<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1997
REGISTRATION NO. 333-12219
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------------------------
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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OBY T. BREWER III, ESQ. NEIL NOVIKOFF, ESQ.
MORRIS, MANNING & MARTIN, L.L.P. WILLKIE FARR & GALLAGHER
1600 ATLANTA FINANCIAL CENTER ONE CITICORP CENTER
3343 PEACHTREE ROAD, N.E. 153 EAST 53RD STREET
ATLANTA, GEORGIA 30326 NEW YORK, NEW YORK 10022-4669
(404) 233-7000 (212) 821-8000
</TABLE>
------------------------------------------
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.
================================================================================
<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 MARCH 19, 1997
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. The Company's Common Stock has
been approved for listing on The Nasdaq SmallCap(TM) Market, subject to official
notification of issuance, under the trading symbol "HCOM."
---------------------
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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Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $
=============================================================================================================
</TABLE>
(1) Excludes (i) a non-accountable expense allowance payable to the Underwriters
equal to 2% of the gross proceeds of this offering and (ii) warrants to be
issued to the Underwriters to purchase up to 125,000 shares of Common Stock.
In addition, the Company has agreed to indemnify the Underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses of the offering estimated at $797,500.
(3) The Underwriters have 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 Underwriters exercise 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 Underwriters when, as and if
delivered to and accepted by the Underwriters, subject to their 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 , 1997 at the offices of Ladenburg Thalmann & Co.
Inc., New York, New York.
(LADENBURG THALMANN & CO. INC. LOGO) (SANDS BROTHERS & CO., LTD. LOGO)
The date of this Prospectus is , 1997.
<PAGE> 3
[OUTSIDE LEFT 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 two parts, (i) the left two-thirds of the page,
and (ii) the right one-third of the page.
At the top of the left two-thirds are the captions "Software products" and
"The 'Personal Internet Banker' Application."
DESCRIPTION OF PHOTOGRAPH:
To the upper left below the caption are two computer screens showing
examples of HomeCom's Personal Internet Banker application, each consisting of a
computer screen window with graphical text and menu buttons appearing throughout
the body of the page. The text and menu options offer a variety of information
and interactive choices for the user of the Personal Internet Banker software.
The first page contains the text "Welcome to your Personal Internet Banker" and
indicates the availability of "worldwide 24-hour access to your finances." This
screen also prompts entry of a user number and a password. The second screen
indicates several Personal Internet Banker reminders, including account numbers;
indicates certain information with respect to the individual's banking
information and portfolio; and indicates several windows in which CD interest
rates of the bank are displayed. The picture prompts graphical user menu choices
for utilizing additional features in the application, including account
inquiries, payments, transfer fund requests, loan requests, portfolio, email and
others.
Below the pictures are the following quotations:
-- The intelligent agent technology of the Personal Internet Banker
utilizes a software agent that can answer the consumer's personal
finance questions
-- Consummate a variety of financial transactions, including buying
stocks, accessing checking account balances, processing a home loan,
and buying insurance online
-- Financial institutions could deploy this application to market
financial products and services to their customer base with precision
one-to-one marketing as the Personal Internet Banker can store the
financial history and preferences of the consumer
In the center of the left two-thirds of the page is the caption "HomeCom's
Post On The Fly(TM) Conference Highlights."
DESCRIPTION OF PHOTOGRAPH:
To the bottom left and right of the caption are two 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 of information and interactive choices for the Web site user.
Under the illustrations is the following text:
-- 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 moderated manually by the conference
administrator, or automatically by the software, or unmoderated
i
<PAGE> 4
-- The 'private conference' option keeps your sensitive posts secure
using complex Triple DES encryption
-- Full Web-based administration allows online creation, modification,
and deletion of conferences, messages, users and subadministrators
On the top of the right one-third of the page is the heading "Custom
applications."
The right one-third of this page indicates information with respect to the
Company's Custom Applications.
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 and 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 System 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.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
---------------------
ii
<PAGE> 5
[INSIDE LEFT FLAP OF FOLDOUT]
The page is divided into three parts, (i) the left two-thirds of the page,
(ii) the top three quarters of the right one third, and (iii) the bottom quarter
of the right one-third. 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," and on the bottom is the caption T-HQ Games."
Under the caption "Synovus" 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."
Beneath the caption "T-HQ Games" 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
At the bottom quarter of the right one-third of the page are the captions
"Security issues" and "HomeCom's Security Division."
iii
<PAGE> 6
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 cannot
be altered
-- Availability - ensuring that information is readily accessible by
authorized users
iv
<PAGE> 7
[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.
The right one-third of the page contains the heading "Accolades and
innovations."
At the top of the right one-third of this page is the following text:
"HomeCom forges technology and partnerships to perform state-of-the-art live Web
broadcasts -- achieving another Internet innovation."
DESCRIPTION OF PHOTOGRAPH:
At the top of the right one-third of the page, and below the text just
described, is an illustration of a Web page for the 1997 Codie Awards. The
illustration includes the text: "1997 Codie Awards, Excellence in Software
Awards, Accept the Challenge." The Web page indicates a graphical presentation
of the Codie Webcast, with prompts for a live broadcast, an indication of
sponsors, and technical information.
DESCRIPTION OF PHOTOGRAPH:
Immediately beneath the above heading "Accolades and innovations" is an
illustration of a HomeCom Web site with the captions "HomeCom Customer Showcase"
and "HomeCom and its clients have won virtually every major award for Web site
creation . . ." This Web site contains images of general industry awards won by
Web sites created by the Company for several of its clients.
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<PAGE> 8
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"
-- Net Guide "Gold Site"
vi
<PAGE> 9
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 Underwriters' over-allotment option. See "Underwriting." Certain
technical terms used in this Prospectus are defined in the Glossary on Page 51.
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: (i) customized software applications
design, development and integration; (ii) World Wide Web site development; (iii)
Internet outsourcing services; (iv) specialized Internet-enabled software
products; and (v) 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 was estimated to have reached 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> 10
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 1,600 Web sites for clients in approximately 45 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 (i) advises its clients as to the appropriate hardware,
including servers and routers, and software necessary to create an Internet
server; (ii) coordinates the purchase of this hardware and software, including
operating system and Internet server software; and (iii) 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 is also developing a suite of software modules known as the
Personal Internet Banker(TM). Under the terms of the Company's business partner
agreement with Unisys Corporation ("Unisys"), HomeCom's suite of Personal
Internet Banker(TM) software will be marketed as optional software available to
purchasers of Unisys' Computer Systems Group enterprise server hardware. At the
heart of HomeCom's banking applications suite is its Personal Internet
Banker(TM) software, a scaleable financial software package that maintains a
customer's personal banking history and preferences for Internet banking.
HomeCom recently acquired 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 and transact business securely 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 Corporation ("AT&T"), BBN Planet Corporation
("BBN Planet"), Microsoft Corporation ("Microsoft"), Netscape Corporation
("Netscape"), Oracle Corporation ("Oracle"), Sybase, Inc. ("Sybase") and Unisys.
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> 11
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)............................................... 3,203,832 shares.
Use of proceeds............................................. For repayment of indebtedness,
general corporate purposes
(principally additions to working
capital and continued product
development) and possible future
acquisitions. See "Use of Proceeds."
Nasdaq SmallCap(TM) Market symbol........................... HCOM
</TABLE>
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(1) Includes 30,769 shares of Common Stock to be used immediately prior to the
date of this Prospectus (based upon an assumed initial public offering price
of $6.50 per share) in repayment of $200,000 in outstanding indebtedness.
See "Capitalization." Excludes (i) 300,000 shares reserved for issuance
under the Company's Stock Option Plan, of which options to acquire 159,866
shares of Common Stock are issuable upon the exercise of outstanding options
granted at a weighted average exercise price of $6.22 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, (iii) 150,000 shares reserved for issuance under
the Company's Stock Purchase Plan, no shares having been issued thereunder,
and (iv) 125,000 shares of Common Stock reserved for issuance upon the
exercise of warrants to be granted to the Underwriters and their designees,
exercisable at 120% of the public offering price (the "Underwriters'
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> 12
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The Summary Financial Data below have 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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DECEMBER 2 YEAR ENDED
(INCORPORATION) DECEMBER 31,
TO DECEMBER 31, ------------------------
1994 1995 1996
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STATEMENTS OF OPERATIONS DATA
Net sales........................................ -- $ 327,574 $2,298,855
Cost of sales.................................... -- 59,871 675,347
---------- ---------- ----------
Gross profit..................................... -- 267,703 1,623,508
Operating expenses............................... $ 17,452 269,527 2,204,373
---------- ---------- ----------
Operating loss................................... (17,452) (1,824) (580,865)
Interest expense................................. -- 3,469 51,272
Other expense (income), net...................... -- 147 (6,554)
---------- ---------- ----------
Loss before income tax benefit................... (17,452) (5,440) (625,583)
Income tax benefit(1)............................ -- -- --
---------- ---------- ----------
Net loss......................................... $ (17,452) $ (5,440) $ (625,583)
========== ========== ==========
UNAUDITED PRO FORMA NET LOSS DATA
Loss before income tax benefit................... $ (17,452) $ (5,440) $ (625,583)
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) $ (625,583)
========== ========== ==========
Pro forma net loss per common and common
equivalent share............................... $ (.01) $ (.00) $ (.33)
========== ========== ==========
Pro forma weighted average common and common
equivalent shares outstanding.................. 1,858,157 1,858,157 1,885,156
========== ========== ==========
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<TABLE>
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DECEMBER 31, 1996
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
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BALANCE SHEET DATA
Working capital (deficit)............................ $(1,304,682) $(1,104,682) $5,877,072
Total assets......................................... 1,726,522 1,726,522 7,454,800
Long-term obligations................................ 147,833 147,833 45,124
Total liabilities.................................... 2,347,191 2,147,191 1,197,969
Stockholders' equity (deficit)....................... (620,669) (420,669) 6,256,831
</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
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 30,769 shares of Common Stock (based upon
an assumed initial public offering price of $6.50 per share) in repayment of
$200,000 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."
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<PAGE> 13
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 December 31, 1996 had an accumulated deficit
of approximately $626,000. For the year ended December 31, 1996, the Company had
negative cash flows from operations of approximately $216,000. 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> 14
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."
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<PAGE> 15
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. If the Company's average sales cycle continues to lengthen, the
Company will face increased costs, potentially lower profit margins and a
potential inability to achieve targeted sales goals.
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.
Moreover, customers of the Company could use computer files and information
stored on or transmitted to Web server computers maintained by the Company to
engage in illegal activities that may be unknown or undetectable by the Company,
including fraud and misrepresentation, and unauthorized access to computer
systems of others. 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. Any such actions
could subject the Company to liability to third parties. The Company does not
have errors and omissions, 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 provisions 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
7
<PAGE> 16
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, 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, fraud, misrepresentation, unauthorized computer access, theft, tort
liability and criminal activity under the laws of the United States, various
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 $56,000 of the net proceeds of this offering to repay
indebtedness to the Company's Chief Executive Officer. See "Use of Proceeds" and
"Certain Transactions." Assuming the issuance immediately prior to the date of
this Prospectus of 30,769 shares of Common Stock (based upon an assumed initial
public offering price of $6.50 per share) in repayment of $200,000 in
outstanding indebtedness, the current stockholders will have paid an average of
$.36 per share for their 1,953,832 shares of Common Stock. See "Dilution." The
982,004 shares of Common Stock currently owned by the Company's executive
officers and directors, which were acquired at a total cost of approximately
$410,704, will have a market value of approximately $6,383,000 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. In addition, the Company's
current stockholders have acquired their respective equity interests at costs
substantially below the public offering price. Accordingly, to the extent that
the Company incurs losses in the future, purchasers of Common Stock in this
offering will bear a disproportionate amount of such losses. None of the
Company's stockholders are selling shares of Common Stock in the offering.
DILUTION. Purchasers of shares of Common Stock in this offering will
experience immediate and substantial dilution in net tangible book value per
share (70.3% or $4.57 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."
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 the repayment of
indebtedness, general corporate purposes (principally additions to working
capital and continued product development) and possible future acquisitions.
However, such uses are
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<PAGE> 17
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
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 Underwriters
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 31% 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
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<PAGE> 18
effect of delaying, preventing or deterring a change in control of the Company.
See "Principal Stockholders."
SENIORITY OF PREFERRED STOCK; STAGGERED BOARD; 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
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(TM) MARKET;
DISCLOSURE RELATING TO LOW-PRICED STOCKS. The Company's Common Stock has been
approved for listing on The Nasdaq SmallCap(TM) Market. In order to continue to
be included in The Nasdaq SmallCap(TM) 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(TM) 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 The Nasdaq SmallCap(TM) 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(TM) 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
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<PAGE> 19
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 has been successfully
challenged in federal court and, as of the date of this Prospectus, enforcement
of certain provisions has been enjoined. The United States Supreme Court has
agreed to hear an appeal by the U.S. government of this Federal court decision.
If the Supreme Court determines that a portion or all of the provisions of the
1996 Telecommunications Act are constitutional, 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. The Federal Communications Commission is studying the
possible regulation of the Internet. Any such regulations adopted by the Federal
Communications Commission may adversely impact the manner in which the Company
conducts its business. 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, fraud, misrepresentation, unauthorized computer access,
theft, tort liability and criminal activity under the laws of the United States,
various 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.
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<PAGE> 20
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
$6,677,500 ($7,774,375 if the Underwriters' over-allotment option is exercised
in full). The Company currently intends to apply the net proceeds from this
offering to the repayment of indebtedness (including indebtedness to the
Company's Chief Executive Officer), for general corporate purposes (principally
additions to working capital and continued product development) and possible
future acquisitions.
The Company intends to use (i) approximately $56,000 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 $61,000 to repay indebtedness to a financial
institution, which is payable in equal monthly installments through January
2001, with interest payable annually at the prime rate plus 1.5% per annum, and
(iii) approximately $1.0 million to repay indebtedness to two private investors
pursuant to promissory notes payable in August and September 1997, with interest
payable at maturity at the rate of 8% per annum. See "Certain Transactions."
The balance of the net proceeds of approximately $5.6 million will be
applied toward general corporate purposes (principally additions to working
capital and continued product development) and, possibly, 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 anticipates that it will utilize a portion of the net proceeds
applied toward general corporate purposes to fund the following estimated 1997
costs and expenditures:
<TABLE>
<S> <C>
Product development......................................... $1,000,000
Advertising................................................. 400,000
Additional technical personnel.............................. 500,000
Additional office space..................................... 250,000
Internet connections for hosting services................... 100,000
----------
Total............................................. $2,250,000
</TABLE>
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.
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DILUTION
At December 31, 1996, the Company had a pro forma net tangible book value
of approximately $(909,152) or $(0.47) per share, after giving effect to the
issuance immediately prior to the date of this Prospectus of 30,769 shares of
Common Stock (based upon an assumed initial public offering price of $6.50 per
share) in repayment of $200,000 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 December 31, 1996 would have been
$6,175,311 or $1.93 per share. This represents an immediate increase in pro
forma net tangible book value of $2.40 (610.6%) per share to the existing
stockholders and an immediate dilution of $4.57 (70.3%) 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 at December
31, 1996............................................... $(0.47)
Increase in pro forma net tangible book value per share
attributable
to new investors....................................... $ 2.40
------
Adjusted pro forma net tangible book value per share after
offering.................................................. 1.93
-----
Dilution per share to new investors......................... $4.57
=====
</TABLE>
The following table summarizes, on a pro forma basis at December 31, 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............... 1,953,832 61.0% $ 695,810 7.9% $ .36
New investors....................... 1,250,000 39.0% 8,125,000 92.1% 6.50
--------- ----- ---------- -----
Total..................... 3,203,832 100.0% $8,820,810 100.0%
========= ===== ========== =====
</TABLE>
Immediately following completion of this offering, the Company will have
outstanding options to acquire approximately 309,866 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 $6.36. In addition: (i) upon completion of this
offering, the Company will grant the Underwriters' Warrants; and (ii) 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 "Underwriting" and "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> 22
CAPITALIZATION
The following table sets forth at December 31, 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 30,769 shares
of Common Stock (based upon an assumed initial public offering price of $6.50
per share) in repayment of $200,000 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" and "Certain Transactions." This table should
be read in conjunction with the Financial Statements and the Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
---------- -------- -----------
<S> <C> <C> <C>
Short-term borrowings.................................... $1,003,518 $803,518 $ 0
---------- -------- ----------
LONG-TERM DEBT:
Note payable, net of current maturities................ 47,032 47,032 0
Notes payable to stockholders, net of current
maturities.......................................... 55,677 55,677 0
---------- -------- ----------
Total long-term debt........................... 102,709 102,709 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, 1,923,063 shares issued and outstanding,
actual; 1,953,832 shares issued and outstanding, pro
forma; 3,203,832 shares issued and outstanding, pro
forma as adjusted(1)................................ 192 195 320
Additional paid-in capital............................. 472,726 672,723 7,350,098
Stock subscriptions.................................... (468,004) (468,004) (468,004)
Accumulated deficit.................................... (625,583) (625,583) (625,583)
---------- -------- ----------
Total stockholders' equity (deficit)........... (620,669) (420,669) 6,256,831
---------- -------- ----------
Total capitalization...................... $ 485,558 $485,558 $6,256,831
========== ======== ==========
</TABLE>
- ------------------------------
(1) Excludes (i) 300,000 shares reserved for issuance under the Company's Stock
Option Plan, of which options to acquire 159,866 shares of Common Stock are
issuable upon the exercise of outstanding options granted at a weighted
average exercise price of $6.22 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, (iii)
150,000 shares reserved for issuance under the Company's Stock Purchase
Plan, no shares having been issued thereunder, and (iv) 125,000 shares of
Common Stock reserved for issuance upon the exercise of the Underwriters'
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> 23
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following historical and pro forma financial data selected by 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 years ended December 31, 1995 and 1996, have been audited by
Coopers & Lybrand L.L.P., independent public accountants. 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
(INCORPORATION) YEAR ENDED DECEMBER 31,
TO DECEMBER 31, -----------------------
1994 1995 1996
--------------- ---------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
NET SALES:
Service sales...................................... $ -- $ 327,574 $2,112,878
Equipment sales.................................... -- -- 185,977
---------- ---------- ----------
Total net sales............................ -- 327,574 2,298,855
---------- ---------- ----------
COST OF SALES:
Cost of services................................... -- 59,871 546,409
Cost of equipment sold............................. -- -- 128,938
---------- ---------- ----------
Total cost of sales........................ -- 59,871 675,347
---------- ---------- ----------
GROSS PROFIT......................................... -- 267,703 1,623,508
---------- ---------- ----------
OPERATING EXPENSES:
Sales and marketing................................ 1,045 124,253 845,690
Product development................................ -- 20,239 78,887
General and administrative......................... 16,407 121,313 1,194,728
Depreciation and amortization...................... -- 3,722 85,068
---------- ---------- ----------
Total operating expenses................... 17,452 269,527 2,204,373
---------- ---------- ----------
OPERATING LOSS....................................... (17,452) (1,824) (580,865)
OTHER EXPENSES:
Interest expense................................... -- 3,469 51,272
Other expense (income), net........................ -- 147 (6,554)
---------- ---------- ----------
LOSS BEFORE INCOME TAX BENEFIT....................... (17,452) (5,440) (625,583)
INCOME TAX BENEFIT................................... -- -- --
---------- ---------- ----------
NET LOSS............................................. $ (17,452) $ (5,440) (625,583)
========== ========== ==========
PRO FORMA NET LOSS(1)................................ $ (17,452) $ (5,440) (625,583)
========== ========== ==========
Pro forma net loss per common and common equivalent
share.............................................. $ (.01) $ (.00) (.33)
========== ========== ==========
Pro forma weighted average common and common
equivalent shares outstanding...................... 1,858,157 1,858,157 1,885,156
========== ========== ==========
</TABLE>
15
<PAGE> 24
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------
DECEMBER 31, DECEMBER 31, PRO PRO FORMA
1994 1995 ACTUAL FORMA(2) AS ADJUSTED(3)
BALANCE SHEET DATA ------------ ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Working capital
(deficit)............... $ 8,455 $133,792 $(1,304,682) $(1,104,682) $5,877,072
Total assets.............. 10,254 247,382 1,726,522 1,726,522 7,454,800
Long-term obligations..... -- 160,792 147,833 147,833 45,124
Total liabilities......... -- 242,568 2,347,191 2,147,191 1,197,969
Stockholders' equity
(deficit)............... 10,254 4,814 (620,669) (420,669) 6,256,831
</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 30,769 shares of Common Stock (based upon an
assumed initial public offering price of $6.50 per share) in repayment of
$200,000 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> 25
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, BBN, Microsoft, Netscape, Oracle, Sybase and Unisys.
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
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 years ended December 31, 1995 and 1996 are
not necessarily indicative of future operating results.
During 1996, custom Internet and Intranet applications and integration
services (including hardware resales) accounted for approximately 18.5% of the
Company's revenues. The Company believes that custom applications and Web-based
software products will represent an increasing percentage of its total revenues.
During 1996, Web site design and development services accounted for
approximately 50% 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 1996, Internet outsourcing services generated approximately 16% 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
revenue over the foreseeable future.
During 1995 and 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 1997 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
period to period, 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 of recognition of specific revenues could
cause significant variations in operating results from quarter to quarter.
17
<PAGE> 26
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>
DECEMBER 2
(INCORPORATION) YEAR ENDED DECEMBER 31,
TO DECEMBER 31, --------------------------
1994 1995 1996
--------------- --------------- -----
<S> <C> <C> <C>
NET SALES:
Service sales................................ -- 100.0% 91.9%
Equipment sales.............................. -- -- 8.1
----- ----- -----
Total net sales...................... -- 100.0 100.0
----- ----- -----
COST OF SALES:
Cost of services............................. -- 18.3 23.8
Cost of equipment sold....................... -- -- 5.6
----- ----- -----
Total cost of sales.................. -- 18.3 29.4
----- ----- -----
GROSS PROFIT................................... -- 81.7 70.6
----- ----- -----
OPERATING EXPENSES:
Sales and marketing.......................... -- 37.9 36.8
Product development.......................... -- 6.2 3.4
General and administrative................... -- 37.1 52.0
Depreciation and amortization................ -- 1.1 3.7
----- ----- -----
Total operating expenses............. -- 82.3 95.9
----- ----- -----
OPERATING LOSS................................. -- (0.6) (25.3)
OTHER EXPENSES (INCOME):
Interest expense, net........................ -- 1.1 2.2
Other expense (income), net.................. -- 0.0 (0.3)
----- ----- -----
LOSS BEFORE INCOME TAX BENEFIT................. -- (1.7) (27.2)
INCOME TAX BENEFIT............................. -- 0.0 0.0
----- ----- -----
NET LOSS....................................... -- (1.7%) (27.2%)
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales
Net sales increased 601.8% from $327,574 in 1995 to $2,298,855 in 1996.
Revenues from service sales increased 545.0% from $327,574 in 1995 to $2,112,878
in 1996. This increase of $1,785,304 is primarily attributable to increases in
hosting revenues of $321,278, Web site development and customized applications
revenues of $1,159,205, and consulting and maintenance revenues of $112,779.
Revenues from equipment sales were $185,977 during 1996.
Cost of Sales
Cost of sales for services includes salaries for programmers, technical
staff and customer support. Cost of sales for services increased from $59,871,
or 18.3% of revenues in 1995 to $546,409, or 23.8% of revenues in 1996. This
increase reflects the Company's significant increase in payroll costs associated
with the hiring of additional technical personnel in 1996. Increases in the
Company's personnel costs as a percentage of sales also reflects higher costs
incurred to attract and retain Internet software development professionals, and
a change in the mix of products and services sold.
18
<PAGE> 27
Gross Profit
Gross profit increased by $1,355,805 from $267,703 in 1995 to $1,623,508 in
1996. Gross profit margins decreased from 81.7% during 1995 to 70.6% during
1996. This decrease as a percentage of revenues primarily reflects increased
costs incurred by the Company for technical personnel and a change in the mix of
products and services sold.
Sales and Marketing
Sales and marketing expenses include salaries, variable commissions and
bonuses for the sales force, advertisement and promotional marketing materials,
travel and telephone charges. Sales and marketing expenses increased 580.6% from
$124,253 in 1995 to $845,690 in 1996. This increase was primarily attributable
to an increase in the size of the Company's sales force. As a percentage of
revenues, these expenses decreased from 37.9% of revenues in 1995 to 36.8% of
revenues in 1996. The Company intends to increase marketing expenditures in
1997, but generally anticipates that sales and marketing expenses, as a
percentage of revenues, will not increase materially above current levels.
Product Development
Product development expenses consist of personnel costs required to conduct
the Company's product development effort. 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 primarily through the employment
of additional development personnel. Total expenditures for product development
were $163,069, or 7.1% of net sales in 1996, of which $84,182, or 51.6%, were
capitalized. This compares to total product development expenditures of $20,239,
or 6.2% of sales, in 1995, none of which were capitalized.
General and Administrative
General and administrative expenses include salaries for administrative
personnel, rents, telephone charges, insurance and other administrative
expenses. General and administrative expenses increased from $121,313 in 1995 to
$1,194,728 in 1996. As a percentage of net sales, these expenses increased from
37.1% in 1995 to 52.0% in 1996. This increase as a percentage of net sales
reflects primarily increases for operational and administrative support
personnel incurred to support anticipated growth. The Company expects to
experience continuing increases in general and administrative expenses during
1997 as it continues to develop the infrastructure required to support
anticipated future growth.
Depreciation and Amortization
Depreciation and amortization includes depreciation and amortization of
computers, network equipment, office equipment and equipment under capital
leases. Depreciation and amortization increased from $3,722 in 1995 to $85,068
in 1996, or 1.1% of revenues during 1995 to 3.7% of revenues in 1996, reflecting
increased expenditures on capital equipment. The Company expects additional
capital investments during 1997 as it continues to develop the infrastructure
needed to support higher levels of operations.
Interest Expense
Interest expense increased from $3,469 in 1995 to $51,272 during 1996,
principally reflecting increased debt levels associated with notes payable to
investors entered into in 1996.
19
<PAGE> 28
Income Taxes
The Company has not paid income taxes to date because it has not had
taxable income. Net operating loss carryforwards are recorded as a deferred tax
asset with a full valuation allowance.
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.
QUARTERLY REVENUES
The following table presents the Company's unaudited quarterly revenues for
each of the eight quarters beginning January 1, 1995 and ending December 31,
1996. In the opinion of management, this information includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation. The revenues for any quarter are not necessarily indicative of the
revenues to be expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
1995 1996
----------------------------------------------- ------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ ----------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $4,855 $34,106 $134,439 $154,174 $271,617 $545,689 $654,018 $827,531
</TABLE>
The Company's operations and related revenues historically have varied
substantially from quarter to quarter, and the Company expects these variations
to continue. Unanticipated variations in the number and timing of the Company's
projects or in employee utilization rates may cause significant variations in
revenues in any particular quarter. An unanticipated termination of a major
project, a client's decision not to pursue a new project or proceed to
succeeding stages of a current project, or the completion during a quarter of
several major client projects, could require the Company to pay underutilized
employees and therefore have a material adverse effect on the Company's results
of operations and financial condition. See "Risk Factors -- Potential
Fluctuations in Quarterly Results."
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 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. Net cash used in operating activities was $19,251,
$6,415 and $215,925 for the years ended December 31, 1994, 1995 and 1996,
respectively. As of December 31, 1996, the Company had a working capital deficit
of $1,304,682, $50,000 in deposits to its landlord under the Company's office
lease and $7,527 in other deposits.
In 1995, the Company generated $163,497 through loans from a private
investor and its Chief Executive Officer. In 1996, the Company generated cash
from financing activities of $853,035, primarily through the issuance of
promissory notes.
20
<PAGE> 29
The Company spent $33,737 and $349,646 during the years ended December 31,
1995 and 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 December 31, 1996 consisted primarily of a
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 $56,000, a loan commitment to a financial institution in the
amount of approximately $61,000, and promissory note commitments to outside
investors in the aggregate principal amount of approximately $989,904 ($200,000
of which will be converted into Common Stock immediately prior to the date of
this Prospectus). See "Capitalization." At December 31, 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 at least the next 12 months. 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 allowance for doubtful accounts totaled $488,254
as of December 31, 1996. Trade receivables are monitored by the Company through
ongoing credit evaluations of its customers' financial conditions. 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), was issued. SFAS 128 is designed to improve
the earnings per share information provided in financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of earnings per share data on an
international basis. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. Earlier
application is not permitted. The Company will adopt SFAS 128 on its effective
date. Pro forma earnings per share of the Company computed using SFAS 128 is not
different from earnings per share computed using existing standards and
guidelines.
21
<PAGE> 30
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: (i) customized software applications
design, development and integration; (ii) World Wide Web site development; (iii)
Internet outsourcing services; (iv) specialized Internet-enabled software
products; and (v) 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 1,600 Web sites for clients in approximately 45 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 (i) advises its clients as to the appropriate hardware,
including servers and routers, and software necessary to create an Internet
server; (ii) coordinates the purchase of this hardware and software, including
operating system and Internet server software; and (iii) 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) Publisher is
22
<PAGE> 31
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 is also developing a suite of software modules known as the
Personal Internet Banker(TM). Under the terms of the Company's business partner
agreement with Unisys, HomeCom's suite of Personal Internet Banker(TM) software
will be marketed as optional software available to purchasers of Unisys'
Computer Systems Group enterprise server hardware. At the heart of HomeCom's
banking applications suite is its Personal Internet Banker(TM) software, a
scaleable financial software package that maintains a customer's personal
banking history and preferences for Internet banking.
HomeCom recently acquired 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 and transact business securely 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, Microsoft, Netscape, Oracle,
Sybase and Unisys.
The Company's staff of 20 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 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 was estimated to have reached 31.4 million by
the end of 1996. IDC
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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 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
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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.
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
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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.
- 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 more comprehensive 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. The Company has entered into a business partner
agreement with Unisys to resell the Company's suite of software modules known as
the Personal Internet Banker(TM).
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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 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,
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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
implemented 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 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
brokerage 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 has developed 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 product is
currently accessible through Prodigy. 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 1996, custom Internet and Intranet applications and integration
services (including hardware resales) accounted for approximately 19% 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
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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 20 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 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 1996, Web site design and development services accounted for
approximately 50% 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
customers' Internet servers and network functions at facilities located at
HomeCom's main office. HomeCom presently hosts approximately 1,600 Web sites.
HomeCom's Internet Network Development Center ("NDC") 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 and T3 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 $3,000.
Pricing levels vary depending on the
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amount of storage used on the file server. The Company also provides ongoing
maintenance, problem correction and periodic updates, as well as outsourcing
services for customers who own their own 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.
- 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 1996, Internet outsourcing services generated approximately 16% of
the Company's total revenues.
Software Products
The Company uses its proprietary 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 is currently adopting some
of its custom Web applications into generic software products. For example, 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 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.
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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 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 second quarter of 1997 and will be sold at an initial retail
price of between $2,000 and $2,500.
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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 second half 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
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 half of 1997. As of the date of
this Prospectus, the Company has not determined a price or price range for
Publisher.
During 1996, the Company's Post On The Fly(TM) products, other than
Conference, were under development and not available for retail sale.
Personal Internet Banker.(TM) The Company is in the process of developing
a suite of banking software applications designed to facilitate Internet
banking. At the heart of this suite of software products is the Personal
Internet Banker(TM), a scaleable financial package for the banking industry that
32
<PAGE> 41
maintains a customer's personal banking preferences for Internet banking. With
the intelligent agent technology of the Personal Internet Banker(TM), a software
agent answers a consumer's personal financial questions and consummates
financial transactions such as purchasing stocks, accessing checking account
balances, processing loan applications, purchasing insurance and other personal
banking functions. The Company anticipates that this suite of banking
applications will be made available to financial institutions for the purpose of
remarketing these products to their banking customers. Through knowledge of a
customer's financial history and banking preferences, the Company believes that
financial institutions will be better able to market financial products and
services on a one-to-one basis to their customers. The Company anticipates that
this product will be commercially available in the last half of 1997 or the
first half of 1998. The Company has entered into a marketing agreement with
Unisys which provides that Unisys will market Personal Internet Banker(TM) as
optional software available to purchasers of Unisys' Computer Systems Group
enterprise server hardware.
During 1996, sales of software products developed by the Company generated
less than 1% of the Company's total revenues.
Internet Security Services
In August 1996, HomeCom acquired 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. Management of the Internet security division has experience in
performing Internet security services for the federal government.
During 1996, Internet security services generated approximately 3% of the
Company's total revenues.
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, Microsoft, Netscape, Oracle,
Sybase and Unisys.
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.
33
<PAGE> 42
CUSTOMERS
During 1996, no customer accounted for more than 10% of the Company's total
revenues.
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 NDC computer room at the Company's principal
offices. Company personnel monitor server and network functions on a 24 hour 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 and T3 lines directly connected to the T3 Internet
provided by interexchange carriers. Each T1 and T3 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.
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
34
<PAGE> 43
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 WorldCom, 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 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 its software products, the
35
<PAGE> 44
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 fraud, misrepresentation, unauthorized
computer access, theft, tort liability and criminal activity under the laws of
the United States, various 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 March 1, 1997, the Company employed 60 full-time employees, of whom 31
were technical personnel engaged in maintaining or developing the Company's
products or performing related services, 17 were marketing and sales personnel
and 12 were involved in administration and finance.
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 has been successfully challenged in
federal court and, as of the date of this Prospectus, enforcement of certain
provisions has been enjoined. The United States Supreme Court has agreed to hear
an appeal by the U.S. government of this Federal court decision. If the Supreme
Court determines that a portion or all of the provisions of the 1996
Telecommunications Act are constitutional, 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.
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<PAGE> 45
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. The Federal Communications Commission is studying the
possible regulation of the Internet. Any such regulations adopted by the Federal
Communications Commission may adversely impact the manner in which the Company
conducts its business. 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, fraud, misrepresentation, unauthorized computer access,
theft, tort liability and criminal activity under the laws of the U.S., various
states 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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<PAGE> 46
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................... 34 Chief Financial Officer, Treasurer and Secretary
Krishan Puri................. 31 Executive Vice President and Director
Gia Bokuchava, Ph.D. ........ 31 Chief Technical Officer
Roger Nebel.................. 43 Vice President
Gregory Abowd, Ph.D.(2)...... 32 Director
Winn Schwartau(2)............ 44 Director
</TABLE>
- ------------------------------
(1) Member of the Audit Committee.
(2) 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, Chief
Executive Officer and a member of the Board of Directors of Brock International,
Inc. since December 1996. From June 1994 until November 1996, Mr. MacIntyre
served as President and Chief Executive Officer of Dun & Bradstreet Software.
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 immediate past President
of the American Software Association, a member of the Board of Directors of 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.
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<PAGE> 47
VINOD KENI has served as Chief Financial Officer, Treasurer and Secretary
of the Company since February 1996. Before joining the Company, Mr. Keni was a
Senior Financial Analyst with 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.
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<PAGE> 48
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, 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 (Messrs. MacIntyre and Stricklen) will serve an initial term until the
1998 Annual Meeting of Stockholders, the Class II directors (Messrs. Schwartau
and Sax) will serve an initial term until the 1999 Annual Meeting of
Stockholders and the Class III directors (Dr. Abowd and Mr. Puri) will serve an
initial term until the 2000 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.
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<PAGE> 49
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by
the Company in 1996 for its Chief Executive Officer and each executive officer
of the Company whose total annual salary and bonuses determined at December 31,
1996 exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) SALARY BONUS OPTIONS COMPENSATION
------------------------------ -------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Harvey W. Sax.............................. $100,000 $0 -0- -0-
President and Chief Executive Officer
</TABLE>
- ---------------
(1) Other than its President and Chief Executive Officer, the Company had no
executive officer whose salary and bonuses exceeded $100,000 in 1996.
As of March 1, 1997, 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 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 $150,000 and for
bonus compensation to be awarded at the discretion of the Compensation Committee
of the Board of Directors.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all individual grants of stock options
during the year ended December 31, 1996 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
-------------------------------------------------------- AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------------ --------- ---------------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Harvey W. Sax........... -0- -0- -0- -- -0- -0-
</TABLE>
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<PAGE> 50
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table summarizes the value of the outstanding options held by
the Named Executive Officers at December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END($)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Harvey W. Sax............................. -0- -0- -0- -0-
</TABLE>
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 March 1, 1997, options to purchase approximately 159,866 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 22,928
shares were granted at an exercise price of $4.55 per share and options to
purchase 136,938 shares were granted at an exercise price of $6.50 per share.
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 Direc-
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<PAGE> 51
tors"). 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.
Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Stock Purchase Plan") became effective on March 1, 1997. A total of
150,000 shares of Common Stock have been reserved for issuance under the Stock
Purchase Plan. The Stock Purchase Plan is intended to qualify under sec. 423 of
the Code. The purpose of the Stock Purchase Plan is to encourage and enable
employees of the Company to acquire a proprietary interest in the Company
through ownership of shares of Common Stock. Eligible employees of the Company
will purchase shares of Common Stock at 85% of fair market value and the Company
will partially subsidize purchases under the Stock Purchase Plan and will pay
the expenses of its administration.
An employee electing to participate in the Stock Purchase Plan must
authorize a stated dollar amount or percentage of the employee's regular pay to
be deducted by the Company from the employee's pay during each of four quarterly
payroll deduction periods (each a "Purchase Period"). Purchase Periods begin on
January 1, April 1, July 1 and October 1 of each calendar year during which the
Stock Purchase Plan is in effect. The Company is deemed on the last day of each
Purchase Period to have granted a purchase right to each participant as of the
first day of the Purchase Period to purchase as many full and fractional shares
of Common Stock as can be purchased with the participant's payroll deductions.
On the last day of the Purchase Period, the participant will be deemed to have
exercised this option, at the option price, to the extent of such participant's
accumulated payroll deductions. In no event, however, may the participant
purchase Common Stock having a fair market value (measured on the first business
day of the Purchase Period) of greater than $25,000 during a calendar year. The
option price under the Stock Purchase Plan is equal to 85% of the fair market
value of the Common Stock on either the first business day or the last business
day of the applicable Purchase Period, whichever is lower.
The initial Purchase Period under the Stock Purchase Plan will begin on
April 1, 1997 or, if later, the first business day after the date of this
Prospectus (the "Initial Purchase Period"). With respect to the Initial Purchase
Period, an employee electing to participate in the Stock Purchase Plan may
authorize a stated dollar amount of the employee's regular pay to be deducted by
the Company from the employee's pay during the Initial Purchase Period, or the
employee may make a direct cash contribution to his or her account under the
Stock Purchase Plan. On the last day of the Initial Purchase Period, the Company
will be deemed to have granted a purchase right to each participant to purchase
as many full and fractional shares of Common Stock as can be purchased with the
participant's payroll deductions and cash contributions, as of the first
business day after the date of this Prospectus.
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<PAGE> 52
Employees of the Company who have completed six full months of service with
the Company and whose customary employment is more than 20 hours per week and
five or more months per calendar year are eligible to participate in the Stock
Purchase Plan. An employee may not be granted an option under the Stock Purchase
Plan if after the granting of the option such employee would be deemed to own 5%
or more of the combined voting power of value of all classes of stock of the
Company. As of March 1, 1997, approximately 60 employees would have been
eligible to participate in the Stock Purchase Plan. An employee's rights under
the Stock Purchase Plan may not be assigned, transferred, pledged or otherwise
disposed of, except by will or the laws of descent and distribution. An
employee's rights under the Stock Purchase Plan terminate upon termination of
his or her employment for any reason, including retirement. Upon such
termination, the Company will refund the employee's payroll deductions or
contributions made during the Purchase Period.
An employee may not sell shares of Common Stock purchased under the Stock
Purchase Plan until the later of: (i) 180 days after the date of this
Prospectus; or (ii) the first day of the second Purchase Period following the
Purchase Period in which the option for such shares was granted.
The Stock Purchase Plan is administered by the Compensation Committee. No
member of the Board of Directors will be eligible to participate in the Stock
Purchase Plan during the period he or she serves as a member of the Compensation
Committee. The Compensation Committee may terminate or amend the Stock Purchase
Plan at any time. However, any termination or amendment may not affect or change
purchase rights previously granted under the Stock Purchase Plan without the
consent of the affected participants. Also, any amendment that materially
increases the benefits or number of shares under the Stock Purchase Plan (except
for adjustments due to changes in the Company's capital structure) or that
materially modifies the eligibility requirements of the Stock Purchase Plan will
be subject to stockholder approval. If not sooner terminated by the Compensation
Committee, the Stock Purchase Plan will terminate at the time that all
authorized shares of Common Stock reserved for grant under the Stock Purchase
Plan have been purchased.
401(k) Profit Sharing Plan. The Company's Board of Directors has approved
the adoption of a 401(k) Profit Sharing Plan (the "401(k) Plan") which is
intended to be a tax-qualified defined contribution plan under Section 401(k) of
the Code. In general, all employees of the Company who have completed one year
of service and 1,000 hours of service will be eligible to participate. The
401(k) Plan will include a salary deferral arrangement pursuant to which
participants may contribute, subject to certain Code limitations, a maximum of
15% of their first $15,000 in salary on a pre-tax basis. Subject to certain Code
limitations, the Company may make a matching contribution of up to $1,000 of the
salary deferral contributions of participants at a rate of 50% of the
participant's contributions, up to 4% of the participant's salary. The Company
may also make an additional contribution to the 401(k) Plan each year at the
discretion of the Board of Directors. A separate account will be maintained for
each participant in the 401(k) Plan. The portion of a participant's account
attributable to his or her own contributions will be 100% vested. The portion of
the account attributable to Company contributions (including matching
contributions) will vest after 5 years of service with the Company.
Distributions from the 401(k) Plan may be made in the form of a lump-sum cash
payment or in installment payments.
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.
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<PAGE> 53
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 $56,000 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 787,844 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 ("Blech Trust"), and (ii) in February 1996, the
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. Pursuant to the terms of the promissory note with Mr.
Germain, immediately prior to the date of this Prospectus the Company will issue
an aggregate of 30,769 shares of Common Stock (based upon an assumed initial
public offering price of $6.50 per share) to Mr. Germain in repayment of the
$200,000 outstanding principal balance of this note.
In August 1996, the Company borrowed $45,000 from Mrs. Blech and issued to
her a promissory note due August 1997, bearing interest at 8% per annum. In
October 1996, the Company borrowed $125,000 from the Blech Trust and issued to
it promissory notes due September 1997, bearing interest at 8% per annum. In
September 1996, the Company borrowed $175,000 from the Blech Trust and issued to
it promissory notes due September 1997, bearing interest at 8% per annum. In
December 1996, the Company borrowed $175,000 from the Blech Trust and issued to
it promissory notes due September 1997, bearing interest at 8% per annum. In
February 1997, the Company borrowed $150,000 from the Blech Trust and issued to
it a promissory note due September 1997, and bearing interest at 8% per annum.
In March 1997, the Company borrowed $120,000 from the Blech Trust and issued to
it a promissory note due September 1997, and 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 March 1997, Mrs. Esther Blech transferred 148,912 shares to two separate
transferees. Prior to this transfer, Mrs. Blech beneficially owned 7.7% of the
Common Stock and following this transfer Mrs. Blech no longer owned any shares
of the Common Stock. In March 1997, the Blech Trust transferred 138,000 shares
of Common Stock to five separate transferees. Prior to these transfers, the
Blech Trust beneficially owned 15.5% of the Common Stock. After these transfers
and before the issuance of 1,250,000 shares of Common Stock in this offering,
the Blech Trust owned 8.3% of the Common Stock. After the issuance of 1,250,000
shares of Common Stock in this offering, the Blech Trust will own 4.988% of the
Common Stock. See "Principal Stockholders." Douglas MacIntyre, the Company's
Chairman of the Board of Directors, and Krishan Puri, the Company's Executive
Vice President and a director, purchased 10,000 and 5,000 shares of Common
Stock, respectively, from the Blech Trust in these transactions.
The transfers described above were completed in order to comply with a
decision of the Nasdaq Stock Market, Inc. ("Nasdaq") that Mr. David A. Blech,
Mrs. Esther Blech and the Blech Trust (collectively the "Blech Interests") must
divest themselves to an ownership interest, direct or indirect, below 5% of the
Common Stock. In order to comply with this decision, the Blech Interests agreed
that, for a period of three years subsequent to the day of their respective
purchases of securities of the Company, none of them will sell, transfer,
assign, pledge or hypothecate any shares of Common Stock. Gifts of shares of the
Common Stock are permitted provided that the recipient of such gift agrees in
writing to be bound by the terms of the agreement. The Blech Interests further
agreed that while the Common Stock is listed on any Nasdaq market, there will be
no further financial relationship between David Blech or any of the foregoing
Blech Interests, on the one hand, and the Company, on the other hand; that the
direct or indirect ownership of shares of Common
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<PAGE> 54
Stock held by Mr. David A. Blech and/or the Blech Interests may not exceed 5% of
the Common Stock; and that there may be no advisory relationship between Mr.
David A. Blech and the Company.
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, and Secretary,
Gia Bokuchava, Ph.D., Chief Technical Officer and Krishan Puri, Executive Vice
President and a director, purchased 3,955, 39,559 and 29,669 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 March 31 of 1998, 1999, 2000 and 2001 (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 December 31,
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
December 31 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 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 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.
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<PAGE> 55
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 March 12, 1997 and as adjusted to reflect (a) the issuance immediately
prior to the date of this Prospectus of 30,769 shares of Common Stock (based on
an assumed initial public offering price of $6.50 per share) in repayment of
$200,000 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.......................... 796,444 40.76% 24.86%
Nat Stricklen.......................... 93,070 4.76% 2.90%
Vinod Keni............................. 3,955 * *
Krishan Puri........................... 38,976 1.99% 1.22%
Gia Bokuchava, Ph.D. .................. 39,559 2.02% 1.23%
Roger Nebel............................ 0 * *
Gregory Abowd, Ph.D. .................. 0 * *
R. Douglas MacIntyre................... 10,000 * *
Winn Schwartau......................... 0 * *
Mark Germain(3)........................ 335,052 17.15% 11.42%
81 Main Street
White Plains, NY 10601
Margery Germain(4)..................... 335,052 17.15% 11.42%
6 Olmstead Road
Scarsdale, NY 10583
The Edward A. Blech Trust.............. 159,824 8.18% 4.99%
c/o Rabbi Mordechai Jofen
418 Avenue I
Brooklyn, NY 11230
Sanford Zweifach....................... 111,684 5.72% 3.49%
2420 Steiner, No. 11
San Francisco, CA 94115
All executive officers and directors as
a group (9 persons)................... 982,004 50.26% 30.65%
</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 assumed
initial offering price of $6.50 per share) in repayment of $200,000 in
outstanding indebtedness. See "Certain Transactions."
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<PAGE> 56
(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.
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 March 1, 1997, the Company had issued and outstanding 1,923,063
shares of Common Stock. As of such date, there were 17 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 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
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<PAGE> 57
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's Common Stock has been approved for listing on The Nasdaq
SmallCap(TM) Market, subject to official notice of issuance, under the trading
symbol "HCOM."
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.
Upon completion of this offering, the Company will have outstanding
approximately 3,203,832 shares of Common Stock, giving effect to the issuance
immediately prior to the date of this Prospectus of 30,769 shares of Common
Stock (based upon an assumed initial public offering price of $6.50 per share)
in repayment of $200,000 in outstanding indebtedness. See "Certain
Transactions." Of these shares, the 1,250,000 shares sold in this offering will
be freely tradable without
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<PAGE> 58
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 1,953,832 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 at least one year (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 two 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, the 300,000 shares of Common Stock reserved for issuance under the
Company's Non-Employee Directors Plan and 150,000 shares of Common Stock
reserved for issuance under the Company's Employee Stock Purchase 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 March 12, 1997, the Company had granted options under such
plans to purchase an aggregate of 309,866 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."
50
<PAGE> 59
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. and Sands Brothers &
Co., Ltd. (the "Underwriters") have agreed to purchase from the Company, and the
Company has agreed to sell to the Underwriters, 1,250,000 shares of Common
Stock. The Underwriters are committed to take and pay for all of the shares of
Common Stock offered hereby, if any are purchased.
The Underwriters have advised the Company that they propose 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 Underwriters 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 Underwriters 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
Underwriters 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 Underwriters and certain related
persons against certain liabilities, including certain liabilities under the
Securities Act, and to contribute to payments the Underwriters 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
Underwriters.
The Company has agreed to pay to the Underwriters a non-accountable expense
allowance of two percent of the gross proceeds of this offering ($162,500 if the
Underwriters' over-allotment option is not exercised and $186,875 if the
Underwriters' over-allotment option is exercised in full, at an assumed public
offering price of $6.50 per share).
The Company has agreed to issue to the Underwriters and their 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 Underwriters. 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 Underwriters have informed the Company that the Underwriters do not
expect sales to discretionary accounts to exceed 5% of the total number of
shares offered hereby, and the Underwriters do not intend to confirm sales of
shares to any account over which they exercise discretionary authority.
The Company has granted Ladenburg Thalmann & Co. Inc. 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, subject to the right of the
Company to designate Ladenburg Thalmann & Co. Inc. as a co-manager in any
subsequent future public offering.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with this offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Underwriters may
reduce that short position by purchasing Common Stock in the
51
<PAGE> 60
open market. The Underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase shares of
Common Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor the Underwriters make any representation that the Underwriters
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
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 with this offering
will be passed upon for the Underwriters by Willkie Farr & Gallagher, New York,
New York.
EXPERTS
The balance sheets as of December 31, 1995 and 1996 and the statements of
operations, stockholders' equity (deficit) and cash flows for the period from
December 2, 1994 (date of incorporation) to December 31, 1994, and for the years
ended December 31, 1995 and 1996, included in this Prospectus, have been
included herein in reliance on the report, which includes an explanatory
paragraph relating to the uncertainty of the Company's ability to continue as a
going concern, 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.
52
<PAGE> 61
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
or the Web: special 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>
53
<PAGE> 62
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 1996, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the period from December 2,
1994 (date of incorporation) to December 31, 1994 and for the years ended
December 31, 1995 and 1996. 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 1996, and the results of its operations and its cash
flows for the period from December 2, 1994 (date of incorporation) to December
31, 1994 and for the years ended December 31, 1995 and 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred net losses from operations since
its incorporation and has an accumulated deficit that raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters, as described in Note 1, include raising additional capital
through a public offering. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
February 21, 1997
F-1
<PAGE> 63
HOMECOM COMMUNICATIONS, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
-------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $129,095 $ 332,377
Accounts receivable, net.................................. 86,325 488,254
Other current assets...................................... 148 621
-------- ----------
Total current assets.............................. 215,568 821,252
FURNITURE, FIXTURES AND EQUIPMENT, NET...................... 30,015 359,260
SOFTWARE DEVELOPMENT COSTS, NET............................. -- 81,520
DEPOSITS.................................................... 1,799 57,527
DEFERRED OFFERING COSTS..................................... -- 406,963
-------- ----------
Total assets...................................... $247,382 $1,726,522
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 14,287 $ 649,794
Accrued salaries and payroll taxes payable................ 25,010 309,377
Accrued vacation.......................................... -- 14,935
Current portion of notes payable to stockholders and
affiliates............................................. -- 989,904
Current portion of note payable to bank................... -- 13,614
Unearned revenue.......................................... 42,479 133,170
Current portion of obligations under capital leases....... -- 15,140
-------- ----------
Total current liabilities......................... 81,776 2,125,934
NOTE PAYABLE TO STOCKHOLDERS AND AFFILIATES................. 160,792 55,677
NOTE PAYABLE TO BANK........................................ -- 47,032
OTHER LIABILITIES........................................... -- 73,424
OBLIGATIONS UNDER CAPITAL LEASES............................ -- 45,124
-------- ----------
Total Liabilities................................. 242,568 2,347,191
-------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value at December 31, 1995, $.0001
par value at December 31, 1996; 1,500 shares authorized
and 1,000 shares issued and outstanding at December 31,
1995; 15,000,000 shares authorized, 1,923,063 shares
issued and outstanding at December 31, 1996............ 27,706 192
Additional paid-in capital................................ -- 472,726
Subscriptions receivable.................................. -- (468,004)
Accumulated deficit....................................... (22,892) (625,583)
-------- ----------
Total stockholders' equity (deficit).............. 4,814 (620,669)
-------- ----------
Total liabilities and stockholders' equity
(deficit)....................................... $247,382 $1,726,522
======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 64
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 2, 1994 (DATE OF INCORPORATION)
TO DECEMBER 31, 1994 AND THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
DECEMBER 2 TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
------------- ------------ ------------
<S> <C> <C> <C>
NET SALES:
Service sales...................................... $ -- $ 327,574 $2,112,878
Equipment sales.................................... -- -- 185,977
---------- ---------- ----------
Total net sales............................ -- 327,574 2,298,855
---------- ---------- ----------
COST OF SALES:
Cost of services................................... -- 59,871 546,409
Cost of equipment sold............................. -- -- 128,938
---------- ---------- ----------
Total cost of sales........................ -- 59,871 675,347
---------- ---------- ----------
GROSS PROFIT......................................... -- 267,703 1,623,508
---------- ---------- ----------
OPERATING EXPENSES:
Sales and marketing................................ 1,045 124,253 845,690
Product development................................ -- 20,239 78,887
General and administrative......................... 16,407 121,313 1,194,728
Depreciation and amortization...................... -- 3,722 85,068
---------- ---------- ----------
Total operating expenses................... 17,452 269,527 2,204,373
---------- ---------- ----------
OPERATING LOSS....................................... (17,452) (1,824) (580,865)
OTHER EXPENSES (INCOME):
Interest expense................................... -- 3,469 51,272
Other expense (income), net........................ -- 147 (6,554)
---------- ---------- ----------
LOSS BEFORE INCOME TAX BENEFIT....................... (17,452) (5,440) (625,583)
INCOME TAX BENEFIT................................... -- -- --
---------- ---------- ----------
NET LOSS............................................. $ (17,452) $ (5,440) $ (625,583)
========== ========== ==========
UNAUDITED PRO FORMA NET LOSS DATA:
Loss before income tax benefit..................... $ (17,452) $ (5,440) $ (625,583)
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) $ (625,583)
========== ========== ==========
Pro forma net loss per common and common equivalent
share........................................... $ (.01) $ (.00) $ (.33)
========== ========== ==========
Weighted average common and common equivalent
shares outstanding.............................. 1,858,157 1,858,157 1,885,156
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 65
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM DECEMBER 2, 1994 (DATE OF INCORPORATION)
TO DECEMBER 31, 1994 AND THE YEARS ENDED DECEMBER 31, 1995 AND 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
Termination of S
Corporation.......... $(22,892) 22,892 --
Issuance of stock...... 19,663 468,104 $(468,004) 100
Net loss............... (625,583) (625,583)
93.07-for-one stock
split and
recapitalization..... 1,902,400 (495,618) 495,618 --
--------- -------- -------- --------- --------- ---------
BALANCE, December 31,
1996................. 1,923,063 $ 192 $472,726 $(468,004) $(625,583) (620,669)
========= ======== ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 66
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 2, 1994 (DATE OF INCORPORATION)
TO DECEMBER 31, 1994 AND THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
DECEMBER 2 TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
--------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $(17,452) $ (5,440) $(625,583)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation.................................... -- 3,722 79,064
Amortization.................................... -- -- 8,666
Provision for bad debts......................... -- 2,485 104,360
Deferred rent expense........................... -- -- 73,424
Change in operating assets and liabilities:
Accounts receivable.......................... -- (88,810) (506,289)
Other current assets......................... -- (148) (473)
Deposits..................................... (1,799) -- (55,728)
Accounts payable and accrued
expenses................................... -- 14,287 316,641
Accrued salaries and payroll taxes payable... -- 25,010 284,367
Accrued vacation............................. -- -- 14,935
Unearned revenue............................. -- 42,479 90,691
-------- -------- ---------
Net cash used in operating activities............... (19,251) (6,415) (215,925)
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment....... -- (33,737) (349,646)
Software development costs.......................... -- -- (84,182)
-------- -------- ---------
Net cash used in investing activities............... -- (33,737) (433,828)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock............................ 27,706 -- 100
Payment of deferred offering costs.................. -- -- (88,096)
Proceeds from note payable.......................... -- -- 70,000
Repayment of note payable........................... -- -- (9,354)
Proceeds of notes payable to stockholders........... -- 163,497 889,904
Repayment of notes payable to stockholders.......... -- (2,705) (5,115)
Repayment of capital lease obligations.............. (4,404)
-------- -------- ---------
Net cash provided by financing activities........... 27,706 160,792 853,035
-------- -------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS............. 8,455 120,640 203,282
CASH AND CASH EQUIVALENTS at beginning of period...... 0 8,455 129,095
-------- -------- ---------
CASH AND CASH EQUIVALENTS at end of
period.............................................. $ 8,455 $129,095 $ 332,377
======== ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND
NON CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for interest............ $ 0 $ 3,469 $ 6,277
======== ======== =========
</TABLE>
During the year ended December 31, 1996, capital lease obligations of
$64,667 were incurred when the Company entered into leases on computer
equipment.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 67
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
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.
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 net losses from operations since its
incorporation, and has an accumulated deficit at December 31, 1996. Management
believes that a public offering of its common stock and the conversion of
certain debt to equity and successful commercialization of its products and
services will generate the required capital necessary to continue as a going
concern.
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 $2,485 and $106,845 at December 31, 1995 and 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). Assets
recorded under capital leases are amortized over the shorter of their useful
lives or the term of the related leases using the straight line method.
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
F-6
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
assets and liabilities 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 $236,000 at December 31, 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.
As a result of termination of the S Corporation in February 1996, the
accumulated deficit as of that date was transferred to additional paid-in
capital.
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
December 31, 1996, software development costs were $81,520, net of $2,662 of
accumulated amortization.
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 December 31, 1996, costs deferred totaled
$406,963.
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
F-7
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
accompanying balance sheet, represents the amount of billings recorded on
contracts in advance of work being performed.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for the Company's notes
payable and capital lease obligations approximate fair value due to the
short-term nature of these instruments.
Advertising Expenses
All advertising costs are expensed when incurred. Advertising expenses were
approximately $9,000 and $211,000 for the years ended December 31, 1995 and
1996, respectively.
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.
Recently Issued Accounting Standards
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), was issued. SFAS 128 is designed to improve
the earnings per share information provided in financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of earnings per share data on an
international basis. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. Earlier
application is not permitted. The Company will adopt SFAS 128 on its effective
date. Pro forma earnings per share of the Company computed using SFAS 128 is not
different from earnings per share computed using existing standards and
guidelines.
2. FURNITURE, FIXTURES AND EQUIPMENT, NET:
Furniture, fixtures and equipment, net, are comprised of the following as
of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
------- --------
<S> <C> <C>
Furniture and fixtures...................................... $ 3,187 $145,066
Computer equipment.......................................... 30,550 238,317
Computer equipment under capital leases..................... -- 64,667
------- --------
33,737 448,050
Less: accumulated depreciation and amortization............. (3,722) (88,790)
------- --------
$30,015 $359,260
======= ========
</TABLE>
F-8
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. NOTES PAYABLE:
Notes payable are comprised of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
-------- ----------
<S> <C> <C>
Promissory note payable to a spouse of a stockholder
(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 amount payable under the note................ -- $ 200,000
Promissory notes payable to stockholders and affiliates
(interest accrues at 8%), payable August and September
1997, non-collateralized................................... $100,000 789,904
Promissory note payable to a stockholder (interest accrues
at the prime rate plus 1%), payable September 12, 2000..... 60,792 55,677
Promissory note payable to a bank (interest accrues at the
prime rate plus 1.5%), payable in 60 equal monthly
installments through February, 2001, collateralized by
certain trade receivables and equipment.................... -- 60,646
-------- ----------
160,792 1,106,227
Less current maturities of notes payable................... -- 1,003,518
-------- ----------
$160,792 $ 102,709
======== ==========
</TABLE>
Future principal payments on notes payable at December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997................................ $1,003,518
1998................................ 13,903
1999................................ 15,321
2000................................ 72,561
2001................................ 924
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under noncancelable operating
lease agreements expiring through 2001. During 1996, the Company entered into
several capital leases to purchase computer equipment.
F-9
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. COMMITMENTS AND CONTINGENCIES, CONTINUED:
Future minimum lease payments under capital and operating leases are as
follows as of December 31, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ----------
<S> <C> <C>
1997...................................... $19,414 $ 291,405
1998...................................... 18,659 270,461
1999...................................... 17,148 248,501
2000...................................... 14,163 241,440
2001...................................... 539 40,240
------- ----------
Total minimum lease payments.............. 69,923 $1,092,047
==========
Less amount representing interest......... (9,659)
-------
Present value of minimum lease payments... $60,264
=======
</TABLE>
During January 1996, the Company executed a five-year lease for new office
space. Future minimum annual lease payments are 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 operating leases for the period from December 2, 1994
to December 31, 1994 and the years ended December 31, 1995 and 1996 was $1,299,
$22,188 and $226,700, respectively.
Subsequent to December 31, 1996, the Company entered into four additional
capital leases for computer equipment. The future minimum payments under these
leases are approximately $135,000 per year through 1999.
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.
Moreover, customers of the Company could use computer files and information
stored on or transmitted to Web server computers maintained by the Company to
engage in illegal activities that may be unknown or undetectable by the Company,
including fraud and misrepresentation, and unauthorized access to computer
systems of others. 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. Any such actions
could subject the Company to liability to third parties. The Company does not
have errors and omissions, 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 provisions will be enforceable.
Various legal precedings 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.
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.
F-10
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. CONCENTRATION OF CREDIT RISKS, CONTINUED:
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 26% of total revenues for the years ended December 31,
1995 and 1996, respectively. The five most significant customer balances
represented approximately 73% and 39% of the accounts receivable balance at
December 31, 1995 and 1996, respectively. No company accounted for more than 10%
of the revenues of the Company during 1996.
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 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 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, 1,902,400 shares were issued and $495,618
F-11
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. EQUITY TRANSACTIONS, CONTINUED:
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.
7. LONG-TERM INCENTIVE PLANS:
Employee Stock Option Plan
The Company's Employee Stock Option Plan (the "Stock Option Plan") was
adopted by the Company's stockholders in September 1996. Shares of common stock
may be sold or awarded to officers, key employees and consultants. 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
Internal Revenue Code or (ii) non-qualified stock options.
During 1996, the Company granted options to purchase shares under the Stock
Option Plan. The options vest 25% per year and expire ten years after the grant
date. The exercise price of the grants was made at or above the fair market
value of the stock on the grant date.
Non-Employee Directors' Stock Option Plan
The Company's Non-Employee Directors' Stock Option Plan (the "Directors'
Plan") was adopted by the Company's stockholders in September 1996. Shares of
common stock may be sold or awarded to directors who are not officers or
employees of the Company ("Non-Employee Directors"). The Company has reserved
300,000 shares of common stock for issuance under the Directors' Plan.
The Directors' Plan provides for the automatic granting of an option to
purchase 10,000 shares of common stock to each Non-Employee Director who is
first appointed or elected to the Board of Directors. Also, each Non-Employee
Director is automatically granted an option to purchase 5,000 shares of common
stock on the date of each annual meeting of the Company's stockholders.
Furthermore, the Directors' Plan allows the Board of Directors to make
extraordinary grants of options to Non-Employee Directors.
During 1996, the Company granted options to purchase shares under the
Directors' Plan. The options granted under the Directors' Plan vest 50% per year
of service and expire seven years after date of grant. The exercise price of the
grants was above the fair market value of the stock on the grant date.
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.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 1996: dividend yield of 0%, expected volatility of 80%, risk-free
interest rate of 6.46%, and expected lives of four years for the Stock Option
Plan and two years for the Directors' Plan.
F-12
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. LONG-TERM INCENTIVE PLANS, CONTINUED:
A summary of the Company's stock option plan activity and related
information for the year ended December 31, 1996, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
--------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding at beginning of year.......................... 0 --
Granted................................................... 229,167 $6.30
Exercised................................................. 0 --
Forfeited................................................. (8,624) 6.19
-------
Outstanding at end of year................................ 220,543 6.30
=======
Options exercisable at year-end........................... 0 --
=======
Weighted average fair value of options granted during the
year at the share's fair value.......................... $2.86
Weighted average fair value of options granted during the
year at above the share's fair value.................... $1.89
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS WEIGHTED AVERAGE
EXERCISE OUTSTANDING AT REMAINING WEIGHTED AVERAGE
PRICES DECEMBER 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE
- -------------- ------------------ ---------------- ----------------
<C> <C> <C> <C>
$4.55 22,241 9.7 $4.55
6.50 198,302 7.5 6.50
</TABLE>
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. For the fiscal year ended December 31, 1996, no
compensation cost was recognized for its stock option plans. Had compensation
cost for the Company's stock-based compensation plans been determined under the
provisions consistent with FASB Statement 123, the Company's net loss and loss
per share for the year ended December 31, 1996, would have been the pro forma
amounts indicated below:
<TABLE>
<S> <C>
Net loss -- as reported..................................... $(625,583)
Net loss -- pro forma....................................... (676,776)
Loss per share -- as reported............................... (0.33)
Loss per share -- pro forma................................. (0.36)
</TABLE>
8. 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 March 31 of 1998, 1999, 2000 and 2001 (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 December 31,
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
December 31 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
F-13
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. ACQUISITION, CONTINUED:
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.
9. RELATED PARTY TRANSACTIONS:
The Company has borrowed $160,792 and $1,045,581 as of December 31, 1995
and 1996, respectively, from certain of its stockholders and affiliates of its
stockholders. Interest expense on these notes was $3,469 and $44,952 in 1995 and
1996, respectively.
The Company has entered into an employment agreement with its Chief
Executive Officer and principal stockholder which expires December 31, 2000.
10. INCOME TAXES:
Deferred income taxes at December 31, 1996 reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1996, are as follows:
<TABLE>
<S> <C>
Temporary differences:
Allowance for uncollectibles.............................. $ 40,601
Vacation accrual.......................................... 5,675
Depreciation.............................................. 4,820
Deferred rent expense..................................... 27,901
Software development expenses............................. (29,515)
--------
49,482
Net operating loss carryforward............................. 190,156
--------
Deferred tax asset.......................................... 239,638
Valuation allowance......................................... (239,638)
========
Net deferred tax asset...................................... $ 0
========
</TABLE>
At December 31, 1996, the Company had net operating losses for income tax
purposes of $500,412 which expire in 2011. Realization of these assets is
contingent on having future taxable earnings. Based on the cumulative losses in
recent years, management believes that it is more likely than not that some
portion or all of the deferred tax asset and operating loss carryforward will
not be realized and has recorded a full valuation allowance.
Pro forma (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
F-14
<PAGE> 76
10. INCOME TAXES, CONTINUED:
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>
DECEMBER 2 TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
-------------- ------------ ------------
<S> <C> <C> <C>
Tax benefit at the statutory rate............ $ 5,934 $ 1,850 $ 212,698
State income tax, net of federal benefit..... 698 218 25,023
Permanent differences........................ 1,917
Valuation allowance.......................... (6,632) (2,068) (239,638)
------- ------- ---------
$ 0 $ 0 $ 0
======= ======= =========
</TABLE>
F-15
<PAGE> 77
======================================================
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 UNDERWRITERS. 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............................ 38
Certain Transactions.................. 45
Principal Stockholders................ 47
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 49
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
Additional Information................ 52
Glossary of Certain Technical Terms... 53
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL , 1997 (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 AND SAND BROTHERS LOGOS'
, 1997
======================================================
<PAGE> 78
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(TM) Market listing fee...................... 8,250
Accountants' fees and expenses.............................. 175,000
Legal fees and expenses..................................... 245,000
Blue Sky fees and expenses.................................. 35,000
Transfer Agent's fees and expenses.......................... 2,500
Printing and engraving expenses............................. 100,000
Directors and Officers liability Insurance.................. 45,000
Underwriters' nonaccountable expense allowance.............. 162,500
Miscellaneous............................................... 19,274
--------
Total Expenses.............................................. $797,500
========
</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
II-1
<PAGE> 79
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.
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> 80
ITEM 16. EXHIBITS
<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.*
10.14 Form of Promissory Notes issued by the Registrant and held
by Esther Blech and the Edward A. Blech Trust.*
10.15 Marketing Associate Solution Alliance Agreement dated
February 6, 1997 between the Company and Unisys
Corporation.**
10.16 Marketing Associate Agreement dated February 6, 1997 between
the Company and Unisys Corporation.**
</TABLE>
II-3
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.17 Letter agreement dated January 16, 1997 between the Company,
David A. Blech, Esther Blech and the Edward A. Blech
Trust.**
10.18 HomeCom Communications, Inc. Employee Stock Purchase Plan.**
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. 2.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters 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> 82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 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 19th day of March, 1997.
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. 2 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 March 19, 1997
- ----------------------------------------------------- Officer and Director
Harvey W. Sax (Principal Executive
Officer)
/s/ R. Douglas MacIntyre Chairman of the Board of March 19, 1997
- ----------------------------------------------------- Directors
Harvey W. Sax as attorney-in-fact for
R. Douglas MacIntyre
/s/ Nat Stricklen Senior Vice President, March 19, 1997
- ----------------------------------------------------- Sales and Marketing,
Harvey W. Sax as attorney-in-fact for Chief Operating Officer
Nat Stricklen and Director
/s/ Vinod Keni Chief Financial Officer, March 19, 1997
- ----------------------------------------------------- Treasurer and Secretary
Harvey W. Sax as attorney-in-fact for (Principal Financial and
Vinod Keni Accounting Officer)
/s/ Krishan Puri Executive Vice President March 19, 1997
- ----------------------------------------------------- and Director
Harvey W. Sax as attorney-in-fact for
Krishan Puri
/s/ Gia Bohuchava, Ph.D. Chief Technical Officer March 19, 1997
- -----------------------------------------------------
Harvey W. Sax as attorney-in-fact for
Gia Bohuchava, Ph.D.
</TABLE>
II-5
<PAGE> 83
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Roger Nebel Vice President March 19, 1997
- -----------------------------------------------------
Harvey W. Sax as attorney-in-fact for
Roger Nebel
/s/ Gregory Abowd, Ph.D. Director March 19, 1997
- -----------------------------------------------------
Harvey W. Sax as attorney-in-fact for
Gregory Abowd, Ph.D.
/s/ Winn Schwartau Director March 19, 1997
- -----------------------------------------------------
Harvey W. Sax as attorney-in-fact for
Winn Schwartau
</TABLE>
II-6
<PAGE> 84
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.*
10.14 Form of Promissory Notes issued by the Registrant and held
by Esther Blech and the Edward A. Blech Trust.*
10.15 Marketing Associate Solution Alliance Agreement dated
February 6, 1997 between the Company and Unisys
Corporation.**
10.16 Marketing Associate Agreement dated February 6, 1997 between
the Company and Unisys Corporation.**
10.17 Letter agreement dated January 16, 1997 between the Company,
David A. Blech, Esther Blech and the Edward A. Blech
Trust.**
10.18 HomeCom Communications, Inc. Employee Stock Purchase Plan.**
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. 2.
<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.
-2-
<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
-3-
<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
-4-
<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.
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<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
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<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;
-4-
<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
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<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,
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<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
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<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.
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<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 10.15
Agreement Number
382183-9501
----------------
Effective Date
2/6/97
----------------
UNISYS MARKETING ASSOCIATE SOLUTION ALLIANCE AGREEMENT
THIS AGREEMENT is between UNISYS CORPORATION, Township Line and Union Meeting
Roads, Blue Bell, PA 19422 ("Unisys") and:
MARKETING ASSOCIATES (MA)
- --------------------------------------------------------------------------------
Name
HomeCom Communications
- --------------------------------------------------------------------------------
Address
Bldg. 14, Ste. 100 -- 3535 Piedmont Road
- --------------------------------------------------------------------------------
City/State/Zip code
Atlanta, GA 30305
- --------------------------------------------------------------------------------
Attention Telephone number Fax number
Kris Puri 404-237-4646 x161 404-237-3060
- --------------------------------------------------------------------------------
Territory
- --------------------------------------------------------------------------------
MA ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THIS AGREEMENT, INCLUDING THE
NEXT THREE PAGES AND ALL ATTACHED EXHIBITS, AND THAT IT IS NOT ENTERING INTO
THIS AGREEMENT ON THE BASIS OF ANY REPRESENTATIONS NOT EXPRESSLY SET FORTH
HEREIN.
AGREED AND ACCEPTED MA
Unysis Corporation HomeCom Communications
(MA company name)
/s/ R.A. Palumbo February 6, 1997 /s/ Kris Puri November 19, 1996
- ------------------------------------ -------------------------------------
(Signature) (Date) (Signature) (Date)
/s/ R.A. Palumbo Kris Puri
- ------------------------------------ -------------------------------------
(Printed/typed name) (Printed/typed name)
Director CMD Contracts Executive Vice President
- ------------------------------------ -------------------------------------
(Title) (Title)
1 of 11
<PAGE> 2
1. BACKGROUND
1.1 MA (a) has developed and is the owner of, or otherwisehas the right to
market, products which will run on/with certain computer equipment, and/or (b)
can provide services to users of certain types of computer equipment. MA is
interested in marketing its computer products and/or services to current or
prospective users of Unisys and multivendor computer equipment, subject to
the terms and conditions of this Agreement Unisys is willing to market its
computer equipment in conjunction with MA computer products and/or provide
marketing support far MA's products and/or services subject to the terms and
conditions of this Agreement.
2. DEFINITIONS
2.1 "PRODUCT" means the MA equipment and the MA computer software programs which
operate with the Computer System(s) listed in Exhibit A of this Agreement. The
Products consists of all items listed on Exhibit B of this Agreement and
includes all Corrections, Improvements, and Enhancements, Updates and Upgrades
made by or for MA.
2.2 "SERVICES" means the MA services offered by MA to users of the Computer
System(s) listed in Exhibit A of this Agreement. The Services include all the
services listed on Exhibit B of this Agreement
2.3 "DOCUMENTATION" means all materials (and all revisions) relating to the
Product and Services including as applicable, but not limited to, brochures,
specifications, operating instructions, input information, instructional and
other documentation, including guides and manuals.
2.4 "CORRECTIONS" means changes to the Product to make it conform to the
then-current Documentation.
2.5 "IMPROVEMENTS" means additions or changes to the Product intended to improve
performance.
2.6 "ENHANCEMENTS" means new functions or features for the Product which provide
a new capability.
2.7 "UPDATES" means subsequent releases for the Product which incorporate
accumulated Corrections, Improvements and Enhancements together with revised
Documentation for the Update.
2.8 "UPGRADES" means changes to the Product which enable the Product to operate
with changes to the Computer Systems and software furnished with such Systems.
2.9 "COMPUTER SYSTEM" means the Unisys and multivendor equipment series listed
on Exhibit A. Multivendor means equipment series not manufactured by Unisys.
2.10 "QUALIFIED PROSPECT" means the prospective end user of the Products or
Services who is qualified by Unisys and given this designated status according
to this Agreement.
2.11 "END-USER" means the buyer/licensee of the Product and/or Service that
contracts directly with MA for the Products and Services for which Unisys is
entitled to a fee.
3. OBLIGATIONS OF MA
3.1 MA will market the Products for use with the Computer Systems and will sell,
or grant licenses for use of, the Products, Documentation and Services directly
to End-Users.
3.2 MA will provide Unisys with (a) marketing brochures published by MA
describing the Products and Services and (b) an accurate description of the
Products including, but not limited to, the functional specifications and
performance characteristics suitable for submission by Unisys to potential End-
Users. The description of the Products and services will be updated by MA as
frequently as required to maintain accuracy.
3.3 MA also will provide to Unisys: (a) guidelines for qualifications of
potential End-Users; (b) a detailed description and definition of the minimum
Computer System configuration required to use the Product and Service with each
Computer System and guidelines for configuring the Unisys Computer System used
in conjunction with the Product and Service; (c) if available, an analysis and
comparison of the Product and Service to functionally similar computer products
and services offered by MA's competitors; (d) a reasonable quantity of MA sales
brochures for the products and Services; and (e) if available, benchmark test
results for Products as used with Unisys Computer Systems.
3.4 MA will develop a worksheet to assist Unisys in qualifying prospective
End-Users. This worksheet will be based on the guidelines furnished to Unisys by
MA under 3.3(a) above.
3.5 MA will accept worksheets from Unisys and designate the prospect profiled on
the worksheet as
2 of 11
<PAGE> 3
Qualified Prospect unless MA is already working with the prospect without any
involvement of Unisys. MA will sign the worksheet and return it, along with a
letter that either accepts or rejects the prospect as a Qualified Prospect, to
the Unisys designated point of contact. If Qualified Prospect status is
withheld, MA shall provide a written explanation for its determination. If a
worksheet is not signed by MA and returned to Unisys within 30 days of its
submission to MA, the prospect profiled on the worksheet will be deemed a
Qualified Prospect.
3.6 MA will offer each End-User a support and maintenance agreement in the form
attached as Exhibit C of this Agreement (or MA's subsequent standard support and
maintenance agreement generally offered by MA to its buyers/licensees) and in
accordance with the terms and conditions of the agreement(s) between MA and
End-User, provide the support services listed in Exhibit D of this Agreement.
3.7 MA will deliver Corrections, Improvements, Enhancements, Updates and
Upgrades, as applicable, for the Products sold/licensed to End-Users in
accordance with the terms of the MA's sale/license agreement and/or support and
maintenance agreement between MA and an End-User; provided, however, delivery of
Corrections, Improvements and Enhancements to End-Users of Unisys Computer
Systems will be made no later than the delivery of equivalent Corrections,
Improvement and Enhancements to users of MA Products on multivendor Computer
Systems.
3.8 At the end of each month, MA will give Unisys a written activity report in a
format prescribed by Unisys to identity the Qualified Prospects for the Products
and Services and the Products and Services billed to each End-User.
3.9 If the Territory, identified on the face of this Agreement, includes Canada,
MA agrees and is obligated to obtain all legal consents, permits, licenses and
governmental approvals required in order for MA to do business in Canada.
4. OBLIGATIONS OF UNISYS
4.1 Unisys will market Unisys Computer Systems in conjunction with the Products
and/or will provide marketing support to MA in conjunction with the offering of
Products and Services to users and prospective users of Unisys Computer Systems,
where such users are also multivendor users.
4.2 Unisys will distribute to its appropriate Sales representatives the sales
literature provided by MA as well as the information provided by MA under 3.2
and 3.3.
4.3 Subject to availability and advance scheduling by MA:
(a) Unisys will use reasonable efforts to make available for use by MA for
demonstration purposes any Unisys Computer System installed in Unisys offices in
the Territory identified on the cover page of this Agreement;
(b) Unisys will include the Products in appropriate demonstrations and benchmark
tests otherwise being conducted by Unisys for potential End-Users;
(c) Unisys will provide pre-sales technical assistance to MA for the sole
purpose of defining the capabilities of the Unisys Computer System;
(d) Unisys will register End-Users for education courses at Unisys Education
Centers. Such End-Users will pay the then-current Unisys charges for the
selected education courses;
(e) Unisys sales representatives may invite MA to participate with Unisys in
relevant conventions, trade shows and seminars; and
(f) Unisys will provide MA with use of a Unisys facility form MA training of
Unisys sales representatives on industry concepts and Sales techniques relating
to the Products and Services.
4.4 Unisys will complete the worksheet provided to Unisys according to Section
3.4 to qualify prospective buyers/licensees of the Products and Services. Unisys
will submit the worksheet to MA for each prospect that Unisys wants designated
as a Qualified Prospect.
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<PAGE> 4
5. ACCESS TO SOURCE CODE FOR SOFTWARE PRODUCTS
5.1 MA will either: (a) offer each End-User a license for the source code for
its software Products under terms, conditions and charges as specified in a
license agreement between MA and the End-User; or (b) offer each End-User an
escrow agreement under which the End-User may have access to source code for its
software products for maintenance purposes only in the event MA is no longer
able to provide support and maintenance of its software Product in accordance
with the support and maintenance agreement between MA and the End-User. MA will
update and deliver updated software source code to the escrow agent as
frequently as necessary so that the software source code in the custody of the
escrow agent will be the then-current version reflecting all Corrections,
changes, modifications, Enhancements, Improvements, Updates and Upgrades
(including any modifications made for specific End-User). All deliveries of
software source code will be accompanied by related Documentation. A breach of
MA of its obligations under the Escrow Agreement will be deemed a breach of this
Agreement.
5.2 If MA is in default (i.e., unable to perform its obligations) under the
terms of its license agreement or software support and maintenance agreement
with an End-User and software source code has not been provided or delivered to
the escrow agent as provided in Section 5.1 above, MA will, upon written request
from an End-User, deliver copies of the latest updated version of the software
source code to Unisys and such End-User. The copies of source code delivered by
MA pursuant to this Section 5.2 will be the then-current version of the software
reflecting all Corrections, charges, modifications, Enhancements, Improvements,
Updates and Upgrades (including any modifications made for the applicable
End-User) and will be accompanied by related Documentation. The source code and
Documentation together are called "Source Code Materials." MA hereby grants to
Unisys and any End-User obtaining (or entitled to obtain) access to the Source
Code Materials pursuant to this Section 5.2, a royalty-free, nonexclusive
license to use, correct, modify, enhance, improve and update the Source Code
Materials (or have the source code Materials corrected, modified, enhanced,
improved and updated) solely for the purpose of maintaining the software for any
such End-User's use of the software as licensed by MA.
6. DEVELOPMENT/DEMONSTRATION UNISYS COMPUTER SYSTEM
6.1 MA may lease (if available for leasing) or purchase from Unisys one
equipment configuration of each Unisys Computer System listed in Exhibit A at
Unisys then-current published commercial list price (U.S.) less the then-current
MA development/demonstration discount offered by Unisys. MA may also license
software from Unisys at the then-current published commercial list charges
(U.S.) less the then-current MA development/demonstration discount offered by
Unisys. Any such lease, purchase, license and maintenance service shall be
subject to execution of a separate Unisys Consolidated Agreement.
6.2 The Unisys development/demonstration equipment acquired by the MA will not
be leased or resold by the MA for a period of one year (or other applicable
period of time specified in then-current Unisys Marketing Associate policy) from
the date of MA payment for such equipment.
7. FEES
7.1 Unisys will earn a fee of 25% of the net price charged to each End-User for
each Product item and Service delivered to an End-User during the term of this
Agreement and within 6 months after any termination or cancellation of this
Agreement. A fee of 12 1/2% will be charged for services provided by MA.
7.2 MA's current published list prices are set forth in Exhibit E. MA will
notify Unisys in writing at least 30 days prior to the effective date of any
change in MA's published list prices.
7.3 MA will pay the fee to Unisys within 30 days after the End-User is billed
for the Product and Service. Unisys may impose a late payment charge equal to
the lessor of (1) 1-1/2% per month or (2) the maximum rate allowed by now.
7.4 MA will keep its business records according to generally accepted accounting
principles. MA will permit Unisys to examine the records related to this
Agreement during regular business hours at MA's address on the cover page of
this Agreement upon at least 10 days written notice from Unisys.
8. MA WARRANTIES
8.1 MA warrants and represents that it (a) owns all right, title and interest
in, or by license or otherwise has the right to market, the Products and Service
and (b) knows of no claim of infringement of a patent, copyright or other
proprietary right or of improper use or
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misappropriation of a third party trade secret by the Products or Services.
8.2 MA warrants that the Products and Services will substantially conform to the
description of the Products and Services delivered to Unisys in accordance with
3.2 above.
8.3 MA warrants and represents that it has the right, without the consent of any
third parry, to sell/license the Products and Services to End-Users and to
otherwise perform its obligations under this Agreement.
8.4 MA warrants and represents that it has and will retain a sufficient number
of technically qualified employees to fulfill its contractual obligations to its
End-Users to support and maintain the Products.
9. USE OF TRADEMARKS
Neither Party is authorized to use the trade name of any trademark of the other
or to refer to the other party's products or services in any advertisement,
brochure, news release or any document intended for delivery to a third Party
without the prior written approval of an officer of the other party.
10. PATENT, COPYRIGHT AND TRADE SECRET INDEMNIFICATION
10.1 Unisys, at its own expense, will defend and indemnify MA and End-Users
against claims that Unisys products furnished to End-Users pursuant to this
Agreement infringe a United States patent or copyright or are subject to claims
of misappropriation of trade secrets protected under United States law, provided
MA (a) gives Unisys prompt written notice of such claims pursuant to Section
16.9, (b) permits Unisys to defend or settle the claims, and (c) provides all
reasonable assistance to Unisys in defending a settling the claims. Unisys will
not defend a indemnity MA a End-Users if any claim of infringement or
misappropriation results from (a) design or alteration of any Unisys product by
End-Users a MA or (b) use of any Unisys product in combination with any non
Unisys product. This Section 10.1 states the entire liability of Unisys and MA's
sole and exclusive remedy for patent or copyright infringement a trade secret
misappropriation with respect to Unisys products.
10.2 MA, at its own expense, will defend and indemnify Unisys and End-Users
against claims that any Products or Services or any part thereof furnished
pursuant to this Agreement infringes a United States patent a copyright a is
subject to claims of misappropriation of trade secrets protected under United
States law, provided Unisys (a) gives MA prompt written notice of such claims
pursuant to Section 16.9, (b) permits MA to defend a settle the claims, and (c)
provides all reasonable assistance to MA in defending a settling the claims.
Unisys may be represented by counsel of its own choice at its own expense. MA
will not defend a indemnify Unisys a End-User if any claim of infringement a
misappropriation results from (a) design or alteration of any Product a Service
by Unisys a End-Users a (b) use of any Product in combination with any non-MA
product. This Section 10.2 states the entire liability of MA and Unisys sole and
exclusive remedy for patent or copyright infringement a trade secret
misappropriation with respect to the Products and Services.
11. PROTECTION OF INFORMATION
11.1 Neither party shall have any obligation to keep information disclosed by
the other confidential unless the information disclosed is in tangible form and
clearly marked "proprietary", "confidential", "restricted" a with a similar
notice. Each party will exercise the same degree of care to avoid disclosure of
such proprietary/confidential/restricted information of the other as it affords
to its own similar information, but in no event less than a reasonable degree of
care.
11.2 Information which is marked "proprietary" "confidential," "restricted" or a
with a similar notice will be used by the receiving party only as necessary for
the purposes of this Agreement and will be maintained in confidence, during and
after the term of this Agreement, unless the receiving party can prove that such
information: (a) is publicly available other than through a breach of this
Agreement, (b) has been rightfully obtained from a third party with no
obligation of confidentiality, (c) is known or developed independently of the
disclosure by the disclosing part, (d) was already known prior to disclosure by
the disclosing party or (e) was disclosed to a third party by the disclosing
party without imposing an obligation of confidentiality.
12. ARBITRATION
12.1 Subject to Sections 12.2 through 12.5 below, any controversy or claim
arising out of or relating to this Agreement or the breach thereof will be
settled by arbitration before three arbitrators in accordance with the Rules of
the American Arbitration Association ("AAA") then in effect, and judgment upon
the award rendered by the arbitrators may be entered in any
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court having jurisdiction. Any such arbitration will be conducted in the city
nearest MA's main U.S. office having an AAA regional office. The arbitrators
will be selected from a panel of persons having experience with and knowledge of
electronic computers and the computer business, and at least one of the
arbitrators selected will be an attorney.
12.2 The arbitrators will have no authority to award punitive damages nor any
other damages not measured by the prevailing party's actual damages, and may
not, in any event, make any ruling, finding a award that does not conform to the
terms and conditions of this Agreement.
12.3 Either party, before or during any arbitration, may apply to a court having
jurisdiction for a temporary restraining order a preliminary injunction where
such relief is necessary to protect its interests pending completion of the
arbitration proceedings.
12.4 Neither party nor the arbitrators may disclose the existence or results of
any arbitration hereunder without the prior written consent of both parties.
12.5 Prior to initiation of arbitration or any other form of legal a equitable
proceeding, the aggrieved party will give the other party at least 30 days prior
written notice in accordance with Section 16.9 describing the claim and amount
as to which it intends to initiate action.
13. TERM, TERMINATION AND CANCELLATION
13.1 This Agreement will begin on the Effective Date specified on the cover page
of this Agreement and continue in effect for a period of 12 months (Initial
Period) and thereafter until terminated according to its terms.
13.2 Unisys a MA may terminate this Agreement without cause as of the end of the
Initial Period or any time thereafter upon at least sixty (60) days prior
written notice.
13.3 Except as provided in Section 13.4 below, if either party breaches this
Agreement, the other may cancel it upon thirty (30) days written notice, unless
the breach is cured within the notice period.
13.4 Unisys may terminate this Agreement at any time upon written notice,
without providing MA with an opportunity to cure, if (a) there is a change in
control or ownership of (MA or of its parent or any affiliated companies) or if
all or substantially all of the assets of MA are sold; (b) a receiver is
appointed for MA or its property; (c) MA becomes insolvent or unable to pay its
debts as they mature or ceases to pay its debts as they mature in the ordinary
course of business or makes an assignment for the benefit of its creditors; or
(d) MA is liquidated a dissolved.
13.5 Proposals for Products and Services that are submitted to End-Users by the
effective date of any termination or cancellation of this Agreement and accepted
by such End-Users within sixty (60) days thereafter will be subject to the terms
and conditions of this Agreement.
13.6 No damages (whether direct, consequential, special or incidental and
including expenditures and loss of profit), indemnities a other compensation
will be due or payable to MA by reason of a permissible termination or
cancellation of this Agreement.
14. DISCLAIMER
Except as expressly stated in this Agreement, neither party has made or relied
on any warranties or representations (express or implied, by operation of law or
otherwise) regarding the scope, duration or success or any marketing effort
which Unisys or MA or both may undertake.
15. LIMITATION OF LIABILITY
IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF USE, LOSS OF
GOODWILL OR OTHER DIMINUTION IN THE VALUE OF THE OTHER'S BUSINESS, REVENUES,
PROFITS OR SAVINGS, EVEN IF SUCH PARTY KNEW OR SHOULD HAVE KNOWN OF THE
POSSIBILITY OF SUCH DAMAGES.
16. OTHER PROVISIONS
16.1 THIS AGREEMENT WILL BE GOVERNED BY THE LOCAL LAW OF THE COMMONWEALTH OF
PENNSYLVANIA.
16.2 The relationship of Unisys and MA under this Agreement is that of
independent contractors only, and neither is authorized to act as the agent or
legal representative of the other. No provision of this Agreement or any act by
either party in furtherance of
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the intent of this Agreement will create a pint venture relationship between the
parties for any purpose whatsoever.
16.3 Unisys may delete any Unisys Computer System from Exhibit A at any time
upon at least sixty (60) days prior written notice to MA.
16.4 Unisys will not be liable to MA for late delivery of any Computer System.
MA will not be liable to Unisys for late delivery of the Products and Services.
16.5 Any failure or delay by either party in exercising any night or remedy will
not constitute a waiver. The waiver of any one default will not waive subsequent
defaults of the same or different kind.
16.6 Neither party will be liable for any failure to fulfill its obligations
when due to causes beyond its reasonable control including, without limitation,
the bankruptcy of any supplier or commercial impracticability.
16.7 This Agreement or any performance due under it may not be assigned by
either party. Any purported assignment will be void and of no effect.
16.8 No legal proceeding, regardless of form, redated to or arising out of this
Agreement may be brought by either party more than two years after the cause of
action has accrued.
16.9 All notices required by this Agreement to be given to MA will be sent to
its address on the cover page of this Agreement.
All notices required by Sections 10 and 12 will be sent by certified or
registered mail and, when given to Unisys, will be addressed to:
Office of the General Counsel
Unisys Corporation
Township Line and Union Meeting Roads
Blue Bell, PA 19422
All other notices to Unisys will be sent to:
Vice President, Channel Marketing
Unisys Corporation
Township Line and Union Meeting Roads
Blue Bell, PA 19422
All notices required by Sections 10 and 12 will be sent by certified or
registered mail.
16.10 Each provision of this Agreement is severable and, if one or more
provisions are declared invalid, the remaining provisions of the Agreement
will remain in full force and effect.
16.11 The rights and obligations of Unisys and MA under Sections 3.4, 3.5, 5, 8,
10, 11, 12, 14, 15, and 16 will survive any termination or cancellation of this
Agreement.
16.12 All Exhibits referenced in this Agreement are part of it. With respect to
its subject matter, this Agreement constitutes the entire agreement of the
parties and supersedes all prior proposals and agreements, both written and vat,
and all other written and oral communications between the parties, except that
provisions of prior agreements between the parties which survive, termination,
cancellation or expiration of such agreements will not be superseded by this
Agreement' unless specifically agreed to by the parties in writing.
16.13 This Agreement may be modified only by a writing signed by a duly
authorized representative of each party. The duly authorized representatives of
Unisys are individuals with the title of Vice President or Contracts Manager.
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UNISYS Marketing Associate Solution Alliance Agreement
Exhibit A - Computer Systems
Unisys Computer Systems
================================================================================
CHECK APPLICABLE SYSTEMS: OTHER (SPECIFY):
SMP Systems
[X] A Series Systems
--------------------------------------------
[X] 2200 Series Systems
--------------------------------------------
[X] UNIX Systems
--------------------------------------------
[X] PC Systems
--------------------------------------------
[ ] CTOS Systems
--------------------------------------------
[ ] DP Series
--------------------------------------------
- --------------------------------------------------------------------------------
MULTIVENDOR COMPUTER SYSTEMS
================================================================================
Specify Vendor and System Type:
================================================================================
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UNISYS Marketing Associate Solution Alliance Agreement
Exhibit B - MA Products and Services
MA SOFTWARE PRODUCTS
================================================================================
Software name Virtual Banking Brief description
NETVEST - Any Website can offer its customers the
capacity to buy and sell stocks.
RIGHTQUOTE - Any Website can compare several insurance
policies and provide a calculated and
comparative quote.
Mortgage Service Insurance - Any Website can offer order processing
capabilities for purchasing and tracking
insurance services.
- --------------------------
Conference - Browsers software that emulates popular
groupware functions of LOTUS NOTES. All
knowledge is searchable.
Store - WebServer software that allows for
non-programmers to self-manage a cyberstore
including cybercase for accepting credit
card payment and real time shipping charges.
Q&A - Website software for computer based training
(CBT) that requires no technical
administration.
Newletter - Webserver software for template based
publishing on the Internet/Intranet.
- --------------------------------------------------------------------------------
MA EQUIPMENT PRODUCTS
- --------------------------------------------------------------------------------
Name Brief description
- --------------------------------------------------------------------------------
MA Services
================================================================================
Service type Brief description
Custom Application Development - Creating and customizing the above products
using HTML, CH, SQL, DLL's, JAVA or ACTIVE
X.
Creative and Concept Service - Concept and creative development of an
application as Website (done before any
programming).
Security Services - Analysis, Assessments, Firewall and
Authentication integration services as
stand-alone service or part of a larger
project with above services.
Consultative Services - to establish a proposal per above services.
================================================================================
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UNYSIS Marketing Associate Solution Alliance Agreement
Exhibit C - MA Agreements
MA SUPPORT AND MAINTENANCE AGREEMENT
================================================================================
(Attach a copy of standard agreement generally offered by MA to its
buyers/licensees)
- -------------------------------------------------------------------------------
Exhibit D - MA Support Services
MA SUPPORT SERVICES FOR PRODUCTS
================================================================================
MA will, at a minimum:
(a) provide End-User training for the Products including, if required for
software Products, instructions regarding the use of the Products with Unisys
Compute Systems, the methods of input, the logic of the software Products and
the output generated.
(b) provide technical services by maintaining a support group to provide direct
support of an End-User to assist in the understanding of the use of the
Products.
(c) provide a diagnostic service to ascertain the nature of the problems an
End-User may be experiencing with software Products. This may be accomplished by
the use of telephone "Hotline."
(d) provide centralized training facilities for End-User, if appropriate. MA may
separately contract to use Unisys facilities, if available.
(e) deliver, install, support and update the software Products on a continuing
basis, it being understood that such support will include, at a minimum, if
available, programming required by changes in laws of the various states where
End-Users are located and keeping the software compatible with Unisys
then-current system software for Unisys Computer Systems.
(f) correct all errors, malfunctions or defects in the Products.
(g) provide End-Users with all appropriate documentation and updates for the
Products, which documentation shall include operating instructions, End-User
manuals and other Documentation.
================================================================================
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UNISYS Marketing Associate Solution Alliance Agreement
Exhibit E - MA Current Published Prices
MA CURRENT PUBLISHED PRICES FOR SOFTWARE PRODUCTS
================================================================================
Software name Virtual Banking List price
NETVEST $100,000 to start plus
customization. Customization
can push pricing to many times
more
RIGHTQUOTE $5,000/month if hosted at our
facility surcharges apply
MORTGAGE INSURANCE SERVICE
================================================================================
Conference $35,000 includes a reasonable
amount of customization
however frequently more is done
Store
Q&A
Newsletter $1995/month if hosted at our
facility - surcharges apply
- --------------------------------------------------------------------------------
MA CURRENT PUBLISHED PRICES FOR EQUIPMENT PRODUCTS
================================================================================
Name List price
- --------------------------------------------------------------------------------
MA CURRENT PUBLISHED PRICES FOR SERVICES
================================================================================
Name List price
Custom Application Development Case basis, typically no
less than $30,000,
generally in six figure
range
Creative & Concept Development
Security Services - Case basis, typically no
less than $30,000,
generally in six figure
range
Consultive Services - $5,000 a day with
expenses
================================================================================
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EXHIBIT 10.16
Agreement Number
382183-9500
Effective Date
02/06/97
UNISYS Marketing Associate
Agreement
THIS AGREEMENT is between Unisys Corporation, Township Line and Union Meeting
Roads, Blue Bell, PA 19422 ("Unisys") and:
MARKETING ASSOCIATES
- --------------------------------------------------------------------------------
Name
HomeCom Communications
- --------------------------------------------------------------------------------
Address
Bldg. 14, Ste. 100 -- 3535 Piedmont Road
- --------------------------------------------------------------------------------
City/State/Zip code
Atlanta, GA 30305
- --------------------------------------------------------------------------------
Attention Telephone number Fax number
Kris Puri 404-237-4646 x161 404-237-3060
- --------------------------------------------------------------------------------
Territory
USA/Canada
- --------------------------------------------------------------------------------
MA ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THIS AGREEMENT, INCLUDING THE
NEXT THREE PAGES AND ALL ATTACHED EXHIBITS, AND THAT IT IS NOT ENTERING INTO
THIS AGREEMENT ON THE BASIS OF ANY REPRESENTATIONS NOT EXPRESSLY SET FORTH
HEREIN.
AGREED AND ACCEPTED MA
Unisys Corporation HomeCom Communications
-------------------------------------
(MA company name)
/s/ R.A. Palumbo February 06 1997 /s/ Kris Puri December 9 1996
- ------------------------------------ -------------------------------------
(Signature) (Date) (Signature) (Date)
R. A. Palumbo Kris Puri
- ------------------------------------ -------------------------------------
(Printed/typed name) (Printed/typed name)
Director CMO Contracts Executive Vice President
- ------------------------------------ -------------------------------------
(Title) (Title)
================================================================================
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<PAGE> 2
TERMS AND CONDITIONS
================================================================================
1. BACKGROUND
MA has developed and is the owner of a computer software package which will run
on Unisys computer equipment. MA is interested in marketing its computer
software in conjunction with Unisys computer equipment. Unisys is willing to
market its computer equipment in conjunction with MA computer software subject
to the terms and conditions of this Agreement.
2. DEFINITIONS
2.1. "SOFTWARE" means the MA computer software programs which operate with the
Unisys Computer System(s) listed in Exhibit A of this Agreement. The Software
consists of all items listed on Exhibit B of this Agreement and includes all
Corrections, Improvements, and Enhancements, Updates and Upgrades made by or for
MA.
2.2. "DOCUMENTATION" means all materials (and all revisions) relating to the
Software including, but not limited to, operating instructors, input infor-
mation, format specifications, instructional and other documentation, including
guides and manuals.
2.3. "CORRECTIONS" means changes to the Software to make it conform to the
then-current Documentation.
2.4. "IMPROVEMENTS" means additions or changes to the Software intended to
improve performance.
2.5. "ENHANCEMENTS" means new functions or features for the Software which
provide a new capability.
2.6. "UPDATES" means subsequent releases for the Software which incorporate
accumulated Corrections, Improvements and Enhancements together with revised
Documentation for the Update.
2.7. "UPGRADE" means changes to the Software which enable the Software to
operate with changes to Unisys Computer Systems and Unisys Upgrade Systems and
software furnished with such Systems.
2.8. "UNISYS COMPUTER SYSTEM" means the Unisys equipment series listed on
Exhibit A.
2.9. "END-USER" means the entity licensed to use the Software on a Unisys
Computer System for productive data processing.
2.10. "UNISYS UPGRADE SYSTEM" means additional or replacement equipment for a
Unisys Computer System which includes, as minimum, upgrading of the central
processing unit ("CPU") to an expanded capacity CPU with a higher level style
identification such as upgrade of an A6 CPU to an A14 CPU.
3. OBLIGATIONS OF MA
3.1. MA will market the Software for use with the Unisys Computer Systems and
will grant licenses for use of the Software and Documentation directly to
End-Users. At a minimum, MA will perform the following marketing services:
(a) SURVEYING. Analysis of the data processing needs (including issues which
will influence purchase) of prospective End-User.
(b) QUALIFYING. Determination of whether a Unisys Computer System and the
Software is capable of meeting prospective End-User's needs and is economically
feasible for such End-User.
(c) DEMONSTRATING. Demonstration of the Software for prospective End-User.
(d) PROPOSING. Preparation and submission of a proposal for Software for
prospective End-User.
(e) PROPOSAL FOLLOW-UP. Necessary Follow-up on End-User proposal to respond to
questions and provide additional information.
3.2. MA will provide Unisys with (a) material published by MA describing the
Software and (b) an accurate description of the Software including, but not
limited to, the functional specifications and performance characteristics of the
Software suitable for submission to potential End-Users of the Software. The
description of the Software will be updated by MA as frequently as required to
maintain accuracy.
3.3. MA also will provide to Unisys: (a) guidelines for qualification of
potential End-Users of the Software; (b) a detailed description and definition
of the minimum Unisys Computer System configuration required to use the Software
with each Unisys Computer System and guidelines for configuring the Unisys
Computer System used in conjunction with the Software;
================================================================================
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(c) if available, an analysis and comparison of the Software to functionally
similar computer software packages offered by MA competitors; (d) a reasonable
quantity of MA sales brochures for the Software; and (e) if available, benchmark
test results for Software as used with Unisys Computer Systems.
3.4. MA will offer each licensed End-User a Software support and maintenance
agreement in the form attached as Exhibit C of this Agreement (or a subsequent
standard MA support and maintenance agreement generally offered by MA to its
licensees) and provide to End-Users the Software support services listed in
Exhibit D of this Agreement.
3.5. MA will deliver Corrections, Improvements, Enhancements, Updates and
Upgrades for the Software to End-Users in accordance with the terms of the MA
license agreement and/or software support and maintenance agreement signed by an
End-User; provided, however, delivery of Corrections, Improvements and
Enhancements to End-Users will be made no later than the delivery of equivalent
Corrections, Improvement and Enhancements to users licensed to use MA software
functionally comparable to the Software with non Unisys computer systems.
3.6. If the Territory, identified on the face of this Agreement, includes
Canada, MA agrees and is obligated to obtain all legal consents, permits,
licenses and governmental approvals required in order for MA to do business in
Canada.
4. OBLIGATIONS OF UNISYS
4.1. Unisys will distribute to its appropriate sales the sales literature
provided by MA as well as the information provided by MA under 3.2 and 3.3.
4.2. Subject to availability and advance scheduling by MA:
(a) Unisys will use reasonable efforts to make available for use by MA for
demonstration purposes any Unisys Computer System installed in Unisys offices in
the Territory identified on the cover page of this Agreement;
(b) Unisys will provide pre-sales technical assistance to MA for the sole
purpose of defining the capabilities of the Unisys Computer System;
(c) Unisys will register End Users for education courses at Unisys Education
Centers. Such End-Users will pay the then-current Unisys charges for the
selected education courses;
(d) Unisys sales representatives may invite MA to participate with Unisys in
relevant conventions, trade shows and seminars; and
(e) Unisys will provide MA with use of a Unisys facility for MA training of
Unisys sales representatives on industry concepts and sales techniques relating
to the Software.
5. ACCESS TO SOURCE CODE FOR SOFTWARE
5.1. MA will either: (a) offer each End-User a license for the source code for
its Software under terms, conditions and charges as specified in a license
agreement between MA and the End-User; or (b) offer each End-User an escrow
agreement under which the End-User may have access to source code for its
Software for maintenance purposes only in the event MA is no longer able to
provide support and maintenance of its Software in accordance with the support
and maintenance agreement between MA and the End-User. MA will update and
deliver updated software source code to the escrow agent as frequency as
necessary so that the Software source code in the custody of the escrow agent
will be the then-current version reflecting all Corrections, changes,
modifications, Enhancements, Improvements, Updates and Upgrades (including any
modifications made for specific End-User). All deliveries of Software source
code will be accompanied by related Documentation. A breach of MA of its
obligations under the Escrow Agreement will be deemed a breach of this
Agreement.
5.2. If MA is in default (i.e., unable to perform its obligations) under the
terms of its license agreement or software support and maintenance agreement
with an End-User and Software source code has not been provided or delivered to
the escrow agent as provided in Section 5.1 above, MA will, upon written request
from an End-User, deliver copies of the latest updated version of the Software
source code to Unisys and such End-User. The copies of source code delivered by
MA pursuant to this Section 5.2 will be the then-current version of the Software
reflecting all Corrections, changes, modifications, Enhancements, Improvements,
Updates and Upgrades (including any modifications made for the applicable
End-User) and will be accompanied by related Documentation. The source code and
Documentation together are called "Source
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<PAGE> 4
Code Materials" MA hereby grants to Unisys and any End-User obtaining (or
entitled to obtain) access to the Source Code Materials pursuant to this Section
5.2, a royalty-free, nonexclusive license to use, correct, modify, enhance,
improve and update the Source Code Materials (or have the source code Materials
corrected, modified. enhanced, improved and updated) solely for the purpose of
maintaining the Software for any such End-User's use of the Software as licensed
by MA.
6. DEVELOPMENT/DEMONSTRATION
UNISYS COMPUTER SYSTEM
6.1. MA may lease (if available for leasing) or purchase from Unisys one
equipment configuration of each Unisys Computer System listed in Exhibit A at
Unisys then-current published commercial list price (U.S.) less the then-current
MA development/demonstration discount offered by Unisys. MA may also license
software from Unisys at the then-current published commercial list charges
(U.S.) less the then-current MA development/demonstration discount offered by
Unisys. Any such lease, purchase, license and maintenance service shall be
subject to execution of a separate Unisys Consolidated Agreement.
6.2. The Unisys development/demonstration equipment acquired by the MA will not
be leased or resold by the MA for a period of one year (or other applicable
period of time specified in then-current Unisys Marketing Associate policy) from
the date of MA payment for such equipment.
7. FEES
7.1. In consideration of MA's performance of its obligations under this
Agreement, Unisys will pay MA a fee for a Unisys Computer System or Unisys
Upgrade System sold by Unisys to an End-User when (a) the Unisys Computer System
or Upgrade System (as applicable) is sold contemporaneously with the license of
the Software by the MA to such End-User, (b) the MA Software is the principal
software to be used by such End-User as of the time of the initial installation
of the Unisys Computer System or Upgrade Systems (as applicable) and (c) the
End-User would not have acquired the Unisys Computer System or Upgrade System
(as applicable) unless the Software was available for license to the End-User.
No fee will be payable on sales to the United States government or its agencies
(including wholly-owned or mixed ownership corporations) or to End-Users outside
of the Territory identified on the cover page of this Agreement.
7.2. The schedule of fees payable to MA by Unisys is defined in Unisys Marketing
Associate Policy Bulletins. Since Unisys may offer discounts from its published
list prices to meet competition, the fees will be adjusted (as shown in the
Bulletins) based on the amount of discount from list price granted to the
End-User by Unisys. The fees may be changed by Unisys at any time by 30 days
written notice to MA. Any fee change will apply only to proposals submitted to
End-Users after the effective dab of the change.
7.3. The fee will be calculated as a percentage of: (a) the net sale price
charged the End-User by Unisys for Unisys equipment; and/or, (b) the net
Extended Term License Plan Charge charged the End-User by Unisys for certain
Unisys CASE/4GL software specified in Unisys Marketing Associate Policy
Bulletins. The "net sale price" is the then-current published list price for
Unisys equipment less discounts and trade-ins and excludes taxes, delivery
charges, software (other than Unisys CASE/4GL software as specified in Unisys
Marketing Associate Policy Bulletins), services and maintenance charges. The
"net Extended Term License Plan Charge" is the published list Extended Term
License Plan Charge less discounts and exchange credits and excludes taxes,
delivery, installation, and service charges.
7.4. The fee will be payable to MA within 60 days after Unisys has received
payment of the net sale prices for the Unisys Computer System or Upgrade System
from the End-User. Deletion of a Unisys Computer System from Exhibit A pursuant
to Section 16.3 will not affect MA qualification for a fee payable with respect
to any proposal for the Software submitted to an End-User prior to the effective
date of the deletion if the End-User accepts the proposal within 60 days from
deletion.
7.5. In order to receive fee payments under this Agreement, MA must: (a) submit
to the cognizant Unisys sales representative and district manager and to its
Unisys Channel Marketing sales representative written notification of its
involvement in a transaction prior to the End-User's order being placed with
Unisys; and (b) submit a property completed then-current Unisys MAII
Request/Authorization for Fee Payment form to its Unisys Channel Marketing
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sales representative within 30 days after the date of installation of MA's
Software at End-Users site.
7.6. Fees will be payable for Unisys CASE/4GL Products in accordance with the
terms and conditions set forth in Unisys Marketing Associate Policy Bulletins.
7.7. In the event that other Unisys Marketing Associates would also qualify for
a fee under subsection 7.1 in a given sale, there will be only one fee payable
by Unisys (which fee will be equal to the highest single fee due for such sale
to MA or other qualifying Marketing Associate) and Unisys will equitably
apportion the one fee among all qualifying Marketing Associates, as Unisys in
its sole discretion deems fair and equitable.
7.8. Neither party will be entitled to any fees or other compensation (including
expenses) from the other except as set forth in this Agreement and related
Unisys Marketing Associate policy Bulletins.
8. MA WARRANTIES
8.1. MA warrants and represents that it (a) owns all right, title and interest
in, or by license or otherwise has the right to market, the Software and (b)
knows of no claim of infringement of a patent, copyright or other proprietary
right or of improper use or misappropriation of a third party trade secret by
the Software.
8.2. MA warrants that the Software will substantially conform to the description
of the Software delivered to Unisys in accordance with 3.2 above.
8.3. MA warrants and represents that it has the right, without the consent of
any third party, to license the Software to End-Users and to otherwise perform
its obligations under this Agreement.
8.4. MA warrants and represents that it has and will retain a sufficient number
of technically qualified employees to fulfill its contractual obligations to its
End-Users to support and maintain the Software.
9. USE OF TRADEMARKS
Neither party is authorized to use the trade name or any trademark of the other
or to refer to the other party's products or services in any advertisement,
brochure, news release or any document intended for delivery to a third party
without the prior written approval of an officer of the other party.
10. PATENT, COPYRIGHT AND TRADE SECRET INDEMNIFICATION
10.1. Unisys, at its own expense, will defend and indemnify MA and End-Users
against claims that Unisys products furnished to End-Users pursuant to this
Agreement infringe a United States patent or copyright or are subject to claims
of misappropriation of trade secrets protected under United States law, provided
MA (a) gives Unisys prompt written notice of such claims pursuant to Section
16.9, (b) permits Unisys to defend or settle the claims, and (c) provides all
reasonable assistance to Unisys in defending or settling the claims. Unisys will
not defend or indemnify MA or End-Users if any claim of infringement or
misappropriation results from (a) design or alteration of any Unisys product by
End-Users or MA or (b) use of any Unisys product in combination with any non
Unisys product. This Section 10.1 states the entire liability of Unisys and MA's
sole and exclusive remedy for patent or copyright infringement or trade secret
misappropriation with respect to Unisys products.
10.2. MA, at its own expense, will defend and indemnify Unisys and End-Users
against claims that any Software or any part thereof furnished pursuant to this
Agreement infringes a United States patent or copyright or is subject to claims
of misappropriation of trade secrets protected under United States law, provided
Unisys (a) gives MA prompt written notice of such claims pursuant to Section
16.9, (b) permits MA to defend or settle the claims, and (c) provides all
reasonable assistance to MA in defending or settling the claims. Unisys may be
represented by counsel of its own choice at its own expense. MA will not defend
or indemnify Unisys or End-User if any claim of infringement or misappropriation
results from (a) design or alteration of any Software by Unisys or End-Users or
(b) use of any Software in combination with any non-MA product. This Section
10.2 states the entire liability of MA and Unisys sole and exclusive remedy for
patent or copyright infringement or trade secret misappropriation with respect
to the Software.
11. PROTECTION OF INFORMATION
11.1. Neither party shall have any obligation to keep information disclosed by
the other confidential unless the information disclosed is in tangible form
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<PAGE> 6
and clearly marked "proprietary", "confidential", "restricted" or with a similar
notice. Each party will exercise the same degree of care to avoid disclosure of
such proprietary/confidential/restricted information of the other as it affords
to its own similar information, but in no event less than a reasonable degree of
care.
11.2. Information which is marked "proprietary", "confidential", "restricted",
or with a similar notice will be used by the receiving party only as necessary
for the purposes of this Agreement and will be maintained in confidence, during
and after the term of this Agreement, unless the receiving party can prove that
such information: (a) is publicly available other than through a breach of this
Agreement, (b) has been rightfully obtained from a third party with no
obligation of confidentiality, (c) is known or developed independently of the
disclosure by the disclosing party, (d) was already known prior to disclosure by
the disclosing party or (e) was disclosed to a third party by the disclosing
party without imposing an obligation of confidentiality.
12. ARBITRATION
12.1. Subject to Sections 12.2 through 12.5 below, any controversy or claim
arising out of or relating to this Agreement or the breach thereof will be
settled by arbitration before three arbitrators in accordance with the Rules of
the American Arbitration Association ("AAA") then in effect, and judgment upon
the award rendered by the arbitrators may be entered in any court having
jurisdiction. Any such arbitration will be conducted in the city nearest MA's
main U.S. office having an AAA regional office. The arbitrators will be selected
from a panel of persons having experience with and knowledge of electronic
computers and the computer business, and at least one of the arbitrators
selected will be an attorney.
12.2. The arbitrators will have no authority to award punitive damages nor any
other damages not measured by the prevailing party's actual damages, and may
not, in any event, make any ruling, finding or award that does not conform to
the terms and conditions of this Agreement.
12.3. Either party, before or during any arbitration, may apply to a court
having jurisdiction for a temporary restraining order or preliminary injunction
where such relief is necessary to protect its interests pending completion of
the arbitration proceedings.
12.4. Neither party nor the arbitrators may disclose the existence or results of
any arbitration hereunder without the prior written consent of both parties.
12.5. Prior to initiation of arbitration or any other form of legal or equitable
proceeding, the aggrieved party will give the other party at least 30 days prior
written notice in accordance with Section 16.9 describing the claim and amount
as to which it intends to initiate action.
13. TERM, TERMINATION AND CANCELLATION
13.1. This Agreement will begin on this Effective Date specified on the cover
page of this Agreement and continue in effect for a period of 12 months
("Initial Period") and thereafter until terminated according to its terms.
13.2. Unisys or MA may terminate this Agreement without cause as of the end of
the Initial Period or any time thereafter upon at least sixty (60) days prior
written notice.
13.3. Except as provided in Section 13.4 below, if either party breaches this
Agreement, the other may cancel it upon thirty (30) days written notice, unless
the breach is cured within the notice period.
13.4. Unisys may terminate this Agreement at any time upon written notice,
without providing MA with an opportunity to cure, if: (a) there is a change in
control or ownership of MA (or of its parent or any affiliated companies) or if
all or substantially all of the assets of MA are sold; (b) a receiver is
appointed for MA or its property; (c) MA becomes insolvent or unable to pay its
debts as they mature or ceases to pay its debts as they mature in the ordinary
course of business or makes an assignment for the benefit of its creditors; or
(d) MA is liquidated or dissolved.
13.5. Proposals for the Software that are submitted to End-Users by the
effective date of any termination or cancellation of this Agreement and accepted
by such End-Users within sixty (60) days thereafter will be subject to the terms
and conditions of this Agreement.
13.6. No damages (whether direct, consequential, special or incidental and
including expenditures and loss of profit), indemnities or other compensation
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will be due or payable to MA by reason of a permissible termination or
cancellation of this Agreement.
14. DISCLAIMER
Except as expressly stated in this Agreement, neither party has made or relied
on any warranties or representations (express or implied, by operation of law or
otherwise) regarding the scope, duration or success of any marketing effort
which Unisys or MA or both may undertake.
15. LIMITATION OF LIABILITY
IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO, LOSS OF USE, LOSS OF
GOODWILL OR OTHER DIMINUTION IN THE VALUE OF THE OTHER'S BUSINESS REVENUES,
PROFITS OR SAVINGS, EVEN IF SUCH PARTY KNEW OR SHOULD HAVE KNOWN OF THE
POSSIBILITY OF SUCH DAMAGES.
16. OTHER PROVISIONS
16.1. THIS AGREEMENT WILL BE GOVERNED BY THE LOCAL LAW OF THE COMMONWEALTH OF
PENNSYLVANIA.
16.2. The relationship of Unisys and MA under this Agreement is that of
independent contractors only, and neither is authorized to act as the agent or
legal representative of the other. No provision of this Agreement or any act by
either party in furtherance of the intent of this Agreement will create a joint
venture relationship between the parties for any purpose whatsoever.
16.3. Unisys may delete any Unisys Computer System from Exhibit A at any time
upon at least sixty (60) days prior written notice to MA.
16.4. Unisys will not be liable to MA for lab delivery of any Computer System.
MA will not be liable to Unisys for lab delivery of the Software.
16.5. Any failure or delay by either party in exercising any right or remedy
will not constitute a waiver. The waiver of any one default will not waive
subsequent defaults of the same or different kind
16.6. Neither party will be liable for any failure to fulfill its obligations
when due to causes beyond its reasonable control including, without limitation,
the bankruptcy of any supplier or commercial impracticability.
16.7. This Agreement or any performance due under it may not be assigned by
either party. Any purported assignment will be void and of no effect.
16.8. No legal proceeding, regardless of form, related to or arising out of this
Agreement may be brought by either party more than two years after the cause of
action has accrued.
16.9. All notices required by this Agreement to be given to MA will be sent to
its address on the cover page of this Agreement.
All notices required by Sections 10 and 12 will be sent by certified or
registered mail and, when given to Unisys, will be addressed to:
Office of the General Counsel
Unisys Corporation
Township Line and Union Meeting Roads
Blue Bell PA 19422
All other notices to Unisys will be sent to:
Vice President, Channel Marketing
Unisys Corporation
Township Line and Union Meeting Roads
Blue Bell PA 19422
16.10. Each provision of this Agreement is severable and if one or more
provisions are declared invalid, the remaining provisions of the Agreement will
remain in full force and effect.
16.11. The rights and obligations of Unisys and MA under Sections 3.4, 3.5, 5,
8, 10, 11, 12, 14, 15, and 16 will survive any termination or cancellation of
this Agreement.
16.12. All Exhibits referenced in this Agreement are part of it. With respect to
its subject matter, this Agreement constitutes the entire agreement of the
parties and supersedes all prior proposals and agreements, both written and
oral, and all other written and oral communications between the parties, except
that provisions of prior agreements between the parties which survive
termination, cancellation or expiration of such agreements will not be
superseded
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by this Agreement, unless specifically agreed to by the parties in writing.
16.13. This Agreement may be modified only by a writing signed by a duly
authorized representative of each party. The duly authorized representatives of
Unisys are individuals with the title of Vice President or Contracts Manager.
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<PAGE> 9
Agreement Number
Marketing Associate Agreement
UNISYS Exhibit A - Unisys Computer Systems
================================================================================
CHECK APPLICABLE SYSTEMS:
[X] A Series Systems
[X] 2200 Series Systems
[X] UNIX Systems
[X] PC Systems
[ ] CTOS Systems
[ ] DP Series
OTHER (SPECIFY):
SMP Systems
================================================================================
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<PAGE> 10
Agreement Number
Marketing Associate Agreement
UNISYS Exhibit B - MA Software
================================================================================
Software name Brief Description
VIRTUAL BANKING
Netvest Stock Trading on a website.
Rightquote Compare insurance policies and prepare quote
on a website.
Mortgage Insurance Order processing and tracking for insurance.
HORIZONTAL APPLICATIONS
Conference Groupware for a website.
Store A store on the web with catalogs & ability
to purchase items
Q&A Computer based training package for website.
Newsletter Template based publishing on the
intra/internet.
CUSTOMER APPLICATIONS
Vertical or horizontal applications
developed by HomeCompersonnel to
enable companies to perform
business functions on
intra/internet. HomeCom also
provides hosting of net functions.
================================================================================
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<PAGE> 11
Agreement Number
Marketing Associate Agreement
UNISYS Exhibit C - MA Agreements
MA SOFTWARE SUPPORT AND MAINTENANCE AGREEMENT
================================================================================
(Attach a copy of standard agreement generally offered by MA to its licensees)
- --------------------------------------------------------------------------------
EXHIBIT D - MA SUPPORT SERVICES
MA SUPPORT SERVICES FOR SOFTWARE
- --------------------------------------------------------------------------------
MA will, at a minimum:
(a) provide End-User training including instructions regarding the use of the
Software with Unisys Computer Systems, the methods of input, the logic of the
Software and the output generated and, if appropriate, on-site training.
(b) provide technical services by maintaining a support group to provide direct
Support of an End-User to assist in the understanding of the use of the
Software.
(c) provide a diagnostic service to ascertain the nature of the problems an
End-User may be experiencing with the Software. This may be accomplished by the
use of telephone "Hotline".
(d) provide centralized training facilities for End-Users, if appropriate. MA
may separately contract to use Unisys facilities, if available.
(e) deliver, install, support and update the Software on a continuing basis, it
being understood that such support will include, at a minimum, if available,
programming required by changes in laws of the various states where End-Users
are located and keeping the Software compatible with Unisys then-current system
software for Unisys Computer Systems.
(f) correct all errors, malfunctions or defects in the Software.
(g) provide End-Users with all appropriate documentation and updates for the
Software, which documentation shall include operating instructions End-User
manuals and other Documentation.
================================================================================
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<PAGE> 1
EXHIBIT 10.17
[HOMECOM LETTERHEAD]
January 16, 1997
Mr. David A. Blech
The Edward A. Blech Trust
Mrs. Esther Blech
c/o Andrew J. Levinson, Esq.
Herzfeld & Rubin, P.C.
40 Wall Street
New York, New York 10005-2349
Ladies and Gentlemen:
For and in consideration of the waiver by HomeCom Communications, Inc.
(the "Company") of its right of first refusal and in order to induce The Nasdaq
Stock Market, Inc. ("Nasdaq") to approve the Company's application for listing
on The Nasdaq SmallCap Market, the Company requests that each of Mr. David
Blech, The Edward A. Blech Trust and Mrs. Esther Blech (the "Blech Entities")
enter into the covenants and agreements set forth herein by executing this
letter where provided below.
The Blech Entities agree for the benefit of the Company that, for a
period of three years (the "lock-up period") subsequent to the date of their
respective purchases of securities of the Company, the Blech Entities will not
offer, sell, transfer, assign, contract to sell, pledge, hypothecate, grant any
option for the sale of, or otherwise dispose of, directly or indirectly, either
pursuant to Rule 144 under the Securities Act of 1933 (the "Act"), or otherwise,
any shares of the common stock of the Company, or any security or instrument
which by its terms is convertible into, exercisable for, or exchangeable for
shares of common stock of the Company, beneficially owned by the Blech Entities
(within the meaning of Rule 13d-3 under the Securities and Exchange Act of 1934
(the "Exchange Act")) on the date hereof (the "Shares"). Gifts of shares of the
Company's common stock will be permitted provided that the recipient of such
gift agrees in writing as a condition precedent to such gift to be bound by the
terms hereof.
In order to enable the Company to enforce the aforesaid covenants, the
Blech Entities consent to the placement of a restrictive legend upon any
certificates representing the Shares in substantially the following form:
The shares represented by this Certificate are subject to a
lock-up agreement dated January 23, 1997, a copy of which is
on file with the Company, and may not be sold, transferred,
assigned, pledged or
<PAGE> 2
Mr. David A. Blech
The Edward A. Blech Trust
Ms. Esther Blech
Page 2
1/16/97
hypothecated in any manner for a period of three years from
the date of purchase, except in accordance with the terms of
such lock-up agreement.
The Blech Entities acknowledge that the Company will, and hereby authorize and
direct the Company to, instruct its transfer agent to maintain stop transfer
orders and not to authorize the transfer of any shares held by the Blech
Entities as provided herein.
At all times while the Company's common stock is listed on any Nasdaq
market, the Blech Entities agree that there will be no further financial
relationship between David Blech or the Blech Entities, on the one hand, and the
Company on the other hand; that the direct or indirect ownership of Sshares of
Common Stock by Mr. Blech and/or the Blech Entities may not exceed 5% of the
Company's issued and outstanding Common Stock; and there may be no advisory
relationship between Mr. David Blech and the Company.
Very truly yours,
HOMECOM COMMUNICATIONS, INC.
By: /s/ Harvey W. Sax
-------------------------------------
Harvey W. Sax, President
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<PAGE> 3
Mr. David A. Blech
The Edward A. Blech Trust
Ms. Esther Blech
Page 3
1/16/97
ACCEPTED AND AGREED TO
ON THE DATES WRITTEN BELOW:
/s/ David Blech
- ------------------------------------
David Blech
Date: 1/23/97
-------------------------------
The Edward A. Blech Trust
By:/s/ Mordechai Joffen
---------------------------------
Title: Trustee
------------------------------
Date: 1/23/97
-------------------------------
/s/ Esther Blech
- ------------------------------------
Esther Blech
Date: 1/23/97
-------------------------------
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<PAGE> 1
EXHIBIT 10.18
HOMECOM COMMUNICATIONS, INC.
EMPLOYEE STOCK PURCHASE PLAN
SECTION 1.
PURPOSE
The purpose of the HOMECOM COMMUNICATIONS, INC. EMPLOYEE STOCK PURCHASE
PLAN (the "Plan") is to promote the interests of the Company by providing the
opportunity to purchase Shares to Employees in order to attract and retain
Employees by providing an incentive to work to increase the value of Shares and
a stake in the future of the Company which corresponds to the stake of each of
the Company's shareholders. The Plan is intended to be an "employee stock
purchase plan" as defined in Section 423 of the Internal Revenue Code of 1986,
as amended ("Code"). The provisions of the Plan shall, accordingly, be construed
so as to comply with the requirements of Section 423 of the Code whenever
possible.
SECTION 2.
DEFINITIONS
2.1 "BASE PAY" means regular straight-time and overtime earnings
received from the Company, excluding payments for incentive compensation,
bonuses and other special payments.
2.2 "BOARD" means the Board of Directors of HomeCom Communications,
Inc.
2.3 "COMMITTEE" means the Compensation Committee of the Board.
2.4 "COMPANY" means HomeCom Communications, Inc., a Delaware
corporation, and any successor to such organization.
2.5 "CUSTODIAN" means American Stock Transfer and Trust Company, whose
address is 40 Wall Street, New York, New York 10005, or such other person as the
Committee shall designate from time to time.
2.6 "EFFECTIVE DATE" means the date set by the Board for the Plan to
become effective, which date shall be March 31, 1996. The Effective Date shall
be subject to the terms of Section 7(e) and to shareholder approval pursuant to
Section 17.
2.7 "EXERCISE DATE" means the last day of a Purchase Period (as such
term is defined in Section 4(b) hereof), on which date all Participants'
outstanding Purchase Rights will automatically be exercised.
2.8 "Fair Market Value" of each Share on any date means 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
<PAGE> 2
(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 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 Board 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 Board 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 Board based on such relevant facts,
which may include opinions of independent experts, as may be available to the
Board.
2.9 "PARTICIPANT" means an employee of the Company or of a parent or
subsidiary of the Company who has enrolled in the Plan by completing a
Participation Form (as such term is defined in Section 5 hereof) with the Plan
Administrator. The terms parent and subsidiary have the meanings set forth in
Code Sections 424(e) and (f), respectively.
2.10 "PLAN ADMINISTRATOR" means the Chief Financial Officer of the
Company, or any such other person so designated by the Board.
2.11 "PURCHASE PERIOD" means a calendar quarter period as defined in
Section 4(b) hereof.
2.12 "PURCHASE RIGHT" means a Participant's option to purchase shares
of Common Stock that is deemed to be granted to a Participant during a Purchase
Period pursuant to Section 7.
2.13 "SECTION 16(b) INSIDER" means those persons subject to the
requirements of Section 16(b) of the Securities Exchange Act of 1934, as
amended.
2.14 "SHARES" means the common stock, par value $.0001 per share, of
HomeCom Communications, Inc., and any other stock or securities (including any
other share or securities of an entity other than HomeCom Communications, Inc.)
for or into which the outstanding shares of such common stock are hereinafter
exchanged or changed.
2.15 "TRADING DAY" refers to a day during which the Nasdaq National Market is
available for trading the Shares.
SECTION 3.
ELIGIBILITY
(a) Participation in the Plan is voluntary. All full-time employees of
the Company, including officers and directors who are full-time employees but
who are not members of the Committee, who have completed at least six (6) months
of continuous service with the Company are eligible to participate in the Plan.
The employee's entry date in the Plan shall be the first day of the Purchase
Period immediately following the date the employee has satisfied the eligibility
provisions. Full-time employees mean those employees who work at least twenty
(20) hours per week and for more than five (5) months in any calendar year.
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<PAGE> 3
(b) Notwithstanding any provision of the Plan to the contrary, no
employee may participate in the Plan if prior to the grant of Purchase Rights or
if following a grant of Purchase Rights under the Plan, the employee would own,
directly or by attribution, stock, Purchase Rights or other stock options to
purchase stock representing five percent (5%) or more of the total combined
voting power or value of all classes of the stock of the Company, or any parent
or subsidiary (as defined in Code Sections 424(e) and (f), respectively) as
referenced in Code Section 423(b)(3).
(c) Subject to committee approval, any employees of a company or an
entity which is purchased by or merged into the Company and becomes a subsidiary
of the Company (as such term is defined in Code Section 424(f)) may, for
purposes of eligibility to participate in the plan, be granted past service
credit for employment with such company or entity.
SECTION 4.
SECURITIES SUBJECT TO THE PLAN AND PURCHASE PERIODS
(a) The maximum number of Shares which may be granted and purchased
under the Plan may not exceed ONE HUNDRED AND FIFTY THOUSAND (150,000) Shares
(subject to adjustment as provided in Section 15), which may be authorized but
unissued shares, re-acquired shares or shares bought on the open market. If any
Purchase Right granted shall expire or terminate for any reason without having
been exercised in full, the unpurchased Shares shall again become available for
purposes of the Plan, unless the Plan has been terminated.
(b) Purchase Period means each three month calendar quarter period,
beginning on January 1, April 1, July 1, and October 1, with the first such
Purchase Period (the "Initial Purchase Period") beginning concurrently with the
Effective Date of the Plan.
SECTION 5.
PARTICIPATION
Eligible employees become Participants in the Plan by authorizing
payroll deductions or other contributions to the Plan through the execution of a
"Participation Form" filed with the Plan Administrator no later than fifteen
(15) days prior to the start date of a Purchase Period.
SECTION 6.
PAYROLL DEDUCTIONS/CONTRIBUTIONS
(a) In order to purchase Shares each Participant must elect and
indicate on the Participation Form the amount he/she wishes to authorize the
Company to deduct at regular payroll intervals during the Purchase Period,
expressed either as (1) an integral percentage amount of such Participant's Base
Pay for the applicable payroll period, with a minimum deduction of $10.00 per
payday and a maximum percentage to be set by the Committee, or (2) a dollar
amount to be deducted pro rata at regular payroll intervals during the Purchase
Period, with a minimum deduction of $10.00 per payday and a maximum dollar
amount per payday to be set by the Committee. The Committee shall determine from
time to time whether method (1) or (2), or both, shall be utilized. The
Participation Form will include authorization for the Company to make payroll
deductions from the Participant's Base Pay. In addition to the foregoing, with
respect to the Initial Purchase Period, each Participant may indicate on the
Participation Form an amount he/she wishes to contribute to his/her account for
the exercise of his/her Purchase Rights with respect to such Initial Purchase
Period, subject to the limitation of Section 6(b). The Participant shall forward
with the Participation Form a cash payment equal to such amount.
-3-
<PAGE> 4
(b) Purchase Rights granted to a Participant under the Plan for any
calendar year may not represent Shares with a value in excess of Twenty Five
Thousand Dollars ($25,000.00). The Twenty Five Thousand Dollar ($25,000.00)
limit is determined based upon the Fair Market Value of the Shares subject to a
Purchase Right as of the first day (or the grant date, if different) of the
Purchase Period during which such Purchase Rights are granted. Participants will
be notified if this limitation becomes applicable to them.
(c) The amounts deducted from the Participant's Base Pay or otherwise
contributed by the Participant shall be credited to a bookkeeping account
established in the Participant's name under the Plan, but no actual separate
account will be established by the Company to hold such amounts. There shall be
no interest paid on the balance credited to a Participant's account. Amounts
deducted from the Participant's Base Pay or otherwise contributed may be
commingled with the general assets of the Company and may be used for its
general corporate purposes prior to the purchase of Shares during a Purchase
Period.
(d) Payroll deductions shall begin on the first payday of each Purchase
Period, and shall end on the last payday of each Purchase Period. Eligible
employees may participate in the Plan and, except with respect to the Initial
Purchase Period, may purchase Shares only through payroll deductions.
Notwithstanding the above, a Participant on an approved leave of absence may
continue participating in the Plan by making cash payments to the Company within
a normal pay period equal to the amount of the normal payroll deduction had the
leave of absence not occurred. The right of a Participant on an approved leave
of absence to continue participating in the Plan shall terminate upon the
expiration of twelve (12) weeks of leave, unless the Participant's right to
re-employment by the Company after a longer leave is guaranteed by statute or
contract, in which case termination of the right to participate will occur upon
the expiration of such extended period.
(e) So long as a Participant remains an employee of the Company,
payroll deductions will continue in effect from Purchase Period to Purchase
Period, unless at least fifteen (15) calendar days prior to the first day of the
next succeeding Purchase Period the Participant:
(i) elects a different rate by filing a new Participation Form
with the Plan Administrator; or
(ii) withdraws from the Plan in accordance with Section 9
hereof.
(f) Notwithstanding the above, and subject to Committee approval, the
Plan Administrator may provide for a special election period for participation
in the Plan following the acquisition of a company or entity by the Company by a
purchase or merger whereby such company or entity becomes a subsidiary of the
Company (as such term is defined in Code Section 424(f)). All employees of the
Company and its subsidiaries shall be eligible to participate in such special
election.
SECTION 7.
GRANT OF PURCHASE RIGHT
(a) Subject to Section 7(d) and Section 7(e) hereof, and the effective
date provisions of Section 17, at 5:01 p.m. Eastern Standard Time, on the last
day of each Purchase Period (the Exercise Date), each Participant who has not
withdrawn from the Plan pursuant to Section 9 shall be deemed to have been
granted a Purchase Right as of the first day of the Purchase Period to purchase
as many whole Shares as can be purchased with the balance credited to such
Participant's account as of the Exercise
-4-
<PAGE> 5
Date. The balance remaining in each Participant's account, if any, will be held
for the purchase of Shares in the next succeeding Purchase Period or otherwise
applied in accordance with the terms hereof.
(b) The price at which each Purchase Right to purchase Shares shall be
exercised is the lower of:
(i) 85% of the Fair Market Value of the Shares on the first
day of a Purchase Period; provided, however, that if during any Purchase Period
a registration statement is declared effective by the Securities and Exchange
Commission with respect to an initial public offering of the Shares, the price
shall be 85% of the price to the public in such offering; or
(ii) 85% of the Fair Market Value of the Shares on the last
Trading Day of such Purchase Period.
(c) The Committee has the power, exercisable at any time prior to the
start of a Purchase Period, to set a maximum dollar value Purchase Right for
that Purchase Period, subject to the limitations in Section 6(b). The maximum
dollar value will continue in effect from Purchase Period to Purchase Period
until the Committee once again exercises its power to adjust the limitation.
(d) Notwithstanding anything to the contrary contained herein, each
Participant who has not withdrawn from the Plan pursuant to Section 9 during the
Initial Purchase Period, shall be deemed to have been granted a Purchase Right
with respect to the Initial Purchase Period as of the first day of the trading
of the Shares on the Nasdaq National Market.
(e) Notwithstanding anything to the contrary contained herein, no
Participant shall be entitled to exercise any Purchase Right unless and until a
registration statement has been filed and declared effective by the Securities
and Exchange Commission with respect to an initial public offering of the
Shares.
SECTION 8.
EXERCISE OF PURCHASE RIGHT
(a) Subject to Section 7(e) and the effective date provisions of
Section 17, each outstanding Purchase Right shall be deemed automatically
exercised as of 5:01 p.m. of the Exercise Date (the last day of the Purchase
Period). The exercise of the Purchase Right is accomplished by applying the
balance credited to each Participant's account as of the Exercise Date to the
purchase on the Exercise Date as many whole Shares as can be purchased at the
purchase price in effect for the Purchase Period. The balance remaining in each
Participant's account, if any, will be held for the purchase of Shares in the
next succeeding Purchase Period or otherwise applied in accordance with the
terms hereof.
(b) If a Participant purchases the maximum share amount determined in
accordance with the terms of Section 7(c), any amount not applied to the
purchase of Shares for that Purchase Period will be held for the purchase of
Shares in the next Purchase Period.
(c) If the number of Shares for which Purchase Rights are exercised
exceeds the number of Shares available in any Purchase Period under the Plan,
the Shares available for exercise will be allocated by the Plan Administrator
pro rata among the Participants in such Purchase Period in proportion to the
relative amounts credited to their accounts. Any amounts not thereby applied to
the purchase of Shares under the Plan will be refunded to the Participants after
the end of the Purchase Period.
-5-
<PAGE> 6
SECTION 9.
WITHDRAWAL AND TERMINATION OF PURCHASE RIGHTS
(a) A Participant may withdraw from the Plan during a Purchase Period
by providing written notice to the Plan Administrator on or before 5:00 p.m. of
the last business day of such Purchase Period. Such withdrawal will become
effective upon receipt by the Plan Administrator of such notice, payroll
deductions will cease as soon as is administratively feasible from the date of
such notice, and no additional payroll deductions will be made on behalf of such
Participant during the Purchase Period. Such notice shall be on a form (the
"Withdrawal Form") provided by the Plan Administrator for that purpose. The
Withdrawal Form will permit a Participant to elect to receive all accumulated
payroll deductions and any other contributions made by the Participant as a
refund without penalty or to exercise such Participant's outstanding Purchase
Rights to purchase Shares on the following Exercise Date in the amount of all
payroll deductions withheld during the Purchase Period or other contributions
made to the Participant's account prior to the Participant's withdrawal.
(b) Any Participant who withdraws from the Plan pursuant to Section
9(a) will not be eligible to rejoin the Plan until the second (2nd) Purchase
Period following the Purchase Period of withdrawal. A Participant wishing to
resume participation may re-enroll in the Plan by completing and filing a new
Participation Form for a subsequent Purchase Period by following the applicable
enrollment procedures.
(c) If a Participant ceases to be an employee of the Company or a
parent or subsidiary of the Company for any reason during a Purchase Period, his
or her outstanding Purchase Right will immediately terminate, and all sums
previously collected from such Participant during such Purchase Period under the
terminated Purchase Right will be refunded to the Participant.
SECTION 10.
RIGHTS AS SHAREHOLDER
(a) A Participant is not a shareholder with respect to Shares to be
purchased during a Purchase Period until the Purchase Right is exercised on the
Exercise Date. Thus, a Participant will not have a right to any dividend or
distribution made prior to the Exercise Date on Shares purchased during the
Purchase Period.
(b) Upon a written request made to the Custodian, the Participant will
be entitled to receive, as soon as practicable after the Exercise Date, a stock
certificate for the number of purchased Shares. The Custodian may impose upon,
or pass through to, the Participant a reasonable fee for the transfer of Shares
in the form of stock certificates from the Custodian to the Participant. It is
the responsibility of each Participant to keep his or her address current with
the Company through the Plan Administrator and with the Custodian.
SECTION 11.
SALE OF SHARES ACQUIRED UNDER THE PLAN
(a) Participants may sell the Shares they acquire under the Plan only
in compliance with the restrictions set forth below.
(i) Section 16(b) Insiders may be subject to certain
restrictions in connection with their transactions under the Plan and with
respect to the sale of Shares obtained under the Plan,
-6-
<PAGE> 7
including, but not limited to, the Company's Insider Trading Policy, as the same
may exist from time to time.
(ii) Shares obtained under the Plan by a Participant must
comply with the Company's Insider Trading Policy, as the same may exist from
time to time.
(iii) No Participant purchasing Shares under the Plan shall be
entitled to sell such Shares until the latest to occur of (A) the date which is
one hundred eighty (180) days after the Effective Date; or (B) the first day of
the second (2nd) Purchase Period immediately following the Purchase Period in
which the Shares were obtained. For purposes of this restriction, the Company
may, at its option, include the following legend on any certificates
representing the Shares so purchased:
"The shares represented by this Certificate are subject to certain
restrictions on sale and disposition contained in the HomeCom
Communications, Inc. Employee Stock Purchase Plan, a copy of which is
on file with the Corporation."
(b) In order to insure compliance with the restrictions and
requirements herein, the Company may issue appropriate "stop transfer"
instructions to its transfer agent, if any, and, if the Company transfers its
own securities, it may make appropriate notations to the same effect in its own
records. By executing the Participation Form, each Participant acknowledges and
agrees to the Company's rights described in this Section 11(b).
(c) A Participant shall immediately inform the Plan Administrator in
writing if the Participant transfers any Shares purchased through the Plan
within two (2) years from the date of grant of the related Purchase Right. Such
transfer shall include disposition by sale, gift or other manner. The
Participant may be requested to disclose the manner of the transfer, the date of
the transfer, the number of Shares involved and the transfer price. By executing
the Participation Form, each Participant obligates himself or herself to provide
such information to the Plan Administrator.
(d) The Company is authorized to withhold from any payment to be made
to a Participant, including any payroll and other payments not related to the
Plan, amounts of withholding and other taxes due in connection with any
transaction under the Plan, and a Participant's enrollment in the Plan will be
deemed to constitute his or her consent to such withholding.
SECTION 12.
PLAN ADMINISTRATION
(a) The Plan shall be administered by the Committee. No member of the
Board will be eligible to participate in the Plan during his or her period of
Committee service.
(b) The Committee shall have the plenary power, subject to and within
the limited of the express provisions of the Plan:
(i) to determine the commencement and termination date of the
offering of Shares under the Plan; and
(ii) to interpret the terms of the Plan, establish and revoke
rules for the administration of the Plan and correct or reconcile any defect or
inconsistency in the Plan.
(c) The Committee may delegate all or part of its authority to
administer the Plan to the Plan Administrator, who may in turn delegate the
day-to-day operations of the Plan to the Custodian. The
-7-
<PAGE> 8
Custodian will establish and maintain, as agent for the Participants, accounts
for the purpose of holding the Shares and/or cash contributions as may be
necessary or desirable for the administration of the Plan.
(d) The Board may waive or modify any requirement that a notice or
election be made or filed under the Plan a specified period in advance in an
individual case or by adoption of a rule or regulation under the Plan, without
the necessity of an amendment to the Plan.
SECTION 13.
TRANSFERABILITY
(a) Any account maintained by the Custodian for the benefit of a
Participant with respect to Shares acquired pursuant to the Plan may only be in
the name of the Participant; provided, however, that the Participant may elect
to maintain such account with right of joint ownership with such Participant's
spouse. Such election may only be made on a form (the "Joint Account Form")
provided by the Company.
(b) Neither payroll deductions or other contributions credited to a
Participant's account nor any Purchase Rights or other rights to acquire Shares
under the Plan may be assigned, transferred, pledged or otherwise disposed of by
Participants other than by will or the laws of descent and distribution and,
during the lifetime of a Participant, Purchase Rights may be exercised only by
the Participant.
SECTION 14.
MERGER OR LIQUIDATION OF THE COMPANY
In the event the Company merges with another corporation and the
Company is not the surviving entity, or in the event all or substantially all of
the stock or assets of the Company is acquired by another company, or in the
event of certain other similar transactions, the Committee may, in its sole
discretion and in connection with such transaction, cancel each outstanding
Purchase Right and refund all sums previously collected from Participants under
the canceled outstanding Purchase Rights, or, in its discretion, cause each
Participant with outstanding Purchase Rights to have his or her outstanding
Purchase Right exercised immediately prior to such transaction and thereby have
the balance of his or her account applied to the purchase of whole and
fractional Shares (subject to the maximum dollar limitation, if any, of Section
7(c)) at the purchase price in effect for the Purchase Period, which would be
treated as ending with the effective date of such transaction. The balance of
the account not so applied will be refunded to the Participant. In the event of
a merger in which the Company is the surviving entity, each Participant is
entitled to receive, for each Share as to which such Participant's outstanding
Purchase Rights are exercised, as nearly as reasonably may be determined by the
Committee, in its sole discretion, the securities or property that a holder of
one Share was entitled to receive upon the merger.
SECTION 15.
ADJUSTMENT FOR CHANGES IN CAPITALIZATION
To prevent dilution or enlargement of the rights of Participants under
the Plan, appropriate adjustments may be made in the event any change is made to
the Company's outstanding common stock by reason of any stock dividend, stock
split, combination of shares, exchange of shares or other change in the Shares
effected without the Company's receipt of consideration. Adjustments may be made
to the maximum number and class of securities issuable under the Plan, the
maximum number and class of securities purchasable per outstanding Purchase
Right and the number and class of securities and price per share in effect under
each outstanding Purchase Right. Any such adjustments may be made
-8-
<PAGE> 9
retroactively effective to the beginning of the Purchase Period in which the
change in capitalization occurs, and any such adjustment will be made by the
Committee in its sole discretion.
SECTION 16.
AMENDMENT AND TERMINATION
The Committee may terminate or amend the Plan at any time, subject to
the following restrictions. First, the provisions of Sections 4, 5, 6, 7 and 8
which govern the formula for the automatic grant of Purchase Rights under the
Plan may not be amended more than once in any six (6) month period. Second, any
termination or amendment made to the Plan may not affect or change Purchase
Rights previously granted under the Plan without the consent of the affected
Participant, and any amendment that materially increases the benefits or number
of Shares under the Plan (except for certain allowable adjustments in the event
of changes to the Company's capital structure or for changes authorized by the
Plan to be made by the Committee or the Plan Administrator) or materially
modifies the eligibility requirements of the Plan shall be subject to
shareholder approval. If not sooner terminated by the Committee, the Plan shall
terminate at the time Purchase Rights have been exercised with respect to all
Shares reserved for grant under the Plan.
SECTION 17.
SHAREHOLDER APPROVAL AND EFFECTIVE DATE
The Plan is subject to the approval of shareholders of the Company
holding a majority of the shares of the Common Stock.
The Plan shall be deemed to have been adopted as of the Effective Date
upon the date of its approval by the shareholders of the Company. Until the Plan
is approved by the shareholders, no Purchase Rights shall be deemed granted or
exercised under Sections 7 and 8. Upon approval of the Plan by the Company's
shareholders, Purchase Rights shall be deemed granted and exercised as of the
appropriate dates in the Plan as of the Effective Date, and Shares purchased
shall be deemed purchased as of the applicable Exercise Date. In the event the
Plan is not approved by the shareholders on or before December 31, 1996, the
Plan shall be deemed not to have been adopted, and all payroll deduction amounts
withheld on behalf of Participants pursuant to Section 6 shall be refunded to
such Participants.
SECTION 18.
NO EMPLOYMENT RIGHTS
Participation in the Plan will not impose any obligations upon the
Company to continue the employment of the Participant for any specific period
and will not affect the right of the Company to terminate such person's
employment at any time, with or without cause.
SECTION 19.
COSTS
Except as set forth in Section 10(b), costs and expenses incurred in
the administration of the Plan and the maintenance of accounts with the
Custodian may be shared by the Participant and the Company, to the extent
provided in this Section 19. Any brokerage fees and commissions for the purchase
of Shares under the Plan (including Shares purchased upon reinvestment of
dividends and distributions) will be shared equally by the Participant and the
Company, but any brokerage fees and commissions for the sale of Shares under the
Plan by a Participant will be borne by such Participant.
-9-
<PAGE> 10
SECTION 20.
REPORTS
After the close of each Purchase Period, each Participant in the Plan
will receive a report from the Custodian indicating the amount of the
Participant's contributions to the Plan during the Purchase Period, the amount
of the contributions applied to the purchase of Shares for the Purchase Period,
the purchase price per share in effect for the Purchase Period and the amount of
the contributions (if any) carried over to the next Purchase Period.
SECTION 21.
GOVERNING LAW
The validity, construction and effect of the Plan and any rules and
regulations relating to the Plan will be determined in accordance with laws of
the State of Georgia, without giving effect to principles of conflicts of laws,
and applicable Federal law.
SECTION 22.
COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS
The Plan, the granting and exercising of Purchase Rights hereunder, and
the other obligations of the Company, the Plan Administrator and the Custodian
under the Plan will be subject to all applicable federal and state laws, rules,
and regulations, and to such approvals by any regulatory or governmental agency
as may be required. The Company may, in its discretion, postpone the issuance or
delivery of Shares upon exercise of Purchase Rights until completion of such
registration or qualification of such Shares or other required action under any
federal or state law, rule, or regulation, listing or other require action with
respect to any automated quotation system or stock exchange upon which the
Shares or other Company securities are designated or listed, or compliance with
any other contractual obligation of the Company, as the Company may consider
appropriate, and may require any Participant to make such representations and
furnish such information as it may consider appropriate in connection with the
issuance or delivery of Shares in compliance with applicable laws, rules, and
regulations, designation or listing requirements, or other contractual
obligations.
SECTION 23.
EFFECT OF PLAN
The provisions of the Plan shall, in accordance with its terms, be
binding upon and inure to the benefit of, all successors of each employee
participating in the Plan, including, without limitation, such employee's estate
and the executors, administrators or trustees thereof, heirs and legatees, and
any receiver, trustee in bankruptcy or representative of creditors of such
employee.
-10-
<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, which includes an explanatory paragraph relating
to the uncertainty of the Company's ability to continue as a going concern,
dated February 21, 1997, 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
March 19, 1997
<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>
