<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1997
REGISTRATION NO. 333-12219
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
AMENDMENT NO. 3
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
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<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 APRIL 15, 1997
1,250,000 SHARES
[HOMECOM COMMUNICATIONS LOGO]
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
Representative of the Underwriters equal to 2% of the gross proceeds of this
offering and (ii) warrants to be issued to the Representative of 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 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."
---------------------
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
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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 54.
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
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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 Representative of the Underwriters
and their designees, exercisable at 120% of the public offering price (the
"Representative's Warrants"). See "Management - Incentive Plans,"
"Description of Capital Stock" and "Underwriting." Also excludes shares that
may be issued in connection with the Company's August 1996 acquisition of
HomeCom Internet Security Services, Inc. See "Certain Transactions."
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<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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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>
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(1) For the period from December 2, 1994 (date of incorporation) to February 8,
1996, the Company was taxed as an S Corporation under the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and generally was
not subject to corporate income taxes. Effective February 9, 1996, the
Company terminated its S Corporation election, subjecting the Company to
corporate income taxes. The pro forma adjustment to reflect federal and
state income tax benefit, pro forma net loss and pro forma net loss per
common share represent the Company's income tax position had the Company
been subject to corporate income taxes for all periods presented. No income
tax benefit has been recorded due to the deferred tax asset arising from
operating loss carryforwards and temporary differences being fully offset by
a valuation allowance.
(2) Pro forma balance sheet data give effect to the issuance immediately prior
to the date of this Prospectus of 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."
4
<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.
WORKING CAPITAL DEFICIT. As of December 31, 1996, the Company's current
liabilities exceeded current assets by approximately $1.3 million. The Company
anticipates that the net proceeds of this offering will provide sufficient
working capital to fund its currently planned activities for at least the
12-month period following the completion of this offering. No assurance can be
given, however, that the Company will not encounter unforeseen difficulties that
may deplete its capital resources more rapidly than anticipated which could
require it to seek additional financing sooner than currently anticipated. There
can be no assurance that any additional financing will be available to the
Company if and when required on terms acceptable to the Company or that such
additional financing, if available, would not result in substantial dilution of
the equity interests of existing stockholders. The timing and amount of any
additional financing that may be required to continue the development and
marketing of the Company's products and for other purposes will depend on the
ability of the Company to improve its operating results and 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
5
<PAGE> 14
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 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
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<PAGE> 15
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."
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'
7
<PAGE> 16
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 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.
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<PAGE> 17
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 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 Representative of the Underwriters 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 Representative of 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
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<PAGE> 18
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 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
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<PAGE> 19
additional burdens imposed upon broker-dealers by such requirements may
discourage broker-dealers from effecting transactions in the Common Stock, which
could severely limit the market liquidity of the Common Stock and the ability of
purchasers in this offering to sell the Common Stock in the secondary market.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY. The Company's Restated
Certificate of Incorporation provides, as permitted by Delaware law, that its
directors shall have no personal liability for certain breaches of their
fiduciary duties to the Company. In addition, the Company's Restated Bylaws
provide for mandatory indemnification of directors and officers to the fullest
extent permitted by Delaware law. These limitations on personal liability do not
apply to liabilities under federal securities laws. However, these provisions
may reduce the likelihood of derivative litigation against directors and may
discourage stockholders from bringing a lawsuit against directors for a breach
of their fiduciary duties. See "Description of Capital Stock - Limitations on
Liability of Directors."
GOVERNMENT REGULATION. The Telecommunications Act of 1996 (the "1996
Telecommunications Act"), which became effective on February 8, 1996, imposes
criminal liability on persons sending or displaying in a manner available to
minors indecent material on an interactive computer service such as the
Internet. The 1996 Telecommunications Act also imposes criminal liability on an
entity knowingly permitting facilities under its control to be used for those
activities. The constitutionality of these provisions 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 plans to utilize a portion of the net proceeds of this offering
to repay indebtedness in the following amounts:
<TABLE>
<S> <C>
Promissory note payable to the Company's Chief Executive
Officer on September 12, 2000, with annual interest at
prime rate plus 1%........................................ $ 86,000
Promissory note payable to a financial institution with
monthly installments through January 2001, with annual
interest at prime rate plus 1.5%.......................... 61,000
Promissory notes payable to two private investors in August
and September 1997, with interest payable at maturity at
the rate of 8% per annum (See "Certain Transactions.").... 1,300,000
</TABLE>
The balance of the net proceeds of approximately $5.2 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 that have developed specific industry expertise or have
existing relationships with large businesses needing Internet/Intranet
solutions. 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 personnel........................................ 600,000
Computer equipment purchases................................ 400,000
Additional office space..................................... 250,000
Additional office furniture and communications equipment.... 150,000
Internet connections for hosting services................... 100,000
----------
Total............................................. $2,900,000
</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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<PAGE> 21
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 Representative's 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
Representative's Warrants. See "Management - Incentive Plans," "Description
of Capital Stock" and "Underwriting." Also excludes shares that may be
issued in connection with the Company's August 1996 acquisition of HomeCom
Internet Security Services, Inc. See "Certain Transactions."
14
<PAGE> 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
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<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 April 1997, Harvey W. Sax, the
Company's President and Chief Executive Officer, loaned a total of approximately
$93,497 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 $86,000 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. Also in connection with
this financing transaction, the Blech Trust received unsecured promissory notes
having an aggregate principal balance of $299,904 due September 1997, bearing
interest at 8% per annum.
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, 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, bearing interest at 8% per annum. In April
1997, the Company borrowed $190,000 from the Blech Trust and issued to it a
promissory note due September 1997, bearing interest at 8% per annum. The
Company intends to repay the principal and interest owed under all of the
promissory notes payable to the Blech Trust and Mrs. Blech 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
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<PAGE> 54
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 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
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<PAGE> 55
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.
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.
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<PAGE> 56
(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."
(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
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<PAGE> 57
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 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.
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<PAGE> 58
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 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, the Underwriters named below (the "Underwriters")
have severally, and not jointly, agreed, through Ladenburg Thalmann & Co. Inc.,
the Representative of the Underwriters (the "Representative"), to purchase from
the Company, and the Company has agreed to sell to the Underwriters named below,
the aggregate number of shares of Common Stock set forth opposite their
respective names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF UNDERWRITER OF SHARES
- ------------------- ---------
<S> <C>
Ladenburg Thalmann & Co. Inc................................
Total............................................. 1,250,000
</TABLE>
The Underwriters are committed to take and pay for all 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 Representative 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 Representative and its designees,
for their own accounts, warrants to purchase an aggregate of 125,000 shares of
Common Stock. The warrants will be exercisable during the five-year period
commencing on the date of this Prospectus, at an exercise price per share equal
to 120% of the initial public offering price. The warrants will contain
customary anti-dilution provisions and certain rights to register the shares
issuable upon exercise of the warrants under the Securities Act.
Prior to this offering, there has been no public market for the Common
Stock. The initial offering price will be determined by negotiations between the
Company and the Representative. 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.
51
<PAGE> 60
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 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
52
<PAGE> 61
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.
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.
53
<PAGE> 62
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>
54
<PAGE> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
======================================================
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... 54
Report of Independent Accountants..... 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 LOGO]
COMMON STOCK
------------------------------------------------
PROSPECTUS
------------------------------------------------
'LADENBURG LOGO'
, 1997
======================================================
<PAGE> 79
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> 80
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> 81
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> 82
<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. 3.
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> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 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 11th day of April, 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. 3 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 April 11, 1997
- ----------------------------------------------------- Officer and Director
Harvey W. Sax (Principal Executive Officer)
/s/ R. Douglas MacIntyre Chairman of the Board of April 11, 1997
- ----------------------------------------------------- Directors
Harvey W. Sax as attorney-in-fact for
R. Douglas MacIntyre
/s/ Nat Stricklen Senior Vice President, Sales April 11, 1997
- ----------------------------------------------------- and Marketing, Chief
Harvey W. Sax as attorney-in-fact for Operating Officer and
Nat Stricklen Director
/s/ Vinod Keni Chief Financial Officer, April 11, 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 and April 11, 1997
- ----------------------------------------------------- Director
Harvey W. Sax as attorney-in-fact for
Krishan Puri
/s/ Gia Bohuchava, Ph.D. Chief Technical Officer April 11, 1997
- -----------------------------------------------------
Harvey W. Sax as attorney-in-fact for
Gia Bohuchava, Ph.D.
</TABLE>
II-5
<PAGE> 84
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Roger Nebel Vice President April 11, 1997
- -----------------------------------------------------
Harvey W. Sax as attorney-in-fact for
Roger Nebel
/s/ Gregory Abowd, Ph.D. Director April 11, 1997
- -----------------------------------------------------
Harvey W. Sax as attorney-in-fact for
Gregory Abowd, Ph.D.
/s/ Winn Schwartau Director April 11, 1997
- -----------------------------------------------------
Harvey W. Sax as attorney-in-fact for
Winn Schwartau
</TABLE>
II-6
<PAGE> 85
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. 3.
<PAGE> 1
EXHIBIT 1.1
1,250,000 Shares
HOMECOM COMMUNICATIONS, INC.
Common Stock ($.0001 Par Value)
UNDERWRITING AGREEMENT
______, 1997
LADENBURG THALMANN & CO. INC.
As Representative of the several Underwriters
named in Schedule A hereto
c/o Ladenburg Thalmann & Co. Inc.
590 Madison Avenue
New York, New York 10022
Dear Sirs:
1. Introductory. HomeCom Communications, Inc., a Delaware corporation
(the "Company"), proposes to sell, pursuant to the terms of this Agreement, to
the several underwriters named in Schedule A hereto (the "Underwriters," or
each, an "Underwriter"), an aggregate of 1,250,000 shares of Common Stock,
$.0001 par value (the "Common Stock"), of the Company. The aggregate of
1,250,000 shares so proposed to be sold is hereinafter referred to as the "Firm
Stock". The Company also proposes to sell to the Underwriters, upon the terms
and conditions set forth in Section 3 hereof, up to an additional 187,500 shares
of Common Stock (the "Option Stock"). The Firm Stock and the Option Stock are
hereinafter collectively referred to as the "Stock". Ladenburg Thalmann & Co.
Inc. is hereinafter referred to as the "Representative").
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-12219)
in the form in which it became or becomes effective and also in such
form as it may be when any post-effective amendment thereto shall
become effective with respect to the Stock, including any pre-
<PAGE> 2
effective prospectuses included as part of the registration statement
as originally filed or as part of any amendment or supplement thereto,
or filed pursuant to Rule 424 under the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, copies of which have heretofore been
delivered to you, has been prepared by the Company in conformity with
the requirements of the Securities Act and has been filed with the
Commission under the Securities Act; one or more amendments to such
registration statement, including in each case an amended pre-effective
prospectus, copies of which amendments have heretofore been delivered
to you, have been or will be so prepared and filed. Such registration
statement is referred to hereinafter as the "Registration Statement".
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the Registration Statement will be filed
and must be declared effective before the offering of the Stock may
commence, the term "Registration Statement" as used in this Agreement
means the Registration Statement as amended by said post-effective
amendment. The term "Registration Statement" as used in this Agreement
shall also include any registration statement relating to the Stock
that is filed and declared effective pursuant to Rule 462(b) under the
Securities Act. The term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement, or,
(A) if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Securities Act and such
information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Securities Act, the term "Prospectus"
as used in this Agreement means the prospectus in the form included in
the Registration Statement as supplemented by the addition of the Rule
430A information contained in the prospectus filed with the Commission
pursuant to Rule 424(b) and (B) if prospectuses that meet the
requirements of Section 10(a) of the Securities Act are delivered
pursuant to Rule 434 under the Securities Act, then (i) the term
"Prospectus" as used in this Agreement means the "prospectus subject to
completion" (as such term is defined in Rule 434(g) under the
Securities Act) as supplemented by (a) the addition of Rule 430A
information or other information contained in the form of prospectus
delivered pursuant to Rule 434(b)(2)
2
<PAGE> 3
under the Securities Act or (b) the information contained in the term
sheets described in Rule 434(b)(3) under the Securities Act, and (ii)
the date of such prospectuses shall be deemed to be the date of the
term sheets. The term "Pre-effective Prospectus" as used in this
Agreement means the prospectus subject to completion in the form
included in the Registration Statement at the time of the initial
filing of the Registration Statement with the Commission, and as such
prospectus shall have been amended from time to time prior to the date
of the Prospectus.
(ii) The Commission has not issued or threatened to issue any
order preventing or suspending the use of any Pre-effective Prospectus,
and, at its date of issue, each Pre-effective Prospectus conformed in
all material respects with the requirements of the Securities Act and
at its date of issue did not include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and, at the time the
Registration Statement becomes effective and at all times subsequent
thereto up to and including the Closing Date[s], the Registration
Statement and the Prospectus and any amendments or supplements thereto
contained and will contain all material statements and information
required to be included therein by the Securities Act and conformed and
will conform in all material respects to the requirements of the
Securities Act and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, included or will
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the foregoing
representations, warranties and agreements shall not apply to
information contained in or omitted from any Pre-effective Prospectus
or the Registration Statement or the Prospectus or any such amendment
or supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any
Underwriter, directly or through you, specifically for use in the
preparation thereof; there is no franchise, lease, contract, agreement
or document required to be described in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement
which is not described or filed therein as required; and all
descriptions of any such
3
<PAGE> 4
franchises, leases, contracts, agreements or documents contained in the
Registration Statement are accurate and complete descriptions of such
documents in all material respects.
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as set forth or contemplated in the Prospectus, the Company has
not incurred any liabilities or obligations, direct or contingent, nor
entered into any transactions not in the ordinary course of business,
and there has not been any material adverse change in the condition
(financial or otherwise), properties, business, management, prospects,
net worth or results of operations of the Company or any change in the
capital stock, short-term or long-term debt of the Company.
(iv) The financial statements, together with the related notes
and schedules, set forth in the Prospectus and elsewhere in the
Registration Statement fairly present, on the basis stated in the
Registration Statement, the financial position and the results of
operations and changes in financial position of the Company at the
respective dates or for the respective periods therein specified. Such
statements and related notes and schedules have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis except as may be set forth in the Prospectus. The
selected financial and pro forma financial data set forth in the
Prospectus under the caption "SELECTED HISTORICAL AND PRO FORMA
FINANCIAL DATA" fairly present, on the basis stated in the Registration
Statement, the information set forth therein.
(v) Coopers & Lybrand L.L.P., who have expressed their
opinions on the audited financial statements and related schedules
included in the Registration Statement and the Prospectus, are
independent public accountants as required by the Securities Act and
the Rules and Regulations.
(vi) The Company has been duly organized and is validly
existing and in good standing as a corporation under the laws of its
jurisdiction of organization, with power and authority (corporate and
other) to own or lease its properties and to conduct its business as
described in the Prospectus; the Company is in possession of and
operating in compliance with all franchises, grants, authorizations,
licenses,
4
<PAGE> 5
permits, easements, consents, certificates and orders required for the
conduct of its business, all of which are valid and in full force and
effect; and the Company is duly qualified to do business and in good
standing as a foreign corporation in all other jurisdictions where its
ownership or leasing of properties or the conduct of its business
requires such qualification, except where the failure to be so
qualified and in good standing would not have a material adverse effect
on the Company. The Company has all requisite power and authority, and
all necessary consents, approvals, authorizations, orders,
registrations, qualifications, licenses and permits of and from all
public regulatory or governmental agencies and bodies to own, lease and
operate its properties and conduct its business as now being conducted
and as described in the Registration Statement and the Prospectus, and
no such consent, approval, authorization, order, registration,
qualification, license or permit contains a materially burdensome
restriction not adequately disclosed in the Registration Statement and
the Prospectus. The Company does not own or control, directly or
indirectly, any corporation, association or other entity.
(vii) The Company's authorized and outstanding capital stock
is on the date hereof, and will be on the Closing Date[s], as set forth
under the heading "Capitalization" in the Prospectus; the outstanding
shares of Common Stock conform to the description thereof in the
Prospectus and have been duly authorized and validly issued and are
fully paid and nonassessable and have been issued in compliance with
all federal and state securities laws and were not issued in violation
of or subject to any preemptive rights or similar rights to subscribe
for or purchase securities and conform to the description thereof
contained in the Prospectus. Except as disclosed in and or contemplated
by the Prospectus and the financial statements of the Company and
related notes thereto included in the Prospectus, the Company does not
have outstanding any options or warrants to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any securities
or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's
stock option and other stock plans or arrangements, and the options or
other rights granted or exercised thereunder, as set forth in the
Prospectus, accurately and fairly presents the
5
<PAGE> 6
information required to be shown with respect to such plans,
arrangements, options and rights.
(viii) The shares of Stock to be issued and sold by the
Company to the Underwriters hereunder have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid and
nonassessable and free of any preemptive or similar rights and will
conform to the description thereof in the Prospectus. The shares of
Common Stock issuable upon exercise of the Warrants (as hereinafter
defined) have been duly and validly authorized and, when issued and
delivered against payment therefor in accordance with the terms
thereof, will be duly and validly issued, fully paid and nonassessable
and free of any preemptive or similar rights.
(ix) Except as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company is a party or
of which any property of the Company is subject, which, if determined
adversely to the Company, might individually or in the aggregate (i)
prevent or adversely affect the transactions contemplated by this
Agreement, (ii) suspend the effectiveness of the Registration
Statement, (iii) prevent or suspend the use of the Pre-effective
Prospectus in any jurisdiction or (iv) result in a material adverse
change in the condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of the
Company; and to the best of the Company's knowledge, no such
proceedings are threatened or contemplated against the Company by
governmental authorities or others. The Company is not a party or
subject to the provisions of any material injunction, judgment, decree
or order of any court, regulatory body or other governmental agency or
body. The description of the Company's litigation under the heading
"Business -- Legal Proceedings" in the Prospectus is true and correct
and complies with the Rules and Regulations.
(x) The execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms or provisions of or
constitute a default under any indenture, mortgage, deed of trust, note
agreement or other agreement or instrument to which the Company is a
party or by which it or any of its properties is or may be bound, the
Certificate of Incorporation, By-laws or
6
<PAGE> 7
other organizational documents of the Company or any law, order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its properties or will result
in the creation of a lien.
(xi) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by the
Company of the transactions contemplated by this Agreement, except such
as may be required by the National Association of Securities Dealers,
Inc. (the "NASD") or under the Securities Act or the securities or
"Blue Sky" laws of any jurisdiction in connection with the purchase and
distribution of the Stock by the Underwriters.
(xii) The Company has the full corporate power and authority
to enter into this Agreement and to perform its obligations hereunder
(including to issue, sell and deliver the Stock), and this Agreement
has been duly and validly authorized, executed and delivered by the
Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to
the extent that rights to indemnity and contribution hereunder may be
limited by federal or state securities laws or the public policy
underlying such laws. The Company has the full corporate power and
authority to execute and deliver the Warrants on the terms and
conditions set forth in this Agreement and in the Warrants, and such
execution and delivery of the Warrants has been duly and validly
authorized, and when executed and delivered pursuant to this Agreement,
the Warrants will be enforceable against the Company in accordance with
their terms.
(xiii) The Company is in all material respects in compliance
with, and conducts its business in conformity with, all applicable
federal, state, local and foreign laws, rules and regulations of each
court or governmental agency or body having jurisdiction over the
Company; to the knowledge of the Company, otherwise than as set forth
in the Registration Statement and the Prospectus, no prospective change
in any of such federal or state laws, rules or regulations has been
adopted which, when made effective, would have a material adverse
effect on the operations of the Company.
(xiv) The Company has filed all necessary federal, state,
local and foreign income, payroll,
7
<PAGE> 8
franchise and other tax returns and has paid all taxes shown as due
thereon or with respect to any of its properties, and there is no tax
deficiency that has been, or to the knowledge of the Company is likely
to be, asserted against the Company or any of its properties or assets
that would adversely affect the financial position, business or
operations of the Company.
(xv) No person or entity has the right to require registration
of shares of Common Stock or other securities of the Company because of
the filing or effectiveness of the Registration Statement or otherwise,
except for persons and entities who have expressly waived such right or
who have been given proper notice and have failed to exercise such
right within the time or times required under the terms and conditions
of such right and except as contemplated by the Warrants.
(xvi) Neither the Company nor any of its officers, directors
or affiliates has taken or will take, directly or indirectly, any
action designed or intended to stabilize or manipulate the price of any
security of the Company, or which caused or resulted in, or which might
in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of the
Company.
(xvii) The Company has provided you with all financial
statements since ______________, 1996 to the date hereof that are
available to the officers of the Company.
(xviii) The Company owns or possesses all patents, trademarks,
trademark registrations, service marks, service mark registrations,
tradenames, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being owned by it or necessary for the
conduct of its business, and the Company is not aware of any claim to
the contrary or any challenge by any other person to the rights of the
Company with respect to the foregoing. The Company's business as now
conducted and as proposed to be conducted does not and will not
infringe or conflict with any patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses or other intellectual
property or franchise right of any person. No claim has been made
against the Company alleging the infringement by the Company of any
patent, trademark, service mark, tradename, copyright, trade secret,
8
<PAGE> 9
license in or other intellectual property right or franchise right of
any person.
(xix) The Company has performed all material obligations
required to be performed by it under any indenture, mortgage, deed of
trust, note agreement or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound, and neither
the Company nor any other party to such indenture, mortgage, deed of
trust, note agreement or other agreement or instrument is in default
under or in breach of any such obligations.
(xx) The Company is not involved in any labor dispute nor is
any such dispute threatened. The Company is not aware that (A) any
executive, key employee or significant group of employees of the
Company plans to terminate employment with the Company or (B) any such
executive or key employee is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreement that would
be violated by the present or proposed business activities of the
Company. The Company does not have and does not expect to have any
liability for any prohibited transaction or funding deficiency or any
complete or partial withdrawal liability with respect to any pension,
profit sharing or other plan which is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), to which
the Company makes or ever has made a contribution and in which any
employee of the Company is or has ever been a participant. With respect
to such plans, the Company is in compliance in all material respects
with all applicable provisions of ERISA.
(xxi) The Company has obtained the written agreement described
in Section 8(j) of this Agreement from each of its officers, directors
and holders of Common Stock listed on Schedule B hereto.
(xxii) The Company has, and the Company as of the Closing
Date[s] will have, good and marketable title in fee simple to all real
property and good and marketable title to all personal property owned
or proposed to be owned by it which is material to the business of the
Company, in each case free and clear of all liens, encumbrances and
defects, except such as are described in the Prospectus or such as
would not have a material adverse effect on the Company; and any real
property and buildings held under lease by the Company or proposed to
be held after giving effect to the
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<PAGE> 10
transactions described in the Prospectus are, or will be as of the
Closing Date[s], held by it under valid, subsisting and enforceable
leases with such exceptions as would not have a material adverse effect
on the Company, in each case except as described in or contemplated by
the Prospectus.
(xxiii) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such
amounts as are customary in the business in which it is engaged or
proposes to engage after giving effect to the transactions described in
the Prospectus; and the Company does not have any reason to believe
that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost
that would not materially and adversely affect the condition, financial
or otherwise, or the earnings, business or operations of the Company,
except as described in or contemplated by the Prospectus.
(xxiv) Other than as contemplated by this Agreement, there is
no broker, finder or other party that is entitled to receive from the
Company any brokerage or finder's fee or other fee or commission as a
result of any of the transactions contemplated by this Agreement.
(xxv) The Company has complied with all provisions of Section
517.075 Florida Statutes (Chapter 92-198; Laws of Florida).
(xxvi) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(xxvii) To the Company's knowledge, neither the Company nor
any employee or agent of the Company
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<PAGE> 11
has made any payment of funds of the Company or received or retained
any funds in violation of any law, rule or regulation.
(xxviii) The Company is not an "investment company" or an
entity "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.
(xxix) Each certificate signed by any officer of the Company
and delivered to the Underwriters or counsel for the Underwriters shall
be deemed to be a representation and warranty by the Company as to the
matters covered thereby.
3. Purchase by, and Sale and Delivery to, Underwriters--Closing
Date[s]. The Company agrees to sell to the Underwriters the Firm Stock, and on
the basis of the representations, warranties, covenants and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase the Firm Stock, the
number of shares of Stock to be purchased by each Underwriter being set opposite
its name in Schedule A, subject to adjustment in accordance with Section 12
hereof.
The purchase price per share to be paid by the Underwriters to the
Company will be $_________ per share (the "Purchase Price").
The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representative may direct by notice in writing to the Company given at or prior
to 12:00 Noon, New York Time, on the second full business day preceding the
First Closing Date (as defined below), or if no such direction is received, in
the names of the respective Underwriters or in such other names as Lendenburg
Thalmann & Co. Inc. may designate (solely for the purpose of administrative
convenience) and in such denominations as Ladenburg Thalmann & Co. Inc. may
determine), against payment of the aggregate Purchase Price herefor by certified
or official bank check or checks in Clearing House funds (next day funds),
payable to the order of the Company, all at the offices of Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022.
The time and date of the delivery and closing shall be at 10:00 A.M., New York
Time, on ________, 1997, in accordance with Rule 15c6-1 of the Securities
Exchange Act of 1934 (the "Exchange Act"). The time and date of such payment and
delivery are herein referred to as the "First Closing Date". The First Closing
Date and the
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<PAGE> 12
location of delivery of, and the form of payment for, the Firm Stock may be
varied by agreement between the Company and the Underwriters. The First Closing
Date may be postponed pursuant to the provisions of Section 12.
The Company shall make the certificates for the Stock available to the
Representative for examination on behalf of the Underwriters not later than
10:00 A.M., New York Time, on the business day preceding the First Closing Date
at the offices of Ladenburg Thalmann & Co. Inc., 590 Madison Avenue, New York,
New York 10022.
It is understood that Ladenburg Thalmann & Co. Inc., individually and
not as Representative of the several Underwriters, may (but shall not be
obligated to) make payment to Company on behalf of any Underwriter or
Underwriters, for the Stock to be purchased by such Underwriter or Underwriters.
Any such payment by Ladenburg Thalmann & Co. Inc., shall not relieve such
Underwriter or Underwriters from any of its or their other obligations
hereunder.
The several Underwriters agree to make an initial public offering of
the Firm Stock at the initial public offering price set forth on the cover page
of the Prospectus as soon after the effectiveness of the Registration Statement
as in their judgment is advisable. The Representative shall promptly advise the
Company of the making of the initial public offering.
Solely for the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Stock as contemplated by the
Prospectus, the Company hereby grants to the Underwriters an option to purchase,
severally and not jointly, up to an aggregate of 187,500 shares of Option Stock.
The price per share to be paid for the Option Stock shall be the Purchase Price.
The option granted hereby may be exercised as to all or any part of the Option
Stock at any time, and from time to time, not more than thirty (30) days
subsequent to the effective date of this Agreement. No Option Stock shall be
sold and delivered unless the Firm Stock previously has been, or simultaneously
is, sold and delivered. The right to purchase the Option Stock or any portion
thereof may be surrendered and terminated at any time upon notice by the
Representative to the Company.
The option granted hereby may be exercised by the Underwriters by
giving written notice from Ladenburg Thalmann & Co. Inc. to the Company setting
forth the number of shares of the Option Stock to be purchased by them, the
names and denominations in which such shares are to be registered and the date
and time for delivery of and payment for the Option Stock. Each date and time
for delivery of and payment for the Option Stock (which may be the First Closing
Date, but not earlier) is herein called the
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<PAGE> 13
"Option Closing Date" and shall in no event be earlier than two (2) business
days nor later than ten (10) business days after written notice is given. (The
Option Closing Date and the First Closing Date are herein called the "Closing
Dates".) All purchases of Option Stock from the Company shall be made on a pro
rata basis. Option Stock shall be purchased for the account of each Underwriter
in the same proportion as the number of shares of Firm Stock (subject to
adjustment by the Underwriters to eliminate odd lots). Upon exercise of the
option by the Underwriters, the Company agrees to sell to the Underwriters the
number of shares of Option Stock set forth in the written notice of exercise and
the Underwriters agree, severally and not jointly, to purchase the number of
such shares determined as aforesaid.
The Company will deliver the Option Stock to the Underwriters (in the
form of definitive certificates, issued in such names and in such denominations
as the Representative may direct by notice in writing to the Company given at
or prior to 12:00 Noon, New York Time, on the second full business day preceding
the Option Closing Date, or, if no such direction is received, in the names of
the respective Underwriters or in such other names as Ladenburg, Thalmann & Co.
Inc. may designate (solely for the purpose of administrative convenience) and in
such denominations as Ladenburg Thalmann & Co. Inc. may determine, against
payment of the aggregate Purchase Price therefor by certified or official bank
check or checks in Clearing House funds (next day funds), payable to the order
of the Company all at the offices of Willkie Farr & Gallagher, One Citicorp
Center, 153 East 53rd Street, New York, New York 10022. The Company shall make
the certificate[s] for the Option Stock available to the Underwriters for
examination not later than 10:00 A.M., New York Time, on the business day
preceding the Option Closing Date at the offices of Ladenburg Thalmann & Co.
Inc., 540 Madison Avenue, New York, New York 10022. The Option Closing Date and
the location of delivery of, and the form of payment for, the Option Stock may
be varied by agreement between the Company and by Underwriters. The Option
Closing Date may be postponed pursuant to the provisions of Section 12.
In order to induce you to enter into this Agreement, the Company, in
consideration of the receipt of $____ for each Warrant and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, shall execute and deliver to you, in your individual capacity and
not as Representative, or your assignees, in compliance with the rules of the
NASD, warrants exercisable during the five-year period commencing on the date
of this Agreement (the "Warrants") to purchase an aggregate of 125,000 shares
of Common Stock at an exercise price per share equal to 120% of the initial
public offering price per share set forth on the cover page of the Prospectus.
The Warrants shall be in the form of Exhibit 4.3 to
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<PAGE> 14
the Registration Statement. Execution and delivery of Warrants, registered in
your name or the names in which you shall notify the Company in writing, shall
be made to you, at your offices at 590 Madison Avenue, New York, New York 10022,
at the First Closing Date. The cost of original issue tax stamps, if any, in
connection with the execution and delivery of the Warrants shall be borne by the
Company.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with the several Underwriters that:
(a) The Company will (i) if the Company and the
Representative have determined not to proceed pursuant to Rule 430A,
use its best efforts to cause the Registration Statement to become
effective, (ii) if the Company and the Representative have determined
to proceed pursuant to Rule 430A, use its best efforts to comply with
the provisions of and make all requisite filings with the Commission
pursuant to Rule 430A and Rule 424 of the Rules and Regulations and
(iii) if the Company and the Representative have determined to deliver
Prospectuses pursuant to Rule 434 of the Rules and Regulations, to use
its best efforts to comply with all the applicable provisions thereof.
The Company will advise the Representative promptly as to the time at
which the Registration Statement becomes effective, will advise the
Representative promptly of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of
the institution of any proceedings for that purpose, and will use its
best efforts to prevent the issuance of any such stop order and to
obtain as soon as possible the lifting thereof, if issued. The Company
will advise the Representative promptly of the receipt of any comments
of the Commission or any request by the Commission for any amendment of
or supplement to the Registration Statement or the Prospectus or for
additional information and will not at any time file any amendment to
the Registration Statement or supplement to the Prospectus which shall
not previously have been submitted to the Representative a reasonable
time prior to the proposed filing thereof or to which the
Representative shall reasonably object in writing or which is not in
compliance with the Securities Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission,
promptly upon the request of the Representative, any amendments or
supplements to the Registration Statement or the Prospectus which in
the opinion of the Representative may be necessary to
14
<PAGE> 15
enable the several Underwriters to continue the distribution of the
Stock and will use its best efforts to cause the same to become
effective as promptly as possible.
(c) If at any time after the effective date of the
Registration Statement when a prospectus relating to the Stock is
required to be delivered under the Securities Act any event relating to
or affecting the Company occurs as a result of which the Prospectus or
any other prospectus as then in effect would include an untrue
statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if it is necessary at
any time to amend the Prospectus to comply with the Securities Act, the
Company will promptly notify the Representative thereof and will
prepare an amended or supplemented prospectus which will correct such
statement or omission; and in case any Underwriter is required under
the Securities Act or the Exchange Act to deliver a prospectus relating
to the Stock nine (9) months or more after the effective date of the
Registration Statement, the Company upon the request of the
Representative and at the expense of the Underwriter will prepare
promptly such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Securities
Act.
(d) The Company will deliver to the Representative, at or
before the First Closing Date, signed copies of the Registration
Statement, as originally filed with the Commission, and all amendments
thereto, including all financial statements and exhibits thereto, and
will deliver to the Representative such number of copies of the
Registration Statement, including such financial statements but without
exhibits, and all amendments thereto, as the Representative may
reasonably request. The Company will deliver or mail to or upon the
order of the Representative, from time to time until the effective
date of the Registration Statement, as many copies of the Pre-effective
Prospectus as the Representative may reasonably request. The Company
will deliver or mail to or upon the order of the Representative on the
date of the initial public offering, and thereafter from time to time
during the period when delivery of a prospectus relating to the Stock
is required under the Securities Act, as many copies of the Prospectus,
in final form or as
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<PAGE> 16
thereafter amended or supplemented, as the Representatives may
reasonably request; provided, however, that the expense of the
preparation and delivery of any prospectus required for use nine (9)
months or more after the effective date of the Registration Statement
shall be borne by the Underwriters required to deliver such prospectus.
(e) The Company will make generally available to its
stockholders as soon as practicable an earnings statement which will be
in reasonable detail (but which need not be audited) and which will
comply with Section 11(a) of the Securities Act, covering a period of
at least twelve (12) months beginning after the "effective date" (as
defined in Rule 158 under the Securities Act) of the Registration
Statement but in no event commencing later than 90 days after such
date.
(f) The Company will cooperate with the Representative to
enable the Stock to be registered or qualified for offering and sale by
the Underwriters and by dealers under the securities laws of such
jurisdictions as the Representative may designate and at the request
of the Representative will make such applications and furnish such
consents to service of process or other documents as may be required of
it as the issuer of the Stock for that purpose; provided, however, that
the Company shall not be required to qualify to do business or to file
a general consent (other than that arising out of the offering or sale
of the Stock) to service of process in any such jurisdiction where it
is not now so subject. The Company will, from time to time, prepare and
file such statements and reports as are or may be required of it as the
issuer of the Stock to continue such qualifications in effect for so
long a period as the Representative may reasonably request for the
distribution of the Stock. The Company will advise the Representative
promptly after the Company becomes aware of the suspension of the
qualifications or registration of (or any such exception relating to)
the Common Stock of the Company for offering, sale or trading in any
jurisdiction or of any initiation or threat of any proceeding for any
such purpose, and in the event of the issuance of any orders suspending
such qualifications, registration or exception, the Company will, with
the cooperation of the Representative, use its best efforts to obtain
the withdrawal thereof.
(g) The Company will furnish to its stockholders annual
reports containing financial
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<PAGE> 17
statements certified by independent public accountants and with
quarterly summary financial information in reasonable detail which may
be unaudited. During the period of five (5) years from the date hereof,
the Company will deliver to the Representative, as soon as they are
available, copies of each annual report of the Company containing the
balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for the year
then ended and the opinion thereon of the Company's independent public
accountants and each other report or communication furnished by the
Company to its stockholders and will deliver to the Representative,
(i) as soon as they are available, copies of any other reports or
communication (financial or other) which the Company shall publish or
otherwise make available to any of its stockholders as such, (ii) as
soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission, the NASD or any
national securities exchange and (iii) from time to time such other
information concerning the Company as you may reasonably request.
(h) The Company will use its best efforts to list the Stock,
subject to official notice of issuance, on the Nasdaq SmallCap Market.
(i) The Company will maintain a transfer agent and registrar
for the Common Stock.
(j) Prior to filing its quarterly statements on Form 10-Q, the
Company will have its independent auditors perform a limited quarterly
review of its quarterly numbers.
(k) The Company will not offer, sell, assign, transfer,
encumber, contract to sell, grant an option to purchase or otherwise
dispose of any shares of Common Stock or securities convertible into or
exercisable or exchangeable for Common Stock during the 180 days
following the date on which the price of the Common Stock to be
purchased by the Underwriters is established, other than the Company's
sale of Common Stock hereunder, the issuance of the Warrants and the
Company's issuance of Common Stock upon the exercise of the Warrants
and upon the exercise stock options which are presently outstanding and
described in the Prospectus.
(l) The Company will apply the net proceeds from the sale of
the Stock as set forth in the
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<PAGE> 18
description under the heading "Use of Proceeds" in the Prospectus,
which description complies in all respects with the requirements of
Item 504 of Regulation S-K.
(m) The Company will supply you with copies of all
correspondence to and from, and all documents issued to and by, the
Commission in connection with the registration of the Stock under the
Securities Act.
(n) Prior to the Closing Date[s] the Company will furnish to
you, as soon as they have been prepared, copies of any unaudited
interim financial statements of the Company for any periods subsequent
to the periods covered by the financial statements appearing in the
Registration Statement and the Prospectus.
(o) Prior to the Closing Date[s] the Company will issue no
press release or other communications directly or indirectly and hold
no press conference with respect to the Company, the financial
condition, results of operation, business, prospects, assets or
liabilities of the Company or the offering of the Stock, without your
prior written consent. For a period of twelve (12) months following the
Option Closing Date, the Company will use its best efforts to provide
to you copies of each press release or other public communications with
respect to the financial condition, results of operations, business,
prospects, assets or liabilities of the Company at least twenty-four
(24) hours prior to the public issuance thereof or such longer advance
period as may reasonably be practicable.
(p) The Company hereby grants to Ladenburg Thalmann & Co. Inc.
a right of first refusal, expiring on the second anniversary of the
date of this Agreement, on any future financings with respect to the
Company.
5. Payment of Expenses. (a) The Company will pay (directly or by
reimbursement) all costs, fees and expenses incurred in connection with expenses
incident to the performance of its obligations under this Agreement and in
connection with the transactions contemplated hereby, including but not limited
to (i) all expenses and taxes incident to the issuance and delivery of the Stock
to the Representative; (ii) all expenses incident to the registration of the
Stock under the Securities Act; (iii) the costs of preparing stock certificates
(including printing and engraving costs); (iv) all fees and expenses of the
registrar and transfer agent of the Common Stock; (v) all necessary issue,
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<PAGE> 19
transfer and other stamp taxes in connection with the issuance and sale of the
Stock to the Underwriters; (vi) fees and expenses of the Company's counsel and
the Company's independent accountants; (vii) all costs and expenses incurred in
connection with the preparation, printing filing, shipping and distribution of
the Registration Statement, each Pre-effective Prospectus and the Prospectus
(including all exhibits and financial statements) and all amendments and
supplements provided for herein, the Agreement Among Underwriters between the
Representatives and the Underwriters, the Master Selected Dealers' Agreement,
the Blue Sky memoranda and this Agreement; (viii) all filing fees, attorneys'
fees and expenses incurred by the Company or the Underwriters in connection with
exemptions from the qualifying or registering (or obtaining qualification or
registration of) all or any part of the Stock for offer and sale under the Blue
Sky or other securities laws of such jurisdictions as the Representative may
designate; (ix) all fees and expenses paid or incurred in connection with
filings made with the NASD; and (x) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section 5. Except as provided in this Section 5 and Section
11 hereof, the Underwriters will pay all of their own expenses, including the
fees and disbursements of their counsel.
(b) In addition to its other obligations under Section 6(a) hereof, the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
(i) any statement or omission or any alleged statement or omission or (ii) any
breach or inaccuracy in its representations and warranties, it will reimburse
each Underwriter on a quarterly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse each Underwriter for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Underwriter shall promptly return
it to the Company together with interest, compounded daily, determined on the
basis of the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to time by ________, New York, New
York (the "Prime Rate"). Any such interim reimbursement payments which are not
made to any Underwriter in a timely manner as provided below shall bear interest
at the Prime Rate from the due date for such reimbursement. This expense
reimbursement agreement will be in addition to any other liability which the
Company may otherwise have. The request for reimbursement will be sent to the
Company.
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<PAGE> 20
(c) In addition to its other obligations under Section 6(b) hereof,
each Underwriter agrees that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in Section 6(b) hereof which relates to written information furnished
to the Company by the Representative specifically for inclusion in the
Registration Statement and the Prospectus, it will reimburse the Company (and,
to the extent applicable, each officer, director or controlling person) on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director or controlling person) for such expenses and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company (and, to the
extent applicable, each officer, director or controlling person) shall promptly
return it to the Underwriter together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company within thirty (30) days of a request
for reimbursement shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
(d) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in paragraph (b) or (c) of this
Section 5, including the amounts of any requested reimbursement payments and the
method of determining such amounts, shall be settled by arbitration conducted
under the provisions of the Constitution and Rules of the Board of Governors of
the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration
Procedure of the NASD. Any such arbitration must be commenced by service of a
written demand for arbitration or written notice of intention to arbitrate,
therein electing the arbitration tribunal. In the event the party demanding
arbitration does not make such designation of an arbitration tribunal in such
demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in paragraph (b) or (c) of this
Section 5 and would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of Section
6.
(e) In addition to its other obligations under Section 6 hereof, on the
First Closing Date and each Option Closing Date,
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<PAGE> 21
the Company will pay to you, individually and not as Representative of the
several Underwriters, a non-accountable expense allowance in an aggregate amount
equal to two percent (2%) of the initial public offering price of the Firm Stock
and the Option Stock being sold by the Company on such Closing Date and Option
Closing Date.
6. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls such Underwriter within the meaning of the Securities Act and the
respective officers, directors, partners, employees, representatives and agents
of each Underwriter (collectively, the "Underwriter Indemnified Parties" and,
each, an "Underwriter Indemnified Party"), against any losses, claims, damages,
liabilities or expenses (including the reasonable cost of investigating and
defending against any claims therefor and counsel fees incurred in connection
therewith), joint or several, which may be based upon the Securities Act, or any
other statute or at common law, on the ground or alleged ground that any
Pre-effective Prospectus, the Registration Statement or the Prospectus (or any
Pre-effective Prospectus, the Registration Statement or the Prospectus as from
time to time amended or supplemented) includes or allegedly includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, unless such
statement or omission was made in reliance upon, and in conformity with, written
information furnished to the Company by any Underwriter, directly or through the
Representative, specifically for use in the preparation thereof; provided, that
with respect to any untrue statement or omission or alleged untrue statement or
omission made in any Pre-effective Prospectus, the indemnity agreement contained
in this subsection (a) shall not inure to the benefit of any Underwriter
Indemnified Party from whom the person asserting any such losses, claims,
damages or liabilities purchased the shares of Stock concerned to the extent
that any such loss, claim, damage or liability of such Underwriter Indemnified
Party results from the fact that a copy of the Prospectus was not sent or given
to such person at or prior to the written confirmation of the sale of such
shares of Stock to such person as required by the Securities Act and if the
untrue statement or omission concerned has been corrected in the Prospectus. The
Company will be entitled to participate at its own expense in the defense or, if
it so elects, to assume the defense of any suit brought to enforce any such
liability, but if the Company elects to assume the defense, such defense shall
be conducted by counsel chosen by it. In the event the Company elects to assume
the defense of any such suit and retain such counsel, any Underwriter
Indemnified Parties, defendant or defendants in the suit, may retain additional
counsel but shall bear the fees and expenses of such counsel unless (i)
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<PAGE> 22
the Company shall have specifically authorized the retaining of such counsel or
(ii) the parties to such suit include any such Underwriter Indemnified Parties
and the Company and such Underwriter Indemnified Parties have been advised by
counsel to the Underwriters that one or more legal defenses may be available to
it or them which may not be available to the Company, in which case the Company
shall not be entitled to assume the defense of such suit notwithstanding its
obligation to bear the fees and expenses of such counsel. The Company shall not
be liable for any settlement of any such suit effected without its written
consent, but if settled with the written consent of the Company, the Company
agrees to indemnity and hold harmless any Underwriter and any such controlling
person from and against any loss or liability by reason of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
for claims that are the subject matter of such proceeding. The foregoing
indemnity agreement with respect to any preliminary Prospectus or any Prospectus
that is subsequently supplemented or amended shall not inure to the benefit of
any Underwriter from whom the person asserting the loss, claim, damage or
liability purchased Stock if a copy of the Prospectus (as amended or
supplemented, if the Company shall have furnished the Underwriters with such
amendments or supplements thereto on a timely basis) was not sent or given by or
on behalf of any of the Underwriters to the person asserting the claim or
action, if required by law to have been so sent or given by the Underwriter
seeking indemnification, at or prior to the written confirmation of the sale of
such shares of Stock and if the Prospectus (as so amended or supplemented) would
have cured the defect giving rise to such loss, claim, damage or liability. This
indemnity agreement is not exclusive and will be in addition to any liability
which the Company might otherwise have and shall not limit any rights or
remedies which may otherwise be available at law or in equity to each
Underwriter Indemnified Party.
(b) Each Underwriter severally and not jointly agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act (collectively, the "Company
Indemnified Parties"), against any losses, claims, damages, liabilities or
expenses (including, unless the Underwriter or Underwriters elect to assume the
defense, the reasonable cost of investigating and defending against any claims
therefor and counsel fees incurred in connection therewith), joint or several,
which arise out of or are based in whole or in part upon the Securities Act, the
Exchange Act or any other federal, state,
22
<PAGE> 23
local or foreign statute or regulation, or at common law, on the ground or
alleged ground that any Pre-effective Prospectus, the Registration Statement or
the Prospectus (or any Pre-effective Prospectus, the Registration Statement or
the Prospectus, as from time to time amended and supplemented) includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading, but only
insofar as any such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by such
Underwriter, directly or through the Representatives, specifically for use in
the preparation thereof; provided, however, that in no case is the Underwriter
to be liable with respect to any claims made against any Company Indemnified
Party against whom the action is brought unless such Company Indemnified Party
shall have notified such Underwriter in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon the Company Indemnified Party, but failure to
notify such Underwriter of such claim shall not relieve it from any liability
which it may have to any Company Indemnified Party otherwise than on account of
its indemnity agreement contained in this paragraph. Such Underwriter shall be
entitled to participate at its own expense in the defense, or, if it so elects,
to assume the defense of any suit brought to enforce any such liability, but, if
such Underwriter elects to assume the defense, such defense shall be conducted
by counsel chosen by it. In the event that any Underwriter elects to assume the
defense of any such suit and retain such counsel, the Company Indemnified
Parties and any other Underwriter or Underwriters or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them, respectively. The Underwriter
against whom indemnity may be sought shall not be liable to indemnify any person
for any settlement of any such claim effected without such Underwriter's
consent. This indemnity agreement is not exclusive and will be in addition to
any liability which such Underwriter might otherwise have and shall not limit
any rights or remedies which may otherwise be available at law or in equity to
any Company Indemnified Party.
(c) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on
23
<PAGE> 24
the other from the offering of the Stock. If, however, the allocation provided
by the immediately preceding sentence is not permitted by applicable law, then
each indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contribution were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to above shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating, defending, settling or compromising any
such claim. Notwithstanding the provisions of this subsection (c), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the shares of the Stock underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which the Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 6(c) are several in
proportion to their respective underwriting commitments and not joint.
7. Survival of Indemnities, Representations, Warranties, etc. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of
24
<PAGE> 25
the Company and the Underwriters, as set forth in this Agreement or made by them
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter, the
Company or any of its officers or directors or any controlling person, and shall
survive delivery of and payment for the Stock and any termination of this
Agreement.
8. Conditions of Underwriters' Obligations. The respective obligations
of the several Underwriters hereunder shall be subject to the accuracy, at and
(except as otherwise stated herein) as of the date hereof and at and as of the
Closing Date[s], of the representations and warranties made herein by the
Company, to compliance at and as of the Closing Date[s] by the Company with its
covenants and agreements herein contained and other provisions hereof to be
satisfied at or prior to the Closing Date[s], and to the following additional
conditions:
(a) The Registration Statement shall have become effective and
no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company or the Representative, shall be
threatened by the Commission, and any request for additional
information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the Representative.
Any filings of the Prospectus, or any supplement thereto, required
pursuant to Rule 424(b) or Rule 434 of the Rules and Regulations shall
have been made in the manner and within the time period required by
Rule 424(b) and Rule 434 of the Rules and Regulations, as the case may
be.
(b) The Representative shall have been satisfied that there
shall not have occurred any change prior to the Closing Date[s], in the
condition (financial or otherwise), properties, business, management,
prospects, net worth or results of operations of the Company, or any
change in the capital stock, short-term or long-term debt of the
Company, such that (i) the Registration Statement or the Prospectus, or
any amendment or supplement thereto, contains an untrue statement of
fact which, in the opinion of the Underwriter, is material, or omits to
state a fact which, in the opinion of the Representative, is required
to be stated therein or is necessary to make the statements therein not
misleading, or (ii) it is unpracticable in the reasonable judgment of
the Representative to proceed
25
<PAGE> 26
with the public offering or purchase the Stock as contemplated hereby.
(c) The Representatives shall be satisfied that no legal or
governmental action, suit or proceeding affecting the Company which is
material and adverse to the Company or which affects or may affect the
Company's ability to perform its obligations under this Agreement shall
have been instituted or threatened and there shall have occurred no
material adverse development in any existing such action, suit or
proceeding.
(d) At the time of execution of this Agreement, the
Representative shall have received from Coopers & Lybrand L.L.P.,
independent certified public accountants, a letter, dated the date
hereof, in form and substance satisfactory to the Underwriter.
(e) The Representative shall have received from Coopers &
Lybrand L.L.P., independent certified public accountants, letters,
dated the Closing Date[s], to the effect that such accountants
reaffirm, as of the Closing Date[s], and as though made on the Closing
Date[s], the statements made in the letter furnished by such
accountants pursuant to paragraph (d) of this Section 8.
(f) The Representative shall have received from Morris,
Manning & Martin, L.L.P., counsel for the Company, an opinion, dated
the Closing Date[s], to the effect set forth in Exhibit I hereto. In
rendering such opinion, Morris, Manning & Martin, L.L.P. may rely as to
all matters governed other than by the laws of the State of Georgia,
the Delaware General Corporation Law or federal laws on the opinion of
local counsel of good standing in such jurisdictions, provided that
such local counsel is satisfactory to the counsel to the
Representative and that in each case Morris, Manning & Martin, L.L.P.
shall state that they believe that they and the Underwriters are
justified in relying on such other counsel.
(g) The Representative shall have received from Willkie Farr
& Gallagher, counsel for the Underwriters, their opinion or opinions
dated the Closing Date[s] with respect to the incorporation of the
Company, the validity of the Stock, the Registration Statement and the
Prospectus and such other related matters as it may reasonably request,
and the Company shall have furnished to such counsel such
26
<PAGE> 27
documents as they may request for the purpose of enabling them to pass
upon such matters. In rendering such opinion, Willkie Farr & Gallagher
may rely as to all matters governed other than by the laws of the State
of New York, the Delaware General Corporation Law or federal laws on
the opinion of counsel referred to in paragraph (f) of this Section 8.
(h) The Representative shall have received a certificate,
dated the Closing Date[s], of the chief executive officer or the
President and the chief financial or accounting officer of the Company
to the effect that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the best of the
knowledge of the signers, no proceedings for that purpose have
been instituted or are pending or contemplated under the
Securities Act;
(ii) Neither any Pre-effective Prospectus, as of its date,
nor the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, as of the time when the
Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate,
included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as set forth or contemplated in the
Prospectus, the Company has not incurred any material liabilities
or obligations, direct or contingent, nor entered into any
material transactions not in the ordinary course of business;
(iv) The representations and warranties of the Company in
this Agreement are true and correct at and as of the Closing
Date[s], and the Company has complied with all the agreements and
performed or satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date[s]; and
27
<PAGE> 28
(v) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except
as disclosed in or contemplated by the Prospectus, (i) there has
not been any material adverse change or a development involving a
material adverse change in the condition (financial or otherwise),
properties, business, management, prospects, net worth or results
of operations of the Company, or any change in the capital stock,
short-term or long-term debt of the Company; (ii) the business and
operations conducted by the Company have not sustained a loss by
strike, fire, flood, accident or other calamity (whether or not
insured) of such a character as to interfere materially with the
conduct of the business and operations of the Company; (iii) no
legal or governmental action, suit or proceeding is pending or
threatened against the Company which is material to the Company,
whether or not arising from transactions in the ordinary course of
business, or which may materially and adversely affect the
transactions contemplated by this Agreement; (iv) since such dates
and except as so disclosed, the Company has not incurred any
material liability or obligation, direct, contingent or indirect,
made any change in its capital stock, made any material change in
its short-term or funded debt or repurchased or otherwise acquired
any of the Company's capital stock; and (v) the Company has not
declared or paid any dividend, or made any other distribution,
upon its outstanding capital stock payable to stockholders of
record on a date prior to the Closing Date.
(i) The Company shall have furnished to the Representative
such additional certificates as the Representative may have reasonably
requested as to the accuracy, at and as of the Closing Date[s], of the
representations and warranties made herein by it and as to compliance
at and as of the Closing Date[s] by it with its covenants and
agreements herein contained and other provisions hereof to be satisfied
at or prior to the Closing Date[s], and as to satisfaction of the other
conditions to the obligations of the Underwriters hereunder.
(j) The Representative shall have received the written
agreements of the officers and directors of the Company and the holders
of securities of the Company listed in Schedule B that each will not
offer,
28
<PAGE> 29
sell, assign, transfer, encumber, contract to sell, grant an option to
purchase or otherwise dispose of, other than by operation of law,
gifts, pledges or dispositions by estate representatives, any shares of
Common Stock (including, without limitation, Common Stock which may be
deemed to be beneficially owned by such officer, director or holder in
accordance with the Rules and Regulations) or securities convertible
into or exercisable or exchangeable for Common Stock during the 180
days following the date of the final Prospectus.
(k) The Nasdaq SmallCap Market shall have approved the Stock
for inclusion, subject only to official notice of issuance.
All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory in form
and substance to the Representative. The Company will furnish to the
Representative conformed copies of such opinions, certificates, letters and
other documents as the Representative shall reasonably request. If any of the
conditions hereinabove provided for in this Section shall not have been
satisfied when and as required by this Agreement, this Agreement may be
terminated by the Representative by notifying the Company of such termination
in writing or by telegram at or prior to the Closing Date[s], but the
Representative shall be entitled to waive any of such conditions.
9. Effective Date. This Agreement shall become effective immediately as
to Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16, 17 and 18 and 19, and, as to all
other provisions, at 11:00 a.m. New York City time, on the first full business
day following the effectiveness of the Registration Statement or at such earlier
time after the Registration Statement becomes effective as the Representative
may determine on and by notice to the Company or by release of any of the Stock
for sale to the public. For the purposes of this Section 9, the Stock shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Stock or upon the release by you of
telegrams offering the Stock for sale to securities dealers.
10. Termination. This Agreement (except for the provisions of Section
5) may be terminated by the Company at any time before it becomes effective in
accordance with Section 9 by notice to the Representative and may be terminated
by the Representative at any time before it becomes effective in accordance
with Section 9 by notice to the Company. In the event of any termination of this
Agreement under this or any other provision of this Agreement, there shall be no
liability of any
29
<PAGE> 30
party to this Agreement to any other party, other than as provided in Sections
5, 6 and 11 and other than as provided in Section 12 as to the liability of
defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representative by notice to the Company (i) if at or prior to the First Closing
Date trading in securities on any of the New York Stock Exchange, American Stock
Exchange or Nasdaq National Market shall have been suspended or minimum or
maximum prices shall have been established on any such exchange or market, or a
banking moratorium shall have been declared by New York or United States
authorities; (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market; (iii) if at or
prior to the First Closing Date there shall have been (A) an outbreak or
escalation of hostilities between the United States and any foreign power or of
any other insurrection or armed conflict involving the United States or (B) any
change in financial markets or any calamity or crisis which, in the judgment of
the Representative, makes it impractical or inadvisable to offer or sell the
Firm Stock on the terms contemplated by the Prospectus; (iv) if there shall have
been any development or prospective development involving particularly the
business or properties or securities of the Company or the transactions
contemplated by this Agreement, which, in the judgment of the Representative,
makes it impracticable or inadvisable to offer or deliver the Firm Stock on the
terms contemplated by the Prospectus; (v) if there shall be any litigation or
proceeding, pending or threatened, which, in the judgment of the
Representative, makes it impracticable or inadvisable to offer or deliver the
Firm Stock on the terms contemplated by the Prospectus; or (vi) if there shall
have occurred any of the events specified in the immediately preceding clauses
(i) - (v) together with any other such event that makes it, in the judgment of
the Representative, impractical or inadvisable to offer or deliver the Firm
Stock on the terms contemplated by the Prospectus.
11. Reimbursement of Underwriters. Notwithstanding any other provisions
hereof, if this Agreement shall not become effective by reason of any election
of the Company pursuant to the first paragraph of Section 10 or shall be
terminated by the Representative under Section 8 or Section 10, the Company
will bear and pay the expenses specified in Section 5 hereof and, in addition to
its obligations pursuant to Section 6 hereof, the Company will reimburse the
reasonable out-of-pocket expenses of the Underwriters (including reasonable fees
and disbursements of counsel for the Underwriters) incurred in connection with
this Agreement and the proposed purchase of the Stock, and promptly upon demand
the Company will pay such amounts to you as Representative.
30
<PAGE> 31
12. Substitution of Underwriters. If on the First Closing Date or the
option Closing Date, as the case may be, any Underwriter or Underwriters shall
default in its or their obligations to purchase shares of Stock hereunder
(otherwise than by reason of default on the part of the Company), you, as
Representative of the Underwriters, shall use your reasonable efforts to
procure within 48 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the shares of Stock which the defaulting Underwriter
or Underwriters failed to purchase. If during such 48 hours you, as such
Representative, shall not have procured such other Underwriters, or any others,
to purchase the shares of Stock agreed to be purchased by the defaulting
Underwriter or Underwriters, then (a) if the aggregate number of shares which
such defaulting Underwriter or Underwriters agreed but failed to purchase does
not exceed ten percent (10%) of the total number of shares underwritten, the
other Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the shares of Stock which such
defaulting Underwriter or Underwriters agreed but failed to purchase, or (b) if
the aggregate number of shares of Stock with respect to which such default or
defaults occur is more than ten percent (10%) of the total number of shares
underwritten, the Company or you, as the Representative of the Underwriters,
will have the right, by written notice given within the next 48-hour period to
the parties to this Agreement, to terminate this Agreement without liability on
the part of the non-defaulting Underwriters or the Company.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 12, (i) the Company
shall have the right to postpone the Closing Date[s] for a period of not more
than five (5) full business days in order that the Company may effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements to
the Prospectus which may thereby be made necessary, and (ii) the respective
numbers of shares to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken as the basis of their underwriting obligation for
all purposes of this Agreement. Nothing herein contained shall relieve any
defaulting Underwriter of its liability to the Company or the other Underwriters
for damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 12 shall be without liability on the part of
any non-defaulting Underwriter or the Company, except for expenses to be paid or
reimbursed pursuant to Section 5 and except for the provisions of Section 6.
31
<PAGE> 32
13. Notices. All communications hereunder shall be in writing and, if
sent to the Underwriters shall be mailed, delivered or telegraphed and confirmed
to you, as their Representative c/o Ladenburg Thalmann & Co. Inc. at 590
Madison Avenue, 34th Floor, New York, New York 10022, Attention: Ms. Christine
Davis, or if sent to the Company, shall be mailed, delivered or telegraphed and
confirmed c/o HomeCom Communications, Inc., Fourteen Piedmont Center, Suite 100,
3535 Piedmont Road, Atlanta, Georgia 36305, Attention: President.
14. Successors. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person other than the
persons mentioned in the preceding sentence any legal or equitable right, remedy
or claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person; except that the representations, warranties,
covenants, agreements and indemnities of the Company contained in this Agreement
shall also be for the benefit of the person or persons, if any, who control any
Underwriter or Underwriters within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, and the indemnities of the several
Underwriters shall also be for the benefit of each director of the Company, each
of its officers who has signed the Registration Statement and the person or
persons, if any, who control the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act.
15. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of [New York] without giving effect to
the choice of law principles thereof.
16. Authority of the Representative. In connection with this
Agreement, you will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by Ladenburg Thalmann & Co. Inc., as
Representative, will be binding on all the Underwriters.
17. Partial Unenforceability. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.
32
<PAGE> 33
18. General. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company and the Representative.
33
<PAGE> 34
19. Counterparts. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us.
Very truly yours,
HOMECOM COMMUNICATIONS, INC.
By:
--------------------------------
Title:
Accepted and delivered in
New York, New York as of
the date first above written.
LADENBURG THALMANN & CO. INC.
Acting on its own behalf and as
Representative of the several
Underwriters referred to in the
foregoing Agreement.
By: Ladenburg Thalmann & Co. Inc.
By:
---------------------------------
Title:
34
<PAGE> 35
SCHEDULE A
<TABLE>
<CAPTION>
Number of shares
of Firm Stock to
Name be Purchased
- ---- ----------------
<S> <C>
Ladenburg Thalmann & Co. Inc.
---------
1,250,000
=========
</TABLE>
<PAGE> 36
SCHEDULE B
<PAGE> 37
EXHIBIT I
Matters to be covered in
opinion of Counsel to the Company(1)
1. The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which its ownership or
lease of property or the conduct of its business requires such
qualification, and has all power and authority necessary to own or hold
its properties and conduct the business in which it is engaged.
2. The Company has an authorized capitalization as set forth
in the Prospectus under the caption "Capitalization", and all of the
issued shares of capital stock of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable and
all of the shares of Stock to be issued and sold by the Company to the
Underwriters pursuant to the Underwriting Agreement have been duly and
validly authorized and, when issued and delivered against payment
therefor as provided for in the Underwriting Agreement, will be duly
and validly issued, fully paid and non-assessable and free of any
preemptive or similar rights; and all of the shares of Common Stock to
be issued upon exercise of the Warrants have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided in the Warrants, will be duly and validly issued, fully paid
and nonassessable and free of all preemptive or similar rights.
3. Except as disclosed in and or specifically contemplated by
the Prospectus and the financial statements of the Company and related
notes thereto included in the Prospectus, to the best of such counsel's
knowledge, the Company does not have outstanding any options or
warrants to purchase, or any preemptive rights
- --------------------
(1) Capitalized terms used herein but not defined shall have the meanings
given such terms in the Underwriting Agreement.
<PAGE> 38
or other rights to subscribe for or to purchase any securities or
obligations convertible into, or any contracts or commitments to issue
or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations, except for options granted
subsequent to the date of information provided in the Prospectus
pursuant to the Company's stock option plans as disclosed in the
Prospectus. There are no restrictions upon the voting or transfer of,
any of the Stock pursuant to the Certificate of Incorporation or
By-Laws or, to the best of such counsel's knowledge, any agreement or
other instrument of the Company.
4. To the best of such counsel's knowledge, except as set
forth in the Prospectus, there are no material legal or governmental
proceedings pending to which the Company is a party or of which any
property or assets of the Company is the subject which, if determined
adversely to the Company, could have a material adverse effect on the
Company or prevent or adversely affect the transactions contemplated by
the Underwriting Agreement; and, to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or other third parties. To the best of such
counsel's knowledge, the Company is not a party or subject to the
provisions of any material injunction, judgment, decree or order of any
court, regulatory body or other governmental agency or body.
5. The Company has the full corporate power and authority to
enter into the Underwriting Agreement and to perform its obligations
thereunder (including to issue, sell and deliver the Stock), and the
Underwriting Agreement has been duly and validly authorized, executed
and delivered by the Company. The Company has the full corporate power
and authority to execute and deliver the Warrants on the terms and
conditions set forth in the Underwriting Agreement and in the Warrants,
and such execution and delivery of the Warrants has been duly and
validly authorized, and when executed and delivered pursuant to the
Underwriting Agreement, the Warrants will be enforceable against the
Company in accordance with their terms.
6. The execution, delivery and performance of the Underwriting
Agreement and the consummation of the transactions therein contemplated
will not result in a breach or violation of any of the terms or
provisions of or constitute a default under the Certificate of
Incorporation, By-laws or other organizational documents of the
Company, or any indenture, mortgage, deed of trust,
2
<PAGE> 39
note agreement or other agreement or instrument known to such counsel
to which the Company is a party or by which it or any of its properties
is or may be bound, or any law, order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or
any of its properties or result in the creation of a lien.
7. No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by the
Company of the transactions contemplated by the Underwriting Agreement
(except such as may be required by the National Association of
Securities Dealers, Inc. or as required by the securities or "Blue Sky"
laws of any jurisdiction as to which such counsel need express no
opinion) in connection with the purchase and distribution of the Stock
by the Underwriters, except such as have been obtained or made,
specifying the same.
8. The Registration Statement was declared effective under the
Securities Act as of _________________, 1997, the Prospectus was filed
with the Commission pursuant to Rule 424(b) of the Rules and
Regulations on __________________, 1997 and, to the best of such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose is pending or threatened by the Commission.
9. The Registration Statement and the Prospectus and any
amendments or supplements thereto (except for the financial statements
and notes thereto and related schedules as to which such counsel need
express no opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations.
10. To the best of such counsel's knowledge, there is no
franchise, lease, contract, agreement or other document required to be
described in the Registration Statement or Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or
filed therein as required. All descriptions of any such franchises,
leases, contracts, agreements or documents contained in the
Registration Statement are accurate and complete descriptions of such
documents in all material respects.
11. To the best of such counsel's knowledge, no holders of
securities of the Company have the right to require registration of
shares of Common Stock or other securities of the Company because of
the filing or
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effectiveness of the Registration Statement or otherwise, except for
persons and entities who have expressly waived such right or who have
been given proper notice and have failed to exercise such right within
the time or times required under the terms and conditions of such right
and except as contemplated by the Warrants.
12. The statements in the Prospectus, to the extent they
constitute a summary of documents referred to therein or they reflect
matters of law or legal conclusions relating to such law, accurately
summarize and fairly present the information called for with respect to
such documents and matter and the legal and regulatory matters
described therein.
13. The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended.
In addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement or any amendment
thereto, as of the time it became effective under the Securities Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Securities Act) and as of the First Closing Date or the Option Closing
Date, as the case may be, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or (ii) that the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the First Closing Date or the Option Closing
Date, as the case may be, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading (except that such counsel need express no view as
to financial statements and notes thereto, schedules and statistical information
therein). With respect to such statement, such counsel may state that their
belief is based upon the procedures set forth therein, but is without
independent check and verification.
In rendering such opinion, such counsel may rely as to matters of law other than
the law of the State of Georgia, the Delaware General Corporation Law and the
federal law of the United States, on opinions of local counsel, and as to
matters of fact, on certificates of officers of the Company and of government
officials, in which case their opinion is to state that they are
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so doing and that the Underwriters are justified in relying on such opinions or
certificates.
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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
April 15, 1997