transactions not in the ordinary course
of business and there has not been any material
adverse change in the condition (financial or
otherwise), properties, business, management,
prospects, net worth or results of operations of the
Company, or any change in the capital stock,
short-term or long-term debt of the Company;
(iv) The representations and
warranties of the Company in this Agreement are true
and correct at and as of the Closing Date[s], and
the Company has complied with all the agreements and
performed or satisfied all the conditions on its part
to be performed or satisfied at or prior to the
Closing Date[s]; and
(v) Since the respective dates as of which
information is given in the Registration Statement
and the Prospectus, and except as disclosed in or
contemplated by the Prospectus, (i) there has not
been any material adverse change or a development
involving a material adverse change in the condition
(financial or otherwise), properties, business,
management, prospects, net worth or results of
operations of the Company; (ii) the business
and operations conducted by the Company have not
sustained a loss by strike, fire, flood, accident or
other calamity (whether or not insured) of such a
character as to interfere materially with the conduct
of the business and operations of the Company; (iii)
no legal or governmental action, suit or proceeding
is pending
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<PAGE> 31
or threatened against the Company which is material
to the Company, whether or not arising from
transactions in the ordinary course of business, or
which may materially and adversely affect the
transactions contemplated by this Agreement; (iv)
since such dates and except as so disclosed, the
Company has not incurred any material liability or
obligation, direct, contingent or indirect, made any
change in its capital stock, made any material change
in its short-term or funded debt or repurchased or
otherwise acquired any of the Company's capital
stock; and (v) the Company has not declared or paid
any dividend, or made any other distribution, upon
its outstanding capital stock payable to
stockholders of record on a date prior to the
Closing Date.
(i) The Company shall have furnished
to the Underwriter such additional certificates as
the Underwriter may have reasonably requested as to the
accuracy, at and as of the Closing Date[s], of the
representations and warranties made herein by it and as to
compliance at and as of the Closing Date[s] by it with its
covenants and agreements herein contained and other provisions
hereof to be satisfied at or prior to the Closing Date[s], and
as to satisfaction of the other conditions to the obligations
of the Underwriter hereunder.
(j) The Underwriter shall have
received the written agreements of the officers and
directors of the Company and the holders of securities of the
Company listed in Schedule A that each will not offer, sell,
assign, transfer, encumber, contract to sell, grant an option
to purchase or otherwise dispose of, other than by operation
of law, gifts, pledges or dispositions by estate
representatives, any shares of Common Stock (including,
without limitation, Common Stock which may be deemed to be
beneficially owned by such officer, director or holder in
accordance with the Rules and Regulations) or securities
convertible into or exercisable or exchangeable for Common
Stock during the 180 days following the date of the final
Prospectus.
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<PAGE> 32
(k) The Nasdaq SmallCap Market shall
have approved the Stock for inclusion, subject only to official
notice of issuance.
All opinions, certificates, letters and other documents will be
in compliance with the provisions hereunder only if they are satisfactory in
form and substance to the Underwriter. The Company will furnish to the
Underwriter conformed copies of such opinions, certificates, letters and
other documents as the Underwriter shall reasonably request. If any of the
conditions hereinabove provided for in this Section shall not have been
satisfied when and as required by this Agreement, this Agreement may be
terminated by the Underwriter by notifying the Company of such termination
in writing or by telegram at or prior to the Closing Date[s], but Ladenburg
shall be entitled to waive any of such conditions.
9. Effective Date. This Agreement shall become
effective immediately as to Sections 5, 6, 7, 9, 10, 11, 12, 13, 14, 15, 16,
and 17 and, as to all other provisions, at 11:00 a.m. New York City time, on
the first full business day following the effectiveness of the Registration
Statement or at such earlier time after the Registration Statement becomes
effective as the Underwriter may determine on and by notice to the Company
or by release of any of the Stock for sale to the public. For the purposes of
this Section 9, the Stock shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the Stock or
upon the release by you of telegrams (i) advising the Underwriter that the
shares of Stock are released for public offering or (ii) offering the Stock
for sale to securities dealers, whichever may occur first.
10. Termination. This Agreement (except for the
provisions of Section 5) may be terminated by the Company at any time before it
becomes effective in accordance with Section 9 by notice to the Underwriter
and may be terminated by the Underwriter at any time before it becomes
effective in accordance with Section 9 by notice to the Company. In the event
of any termination of this Agreement under this or any other provision of this
Agreement, there shall be no liability of any party to this Agreement to any
other party, other than as provided in Sections 5, 6 and 11.
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<PAGE> 33
This Agreement may be terminated after it becomes effective by
the Underwriter by notice to the Company (i) if at or prior to the First
Closing Date trading in securities on any of the New York Stock Exchange,
American Stock Exchange or Nasdaq National Market shall have been suspended or
minimum or maximum prices shall have been established on any such exchange or
market, or a banking moratorium shall have been declared by New York or United
States authorities; (ii) trading of any securities of the Company shall have
been suspended on any exchange or in any over-the-counter market; (iii) if at
or prior to the First Closing Date there shall have been (A) an outbreak or
escalation of hostilities between the United States and any foreign power or of
any other insurrection or armed conflict involving the United States or (B) any
change in financial markets or any calamity or crisis which, in the judgment of
the Underwriter, makes it impractical or inadvisable to offer or sell the
Firm Stock on the terms contemplated by the Prospectus; (iv) if there shall
have been any development or prospective development involving particularly the
business or properties or securities of the Company or the transactions
contemplated by this Agreement, which, in the judgment of the Underwriter,
makes it impracticable or inadvisable to offer or deliver the Firm Stock on the
terms contemplated by the Prospectus; (v) if there shall be any litigation or
proceeding, pending or threatened, which, in the judgment of the
Underwriter, makes it impracticable or inadvisable to offer or deliver the
Firm Stock on the terms contemplated by the Prospectus; or (vi) if there shall
have occurred any of the events specified in the immediately preceding clauses
(i) - (v) together with any other such event that makes it, in the judgment of
the Underwriter, impractical or inadvisable to offer or deliver the Firm
Stock on the terms contemplated by the Prospectus.
11. Reimbursement of Underwriter. Notwithstanding any
other provisions hereof, if this Agreement shall not become effective by reason
of any election of the Company pursuant to the first paragraph of Section 10 or
shall be terminated by the Underwriter under Section 8 or Section 10, the
Company will bear and pay the expenses specified in Section 5 hereof and, in
addition to its obligations pursuant to Section 6 hereof, the Company will
reimburse the reasonable out-of-pocket expenses of the Underwriter
(including reasonable fees and disbursements of counsel for the Underwriters)
incurred in connection with this Agreement and the proposed purchase of the
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<PAGE> 34
Stock, and promptly upon demand the Company will pay such amounts to you.
-34-
<PAGE> 35
12. Notices. All communications hereunder shall be in
writing and, if sent to the Underwriter shall be mailed, delivered or
telegraphed and confirmed to you at Ladenburg Thalmann & Co. Inc. at 590
Madison Avenue, New York, New York 10022, Attention:_____, except that notices
given to an Underwriter pursuant to Section 6 hereof shall be sent to such
Underwriter at the address furnished by the Representative or, if sent to the
Company, shall be mailed, delivered or telegraphed and confirmed c/o HomeCom
Communications, Inc., Fourteen Piedmont Center, Suite 100, 3535 Piedmont Road,
Atlanta, Georgia 36305, Attention: President.
13. Successors. This Agreement shall inure to the
benefit of and be binding upon the Underwriter, the Company and their
respective successors and legal representatives. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of
such persons and for the benefit of no other person; except that the
representations, warranties, covenants, agreements and indemnities of the
Company contained in this Agreement shall also be for the benefit of the person
or persons, if any, who control the Underwriter within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, and the indemnities
of the Underwriter shall also be for the benefit of each director of the
Company, each of its officers who has signed the Registration Statement and the
person or persons, if any, who control the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act.
14. Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of [New
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<PAGE> 36
York] without giving effect to the choice of law principles thereof.
15. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
16. General. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof.
In this Agreement, the masculine, feminine and neuter genders
and the singular and the plural include one another. The section headings in
this Agreement are for the convenience of the parties only and will not affect
the construction or interpretation of this Agreement. This Agreement may be
amended or modified, and the observance of any term of this Agreement may be
waived, only by a writing signed by the Company and the Underwriter.
17. Counterparts. This Agreement may be signed in two
(2) or more counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
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<PAGE> 37
If the foregoing correctly sets forth our understanding,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter and your acceptance shall constitute a binding
agreement between us.
Very truly yours,
HOMECOM COMMUNICATIONS, INC.
By:
-------------------------
Title:
Accepted and delivered in
New York, New York as of
the date first above written.
LADENBURG, THALMANN & CO. INC.
Acting on its own behalf
and as Representative of several
Underwriters referred to in the
foregoing Agreement.
By: Ladenburg, Thalmann & Co. Inc.
By:
----------------------------
Title:
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<PAGE> 38
SCHEDULE A
Number of
shares of
Firm Stock
to be
Name Purchased
Ladenburg, Thalmann & Co. Inc .... ---------
1,250,000
=========
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<PAGE> 39
[SCHEDULE B]
<PAGE> 40
EXHIBIT I
Matters to be covered in
opinion of Counsel to the Company(1)
1. The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of its jurisdiction of
organization, is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification, and has
all power and authority necessary to own or hold its properties and conduct
the business in which it is engaged.
2. The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid and
non-assessable and all of the shares of Stock to be issued and sold by the
Company to the Underwriters pursuant to the Underwriting Agreement have been
duly and validly authorized and, when issued and delivered against payment
therefor as provided for in the Underwriting Agreement, will be duly and
validly issued, fully paid and nonassessable and free of any preemptive or
similar rights; and all of the shares of Common Stock to be issued upon
exercise of the Warrants have been duly and validly authorized and, when
issued and delivered against payment therefor as provided in the Warrants,
will be duly and validly issued, fully paid and nonassessable and free of
all preemptive or similar rights.
3. Except as disclosed in and or contemplated by the Prospectus and
the financial statements of the Company and
- -------------
(1) Capitalized terms used herein but not defined shall have the meanings given
such terms in the Underwriting Agreement.
<PAGE> 41
related notes thereto included in the Prospectus, the Company does not
have outstanding any options or warrants to purchase, or any preemptive
rights or other rights to subscribe for or to purchase any securities or
obligations convertible into, or any contracts or commitments to issue or
sell, shares of its capital stock or any such options, rights, convertible
securities or obligations, except for options granted subsequent to the
date of information provided in the Prospectus pursuant to the Company's
stock option plans as disclosed in the Prospectus. There are no
restrictions upon the voting or transfer of, any of the Stock pursuant to
the Certificate of Incorporation or By-Laws or any agreement or other
instrument of the Company.
4. To the best of such counsel's knowledge, except as set forth in
the Prospectus, there are no material legal or governmental proceedings
pending to which the Company is a party or of which any property or assets
of the Company is the subject which, if determined adversely to the Company,
could have a material adverse effect on the Company or prevent or adversely
affect the transactions contemplated by the Underwriting Agreement; and, to
the best of such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or other third parties. To the
best of such counsel's knowledge, the Company is not a party or subject to
the provisions of any material injunction, judgment, decree or order of any
court, regulatory body or other governmental agency or body.
5. The Company has the full corporate power and authority to
enter into the Underwriting Agreement and to perform its obligations
thereunder (including to issue, sell and deliver the Stock), and the
Underwriting Agreement has been duly and validly authorized, executed and
delivered by the Company. The Company has the full corporate power and
authority to execute and deliver the Warrants on the terms and conditions
set forth in the Underwriting Agreement and in the Warrants, and such
execution and delivery of the Warrants has been duly and validly authorized,
and when executed and delivered pursuant to the Underwriting Agreement, the
Warrants will be enforceable against the Company in accordance with their
terms.
<PAGE> 42
6. The execution, delivery and performance of the Underwriting
Agreement and the consummation of the transactions therein contemplated will
not result in a breach or violation of any of the terms or provisions of or
constitute a default under the Certificate of Incorporation, By-laws or
other organizational documents of the Company, or any indenture, mortgage,
deed of trust, note agreement or other agreement or instrument known to such
counsel to which the Company is a party or by which it or any of its
properties is or may be bound, or any law, order, rule or regulation of any
court or governmental agency or body having jurisdiction over the Company or
any of its properties or result in the creation of a lien.
7. No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company
of the transactions contemplated by the Underwriting Agreement (except such
as may be required by the National Association of Securities Dealers, Inc.
or as required by the securities or "Blue Sky" laws of any jurisdiction as
to which such counsel need express no opinion) in connection with the
purchase and distribution of the Stock by the Underwriters, except such as
have been obtained or made, specifying the same.
8. The Registration Statement was declared effective under the
Securities Act as of _____, 1996, the Prospectus was filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations
on _______, 1996 and, to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has been
issued and no proceeding for that purpose is pending or threatened by the
Commission.
9. The Registration Statement and the Prospectus and any amendments
or supplements thereto (except for the financial statements and notes
thereto and related schedules as to which such counsel need express no
opinion) comply as to form in all respects with the requirements of the
Securities Act and the Rules and Regulations.
10. To the best of such counsel's knowledge, there are no
franchise, lease, contract, agreement or other
<PAGE> 43
document required to be described in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement which
is not described or filed therein as required. All descriptions of any such
franchises, leases, contracts, agreements or documents contained in the
Registration Statement are accurate and complete descriptions of such
documents in all material respects.
11. To the best of such counsel's knowledge, no person or entity
has the right to require registration of shares of Common Stock or other
securities of the Company because of the filing or effectiveness of the
Registration Statement or otherwise, except for persons and entities who
have expressly waived such right or who have been given proper notice and
have failed to exercise such right within the time or times required under
the terms and conditions of such right.
12. The statements in the Prospectus, to the extent they constitute
a summary of documents referred to therein or they reflect matters of law or
legal conclusions relating to such law, accurately summarize and fairly
present the information called for with respect to such documents and matter
and the legal and regulatory matters described therein.
13. The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
In addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement or any
amendment thereto, as of the time it became effective under the Securities Act
(but after giving effect to any modifications incorporated therein pursuant to
Rule 430A under the Securities Act) and as of the First Closing Date or the
Option Closing Date, as the case may be, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, or (ii)
that the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the
<PAGE> 44
First Closing Date or the Option Closing Date, as the case may be, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (except that such counsel need express no view as to financial
statements and notes thereto, schedules and statistical information therein).
With respect to such statement, such counsel may state that their belief is
based upon the procedures set forth therein, but is without independent check
and verification.
<PAGE> 1
EXHIBIT 4.2
HOMECOM COMMUNICATIONS, INC.
(Incorporated under the laws of Delaware)
Authorized To Issue 15,000,000 Shares of Common Stock - $.0001 Par Value
1,000,000 Shares of Preferred Stock - $.01 Par Value
THIS CERTIFIES THAT SPECIMEN is the registered holder of _______________ Shares
of the authorized common stock of which are fully paid and non-assessable and
which are transferable only on the books of the Corporation by the holder
hereof in person or by Attorney upon surrender of this Certificate properly
endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate
to be signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed this ___ day of _____________ A.D., 19__
- ------------------------------------- --------------------------------------
Secretary President
<PAGE> 2
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT -- Custodian
---------------------------------------------
(Cust) (Minor)
under Uniform Gifts to Minors Act
---------------------------------------------
(State)
Additional abbreviations may also be used thought not in the above list.
For value received, ____________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint ________________________________________________________________________
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,
-----------------------
----------------------------------------
In presence of
- -----------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
-2-
<PAGE> 1
EXHIBIT 4.3
DRAFT - SUBJECT TO NEGOTIATIONS
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.
THIS WARRANT MAY NOT BE SOLD OR TRANSFERRED, EXCEPT UPON SUCH REGISTRATION OR
UPON DELIVERY TO MAKER OF AN OPINION OF COUNSEL SATISFACTORY TO MAKER THAT
REGISTRATION IS NOT REQUIRED FOR SUCH SALE OR TRANSFER.
HOMECOM COMMUNICATIONS, INC.
Warrant for the Purchase of Shares of Common Stock
No. [ ] 125,000 Shares
FOR VALUE RECEIVED, HomeCom Communications, Inc., a Delaware
corporation (the "Company"), hereby certifies that Ladenburg, Thalmann & Co.
Inc. or its permitted assigns, is entitled to purchase from the Company, at any
time or from time to time commencing on November ______, 1996 and prior to 5:00
P.M., New York City time, on November _____, 2001, One Hundred and Twenty Five
Thousand (125,000) fully paid and non-assessable shares of the common stock,
$.0001 par value per share, of the Company for an aggregate purchase price of
$[ ] (computed on the basis of $________ per share). Hereinafter, (i)
said common stock, together with any other equity securities which may be
issued by the Company with respect thereto or in substitution therefor, is
referred to as the "Common Stock," (ii) the shares of the Common Stock
purchasable hereunder or under any other Warrant (as hereinafter defined) are
referred to individually as a "Warrant Share" and collectively as the "Warrant
Shares," (iii) the aggregate purchase price payable for the Warrant Shares
hereunder is referred to as the "Aggregate Warrant Price," (iv) the price
payable for each of the Warrant Shares hereunder is referred to as the "Per
Share Warrant Price," (v) this Warrant, all similar Warrants issued on the
date hereof and all Warrants hereafter issued in exchange or substitution for
this Warrant or such similar Warrants are referred to as the "Warrants", and
(vi) the holder of this Warrant is referred to as the "Holder" and the holder
of this Warrant and all other Warrants or Warrant Shares issued upon the
exercise of any Warrant are referred to as the "Holders." The Aggregate
Warrant Price is not subject to adjustment. The Per Share Warrant Price is
subject to adjustment as hereinafter provided, and in the event of any such
adjustment, the number of Warrant Shares shall be adjusted to equal the number
determined by dividing the Aggregate Warrant Price by the Per Share Warrant
Price in effect immediately after such adjustment.
1. Exercise of Warrant. (a) This Warrant may be exercised in
whole at any time or in part from time to time, during the period commencing on
November ____, 1996 and ending prior to 5:00 P.M., New York City time, on
November ____, 2001 (such period, the "Exercise Period"), by the
<PAGE> 2
Holder by the surrender of this Warrant (with the subscription form at the end
of this Warrant duly executed) at the address set forth in Section 10(a)
hereof, together with proper payment of the Aggregate Warrant Price, or the
proportionate part thereof if this Warrant is exercised in part. Payment for
Warrant Shares shall be made by certified or official bank check payable to the
order of the Company. If this Warrant is exercised in part, this Warrant must
be exercised for a number of whole shares of the Common Stock, and the Holder
is entitled to receive a new Warrant covering the Warrant Shares in respect of
which this Warrant has not been exercised and setting forth the proportionate
part of the Aggregate Warrant Price applicable to such Warrant Shares. Upon
such exercise and surrender of this Warrant, the Company will (i) issue a
certificate or certificates in the name of the Holder for the largest number of
whole shares of the Common Stock to which the Holder shall be entitled and, if
this Warrant is exercised in whole, in lieu of any fractional share of the
Common Stock to which the Holder shall be entitled, pay to the Holder cash in
an amount equal to the fair value of such fractional share (determined in such
reasonable manner as the Board of Directors of the Company shall determine) and
(ii) deliver the other securities and properties receivable upon the exercise
of this Warrant, or the proportionate part thereof if this Warrant is exercised
in part, pursuant to the provisions of this Warrant.
(b) In lieu of exercising this Warrant in the manner set
forth in Section 1(a) above, this Warrant may be exercised in whole at any time
or in part from time to time during the Exercise Period, by the Holder by
surrendering the Warrant at the address set forth in Section 10(a) hereof,
without payment of any other consideration, commission or remuneration,
together with the subscription form at the end of this Warrant, duly executed.
The number of shares of the Common Stock to be issued by the Company shall be
calculated using the following formula:
-2-
<PAGE> 3
X=Y(A-B)
------
A
Where X= the number of
shares of the Common Stock to
be issued to the Holder
Y= the number of shares
of the Common Stock
purchasable under this
Warrant or, if this Warrant
is being exercised in part,
under the portion of the
Warrant being exercised (at
the date of the surrender of
this Warrant and the
subscription form)
A= the Market Price (at
the date of the surrender of
this Warrant and the
subscription form)
B= the Per Share Warrant
Price (as adjusted to the
date of the surrender of this
Warrant and the subscription
form)
If this Warrant is exercised in part pursuant to this Section 1(b), this
Warrant must be exercised for a number of whole shares of the Common Stock, and
the Holder is entitled to receive a new Warrant covering the Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such exercise and surrender of this Warrant, the Company will (i)
issue a certificate or certificates in the name of the Holder for the largest
number of whole shares of the Common Stock to which the Holder shall be
entitled and, if this Warrant is exercised in whole, in lieu of any fractional
share of the Common Stock to which the Holder shall be entitled, pay cash equal
to the fair value of such fractional share (determined in such reasonable
manner as the Board of Directors of the Company shall determine) and (ii)
deliver the other securities and properties receivable upon the exercise of
this Warrant, or the proportionate part thereof if this Warrant is exercised in
part, pursuant to the provisions of this Warrant.
(c) The market price of a share of the Common Stock (the
"Market Price") on any date of determination shall be (i) the last reported
sale price per share of the Common Stock on the business day immediately
preceding the date of determination as reported on the Nasdaq National Market
(the "National Market"), or (ii) if there is no such reported sale on the date
in question, the average of the closing bid and asked quotations as so reported
on the National Market, or (iii) if the Common Stock is not then listed on the
National Market, the last reported sale price per share of the Common Stock on
such national securities exchange upon which the
-3-
<PAGE> 4
Common Stock is then listed, or (iv) if the Common Stock is not then listed on
any national securities exchange, the average of the closing bid and asked
quotations in the over-the-counter market as reported by Nasdaq, or if not so
reported, as reported by the National Quotations Bureau or a similar
organization. In the absence of such quotations, the Board of Directors of the
Company shall determine in good faith the fair market value per share of the
Common Stock, which shall for these purposes be deemed to be the market price,
which determination shall be set forth in a certificate executed by an officer
of the Company showing the facts upon which the market price is based.
2. Reservation of Warrant Shares; Listing. The Company agrees
that, prior to the expiration of this Warrant, the Company will at all times
(a) have authorized and in reserve, and will keep available, solely for
issuance or delivery upon the exercise of this Warrant, the shares of the
Common Stock and other securities and properties as from time to time shall be
receivable upon the exercise of this Warrant, free and clear of all
restrictions on sale or transfer and free and clear of all preemptive rights
and rights of first refusal and (b) if the Company hereafter lists the Common
Stock on any national securities exchange, keep the shares of the Common Stock
receivable upon the exercise of this Warrant authorized for listing on such
exchange upon notice of issuance.
3. Protection Against Dilution. (a) If, at any time or from
time to time after the date of this Warrant, the Company shall issue or
distribute to the holders of shares of the Common Stock (i) securities, other
than shares of the Common Stock, or (ii) property, other than cash, without
payment therefor, with respect to the Common Stock, then, and in each such
case, the Holder, upon the exercise of this Warrant, shall be entitled to
receive the securities and property which the Holder would hold on the date of
such exercise if, on the date of this Warrant, the Holder had been the holder
of record of the number of shares of the Common Stock subscribed for upon such
exercise and, during the period from the date of this Warrant to and including
the date of such exercise, had retained such shares and the securities and
properties receivable by the Holder during such period. Notice of each such
distribution shall be forthwith mailed to the Holder.
(b) If, at any time or from time to time after the date
of this Warrant, the Company shall (i) pay a dividend or make a distribution on
its capital stock in shares of the Common Stock, (ii) subdivide its outstanding
shares of the Common Stock into a greater number of shares, (iii) combine its
outstanding shares of the Common Stock into a smaller number of shares or (iv)
issue by reclassification of the Common Stock any shares of capital stock of
the Company, the Per Share Warrant Price shall be adjusted so that the Holder
upon the exercise hereof shall be entitled to receive the number of shares of
the Common Stock or other capital stock of the Company which the Holder would
have owned immediately following such action had such Warrant been exercised
immediately prior thereto. An adjustment made pursuant to this Section 3(b)
shall become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
-4-
<PAGE> 5
(c) Except as provided in Section 3(e), in case the
Company shall hereafter issue or sell any shares of the Common Stock for a
consideration per share less than the Per Share Warrant Price in effect
immediately prior to the date of such issuance or sale, the Per Share Warrant
Price shall be adjusted as of the date of such issuance or sale so that the
same shall equal the price determined by dividing (i) the sum of (A) the number
of shares of the Common Stock outstanding immediately prior to such issuance or
sale multiplied by the Per Share Warrant Price plus (B) the consideration
received by the Company upon such issuance or sale by (ii) the total number of
shares of the Common Stock outstanding after such issuance or sale.
(d) Except as provided in Section 3(e), in case the
Company shall hereafter issue or sell any rights, options, warrants or
securities convertible into the Common Stock entitling the holders thereof to
purchase the Common Stock or to convert such securities into the Common Stock
at a price per share (determined by dividing (i) the total amount, if any,
received or receivable by the Company in consideration of the issuance or sale
of such rights, options, warrants or convertible securities plus the total
consideration, if any, payable to the Company upon exercise or conversion
thereof (the "Total Consideration") by (ii) the number of additional shares of
the Common Stock issuable upon exercise or conversion of such securities) less
than the then Per Share Warrant Price in effect on the date of such issuance or
sale, the Per Share Warrant Price shall be adjusted as of the date of such
issuance or sale so that the same shall equal the price determined by dividing
(i) the sum of (A) the number of shares of the Common Stock outstanding on the
date of such issuance or sale multiplied by the Per Share Warrant Price plus
(B) the Total Consideration by (ii) the number of shares of the Common Stock
outstanding on the date of such issuance or sale plus the maximum number of
additional shares of the Common Stock issuable upon exercise or conversion of
such securities.
(e) No adjustment in the Per Share Warrant Price shall be
required in the case of (i) the issuance of up to [ ] shares of the Common
Stock upon the exercise of options outstanding on the date hereof, (ii) the
issuance by the Company of the Common Stock pursuant to the exercise of any
Warrant or (iii) the issuance by the Company of any shares of the Common Stock
pursuant to the exercise of the over-allotment option granted in the
Underwriting Agreement, dated ________, 1996, by and between the Company and
Ladenburg, Thalmann & Co. Inc., as representative of the several underwriters
named therein.
(f) In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company is
the continuing corporation, or in case of any sale or conveyance to another
entity of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
entity (including any exchange effected in connection with a merger of another
corporation with the Company), the Holder of this Warrant shall have the right
thereafter to receive on the exercise of this Warrant the kind and amount of
securities, cash or other property which the Holder would have owned or have
been entitled to receive immediately after such consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been exercised
immediately prior to the effective date of such consolidation, merger,
statutory exchange, sale or conveyance and, in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the
-5-
<PAGE> 6
Holder of this Warrant to the end that the provisions set forth in this Section
3 shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The above
provisions of this Section 3(f) shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances. The issuer
of any shares of stock or other securities or property thereafter deliverable
on the exercise of this Warrant shall be responsible for all of the agreements
and obligations of the Company hereunder. Notice of any such consolidation,
merger, statutory exchange, sale or conveyance and of said provisions so
proposed to be made, shall be mailed to the Holders of the Warrants not less
than 30 days prior to such event. A sale of all or substantially all of the
assets of the Company for a consideration consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes.
(g) In case any event shall occur as to which the other
provisions of this Section 3 are not strictly applicable but as to which the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof, then, in each such case, the Holders of Warrants
representing the right to purchase a majority of the Warrant Shares subject to
all outstanding Warrants may appoint a firm of independent public accountants
of recognized national standing reasonably acceptable to the Company, which
shall give their opinion as to the adjustment, if any, on a basis consistent
with the essential intent and principles established herein, necessary to
preserve the purchase rights represented by the Warrants. Upon receipt of such
opinion, the Company will promptly mail a copy thereof to the Holder of this
Warrant and shall make the adjustments described therein. The fees and
expenses of such independent public accountants shall be borne by the Company.
(h) No adjustment in the Per Share Warrant Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 per share of the Common Stock; provided, however, that any
adjustments which by reason of this Section 3(h) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment;
provided further, however, that adjustments shall be required and made in
accordance with the provisions of this Section 3 (other than this Section 3(h))
not later than such time as may be required in order to preserve the tax-free
nature of a distribution to the Holder of this Warrant or the Common Stock
issuable upon exercise hereof. All calculations under this Section 3 shall be
made to the nearest cent or to the nearest 1/100th of a share, as the case may
be. Anything in this Section 3 to the contrary notwithstanding, the Company
shall be entitled to make such reductions in the Per Share Warrant Price, in
addition to those required by this Section 3, as it in its discretion shall
deem to be advisable in order that any stock dividend, subdivision of shares or
distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable.
(i) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of a Holder
of Warrants in accordance with this Section 3, the Company shall promptly
obtain, at its expense, a certificate of a firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company (who may be the regular auditors of the Company) setting forth the Per
Share Warrant
-6-
<PAGE> 7
Price and the number of Warrant Shares after such adjustment or the effect of
such modification, a brief statement of the facts requiring such adjustment or
modification and the manner of computing the same, and cause copies of such
certificate to be mailed to the Holders of the Warrants. In addition, within
thirty (30) days after the end of the Company's fiscal year next following any
such adjustment or modification, the Company shall, at its own expense, deliver
to the Holder of this Warrant a certificate of a firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company (who may be the regular auditors of the Company) setting forth the same
information as required by such principal financial officer certificate.
(j) If the Board of Directors of the Company shall (i)
declare any dividend or other distribution with respect to the Common Stock,
other than a cash dividend payable otherwise than out of earnings or earned
surplus, (ii) offer to the holders of shares of the Common Stock any additional
shares of the Common Stock, any securities convertible into or exercisable for
shares of the Common Stock or any rights to subscribe thereto or (iii) propose
a dissolution, liquidation or winding up of the Company, the Company shall mail
notice thereof to the Holders of the Warrants not less than 15 days prior to
the record date fixed for determining stockholders entitled to participate in
such dividend, distribution, offer or subscription right or to vote on such
dissolution, liquidation or winding up.
(k) If, as a result of an adjustment made pursuant to
this Section 3, the Holder of any Warrant thereafter surrendered for exercise
shall become entitled to receive shares of two or more classes of capital stock
or shares of the Common Stock and other capital stock of the Company, the Board
of Directors of the Company (whose determination shall be conclusive and shall
be described in a written notice to the Holder of any Warrant promptly after
such adjustment) shall determine the allocation of the adjusted Per Share
Warrant Price between or among shares or such classes of capital stock or
shares of the Common Stock and other capital stock and any subsequent
adjustments made pursuant to this Section 3 shall apply equally to each such
resulting class of capital stock.
4. Fully Paid Stock; Taxes. The Company agrees that the shares
of the Common Stock represented by each and every certificate for Warrant
Shares delivered on the exercise of this Warrant shall, at the time of such
delivery, be validly issued and outstanding, fully paid and nonassessable, and
not subject to preemptive rights, rights of first refusal or other contractual
rights to purchase securities of the Company, and the Company will take all
such actions as may be necessary to assure that the par value or stated value,
if any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. The Company further covenants and agrees that it
will pay, when due and payable, any and all federal and state stamp, original
issue or similar taxes which may be payable in respect of the issue of any
Warrant Share or certificate therefor.
5. Registration Under Securities Act of 1933.
(a) The Company agrees that if, at any time during the
period commencing on November ___,1996 and ending on November ____,2001, (i) the
Holder and/or the Holders of any
-7-
<PAGE> 8
other Warrants and/or Warrant Shares who or which shall hold, collectively, not
less than 50% of the Warrants and/or Warrant Shares outstanding at such time
and not previously sold pursuant to this Section 5 shall request that the
Company file a registration statement under the Securities Act of 1933, as
amended (the "Act"), covering not less than 50% of the Warrant Shares issued or
issuable upon the exercise of the Warrants, and not so previously sold, the
Company will (i) promptly notify each Holder of the Warrants and each holder of
Warrant Shares not so previously sold that such registration statement will be
filed and that the Warrant Shares which are then held, and/or may be acquired
upon exercise of the Warrants by the Holder and such Holders, will be included
in such registration statement at the Holder's and such Holders' request, (ii)
cause such registration statement to cover all Warrant Shares which it has been
so requested to include, (iii) use its best efforts to cause such registration
statement to become effective as soon as practicable and (iv) take all other
action necessary under any federal or state law or regulation of any
governmental authority to permit all Warrant Shares which it has been so
requested to include in such registration statement to be sold or otherwise
disposed of, and will maintain such compliance with each such federal and state
law and regulation of any governmental authority for the period necessary for
such Holders to effect the proposed sale or other disposition. [The Company
shall be required to effect a registration or qualification pursuant to this
Section 5(a) on one occasion only.]
(b) The Company agrees that if, at any time and from time
to time during the period commencing November ____, 1996 and ending on
November ____, 2003, the Board of Directors of the Company shall authorize the
filing of a registration statement (any such registration statement being
hereinafter called a "Subsequent Registration Statement") under the Act
(otherwise than pursuant to Section 5(a) hereof, and other than a registration
statement on Form S-8 or other form which does not permit secondary sales or
include substantially the same information as would be required in a form for
the general registration of securities) in connection with the proposed offer
of any of its securities by it or any of its stockholders, the Company will (i)
promptly notify the Holder and each of the Holders, if any, of other Warrants
and/or Warrant Shares not previously sold pursuant to this Section 5 that such
Subsequent Registration Statement will be filed and that the Warrant Shares
which are then held, and/or which may be acquired upon the exercise of the
Warrants, by the Holder and such Holders, will, at the Holder's and such
Holders' request, be included in such Subsequent Registration Statement, (ii)
upon the written request of a Holder made within 20 days after the giving of
such notice by the Company, include in the securities covered by such
Subsequent Registration Statement all Warrant Shares which it has been so
requested to include, (iii) use its best efforts to cause such Subsequent
Registration Statement to become effective as soon as practicable and (iv) take
all other action necessary under any federal or state law or regulation of any
governmental authority to permit all Warrant Shares which it has been so
requested to include in such Subsequent Registration Statement to be sold or
otherwise disposed of, and will maintain such compliance with each such federal
and state law and regulation of any governmental authority for the period
necessary for the Holder and such Holders to effect the proposed sale or other
disposition.
(c) Whenever the Company is required pursuant to the
provisions of this Section 5 to include Warrant Shares in a registration
statement or a post-effective amendment to
-8-
<PAGE> 9
a registration statement, the Company shall (i) furnish each Holder of any such
Warrant Shares and each underwriter of such Warrant Shares with such copies of
the prospectus, including the preliminary prospectus, conforming to the Act
(and such other documents as each such Holder or each such underwriter may
reasonably request) in order to facilitate the sale or distribution of the
Warrant Shares, (ii) use its best effort to register or qualify such Warrant
Shares under the blue sky laws (to the extent applicable) of such jurisdiction
or laws (to the extent applicable) of such jurisdiction or jurisdictions as the
Holders of any such Warrant Shares and each underwriter of Warrant Shares being
sold by such Holders shall reasonably request and (iii) take such other actions
as may be reasonably necessary or advisable to enable such Holders and such
underwriters to consummate the sale or distribution in such jurisdiction or
jurisdictions in which such Holders shall have reasonably requested that the
Warrant Shares be sold, including entering into an underwriting agreement in
customary form for transactions of this nature.
(d) The Company shall pay all expenses incurred in
connection with any registration or other action pursuant to the provisions of
this Section, including attorneys' fees and expenses of the Holder(s) of the
Warrant Shares covered by such registration incurred in connection with such
registration or other action, other than underwriting discounts and applicable
transfer taxes relating to the Warrant Shares.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless
each selling holder (including, for purposes of this Section 6, any Holder) of
Warrant Shares and each person who controls any such selling holder within the
meaning of Section 15 of the Act, and each and all of them, from and against
any and all losses, claims, damages, liabilities or actions, joint or several,
to which any selling holder of Warrant Shares or they or any of them may become
subject under the Act or otherwise and to reimburse the persons indemnified
above for any legal or other expenses (including the cost of any investigation
and preparation) incurred by them in connection with any litigation or
threatened litigation, whether or not resulting in any liability, but only
insofar as such losses, claims, damages, liabilities or actions arise out of,
or are based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement pursuant to which Warrant
Shares were registered under the Act (hereinafter called a "Registration
Statement"), any preliminary prospectus, the final prospectus or any amendment
or supplement thereto (or in any application or document filed in connection
therewith) or document executed by the Company based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
register or qualify the Warrant Shares under the securities laws thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or (ii) the
employment by the Company of any device, scheme or artifice to defraud, or the
engaging by the Company in any act, practice or course of business which
operates or would operate as a fraud or deceit, or any conspiracy with respect
thereto, in which the Company shall participate, in connection with the
issuance and sale of any of the Warrant Shares; provided, however, that (i) the
indemnity agreement contained in this Section 6(a) shall not extend to any
selling holder of Warrant Shares in respect of any such losses, claims,
damages, liabilities or actions arising out of, or based upon,
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<PAGE> 10
any such untrue statement or alleged untrue statement, or any such omission or
alleged omission, if such statement or omission was based upon and made in
conformity with information furnished in writing to the Company by a selling
holder of Warrant Shares specifically for use in connection with the
preparation of such Registration Statement, any final prospectus, any
preliminary prospectus or any such amendment or supplement thereto. The
Company agrees to pay any legal and other expenses for which it is liable under
this Section 6(a) from time to time (but not more frequently than monthly)
within 30 days after its receipt of a bill therefor.
(b) Each selling holder of Warrant Shares, severally and
not jointly, will indemnify and hold harmless the Company, its directors, its
officers who shall have signed the Registration Statement and each person, if
any, who controls the Company within the meaning of Section 15 of the Act to
the same extent as the foregoing indemnity from the Company, but in each case
to the extent, and only to the extent, that any statement in or omission from
or alleged omission from such Registration Statement, any final prospects, any
preliminary prospectus or any amendment or supplement thereto was made in
reliance upon information furnished in writing to the Company by such selling
holder specifically for use in connection with the preparation of the
Registration Statement, any final prospectus or the preliminary prospectus or
any such amendment or supplement thereto; provided, however, that the
obligation of any holder of Warrant Shares to indemnify the Company under the
provisions of this Section 6(b) shall be limited to the Market Price of the
Warrant Shares being sold by the selling holder minus the Aggregate Warrant
Price for such Warrant Shares. Each selling holder of Warrant Shares agrees to
pay any legal and other expenses for which its liable under this Section 6(b)
from time to time (but not more frequently than monthly) within 30 days after
receipt of a bill therefor.
(c) If any action is brought against a person entitled to
indemnification pursuant to the foregoing Section 6(a) or Section 6(b) (an
"indemnified party") in respect of which indemnity may by sought against a
person granting indemnification (an "indemnifying party") pursuant to such
section, such indemnified party shall promptly notify such indemnifying party
in writing of the commencement thereof; but the omission so to notify the
indemnifying party of any such action shall not release the indemnifying party
from any liability it may have to such indemnified party otherwise than on
account of the indemnity agreement contained in Section 6(a) or Section 6(b)
hereof. In case any such action is brought against an indemnified party and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party against which a claim is to be made will be entitled to participate
therein at its own expense and, to the extent that it may wish, to assume at
its own expense the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, that if the indemnified party shall
have reasonably concluded based upon advice of counsel that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the
indemnified party shall have the right to select separate counsel to assume
such legal defenses and otherwise to participate in the defense of such action
on behalf of such indemnified party or parties. Upon receipt of notice from
the indemnifying party to such indemnified party of its election so to assume
the defense of such action and approval by the indemnified party of counsel,
the indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
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<PAGE> 11
indemnified party shall have employed such counsel in connection with
the assumption of legal defenses in accordance with the proviso to the
next preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the expenses of more than one separate counsel),
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. An indemnifying party shall
not be liable for any settlement of any action or proceeding effected without
its written consent (which consent shall not be unreasonably withheld).
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 6(a) or (b) hereof is unavailable in accordance with its terms, the
Company and the selling holder of Warrant Shares shall contribute to the
aggregate losses, claims, damages and liabilities, of the nature contemplated
by said indemnity agreement, incurred by the Company and the selling holder of
Warrant Shares, in such proportions as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the selling holder of
Warrant Shares, on the other hand, from any offering of the Warrant Shares;
provided, however, that if such allocation is not permitted by applicable law
or if the indemnified party failed to give the notice required under Section
6(c), then the relative fault of the Company and the selling holder of Warrant
Shares in connection with the statements or omissions which result in such
losses, claims, damages and liabilities and other relevant equitable
considerations will be considered together with such relative benefits.
(e) The respective indemnity and contribution agreements
by the Company and the selling holder of Warrant Shares in Sections 6(a), (b),
(c) and (d) hereof shall remain operative and in full force and effect
regardless of (i) any investigation made by any selling holder of Warrant
Shares or by or on behalf of any person who controls such selling holder or by
the Company or any controlling person of the Company or any director or any
officer of the Company, (ii) the exercise of this Warrant or (iii) payment for
any of the Warrant Shares, and shall survive the delivery of the Warrant
Shares, and any successor of the Company, or of any selling holder of Warrant
Shares, or of any person who controls the Company, or of any selling holder of
Warrant Shares, as the case may be, shall be entitled to the benefit of such
respective indemnity and contribution agreements. The respective indemnity and
contribution agreements by the Company and the selling holders of Warrant
Shares contained in Sections 6(a), (b), (c) and (d) hereof shall be in addition
to any liability which the Company and the selling holders of Warrant Shares
may otherwise have.
7. Limited Transferability. This Warrant may not be sold,
transferred, assigned or hypothecated by the Holder (a) except in compliance
with the provisions of the Act and any applicable state securities laws and (b)
until the first anniversary of the date hereof except (i) to Ladenburg,
Thalmann & Co. Inc. or any successor firm or corporation of Ladenburg, Thalmann
& Co. Inc., (ii) to any of the officers of Ladenburg, Thalmann & Co. Inc., or
of any such successor firm or corporation, or (iii) in the case of an
individual, pursuant to such individual's last will and testament or the laws
of descent and distribution, and is so transferable only upon the books of the
Company which it shall cause to be maintained for the purpose. The Company
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<PAGE> 12
may treat the registered Holder of this Warrant as he or it appears on the
Company's books at any time as the Holder for all purposes. The Company shall
permit any Holder of a Warrant or his or its duly authorized attorney, upon
written request during ordinary business hours, to inspect and copy or make
extracts from its books showing the registered holders of Warrants. All
Warrants issued upon the transfer or assignment of this Warrant will be dated
the same date as this Warrant, and all rights of the Holder thereof shall be
identical to those of the Holder of this Warrant.
8. Loss, etc., of Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like date,
tenor and denomination.
9. Warrant Holder Not Stockholder. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
10. Communication. No notice or other communication under this
Warrant shall be effective unless, but any notice or other communication shall
be effective and shall be deemed to have been given if, the same is in writing
and is mailed by first-class mail, postage prepaid, addressed to:
(a) the Company at Building 14, Suite 100, 3535
Piedmont Road, Atlanta, Georgia 30305, or such other address
as the Company has designated in writing to the Holder, or
(b) the Holder at Ladenburg, Thalmann & Co. Inc., 540
Madison Avenue, New York, New York 10022 or such other address
as the Holder has designated in writing to the Company.
11. Headings. The headings of this Warrant have been inserted as
a matter of convenience and shall not affect the construction hereof.
12. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the State of New York without giving
effect to the principles of conflicts of law thereof.
[Signature Page Follows]
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<PAGE> 13
IN WITNESS WHEREOF, HomeCom Communications, Inc. has caused
this Warrant to be signed by its [ ] and its corporate seal to be
hereunto affixed and attested by its Secretary this _____ day of
______________, 1996.
HOMECOM COMMUNICATIONS, INC.
By:
------------------------
Name:
Title:
ATTEST:
- -----------------------------
Name:
Title:
[Corporate Seal]
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<PAGE> 14
ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby sells,
assigns and transfers unto _______________________________ the foregoing
Warrant and all rights evidenced thereby, and does irrevocably constitute and
appoint _____________________________, attorney, to transfer said Warrant on
the books of HomeCom Communications, Inc.
Dated: Signature:
---------------- --------------------------
Address:
----------------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby sells,
assigns and transfers unto __________________________ the right to purchase
_____________ shares of the Common Stock of HomeCom Communications, Inc.
covered by the foregoing Warrant, and a proportionate part of said Warrant and
the rights evidenced thereby, and does irrevocably constitute and appoint
__________________________, attorney, to transfer that part of said Warrant on
the books of HomeCom Communications, Inc.
Dated: Signature:
---------------- --------------------------
Address:
-----------------------------
<PAGE> 15
SUBSCRIPTION FORM
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the attached Warrant for, and to purchase
thereunder, _____________ shares of the Common Stock of HomeCom Communications,
Inc., as provided for in Section 1 thereof.
The undersigned herewith makes payment for such shares in full
at the price per share provided by such Warrant in the following manner (please
check the type or types of payment and indicate the portion of the aggregate
payment to be paid by each type of payment):
____ exercise for cash as provided in Section 1(a) of such
Warrant.
____ exercise by surrender of such Warrant (or a portion
thereof) in accordance with Section 1(b) of such Warrant.
Please issue a certificate or certificates for such shares in
the name of, and pay any cash for any fractional share to:
Name
-----------------------------------
(Please Print Name, Address and Social Security No. or
Taxpayer Identification No.)
Address
--------------------------------
--------------------------------
Social Security No. or
Taxpayer Identification No.
-------------
Signature
------------------------------
NOTE: The above signature should correspond
exactly with the name on the first page
of such Warrant or with the name of the
assignee appearing in the assignment form
attached to the Warrant.
And if such number of shares shall not be all the shares
purchasable under the attached Warrant, a new Warrant is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder and delivered to the address set forth above.
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<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD] MORRIS, MANNING & MARTIN
November 1, 1996
HomeCom Communications, Inc.
Building 14, Suite 100
Piedmont Center
3535 Piedmont Road
Atlanta, Georgia 30305
Re: Registration Statement on Form S-1
Registration No. 333-12219
Ladies and Gentlemen:
We have served as counsel for HomeCom Communications, Inc. a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, pursuant to the Company's Registration
Statement on Form S-1 (No. 331-12219) (the "Registration Statement"), of a
proposed public offering of 1,250,000 shares (the "Shares") of the Company's
authorized common stock, $.0001 par value (the "Common Stock"), of which all
1,250,000 Shares are to be sold by the Company. In addition, the Company has
granted to the underwriters an option to purchase 187,500 shares of Common
Stock to cover over-allotments, if any (the "Over-Allotment Shares").
We have examined and are familiar with originals or copies (certified
or otherwise identified to our satisfaction) of such documents, corporate
records and other instruments relating to the incorporation of the Company and
to the authorization and issuance of the outstanding shares of Common Stock,
the Shares and the Over-Allotment Shares to be sold by the Company, as
appropriate, as we have deemed necessary and advisable.
Based upon the foregoing and having regard for such legal
considerations that we have deemed relevant, it is our opinion that:
1. The 1,250,000 Shares to be issued and sold by the Company will
be, upon issuance, sale and delivery as contemplated in the Registration
Statement, legally and validly issued, full paid and nonassessable.
<PAGE> 2
November 1, 1996
Page 2
2. The Over-Allotment Shares to be issued and sold by the Company
will be, upon issuance, sale and delivery as contemplated in the Registration
Statement, legally and validly issued, full paid and nonassessable.
We do hereby consent to the reference to our firm under the heading
"Legal Matters" in the Prospectus contained in the Registration Statement and
to the filing of this Opinion as Exhibit 5.1 thereto.
Very truly yours,
MORRIS, MANNING & MARTIN, L.L.P.
/s/ Randall W. Johnson
<PAGE> 1
EXHIBIT 10.1
HOMECOM COMMUNICATIONS, INC.
STOCK OPTION PLAN
SECTION 1.
PURPOSE
The purpose of this Plan is to promote the interests of the Company by
granting Options to purchase Shares to (i) Employees in order (a) to attract
and retain Employees, (b) to provide an additional incentive to each Employee
to work to increase the value of Shares, and (c) to provide each Employee with
a stake in the future of the Company which corresponds to the stake of each of
the Company's shareholders, and (ii) Key Persons who have rendered valuable
services to the Company, and to provide such Key Person with a stake in the
future of the Company which corresponds to each of the Company's shareholders.
SECTION 2.
DEFINITIONS
Each term set forth in this Section 2 shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include
the singular, and reference to one gender shall include the other gender.
2.1 BOARD means the Board of Directors of the Company.
2.2 CODE means the Internal Revenue Code of 1986, as amended.
2.3. COMMITTEE means the Compensation Committee of the Board.
2.4 COMMON STOCK means the common stock of the Company, par value
$.0001 per share.
2.5 COMPANY means HomeCom Communications, Inc., a Delaware
corporation, and any successor to such organization.
2.6 EMPLOYEE means an employee of the Company, a Subsidiary or a
Parent.
2.7 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
2.8 EXERCISE PRICE means the price which shall be paid to purchase
one (1) Share upon the exercise of an Option granted under this Plan.
2.9 FAIR MARKET VALUE of each Share of Common Stock on any date
shall mean the price determined below on the last business day immediately
preceding the date of valuation:
(a) The closing sales price per Share, regular
way, or in the absence thereof the mean of the last reported bid and asked
quotations, on such date on the exchange having the greatest volume of trading
in the Shares during the thirty-day period preceding such date (or if such
exchange was not open for trading on such date, the next preceding date on
which it was open); or
(b) If there is no price as specified in (a), the
final reported sales price per Share, or if not reported, the mean of the
closing high bid and low asked prices in the over-the-counter market for the
<PAGE> 2
Shares as reported by the National Association of Securities Dealers Automatic
Quotation System, or if not so reported, then as reported by the National
Quotation Bureau Incorporated, or if such organization is not in existence, by
an organization providing similar services, on such date (or if such date is
not a date for which such system or organization generally provides reports,
then on the next preceding date for which it does so); or
(c) If there also is no price as specified in (b),
the price per Share determined by the Committee by reference to bid-and-asked
quotations for the Shares provided by members of an association of brokers and
dealers registered pursuant to Subsection 15(b) of the Exchange Act, which
members make a market in the Shares, for such recent dates as the Committee
shall determine to be appropriate for fairly determining current market value;
or
(d) If there also is no price as specified in (c),
an amount per Share determined in good faith by the Committee based on such
relevant facts, which may include opinions of independent experts, as may be
available to the Committee.
2.10 ISO means an option granted under this Plan to purchase Shares
which is intended by the Company to satisfy the requirements of Code Section
422 as an incentive stock option.
2.11 KEY PERSON means (i) a member of the Board who is not an
Employee, (ii) a consultant, distributor or other person who has rendered
valuable services to the Company, a Subsidiary or a Parent, (iii) a person who
has incurred, or is willing to incur, financial risk in the form of
guaranteeing or acting as co-obligor with respect to debts or other obligations
of the Company, or (iv) a person who has extended credit to the Company. Key
Persons are not limited to individuals and, "person" as used herein may include
corporations, partnerships, associations and other entities.
2.12 NON-ISO means an option granted under this Plan to purchase
Shares which is not intended by the Company to satisfy the requirements of Code
Section 422.
2.13 OPTION means an ISO or a Non-ISO.
2.14 OPTIONEE means grantee of an Option.
2.15 PARENT means any corporation which is a parent of the Company
(within the meaning of Code Section 424).
2.16 PLAN means the HomeCom Communications, Inc. Stock Option Plan,
as amended from time to time.
2.17 SHARE means a share of the Common Stock of the Company.
2.18 STOCK OPTION GRANT means the written agreement or instrument
which sets forth the terms of an Option granted to an Employee or Key Person
under this Plan.
2.19 SUBSIDIARY means any corporation which is a subsidiary of the
Company (within the meaning of Code Section 424(f)).
2.20 SURRENDERED SHARES means the Shares described in Section 11.2
which (in lieu of being purchased) are surrendered for cash or Shares, or for a
combination of cash and Shares, in accordance with Section 11.
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<PAGE> 3
2.21 TEN PERCENT SHAREHOLDER means a person who owns (after taking
into account the attribution rules of Code Section 424(d)) more than ten
percent (10%) of the total combined voting power of all classes of shares of
either the Company, a Subsidiary or a Parent.
SECTION 3.
SHARES SUBJECT TO OPTIONS
Three hundred thousand (300,000) Shares of Common Stock shall be
reserved for issuance under this Plan. Such Shares shall be reserved, to the
extent that the Company deems appropriate, from authorized but unissued Shares,
and from Shares which have been reacquired by the Company. Furthermore, any
Shares subject to an Option which remain after the cancellation, expiration or
exchange of such Option thereafter shall again become available for use under
this Plan, but any Surrendered Shares which remain after the surrender of an
Option under Section 11 shall not again become available for use under this
Plan.
SECTION 4.
EFFECTIVE DATE
The effective date of this Plan shall be the date it is adopted by the
Board provided the shareholders of the Company approve this Plan within twelve
(12) months after such effective date. If such effective date comes before
such shareholder approval, any Options granted under this Plan before the date
of such approval automatically shall be granted subject to such approval.
SECTION 5.
COMMITTEE
This Plan shall be administered by the Committee. The Committee
acting in its absolute discretion shall exercise such powers and take such
action as expressly called for under this Plan and, further, the Committee
shall have the power to interpret this Plan and (subject to Section 16) to take
such other action in the administration and operation of this Plan as the
Committee deems equitable under the circumstances. The Committee's actions
shall be binding on the Company, on each affected Employee or Key Person, and
on each other person directly or indirectly affected by such actions.
Notwithstanding anything else to the contrary herein, the Board shall have the
authority to assume the powers and responsibilities outlined above with respect
to the Committee, in whole or in part.
SECTION 6.
ELIGIBILITY
Except as provided below, only Employees shall be eligible for the
grant of Options under this Plan, but no Employee shall have the right to be
granted an Option under this Plan merely as a result of his or her status as an
Employee. Key Persons may be eligible, subject to written approval by the
Board, for the grant of Options under this Plan, but only if the Key Person has
provided valuable services to the Company, a Subsidiary or a Parent and only if
the Option is a Non-ISO.
SECTION 7.
GRANT OF OPTIONS
The Committee, acting pursuant to the procedure established by the
Board, shall either grant Options under this Plan, or recommend to the Board
that Options be granted under this Plan. In accordance with the procedure
established by the Board, the Committee, or the Board, in its absolute
discretion, shall grant Options under this Plan from time to time to purchase
Shares and, further, shall have the right to grant new Options in exchange for
outstanding Options. Such Options shall be granted to Employees or Key Persons
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<PAGE> 4
selected by the Committee, acting in its discretion as set forth above, and
neither the Board nor the Committee shall be under any obligation whatsoever to
grant Options to all Employees or Key Persons, or to grant all Options subject
to the same terms and conditions. Each grant of an Option shall be evidenced
by a Stock Option Grant and each Stock Option Grant shall:
1. specify whether the Option is an ISO or Non-ISO; and
2. incorporate such other terms and conditions as the
Committee or the Board, acting in its absolute discretion, deems consistent
with the terms of this Plan, including (without limitation) a restriction on
the number of Shares subject to the Option which first become exercisable or
subject to surrender during any calendar year.
In determining Employee(s) or Key Person(s) to whom an Option shall be
granted and the number of Shares to be covered by such Option, the Committee or
the Board may take into account the recommendations of the President of the
Company and its other officers, the duties of the Employee or Key Person, the
present and potential contributions of the Employee or Key Person to the
success of the Company, the anticipated number of years of service remaining
before the attainment by the Employee of retirement age, and other factors
deemed relevant by the Committee or the Board, in its sole discretion, in
connection with accomplishing the purpose of this Plan. An Employee or Key
Person who has been granted an Option to purchase Shares of the Company,
whether under this Plan or otherwise, may be granted one or more additional
Options.
If the Committee or the Board grants an ISO and a Non-ISO to an
Employee on the same date, the right of the Employee to exercise or surrender
one such Option shall not be conditioned on his or her failure to exercise or
surrender the other such Option.
SECTION 8.
EXERCISE PRICE
If an Option is an ISO, the Exercise Price for each Share subject to
such Option shall be no less than the Fair Market Value of a Share on the date
such Option is granted or, if such Option is granted to a Ten Percent
Shareholder, the Exercise Price for each Share subject to such Option shall be
no less than 110% of the Fair Market Value of a Share on the date such Option
is granted. If an Option is a Non-ISO, the Exercise Price for each Share shall
be no less than the minimum price required by applicable state law, or by the
Company's governing instrument, or $0.01, whichever price is greater. The
Exercise Price shall be payable in full upon the exercise of any Option, and a
Stock Option Grant, at the discretion of the Committee or the Board, can
provide for the payment of the Exercise Price either in cash, or in Shares
acceptable to the Committee or the Board, or in any combination of cash and
Shares acceptable to the Committee or the Board. Any payment made in Shares
shall be treated as equal to the Fair Market Value of such Shares on the date
the properly endorsed certificate for such Shares is delivered to the Committee
or the Board.
Notwithstanding the above, and in the sole discretion of the Committee
or the Board, an Option may be exercised as to a portion or all (as determined
by the Committee or the Board) of the number of Shares specified in the Stock
Option Grant by delivery to the Company of a promissory note, such promissory
note to be executed by the Optionee and which shall include, with such other
terms and conditions as the Committee or the Board shall determine, provisions
in a form approved by the Committee or the Board under which (i) the balance of
the aggregate purchase price shall be payable in equal installments over such
period and shall bear interest at such rate (which shall not be less than the
prime bank loan rate as determined by the Committee or the Board) as the
Committee or the Board shall approve and (ii) the
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<PAGE> 5
Optionee shall be personally liable for payment of the unpaid principal balance
and all accrued but unpaid interest.
SECTION 9.
EXERCISE PERIOD
Each Option granted under this Plan shall be exercisable in whole or
in part at such time or times as set forth in the related Stock Option Grant,
but no Stock Option Grant shall:
1. make an Option exercisable before the date such Option
is granted; or
2. make an Option exercisable after the earlier of the:
(a) the date such Option is exercised in full, or
(b) the date which is the tenth (10th) anniversary
of the date such Option is granted, if such Option is a Non-ISO or an ISO
granted to a non-Ten Percent Shareholder, or the date which is the fifth (5th)
anniversary of the date such Option is granted, if such Option is an ISO
granted to a Ten Percent Shareholder.
A Stock Option Grant may provide for the exercise of an Option after
the employment of an Employee has terminated for any reason whatsoever,
including death or disability.
SECTION 10.
NONTRANSFERABILITY
No Option granted under this Plan shall be transferable by an Employee
or Key Person other than by will or by the laws of descent and distribution,
and such Option shall be exercisable during an Employee's or Key Person's
lifetime only by the Employee or Key Person, as the case may be. The person or
persons to whom an Option is transferred by will or by the laws of descent and
distribution thereafter shall be treated as the Employee or Key Person.
SECTION 11.
SURRENDER OF OPTIONS
11.1 GENERAL RULE. The Committee or the Board, acting in its
absolute discretion may incorporate a provision in a Stock Option Grant to
allow an Employee or Key Person to surrender his or her Option in whole or in
part in lieu of the exercise in whole or in part of that Option on any date
that:
1. the Fair Market Value of the Shares subject to such
Option exceeds the Exercise Price for such Shares, and
2. the Option to purchase such Shares is otherwise
exercisable.
11.2 PROCEDURE. The surrender of an Option in whole or in part
shall be effected by the delivery of the Stock Option Grant to the Committee or
the Board, together with a statement signed by the Employee or Key Person which
specifies the number of Shares ("Surrendered Shares") as to which the Employee
or Key Person surrenders his or her Option and how he or she desires payment be
made for such Surrendered Shares.
-5-
<PAGE> 6
11.3 PAYMENT. An Employee or Key Person in exchange for his or her
Surrendered Shares shall receive a payment in cash or in Shares, or in a
combination of cash and Shares, equal in amount on the date such surrender is
effected to the excess of the Fair Market Value of the Surrendered Shares on
such date over the Exercise Price for the Surrendered Shares. The Committee or
the Board, acting in its absolute discretion, can approve or disapprove an
Employee's or Key Person's request for payment in whole or in part in cash and
can make that payment in cash or in such combination of cash and Shares as the
Committee or the Board deems appropriate. A request for payment only in Shares
shall be approved and made in Shares to the extent payment can be made in whole
shares of Shares and (at the Committee's or the Board's discretion) in cash in
lieu of any fractional Shares.
11.4 RESTRICTIONS. Any Stock Option Grant which incorporates a
provision to allow an Employee or Key Person to surrender his or her Option in
whole or in part also shall incorporate such additional restrictions on the
exercise or surrender of such Option as the Committee or the Board deems
necessary to satisfy the conditions to the exemption under Rule 16b-3 (or any
successor exemption) to Section 16(b) of the Exchange Act.
SECTION 12.
SECURITIES REGISTRATION
Each Stock Option Grant may provide that, upon the receipt of Shares
as a result of the surrender or exercise of an Option, the Employee or Key
Person shall, if so requested by the Company, hold such Shares for investment
and not with a view of resale or distribution to the public and, if so
requested by the Company, shall deliver to the Company a written statement
satisfactory to the Company to that effect. Each Stock Option Grant may also
provide that, if so requested by the Company, the Employee or Key Person shall
make a written representation to the Company that he or she will not sell or
offer to sell any of such Shares unless a registration statement shall be in
effect with respect to such Shares under the Securities Act of 1933, as amended
("1933 Act"), and any applicable state securities law or, unless he or she
shall have furnished to the Company an opinion, in form and substance
satisfactory to the Company, of legal counsel acceptable to the Company, that
such registration is not required. Certificates representing the Shares
transferred upon the exercise or surrender of an Option granted under this Plan
may at the discretion of the Company bear a legend to the effect that such
Shares have not been registered under the 1933 Act or any applicable state
securities law and that such Shares may not be sold or offered for sale in the
absence of an effective registration statement as to such Shares under the 1933
Act and any applicable state securities law or an opinion, in form and
substance satisfactory to the Company, of legal counsel acceptable to the
Company, that such registration is not required.
SECTION 13.
LIFE OF PLAN
No Option shall be granted under this Plan on or after the earlier of:
(a) the tenth (10th) anniversary of the effective date of
this Plan (as determined under Section 4 of this Plan), in which event this
Plan otherwise thereafter shall continue in effect until all outstanding
Options have been surrendered or exercised in full or no longer are
exercisable, or
(b) the date on which all of the Shares reserved under
Section 3 of this Plan have (as a result of the surrender or exercise of
Options granted under this Plan) been issued or no longer are available for use
under this Plan, in which event this Plan also shall terminate on such date.
-6-
<PAGE> 7
SECTION 14.
ADJUSTMENT
The number of Shares reserved under Section 3 of this Plan, and the
number of Shares subject to Options granted under this Plan, and the Exercise
Price of such Options shall be adjusted by the Committee in an equitable manner
to reflect any change in the capitalization of the Company, including, but not
limited to, such changes as stock dividends or stock splits. Furthermore, the
Committee or the Board shall have the right to adjust (in a manner which
satisfies the requirements of Code Section 424(a)) the number of Shares
reserved under Section 3 of this Plan, and the number of Shares subject to
Options granted under this Plan, and the Exercise Price of such Options in the
event of any corporate transaction described in Code Section 424(a) which
provides for the substitution or assumption of such Options. If any adjustment
under this Section 14 creates a fractional Share or a right to acquire a
fractional Share, such fractional Share shall be disregarded, and the number of
Shares reserved under this Plan and the number subject to any Options granted
under this Plan shall be the next lower number of Shares, rounding all
fractions downward. An adjustment made under this Section 14 by the Committee
or the Board shall be conclusive and binding on all affected persons and,
further, shall not constitute an increase in the number of Shares reserved
under Section 3 of this Plan.
SECTION 15.
SALE OR MERGER OF THE COMPANY
If the Company: (i) agrees to sell substantially all of its assets
for cash or property or for a combination of cash and property, (ii) agrees to
any merger, consolidation, reorganization, division or other transaction in
which Shares are converted into another security or into the right to receive
securities or property and such agreement does not provide for the assumption
or substitution of the Options granted under this Plan, or (iii) agrees to
dissolve the Company or liquidate its assets, then immediately following such
time that the Company manifests its agreement in writing to do any of the
foregoing, at the direction and discretion of the Board, or as is otherwise
provided in the Stock Option Grant Certificates, either (a) each Option shall
be exercisable for a period of thirty (30) days following delivery of written
notice to each holder of an Option (after which such Option shall expire), or
(b) each Option may be canceled unilaterally by the Company in exchange for the
whole Shares (or, subject to satisfying the conditions to the exemption under
Rule 16b-3 or any successor exemption to Section 16(b) of the Exchange Act, for
the whole Shares and the cash in lieu of a fractional Share) which each
Optionee otherwise would receive if he or she had the right to surrender his or
her outstanding Option in full under Section 9 of this Plan and he or she
exercised that right exclusively for Shares on a date fixed by the Board which
comes before such sale or other corporate transaction.
SECTION 16.
AMENDMENT OR TERMINATION
This Plan may be amended by the Committee or the Board from time to
time to the extent that the Committee or the Board deems necessary or
appropriate; provided, however, no such amendment shall be made absent the
approval of the shareholders of the Company (1) to increase the number of
Shares reserved under Section 3 except as set forth in Section 14, (2) to
extend the maximum life of the Plan under Section 13 or the maximum exercise
period under Section 9, (3) to decrease the minimum Exercise Price under
Section 8, or (4) to change the designation of Employees or Key Persons
eligible for Options under Section 6. The Committee or the Board also may
suspend the granting of Options under this Plan at any time and may terminate
this Plan at any time; provided, however, the Company shall not have the right
to modify, amend or cancel any Option granted before such suspension or
termination unless (1) the Employee or Key Person consents in writing to such
modification, amendment or cancellation or (2) there is a dissolution or
liquidation of the Company or a transaction described in Section 14 or Section
15 of this Plan.
-7-
<PAGE> 8
SECTION 17.
MISCELLANEOUS
18.1 SHAREHOLDER RIGHTS. No Employee or Key Person shall have any
rights as a shareholder of the Company as a result of the grant of an Option to
him or to her under this Plan or his or her exercise or surrender of such
Option pending the actual delivery of Shares subject to such Option to such
Employee or Key Person.
18.2 NO CONTRACT OF EMPLOYMENT. The grant of an Option to an
Employee or Key Person under this Plan shall not constitute a contract of
employment and shall not confer on an Employee any rights upon his or her
termination of employment in addition to those rights, if any, expressly set
forth in the Stock Option Grant which evidences his or her Option.
18.3 WITHHOLDING. The exercise or surrender of any Option granted
under this Plan shall constitute an Employee's or Key Person's full and
complete consent to whatever action the Committee or the Board directs to
satisfy the federal and state tax withholding requirements, if any, which the
Committee or the Board in its discretion deems applicable to such exercise or
surrender. In addition to and at the time of payment of the Exercise Price, the
Optionee shall pay to the Company in cash the full amount of any federal, state
and local income, employment or other taxes required to be withheld from the
income of such Optionee as a result of such exercise; provided, however, that
in the discretion of the Committee any Stock Option Grant Certificate may
provide that all or any portion of such tax obligations, together with
additional taxes not exceeding the actual additional taxes be owed by the
Optionee as a result of such exercise, may, upon the irrevocable election of
the Optionee, be paid by tendering to the Company whole Shares of Common Stock
duly endorsed for transfer and owned by the Optionee, or by authorizing the
Company to withhold Shares of Common Stock otherwise issuable upon exercise of
the Option, in either case in that number of Shares having a Fair Market Value
on the date of exercise equal to the amount of such taxes thereby being paid,
in all cases subject to such restrictions as the Committee may from time to
time determine, including any such restrictions as may be necessary or
appropriate to satisfy the conditions of the exemption set forth in Rule 16b-3
under the Exchange Act.
18.4 TRANSFER. The transfer of an Employee between or among the
Company, a Subsidiary or a Parent shall not be treated as a termination of his
or her employment under this Plan.
18.5 CONSTRUCTION. This Plan shall be construed under the laws of
the State of Georgia.
-8-
<PAGE> 9
HOMECOM COMMUNICATIONS, INC.
STOCK OPTION PLAN
STOCK OPTION GRANT CERTIFICATE
HomeCom Communications, Inc., a Delaware corporation (the "Company"),
hereby grants to the optionee named below ("Optionee") an option (this
"Option") to purchase the total number of shares shown below of Common Stock of
the Company (the "Shares") at the exercise price per share set forth below (the
"Exercise Price"), subject to all of the terms and conditions on the reverse
side of this Stock Option Grant Certificate and the HomeCom Communications,
Inc. Stock Option Plan (the "Plan"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to them in the
Plan. The terms and conditions set forth on the reverse side hereof and the
terms and conditions of the Plan are incorporated herein by reference.
In witness whereof, this Stock Option Grant has been executed by the Company by
a duly authorized officer as of the date specified hereon.
HOMECOM COMMUNICATIONS, INC.
By:
------------------------------------
Date of Grant: ________ __, 1996
Type of Stock Option:
[ ] Incentive
[ ] Non-Qualified
Shares Subject to Option: <<Shares>>
Exercise Price Per Share: <<Price>>
Term of Option: <<Term>>
Shares subject to issuance under this Option shall be eligible for exercise
according to the vesting schedule selected below and further described in
Section 10 on the reverse of this Stock Option Grant Certificate.
[<<Immediate>>] Immediate Vesting [<<Year1>>] One Year Vesting
[<<Year2>>] Two Year Vesting [<<Year3>>] Three Year Vesting
[<<Year4>>] Four Year Vesting [<<Year5>>] Five Year Vesting
Optionee hereby acknowledges receipt of a copy of the Plan, represents
that Optionee has read and understands the terms and provisions of the Plan,
and accepts this Option subject to all the terms and conditions of the Plan and
this Stock Option Grant Certificate. Optionee acknowledges that there may be
adverse tax consequences upon exercise of this Option or disposition of the
Shares and that Optionee should consult a tax adviser prior to such exercise or
disposition.
- ----------------------------------------------------
Signature of Optionee
<<Name>>
- ----------------------------------------------------
Print Name of Optionee
<PAGE> 10
1. EXERCISE PERIOD OF OPTION. Subject to the terms and
conditions of this Option and the Plan, and unless otherwise modified by a
written modification signed by the Company and Optionee, this Option may be
exercised with respect to all of the Shares, but only according to the vesting
schedule selected on the reverse of this Stock Option Grant Certificate and as
described in Section 10 below, prior to the date which is the last day of the
Term set forth on the face hereof following the date of grant (hereinafter
"Expiration Date").
2. RESTRICTIONS ON EXERCISE. This Option may not be exercised,
unless such exercise is in compliance with the Securities Act of 1933 and all
applicable state securities laws, as they are in effect on the date of
exercise, and the requirements of any stock exchange or national market system
on which the Company's Common Stock may be listed at the time of exercise.
Optionee understands that the Company is under no obligation to register,
qualify or list the Shares with the Securities and Exchange Commission ("SEC"),
any state securities commission or any stock exchange to effect such
compliance.
3. TERMINATION OF OPTION. Except as provided below in this Section,
this Option may not be exercised after the date which is thirty (30) days after
Optionee ceases to perform services for the Company, or any Parent or
Subsidiary. Optionee shall be considered to perform services for the Company,
or any Parent or Subsidiary, for all purposes under this Section and Section 10
hereof, if Optionee is an officer or full-time employee of the Company, or any
Parent or Subsidiary, or if the Board determines that Optionee is rendering
substantial services as a part-time employee, consultant, contractor or advisor
to the Company, or any Parent or Subsidiary. The Board shall have discretion
to determine whether Optionee has ceased to perform services for the Company,
or any Parent or Subsidiary, and the effective date on which such services
cease (the "Termination Date"). Notwithstanding anything contained herein to
the contrary, if the corporate position of Optionee is, at any time, altered or
revised such that Optionee's responsibilities are materially reduced or
decreased for any reason, as determined by the Board in its sole discretion,
the vesting of Shares under Section 10 shall cease, effective as of the date of
such reduction in Optionee's employment responsibilities; provided, however,
except as otherwise provided in this Option and the Plan, Optionee shall have
the right to exercise this Option with respect to Shares which have vested
under Section 10 as of the date of such reduction of Optionee's
responsibilities.
(a) Termination Generally. If Optionee ceases to perform
services for the Company, or any Parent or Subsidiary, for any reason, except
death or disability (within the meaning of Code Section 22(e)(3)), this Option
shall immediately be forfeited, along with any and all rights or subsequent
rights attached thereto, thirty (30) days following the Termination Date, but
in no event later than the Expiration Date.
(b) Death or Disability. If Optionee ceases to perform
services for the Company, or any Parent or Subsidiary, as a result of the death
or disability of Optionee (as determined by the Board in its sole discretion),
this Option, to the extent (and only to the extent) that it would have been
exercisable by Optionee on the Termination Date, may be exercised by Optionee
(or, in the event of Optionee's death, by Optionee's legal representative)
within ninety (90) days after the Termination Date, but in no event later than
the Expiration Date.
(c) No Right to Employment. Nothing in the Plan or this
Stock Option Grant Certificate shall confer on Optionee any right to continue
in the employ of, or other relationship with, the Company, or any Parent or
Subsidiary, or limit in any way the right of the Company, or any Parent or
Subsidiary, to terminate Optionee's employment or other relationship at any
time, with or without cause.
4. MANNER OF EXERCISE.
(a) Exercise Agreement. This Option shall be exercisable
by delivery to the Company of an executed Exercise and Shareholder Agreement
("Exercise Agreement") in the form of the Exercise Agreement delivered to
Optionee, if applicable, or in such other form as may be approved or accepted
by the Company, which shall set forth Optionee's election to exercise this
Option with respect to some or all of the Shares, the number of Shares being
purchased, any restrictions imposed on the Shares, and such other
representations and agreements as may be required by the Company to comply with
applicable securities laws.
(b) Exercise Price. Such notice shall be accompanied by
full payment of the Exercise Price for the Shares being purchased. Payment for
the Shares may be made in U.S. dollars in cash (by check) or, where permitted
by law and approved by the Board in its sole discretion: (i) by cancellation
of indebtedness of the Company to Optionee; (ii) by surrender of shares of
Common Stock of the Company that have been owned by Optionee for more than six
(6) months (and which have been paid for within the meaning of SEC Rule 144,
and, if such Shares were purchased from the Company by use of a promissory
note, such note has been fully paid with respect to such Shares), or were
obtained by Optionee in the open public market, having a Fair Market Value
equal to the Exercise Price of the Shares being purchased; (iii) by instructing
the Company to withhold Shares otherwise issuable pursuant to the exercise of
the Option having a Fair Market Value equal to the exercise price of the Shares
being purchased (including the withheld Shares); (iv) by waiver of compensation
accrued by Optionee for services rendered; or (v) a combination of the
foregoing.
(c) Withholding Taxes. Prior to the issuance of Shares
upon exercise of this Option, Optionee must pay, or make adequate provision
for, any applicable federal or state withholding obligations of the Company.
Where approved by the Board, Optionee may provide for payment of withholding
taxes upon exercise of the Option by requesting that the Company retain Shares
with a Fair Market Value equal to the minimum amount of taxes required to be
withheld. In such case, the Company shall issue the net number of Shares to
Optionee by deducting the Shares retained from the Shares exercised.
(d) Issuance of Shares. Provided that such notice and
payment are in form and substance satisfactory to counsel for the Company, the
Company shall cause the Shares to be issued in the name of Optionee or
Optionee's legal representative.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If this
Option is an ISO, and if Optionee sells or otherwise disposes of any of the
Shares acquired pursuant to the ISO on or before the later of: (a) the date
two (2) years after the Date of Grant, or (b) the date one (1) year after
exercise of the ISO, with respect to the Shares to be sold or disposed,
Optionee shall immediately notify the Company in writing of such sale or
disposition. Optionee acknowledges and agrees that Optionee may be subject to
income tax withholding by the Company on the compensation income recognized by
Optionee from any such early disposition by payment in cash or out of the
current wages or earnings payable to Optionee.
6. NONTRANSFERABILITY OF OPTION. This Option may not be
transferred in any manner, other than by will or by the laws of descent and
distribution, and may be exercised during Optionee's lifetime only by Optionee.
The terms of this Option shall be binding upon the executor, administrators,
successors and assigns of Optionee.
7. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT THE GRANT AND
EXERCISE OF THIS OPTION, AND THE SALE OF SHARES OBTAINED THROUGH THE EXERCISE
OF THIS OPTION, MAY HAVE TAX IMPLICATIONS THAT COULD RESULT IN ADVERSE TAX
CONSEQUENCES TO OPTIONEE. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED
WITH, OR WILL CONSULT WITH, HIS OR HER TAX ADVISOR AND OPTIONEE FURTHER
ACKNOWLEDGES THAT OPTIONEE IS NOT RELYING OF THE COMPANY FOR ANY TAX, FINANCIAL
OR LEGAL ADVICE.
8. INTERPRETATION. Any dispute regarding the interpretation of
this Stock Option Grant Certificate shall be submitted by Optionee or the
Company to the Board or the Committee, which shall review such dispute at its
next regular meeting. The resolution of such a dispute by the Board or
Committee shall be final and binding on the Company and Optionee.
9. ENTIRE AGREEMENT. The Plan and the Exercise Agreement are
incorporated herein by this reference. Optionee acknowledges and agrees that
the granting of this Option constitutes a full accord, satisfaction and release
of all obligations or commitments made to Optionee by the Company or any of its
officers, directors, shareholders or affiliates with respect to the issuance of
any securities, or rights to acquire securities, of the Company or any of its
affiliates. This Stock Option Grant Certificate, the Plan and the Exercise
Agreement constitute the entire agreement of the parties hereto, and supersede
all prior undertakings and agreements with respect to the subject matter
hereof.
10. VESTING AND EXERCISE OF SHARES. Subject to the terms of the
Plan, this Option and the Exercise Agreement, the Shares issued pursuant to the
exercise of this Stock Option Grant Certificate shall be subject to the vesting
restrictions selected on the reverse side of this Option and defined below.
For purposes of this Section, "Continuous Service" means a period of continuous
performance of services by Optionee for the Company, a Parent, or a Subsidiary,
as determined by the Board.
Immediate Vesting: Optionee may exercise this Option with respect to
any or all of the Shares at any time and in any amount following the
date of grant.
One Year Vesting: Optionee may exercise this Option with respect to
any or all of the Shares only after Optionee has completed twelve (12)
months of Continuous Service following the date of grant.
Two Year Vesting: Optionee may exercise this Option with respect to
the percentage of Shares set forth below only after Optionee has
completed the following periods of Continuous Service following the
date of grant:
(a) After twelve (12) months of Continuous Service, up to
fifty percent (50%) of the Shares; and
(b) After twenty-four (24) months of Continuous Service,
up to one hundred percent (100%) of the Shares.
Three Year Vesting: Optionee may exercise this Option with respect to
the percentage of Shares set forth below only after Optionee has
completed the following periods of Continuous Service following the
date of grant:
(a) After twelve (12) months of Continuous Service, up to
thirty-three and one third percent (33 1/3%) of the Shares;
(b) After twenty-four (24) months of Continuous Service,
up to sixty-six and two thirds percent (66 2/3%) of the Shares; and
(c) After thirty-six (36) months of Continuous Service,
up to one hundred percent (100%) of the Shares.
Four Year Vesting: Optionee may exercise this Option with respect to
the percentage of Shares set forth below only after Optionee has
completed the following periods of Continuous Service following the
date of grant:
(a) After twelve (12) months of Continuous Service, up to
twenty-five percent (25%) of the Shares;
(b) After twenty-four (24) months of Continuous Service,
up to fifty percent (50%) of the Shares;
(c) After thirty-six (36) months of Continuous Service, up
to seventy-five percent (75%) of the Shares; and
(d) After forty-eight (48) months of Continuous Service,
up to one hundred percent (100%) of the Shares.
Five Year Vesting: Optionee may exercise this Option with respect to
the percentage of Shares set forth below only after Optionee has
completed the following periods of Continuous Service following the
date of grant:
(a) After twelve (12) months of Continuous Service, up to
twenty percent (20%) of the Shares;
(b) After twenty-four (24) months of Continuous Service,
up to forty percent (40%) of the Shares;
(c) After thirty-six (36) months of Continuous Service, up
to sixty percent (60%) of the Shares;
(d) After forty-eight (48) months of Continuous Service,
up to eighty percent (80%) of the Shares; and
(e) After sixty (60) months of Continuous Service, up to
one hundred percent (100%) of the Shares.
<PAGE> 1
EXHIBIT 10.2
HOMECOM COMMUNICATIONS, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
SECTION 1.
PURPOSE
The purpose of this plan is to promote the interests of the Company
and its stockholders by strengthening the Company's ability to attract and
retain the services of experienced and knowledgeable non-employee directors and
by encouraging such directors to acquire an increased proprietary interest in
the Company.
SECTION 2.
DEFINITIONS
Each term set forth in this section shall have the meaning set forth
opposite such term for purposes of this plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include
the singular.
2.1 ANNUAL MEETING DATE means, with respect to each fiscal year,
the date within such fiscal year on which the annual meeting of the
shareholders of the Company is held. If in any fiscal year the Company shall
not hold an annual meeting of shareholders, the Annual Meeting Date shall be
deemed to occur on the 120th day of the fiscal year in which no such annual
meeting of shareholders is held.
2.2 BOARD means the Board of Directors of the Company.
2.3 CODE means the Internal Revenue Code of 1986, as amended.
2.4 COMMITTEE means the committee appointed by the Board pursuant
to Section 5.
2.5 COMMON STOCK means the common stock of the Company, $.0001 par
value per share, as defined in the Company's Certificate of Incorporation, as
the same may be amended from time to time, and shall also mean any other stock
or securities (including any other share or securities of an entity other than
the Company) for or into which the outstanding shares of such stock are
hereinafter exchanged or changed.
2.6 COMPANY means HomeCom Communications, Inc., a Delaware
corporation, and any successor to such organization.
2.7 ELIGIBLE DIRECTOR means a director of the Company who is not
an employee of the Company or a Parent or Subsidiary.
2.8 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
2.9 EXERCISE PRICE means the price which shall be paid to purchase
one Share upon the exercise of an Option granted under this Plan.
2.10 FAIR MARKET VALUE of each Share of Common Stock on any date
shall mean the price determined below on the last business day immediately
preceding the date of valuation:
<PAGE> 2
(a) The closing sales price per Share, regular way, or in
the absence thereof the mean of the last reported bid and asked quotations, on
such date on the exchange having the greatest volume of trading in the Shares
during the thirty-day period preceding such date (or if such exchange was not
open for trading on such date, the next preceding date on which it was open); or
(b) If there is no price as specified in (a), the final
reported sales price per Share, or if not reported, the mean of the closing
high bid and low asked prices in the over-the-counter market for the Shares as
reported by the National Association of Securities Dealers Automatic Quotation
System, or if not so reported, then as reported by the National Quotation
Bureau Incorporated, or if such organization is not in existence, by an
organization providing similar services, on such date (or if such date is not a
date for which such system or organization generally provides reports, then on
the next preceding date for which it does so); or
(c) If there also is no price as specified in (b), the
price per Share determined by the Committee by reference to bid-and-asked
quotations for the Shares provided by members of an association of brokers and
dealers registered pursuant to Subsection 15(b) of the Exchange Act, which
members make a market in the Shares, for such recent dates as the Committee
shall determine to be appropriate for fairly determining current market value;
or
(d) If there also is no price as specified in (c), an
amount per Share determined in good faith by the Committee based on such
relevant facts, which may include opinions of independent experts, as may be
available to the Committee.
2.11. INTERIM GRANT DATE means the date on which an Eligible
Director is first appointed or elected to the Board, if such Eligible Director
is so appointed or elected on a date other an Annual Meeting Date.
2.12 OPTION means an option granted under this Plan to purchase
Shares; all Options granted under this Plan are intended by the Company to be
nonqualified options which are not entitled to special tax treatment under, and
do not satisfy the requirements of, Code Section 422.
2.13 OPTIONEE means grantee of an Option.
2.14 PARENT means any corporation which is a parent of the Company
within the meaning of Section 424(e) of the Code.
2.15 PLAN means the HomeCom Communications, Inc. Non-Employee
Directors Stock Option Plan, as amended from time to time.
2.16 SHARE means a share of the Common Stock of the Company.
2.17 STOCK OPTION GRANT CERTIFICATE means the written agreement or
instrument which sets forth the terms of an Option granted to an Eligible
Director under this Plan.
2.18 SUBSIDIARY means any corporation which is a subsidiary (within
the meaning of Section 424(f) of the Code) of the Company.
2.19 SURRENDERED SHARES means the Shares described in Section 9
which (in lieu of being purchased) are surrendered for cash or Shares, or for a
combination of cash and Shares, in accordance with Section 9.
-2-
<PAGE> 3
SECTION 3.
SHARES SUBJECT TO OPTIONS
Three hundred thousand (300,000) shares of Common Stock shall be
reserved for issue under this Plan. Such Shares shall be reserved to the
extent that the Company deems appropriate from authorized but unissued Shares
and from Shares which have been reacquired by the Company. Furthermore, any
Shares subject to an Option which remain after the cancellation, expiration or
exchange of such Option thereafter shall again become available for use under
this Plan, but any Surrendered Shares which remain after the surrender of an
Option under Section 9 shall not again become available for use under this Plan.
SECTION 4.
EFFECTIVE DATE
The effective date of this Plan shall be the date it is adopted by the
Board, provided the shareholders of the Company approve this Plan within twelve
(12) months after such effective date. If such effective date comes before
such shareholder approval, any Options granted under this Plan before the date
of such approval automatically shall be granted subject to such approval. The
Plan shall continue in effect until it is terminated by action of the Board or
the Company's stockholders, but such termination shall not affect the terms of
any Options then outstanding.
SECTION 5.
ADMINISTRATION
The Plan shall be administered by the Committee, which shall consist
of two (2) or more directors appointed by the Board. The Committee, acting in
its absolute discretion, shall exercise such powers and take such action as
expressly called for under this Plan. The Committee shall have the power to
interpret this Plan and, subject to Section 14, to take such other action in
the administration and operation of the Plan as it deems equitable under the
circumstances. The Committee's actions shall be binding on the Company, on
each affected Eligible Director, and on each other person directly or
indirectly affected by such action.
SECTION 6.
ELIGIBILITY
Each Eligible Director shall be entitled to participate in the Plan
and shall be eligible to receive those grants of Options which shall be
applicable to such Eligible Director pursuant to the terms and conditions of
Section 7. Additionally, the Committee may grant options to Eligible Directors
in its discretion from time to time, subject to approval by the Board.
SECTION 7.
GRANT OF OPTIONS
7.1 REGULAR GRANTS. An Option to purchase Five Thousand (5,000)
Shares shall automatically be granted to each Eligible Director on the Annual
Meeting Date for the Company's 1997 fiscal year. Subsequent Options to
purchase Five Thousand (5,000) Shares shall automatically be granted each
Annual Meeting Date thereafter. Options shall continue to be granted hereunder
so long as this Plan continues in effect, or until the Shares available for
grant shall no longer be sufficient to grant each Eligible Director an Option
for the number of Shares determined according to this Subsection 7.1, at which
time Options shall be granted to each director to acquire a number of shares
determined by allocating all Shares remaining available for grant hereunder
among the Eligible Directors then entitled to a grant hereunder. Eligible
Directors shall not be entitled to any payment of cash hereunder in lieu of
receiving Options. Each grant of
-3-
<PAGE> 4
an Option shall be evidenced by a Stock Option Grant Certificate, and each
Stock Option Grant Certificate shall incorporate such other terms and
conditions as the Committee, acting in its absolute discretion, deems
consistent with the terms of this Plan, including (without limitation) a
restriction on the number of Shares subject to the Option which first become
exercisable or subject to surrender during any calendar year. Any Option
granted to an Eligible Director shall, at his request, be issued to, in the
name and for the benefit of the entity through which such Eligible Director has
invested in the Company.
7.2 INITIAL GRANTS. Each Eligible Director who is first appointed
or elected to the Board shall be granted an Option to purchase Ten Thousand
(10,000) Shares of Common Stock.
SECTION 8.
TERMS AND CONDITIONS OF OPTIONS
8.1 EXERCISE PRICE. The Exercise Price for each Option granted
shall be the Fair Market Value of the Common Stock on the last business day
preceding the date that the Option is automatically granted.
8.2 VESTING OF OPTIONS. Each Option granted under the Plan shall
vest as provided below unless otherwise specified in the Plan or the Stock
Option Grant Certificate. For purposes of the Plan, that portion of an Option
which is vested may be exercised by the Optionee according to the terms and
conditions of the Plan.
(a) An Optionee shall be entitled to acquire fifty percent
(50%) of the Shares subject to an Option on the date on which the Optionee
completes twelve (12) months of continuous service on the Board following the
date of grant of such Option;
(b) An Optionee shall be entitled to acquire one hundred
percent (100%) of the Shares subject to an Option on the date on which the
Optionee completes twenty-four (24) months of continuous service on the Board
following the date of grant of such Option.
8.3 TERM OF OPTION. Each Option granted under the Plan shall
include an expiration date, which shall be set forth in the Stock Option Grant
Certificate. Unless otherwise provided in the Stock Option Grant Certificate,
the termination of service of an Optionee as a member of the Board by death or
otherwise shall not accelerate or otherwise affect the number of Shares with
respect to which an Option may be exercised, and such Option may only be
exercised with respect to that number of Shares which could have been purchased
under the Option had the Option been exercised by the Optionee on the date that
such Optionee ceased to be a member of the Board by reason of such Optionee's
death or for any other reason.
Each Option granted under this Plan shall be exercisable in
whole or in part at such time or times as set forth in the related Stock Option
Grant Certificate, but no Stock Option Grant Certificate shall:
(a) make an Option exercisable before the date such Option
is granted; or
(b) make an Option exercisable after the earlier of the
first to occur of the following (at which time such option shall be deemed to
have terminated):
(i) immediately at the time and on the date such
Option is exercised in full;
(ii) at 5:00 p.m., EST, on the date which is the
tenth (10th) anniversary of the date such Option is granted;
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<PAGE> 5
(iii) at 5:00 p.m., EST on the thirtieth (30) day
following the date an Optionee ceases to be a member of the Board of Directors
for any reason other than his death or disability; or
(iv) at 5:00 p.m., EST on the ninetieth (90) day
following the date that an Optionee ceases to be a member of the Board of
Directors by reason of his death or disability.
8.4 TIME AND MANNER OF OPTION EXERCISE. Any vested and
exercisable Option is exercisable in whole or in part at any time or from time
to time prior to the expiration of an Option by giving written notice, signed
by the person exercising the Option, to the Company stating the number of
Shares with respect to which the Option is being exercised, accompanied by
payment in full of the Exercise Price for the number of Shares to be purchased.
The date and time upon which the Company's Secretary or Treasurer shall have
received both such notice and payment shall be the date and time of exercise of
the Option as to the number of Shares described by the Optionee. No Option may
be exercised at any time with respect to a fractional share. Any Option of a
deceased Optionee may be exercised, to the extent vested at the time of such
Optionee's death, by the estate of such Optionee or by a person or persons whom
the Optionee has designated in writing filed with the Company, or, if no such
designation has been made, by the person or persons to whom the Optionee's
rights have passed by will or the laws of descent and distribution.
8.5 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price may
be in cash, by cashier's check, by personal check, or by promissory note of the
Optionee. The Committee may also provide in an exercise agreement upon
exercise of an Option that, in lieu of cash, all or any portion of the Exercise
Price may be paid by tendering to the Company Shares of Common Stock duly
endorsed for transfer and owned by the Optionee, to be credited against the
Option price at the Fair Market Value of such Shares on the date of exercise.
A promissory note tendered in payment of the Exercise Price shall be in a form
designated by the Committee, shall be signed by the Optionee (which signature
shall be notarized or guaranteed) and shall include substantially the following
terms: interest on the principal amount of the note shall accrue at a per
annum rate equal to the prime rate as announced from time to time by the
principal bank of the Company, or if the Company has no principal bank, that
rate announced by the Wall Street Journal as the prevailing "prime rate" of
interest per annum; equal payments of principal and interest shall be payable
in installments for a period determined by the Committee following exercise,
and upon the expiration of such period the entire unpaid principal amount,
together with accrued by unpaid interest, shall be due and payable; and the
Optionee executing the note shall be personally liable for timely payment of
the unpaid principal balance and all accrued by unpaid interest.
8.6 TRANSFERABILITY. The right of any Optionee to exercise an
Option granted under the Plan shall, during the lifetime of such Optionee, be
exercisable only by such Optionee or by a person who obtained such Option
pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and the rules thereunder (a "QDRO"), and shall not be assignable or
transferable by such Optionee other than by will or by the laws of descent and
distribution or by a QDRO.
8.7 LIMITATION OF RIGHTS.
(a) LIMITATION AS TO SHARES. Neither the recipient of an
Option under the Plan nor an Optionee's successor or successors in interest
shall have any rights as a stockholder of the Company with respect to any
Shares subject to an Option granted to such person until the date of issuance
of a stock certificate for such Shares.
(b) LIMITATION AS TO DIRECTORSHIP. Neither the Plan, nor
the granting of an Option, nor any other action taken pursuant to the Plan
shall constitute or be evidence of any agreement or
-5-
<PAGE> 6
understanding, express or implied, that an Eligible Director has a right to
continue as a member of the Board for any period of time or at any particular
rate of compensation.
(c) REGULATORY APPROVAL AND COMPLIANCE. The Company shall
not be required to issue any certificate or certificates for Shares upon the
exercise of an Option granted under the Plan or to record as a holder of record
of Shares the name of the individual exercising an Option under the Plan,
without obtaining to the complete satisfaction of the Board the approval of all
regulatory bodies deemed necessary by the Board and without complying, to the
Board's complete satisfaction, with all rules and regulations under federal,
state, or local law deemed applicable by the Board. In addition, with respect
to persons subject to Section 16 of the Exchange Act, transactions under this
Plan are intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of the Plan or
action by the Board or the Committee fail to comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Board.
SECTION 9.
SURRENDER OF OPTIONS
9.1 GENERAL RULE. The Committee, in its absolute discretion, may
incorporate a provision in a Stock Option Grant Certificate to allow an
Optionee to surrender his or her Option in whole or in part in lieu of the
exercise in whole or in part of that Option on any date that:
(a) the Fair Market Value of the Shares subject to such
Option exceeds the Exercise Price for such Shares; and
(b) the Option to purchase such Shares is otherwise
exercisable.
9.2 PROCEDURE. The surrender of an Option in whole or in part
shall be effected by the delivery of the Stock Option Grant Certificate to the
Committee (or to its delegate) together with a statement signed by the Optionee
which specifies the number of Shares ("Surrendered Shares") as to which the
Optionee surrenders his or her Option and how he or she desires payment be made
for such Surrendered Shares.
9.3 PAYMENT. An Optionee in exchange for his or her Surrendered
Shares shall receive a payment in cash or in Shares, or in a combination of
cash and Shares, equal in amount on the date such surrender is effected to the
excess of the Fair Market Value of the Surrendered Shares on such date over the
Exercise Price for the Surrendered Shares. The Committee, acting in its
absolute discretion, can approve or disapprove an Optionee's request for
payment in whole or in part in cash and can make that payment in cash or in
such combination of cash and Shares as the Committee deems appropriate. A
request for payment only in Shares shall be approved and made in Shares to the
extent payment can be made in whole shares of Shares and (at the Committee's
discretion) in cash in lieu of any fractional Shares.
9.4 RESTRICTIONS. Any Stock Option Grant Certificate which
incorporates a provision to allow an Optionee to surrender his or her Option in
whole or in part also shall incorporate such additional restrictions on the
exercise or surrender of such Option as the Committee deems necessary to
satisfy the conditions to the exemption under Rule 16b-3 (or any successor
exemption) to Section 16(b) of the Exchange Act.
SECTION 10.
SECURITIES REGISTRATION
Each Stock Option Grant Certificate may provide that, upon the receipt
of Shares as a result of the surrender or exercise of an Option, the Optionee
shall, if so requested by the Company, hold such Shares for investment and not
with a view of resale or distribution to the public and, if so requested by the
Company,
-6-
<PAGE> 7
shall deliver to the Company a written statement satisfactory to the Company to
that effect. Each Stock Option Grant Certificate also may provide that, if so
requested by the Company, the Optionee shall make a written representation to
the Company that he or she will not sell or offer to sell any of such Shares
unless a registration statement shall be in effect with respect to such Shares
under the Securities Act of 1933, as amended ("1933 Act") and any applicable
state securities law or unless he or she shall have furnished to the Company an
opinion, in form and substance satisfactory to the Company, or legal counsel
acceptable to the Company, that such registration is not required.
Certificates representing the Shares transferred upon the exercise or surrender
of an Option granted under this Plan may at the discretion of the Company bear
a legend to the effect that such Shares have not been registered under the 1933
Act or any applicable state securities law and that such Shares may not be sold
or offered for sale in the absence of an effective registration statement as to
such Shares under the 1933 Act and any applicable state securities law or an
opinion, in form and substance satisfactory to the Company, of legal counsel
acceptable to the Company, that such registration is not required.
SECTION 11.
LIFE OF PLAN
No option shall be granted under this Plan on or after the earlier of:
(a) The tenth (10th) anniversary of the effective date of
this Plan (as determined under Section 4 of this Plan), in which event this
Plan otherwise thereafter shall continue in effect until all outstanding
Options have been surrendered or exercised in full or no longer are
exercisable; or
(b) The date on which all of the Shares reserved under
Section 3 of this Plan have (as a result of the surrender or exercise of
Options granted under this Plan) been issued or no longer are available for use
under this Plan, in which event this Plan also shall terminate on such date.
SECTION 12.
ADJUSTMENT
The number of Shares reserved under Section 3 of this Plan, the number
of Shares subject to Options granted under this Plan and the Exercise Price of
such Options shall be adjusted by the Board in an equitable manner to reflect
any change in the capitalization of the Company, including, but not limited to,
such changes as stock dividends or stock splits. Furthermore, the Board shall
have the right to adjust (in a manner which satisfies the requirements of Code
Section 424(a)) the number of Shares reserved under Section 3 of this Plan and
the number of Shares subject to Options granted under this Plan and the
Exercise Price of such Options in the event of any corporate transaction
described in Code Section 424(a) which provides for the substitution or
assumption of such Options. If any adjustment under this Section creates a
fractional Share or a right to acquire a fractional Share, such fractional
Share shall be disregarded and the number of Shares reserved under this Plan
and the number subject to any Options granted under this Plan shall be the next
lower number of Shares, rounding all fractions downward. An adjustment made
under this Section by the Board shall be conclusive and binding on all affected
persons and, further, shall not constitute an increase in the number of Shares
reserved under Section 3 of this Plan.
SECTION 13.
SALE OR MERGER OF THE COMPANY
If the Company: (i) agrees to sell substantially all of its assets
for cash or property or for a combination of cash and property, (ii) agrees to
any merger, consolidation, reorganization, division or other transaction in
which Shares are converted into another security or into the right to receive
securities or
-7-
<PAGE> 8
property and such agreement does not provide for the assumption or substitution
of the Options granted under this Plan, or (iii) agrees to dissolve the Company
or liquidate its assets, then immediately following such time that the Company
manifests its agreement in writing to do any of the foregoing, at the direction
and discretion of the Board, or as is otherwise provided in the Stock Option
Grant Certificates, either (a) each Option shall be exercisable for a period of
thirty (30) days following delivery of written notice to each holder of an
Option (after which such Option shall expire), or (b) each Option may be
canceled unilaterally by the Company in exchange for the whole Shares (or,
subject to satisfying the conditions to the exemption under Rule 16b-3 or any
successor exemption to Section 16(b) of the Exchange Act, for the whole Shares
and the cash in lieu of a fractional Share) which each Optionee otherwise would
receive if he or she had the right to surrender his or her outstanding Option
in full under Section 9 of this Plan and he or she exercised that right
exclusively for Shares on a date fixed by the Board which comes before such
sale or other corporate transaction.
SECTION 14.
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent
that the Board deems necessary or appropriate; provided, however, no such
amendment shall be made absent the approval of the shareholders of the Company:
(i) to increase the number of Shares reserved under Section 3, except as set
forth in Section 12, (ii) to extend the maximum life of the Plan under Section
11 or the maximum exercise period under Section 8, (iii) to decrease the
minimum Exercise Price under Section 7, or (iv) to change the designation of
Optionees eligible for Options under Section 6. The Board also may suspend the
granting of Options under this Plan at any time and may terminate this Plan at
any time; provided, however, the Company shall not have the right to modify,
amend or cancel any Option granted before such suspension or termination
unless: (a) the Optionee consents in writing to such modification, amendment
or cancellation, or (b) there is a dissolution or liquidation of the Company or
a transaction described in Section 12 or Section 13 of this Plan.
SECTION 15.
MISCELLANEOUS
15.1 WITHHOLDING. The exercise or surrender of any Option granted
under this Plan shall constitute an Optionee's full and complete consent to
whatever action the Committee directs to satisfy the federal and state tax
withholding requirements, if any, which the Committee in its discretion deems
applicable to such exercise or surrender. In addition to and at the time of
payment of the Exercise Price, the Optionee shall pay to the Company in cash
the full amount of any federal, state and local income, employment or other
taxes required to be withheld from the income of such Optionee as a result of
such exercise; provided, however, that in the discretion of the Committee any
Stock Option Grant Certificate may provide that all or any portion of such tax
obligations, together with additional taxes not exceeding the actual additional
taxes be owed by the Optionee as a result of such exercise, may, upon the
irrevocable election of the Optionee, be paid by tendering to the Company whole
Shares of Common Stock duly endorsed for transfer and owned by the Optionee, or
by authorizing the Company to withhold Shares of Common Stock otherwise
issuable upon exercise of the Option, in either case in that number of Shares
having a Fair Market Value on the date of exercise equal to the amount of such
taxes thereby being paid, in all cases subject to such restrictions as the
Committee may from time to time determine, including any such restrictions as
may be necessary or appropriate to satisfy the conditions of the exemption set
forth in Rule 16b-3 under the Exchange Act.
15.2 CONSTRUCTION. This Plan shall be construed under the laws of
the State of Georgia.
-8-
<PAGE> 9
HOMECOM COMMUNICATIONS, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
STOCK OPTION GRANT CERTIFICATE
HomeCom Communications, Inc., a Delaware corporation (the "Company"),
hereby grants to the optionee named below ("Optionee") an option (this
"Option") to purchase the total number of shares shown below of Common Stock of
the Company (the "Shares") at the exercise price per share set forth below (the
"Exercise Price"), subject to all of the terms and conditions on the reverse
side of this Stock Option Grant Certificate and the HomeCom Communications,
Inc. Non-Employee Directors Stock Option Plan (the "Plan"). Unless otherwise
defined herein, capitalized terms used herein shall have the meanings ascribed
to them in the Plan. The terms and conditions set forth on the reverse side
hereof and the terms and conditions of the Plan are incorporated herein by
reference.
In witness whereof, this Stock Option Grant Certificate has been executed by
the Company by a duly authorized officer as of the date specified hereon.
HOMECOM COMMUNICATIONS, INC.
By:
-----------------------------------------
Date of Grant: <<Date>>
Shares Subject to Option: <<Shares>>
Exercise Price Per Share: <<Price>>
Term of Option: <<Term>>
Shares subject to issuance under this Option shall be eligible for exercise
according to the vesting schedule described in Section 9 on the reverse of this
Stock Option Grant Certificate.
Optionee hereby acknowledges receipt of a copy of the Plan, represents that
Optionee has read and understands the terms and provisions of the Plan, and
accepts this Option subject to all the terms and conditions of the Plan and
this Stock Option Grant Certificate. Optionee acknowledges that there may be
adverse tax consequences upon exercise of this Option or disposition of the
Shares and that Optionee should consult a tax adviser prior to such exercise or
disposition.
- -----------------------------------------------------
Signature of Optionee
<<Name>>
- -----------------------------------------------------
Print Name of Optionee
<PAGE> 10
1. EXERCISE PERIOD OF OPTION. Subject to the terms and
conditions of this Option and the Plan and unless otherwise modified by a
written modification signed by the Company and Optionee, this Option may be
exercised with respect to all of the shares of Common Stock covered by this
Option ("Option Shares"), but only according to the vesting schedule described
in Section 9 below, prior to the date which is the last day of the Term set
forth on the face hereof following the date of grant (hereinafter "Expiration
Date").
2. RESTRICTIONS ON EXERCISE. This Option may not be exercised
unless such exercise is in compliance with the Securities Act of 1933 and all
applicable state securities laws, as they are in effect on the date of
exercise, and the requirements of any stock exchange or national market system
on which the Company's Common Stock may be listed at the time of exercise.
Optionee understands that the Company is under no obligation to register,
qualify or list the Shares with the Securities and Exchange Commission ("SEC"),
any state securities commission or any stock exchange to effect such compliance.
3. TERMINATION OF OPTION. Except as provided below in this
Section, this Option may not be exercised after the date which is thirty (30)
days after Optionee ceases to be a member of the Board of Directors of the
Company (the "Board"). Optionee shall be considered to be a member of the
Board for all purposes under this Section and Section 9 hereof, if Optionee is
serving as a director of the Company. The Board shall have discretion to
determine whether Optionee has ceased to be a member of the Board, and the
effective date on which such services cease (the "Termination Date").
(a) Termination Generally. If Optionee ceases to be a
member of the Board for any reason except death or disability (within the
meaning of Code Section 22(e)(3)), this Option shall immediately be forfeited,
along with any and all rights or subsequent rights attached thereto thirty (30)
days following the Termination Date, but in no event later than the Expiration
Date.
(b) Death or Disability. If Optionee ceases to be a
member of the Board because of the death of Optionee or the disability of
Optionee (as determined by the Board), this Option, to the extent (and only to
the extent) that it would have been exercisable by Optionee on the Termination
Date, may be exercised by Optionee (or, in the event of Optionee's death, by
Optionee's legal representative) within ninety (90) days after the Termination
Date, but in no event later than the Expiration Date.
(c) No Right to Membership. Nothing in the Plan or this
Stock Option Grant Certificate shall confer on Optionee any right to continue
as a member of the Board, or limit in any way the right of the Company to
terminate Optionee's membership on the Board, with or without cause.
4. MANNER OF EXERCISE.
(a) Exercise Agreement. This Option shall be exercisable
by delivery to the Company of an executed Exercise Agreement and Shareholder
Agreement ("Exercise Agreement") in the form of the Exercise Agreement
delivered to Optionee, if applicable, or in such other form as may be approved
or accepted by the Company, which shall set forth Optionee's election to
exercise some or all of this Option, the number of Shares being purchased, any
restrictions imposed on the Shares and such other representations and
agreements as may be required by the Company to comply with applicable
securities laws.
(b) Exercise Price. Such notice shall be accompanied by
full payment of the Exercise Price for the Shares being purchased. Payment for
the Shares may be made in U.S. dollars in cash (by check) or, where permitted
by law and approved by the Board in its sole discretion: (i) by cancellation
of indebtedness of the Company to Optionee; (ii) by surrender of shares of
Common Stock of the Company that have been owned by Optionee for more than six
(6) months (and which have been paid for within the meaning of SEC Rule 144
and, if such Shares were purchased from the Company by use of a promissory
note, such note has been fully paid with respect to such Shares), or were
obtained by the Optionee in the open public market, having a Fair Market Value
equal to the exercise price of the Option; (iii) by instructing the Company to
withhold Shares otherwise issuable pursuant to an exercise of the Option having
a Fair Market Value equal to the exercise price of the Option (including the
withheld Shares); (iv) by waiver of compensation accrued by Optionee for
services rendered; or (v) a combination of the foregoing.
(c) Withholding Taxes. Prior to the issuance of the
Shares upon exercise of this Option, Optionee must pay or make adequate
provision for any applicable federal or state withholding obligations of the
Company. Where approved by the Board, the Optionee may provide for payment of
withholding taxes upon exercise of the Option by requesting that the Company
retain Shares with a Fair Market Value equal to the minimum amount of taxes
required to be withheld. In such case, the Company shall issue the net number
of Shares to the Optionee by deducting the Shares retained from the Shares
exercised.
(d) Issuance of Shares. Provided that such notice and
payment are in form and substance satisfactory to counsel for the Company, the
Company shall cause the Shares to be issued in the name of Optionee or
Optionee's legal representative.
5. NONTRANSFERABILITY OF OPTION. This Option may not be
transferred in any manner other than (a) by will or by the laws of descent and
distribution or (b) pursuant to a qualified domestic relations order (a "QDRO")
as defined by the Code or Title I of the Employee Retirement Income Security
Act of 1974, as amended. This Option may be exercised during the lifetime of
the Optionee only by the Optionee or a person who obtains the Option pursuant
to a QDRO. The terms of this Option shall be binding upon the executor,
administrators, successors, assigns and transferees of the Optionee.
6. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT THE GRANT AND
EXERCISE OF THIS OPTION, AND THE SALE OF SHARES OBTAINED THROUGH THE EXERCISE
OF THIS OPTION, MAY HAVE TAX IMPLICATIONS THAT COULD RESULT IN ADVERSE TAX
CONSEQUENCES TO OPTIONEE. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH
OR WILL CONSULT WITH HIS OR HER TAX ADVISOR, AND OPTIONEE FURTHER ACKNOWLEDGES
THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
7. INTERPRETATION. Any dispute regarding the interpretation of
this Stock Option Grant Certificate shall be submitted by Optionee or the
Company to the Board, or the Committee thereof that administers the Plan, which
shall review such dispute at its next regular meeting. The resolution of such
a dispute by the Board or Committee shall be final and binding on the Company
and Optionee.
8. ENTIRE AGREEMENT. The Plan and the Exercise Agreement are
incorporated herein by this reference. Optionee acknowledges and agrees that
the granting of this Option constitutes a full accord, satisfaction and release
of all obligations or commitments made to Optionee by the Company or any of its
officers, directors, shareholders or affiliates with respect to the issuance of
any securities or rights to acquire securities, of the Company or any of its
affiliates. This Option, the Plan and the Exercise Agreement constitute the
entire agreement of the parties hereto and supersede all prior undertakings and
agreements with respect to the subject matter hereof.
9. VESTING AND EXERCISE OF SHARES. Subject to the terms of the
Plan, this Option and the Exercise Agreement, the Shares issued pursuant to the
exercise of this Option shall be subject to the vesting restrictions below.
For purposes of this Section, "Continuous Service" means a period of continuous
membership on the Board from the date of grant of the Option, as determined by
the Board.
Two Year Vesting: Optionee may exercise the number of Shares set
forth below only after Optionee has completed the following periods of
Continuous Service following the date of grant:
(a) After twelve (12) months of Continuous Service, up to
fifty percent (50%) of the Option Shares; and
(b) After twenty-four (24) months of Continuous Service,
up to one hundred percent (100%) of the Option Shares.
<PAGE> 1
EXHIBIT 10.3
================================================================================
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN
HOMECOM COMMUNICATIONS, INC.
AND
HARVEY SAX
DATED
JANUARY 1, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
EXECUTIVE EMPLOYMENT AGREEMENT
<TABLE>
<CAPTION>
PARAGRAPH PAGE NO.
- --------- --------
<S> <C>
1. Background............................................................. 1
2. Certain Definitions.................................................... 1
3. Employment............................................................. 5
4. Responsibilities....................................................... 5
5. Compensation and Reimbursements........................................ 5
6. Termination............................................................ 8
7. Proprietary Information................................................ 8
8. Indemnification........................................................ 10
9. Board of Directors..................................................... 10
10. Severability.......................................................... 10
11. Attorneys' Fees....................................................... 10
12. Headings.............................................................. 10
13. Notices............................................................... 10
14. General Provisions.................................................... 11
15. Entire Agreement...................................................... 11
</TABLE>
<PAGE> 3
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into this
1st day of January, 1996 by and between HOMECOM COMMUNICATIONS, INC., a Georgia
corporation with its principal offices at 600 West Peachtree Street, Atlanta,
Georgia 30308 (the "Company") and Harvey Sax ("Employee"), an individual, and
shall be effective on the Effective Date, as defined below.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements of the parties hereto, the parties do hereby covenant and agree
as follows:
1. BACKGROUND.
A. The Company is engaged in the business of business software
development, sales, marketing, service and support.
B. The Company desires to secure and retain the services of Employee in
the office of President, and such services are considered by the Company to be
valuable with regard to the business of the Company.
2. CERTAIN DEFINITIONS. As used in this Agreement and the Exhibits, the
following terms shall have the meanings set forth below, and the parties hereto
agree to be bound by the provisions hereof:
A. BOARD OF DIRECTORS means the Board of Directors of the Company.
B. CHANGE OF CONTROL means the occurrence of any one of the following
events:
(i) Merger or consolidation where the Company is not the consolidated
or surviving company and the surviving or resulting company does not expressly
agree to be bound by and have the benefits of the provisions of this Agreement,
and through which any person or persons acting in concert (as such term is used
in Section 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial
holder directly or indirectly of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the Company's
then outstanding securities;
(ii) Transfer of all or substantially all of the assets or stock of the
Company and the transferee of the Company's assets or stock does not expressly
agree to be bound by and have the benefits of the provisions of this Agreement;
(iii) Change in control of the Company of a nature that, if the Company
was a reporting company under SEC rules and regulations, would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act, provided that, without limitation, such a
change in control shall be deemed to have occurred if: (a) any person or
persons acting in concert (as such term is used in Section 13(d) and 14(d)(2)
of
<PAGE> 4
the Exchange Act) is or becomes the beneficial holder directly or indirectly of
securities of the Company representing twenty-five percent (25%) or more of the
combined voting power of the Company's then outstanding securities; or, (b)
during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board cease for any reasons to
constitute a majority thereof, unless the election or nomination for election
by Company's shareholders of each new director was approved by a vote of at
least two-thirds of the directors who were directors at the beginning of such
period; or
(iv) discontinuation of the business by Company.
C. COMPANY means HomeCom Communications, Inc. and its successors.
D. CONSTRUCTIVE TERMINATION means a termination of this Agreement
resulting from any material failure by the Company to fulfill its obligations
under this Agreement which is not cured within twenty (20) days after receipt
of written notice by the Company from Employee specifying the nature of the
failure, which failure shall include, but shall not be limited to, (a) removal
of Employee, other than removal as a result of a Termination With Cause or a
Voluntary Termination, as President of the Company or any material reduction by
the Company in the functions, duties or responsibilities of Employee, without
the consent of Employee, (b) a material, non-voluntary reduction in Employee's
Current Salary and eligibility for bonus amounts, or (c) the occurrence of a
Change of Control. Constructive Termination shall occur only (A) after receipt
by the Company of written notice from Employee specifying Employee's reasonable
belief that an event of Constructive Termination has occurred, as defined
herein, and (B) if Employee provides such notice to the Company and the Board
of Directors within sixty (60) days after the date of such event. The
effective date of Employee's termination of employment shall be the date
specified by the Employee which date must be not later than sixty (60) days
after the giving of the notice specified in the immediately preceding sentence.
Notice by Employee of Constructive Termination shall not constitute a
Voluntary Termination for purposes of this Agreement.
E. EFFECTIVE DATE means January 1, 1996.
F. EMPLOYEE'S CURRENT SALARY means, with respect to any payment obligation
pursuant to this Agreement, an amount equal to the greater of (i) Employee's
current base salary as of the date any determination of Employee's Current
Salary hereunder, plus an amount equal to the bonus compensation paid to the
Employee for the most recent fiscal year, plus an amount equal to the
annualized value of any and all benefits currently paid to or for the benefit
of the Employee; or (ii) Employee's gross income as reported cumulatively on
Employee's Form W-2 and any Form 1099 issued for the previous calendar year.
G. EXCHANGE ACT means the Securities Exchange Act of 1934, as amended, and
as in effect on the date of the occurrence of any event that requires reference
to such act pursuant to the terms hereof.
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<PAGE> 5
H. INITIAL TERM means the basic term of this Agreement, which shall be
sixty (60) months, beginning on the Effective Date and ending on the date which
is sixty (60) months following the Effective Date.
I. PERMANENT DISABILITY means a physical or mental condition which renders
Employee incapable of performing his regular duties hereunder for a period of
one hundred twenty (120) consecutive days. In the event of any disagreement
between Employee and the Company as to whether Employee is suffering from
Permanent Disability, the determination of Employee's Permanent Disability
shall be made by one or more board certified licensed physicians practicing the
specialty of medicine applicable to Employee's disorder in the Atlanta
metropolitan area in accordance with the provisions of this Subsection J. If
either the Company or Employee desires to initiate the procedure provided in
this Subsection J, such party (the "Initiating Party") shall deliver written
notice to the other party (the "Responding Party") in accordance with the
provisions of this Agreement specifying that the Initiating Party desires to
proceed with a medical examination and the procedures specified in this
Subsection. Such notice shall include the name, address and telephone number
of the physician selected by the Initiating Party (the "Disability Examination
Notice"). If the Responding Party fails within thirty (30) days after the
receipt of the Disability Examination Notice to designate a physician meeting
the standards specified herein, the physician designated by the Initiating
Party in the Disability Examination Notice shall make the determination of
Permanent Disability as provided in this Subsection. If the Responding Party
by written notice notifies the Initiating Party within thirty (30) days of the
receipt by the Responding Party of the Disability Examination Notice by notice
specifying the physician selected by the Responding Party for purposes of this
Subsection, then each of the two physicians as so designated by the respective
parties shall each examine Employee. Examinations shall be made by each such
physician within thirty (30) days of such physician's respective designation.
Each physician shall render a written report as to whether Employee is in such
physician's opinion suffering Permanent Disability. If the two physicians
agree on the status of Employee for purposes of this Subsection, such
determination shall be conclusive and dispositive for all purposes of this
Subsection. If the two physicians cannot agree, the two physicians shall
jointly select a third physician meeting the standards specified in this
Subsection within thirty (30) days after the later report of the two physicians
is submitted. The third physician shall render a written report on the status
of Employee within thirty (30) days of selection and such report shall be
dispositive for purposes of this Subsection. For purposes of this Subsection
J, Employee agrees that Employee shall promptly submit to such examinations and
tests as such physicians shall reasonably request for purposes of making a
determination of Permanent Disability as provided herein. Failure or refusal
of the Company to designate a licensed physician to make a determination of
Permanent Disability as required in accordance with this Subsection or of
Employee to submit to the examination as required by this Subsection shall
constitute a conclusive admission by the Company or Employee, as appropriate,
that Employee is suffering from a Permanent Disability as provided herein.
J. RENEWAL TERMS means the period, if any, following the Initial Term
during which the Agreement is extended as set forth in Section 6B.
K. SEC means the Securities Exchange Commission.
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<PAGE> 6
L. SEVERANCE AMOUNT shall have the meaning as set forth in Section 5C.
M. TERM means the Initial Term and any Renewal Term.
N. TERMINATION DATE means the following: (i) with respect to Termination
With Cause, the date the Company notifies Employee in writing of the actions
described in Subsection 2P(i) and the termination of this Agreement based
thereon, or the date which is twenty (20) days after written notice of a
violation to Employee pursuant to Subsection 2P(ii) that is not cured by
Employee; (ii) with respect to the death of Employee, the date of his death;
(iii) with respect to Termination Without Cause, the date which is ninety (90)
days after the date the Company gives Employee notice of Termination Without
Cause; and (iv) with respect to Voluntary Termination, the date which is ninety
(90) days after the date Employee unilaterally terminates his employment
relationship with the Company by giving written notice to the Company of such
termination.
O. TERMINATION FOR NON-PERFORMANCE means the termination of this Agreement
and the employment relationship of Employee with the Company, at any time after
18 months following the date hereof, for any material failure of the Company to
achieve in all material respects the financial budget of the Company approved
in writing by the Company's Board of Directors.
P. TERMINATION WITH CAUSE means the termination of this Agreement and the
employment relationship of Employee with the Company, only for the following:
(i) Theft or embezzlement with regard to material property of the
Company; or
(ii) Continued neglect by Employee in fulfilling his duties as President
of the Company as a result of alcoholism, drug addiction, nervous breakdown or
excessive unauthorized absenteeism, after written notification from the Board
of Directors of such neglect, setting forth in detail the matters involved and
Employee's failure to cure the problem resulting in such neglect within a
reasonable time.
Q. TERMINATION WITHOUT CAUSE means any of the following:
(i) A termination by the Company of this Agreement and the employment
relationship of Employee with the Company which is not a Termination With
Cause, a Voluntary Termination or a Constructive Termination, including the
expiration of this Agreement as a result of the election of the Company
pursuant to Section 6B not to renew the Initial Term or any Renewal Term;
(ii) After a Change of Control or within the one hundred and twenty (120)
day period immediately prior to the occurrence of a Change of Control, any
termination of this Agreement by the Company because Employee is determined to
have incurred a Permanent Disability or to have died;
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<PAGE> 7
(iii) Any alteration or revision in the corporate position of Employee
such that Employee's responsibilities or compensation are materially reduced or
decreased for any reason; or
(iv) Any relocation of Employee by the Company not agreed to in a
writing by the Employee (which writing must reference this Agreement), to a
location other than metropolitan Atlanta, Georgia.
R. TRIGGERING EVENT means a termination of Employee's employment (i) by
the Company during the Term due to a Termination Without Cause or (ii) a
Constructive Termination of Employee's employment with the Company.
S. VOLUNTARY TERMINATION means unilateral termination by Employee of his
employment with the Company prior to or at the end of the Term and in the
absence of a Triggering Event. Employee shall give the Company written notice
of Employee's Voluntary Termination. Notice by Employee to the Company
pursuant to Section 2D shall not constitute a Voluntary Termination for
purposes of this Agreement.
3. EMPLOYMENT. The Company, through its Board of Directors, agrees to employ
Employee in the office of President of the Company for the Term, and Employee
agrees to accept such employment and office upon the terms and conditions set
forth herein.
4. RESPONSIBILITIES. Pursuant to this Agreement, Employee shall assume the
responsibilities, perform the duties, and exercise the powers as President of
the Company, as set forth in the Bylaws of the Company and consistent with the
responsibilities, duties and powers exercised by Employee as President of the
Company as of the Effective Date and such other duties as may be assigned from
time to time by the Board of Directors.
5. COMPENSATION AND REIMBURSEMENTS. The Company shall pay, and Employee
agrees to accept, as partial compensation for services to be rendered hereunder
during the Term, the remuneration described below:
A. ANNUAL SALARY. The Company shall pay Employee a base annual salary as
of the Effective Date of January 1, 1996 of One Hundred Thousand Dollars
($100,000) per year ("Base Salary"), subject to annual increases which, if
granted, shall be effective on the first day of the Company's fiscal year, as
the Board of Directors or the Compensation Committee of the Company in their
sole discretion deems appropriate in accordance with the Company's customary
procedures regarding the salaries of its executive officers. Base Salary shall
be payable according to the customary payroll practices of the Company, but in
no event less frequently than monthly.
B. BONUSES. Employee shall be entitled to an incentive bonus that will be
determined and paid on a quarterly basis, as determined by the Board of
Directors. During the Term, Employee shall be entitled to participate in other
incentive and/or bonus cash and equity compensation plans of the Company which
provide benefits to senior officers, as determined by the Board of Directors.
-5-
<PAGE> 8
C. SEVERANCE PAYMENTS AND AGREEMENTS.
(i) Upon a Termination With Cause or a Voluntary Termination, Employee
shall not be entitled to severance pay.
(ii) Upon the occurrence of a Triggering Event within one (1) year of
the Effective Date, or upon Termination for Non-Performance, Employee shall be
entitled to salary and benefits (the "Severance Amount") in the amount of six
(6) months Base Salary and continuation of benefits for six (6) months.
Employee shall also have the use of the Company's computer, telephone credit
cards and facilities for up to six (6) months following the date of the
Triggering Event.
(iii) Upon the occurrence of a Triggering Event after one (1) year from
the Effective Date, Employee shall be entitled to salary and benefits (the
"Severance Amount") in the amount of twelve (12) months Base Salary and
continuation of benefits for twelve (12) months. Employee shall also have the
use of the Company's computer, telephone credit cards, and facilities for up to
twelve (12) months following the date of the Triggering Event.
(iv) Upon the occurrence of a Triggering Event, Employee shall be
entitled to receive, in addition to the Severance Amount, payment for
out-placement services in an amount up to twenty-five percent (25%) of Base
Salary.
(v) Any Severance Amount payable pursuant to this Section shall be paid
as follows: (a) fifty percent (50%) of such amount shall be payable
immediately as of the date of the Triggering Event, and (b) the remaining fifty
percent (50%) of such amount shall be paid over the six (6) month or twelve
(12) month period, whichever is applicable in accordance with Subsection 5C(ii)
or 5C(iii) hereof, according to the Company's payroll practices and procedures
in effect at the time of the Triggering Event.
(vi) In addition to receiving payment of the Severance Amount, upon the
occurrence of a Triggering Event, any and all stock options to purchase shares
of the Company which are held by Employee shall become one hundred percent
(100%) vested and immediately exerciseable as of the date of such Triggering
Event, and shall be exerciseable by the Employee over the balance of the
remaining stated term of any such stock options (which term shall be the term
applicable to the Employee in the absence of termination of employment),
notwithstanding any provision contained in the stock option agreement to the
contrary.
(vii) In the event of termination of employment hereunder for any
reason, the Company shall cause to be immediately terminated any agreement to
which the Employee is a party which shall prohibit the Employee in any way from
selling any capital stock of the Company then owned by Employee in the public
markets (provided, however, this paragraph shall not obligate the Company to
terminate any restriction applicable to the Employee because the Employee shall
hold "restricted securities" as defined under applicable federal or state
securities laws).
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<PAGE> 9
(viii) During any period in which the severance amount is payable
hereunder, the Employee shall be deemed to continue to be an employee of the
Company for the purposes of receiving any and all benefits, including health
and life insurance. Notwithstanding the foregoing, the Employee shall be
relieved of any and all obligations and liabilities applicable to the
Employee's status as an employee of Company upon the occurrence of any
Termination Without Cause or upon Termination for Non-Performance.
(ix) Any controversy or claim arising out of or relating to whether
termination of Employee's employment is due to a Triggering Event, or is a
Termination for Non-Performance, a Termination With Cause, a Termination
Without Cause, a Constructive Termination, or a Voluntary Termination as
provided herein, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules ("Rules") of the American Arbitration Association
("AAA"). Arbitration shall be initiated by a party by giving notice in the
manner set forth herein to the other party of its intention to arbitrate, which
notice shall contain a statement setting forth the nature of the dispute, the
amount claimed, if any, and the remedy sought. The initiating party shall then
file a copy or copies of the notice as set forth under the Rules. Atlanta,
Georgia shall be the location where the arbitration is held. The parties shall
agree upon and appoint three (3) arbitrators in accordance with the Rules
within twenty (20) days of the effective date of notice of arbitration;
however, if the parties fail to make such designation within twenty (20) days,
the AAA shall make the appointment. The determinations of such arbitrators
will be final and binding upon the parties to the arbitration, and judgment
upon the award rendered by the arbitrators may be entered in any such court
having jurisdiction, or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may be. The
arbitrators shall apply the laws of the State of Georgia as to both substantive
and procedural questions.
D. INSURANCE AND BENEFITS.
(i) The Company shall allow Employee to participate in or receive
benefits under all employee and executive benefit plans or arrangements and
perquisites of employment, including, without limitation, plans or arrangements
providing for health, dental and disability insurance coverage, life insurance
for the benefit of Employee's beneficiaries, deferred compensation and pension
benefits, and personal financial, investment, legal or tax advice, all at the
highest level that is available through the Company to other senior officers of
the Company subject to the same terms and conditions as apply to such other
senior officers.
(ii) Employee shall be entitled to all holidays recognized by the
Company and such vacation time as is available under the vacation policy of the
Company in effect for senior officers with continuing payment of all
compensation as set forth herein. Employee shall be reimbursed by the Company
for all expenses incurred on behalf of the Company in accordance with the then
current reimbursement policies of the Company. Nothing paid to Employee under
any plan, arrangement or perquisite presently in effect or made available in
the future shall be deemed to be in lieu of the salary and other compensation
or payments paid or payable to Employee under this Agreement.
-7-
<PAGE> 10
6. TERMINATION.
A. This Agreement will commence on the Effective Date and shall continue
during the Initial Term.
B. In addition to the Initial Term, this Agreement shall be renewed for
additional one (1) year periods (the "Renewal"), ad infinitum, unless either
party gives notice of non-renewal at least one hundred and eighty (180) days
prior to the expiration of the Initial Term or the then current Renewal Term.
C. During the Term, the Company or Employee may terminate this Agreement,
subject to the terms, conditions and obligations hereof, by any of the
following events:
(i) Mutual written agreement expressed in a single document signed by
both the Company and Employee;
(ii) Voluntary Termination by Employee;
(iii) Death of the Employee;
(iv) Termination Without Cause;
(v) Termination With Cause;
(vi) Termination for Non-Performance (after a minimum 90 days prior
written notice to the Company stating the specifics of such non-performance and
a reasonable opportunity by the Employee to cure such non-performance); or
(vii) Constructive Termination.
Upon termination for any of the foregoing reasons, Employee shall
continue to render services and shall be paid his Base Salary and benefits up
to the Termination Date. Any Severance Amount payable to Employee is in
addition to the regular Base Salary and benefits which Employee shall receive
up to the Termination Date. In the event of such termination, this Agreement
shall be deemed terminated for all purposes except to the extent otherwise
herein provided.
D. The obligations of Employee under Sections 6 and 7 shall survive
termination or expiration of this Agreement. The obligations of the Company
under Section 11, and those obligations under Section 5 that by their terms are
to be paid or to continue after termination of this Agreement, shall also
survive such termination.
7. PROPRIETARY INFORMATION.
A. In performance of services under this Agreement, Employee may have
access to:
-8-
<PAGE> 11
(i) information which derives economic value, actual or potential, from
not being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its disclosure or
use, and is the subject of efforts that are reasonable under the circumstances
to maintain its secrecy (hereinafter "Trade Secrets" or "Trade Secret"); or
(ii) information which does not rise to the level of a Trade Secret,
but is valuable to the Company and provided in confidence to Employee
(hereinafter "Confidential Information").
B. Employee acknowledges and agrees with respect to Trade Secrets and
Confidential Information provided to or obtained by Employee (hereinafter
collectively the "Proprietary Information"):
(i) that the Proprietary Information is and shall remain the exclusive
property of the Company;
(ii) to use the Proprietary Information exclusively for the purpose of
fulfilling the obligations under this Agreement;
(iii) to return the Proprietary Information, and any copies thereof, in
Employee's possession or under Employee's control, to the Company upon request
of the Company, or expiration or termination of this Agreement for any reason;
and
(iv) to hold the Proprietary Information in confidence and not to copy,
publish, or disclose to others or allow any other party to copy, publish, or
disclose to others, in any form, any Proprietary Information without the prior
written approval of an authorized representative of the Company.
C. The obligations and restrictions set forth in this Section 7 shall
survive expiration or termination of this Agreement, for any reason, and shall
remain in full force and effect as follows:
(i) as to Trade Secrets, for so long as such information remains
subject to protection under applicable law;
(ii) as to Confidential Information, for a period of two (2) years
after expiration or termination of this Agreement for any reason.
D. The obligations set forth in this Section 7 shall not apply or shall
terminate with respect to any particular portion of the Proprietary Information
which:
(i) was in Employee's possession, free of any obligation of confidence,
prior to Employee's receipt of the Confidential Information from the Company;
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<PAGE> 12
(ii) is in the public domain at the time the Company communicates it to
Employee, or becomes available to the public through no breach of this
Agreement by Employee; or
(iii) is received by Employee independently and in good faith from a
third party lawfully in possession thereof and having no obligation to keep
such information confidential.
8. INDEMNIFICATION. The Company agrees to indemnify and hold Employee
harmless for (i) all claims arising from or relating to Employee's performance
of Employee's duties hereunder in the same manner as indemnification provided
for members of the Board of Directors, if any, and (ii) all costs and expenses
relating to claims brought by Employee's previous employer, if any.
9. BOARD OF DIRECTORS. The Company shall cause Employee to be elected as a
member of the Board of Directors and Employee shall remain a member of the
Board of Directors throughout the Term. The Board of Directors will use their
best efforts to acquire Directors' and Officers' insurance based on the
coverage available, the cost of such insurance and the Company's financial
ability to pay policy premiums for such insurance.
10. SEVERABILITY. If any provision of this Agreement is held to be invalid or
unenforceable by any court of competent jurisdiction, such holdings shall not
affect the enforceability of any other provision of this Agreement, and all
other provisions shall continue in full force and effect.
11. ATTORNEYS' FEES. If a dispute between the parties arises in connection
with this Agreement, the prevailing party as determined through arbitration or
final judgment of a court of competent jurisdiction (which arbitration or
judgment is not subject to further appeal due to the passage of time or
otherwise) shall be entitled to reimbursement from the other party for
reasonable attorneys' fees and expenses incurred by the prevailing party in
connection with the resolution of the dispute.
12. HEADINGS. The headings of the several paragraphs in this Agreement are
inserted for convenience of reference only and are not intended to affect the
meaning or interpretation of this Agreement.
13. NOTICES. All notices, consents, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given or delivered if (i) delivered personally; (ii) mailed by certified
mail, return receipt requested, with proper postage prepaid; or (iii) delivered
by recognized courier contracting for same day or next day delivery with signed
receipt acknowledgment to:
(a) To the Company:
HomeCom Communications, Inc.
Building 14, Suite 100
3535 Piedmont Road
Atlanta, Georgia 30308
Attention: President
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<PAGE> 13
(b) To Employee:
HomeCom Communications, Inc.
Building 14, Suite 100
3535 Piedmont Road
Atlanta, Georgia 30308
Attention: President
or at such other address as the parties hereto may have last designated by
notice to the other parties. Any item delivered personally or by recognized
courier contracting for same day or next day delivery shall be deemed delivered
on the date of delivery. Any item mailed shall be deemed to have been
delivered on the date evidenced on the return receipt.
14. GENERAL PROVISIONS. This Agreement shall be governed by and construed
under the laws of the State of Georgia, without giving effect to its conflict
of law principles. The terms of this Agreement shall be binding upon and inure
to the benefit of the Company and its successors and assigns. Neither party
may assign his or its rights and obligations under this Agreement to any other
party.
15. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the parties hereto, and except as otherwise provided in this Agreement,
supersedes and cancels all previous and contemporaneous written and oral
agreements, including all prior employment agreements between the Company and
Employee and amendments thereto. No amendment or modification of this
Agreement shall be valid or binding unless in writing and signed by the party
to be bound.
IN WITNESS WHEREOF, the parties hereto have affixed their seals and
executed this Agreement effective as of the date first above written.
HOMECOM COMMUNICATIONS, INC.
By: /s/ Harvey Sax
-------------------------------------
Name: Harvey Sax
---------------------------------
Title: President
---------------------------------
EMPLOYEE:
/s/ Harvey Sax
----------------------------------------
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<PAGE> 14
EXHIBIT 10.3
AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("AGREEMENT") is entered into
effective as of the 1st day of August, 1996 by and between HomeCom
Communications, Inc. ("HomeCom"), a Delaware corporation, ("Company") and
HARVEY W. SAX ("Employee"), an individual.
For $10.00 paid in hand, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. OWNERSHIP. For purposes of this Agreement, "Work Product" shall mean
the data, materials, documentation, computer programs, inventions (whether or
not patentable), and all works of authorship, including all worldwide rights
therein under patent, copyright, trade secret, confidential information, or
other property right, created or developed in whole or in part by Employee,
whether prior to the date of this Agreement or in the future while employed by
the Company (whether developed during work hours or not) and which either (i)
relate to the present or anticipated business, research, developments, tests,
products, work or activities of the Company or (ii) result from or are
suggested by any work Employee may do for the Company. All Work Product shall
be considered work made for hire by the Employee and owned by the Company. If
any of the Work Product may not, by operation of law, be considered work made
for hire by Employee for the Company, or if ownership of all right, title, and
interest of the intellectual property rights therein shall not otherwise vest
exclusively in the Company, Employee hereby assigns to the Company, and upon
the future creation thereof automatically assigns to the Company, without
further consideration, the ownership of all Work Product. The Company shall
have the right to obtain and hold in its own name copyrights, registrations,
and any other protection available in the Work Product. Employee agrees to
perform, during or after Employee's employment, such further acts as may be
necessary or desirable to transfer, perfect, and defend the Company's ownership
of the Work Product that are reasonably requested by the Company.
2. LICENSE. To the extent that any preexisting materials are contained
in the materials Employee delivers to Company or Company's customers, Employee
grants to Company an irrevocable, nonexclusive, worldwide, royalty-free license
to: (i) use and distribute (internally or externally) copies of, and prepare
derivative works based upon, such preexisting materials and derivative works
thereof, and (ii) authorize others to do any of the foregoing.
3. TRADE SECRETS AND CONFIDENTIAL INFORMATION.
(a) The Company may disclose to Employee certain Trade Secrets and
Confidential Information (defined below). Employee acknowledges and agrees
that the Trade Secrets and Confidential Information are the sole and exclusive
property of the Company (or a third party providing such information to the
Company) and that the Company or such third party owns all worldwide rights
therein under patent, copyright, trade secret, confidential information, or
other property right. Employee acknowledges and agrees that the disclosure of
the Trade Secrets and Confidential Information to Employee does not confer upon
Employee any license, interest or rights of any kind in or to the Trade Secrets
or Confidential Information. Employee may use the Trade Secrets and
Confidential Information solely for the benefit of the Company while Employee
is employed or retained by the Company. Except in the performance of services
for the Company, Employee will hold in confidence and not reproduce,
distribute, transmit, reverse engineer, decompile, disassemble, or transfer,
directly or indirectly, in any form, by any means, or for any purpose, the
Trade Secrets or the Confidential Information or any portion thereof. Employee
agrees to return to the Company, upon request by the Company, the Trade Secrets
and Confidential Information and all materials relating thereto.
(b) Employee's obligations under this Agreement with regard to the
Trade Secrets shall remain in effect for as long as such information shall
remain a trade secret under applicable law. Employee acknowledges that its
obligations with regard to the Confidential Information shall remain in effect
while Employee is employed or retained by the Company and for three (3) years
thereafter. As used herein, "Trade Secrets" means information of the Company,
its licensors, suppliers, customers, or prospective licensors or customers,
including, but not limited to, technical or nontechnical data, formulas,
patterns, compilations, programs, devices, methods, techniques, drawings,
processes, financial data, financial plans, product plans, or a list of actual
or potential customers or suppliers, which (a) derives actual economic value
from not being generally known to, and not being readily ascertainable by
proper means by, other persons who can obtain economic value from its
disclosure or use; and (b) is the subject of efforts
<PAGE> 15
that are reasonable under the circumstances to maintain its secrecy. As used
herein, "Confidential Information" means information, other than Trade Secrets,
that is of value to its owner and is treated as confidential, including, but
not limited to, future business plans, licensing strategies, advertising
campaigns, information regarding executives and employees, and the terms and
conditions of this Agreement.
(c) Employee acknowledges that existing or prospective customers of
the Company may be companies which are publicly traded and subject to various
rules and regulations of the Securities and Exchange Commission. Employee
acknowledges that the Company has a policy that no one associated with the
Company may trade in securities of any customer of the Company based on
material, nonpublic information concerning the customer. Additionally, the
Company expressly forbids the unauthorized disclosure of any nonpublic
information acquired by anyone associated with the Company relating to a
customer of the Company. Employee shall notify the Company prior to trading
the securities of any customer of the Company.
4. CUSTOMER NON-SOLICITATION. Employee agrees that for a period of
eighteen (18) months immediately following termination of Employee's employment
with the Company for any reason, including, without limitation, voluntary
resignation from employment by Employee ("Non-Solicitation Period"), Employee
shall not, within a fifty-mile radius of the Company's principal executive
office (the "Atlanta metropolitan area"), on Employee's own behalf or on behalf
of any person, firm, partnership, association, corporation or business
organization, entity or enterprise, solicit, contact, call upon, communicate
with or attempt to communicate with any customer of the Company, or any
representative of any customer of the Company, with a view to sale or providing
of any deliverable or service competitive with any deliverable or service sold
or provided by the Company; provided, however, that for purposes of this
Paragraph 8, as to any company with annualized revenues of more than $50
million, "customer" does not include any subsidiary, division or business
economic unit of the company located outside the Atlanta metropolitan area to
which the Company has not provided any deliverables or services during the
period of two (2) years immediately preceding cessation of Employee's
employment with the Company; provided that the restrictions set forth in this
paragraph shall apply only to customers or prospects of the Company, or
representatives of customers or prospects of the Company, with which Employee
had contact during such two (2) year period. The actions prohibited by this
paragraph shall not be engaged in by Employee directly or indirectly, whether
as manager, salesperson, agent, technical support, sales or service
representative, developer, or otherwise. Employee acknowledges that the
Company provides products and services to customers throughout the Atlanta
metropolitan area and that a more limited territorial restriction on the
non-solicitation provisions of this paragraph would not adequately protect the
legitimate interests of the Company.
5. NONCOMPETITION. Employee agrees that during the term of Employee's
employment and during the Non-Solicitation Period, Employee shall not, within
the Atlanta metropolitan area, on Employee's own behalf or on behalf of any
person, firm, partnership, association, corporation or business organization,
entity or enterprise, perform services substantially similar to acting as an
executive officer for any company or other entity that creates Web sites or
develops Internet or Intranet enabled computer software applications; provided,
however, that the restrictions set forth in this paragraph shall not prohibit
Employee from being employed by, and performing services substantially similar
to acting as an executive officer for, a company which derives less than 50% of
its annual gross revenues from creating Web sites and developing Internet or
Intranet enabled computer software applications. The actions prohibited by
this paragraph shall not be engaged in by Employee directly or indirectly,
whether as manager, salesperson, agent, technical support, sales or service
representative, developer, or otherwise. Employee acknowledges that the
Company provides products and services to customers throughout the Atlanta
metropolitan area and that a more limited territorial restriction on the
non-competition provisions of this paragraph would not adequately protect the
legitimate interests of the Company. Notwithstanding anything to the contrary
herein, the provisions of this Section 9 shall apply after the term of
Employee's employment only in the event that Employee's termination from
employment is for one or more of the following reasons: (i) termination by the
Company for willful dishonesty toward or deliberate injury or attempted injury
to the Company; or (ii) termination by the Company for criminal conduct
involving mortal turpitude; or (iii) termination by the Company for a continued
failure of Employee, after prior written notice thereof, to perform in
accordance with any of the material provisions of this Agreement; or (iv)
termination by the Company for recurring negligence or disregard in the
performance of the Employee's duties, after prior written notice thereof, or
(v) voluntary resignation from employment by Employee.
6. EMPLOYEE NON-SOLICITATION. Employee agrees that Employee shall not
call upon, solicit, recruit, or assist others in calling upon, recruiting or
soliciting any person who is or was an employee of the Company within the Non-
Solicitation Period, for the purpose of having such person work in any other
corporation, association, entity, or business.
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7. EQUITABLE RELIEF. The parties to this Agreement acknowledge that a
breach by Employee of any of the terms or conditions of this Agreement will
result in irrevocable harm to the Company and that the remedies at law for such
breach may not adequately compensate the Company for damages suffered.
Accordingly, Employee agrees that in the event of such breach, the Company
shall be entitled to injunctive relief or such other equitable remedy as a
court of competent jurisdiction may provide. Nothing contained herein will be
construed to limit the Company's right to any remedies at law, including the
recovery of damages for breach of this Agreement.
8. SEVERABILITY. If any provision or part of any provision of this
Agreement is held invalid or unenforceable by a court of competent
jurisdiction, such holding shall not affect the enforceability of any other
provisions or parts thereof, and all other provisions and parts thereof shall
continue in full force and effect.
9. MISCELLANEOUS. This Agreement shall not be amended or modified except
by a writing executed by both parties. This Agreement shall be binding upon
and inure to the benefit of the Company and its successors and assigns. Due to
the personal nature of this Agreement, Employee shall not have the right to
assign Employee's rights or obligations under this Agreement without the prior
written consent of Company. This Agreement shall be governed by the laws of
the State of Georgia without regard to its rules governing conflicts of law.
This Agreement and the attached Exhibits represent the entire understanding of
the parties concerning the subject matter hereof and supersede all prior
communications, agreements and understandings, whether oral or written,
relating to the subject matter hereof. All communications required or
otherwise provided under this Agreement shall be in writing and shall be deemed
given when delivered to the address provided below such party's signature (as
may be amended by notice from time to time), by hand, by courier or express
mail, or by registered or certified United States mail, return receipt
requested, postage prepaid. Exhibits A and B, attached hereto, are
incorporated herein by this reference.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
and affixed their hands and seals effective as of the date first above written.
EMPLOYEE: HOMECOM COMMUNICATIONS, INC.
By: /s/ Vinod Keni
-----------------------------------
Title: Chief Financial Officer
/s/ Harvey W. Sax
- -----------------------------------
Harvey W. Sax Date:
-----------------------------------
Date: August 1, 1996 Address:
Address: Building 14, Suite 100
3535 Piedmont Road
___________________________________ Atlanta, Georgia 30305
___________________________________
___________________________________
<PAGE> 1
EXHIBIT 10.7
ORACLE
BUSINESS ALLIANCE PROGRAM AGREEMENT
This Business Alliance Program Agreement (the "Agreement") is between Oracle
Corporation with its principal place of business at 500 Oracle Parkway, Redwood
City, California 94065 ("Oracle") and HomeCom Communications, Inc. (legal name)
with its principal place of business at 3535 Piedmont Road, Bldg. 14, Suite
100, Atlanta, GA (the "Alliance Member"). The terms of this Agreement shall
apply to each Program license granted and to all services provided by Oracle
under this Agreement. When completed and executed by both parties, an Order
Form shall evidence the Program license granted and to all services provided by
Oracle under this Agreement. When completed and executed by both parties, an
Order Form shall evidence the Program licenses granted and the services that
are to be provided.
1. DEFINITIONS
1.1. "COMMENCEMENT DATE" shall mean the date on which the Programs are
delivered by Oracle, or if no delivery is necessary, the Effective Date
set forth on the relevant Order Form.
1.2. "DESIGNATED SYSTEM" shall mean the computer hardware and operating
system designated on the relevant Order Form or Sublicense report for use
in conjunction with a Sublicensed Program, Development License, or
Marketing Support License.
1.3. "ORDER FORM" shall mean the document by which the Alliance Member
orders Program Licenses, Sublicenses, and services, and which is agreed
to by the parties. The Order Form shall reference the Effective Date of
this Agreement.
1.4. "PRICE LIST" shall mean Oracle's standard commercial fee schedule
that is in effect when a Program license, Sublicense, or services are
ordered by the Alliance Member.
1.5. "PROGRAM" shall mean the computer software in object code form owned
or distributed by Oracle for which the Alliance Member is granted a
license or grants a Sublicense pursuant to this Agreement; the user
guides and manuals for use of the software ("Documentation"); and
Updates. "LIMITED PRODUCTION PROGRAM" shall mean a Program not specified
on the Price List or which is designated as Limited Production by Oracle.
1.6. "SUBLICENSE ADDENDA" shall mean the addenda to this Agreement
specifying additional Sublicense terms and Sublicense rates and fees for
the various types of Sublicenses which may be granted by the Alliance
Member.
1.7. "SUBLICENSE" shall mean a nonexclusive, nontransferable right
granted by or through the Alliance Member to an end user to use an object
code copy of the Programs with the Value-Added Package under authority of
a Sublicense Addendum. "Sublicensee" shall mean a third party who is
granted a Sublicense of the Programs with the Value-Added Package for
such party's own internal data processing purposes and not for purposes
of any further distribution.
1.8. "SUPPORTED PROGRAM LICENSE" shall mean a Development License or
Marketing Support License for which the Alliance Member has ordered
Technical Support for the relevant time period. "TECHNICAL SUPPORT"
shall mean Program support provided under
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Oracle's policies in effect on the date Technical Support is ordered.
1.9. "UPDATE" shall mean a subsequent release of a Program which is
generally made available for Supported Program Licenses at no additional
charge, other than media and handling charges. Update shall not include
any release, option or future product which Oracle licenses separately.
1.10. "USER," unless otherwise specified in the Order Form or Sublicense
report for a user type specified in the Price List in effect when the
Program is Sublicensed, shall mean a specific individual employed by the
Alliance Member or Sublicensee (as the case may be ) who is authorized by
such party to use the Programs, regardless of whether the individual is
actively using the Programs at any given time.
1.11. "VALUE-ADDED PACKAGE" shall mean the hardware or software products
or services having added value which are developed, sold, and/or licensed
with the Programs to a Sublicensee by the Alliance Member, as provided
under the applicable Sublicense Addenda.
2. LICENSES GRANTED
2.1. DEVELOPMENT LICENSES AND TRIAL LICENSES
A. Oracle grants to the Alliance Member a nonexclusive license to use the
Development Licenses the Alliance Member obtains under this Agreement and
applicable Sublicense Addenda, as follows:
1. to develop or prototype the Value-Added Package on the Designated
System or on a backup system if the Designated System is inoperative, up
to any applicable maximum number of designated Users or other such
limitation as may be applicable;
2. to demonstrate the Programs to potential Sublicensees solely in
conjunction with the Value-Added Package;
3. to provide training and technical support to employees and to customers
solely in conjunction with the Value-Added Package;
4. to use the Documentation provided with the Programs in support of the
Alliance Member's authorized use of the Programs; and
5. to copy the Programs for archival or backup purposes; no other copies
shall be made without Oracle's prior written consent. All titles,
trademarks, and copyright and restricted rights notices shall be
reproduced in such copies. All archival and backup copies of the Programs
are subject to the terms of this Agreement.
B. The Alliance Member may order temporary trial licenses ("Trial
Licenses") for its evaluation purposes only, and not for development or
prototype purposes, for use during a period specified in the Order Form.
Each Order Form for Trial Licenses shall clearly state the trial period
and shall identify that the order is for a Trial License.
2.2. MARKETING SUPPORT LICENSES
Oracle grants to the Alliance Member a nonexclusive license to use
the Marketing Support licenses the Alliance Member obtains under this
Agreement and applicable Sublicense Addenda, as follows:
A. to demonstrate the Programs to potential Sublicensees solely in
conjunction with the Value-Added Package, up to any applicable maximum
number of designated users or other such limitation as may be applicable;
B. to develop customized prototypes of the Value-Added Package for
prospective Sublicensees on the Designated System if the Alliance
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Member does not receive any fees related to the development of such
customized prototypes;
C. to use the Documentation provided with the Programs in support of the
Alliance Member's authorized use of the Programs; and
D. to copy the Programs for archival or backup purposes; no other copies
shall be made without Oracle's prior written consent. All titles,
trademarks, and copyright and restricted rights notices shall be
reproduced in such copies. All archival and backup copies of the Programs
are subject to the terms of this Agreement.
2.3. SUBLICENSING
A. LICENSE TO SUBLICENSE PROGRAMS
As further set forth in the applicable Sublicense Addenda, Oracle
hereby grants the Alliance Member a nonexclusive, nontransferable license
to market and grant Sublicenses as set forth in such Sublicense Addenda
and at the rates and fees set forth in such Sublicense Addenda. The
Alliance Member shall only have the right to Sublicense Programs pursuant
to an effective Sublicense Addendum between the parties hereto.
The Alliance Member shall Sublicense the Programs solely through a
written Sublicense agreement as provided under Section 2.3.B. Upon
Oracle's request, the Alliance Member shall provide Oracle with a copy of
the Alliance Member's standard Sublicense agreement.
B. SUBLICENSE AGREEMENT
Every Sublicense agreement shall include, at a minimum, contractual
provisions which:
1. Restrict use of the Programs to object code, subject to the
restrictions provided under the applicable Sublicense Addenda and
consistent with the Sublicense fees payable to Oracle;
2. Prohibit (a) transfer of the Programs except for temporary
transfer in the event of computer malfunction; (b) assignment,
timesharing and rental of the Programs; and (c) title to the
Programs from passing to the Sublicensee or any other party;
3. Prohibit the reverse engineering, disassembly or
decompilation of the Programs and prohibit duplication of the
Programs except for a single backup or archival copy;
4. Disclaim, to the extent permitted by applicable law, Oracle's
liability for any damages, whether direct, indirect, incidental or
consequential, arising from the use of the Programs;
5. Require the Sublicensee, at the termination of the
Sublicense, to discontinue use and destroy or return to the Alliance
Member all copies of the Programs and Documentation;
6. Prohibit publication of any results of benchmark tests run on
the Programs;
7. Require the Sublicensee to comply fully with all relevant
export laws and regulations of the United States to assure that
neither the Programs, nor any direct product hereof, are exported,
directly or indirectly, in violation of United States law; and
8. Specify Oracle as a third party beneficiary of the Sublicense
agreement to the extent permitted by applicable law.
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<PAGE> 4
C. MARKETING/SUBLICENSING PRACTICES
In marketing and Sublicensing the Programs, the Alliance Member
shall:
1. Not engage in any deceptive, misleading, illegal, or unethical
practices that may be detrimental to Oracle or to the Programs;
2. Not make any representations, warranties, or guarantees to Sublicensees
concerning the Programs that are inconsistent with or in addition to those
made in this Agreement or by Oracle; and
3. Comply with all applicable federal, state, and local laws and
regulations in performing its duties with respect to the Programs.
2.4 ACCEPTANCE OF PROGRAMS
For each Program license for which delivery from Oracle is required
under this Agreement, the Alliance Member shall have a 15 day Acceptance
Period, beginning on the Commencement Date, in which to evaluate the
Program. During the Acceptance Period, the Alliance Member may cancel
the license by giving written notice to Oracle and returning the Program
in accordance with Section 6.6 below. Unless such cancellation notice is
given, the license will be deemed to have been accepted by the Alliance
member at the end of the Acceptance Period.
2.5 LIMITATIONS ON USE
The Alliance Member shall not use or duplicate the Programs
(including the Documentation) for any purpose other than as specified in
this Agreement or make the Programs available to unauthorized third
parties. The Alliance Member shall not (a) use the Programs for its
internal data processing or for processing customer data; (b) rent,
electronically distribute, or timeshare the Programs or market the
Programs by interactive cable or remote processing services or otherwise
distribute the Programs other than as specified in this Agreement; or (c)
cause or permit the reverse engineering, disassembly, or decompilation of
the Programs.
2.6. TITLE
Oracle shall retain all title, copyright, and other proprietary
rights in the Programs and any modifications or translations thereof.
The Alliance Member and its Sublicensees do not acquire any rights in the
Programs other than those specified in this Agreement.
2.7. TRANSFER OF PROGRAMS
The Alliance Member may transfer a Development License or Marketing
Support License within its organization upon notice to Oracle; transfers
are subject to the terms and fees specified in Oracle's transfer policy
in effect at the time of the transfer.
2.8. USE OF PROGRAMS BY AGENTS
The Alliance Member and each Sublicensee (as the case may be) shall
have the right to allow each such party's own third party agents to use
each such party's licensed Programs as licensed or Sublicensed under this
Agreement so long as the applicable party ensures that its agents use the
Programs in accordance with the terms of this Agreement or the applicable
Sublicense agreement.
2.9. PRE-PRODUCTION PROGRAMS
As an accommodation to the Alliance Member, Oracle may supply the
Alliance Member with pre-production releases of Programs (which may be
labeled "Alpha" or "Beta"). These products are not suitable for
production use.
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<PAGE> 5
3. TECHNICAL SERVICES
3.1. TECHNICAL SUPPORT SERVICES
Oracle shall provide Technical Support services ordered by the
Alliance Member under Oracle's Technical Support policies in effect on
the date technical Support is ordered, subject to the payment by the
Alliance Member of the applicable fees. Reinstatement of lapsed
Technical Support reinstatement fees in effect on the date Technical
Support is re-ordered. The Alliance Member may obtain Technical Support
services for Limited Production Programs and pre-production releases of
Programs on a time and materials basis.
3.2. TRAINING SERVICES
Oracle will provide training services agreed by the parties under
the terms of this Agreement. For any on-site services requested by the
Alliance Member, the Alliance Member shall reimburse Oracle for actual,
reasonable travel and out-of-pocket expenses incurred.
4. FEES AND PAYMENTS
4.1. LICENSE FEES AND SUBLICENSE FEES
The Alliance Member may order Development Licenses or Marketing
Support Licenses at the standard Program license fees set forth in the
Price List or at the fees otherwise provided in a Sublicense Addendum.
For each Sublicense granted by the Alliance Member, the Alliance Member
agrees to pay Oracle a Sublicense fee as set forth in the applicable
Sublicense Addenda. The Alliance Member shall not be relieved of its
obligation to pay Sublicense fees owed to Oracle by the nonpayment of
such fees by the Sublicensee.
The Alliance Member is free to determine unilaterally its own
license fees to its Sublicensees. If the Alliance Member or a
Sublicensee upgrades the Programs to a larger computer, transfers the
Programs outside the United States and/or to another operating system, or
increases the licensed number of Users, the Alliance Member will pay
additional Sublicense fees to Oracle as provided under Oracle's transfer
policies and rates in effect at the time the Program is upgraded or
transferred.
4.2. TECHNICAL SUPPORT FEES
Technical Support services ordered by the Alliance Member for
Development Licenses and Marketing Support Licenses will be provided
under Oracle's Technical Support policies and rates in effect on the date
Technical Support is ordered.
4.3. GENERAL PAYMENT TERMS
Except as otherwise provided in a Sublicense Addendum, invoices for
payment of license fees shall be payable 30 days from the Commencement
Date. Technical Support fees for Sublicenses shall be payable as
specified in the applicable Sublicense Addendum. Technical Support fees
for Development Licenses and Marketing Support Licenses shall be payable
annually in advance, net 30 days from the renewal date; such fees will be
those in effect at the beginning of the period for which the fees are
paid. Fees due by the Alliance Member shall not be subject to set off
for any claims against Oracle. All payments made shall be in United
States currency and shall be made without deductions based on any taxes
or withholdings, except where such deduction is based on gross income.
Any amounts payable by the Alliance member hereunder which remain unpaid
after the due date shall be subject to a late charge equal to 1.5% per
month from the due date until such amount is paid. The Alliance Member
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<PAGE> 6
agrees to pay applicable media and shipping charges. The Alliance Member
shall issue a purchase order, or alternative document acceptable to
Oracle, on or before the Effective Date of the applicable Order Form.
4.4. TAXES
The fees listed in this Agreement do not include taxes, if Oracle is
required to pay sales, use, property, value-added, or other federal,
state or local taxes based on the licenses granted under this Agreement,
or the Sublicenses granted by the Alliance Member, then such taxes shall
be billed to and paid by the Alliance Member. This shall not apply to
taxes based on Oracle's income.
5. RECORDS
5.1. RECORDS INSPECTION
The Alliance Member shall maintain adequate books and records in
connection with activity under this Agreement. Such records shall
include, without limitation, executed Sublicense agreements, the
information required in or related to the Sublicense reports required
under a Sublicense Addendum, the number of copies of Programs used or
Sublicensed by the Alliance Member, the computer on which the Programs
are installed, and the number of users using the Programs. Oracle may
audit the relevant books and records of the Alliance Member to ensure
compliance with the terms of this Agreement upon reasonable notice to the
Alliance Member. Any such audit shall be conducted during regular
business hours at the Alliance Member's offices and shall not interfere
unreasonably with the Alliance Member's business activities. If an audit
reveals that the Alliance Member has underpaid fees to Oracle, the
Alliance Member shall be invoiced for such underpaid fees based on the
Price List in effect at the time the audit is completed. If the
underpaid fees exceed five percent (5%) of the applicable license fees or
Sublicense fees paid, then the Alliance Member shall pay Oracle's
reasonable costs of conducting the audit. Audits shall be made no more
than once annually.
5.2. NOTICE OF CLAIM
The Alliance Member will notify the Oracle legal department promptly
in writing of: (a) any claim or proceeding involving the Programs that
comes to its attention; and (b) any material change in the management or
control of the Alliance Member.
6. TERM AND TERMINATION
6.1. TERM
This Agreement shall become effective on the Effective Date and
shall be valid until the expiration or termination of all Sublicense
Addenda hereunder, unless terminated earlier as set forth herein. If not
otherwise specified on the Order Form, each Program license granted under
this Agreement shall remain in effect perpetually under the terms of this
Agreement unless the license or this Agreement is terminated as provided
in this Article 6 below. The term of each Sublicense Addendum hereunder
shall be as set forth in each such Addendum.
6.2. TERMINATION BY THE ALLIANCE MEMBER
The Alliance Member may terminate any Program license, any
Sublicense Addenda, or this Agreement
at any time; however, termination shall not relieve the Alliance Member's
obligations specified in Sections 6.5 and 6.6
6.3. TERMINATION BY ORACLE
Oracle may terminate any Program license, any Sublicense Addenda, or
this Agreement upon written notice if the
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Alliance member breaches this Agreement and fails to correct the breach
within 30 days following written notice specifying the breach.
6.4. FORCE MAJEURE
Neither party shall be liable to the other for failure or delay in
the performance of a require obligation if such failure or delay is
caused by strike, riot, fire, flood, natural disaster, or other similar
cause beyond such party's control, provided that such party gives prompt
written notice of such condition and resumes its performance as soon as
possible, and provided further that the other party may terminate this
Agreement if such condition continues for a period of one hundred eighty
(180) days.
6.5. EFFECT OF TERMINATION
Upon expiration or termination of a Sublicense Addendum or this
Agreement, all the Alliance Member's rights to market and Sublicense the
Programs as set forth in such Sublicense Addendum or this Agreement shall
cease.
The termination of this Agreement, a Sublicense Addendum, or any
license shall not limit either party from pursuing any other remedies
available to it, including injunctive relief, nor shall such termination
relieve the Alliance Member's obligation to pay all fees that have
accrued or that the Alliance Member has agreed to pay under a Sublicense
Addendum or any Order Form, other similar ordering document under this
Agreement, or that appear in a Sublicense report. The parties' rights
and obligations under Sections 2.5, 2.6, 2.7 and Articles 4, 5, 6, 7 and
8 shall survive termination of this Agreement.
6.6. HANDLING OF PROGRAMS UNDER TERMINATION
If a license granted under this Agreement expires or otherwise
terminates, the Alliance Member shall: (a) cease using the applicable
Programs; and (b) certify to Oracle within one month after expiration or
termination that the Alliance Member has destroyed or has returned to
Oracle the Programs and all copies. This requirement applies to copies
in all forms, partial and complete, in all types of media and computer
memory, and whether or not modified or merged into other materials.
Before returning Programs to Oracle, the Alliance Member shall acquire a
Return Material Authorization ("RMA") number from Oracle.
7. INDEMNITY, WARRANTIES, REMEDIES
7.1. INFRINGEMENT INDEMNITY
Oracle will defend and indemnify the Alliance Member against a claim
that Programs infringe a copyright or patent, provided that: (a) the
Alliance Member notifies Oracle in writing within 30 days of the claim;
(b) Oracle has sole control of the defense and all related settlement
negotiations; and (c) the Alliance Member provides Oracle with the
assistance, information and authority necessary to perform Oracle's
obligations under this Section. Reasonable out-of-pocket expenses
incurred by the Alliance Member in providing such assistance will be
reimbursed by Oracle.
Oracle shall have no liability for any claim of infringement based
on use of a superseded or altered release of Programs if the infringement
would have been avoided by the use of a current unaltered release of the
Programs which Oracle provides to the Alliance Member.
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In the event the Programs are held or are believed by Oracle to
infringe, Oracle shall have the option, at its expense, to (a) modify the
Programs to be noninfringing; (b) obtain for the Alliance Member a
license to continue using the Programs; or (c) terminate the license for
the infringing Programs and refund the license fees paid for those
Programs, prorated over a five year term from the Commencement Date.
This Section 7.1 states Oracle's entire liability and the Alliance
Member's exclusive remedy for infringement.
7.2. WARRANTIES AND DISCLAIMERS
A. PROGRAM WARRANTY
Oracle warrants for a period of one year from the Commencement Date
that each unmodified Program for which the Alliance Member has a
Supported Program License will perform the functions described in the
Documentation provided by Oracle when operated on the Designated System.
B. MEDIA WARRANTY
Oracle warrants the tapes, diskettes or other media to be free of
defects in materials and workmanship under normal use for 90 days from
the performance of service.
C. SERVICES WARRANTY
Oracle warrants that its Technical Support and training services
will be performed consistent with generally accepted industry standards.
This warranty shall be valid for 90 days from performance of service.
D. DISCLAIMERS
THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
ORACLE DOES NOT WARRANT THAT THE PROGRAMS WILL RUN PROPERLY ON ALL
HARDWARE, THAT THE PROGRAMS WILL MEET REQUIREMENTS OF THE ALLIANCE MEMBER
OR THE SUBLICENSEES OR OPERATE IN THE COMBINATIONS WHICH MAY BE SELECTED
FOR USE BY THE ALLIANCE MEMBER OR THE SUBLICENSEES, THAT THE OPERATION OF
THE PROGRAMS WILL BE UNINTERRUPTED OR ERROR FREE, OR THAT ALL PROGRAM
ERRORS WILL BE CORRECTED. LIMITED PRODUCTION PROGRAMS, PRE-PRODUCTION
RELEASES OF PROGRAMS, AND COMPUTER-BASED TRAINING PRODUCTS ARE
DISTRIBUTED "AS IS".
The Alliance Member shall not make any warranty on Oracle's behalf.
7.3. EXCLUSIVE REMEDIES
For any breach of the warranties contained in Section 7.2 above, the
Alliance Member's exclusive remedy, and Oracle's entire liability, shall
be:
A. FOR PROGRAMS
The correction of Program errors that cause breach of the warranty,
or if Oracle is unable to make the Program operate as warranted, the
Alliance Member shall be entitled to recover the fees paid to Oracle for
the Program license.
B. FOR MEDIA
The replacement of defective media returned within 90 days of the
Commencement Date.
C. FOR SERVICES
The reperformance of the services, or if Oracle is unable to perform
the services as warranted, the Alliance Member shall be entitled to
recover the fees paid to Oracle for the unsatisfactory services.
7.4. INDEMNIFICATION OF ORACLE
The Alliance Member agrees to enforce the terms of its Sublicense
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agreements required by this Agreement and to notify Oracle of any known
breach of such terms. The Alliance will defend and indemnify Oracle
against:
A. All claims and damages to Oracle arising from any use by the Alliance
Member or its Sublicensees of any product not provided by Oracle but used
in combination with the Programs if such claim would have been avoided by
the exclusive use of the Programs;
B. All claims and damages to Oracle caused by the Alliance Member's
failure to include the required contractual terms set forth in Section
2.3.B hereof in each Sublicense agreement; and
C. All claims and damages to Oracle caused by Sublicensees' breach of any
of the applicable provisions required by Section 2.3 hereof.
7.5. EQUITABLE RELIEF
The Alliance Member acknowledges that any breach of its obligations
with respect to proprietary rights of Oracle will cause Oracle
irreparable injury for which there are inadequate remedies at law and
that Oracle shall be entitled to equitable relief in addition to all
other remedies available to it.
8. GENERAL TERMS AND CONDITIONS
8.1. NONDISCLOSURE
Neither party shall, without first obtaining the written consent of
the other party disclose the terms and conditions of this Agreement,
except as may be required to implement and enforce the terms of this
Agreement, or as may be required by legal procedures or by law. No other
information exchanged between the parties shall be deemed confidential
unless the parties otherwise agree in writing. The Alliance Member shall
not disclose the results of benchmark tests or other evaluation of the
Programs to any third party without Oracle's prior written approval.
8.2. COPYRIGHTS
The Programs are copyrighted by Oracle. The Alliance Member shall
retain all Oracle copyright notices on the Programs used by the Alliance
Member under its Development Licenses or Marketing Support Licenses. The
Alliance Member shall include the following on all copies of the Programs
in software Value-Added Packages incorporating the Programs distributed
by the Alliance Member:
A. A reproduction of Oracle's copyright notice; or
B. A copyright notice indicating that the copyright is vested in the
Alliance Member containing the following:
1. A "c" in a circle and the word "copyright";
2. The Alliance Member's name;
3. The date of copyright; and
4. The words "All Rights Reserved."
Such notices shall be placed on the Documentation, the sign-on
screen for any software Value-Added Package incorporating the Programs,
and the diskette or tape labels. Notwithstanding any copyright notice by
the Alliance Member to the contrary, the copyright to the Program
included in any such application package shall remain in Oracle. Other
than as specified above, on any reproduction or translation of any
Programs, Documentation, or promotional material, the Alliance Member
agrees to reproduce Oracle's copyright notices intact.
8.3. TRADEMARKS
"Oracle" and any other trademarks and service marks adopted by
Oracle to identify the Programs and other Oracle products and services
belong to Oracle; the Alliance Member will have no rights in such marks
except as expressly set
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<PAGE> 10
forth herein and as specified in writing from time to time. The Alliance
Member's use of Oracle's trademarks shall be under Oracle's trademark
policies and procedures in effect from time-to-time. The Alliance Member
agrees not to use the trademark "ORACLE," or any mark beginning with the
letters "Ora," or any other mark likely to cause confusion with the
trademark "ORACLE" as any portion of the Alliance Member's tradename,
trademark for the Alliance Member's Value-Added Package, or trademark
for any other products of the Alliance Member. The Alliance Member shall
have the right to use the trademark "ORACLE" and other Oracle trademarks
solely to refer to Oracle's Programs, products and services.
The Alliance Member agrees with respect to each registered trademark
of Oracle, to include in each advertisement, brochure, or other such use
of the trademark, the trademark symbol "circle R" and the following
statement:
_______ is a registered trademark of Oracle Corporation, Redwood
City, California.
Unless otherwise notified in writing by Oracle, the Alliance Member
agrees, with respect to every other trademark of Oracle, to include in
each advertisement, brochure, or other such use of the trademark, the
symbol "TM" and the following statement:
____ is a trademark of Oracle Corporation, Redwood City, California.
The Alliance Member shall not market the oracle Programs in any way
which implies that the Oracle Programs are the Proprietary product of the
Alliance Member or of any party other than Oracle. Oracle shall not have
any liability to the Alliance Member for any claims made by third parties
relating to the Alliance Member's use of Oracle's trademarks.
8.4. RELATIONSHIPS BETWEEN PARTIES
In all matters relating to this Agreement, the Alliance Member will
act as an independent contractor. The relationship between Oracle and
the Alliance Member is that of licensor/licensee. Neither party will
represent that it has any authority to assume or create any obligation,
express or implied, on behalf of the other party, nor to represent the
other party as agent, employee, franchisee, or in any other capacity.
Nothing in this Agreement shall be construed to limit either party's
right to independently develop or distribute software which is
functionally similar to the other party's product, so long as proprietary
information of the other party is not included in such software.
8.5 ASSIGNMENT
The Alliance Member may not assign or otherwise transfer any rights
under this Agreement without Oracle's prior written consent.
8.6. NOTICE
All notices, including notices of address change, required to be
sent hereunder shall be in writing an shall be deemed to have been given
when deposited in first class mail to the first address listed in the
relevant Order Form (if to the Alliance Member) or to the Oracle address
on the Order Form (if to Oracle).
To expedite order processing, the Alliance member agrees that Oracle
may treat documents faxed by the Alliance Member to Oracle as original
documents; nevertheless, either party may require the other to exchange
original signed documents.
8.7. GOVERNING LAW/JURISDICTION
This Agreement, and all matters arising out of or relating to this
Agreement, shall be governed by the
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<PAGE> 11
substantive and procedural laws of the State of California and
shall be deemed to be executed in Redwood City, California. The parties
agree that any legal action or proceeding relating to this Agreement
shall be instituted in any state or federal court in San Francisco or San
Mateo County, California. Oracle and the Alliance Member agree to submit
to the jurisdiction of, and agree that venue is proper in, these courts
in any such legal action or proceeding.
8.8. SEVERABILITY
In the event any provision of this Agreement is held to be invalid
or unenforceable, the remaining provisions of this Agreement will remain
in full force and effect.
8.9. EXPORT
The Alliance Member agrees to comply fully with all relevant export
laws and regulations of the United States ("Export Law") to assure that
neither the Programs, nor nay direct product thereof, are (a) exported,
directly or indirectly, in violation of Export Laws; or (b) are intended
to be used for any purposes prohibited by the Export Laws, including,
without limitation, nuclear, chemical, or biological weapons
proliferation.
8.10. LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, OR DAMAGES FOR LOSS OF
PROFITS, REVENUE, DATA OR USE, INCURRED BY EITHER PARTY OR ANY THIRD
PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT, EVEN IF THE OTHER PARTY
OR ANY OTHER PERSON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
ORACLE'S LIABILITY FOR DAMAGES HEREUNDER SHALL IN NO EVENT EXCEED THE
AMOUNT OF FEES PAID BY THE ALLIANCE MEMBER UNDER THIS AGREEMENT, AND IF
SUCH DAMAGES RESULT FROM THE ALLIANCE MEMBER'S USE OF THE PROGRAM OR
SERVICES, SUCH LIABILITY SHALL BE LIMITED TO FEES PAID FOR THE RELEVANT
PROGRAM OR SERVICES GIVING RISE TO THE LIABILITY, PRORATED OVER A
FIVE-YEAR TERM FROM THE COMMENCEMENT DATE OF THE APPLICABLE LICENSE OR
THE DATE OF PERFORMANCE OF THE APPLICABLE SERVICES.
The provisions of this Agreement allocate the risks between Oracle
and the Alliance Member. Oracle's pricing reflects this allocation of
risk and the limitation of liability specified herein.
8.11. FEDERAL GOVERNMENT SUBLICENES
If the Alliance Member grants a Sublicense to the United States
government, the Programs shall be provided with "Restricted Rights" and
the Alliance Member will place a legend, in addition to applicable
copyright notices, on the documentation, and on the tape or diskette
label, substantially similar to the follow:
RESTRICTED RIGHTS LEGEND
"Use, duplication or disclosure by the Government is subject to
restrictions as set forth in subparagraph (c)(1)(ii) of the Department of
Defense Regulations Supplement ("DFARS") 252.227-7013, Rights in Technical
Data and Computer Software (October 1988) and Federal Acquisition
Regulation ("FAR") 52.227-14, Rights in Data-General, including Alternate
III (June 1987), as applicable. Oracle Corporation, 500 Oracle Parkway,
Redwood City, CA 94065."
8.12. WAIVER
The waiver by either party of any default or breach of this
Agreement shall not constitute a waiver of any other or subsequent
default or breach. Except for actions for non-payment or breach of
Oracle's proprietary rights in
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<PAGE> 12
the Programs, no action, regardless of form, arising out of this
Agreement may be brought by either party more than one year after the
cause of action has accrued.
8.13. ENTIRE AGREEMENT
This Agreement constitutes the complete agreement between the
parties and supersedes all prior or contemporaneous agreements or
representations, written or oral, concerning the subject matter of this
Agreement. This Agreement may not be modified or amended except in a
writing signed by a duly authorized representative of each party; no
other act, document, usage or custom shall be deemed to amend or modify
this Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute together but one and the same document.
It is expressly agreed that the terms of this Agreement and any
Order Form shall supersede the terms in any Alliance Member purchase
order or other ordering document. This Agreement shall also supersede
the terms of any shrink-wrap or break-the-seal license agreement included
in any package for Oracle-furnished software, except terms contained in
such license agreement that grant specific use rights for the Programs.
The Effective Date of this Addendum shall be June 6, 1996
------------------------------
EXECUTED BY THE ALLIANCE MEMBER: EXECUTED BY ORACLE CORPORATION:
Authorized Signature: /s/ Harvey Sax Authorized Signature: /s/ Brittany Lauer
--------------- -------------------
Name: Harvey Sax Name: Brittany Lauer
------------------------------ -----------------------------------
Title: President Title: Supervisor - East HQ
----------------------------- ----------------------------------
ORACLE
Oracle Corporation
500 Oracle Parkway
Redwood Shores, CA 94065
(415) 506-7000
Oracle is a registered trademark of Oracle Corporation.
1-95
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<PAGE> 13
RUNTIME SUBLICENSE ADDENDUM
This document (the "Addendum") is between Oracle Corporation ("Oracle") and
HomeCom Communications, Inc. (the "Alliance Member") and shall be governed by
the terms of the Business Alliance Program Agreement between the Alliance
Member and Oracle effective May 30, 1996 (the "Agreement") and the terms set
forth below.
1. SUBLICENSES
1.1. SUBLICENSE PROGRAMS AND TERMS
The Alliance Member may only Sublicense Runtime Programs for which the
Alliance Member has previously acquired a Supported Development License
for the applicable Designated System. Notwithstanding any other
provision of this Agreement, the Alliance Member shall have no right to
Sublicense Programs designated as Oracle Applications Programs, Limited
Production Programs, or other Programs specified by Oracle from
time-to-time without the prior written consent of Oracle.
The Alliance Member shall have the right to market and grant
Sublicenses of Runtime Programs under the conditions set forth in the
Agreement and under the following restrictions:
A. Sublicense Runtime Programs with the Application Program in the
Application Package for use on Designated Systems to Sublicensees. Each
copy of the Runtime Programs distributed shall be for the Sublicensee's
own internal use in the Territory only on a single Designated System
limited to a maximum number of Users; and
B. Make and deliver to the Sublicensee a single copy of the Runtime
Programs in the Application Package for each Sublicense granted.
The Alliance Member shall use all practical means available, both
contractual and technical, to control the restricted use of each Runtime
Program Sublicense. If a Sublicensee uses the Runtime Program beyond the
limited functionality described in Section 1.2 hereof, the Alliance
Member or Distributor shall immediately notify the Sublicensee of such
unauthorized use and if the Sublicensee fails to discontinue such
unauthorized use following notification either terminate the Sublicense
or forward to Oracle one hundred percent (100%) of the applicable Full
Use standard Program license fees in effect at the time the payment is
made to Oracle together with a written request by the Sublicensee for a
Full Use Program license from Oracle. Oracle must approve, in writing,
the Sublicensee's request before continued use of the Programs by the
Sublicensee shall be deemed authorized.
1.2. RUNTIME PROGRAMS
For the purposes of this Addendum, "Runtime Program(s)" shall mean
Programs which shall be limited to use solely for the purpose of running
the Alliance Member's Application Program, and may not be used to create
or alter tables or reports except as necessary for operating the Alliance
Member's Application Program. "Full Use Programs" shall mean unaltered
versions of the Programs with all functions intact.
1.3. VALUE-ADDED PACKAGE
For the purposes of this Addendum, "Application Program(s)" shall mean
the Alliance Member's value-added application software, described in the
attached Application Package Attachment with which the Runtime Programs
are to be coupled. "Application Package(s)" shall mean the Runtime
Programs coupled with the Application Programs. For purposes of the
Agreement, the Application Program shall be regarded as the Alliance
Member's Value-Added Package.
1.4. TRIAL SUBLICENSES
The Alliance Member and its Distributors shall be entitled to grant, at
no charge, up to a maximum combined total of ten (10) temporary Trial
Sublicenses of the Application Package at any one time. Such Sublicenses
shall be for evaluation purposes only and shall be for a period not to
exceed thirty (30) days. The Alliance Member shall pay oracle Sublicense
fees for any Trial Sublicenses in excess of thirty (30) days. Each such
Trial Sublicense shall be Sublicensed under a Sublicense Agreement which
provides for such trial use.
1.5. DISTRIBUTORS
Oracle grants the Alliance Member the right to appoint third parties
("Distributors") to market and Sublicense the Runtime Programs in the
Territory, under the terms of the Agreement and this Addendum. However,
Distributors shall have no right to make copies of the Programs for
Sublicensing and shall obtain all such Programs from the Alliance Member.
Each Distributor shall execute a written agreement with the Alliance
Member binding the Distributor to provisions substantially similar to
those contained in Sections 2.3, 2.5, 2.6, 5.1, 5.2, 6.1, 6.3, 6.4, 6.5,
7.2.D, 7.5, 8.1, 8.2, 8.3, 8.5, 8.7, 8.9, and 8.11 of the Agreement and
to those contained in Sections 1 (except 1.5), 3, 4, 5, and 6 of this
Addendum. Each obligation of the Alliance Member under such provisions
shall also be applicable to each Distributor. Each Distributor
<PAGE> 14
Agreement shall also contain any other provisions necessary for the
Alliance Member to satisfy its commitments under the Agreement. The
Alliance Member shall notify Oracle promptly in writing of the
appointment of each such Distributor.
In addition, the Alliance Member shall keep executed Distributor
agreements and records of the Distributor information required under the
Alliance Member's Sublicense reports, and shall allow Oracle to inspect
such information as specified under the Agreement. The Alliance Member
will defend and indemnify Oracle against all damages to Oracle caused by
(i) the Distributors' failure to include the required contractual terms
set forth in Section 2.3.B of the Agreement in each Sublicense Agreement,
and (ii) the Distributors' breach of any of the applicable provisions
required by in its Distributor Agreement.
1.6. DOCUMENTATION
The Alliance Member shall be responsible for providing documentation
for Sublicensees. The Alliance Member shall have the right to
incorporate portions of the Documentation into the Alliance Member's
documentation, subject to the provisions of Section 8.2 of the Agreement.
2. SUBLICENSE FEES
2.1. SUBLICENSE FEES AND RATES
For each copy of the Programs Sublicensed by the Alliance Member or its
Distributor in the Application Package, the Alliance Member agrees to pay
Oracle a Sublicense fee equal to forty percent (40%) of the applicable
license fee for each such Program, as specified in the applicable Price
List and Alliance Member Price List supplement to such Price List in
effect at the time the applicable Programs are Sublicensed.
As further specified in Section 6 of this Addendum, Sublicense fees
shall be due and payable within twenty (20) days of the last day of each
month. The Alliance Member shall not be relieved of its obligation to
pay Sublicense fees owed to Oracle by the nonpayment of such fees by the
Sublicensee.
On or after each anniversary during the Term of this Addendum, Oracle
may amend the Sublicense fee percentage rate set forth above based on
Oracle's then-current standard Sublicense fee percentage rate schedule
and the actual amount of Sublicense fees received by Oracle hereunder.
2.2. PRICE LIST FOR SUBLICENSES
Notwithstanding any other provision of the Agreement, the applicable
Price List for determining Sublicense fees shall be the standard Oracle
Alliance Member Price List in effect at the time the Application Package
is Sublicensed.
Notwithstanding any other provision of this Agreement, if the Alliance
Member issues a written Sublicense quote and such quote is accepted by
the applicable Sublicensee, for a period of ninety (90) days after the
date of submission of the quote to the Sublicensee, the Sublicense fee
applicable to the Programs identified in the quote shall be based on the
Price List in effect on such date.
2.3. USERS
The Sublicense fees for a Program shall be based and priced on the
applicable User Level for the maximum number of Users for such Program,
as specified in the Price List. The Alliance Member shall have the right
to Sublicense Programs on any User basis specified in the Price List in
effect at the time the applicable Program is Sublicensed.
3. TERM
This Addendum shall become effective on the Effective Date of this
Addendum and shall be valid for three (3) years (the "Term") from the
Effective Date, unless terminated as provided in the Agreement. Any
renewal of this Addendum shall be subject to renegotiation of terms and
fees.
Unless the expiration or termination is for default by the Alliance
Member, the Alliance Member may continue using the release of the
Programs then in the Alliance Member's possession on the Designated
Systems for which Development Licenses were granted, solely for the
purpose of continuing technical support for Sublicenses granted prior to
termination. Such continued use of the Programs shall be subject to all
the provisions of this Agreement, including, without limitation, payment
of the Technical Support Fees specified herein.
4. TERRITORY
The Alliance Member shall have the right to market and grant
Sublicenses of Programs in the United States only (the "Territory").
5. TECHNICAL SUPPORT
5.1. TECHNICAL SUPPORT FOR SUBLICENSEES
A. INSTALLATION
The Alliance Member or its Distributors will be responsible for any
assistance needed to install the Application Package at Sublicensee
sites.
B. SUBLICENSING SUPPORT.
The Alliance Member is responsible for providing all technical support,
training and consultations to its Sublicensees and Distributors. In
consideration of the payments specified in Section 5.2, the Alliance
Member shall have the right to use the Oracle Technical Support services
acquired for its Supported Development Licenses to provide technical
support services to its Sublicensees as further set forth in the
Agreement. The Alliance
<PAGE> 15
Member shall continuously maintain Oracle Technical Support services for
the Development Licenses during the period during which the Alliance
Member provides technical support services to any Sublicensees. Any
questions from the Alliance Member's Sublicensees or Distributors will be
referred by Oracle to the Alliance Member.
5.2. TECHNICAL SUPPORT FEES
For Technical Support services for Sublicensees, each year the Alliance
Member agrees to pay Oracle annual Technical Support Fees for each
Runtime Program Sublicensed under this Addendum, a previous Alliance
Member Addendum, or previous Distribution Agreement between the parties
hereto where the Sublicensee received technical support services for such
Runtime Program during the applicable support period. Annual Technical
Support Fees for a Program shall be equal to the applicable Technical
Support percentage rate for the highest Technical Support services level
selected by the Alliance Member for Technical Support services for any
Development License used under this Addendum of the cumulative Sublicense
fees accrued to Oracle for such supported Program.
Upon December 31 of each year, the Alliance Member shall provide Oracle
a report setting forth all of the Alliance Members' Sublicenses and those
Sublicensed Programs which were supported by the Alliance Member during
the calendar year. The report shall also include the applicable
Technical Support Fees due and payable to Oracle for such calendar Year.
The Alliance Member shall provide Oracle with payment of all Technical
Support Fees for such calendar year required under the applicable
December 31 report with such report in the form of a check made out in
the amount of such fees. All Technical Support Fees paid to Oracle are
noncancelable and nonrefundable.
6. SUBLICENSE REPORTS
Within twenty (20) days of the last day of each month, the Alliance
Member shall send Oracle a report detailing for that month:
A. For each Sublicensed Application Package shipped during the prior
month, Sublicensee name, address, make/model and operating system of the
Designated System, date of shipment, Runtime Programs shipped, maximum
number of licensed Users, whether the Sublicense is a Trial Sublicense,
and total Sublicense fees and Technical Support Fees due to Oracle;
B. For each Application Program licensed to end-users to be used with
previously installed software licensed by Oracle in conjunction with the
Application Program, Sublicensee name, address, make/model and operating
system of the computer, and date of installation; and
C. The Distributor Agreements executed during the prior month, including
names and addresses of the Distributors.
The Alliance Member shall require its Distributors to report this
information to the Alliance Member on a monthly basis and will include it
in the report for the month in which the Alliance Member received the
information. The Alliance Member shall provide Oracle with payment of all
fees required under the monthly report with such report in the form of a
check made out in the amount of such fees.
7. ADDITIONAL LICENSES
During the Term, the Alliance Member may order production release
versions of Oracle off-the-shelf Programs available as production release
as of the Effective Date of this Addendum and listed on the Price List in
effect as of such date. The license fee for Development Licenses shall
be equal to Oracle's standard list license fees in effect when an order
is placed. The Alliance Member shall have the right to order Programs
for use as Marketing Support Licenses at no further charge to the
Alliance Member. The Alliance Member may obtain Technical Support
services from Oracle for such Programs under Oracle's applicable
Technical Support fees and policies in effect when such services are
ordered.
<PAGE> 16
The Effective Date of this Addendum shall be June 6, 1996.
EXECUTED BY THE ALLIANCE MEMBER: EXECUTED BY ORACLE CORPORATION:
AUTHORIZED SIGNATURE: /s/ Harvey Sax AUTHORIZED SIGNATURE: /s/ Brittany Lauer
---------------- ------------------
NAME: Harvey Sax NAME: Brittany Lauer
------------------------------ ----------------------------------
TITLE: Harvey Sax TITLE: Supervisor - East HQ
----------------------------- ----------------------------------
ORACLE
Oracle Corporation
500 Oracle Parkway
Redwood Shores, CA 94065
(415) 506-7000
Oracle is a registered trademark of Oracle Corporation.
1-95
<PAGE> 17
APPLICATION PACKAGE ATTACHMENT
Name of Application Program and Application Package which the Alliance Member
will be Sublicensing under the Agreement (may not contain the trademarks
"Oracle" or "Ora" or any portion thereof):
Description of Application Package:
Modules:
Functions and Objectives:
<PAGE> 18
VALUE-ADDED ATTACHMENT
Description of Integrated System:
Hardware components:
Software products other than Programs:
Services to be provided by the Alliance Member:
<PAGE> 19
ORACLE
APPLICATION SPECIFIC SUBLICENSE ADDENDUM
This document (the "Addendum") is between Oracle Corporation ("Oracle") and
HomeCom Communications, Inc. (the "Alliance Member") and shall be governed by
the terms of the Business Alliance Program Agreement between the Alliance
Member and Oracle effective May 30, 1996 (the "Agreement") and the terms set
forth below.
1. SUBLICENSES
1.1. SUBLICENSE OF PROGRAMS AND TERMS
The Alliance Member may only Sublicense Sublicense Application
Specific Full Use Programs for which the Alliance Member has previously
acquired a Supported Development License for the applicable Designated
System. Notwithstanding any other provision of this Agreement, the
Alliance Member shall have no right to Sublicense Programs designated as
Oracle Applications Programs, Limited Production Programs, or other
Programs specified by Oracle from time-to-time without the prior written
consent of Oracle.
The Alliance Member shall have the right to market and grant
Sublicenses of Application Specific Full Use Programs under the
conditions set forth in the Agreement and under the following
restrictions:
A. Sublicense Application Specific Full Use Programs with the Application
Program in the Application Package for use on Designated Systems to
Sublicensees. Each copy of the Application Specific Full Use Programs
distributed shall be for the Sublicensee's own internal use in the
Territory only on a single Designated System limited to a maximum number
of Users; and
B. Make and deliver to the Sublicensee a single copy of the Application
Specific Full Use Programs in the Application Package for each Sublicense
granted.
The Alliance Member shall use all practical means available, both
contractual and technical, to control the restricted use of each
Application Specific Full Use Program Sublicense. If a Sublicensee uses
the Application Specific Full Use Program beyond the limited
functionality described in Section 1.2 hereof, the Alliance Member or
Distributor shall immediately notify the Sublicensee of such unauthorized
use and if the Sublicensee fails to discontinue such unauthorized use
following notification either terminate the Sublicense or forward to
Oracle one hundred percent (100%) of the applicable Full Use standard
Program license fees in effect at the time the payment is made to Oracle
together with a written request by the Sublicensee for a Full Use Program
license from Oracle. Oracle must approve, in writing, the Sublicensee's
request before continued use of the Programs by the Sublicensee shall be
deemed authorized.
1.2. APPLICATION SPECIFIC FULL USE PROGRAMS
For the purposes of this Addendum, "Application Specific Full Use
Program(s)" shall mean Programs which shall be limited to using and
developing in conjunction with the Alliance Member's Application
Program. Each Application Specific Full Use Program licensed under this
<PAGE> 20
Addendum may only be used with the Application Program and may not be
used with other application programs. The Sublicensee may not use the
Application Specific Full Use Programs to create any additional
applications, or for any purpose other than implementation and support of
the Application Program. "Full Use Programs" shall mean unaltered
versions of the Programs with all functions intact.
1.3. VALUE-ADDED PACKAGE
For the purposes of this Addendum, "Application Program(s)" shall
mean the Alliance Member's value-added application software, described in
the attached Application Package Attachment with which the Application
Specific Full Use Programs are to be coupled. "Application Package(s)
shall mean the Application Specific Full Use Programs coupled with the
Application Programs. For purposes of the Agreement, the Application
Program shall be regarded as the Alliance Member's Value-Added Package.
1.4. TRIAL SUBLICENSES
The Alliance Member and its Distributors shall be entitled to grant,
at no charge, up to a maximum combined total of ten (10) temporary Trial
Sublicenses of the Application Package at any one time. Such Sublicenses
shall be for evaluation purposes only and shall be for a period not to
exceed thirty (30) days. The Alliance Member shall pay Oracle Sublicense
fees for any Trial Sublicenses in excess of thirty (30) days. Each such
Trial Sublicense shall be Sublicensed under a Sublicense agreement which
provides for such trial use.
1.5. DISTRIBUTORS
Oracle grants the Alliance Member the right to appoint third parties
("Distributors") to market and Sublicense the Application Specific Full
Use Programs in the Territory, under the terms of the Agreement and this
Addendum. However, Distributors shall have no right to make copies of
the Programs for Sublicensing and shall obtain all such Programs from the
Alliance Member. Each Distributor shall execute a written agreement with
the Alliance Member binding the Distributor to provisions substantially
similar to those contained in Sections 2.3, 2.5, 2.6, 5.1, 5.2, 6.1, 6.3,
6.4, 6.5, 7.2.D, 7.5, 8.1, 8.2, 8.3, 8.5, 8.7, 8.9 and 8.11 of the
Agreement and to those contained in Section 1 (except 1.5), 3, 4, 5, and
6 of this Addendum. Each obligation of the Alliance Member under such
provisions shall also be applicable to each Distributor. Each
Distributor agreement shall also contain any other provisions necessary
for the Alliance Member to satisfy its commitments under the Agreement.
The Alliance member shall notify Oracle promptly in writing of the
appointment of each such Distributor.
In addition, the Alliance Member shall keep executed Distributor
agreements and records of the Distributor information required under the
Alliance Member's Sublicense reports, and shall allow Oracle to inspect
such information as specified under the Agreement. The Alliance Member
will defend and indemnify Oracle against all damages to Oracle caused by
(i) the Distributor's failure to include the required contractual terms
set forth in Section 2.3.B of the Agreement in each Sublicense agreement,
and (ii) the Distributors' breach of any of the applicable provisions
required by in its Distributor agreement.
-2-
<PAGE> 21
1.6. DOCUMENTATION
The Alliance Member shall be responsible for providing documentation
for Sublicensees. The Alliance Member shall have the right to
incorporate portions of the Documentation into the Alliance Member's
documentation, subject to the provisions of Section 8.2 of the Agreement.
2. SUBLICENSE FEES
2.1. SUBLICENSE FEES AND RATE
For each copy of the Programs Sublicensed by the Alliance Member or
its Distributor in the Application Package, the Alliance Member agrees to
pay Oracle a Sublicense fee equal to fifty percent (50%) of the
applicable license fee for each such Program, as specified in the
applicable Price List and Alliance Member Price List supplement to such
Price List in effect at the time the applicable Programs are Sublicensed.
As further specified in Section 6 of this Addendum, Sublicense fees
shall be due and payable within twenty (20) days of the last day of each
month. The Alliance Member shall not be relieved of its obligation to
pay Sublicense fees owed to Oracle by the nonpayment of such fees by the
Sublicensee.
On or after each anniversary during the Term of this Addendum,
Oracle may amend the Sublicense fee percentage rate set forth above based
on Oracle's then-current standard Sublicense fee percentage rate schedule
and the actual amount of Sublicense fees received by Oracle hereunder.
2.2. PRICE LIST FOR SUBLICENSES
Notwithstanding any other provision of the Agreement, the applicable
Price List for determining Sublicense fees shall be the standard Oracle
Alliance Member Price List in effect at the time the Application Package
is Sublicensed.
Notwithstanding any other provision of this Agreement, if the
Alliance Member issues a written Sublicense quote and such quote is
accepted by the applicable Sublicense, for a period of ninety (90) days
after the date of submission of the quote to the Sublicensee, the
Sublicense fee applicable to the Programs identified in the quote shall
be based on the Price List in effect on such date.
2.3. USERS
The Sublicense fees for a Program shall be based on priced on the
applicable User Level for the maximum number of Users for such Program,
specified in the Price List. The Alliance Member shall have the right to
Sublicense Programs on any User basis specified in the Price List in
effect at the time the applicable Program is Sublicensed.
3. TERM
This Addendum shall become effective on the Effective Date of this
Addendum and shall be valid for four (4) years (the "Term") from the
Effective Date, unless terminated as provided in the Agreement. Any
renewal of this Addendum shall be subject to renegotiation of terms and
fees.
Unless the expiration or termination is for default by the Alliance
Member, the Alliance Member may continue using the release of the
Programs then in the Alliance Member's possession on the Designated
Systems for which Development Licenses were granted, solely for the
purpose of continuing technical support for Sublicenses granted prior to
termination. Such continued use of the Programs shall be subject to all
the provisions of this Agreement, including, without
-3-
<PAGE> 22
limitation, payment of the Technical Support Fees specified herein.
4. TERRITORY
The Alliance Member shall have the right to market and grant
Sublicenses of Programs in the United States only (the "Territory").'
5. TECHNICAL SUPPORT
TECHNICAL SUPPORT OF SUBLICENSEES
A. INSTALLATION
The Alliance Member or its Distributors will be responsible for any
assistance needed to install the Application Package at Sublicensee
sites.
B. SUBLICENSING SUPPORT
The Alliance Member is responsible for providing all technical
support, training and consultations to its Sublicensees and Distributors.
In consideration of the payments specified in Section 5.2, the Alliance
Member shall have the right to use the Oracle Technical Support services
acquired for its Supported Development Licenses to provide technical
support services to its Sublicensees as further set forth in the
Agreement. The Alliance Member shall continuously maintain Oracle
Technical Support services for the Development Licenses during the period
during which the Alliance Member provides technical support services to
any Sublicensees. Any questions from the Alliance Member's Sublicensees
or Distributors will be referred by Oracle to the Alliance Member.
5.2. TECHNICAL SUPPORT FEES
For Technical Support services for Sublicensees, each year the
Alliance Member agrees to pay Oracle annual Technical Support Fees for
each Application Specific Full Use Program Sublicensed under this
Addendum, a previous Alliance Member Addendum, or previous distribution
agreement between the parties hereto where the Sublicensee received
technical support services for such Application Specific Full Use Program
during the applicable support period. Annual Technical Support Fees for
a Program shall be equal to the applicable Technical Support percentage
rate for the highest Technical Support services level selected by the
Alliance Member for Technical Support services for any Development
License used under this Addendum of the cumulative Sublicense fees
accrued to Oracle for such supported Program.
Upon December 31 of each year, the Alliance Member shall provide to
Oracle a report setting forth all of the Alliance Members' Sublicenses
and those Sublicensed Programs which were supported by the Alliance
Member during the calendar year. The report shall also include the
applicable Technical Support Fees due and payable to Oracle for such
calendar year. The Alliance Member shall provide Oracle with payment of
all Technical Support Fees for such calendar year required under the
applicable December 31 report with such report in the form of a check
made out in the amount of such fees. All Technical Support Fees paid to
Oracle are noncancelable and nonrefundable.
6. SUBLICENSE REPORTS
Within twenty (20) days of the last day of each month, the Alliance
Member shall send Oracle a report detailing for that month:
A. For each sublicensed Application Package shipped during the prior
month, Sublicensee name, address, make/model and operating system of the
Designated System, date of shipment, Application Specific Full Use
Programs shipped, maximum number of licensed Users, whether the Sublicense
-4-
<PAGE> 23
is a Trial Sublicense, and total Sublicense fees and Technical Support
Fees due to Oracle;
B. For each Application Program licensed to end-users to be used with
previously installed software licensed by Oracle in conjunction with the
Application Program, Sublicense name, address, make/model and operating
system of the computer, and date of installation; and
C. The Distributor agreements executed during the prior month, including
names and addresses of the Distributors.
The Alliance Member shall require its Distributors to report this
information to the Alliance Member on a monthly basis and will include it
in the report for the month in which the Alliance Member received the
information. The Alliance Member shall provide Oracle with payment of
all fees required under the monthly report with such report in the form
of a check made out in the amount of such fees.
7. ADDITIONAL LICENSES
During the Term, the Alliance Member may order production release
versions of Oracle off-the-shelf Programs available as production release
as of the Effective Date of this Addendum and listed on the Price List in
effect as of such date. The license fee for Development Licenses shall
be equal to Oracle's standard list license fees in effect when an order
is placed. The Alliance Member shall have the right to order Programs
for use as Marketing Support Licenses at no further charge to the
Alliance Member. The Alliance Member may obtain Technical Support
services from Oracle for such Programs under Oracle's applicable
Technical Support fees and policies in effect when such services are
ordered.
The Effective Date of this Addendum shall be June 6, 1996
EXECUTED BY THE ALLIANCE MEMBER: EXECUTED BY ORACLE CORPORATION:
Authorized Signature: /s/ Harvey Sax Authorized Signature: /s/ Brittany Lauer
--------------- -------------------
Name: Harvey Sax Name: Brittany Lauer
------------------------------ ----------------------------------
Title: President Title: Supervisor - East HQ
----------------------------- ----------------------------------
ORACLE
Oracle Corporation
500 Oracle Parkway
Redwood Shores, CA 94065
(415) 506-7000
Oracle is a registered trademark of Oracle Corporation.
1-95
<PAGE> 24
APPLICATION PACKAGE ATTACHMENT
Name of Application Program and Application Package which the Alliance Member
will be Sublicensing under the Agreement (may not contain the trademarks
"Oracle" or "Ora" or any part thereof):
Description of Application Package:
Modules:
Functions and Objectives:
<PAGE> 25
ORACLE
FULL USE AND DEPLOYMENT SUBLICENSE ADDENDUM
This document (the "Addendum") is between ORACLE CORPORATION ("Oracle") and
HOMECOM COMMUNICATIONS, INC. (the "Alliance Member") and shall be governed by
the terms of the Business Alliance Program Agreement between the Alliance
Member and Oracle effective May 30, 1996 (the "Agreement") and the terms set
forth below.
1. PROGRAM DISTRIBUTION
1.1. SUBLICENSE OF PROGRAMS AND TERMS.
The Alliance Member shall have the right to market and grant
Sublicenses of Full Use Programs or Deployment Programs which
are available in production release and listed on Oracle's
Price List in effect at the time the Programs are ordered from
Oracle to Sublicense to a Sublicensee; provided, however, the
Alliance Member shall have no right to Sublicense any Programs
designated as Oracle Applications Programs, Limited Production
Programs, or other Programs specified by Oracle from time-to-
time without the prior written consent of Oracle.
The Alliance Member shall have the right to market and grant
Sublicenses of Full Use or Deployment Programs for use on
Designated Systems in conjunction with the Integrated System
to Sublicensees. Each copy of the Full Use or Deployment
Programs distributed shall be for the Sublicensee's own
internal use in the Territory only on a single Designated
System limited to a maximum number of Users.
To acquire Programs for Sublicensing to Sublicensees, the
Alliance Member shall order such Programs from Oracle. Each
order shall specify the applicable Programs, maximum number of
Users, computer/operating system con-figuration, fees,
shipping location, and any other information required by
Oracle for processing the order. Orders for Trial Sublicenses
shall be clearly marked on the face of the Order Form.
1.2. DISTRIBUTION UNDER ORACLE AGREEMENT.
In addition to the Sublicense rights specified in Section
2.3.A of the Agreement and notwithstanding the terms of such
Section and Section 3.2.B of the Agreement, the Alliance
Member shall have the right to market and grant Sublicenses of
Full Use Programs and Deployment Programs in conjunction with
the Integrated System to Sublicensees under a standard Oracle
Software License and Services Agreement in lieu of
Sublicensing the Programs under a written Sublicense
agreement.
The Alliance Member may submit orders for Sublicenses to
Oracle for its acceptance.
With each such order, the Alliance Member shall submit a
standard Oracle Software License and Services Agreement
executed by the applicable Sublicensee, or shall reference on
such order that the Programs will be licensed to the
Sublicensee subject to an existing license agreement effective
between the Sublicensee and Oracle (the "Oracle Agreement").
In addition, as part of the Oracle Agreement, the Alliance
Member shall obtain the Sublicensee's written agreement that
the ordered
<PAGE> 26
Programs and services are subject to the terms and conditions
of the Oracle Agreement.
If the Sublicensee is a federal agency, the Alliance Member
shall submit with each such order a written document executed
by an authorized Sublicensee contracting officer which
contains the following provision: "This is an open market
order placed pursuant to terms identical to the terms and
conditions of Oracle's General Services Adminis-tration (GSA)
Schedule A Contract for Oracle Programs current as of the
order date, with the exception of the maximum order
limitations, discounts, maintenance, training units and other
discounts specific to the applicable Oracle GSA Schedule. No
other pre-printed or reference terms and conditions shall
apply." This written document shall be deemed the applicable
Oracle Agreement.
For orders which include only shrinkwrapped Oracle Programs,
the Oracle Agreement may consist of a written obligation by
the Sublicensee to use the Programs under the terms of the
shrinkwrap license agreement.
The Alliance Member shall indemnify Oracle for any claims,
damages, or losses arising from failure to obtain any Oracle
Agreement.
If the order specifies that the Programs are to be delivered
to the Alliance Member, the Alliance Member shall have the
right to re-deliver the Programs with their original packaging
to the applicable Sublicensee.
1.3. FULL USE AND DEPLOYMENT PROGRAMS.
For the purposes of this Addendum, "Full Use Programs" shall
mean unaltered versions of the Programs with all functions
intact. "Deployment Programs" shall means Programs which are
limited to use solely for the purpose of running applications,
and may not be used to create or alter tables or reports
except as necessary for operating the applications.
1.4. VALUE-ADDED PACKAGE.
For the purposes of this Addendum, "Integrated System" shall
mean the hardware and software products having Value-Added
which are developed, sold, and/or licensed with the Programs
to a Sublicensee by the Alliance Member to satisfy such
Sublicensee's internal business requirements and objectives.
For purposes of the Agreement, the Integrated System will be
regarded as the Alliance Member's Value-Added Package which is
described in the attached Value-Added Attachment. The
Integrated System shall be regarded as "Value-Added" if the
following materials are provided as part of the Integrated
System by the Alliance Member: (a) non-Oracle developed
software; (b) customized programming or customized consulting;
and (c) other computer products or components.
1.5. TRIAL SUBLICENSES.
The Alliance Member shall be entitled to grant, at no charge,
up to ten (10) temporary Trial Sublicenses of the Programs at
any one time. Such Sublicenses shall be the evaluation
purposes only and shall be for a period not to exceed thirty
(30) days. The Alliance Member shall pay Oracle Sublicense
fees for any Trial Sublicenses in excess of thirty (30) days.
Each such Trial Sublicense shall be Sublicensed under a
Sublicense agreement which provides for such trial use or
under an Oracle Trial License Agreement, as the applicable
Oracle Agreement.
1.6. NO DISTRIBUTORS.
The Alliance Member's right to market and grant Sublicenses of
Full Use Programs or
- 2 -
<PAGE> 27
Deployment Programs hereunder shall be limited to the Alliance
Member only. The Alliance Member shall not appoint any third
party to distribute the Programs without Oracle's prior
written consent.
1.7 DOCUMENTATION.
Oracle shall deliver one copy of the applicable Documentation
with each order of Programs for Sublicensing to Sublicensees.
2. SUBLICENSE FEES
2.1. SUBLICENSE FEES AND RATE.
For each copy of the Programs Sublicensed by the Alliance
Member, the Alliance Member agrees to pay Oracle a Sublicense
fee equal to seventy percent (70%) of the applicable license
fee for each such Program, as specified in the applicable
Price List and Alliance Member Price List supplement to such
Price List in effect at the time the applicable Programs are
Sublicensed to a Sublicensee. The Sublicense fee shall be
calculated effective on the date of the Sublicense, which
shall be the date the Programs are shipped by Oracle or the
effective date of the order to Oracle for such Programs, if no
shipment is required.
Fees to Sublicense of Programs shall be due and payable on the
date that Oracle ships the applicable Programs and shall be
deemed overdue if not paid within thirty-one (31) days of the
due date. The Alliance Member shall not be relieved of its
obligation to pay Sublicense fees owed to Oracle by the
nonpayment of such fees by the Sublicensee.
2.2. PRICE LIST.
As set forth in the Agreement, the applicable Price List for
determining Sublicense fees shall be the standard Price List
in effect at the time the Program is Sublicensed to a
Sublicensee. However, pricing for any federal agency,
pursuant to terms and conditions identical to the terms and
conditions of Oracle's GSA Schedule A Contract for Oracle
Programs current as of the order date, shall be based on
Oracle's published GSA Price List.
Notwithstanding any other provision of this Agreement, if the
Alliance Member issues a written Sublicense quote and such
quote is accepted by the applicable Sublicensee, for a period
of ninety (90) days after the date of submission of the quote
to the Sublicensee, the fee applicable to the Programs
identified in the quote shall be based on the Price List in
effect on such date.
2.3. USERS.
The fees for Sublicense of a Program shall be based and priced
on the applicable User Level for the maximum number of Users
for such Program, as specified in the Price List. The
Alliance Member shall have the right to sublicense on any User
basis specified in the Price List in effect at the time the
applicable Program is Sublicensed to a Sublicensee.
3. TERM
This Addendum shall become effective on the Effective Date of
this Addendum and shall be valid for one (1) year (the
"Term"), unless terminated as provided in the Agreement. Any
renewal of this Addendum shall be subject to renegotiation of
terms and fees.
4. TERRITORY
The Alliance Member shall have the right to market and grant
Sublicenses of Full Use Programs or Deployment Programs in the
United States only (the "Territory").'
- 3 -
<PAGE> 28
5. TECHNICAL SUPPORT
5.1. TECHNICAL SUPPORT FOR SUBLICENSEES.
A Sublicensee may acquire Technical Support services for Full
Use Programs or Deployment Programs Sublicensed under this
Addendum from Oracle at Oracle's standard rates and fee in
effect at the time such Technical Support services are ordered
under an Oracle Technical Support Services Agreement or Oracle
Agreement, as applicable.
5.2. TECHNICAL SUPPORT FEES.
Oracle agrees that the Alliance Member shall have the right to
offer Oracle annual Technical Support services to Sublicensees
in the United States that are currently acquiring Full Use
Programs or Deployment Programs. The Alliance Member shall
only offer Oracle Technical Support services with respect to
the initial first year of Technical Support for a Sublicensed
Program. The Alliance Member shall only offer Oracle annual
Technical Support services to a Sublicensee provided that:
A. Oracle receives from the Sublicensee an
executed, standard Oracle Technical Support Services
Agreement, Oracle Agreement, or other terms to govern the
Technical Support services as agreed to in writing by Oracle
and the Sublicensee;
B. The Full-Use or Deployment Programs are
currently Sublicensed by the Alliance Member;
C. The Alliance Member pays Oracle its required
Sublicense fee for the applicable Sublicensed Programs as
provided under the Agreement, and the Alliance Member pays
Oracle the applicable Technical Support services fees as set
forth herein in advance;
D. The Alliance Member's Sublicense of the Full
Use Programs or Deployment Programs coincides with the
agreement to provide Technical Support Services for such
Programs; and
E. The net Technical Support services fees
represent new Technical Support revenue to Oracle.
The Technical Support services fees payable by Alliance Member
as provided above shall be Oracle's standard rates for such
services as provided under the Price List in effect at the
time the Technical Support services are ordered, discounted by
ten percent (10%).
6. SUBLICENSE REPORTS
With each order for Programs for Sublicense to a Sublicensee,
the Alliance Member shall send Oracle a report detailing for
each Sublicensed Full Use Program or Deployment Program:
Sublicensee name, address, make/model and operating system of
the Designated System, Full Use or Deployment Programs,
maximum number of licensed Users, whether the Sublicense is a
Trial Sublicense, total Program fees and Technical Support
Fees due to Oracle, and specific descriptions of the
Integrated System and Value- Added.
7. ADDITIONAL LICENSES
During the Term, the Alliance Member may order production
release versions of Oracle off-the-shelf Programs available as
production release as of the Effective Date of this Addendum
and listed on the Price List in effect as of such dated. The
license fee for Development Licenses shall be equal to
Oracle's standard list license fees in effect when an order is
placed. The Alliance Member shall have the right to
- 4 -
<PAGE> 29
order Programs for use as Marketing Support Licenses at no
further charge to the Alliance Member. The Alliance Member
may obtain Technical Support services from Oracle for such
Programs under Oracle's applicable Technical Support fees and
policies in effect when such services are ordered.
The Effective Date of this Addendum shall be June 6, 1996.
<TABLE>
<S> <C>
EXECUTED BY THE ALLIANCE MEMBER: EXECUTED BY ORACLE CORPORATION:
Authorized Signature: /s/ Harvey Sax Authorized Signature: /s/ Brittany Lauer
--------------- -------------------
Name: Harvey Sax Name: Brittany Lauer
------------------------------- -----------------------------------
Title: President Title: Supervisor - East HQ
------------------------------ ----------------------------------
ORACLE
Oracle Corporation
500 Oracle Parkway
Redwood Shores, CA 94065
(415) 506-7000
Oracle is a registered trademark of Oracle
Corporation.
1-95
</TABLE>
- 5 -
<PAGE> 30
ORACLE CORPORATION U.S. PRICE LIST Prices in $US
ORACLE LICENSE TRANSFER POLICY
The following policies apply only to licenses under full technical support.
Unsupported licenses or licenses covered by incident only or telephone only
support may be transferred only after full technical support has been
reinstated.
A "LICENSE TRANSFER" occurs when a customer discontinues use of a licensed
product on a specified CPU or Designated System and transfers use of that
product to a new system. A License Transfer may not involve an exchange of one
product for another except in the case of products with similar functionality
(e.g., Oracle7 Workgroup Server, Rdb7 Server and Oracle7 Server, or for
Supported Migrations). No refund of license fees paid or credit toward future
purchases will be granted as a result of a License Transfer.
TRANSFERS WITHIN AN OPERATING SYSTEM
The fee for a License Transfer within an operating system is equal to the
current list price of the licensed product on the new system less the current
list price of the licensed product on the original system.
ORACLE7 WORKGROUP SERVER TRANSFERS WITHIN AN OPERATION SYSTEM
Customers may transfer Oracle7 Workgroup Server licenses to Oracle7 Server
licenses by paying the current list price of the Oracle7 Server licenses less
the current list price of the Oracle7 Workgroup Server licenses. Oracle7 Server
or Oracle RDBMS licenses may not be transferred to Oracle7 Workgroup Server
licenses.
TRANSFER OF NAMED USER LICENSES
When transferring server products that were licensed on a Named User basis, the
current list price of the existing licenses is calculated at 50% of the
Concurrent Device fee listed in the current price list.
TRANSFER OF USER BASED TOOLS LICENSES WITHIN AN OPERATING SYSTEM
When transferring tools products licensed as Full Use, the current list price
for the existing licenses is equal to the current list price for Developer
licenses. No credit is granted in the transfer of deployment level tools
licenses. Fees paid for deployment level tools licenses may not be applied
toward the purchase of Developer licenses.
If the existing tools products were licensed on a per user basis and were not
designated as Full Use or Deployment, the customer may designate up to the
total number of tools users as Developers provided the total number of
Developers designated on the existing system does not exceed the total number
of Developers licensed on the new system.
TRANSFER OF CPU BASED LICENSES WITHIN AN OPERATING SYSTEM
If the existing product set was licensed on a per CPU basis, the current list
price of the existing license set is calculated at eight Concurrent Devices per
processor based on the number of processors in the existing CPU.
TRANSFER OF RDB LICENSES
When transferring Rdb licenses acquired after February 28, 1995, the transfer
fee is calculated as the current list price of the licensed products on the new
system less the current list price of the licensed products on the existing
system.
When transferring Rdb licenses acquired before February 28, 1995, the transfer
fee is calculated as the current list price of the licensed products on the new
system less the list price of the licensed products on the existing system as
set forth in the October 1994 Digital Equipment Corporation Price List. For
more information see the Oracle Rdb Transfer Guidelines.
TRANSFER TO A NEW OPERATING SYSTEM
If a License Transfer to a new operating system requires shipment of new binary
software, a fee of 10% of the list price of the products licensed on the new
system shall be charged in addition to the above mentioned fees. This
additional charge shall be no less than $1200. In certain cases, Oracle may
designate supported migration paths for which new binary code will be provided
to supported customers at no additional charge. Refer to the Supported
Migration Listing in the Price List Supplement.
APPLYING DISCOUNTS TO LICENSE TRANSFER
Any discount is applied after making the above calculations.
TECHNICAL SUPPORT FOR TRANSFERRED LICENSES
Technical Support and Maintenance fees will be based on the newly licensed
configuration. The unused portion of any prepaid support fees may be credited
toward the subsequent year's support fees.
Effective January 1, 1996 Oracle Confidential Material Page 6
<PAGE> 1
EXHIBIT 10.9
Microsoft Solution Provider Program
AGREEMENT
MEMBER LEVEL
SP Company Name: Homecom Communications, Inc.
This Agreement ("Agreement") is between MICROSOFT CORPORATION ("Microsoft"), a
Washington corporation, located at One Microsoft Way, Redmond, WA 98052, and
the Microsoft Solution Provider ("SP") named above whose principal place of
business appears at the end of this Agreement. DO NOT ALTER OR AMEND THIS
AGREEMENT IN ANY MANNER: such alterations, without Microsoft written
acceptance, will void this Agreement.
1. PURPOSE
SP desires to provide comprehensive computer solutions to certain of its
customers, which may include the supply of computer hardware and software and
the provision of product support and training. Microsoft desires to supply
Microsoft software and provide services and support on Microsoft products to
assist SP in providing its customers with such solutions.
2. APPOINTMENT
Microsoft hereby appoints SP as a non-exclusive Microsoft Solution
Provider at the Member level in the Territory defined in the attached Details
Annex, with the authority to promote its goods and services, in association
with Microsoft, in accordance with the terms of this Agreement.
3. TERM AND TERMINATION
This Agreement shall take effect on the date of its acceptance by
Microsoft ("Effective Date"), and unless terminated earlier as provided herein,
shall continue until September 30, 1996. (Acceptance is date indicated in the
confirmation letter from Microsoft to SP, indicating acceptance into the SP
Program). Either party shall have the right to terminate this Agreement at any
time, without cause and without the intervention of the courts, on the giving
of thirty (30) days' prior written notice. Neither party shall be responsible
to the other for any costs or damages resulting from the termination of this
Agreement. Upon expiration or termination of this Agreement, all rights and
benefits granted by this Agreement shall revert to Microsoft and SP shall
immediately cease use of all internal use and training licenses, MSDN and
TechNet licenses and the Solution Provider logo, and shall cease to represent
itself as a Microsoft Solution Provider.
4. PAYMENT
The fee for the appointment as a Microsoft Solution Provider under this
Agreement consists of a basic fee of $1,995 U.S. per year. This fee includes a
$795 U.S. fixed charge for
<PAGE> 2
product support benefits and a quarterly pro-rated fee of $300 U.S. SP agrees
to pay the fixed basic fee to Microsoft at time of SP signature on this
Agreement.
5. SP RIGHTS AND OBLIGATIONS
(A) TRADEMARKS
The appropriate trademark symbol (either "TM" [standard trademark] or
(R) [registered trademark] in a superscript following the product name) shall be
used whenever a Microsoft product name is mentioned in any advertisement,
brochure, or material circulated or published in any form whatsoever by SP.
The appropriate trademark symbol must be used in conjunction with, at least,
the first reference to each Microsoft product in all SP's circulation or
publications. Microsoft reserves the right to amend any Microsoft trademark,
service mark or logo and agrees to notify SP of any such amendments that are
relevant to SP's business. SP agrees to ensure that its use of any such mark
and/or logo is amended accordingly.
(B) SALES AND SERVICE REPORTING
When requested by Microsoft, Sales and Service reports shall be
completed by SP and forwarded to the Microsoft address indicated on the
reporting template. Such reports shall be substantially in the format of the
reporting template provided to SP from time to time. Frequency of Sales and
Service reporting is expected to be no more than quarterly. SP warrants that
such reports are true and correct to the best of its knowledge and belief.
(C) MEMBERSHIP APPLICATION AND PROFILE REPORT
SP represents and warrants that all the information provided on its
Membership Application and/or Profile Report is, in all material respects, true
and correct to the best of its knowledge and belief, and warrants that the
information will continue to be so during the term of this Agreement. Should
there be any changes in such information during the course of this Agreement,
SP agrees to promptly inform Microsoft in writing, given details of such
changes.
(D) MICROSOFT CERTIFIED PROFESSIONAL PERSONNEL
SP warrants that at least one (1) full-time member of its staff is a
qualified Microsoft Certified Professional ("MCP") at SP's principal place of
business at all time during this Agreement. Further, SP shall have one
additional MCP on staff, for a total of two (2), or 100% of technical staff
qualified as MCP(s) by January 1, 1996 for the duration of the agreement.
Technical staff is defined as those employees involved in consulting,
application development and testing, system installation, integration, and/or
migration, technical training or technical support.
(E) SERVICE/SALES ESTIMATES
SP's best estimate is that more than 15% of its revenues are generated
from provision of technical services (custom development, integration,
consulting, training and
-2-
<PAGE> 3
technical support) to its customers. This estimate shall not include those
services, support, training, etc. provided to SP or any of SP's Affiliates,
subsidiaries, branches, divisions, or other related third parties.
6. SOLUTION PROVIDER FEATURES
(A) IDENTITY/LOGO USAGE
SP shall have the right to identify itself as a "Microsoft Solution
Provider" provided that (i) SP continues to comply with Section 5(D) above,
Microsoft Certified Professional Personnel; (ii) SP complies with the then
current Guidelines for Using the Microsoft Solution Provider Logo (available
from Microsoft); and (iii) SP is in full compliance with the terms and
conditions of this Agreement. In the event that any of the above provisions
are not met, SP will immediately cease identifying itself as a Microsoft
Solution Provider. Microsoft reserves the right to amend the Microsoft
Solution Provider logo and any other Microsoft trademark, service mark or logo
and agrees to notify SP of any such amendments that are relevant to SP's
business. SP agrees to ensure that its use of the Microsoft Solutions Provider
logo and related trademarks, service marks and logos are amended accordingly.
(B) LICENSE GRANT FOR INTERNAL AND MARKETING USE
Microsoft hereby grants SP a non-exclusive, non-transferable,
royalty-free, terminable license to make and use a total of ten (10) copies of
Windows 95, ten(10) copies of Windows NT workstation, ten (10) copies of
Microsoft Office Professional, ten (10) copies of Microsoft Project, and
Microsoft BackOffice server product [up to five (5) server license of any
server product in the Microsoft BackOffice suite (Windows NT Server, SQL
Server, SMS, SNA Server, Mail Server)] in any combination for a total of no
more than five (5) individual server products, fifty (50) BackOffice client
licenses, one (1) license for Visual Basic Professional, one (1) license for
Visual C++ and one (1) license of Visual FoxPro. These copies may be used for
internal purposes and for marketing demonstrations only. Upgrades to these
products will be provided through the term of the Agreement.
SP is also eligible to acquire various Microsoft products under the
Microsoft Internal Use Product Program. Any products acquired thereby are
governed by the terms and conditions of this paragraph, as well as any terms
and conditions contained on the Microsoft Internal Use Product Program Order
Form.
In all cases, use of the copies is subject to the additional terms of
the End User License Agreement for the corresponding product except that the
copies shall not be resold or transferred to a third party. SP is permitted to
use the copies for marketing demonstrations at the premise of customers provided
that following any demonstrations, the copies, and license to use them, are not
assigned to the customer. The limited warranty, including liability
limitation, contained in the End User License Agreement for each Microsoft
product shall also apply. The terms of the End User License Agreements vary
among different Microsoft products.
-3-
<PAGE> 4
Microsoft reserves the right to change the Microsoft products (and
number of copies) licensed for internal and marketing use, and as may be
provided through the Microsoft Internal Use Product Program, from time to time,
in its sole discretion.
Upon termination or expiration of this Agreement, the rights granted
in this section shall revert to Microsoft and SP shall immediately cease use of
all internal and marketing use licenses, and any licenses provided through the
Microsoft Internal Use Product Program.
(C) TRAINING USE LICENSES
SP may offer training to customers on Microsoft products which are the
subject of this Agreement. SP is solely responsible for all costs and expenses
associated with training. Microsoft hereby grants SP permission to reproduce a
Microsoft product for up to one hundred (100) workstations at a time, for the
sole purpose of providing training on said Microsoft products. Training use of
a Microsoft product is held subject of the following conditions: (i) SP agrees
to destroy all copies at such time as SP is no longer a Microsoft SP; (ii) SP
agrees to destroy all copies used outside of SP location upon completion of
on-site training; (iii) SP may only reproduce Microsoft products for which SP
conducts training classes; (iv) SP agrees to be bound by the terms of the
Microsoft End User License Agreement for each copy, except that these Microsoft
products shall neither be resold nor transferred to a third party, and will
strictly control use of said copy in accordance with the End User License
Agreement; and (v) all copies of the Microsoft product shall be true and
complete copies, including all copyright and trademark notices.
(D) PRODUCT SUPPORT
(i) SP agrees to provide details of SP's network configuration as
requested by Microsoft. Microsoft may determine at any time that SP's network
configuration and topology are not supportable, in which case Microsoft is
under no obligation to provide the product support. Any subsequent changes to
network configuration and topology must be sent to Microsoft in writing, and
Microsoft may redetermine supportability.
(ii) The Microsoft support telephone number and other product support
materials will be provided to SP, and SP's product support will be activated at
the earliest opportunity after the Effective Date.
(iii) Limited Warranty: Microsoft warrants that the teleprocessing
services and support provided hereunder shall reasonably accord with the
service and support description given in the relevant product support materials
available from Microsoft. THIS WARRANTY IS THE ONLY WARRANTY MADE BY MICROSOFT
FOR PRODUCT SUPPORT AND TELEPROCESSING SERVICES, AND IS IN LIEU OF ALL OTHER
WARRANTIES AND CONDITIONS. SP HEREBY WAIVES TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, ALL OTHER WARRANTIES AND CONDITIONS, EXPRESS, IMPLIED, OR
STATUTORY, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. It is understood that the provision of
teleprocessing services hereunder is dependent upon the continuous
-4-
<PAGE> 5
availability of communications facilities to Microsoft and that Microsoft
cannot warrant such availability. In addition, Microsoft makes no guarantee of
problem resolution and does not warrant that the support will be uninterrupted
or error-free. SP agrees to take adequate precautions against damage to its
operation that could be caused by such interruption or errors, including making
appropriate data backups. Microsoft cannot be held responsible for any loss of
SP's data.
(E) MSDN AND TECHNET LICENSES
Microsoft hereby grants SP a non-exclusive, non-transferable,
royalty-free, terminable license for one (1) TechNet Server license, ten (10)
MSDN Development Library licenses, and one (1) MSDN Development Platform
license. SP will be provided with updated to one (1) non-transferable set of
CDs to facilitate this. These licenses may be used for internal use and
marketing demonstrations only. This grant amends the End User License
Agreements of MSDN and TechNet; however, the provisions of such End User
License Agreements where unamended remain in full force and effect.
(F) PROMOTIONAL MATERIALS
Microsoft may, in its sole discretion, reference SP in advertising and
promotional materials in connection with the sale and promotion of Microsoft
products. Uses of SP's name include but are not limited to: lists of SP's for
customer information, advertising of SP program containing SP's name, etc.
When a specific advertisement or promotion containing only SP's name is
planned, Microsoft will obtain SP's written permission before such use.
Microsoft shall also obtain SP's written permission before use of any logo of
SP.
(G) CHANGES IN SP AGREEMENT FEATURES
SP understands that Microsoft may expand, change the scope of content
of, and/or delete, any features offered under the Solution Provider program. In
the event that Microsoft adversely changes any program features, and should SP
be dissatisfied with those changes, SP may terminate this Agreement in
accordance with Section 3 and will have no other recourse against Microsoft.
7. CONFIDENTIALITY
Each party expressly undertakes to retain in confidence all information
and know-how transmitted to the other that the disclosing party has identified
as being proprietary and/or confidential or that, by the nature of the
circumstances surrounding the disclosure, ought in good faith to be treated as
proprietary and/or confidential, and expressly undertakes to make no use of
such information and know-how except under the terms and during the existence
of this Agreement (or a subsequent Solution Provider Agreement). However,
neither party shall have an obligation to maintain the confidentiality of
information that (i) it received rightfully from a third party prior to its
receipt from the disclosing party; (ii) the disclosing party has disclosed to a
third party without any obligation to maintain such information in confidence;
or (iii) is independently developed by the obligated party. Further, either
party may disclose confidential information as
-5-
<PAGE> 6
required by governmental or judicial order, provided such party gives the other
party prompt written notice prior to such disclosure and complies with any
protective order (or equivalent) imposed on such disclosure. Each party shall
treat all Microsoft product adaptation materials as confidential information
and shall not disclose, disseminate, or distribute such materials to any third
party without the other's prior written permission. Each party shall treat the
terms and conditions of this Agreement as confidential; however, SP may
disclose such information in confidence to its immediate legal and financial
consultants as required in the ordinary course of its business. Each party's
obligation under this Section shall extend to the earlier of such time as the
information protected hereby falls into the public domain through no fault of
the obligated party of five (5) years following termination or expiration of
this Agreement.
8. NEW PRODUCTS
Notwithstanding any other provisions of this Agreement, Microsoft may
elect at any time during the term of the Agreement to announce new Microsoft
products to which the terms and conditions of this Agreement may not apply.
New versions, updates, and maintenance releases of existing titles are not
considered new Microsoft products.
9. WARRANTIES/LIMITED WARRANTIES
Microsoft warrants all Microsoft products provided to SP under the terms
of this Agreement on the terms set out in the written limited warranty document
accompany each such product. THESE LIMITED WARRANTIES ARE IN LIEU OF ALL OTHER
WARRANTIES AND CONDITIONS, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING ALL
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND
OF ALL OTHER OBLIGATIONS, CONDITIONS, OR LIABILITIES ON MICROSOFT'S PART EXCEPT
AS OTHERWISE PROVIDED BY APPLICABLE LAW.
10. LIMITATION OF LIABILITY
Subject to applicable law, neither Microsoft nor anyone else who has been
involved in the creation, production, or delivery of the products or services
that are the subject of this Agreement shall be liable for any direct,
indirect, consequential or incidental damages (including damages for loss of
business profits, business interruption, loss of business information and the
like) arising out of the use of or inability to use the Microsoft products, or
provision of, or failure to provide, support, even if Microsoft has been
advised of the possibility of such damages. Because some jurisdictions do not
allow the exclusion or limitation of consequential or incidental damages, the
above limitation may not apply. In any event, except as otherwise provided by
law, the liability of Microsoft or its suppliers, whether for negligence,
breach of contract, breach of warranty, or otherwise, shall, in the aggregate,
not exceed the amount paid to Microsoft by SP hereunder.
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<PAGE> 7
11. GENERAL
(a) All notices, authorizations, and requests in connection with this
Agreement shall be deemed given two (2) business days after they are sent by
registered mail, and addressed as follows:
SP: (name and address as set forth at the end of this Agreement)
Microsoft : (name and address as set forth in the Details Annex)
Attn: Microsoft Solution Provider Program, Program Marketing Manager
cc: Legal Department
or to such other address as the party to receive the notice so designates
by written notice to the other.
(b) This Agreement and the Details Annex constitute the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all prior and contemporaneous communications including all prior and current
Solution Provider Agreements. It shall not be modified except by a written
agreement dated subsequent to the Effective Date of this Agreement and signed
on behalf of SP and Microsoft by their respective duly authorized
representatives.
(c) If a particular provision of this Agreement is terminated or held by a
court of competent jurisdiction to be invalid, illegal, or unenforceable, this
Agreement shall remain in full force and effect as to the remaining provisions.
(d) No waiver of any breach of any provisions of this Agreement shall
constitute a waiver of any prior, concurrent, or subsequent breach of the same
of any other provisions hereof, and no waiver shall be effective unless made in
writing and signed by an authorized representative of the waiving party.
(e) Neither this Agreement, nor any terms and conditions contained herein,
shall be construed as creating a partnership, joint venture, franchise or
agency relationship.
(f) SP agrees that it shall inform its customers that SP is an independent
business from Microsoft, and shall not hold itself out as an agent of
Microsoft, or attempt to bind Microsoft to any third-party agreement. SP shall
defend, indemnify, and hold harmless Microsoft from and against all
liabilities, claims, costs, fines, and damages of any type (including
attorney's fees) arising out of or in any way related to SP's delivery of
training services and/or product support to its customers
(g) This Agreement, and any rights or obligations hereunder, shall not be
assigned or sublicensed by SP, without Microsoft's prior written consent.
(h) This Agreement shall be governed by the laws of the State of
Washington and SP consents to jurisdiction and venue in the state and federal
courts sitting in the State of Washington. If either Microsoft or SP employs
attorneys to enforce any rights arising out of or
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<PAGE> 8
relating to this Agreement, the prevailing party shall be entitled to recover
reasonable costs and attorney's fees.
Accepted:
SP
Company Name: HomeCom Communications
----------------------------------
Signature: /s/ Harvey Sax
----------------------------------
Name (printed): Harvey Sax
----------------------------------
Job title: President
----------------------------------
Address: 14 Piedmont Center, Suite 100
----------------------------------
3535 Piedmont Road
----------------------------------
Atlanta, GA 30305
----------------------------------
MICROSOFT
Signature: /s/
----------------------------------
Name (printed):
----------------------------------
Job Title:
----------------------------------
Address:
----------------------------------
----------------------------------
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<PAGE> 9
MICROSOFT SOLUTION PROVIDER AGREEMENT
MEMBER LEVEL
DETAILS ANNEX
1. TERRITORY
For the purpose of this Agreement, the Territory shall be 1) the USA, excluding
U.S. territories, U.S. possessions, and Puerto Rico, and 2) Canada.
2. FEE
Basic Fee
Basis Solution Provider fee is $1,995 U.S. per year or $795 U.S. per year plus
$300 U.S. per quarter.
The following fee schedule applies to all new and renewing Solution Providers
(and applies to each SP Affiliate as well, as applicable) and provides program
membership through September 30, 1996.
<TABLE>
<CAPTION>
RENEWALS
- ----------------------------------------------------------------
United States Canada (GST included)
- ----------------------------------------------------------------
<S> <C> <C>
August 1995 $1,995 U.S. $2,989 CDN
- ----------------------------------------------------------------
<CAPTION>
NEW ENROLLMENT
- -------------------------------------------------------------------------------------
If we receive your completed
application between United States Canada (GST included)
- -------------------------------------------------------------------------------------
<S> <C> <C>
August 1, 1995 - December 31, 1995 $1,995 U.S. $2,989 CDN
January 1, 1996 - March 31, 1996 $1,695 U.S. $2,539 CDN
April 1, 1996 - June 30, 1996 $1,395 U.S. $2,090 CDN
July 1, 1996 - September 30, 1996 $1,095 U.S. $1,640 CDN
- -------------------------------------------------------------------------------------
</TABLE>
3. SUPPORT
A Priority Comprehensive 10-pack is a non-optional feature of the SP Program
and is included in the Basic Fee for $795 U.S.
4. ADDRESS
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<PAGE> 10
All notices, authorizations, and requests in connection with this agreement
should be sent by registered mail to:
One Microsoft Way
Attn: Microsoft Solution Provider Program Marketing Manager
CC: Legal
Redmond, WA 98052
All profile updates should be sent to:
Microsoft Corporation
Solution Provider Application Processing
P.O. Box 22845
Salt Lake City, UT 84122-0845
-10-
<PAGE> 1
EXHIBIT 10.14
PROMISSORY NOTE
U.S. $_____________ _____________, 1996
Principal Amount Original Issue Date
FOR VALUE RECEIVED, the undersigned HOMECOM COMMUNICATIONS, INC. (the
"Promisor") promises to pay to ______________ (the "Payee"), at the principal
offices of the Promisor (or at such other place as the Payee may designate in
writing) the sum of ____________, together with interest from and including the
date hereof on the unpaid balance hereunder at the rate of eight percent (8%)
per annum simple interest, payable as set forth below. Interest shall be
calculated on the basis of actual number of days elapsed over a year of 360
days.
Unpaid principal after any default in payment shall accrue interest at
a rate of fifteen percent (15%) per annum on the unpaid balance until paid.
The outstanding principal balance plus accrued but unpaid interest
shall be due and payable in full on ___________, 1997.
If any day on which a payment is due pursuant to the terms of this
Promissory Note is not a day on which banks in the State of Georgia are
generally open (a "Business Day"), such payment shall be due on the next
occurring Business Day.
The Promisor reserves the right to prepay this Note by making payment
in full of the then remaining unpaid principal and accrued interest.
If any payment obligation under this Note is not paid when due, the
Promisor promises to pay all costs of collection, including reasonable attorney
fees, whether or not a lawsuit is commenced as part of the collection process.
If any of the following events of default occur, this Note and any
other obligations of the Promisor to the Payee, shall become due immediately,
without demand or notice:
1) the failure of the Promisor to pay any installment of
principal or any payment of accrued interest when due if such
failure to pay is not cured within thirty (30) business days
after the Payee gives the Promisor written notice of such
failure to pay;
2) the filing of a petition against the Promisor seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present
or future federal, state or other law or regulation relating
to bankruptcy, insolvency or other relief for debtors, or the
appointment of any trustee, receiver or liquidator of the
Promisor unless such petition shall be dismissed within one
hundred eighty (180) days after such filing, but in any event
prior to the entry of an order, judgment or decree approving
such petition;
3) the making of a general assignment for the benefit of the
Promisor's creditors; or
4) the breach of any obligation of the Promisor hereunder.
<PAGE> 2
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of principal and interest on this Note shall be paid in
the legal currency of the United States. Time is of the essence of this Note.
No failure to accelerate the debt evidenced hereby by reason of
default hereunder, acceptance of a partial or past due payment, or indulgences
granted from time to time shall be construed (i) as a novation of this Note or
as a reinstatement of the indebtedness evidenced hereby or as a waiver of such
right of acceleration or of the right of the Payee thereafter to insist upon
strict compliance with the terms of this Note.
This Note may not be changed orally, but only by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
If from any circumstances whatsoever, fulfillment of any provision of
this Note, at the time performance of such provision shall be due, shall
involve transcending the limit of validity presently prescribed by applicable
usury statute or any other applicable law with regard to obligations of like
character and amount, then the obligation to be fulfilled shall be reduced to
the limit of such validity, so that in no event shall any exaction be possible
under this Note or under any other loan documents that is in excess of the
current limit of such validity, but such obligation shall be fulfilled to the
limit of such validity.
As used herein, the term "Note" shall mean this Note as the same may
from time to time be amended, modified, renewed, extended or supplemented by
written agreement. As used herein, the terms "Promisor" and "Payee" shall be
deemed to include their respective heirs, legal representatives, successors and
assigns and the heirs and legal representatives of such successors and assigns,
whether voluntarily or by operation of the parties or involuntary by operation
of law. All covenants, provisions and agreements by or on behalf of the
Promisor which are contained herein shall inure to the benefit of the
successors and assigns of the Payee.
This Note shall be construed in accordance with the laws of the State
of Georgia.
Signed by the Promisor as of the ____ day of _________, 1996 at Atlanta,
Georgia.
PROMISOR:
HOMECOM COMMUNICATIONS, INC.
By:
---------------------------------------
Nat Stricklen, Chief Operating Officer
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-12219) of our report dated March 11, 1996, on our
audits of the financial statements of HomeCom Communications, Inc. We also
consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
November 1, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HOMECOM COMMUNICATIONS, INC. FOR THE YEAR ENDED DECEMBER
31, 1995 AND THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 129,095 97,421
<SECURITIES> 0 0
<RECEIVABLES> 88,810 472,440
<ALLOWANCES> 2,485 36,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 215,568 538,672
<PP&E> 33,737 363,306
<DEPRECIATION> 3,722 56,577
<TOTAL-ASSETS> 247,382 1,209,883
<CURRENT-LIABILITIES> 81,776 677,756
<BONDS> 160,792 606,708
0 0
0 0
<COMMON> 27,706 192
<OTHER-SE> (22,892) (126,259)
<TOTAL-LIABILITY-AND-EQUITY> 247,382 1,209,883
<SALES> 0 152,649
<TOTAL-REVENUES> 327,574 1,471,324
<CGS> 0 114,552
<TOTAL-COSTS> 59,871 386,439
<OTHER-EXPENSES> 267,189 1,155,518
<LOSS-PROVISION> 2,485 33,515
<INTEREST-EXPENSE> 3,469 26,833
<INCOME-PRETAX> (5,440) (130,981)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,440) (130,981)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,440) (130,981)
<EPS-PRIMARY> (0.00) 0
<EPS-DILUTED> (0.00) 0
</TABLE>
