<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1997.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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HOMECOM COMMUNICATIONS, INC.
(exact name of registrant as specified in its charter)
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<C> <C> <C>
DELAWARE 7371 58-2153309
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation Classification Code Number) Identification No.)
</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
HOMECOM COMMUNICATIONS, INC.
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:
OBY T. BREWER III, ESQUIRE
MORRIS, MANNING & MARTIN, L.L.P.
1600 ATLANTA FINANCIAL CENTER
3343 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326
(404) 233-7000
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
[ ]
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 of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective 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 effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SECURITY(2) OFFERING PRICE(2) FEE(2)
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<S> <C> <C> <C> <C>
Common Stock, par value $.0001........ 850,000 $8.0625 $6,853,125 $2,021.67
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(1) The number of shares of Common Stock registered hereby represents an
estimate of the number of shares of Common Stock that will be issuable upon
conversion of an aggregate $1,700,000 of the Company's 5% Convertible
Debentures due September 22, 2000 (the "Debentures"). Pursuant to a
Registration Rights Agreement between the Company and the holders of the
Debentures, the Company has agreed to register 850,000 shares of Common
Stock. Following conversion in full or repayment of the Debentures, the
Company intends to deregister any and all shares of Common Stock registered
hereunder that are not issued to a Selling Securityholder upon conversion of
the Debentures.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(i) of the Securities Act of 1933, as amended. On
December 13, the average of the closing bid and ask price, which is quoted
on the Nasdaq SmallCap(TM) Market under the symbol "HCOM," was $8.0625 per
share.
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THIS 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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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<PAGE> 2
PROSPECTUS
HOMECOM COMMUNICATIONS, INC.
(THE "COMPANY")
UP TO 850,000 SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
OF AN AGGREGATE $1,700,000 OF THE COMPANY'S
5% CONVERTIBLE DEBENTURES DUE SEPTEMBER 22, 2000
This Prospectus relates to up to 850,000 shares (the "Conversion Shares")
of the Company's Common Stock, $.0001 par value per share ("Common Stock")
issuable upon conversion of an aggregate $1,700,000 principal amount of the
Company's 5% Convertible Debentures due September 22, 2000 (the "Debentures")
under the Securities Act of 1933, as amended (the "Securities Act"). The
Debentures were issued and sold in November 1997 (the "Debenture Sale") in
transactions exempt from the registration requirements of the Securities Act, to
"accredited investors" (as defined in Rule 501(a) under Regulation D of the
Securities Act) and/or in compliance with the provisions of Regulation S under
the Securities Act. The Common Stock issuable upon conversion thereof may be
offered and sold from time to time by the holders named herein or by their
transferees, pledgees, donees or their successors (collectively, the "Selling
Securityholders") pursuant to this Prospectus. The Registration Statement of
which this Prospectus is a part has been filed with the Securities and Exchange
Commission pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement") between the Company and the Selling Securityholders, entered into in
connection with the Debenture Sale.
The Debentures are issued pursuant to the terms of a 5% Convertible
Debenture Purchase Agreement dated effective as of September 19, 1997 (the
"Debenture Agreement"). Principal and interest on the Debentures is payable on
September 22, 2000. The Debentures are convertible at the option of the holders.
The holders have agreed, however, that they may convert (i) not more than
one-third of the aggregate value of the Debentures at any time on or after the
date on which this registration statement is declared effective (the
"Registration Effective Date"); (ii) not more than an additional one-third of
the aggregate value of the Debentures at any time on or after the 30th day
following the Registration Effective Date; and (iii) the final one-third of the
aggregate value of the Debentures at any time on or after the 60th day following
the Registration Effective Date. The Debentures are convertible at a conversion
price (the "Conversion Price") which is the lesser of (a) 75% of the average
closing bid price of the Common Stock as represented by Nasdaq or on other
securities exchanges or markets on which the Common Stock is listed for the
three trading days ending on the day preceding notice of conversion, or (b)
$4.00. The number of shares issuable upon conversion of the Debentures is equal
to the aggregate principal balance of the Debentures divided by the Conversion
Price. The Conversion Price is subject to adjustment under certain
circumstances. See "Description of Securities-Convertible Debentures." On
December 13, 1997, the closing price of the Common Stock, which is quoted on the
Nasdaq SmallCap(TM) Market under the symbol "HCOM," was $8.0625 per share.
The Selling Securityholders have informed the Company that the Conversion
Shares may be offered from time to time in brokerage transactions (which may
include block transactions) on any exchange or market on which such securities
are listed or quoted, as applicable, in negotiated transactions, through a
combination of such methods of sale, or otherwise, at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
prevailing market prices or at negotiated prices. The Selling Securityholders
may effect such transactions by selling the Conversion Shares directly or to or
through broker-dealers, who may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers of the Conversion Shares for whom such broker-dealers may act as
agents or to whom they may sell as principals, or both (which compensation as to
a particular broker-dealer might be in excess of customary commissions). The
Selling Securityholders will receive all of the net proceeds from the sale of
the Conversion Shares and will pay all underwriting discounts and selling
commissions, if any, applicable to the sale of the Conversion Shares. The
Company is responsible for payment of all other expenses incident to the offer
and sale of the Conversion Shares. The Company will not receive any of the
proceeds from the sale of the Conversion Shares by the Selling Securityholders.
The Selling Securityholders, and intermediaries through whom such
securities are sold, may be deemed underwriters within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
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.
SUBJECT TO COMPLETION, DATED , 1997
<PAGE> 3
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.
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<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in connection with, (i) the Company's financial statements and
notes thereto included elsewhere in this Prospectus; and (ii) the exhibits filed
with the registration statement of which this Prospectus is a part including
without limitation, the form of Debentures, Debenture Agreement and Registration
Rights Agreement. Unless otherwise indicated, the information in this Prospectus
does not give effect to the conversion of the Debentures.
THE COMPANY................ HomeCom Communications, Inc. ("HomeCom" or 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
three areas: (i) customized software applications
design, development and integration including,
World Wide Web site development; (ii) Internet
outsourcing services; and (iii) security consulting
and integration services. HomeCom's objective is to
be a leading provider of business communications
solutions using Internet standard protocol
technologies.
THE OFFERING............... Up to 850,000 shares of Common Stock (the
"Conversion Shares") are offered hereby by the
Selling Securityholders. The Conversion Shares are
issuable upon conversion of an aggregate $1,700,000
of the Company's 5% Convertible Debentures due
September 22, 2000 (the "Debentures") issued by the
Company to the Selling Securityholders. The Selling
Securityholders will receive all of the net
proceeds from the sale of the Conversion Shares and
will pay all underwriting discounts and selling
commissions, if any, applicable to the sale of the
Conversion Shares. The Company is responsible for
payment of all other expenses incident to the offer
and sale of the Conversion Shares. The Company will
not receive any of the proceeds from the sale of
the Conversion Shares by the Selling
Securityholders.
CONVERSION................. The Debentures are convertible at the option of the
holders. The holders have agreed, however, that
they may convert (i) not more than one-third of the
aggregate value of the Debentures on or after the
Registration Effective Date; (ii) an additional
one-third of the aggregate value of the Debentures
at any time on or after the 30th day following the
Registration Effective Date; and (iii) the final
one-third of the aggregate value of the Debentures
at any time on or after the 60th day following the
Registration Effective Date. The Company has
received no firm commitment for the conversion of
any of the Debentures. Consequently, there can be
no assurance that the Debentures will be converted.
Pursuant to a Registration Rights Agreement between
the Company and the holders of the Debentures, the
Company has agreed to register 850,000 shares of
Common Stock. Following conversion in full or
repayment of the Debentures, the Company intends to
deregister any and all shares of Common Stock
registered hereunder that are not issued to a
Selling Securityholder upon conversion of the
Debentures. See "Risk Factors -- No Fixed Number of
Shares Issuable Upon Conversion of the Debentures."
RISK FACTORS............... An investment in the securities offered hereby
involves a high degree of risk. See "Risk Factors."
3
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NASDAQ SMALLCAP(TM)
MARKET SYMBOL............ HCOM
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BEFORE OFFERING(1) AFTER OFFERING(1)(2)
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<S> <C> <C>
COMMON STOCK OUTSTANDING............. 2,956,396 3,381,396
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(1) Excludes: (i) 600,000 shares reserved for issuance under the Company's Stock
Option Plan, of which options to acquire 418,660 shares of Common Stock are
issuable upon the exercise of outstanding options granted at exercise prices
ranging from $4.06 to $6.13 per share and weighted average exercise price of
$4.88 per share; (ii) 300,000 shares reserved for issuance under the
Company's Non-Employee Directors Plan, of which options to acquire 10,000
shares of Common Stock are issuable upon the exercise of outstanding options
granted at an exercise price of $6.50 per share; (ii) 150,000 shares
reserved for issuance under the Company's Stock Purchase Plan, no shares
having been issued thereunder; (iv) 100,000 shares of Common Stock reserved
for issuance upon the exercise of warrants granted to the underwriter of the
Company's initial public offering at an exercise price of $7.20 per share;
and (v) 400,000 shares issuable upon the exercise of warrants granted in
connection with the Debenture Sale of which warrants to acquire 200,000
shares are exercisable at an exercise price of $4.00 per share and warrants
to acquire 200,000 shares are exercisable at an exercise price of $6.00 per
share. See "Management -- Incentive Plans," "Description of Capital
Stock -- Convertible Debentures" and "Description of Capital
Stock -- Warrants." 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."
(2) Assumes that all holders of Debentures elect to convert the Debentures into
an aggregate 425,000 shares of Common Stock at a Conversion Price of $4.00
which represents the Conversion Price in effect as of the date hereof. See
"Description of Securities -- Convertible Debentures."
SUMMARY FINANCIAL INFORMATION
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DECEMBER 2 NINE MONTHS
(INCORPORATION) YEAR ENDED DECEMBER 31, ENDED
TO DECEMBER 31, ----------------------- SEPTEMBER 30,
1994 1995 1996 1997
--------------- --------- ---------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. -- $ 327,574 $2,298,855 $ 2,330,975
Operating loss......................... $ (17,452) (1,824) (580,865) (3,391,081)
Net loss............................... (17,452) (5,440) (625,583) (3,387,747)
Net loss per share..................... $ (.01) $ (.00) $ (.33) $ (1.36)
Weighted number of shares of Common
Stock and Common Stock equivalents
outstanding.......................... 1,850,447 1,850,447 1,879,696 2,483,258
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 2 NINE MONTHS ENDED
(INCORPORATION) YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1997
TO DECEMBER 31, ------------------------ -------------------------
1994 1995 1996 ACTUAL PRO FORMA(1)
--------------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)..... $ 8,455 $133,792 $(1,304,682) $1,961,870 $1,961,870
Total assets.................. 10,254 247,382 1,726,522 3,723,473 3,595,973
Long-term obligations......... -- 160,792 147,833 1,244,775 111,442
Total liabilities............. -- 242,568 2,347,191 2,118,381 985,048
Stockholders' equity
(deficit)................... 10,254 4,814 (620,669) 1,605,092 2,610,925
</TABLE>
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(1) Based on the trading price of the Common Stock as of December 13, 1997 of
$8.0625 per share, the Conversion Price would be $4.00 per share. Pro forma
balance sheet data reflect conversion of an
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aggregate $1.7 million of Debentures into an aggregate 425,000 shares of
Common Stock at the assumed Conversion Price of $4.00 per share.
FORWARD LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, including without limitation, certain statements contained under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" concerning the Company's expectations, beliefs, or strategies
regarding increased future revenues and operations and certain statements
contained under "Business" concerning the development and marketing of
customized Internet applications and security consulting services and the effect
of market conditions and competition. When used in this Prospectus, the words
"believes," "intends," "anticipates" and similar expressions are intended to
identify forward-looking statements. All forwarding statements included in this
Prospectus are based on information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward-looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected or implied
by such forward-looking statements. Such risks and uncertainties include the
timing and acceptance of new product introductions, the actions of the Company's
competitors and business partners, and those discussed under the caption "Risk
Factors."
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RISK FACTORS
An investment in the securities offered hereby is speculative in nature and
involves a high degree of risk. In addition to other information contained in
this Prospectus, prospective investors should carefully consider the following
risk factors before purchasing the securities offered hereby.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; CONTINUING LOSSES. The
Company was incorporated in December 1994 and commenced sales in January 1995.
Consequently, the Company has only a limited operating history upon which to
base an evaluation of the Company and its prospects. The Company's prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving industries. To address these risks, the
Company must, among other things, respond to competitive developments, continue
to attract, retain and motivate qualified persons, and continue to upgrade and
commercialize products and services. There can be no assurance that the Company
will be successful in addressing such risks. The Company has incurred net losses
since its incorporation and as of September 30, 1997 had an accumulated deficit
of approximately $4.0 million. For the year ended December 31, 1996 and the nine
months ended September 30, 1997, the Company had negative cash flows from
operations of approximately $216,000 and $3.5 million, respectively. The Company
continues to incur operating losses and there can be no assurance that the
Company will ever achieve or sustain profitability.
RECENT REDUCTION OF STAFF AND OTHER EXPENSES; CONTINUING LOSSES. 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 recent expansion of operating expenses
has placed significant demands on the Company's administrative, operational,
financial and other resources. Following completion of its initial public
offering, the Company expended considerable resources to expand its marketing
and sales programs, its product development staff, its accounting and internal
management systems and its other administrative and public relations
capabilities. These increases in expenditures were not followed by commensurate
increases in revenues, and during the quarter ended September 30, 1997, the
Company was forced to engage in substantial reductions in its personnel in order
to conserve operating capital. This reduction in staff has affected employee
morale and limited the Company's ability to increase sales to desired levels.
Notwithstanding the Company's efforts to limit its expenditures, its operating
costs continue to exceed revenues. If the Company cannot generate sufficient
revenues to offset its operating expenses or the Company's management otherwise
fails to manage the Company's growth effectively, the Company's business,
financial condition and operating results will be materially and adversely
affected. There can be no assurance that current management can operate the
Company's business adequately to achieve profitable operations. See
"Business -- Employees" and "Management."
NEED FOR ADDITIONAL FINANCING. The Company has substantially limited
sources of capital and continues to incur substantial operating losses. As of
September 30, 1997, the Company had net working capital of approximately $2.0
million. Because the Company expects to continue to incur substantial operating
losses, the Company will continue to use substantial sums of cash in its
operations for an indefinite period. Accordingly, the Company will be required
to obtain additional capital. No assurance can be given that the Company will be
successful in its efforts to obtain additional capital, or that capital will be
available on terms acceptable to the Company. If the Company exhausts its
current sources of capital and is not able to obtain additional capital, the
Company will be required to undertake certain steps to continue its operations.
Such steps may include immediate reduction of the Company's operating costs and
other expenditures, including potential reductions of personnel and suspension
of salary increases and capital expenditures. If such measures are not
sufficient, the Company may elect to implement other cost reduction actions as
the Company may determine are necessary and in the Company's best interests. Any
such actions undertaken may limit the Company's opportunities to realize
continued increases in sales and the Company may not be able to reduce its costs
in amounts sufficient to achieve break-even or profitable operations. If the
Company exhausts its sources of capital, and subsequent cost reduction measures
are not sufficient to allow the Company to achieve break-even or profitable
operations, the Company will be forced to seek protection from its creditors.
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PRICE EROSION; CONTINUING DECLINE IN MARGINS. 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 has resulted in significant price
competition, which in turn has resulted in significant reductions in the average
selling price of many of the Company's products and services, including its Web
site development and hosting services. The Company has not been able to offset
the effects of price reductions through an increase in the number of its
customers, higher revenue from enhanced services or cost reductions, and the
Company expects its margins to continue to decline.
INTENSE COMPETITION. The Company's current and prospective competitors
include many companies that have longer operating histories, longer customer
relationships and substantially greater financial, management, technical,
development, sales, marketing and other resources than the Company. Many
nationally known companies and regional and local companies across the country
are involved in Internet and Intranet applications, including the development
and support of Web sites and Internet applications, 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. The
Company's ability to compete in its markets is substantially limited by its
available working capital and its continuing operating losses. See
"Business -- Competition."
NEW AND UNCERTAIN MARKET. The market for Internet and Intranet products
and services has only recently developed. Because this market is relatively new
and because current and future competitors are likely to introduce competing
Internet and Intranet products and services, it is difficult to predict the rate
at which the market will grow or at which new or increased competition will
result in market saturation. If the Internet and Intranet markets fail to grow,
grow more slowly than anticipated or become saturated with competitors, the
Company's business, financial condition and operating results will be materially
and adversely affected.
DEPENDENCE ON THE INTERNET. Although a portion of the sales of the
Company's products and services will depend upon growth of private Intranet
networks, sales of the Company's Internet related products and services will
depend in large part upon an adequate infrastructure for providing Internet
access and carrying Internet traffic. The Internet may not prove to be a viable
commercial marketplace because of inadequate development of the necessary
infrastructure or timely development of complementary products such as high
speed modems. Because global commerce and on-line exchange of information on the
Internet and other similar open wide area networks are new and evolving, it is
difficult to predict with any assurance whether the Internet will prove to be a
viable commercial marketplace. There can be no assurance that the infrastructure
or complementary products necessary to make the Internet a viable commercial
marketplace will be developed, or, if developed, that the Internet will become a
viable commercial marketplace. If the necessary infrastructure or complementary
products are not developed, or if the Internet does not become a viable
commercial marketplace, the Company's business, financial condition and
operating results will be materially and adversely affected.
RISK OF CHANGING TECHNOLOGY. The Internet software and services markets
are characterized by rapid technological change, evolving industry standards,
emerging industry competition and frequent new service, software and other
product introductions. The Company's future success will depend in significant
part on its ability to anticipate industry standards, continue to apply advances
in Internet and Intranet technologies, enhance its current services and
products, and develop and introduce new services and products on a timely basis.
The introduction of services and products embodying new technologies and the
emergence of new industry standards can render existing services and products
obsolete and unmarketable. There can be no assurance that the Company will be
successful in developing and marketing product enhancements or new services and
products 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
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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."
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."
LENGTH OF SALES CYCLE. The development and implementation of interactive
Web sites and intranet software applications requires the Company to engage in a
lengthy sales cycle. The pursuit of sales leads typically involves an analysis
of the prospective customer's needs, preparation of a written proposal, one or
more presentations and contract negotiations. The Company often provides
significant education to prospective customers regarding the use and benefits of
Internet or Intranet technologies and products. Extensive Web site development
or licensing of the Company's products may also involve a substantial commitment
of capital by potential customers as well as the attendant delays frequently
associated with approving larger capital expenditures and reviewing new
technologies that affect key operations. If the Company's average sales cycle
continues to lengthen, the Company will face increased costs, potentially lower
profit margins and a potential inability to achieve targeted sales goals.
RISK OF DEFECTS. Web site services and other services based on software
and computing systems often encounter development and completion delays and the
underlying software may contain undetected errors or failures when introduced
and, in the case of Web sites, when the volume of traffic on a site increases.
In addition, there can be no assurance that errors found in the software
underlying a Web site or other project will not result in delays in completion,
commercial release or market acceptance of such Web site or other project.
Likewise, there can be no assurance that the Company will not incur
unanticipated costs to cure any defect or be obligated to refund money paid to
the Company or to pay for damages caused by any delay or defect. Software
applications and products as complex as those being developed by the Company may
contain undetected errors or failures when first introduced. If software errors
are discovered after introduction, the Company could experience delays and lost
revenues during the period required to correct these errors. There can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found in new applications, products or releases
after commencement of installation or shipment, resulting in loss of or delay in
receiving revenues.
SECURITY RISKS. The Company's software and equipment are vulnerable to
computer viruses or similar disruptive problems caused by customers or other
Internet users. Computer viruses or problems caused by third parties could lead
to interruptions, delays or cessation in service to the Company's customers.
Moreover, customers of the Company could use computer files and information
stored on or transmitted to Web server computers maintained by the Company to
engage in illegal activities that may be unknown or undetectable by the Company,
including fraud and misrepresentation, and unauthorized access to computer
systems of others. Furthermore, inappropriate use of the Internet by third
parties could also jeopardize the security of customers' confidential
information that is stored in the Company's computer systems. Any such actions
could subject the Company to liability to third parties. The Company does not
have errors and omissions, product liability or other insurance to protect
against risks caused by computer viruses or other misuse of software or
equipment by third parties. Although the Company attempts to limit its liability
to customers for these types of risks through contractual provisions, there can
be no assurance that these provisions will be enforceable.
8
<PAGE> 10
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 has a registered service mark for
its logo, and has applied for federal registration of the names "HomeCom," "Post
On The Fly(TM)" and "Personal Internet Banker(TM)." 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."
DILUTION. Purchasers of shares of Common Stock offered hereby will
experience immediate and substantial dilution in net tangible book value per
share. In addition, the Company will be required to issue a substantial number
of additional shares of Common Stock in the future in order to obtain additional
financing. The issuance of a material number of such shares will have the effect
of increasing the dilution to new investors in this Offering.
FLUCTUATIONS IN QUARTERLY RESULTS. As a result of the Company's limited
operating history, the Company does not have historical financial data for a
significant number of periods on which to base planned operating expenses.
Accordingly, the Company's expense levels are based in part on its expectations
as to future revenues and to a large extent are fixed. However, the Company
typically operates with no significant backlog. As a result, quarterly sales and
operating results generally depend on the volume and timing of and ability to
perform services requested within the quarter, and are difficult to forecast.
The Company may be unable to adjust spending in a timely manner to compensate
for any unexpected revenues shortfall. Accordingly, any significant shortfall of
demand for the Company's products and services in relation to the Company's
expectations would result in fluctuations in future quarterly operating results.
The Company may also experience significant fluctuations in future quarterly
operating results as the result of many factors, including demand for the
Company's products and services, introduction or enhancement of products by the
Company and its competitors, market acceptance of new products and services, mix
of products and services sold and general economic conditions. As a result, the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as any indication
of future performance.
SHARES ELIGIBLE FOR FUTURE SALE. Upon consummation of the offering, the
Company will have outstanding 3,381,396 shares of Common Stock (assuming a
Conversion Price applicable to the Debentures of $4.00), will have outstanding
options to purchase of 428,660 shares of Common Stock pursuant to the Company's
stock option plans at a weighted average exercise price of approximately $4.90
per share, and will have outstanding warrants to acquire an aggregate 500,000
shares at a weighted average exercise price of
9
<PAGE> 11
approximately $5.44 per share. Of the 3,381,396 shares outstanding after this
offering, approximately 1,425,000 shares (including the 425,000 shares assumed
to be sold in this offering) will be freely tradable without restriction or
further registration under the Securities Act unless they are purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. The remaining 1,956,396 outstanding shares of Common Stock may
be sold in the public market only if registered or pursuant to an exemption from
registration such as Rule 144 or Rule 144(k) promulgated under the Securities
Act. In addition, the Company intends to file a Registration Statement on Form
S-8 under the Securities Act for the purpose of registering the potential sale
of the 600,000 shares reserved for issuance under the Company's Stock Option
Plan (of which options to purchase 418,660 shares are outstanding), the 300,000
shares for issuance under the Company's Non-Employee Directors Plan (of which
options to purchase 10,000 shares are outstanding) and the 150,000 shares
reserved for issuance under the Company's Employee Stock Purchase Plan (of which
no shares or purchase rights have yet been granted). After the effective date of
that registration statement, except for shares held by affiliates of the
Company, shares purchased pursuant to the foregoing stock option and purchase
plans generally would be available for resale in the public market. Finally, not
later than thirty days following the date on which the Debentures may be fully
converted, the Company has agreed to file a registration statement for the sale
to the public of the 400,000 shares issuable upon the exercise of warrants
granted in connection with the Debenture sale. See "Description of
Securities -- Warrants Issued in Connection with Debenture Sale." After the
effective date of that registration statement, shares issuable pursuant to any
exercise of such warrants generally would be available for resale in the public
market.
VARIABILITY OF NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
DEBENTURES. The number of shares of Common Stock issuable upon conversion of
the Debentures is essentially unlimited. If the price of the Common Stock as
reported by the Nasdaq SmallCap(TM) Market, declines to a price significantly
less than $4.00 per share, the Company will be required to issue substantially
more than the 425,000 shares assumed hereunder to be issuable upon conversion of
the Debentures. All shares issuable by the Company upon conversion of the
Debentures are required to be registered hereunder. Consequently, all of such
shares will be eligible for sale in the market place without restriction, except
to the extent that any of the selling Securityholders are deemed to be
"affiliates" of the Company at the time of sale. No assurance can be given that
the trading price of the Company's Common Stock will not fall significantly
below $4.00 per share, or that purchasers in this offering will not suffer
significant additional dilution as a result of any such decline in the price of
the Common Stock.
UNPAID BALANCE OF DEBENTURES ACCELERATES UPON DEFAULT. The unpaid balance
of the Debentures accelerates upon any default in the payment of the Debentures.
Consequently, if the Company defaults in the payment of any of the principal or
interest due or payable on the Debentures the value of the Common Stock may
decline.
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO CONVERT
DEBENTURES. Holders of the Debentures will only be able to convert the
Debentures if (i) a current prospectus under the Securities Act relating to the
shares of Common Stock underlying the Debentures is then in effect, and (ii)
such shares of Common Stock are qualified for sale or exempt from qualification
under the applicable securities laws of the states in which they are offered.
There can be no assurance that the Company will be able to maintain the
effectiveness of a current prospectus covering the shares of Common Stock
issuable upon conversion of the Debentures. See "Description of Securities."
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
10
<PAGE> 12
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 is listed
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. Nasdaq
has proposed new, more stringent maintenance criteria. These new criteria will
apply to the Company commencing in February 1998. These new criteria require (i)
either $2,000,000 in net tangible assets (total assets less total liabilities,
goodwill and other intangible assets), $35,000,000 in market capitalization or
$500,000 in net income for two of the three immediately preceding years; (ii) at
least 500,000 shares of public float; (iii) market value of the public float of
not less than $4,000,000; (iv) a minimum bid price of not less than $1.00 per
share; and (v) a minimum of 300 stockholders. Failure of the Company to meet
Nasdaq's current or new maintenance criteria may cause the Common Stock to be
delisted from The Nasdaq SmallCap(TM) Market, and trading, if any, in the Common
Stock would thereafter be conducted in the over-the-counter market. As a result,
an investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value, of the Common Stock. In addition, if the
Common Stock were delisted from trading on The Nasdaq SmallCap(TM) Market and
the trading price of the Common Stock was less than $5.00 per share, trading in
the Common Stock would also be subject to certain rules promulgated under the
Securities Exchange Act of 1934, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
"penny stock" (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stock to
persons other than established customers and accredited investors. For these
types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transactions prior to sale. The additional burdens imposed upon
broker-dealers by such requirements may discourage broker-dealers from effecting
transactions in the Common Stock, which could severely limit the market
liquidity of the Common Stock and the ability of stockholders 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 was successfully
challenged in federal district court and ultimately found to be unconstitutional
by the United States Supreme Court in Reno v. American Civil Liberties Union.
Therefore, at the time of this Prospectus, the Company does not believe that it
is currently subject to direct regulation by any government agency, other than
regulations
11
<PAGE> 13
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.
12
<PAGE> 14
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Common Stock
issuable upon conversion thereof by the Selling Securityholders or upon any
conversion of the Debentures.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq SmallCap(TM) Market
under the symbol "HCOM." The following table shows for the periods indicated the
high and low sale prices for the Common Stock as reported by the Nasdaq
SmallCap(TM) Market.
<TABLE>
<CAPTION>
1997 HIGH LOW
---- ------- -------
<S> <C> <C>
Second quarter (since May 8, 1997)..................... $ 7.25 $ 6.00
Third quarter.......................................... 6.50 2.13
Fourth quarter (through December 13, 1997)............. 10.13 2.63
</TABLE>
On December 13, 1997, the last reported sale price of the Common Stock as
reported by the Nasdaq SmallCap(TM) Market was $8.0625 per share. As of December
15, 1997, there were 32 holders of record of the Company's Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on its capital stock to date.
The Company currently anticipates that it will retain all future earnings, if
any, to fund the development and growth of its business and does not anticipate
paying any cash dividends in the foreseeable future.
13
<PAGE> 15
SELECTED FINANCIAL DATA
The following selected historical financial data of HomeCom Communications,
Inc. for the years ended December 31, 1994, 1995 and 1996 have been derived from
the audited financial statements of the Company, including the balance sheets at
December 31, 1994, 1995 and 1996 and the related statements of operations and of
cash flows for each of the three fiscal years in the period ended December 31,
1996 and the related notes thereto included herein. The financial data as of
September 30, 1997 and for the nine months ended September 30, 1997 are derived
from unaudited condensed financial statements included herein, which include all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the nine months
ended September 30, 1997 are not necessarily indicative of results that may be
expected for future periods. The data should be read in conjunction with the
financial statements, related notes and other financial information included
herein.
<TABLE>
<CAPTION>
DECEMBER 2 NINE MONTHS
(INCORPORATION) YEAR ENDED DECEMBER 31, ENDED
TO DECEMBER 31, ----------------------- SEPTEMBER 30,
1994 1995 1996 1997
--------------- --------- ---------- ---------------
UNAUDITED
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Service sales....................... -- $ 327,574 $2,112,878 $ 2,268,377
Equipment sales..................... -- -- 185,977 62,598
--------- --------- ---------- -----------
Total net sales.................. -- 327,574 2,298,855 2,330,975
--------- --------- ---------- -----------
Cost of Sales:
Cost of services.................... -- 59,871 546,409 1,252,507
Cost of equipment sold.............. -- -- 128,938 52,294
--------- --------- ---------- -----------
Total cost of sales.............. -- 59,871 675,347 1,304,801
--------- --------- ---------- -----------
Gross profit.......................... -- 267,703 1,623,508 1,026,174
--------- --------- ---------- -----------
Operating expenses:
Sales and marketing................. 1,045 124,253 845,690 1,163,072
Product development................. -- 20,239 78,887 375,977
General and administrative.......... 16,407 121,313 1,194,728 2,739,374
Depreciation and amortization....... -- 3,722 85,068 138,832
--------- --------- ---------- -----------
Total operating expenses......... 17,452 269,527 2,204,373 4,417,255
Operating Loss........................ (17,452) (1,824) (580,865) (3,391,081)
Other expenses (income):
Interest expense, net............... -- 3,469 51,272 53,665
Other expense (income), net......... -- 147 (6,554) (56,999)
--------- --------- ---------- -----------
Loss before income taxes.............. (17,452) (5,440) (625,583) (3,387,747)
Income taxes.......................... -- -- -- --
--------- --------- ---------- -----------
Net loss.............................. $ (17,452) $ (5,440) $ (625,583) $(3,387,747)
========= ========= ========== ===========
Net loss per share.................... $ (.01) $ (.00) $ (.33) $ (1.36)
========= ========= ========== ===========
Weighted average number of shares of
Common Stock and Common Stock
equivalents outstanding............. 1,850,447 1,850,447 1,879,696 2,483,258
========= ========= ========== ===========
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
--------------------------------- ------------------------
1994 1995 1996 ACTUAL PRO FORMA
------ -------- ----------- ---------- ----------
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........ $8,455 $133,792 $(1,304,682) $1,961,870 $1,961,870
Total assets..................... 10,254 247,382 1,726,522 3,723,473 3,595,973
Long-term obligations............ -- 160,792 147,833 1,244,775 111,442
Total liabilities................ -- 242,568 2,347,191 2,118,381 985,048
Stockholders' equity (deficit) 10,254 4,814 (620,669) 1,605,092 2,610,925
</TABLE>
- ---------------
(1) Based on the trading price of the Common Stock as of December 13, 1997 of
$8.0625 per share, the Conversion Price would be $4.00 per share. Pro forma
balance sheet data reflect conversion of an aggregate $1.7 million of
Debentures into an aggregate 425,000 shares of Common Stock at the assumed
Conversion Price of $4.00 per share.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company was incorporated in December 1994 and commenced sales in
January 1995 when it began marketing its Web site development and hosting
services. The Company markets its services through a direct sales force,
advertisement, referrals, and active business partner relationships with
organizations such as AT&T, Microsoft, Netscape 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 (including consulting on internet and
intranet security) 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 and for the
nine months ended September 30, 1997 are not necessarily indicative of future
operating results.
During the first nine months of 1997, custom Internet and Intranet
applications and integration services accounted for approximately 56% of the
Company's revenues, Internet outsourcing services generated approximately 33% of
the Company's revenues and Internet security services generated approximately 8%
of the Company's revenues.
During 1996 and the first nine months of 1997, expenses substantially
exceeded net sales as the Company expanded its products and services, increased
its marketing and sales staff and enhanced its operational and administrative
support structure to support anticipated increases in revenues. The anticipated
increases in revenues have not materialized and the Company has been forced to
substantially reduce its operating expenses. In the third quarter of 1997, the
Company reduced the number of its employees from approximately 100 to
approximately 50. As a result of this substantial reduction in its work force,
the Company faces issues involving employee morale and hiring. Notwithstanding
these reductions in operating expenses, the Company expects to continue to incur
operating losses for an indefinite period. See "Risk Factors -- Recent Reduction
of Staff and Other Expenses; Continuing Losses."
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.
16
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
net revenues for the periods indicated.
<TABLE>
<CAPTION>
DECEMBER 2 NINE MONTHS
(INCORPORATION) YEAR ENDED YEAR ENDED ENDED
TO DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996 1997
--------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net sales:
Service sales....................... -- 100.0% 91.9% 97.3%
Equipment sales..................... -- -- 8.1 2.7
----- ----- ----- ------
Total net sales.................. -- 100.0 100.0 100.0
----- ----- ----- ------
Cost of sales:
Cost of services.................... -- 18.3 23.8 53.8
Cost of equipment sold.............. -- -- 5.6 2.2
----- ----- ----- ------
Total cost of sales.............. -- 18.3 29.4 56.0
----- ----- ----- ------
Gross profit.......................... -- 81.7 70.6 44.0
----- ----- ----- ------
Operating expenses:
Sales and marketing................. -- 37.9 36.8 49.9
Product development................. -- 6.2 3.4 16.1
General and administrative.......... -- 37.1 52.0 117.5
Depreciation and amortization....... -- 1.1 3.7 6.0
----- ----- ----- ------
Total operating expenses......... -- 82.3 95.9 189.5
----- ----- ----- ------
Operating loss........................ -- (0.6) (25.3) (145.5)
----- ----- ----- ------
Other expenses (income)
Interest expense.................... -- 1.1 2.2 2.3
Other expense (income), net......... -- 0.0 (0.3) (2.5)
----- ----- ----- ------
Loss before income taxes.............. -- (1.7) (27.2) (145.3)
----- ----- ----- ------
Income taxes.......................... -- 0.0 0.0 0.0
----- ----- ----- ------
Net loss.............................. -- (1.7)% (27.2)% (145.3)%
===== ===== ===== ======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Net Sales. Net sales increased 58.4% from $1,471,324 in the first nine
months of 1996 to $2,330,975 in the first nine months of 1997. Revenues from
service sales increased 72.0% from $1,318,675 in the first nine months of 1996
to $2,268,377 in the first nine months of 1997. This increase of $949,702 is
primarily attributable to increases in hosting revenues of approximately
$563,000, Web site development and customized applications revenues of
approximately $184,000 and security consulting revenue of approximately
$237,000. Revenues from equipment sales were $62,598 during the first nine
months of 1997 as compared to $152,649 during the first nine months of 1996.
Cost of Sales. Cost of sales for services increased from $271,887, or
18.5% of revenues in the first nine months of 1996 to $1,252,507, or 53.7% of
revenues in the first nine months of 1997. This increase reflects the Company's
significant increase in payroll costs associated with the hiring of additional
technical personnel. Increases in the Company's cost of sales as a percentage of
sales reflects the hiring of technical personnel to create available capacity
for anticipated revenue growth, which did not occur. The Company increased its
technical staff to approximately 60 persons in July 1997. Subsequently, the
Company reduced this staff to approximately 30 persons as of September 30, 1997.
Gross Profit. Gross profit decreased by $58,711 from $1,084,885 in the
first nine months of 1996 to $1,026,174 in the first nine months of 1997. Gross
profit margins decreased from 73.7% during the first nine
17
<PAGE> 19
months of 1996 to 44.0% during the first nine months of 1997. This decrease as a
percentage of net sales primarily reflects increased costs incurred by the
Company for technical personnel hired in advance of anticipated revenue growth,
which did not occur.
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 185.0% from $408,131 in the first nine months of
1996 to $1,163,072 in the first nine months of 1997. This increase was primarily
attributable to an increase in advertising and marketing expenses. As a
percentage of net sales, these expenses increased from 27.7% in the first nine
months of 1996 to 49.9% in the first nine months of 1997. During the third
quarter of 1997, the Company implemented procedures intended to substantially
reduce advertising and marketing expenses.
Product Development. Product development expenses consist of personnel
costs required to conduct the Company's product development efforts. Management
believes that significant continuing investments in product development are
required to compete effectively in the Company's industry. As a consequence, the
Company has increased expenditures on product development primarily through the
employment of additional development personnel. Total expenditures for product
development were $405,132, or 17.4% of net sales in first nine months of 1997,
of which $29,155 were capitalized. This compares to total product development
expenditures of $117,068, or 8.0% of sales, in the first nine months of 1996, of
which $53,245 were capitalized. The product development staff was eight persons
in July 1997. Subsequently, the Company reduced its product development staff,
which was two persons at September 30, 1997.
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 $664,244 in the first nine months of 1996 to $2,739,374 in the first nine
months of 1997. As a percentage of net sales, these expenses increased from
45.1% in the first nine months of 1996 to 117.5% in the first nine months of
1997. This increase as a percentage of net sales reflects primarily increases
for operational and administrative support personnel incurred to support
anticipated growth in revenues, which did not occur. During the third quarter of
1997, the Company implemented steps to significantly reduce its general and
administrative costs. These steps included: (i) reductions in general and
administrative staff; and (ii) reductions in advertising, public relations and
other professional services.
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
$52,835, or 3.6% of net sales in the first nine months of 1996 to $138,832, or
6.0% in the first nine months of 1997, reflecting increased expenditures on
capital equipment.
Interest Expense. Interest expense increased from $26,833 in the first
nine months of 1996 to $53,655 during the first nine months of 1997, principally
reflecting increased debt levels associated with notes payable to investors
entered into in 1996.
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 net sales in 1995 to $546,409, or 23.8% of
net sales 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.
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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 net sales 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 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 net
sales, these expenses decreased from 37.9% of net sales in 1995 to 36.8% of
revenues in 1996.
Product Development. 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 net sales, in 1995, none of which were capitalized.
General and Administrative. 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.
Depreciation and Amortization. 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.
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.
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 RESULTS OF OPERATIONS
The following table presents the Company's net sales, gross profit,
operating loss and net loss for each of the seven quarters beginning January 1,
1996 and ending September 30, 1997. In the opinion of management, this
information includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation. The results of operations data
for any quarter are not necessarily indicative of the results to be expected for
any future period.
<TABLE>
<CAPTION>
QUARTER ENDED:
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $ 272 $ 546 $ 654 $ 828 $ 909 $ 708 $ 713
Gross profit........... 225 396 464 539 568 345 113
Operating income
(loss)............... 12 (50) (66) (477) (355) (903) (2,133)
Net income (loss)...... 10 (65) (77) (495) (375) (917) (2,096)
</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
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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
GENERAL
Following completion of its initial public offering, the Company increased
its expenses in anticipation of potential increased sales which did not occur.
During the quarter ended June 30, 1997, the Company realized that sales had not
increased at the rate anticipated. In response, the Company took efforts during
the quarter ended September 30, 1997 to reduce its general and administrative
costs. These efforts included (i) a reduction in staff from a high of
approximately 100 persons in July 1997 to approximately 50 persons at September
30, 1997; and (ii) reductions in advertising, public relations and other
professional services.
The Company has substantially limited sources of capital. As of September
30, 1997, the Company had net working capital of approximately $2.0 million.
Because the Company expects to continue to incur substantial operating losses,
the Company will continue to use substantial sums of cash in its operations
throughout the remainder of this calendar year, and possibly for an indefinite
period thereafter. Accordingly, the Company will be required to obtain
additional capital. No assurance can be given that the Company will be
successful in its efforts to obtain additional capital, or that capital will be
available on terms acceptable to the Company or on terms that will not
significantly dilute the interests of existing stockholders. If the Company
exhausts its current sources of capital and is not able to obtain additional
capital, the Company will be required to undertake certain steps to continue its
operations. Such steps may include immediate reduction of the Company's
operating costs and other expenditures, including potential reductions of
personnel and suspension of salary increases and capital expenditures. If such
measures are not sufficient, the Company may elect to implement other cost
reduction actions as the Company may determine are necessary and in the
Company's best interests, including the possible sale of certain of the
Company's assets. Any such actions undertaken may limit the Company's
opportunities to realize continued increases in sales and the Company may not be
able to reduce its costs in amounts sufficient to achieve break-even or
profitable operations. If the Company exhausts its sources of capital, and
subsequent cost reduction measures are not sufficient to allow the Company to
achieve break-even or profitable operations, the Company will be forced to seek
protection from its creditors.
Net cash used in operating activities was $3,487,770 for the nine month
period ended September 30, 1997. The Company has primarily financed its
operations to date through public and private sales of equity securities and
loans from its principal stockholders and affiliates. Net cash provided by
financing activities was $5,726,490 and $439,712 during the nine month periods
ended September 30, 1997 and 1996, respectively. During May 1997, the Company
completed an initial public offering of its common stock, issuing 1,000,000
shares at a price of $6.00 per share. The net proceeds to the Company from the
initial public offering were approximately $4,700,000. The Company has repaid
all outstanding principal amounts loaned to the Company by stockholders and
affiliates. During September 1997, the Company completed the issuance of the
Debentures resulting in net proceeds to the Company of approximately $1.5
million.
The Company spent $364,265 and $329,569 during the nine month periods ended
September 30, 1997 and 1996, respectively, for the purchase of capital
equipment. These amounts were expended primarily for computer equipment,
communications equipment and software necessary for the Company to increase its
presence in the Internet and Intranet applications marketplace. The Company's
commitments as of September 30, 1997 consist primarily of leases on its Atlanta
and Washington, DC facilities. At September 30, 1997, there were no material
commitments for capital expenditures.
Accounts receivable, net of allowance for doubtful accounts, totaled
$657,163 as of September 30, 1997. 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
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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.
HISS 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 an amount (the "Profit Cap") equal to HISS's net profits for the
12-month period ended December 31 immediately preceding the payment date; (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. The Company currently
anticipates that any and all amounts earned under this Agreement shall be paid
in the form of shares of the Company's common stock, rather than cash. HISS's
gross revenues for the nine months ended September 30, 1997 were approximately
$237,000.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" ("FAS 130") was issued. FAS 130 establishes
standards for reporting and display of comprehensive income and its components.
FAS 130 is effective for fiscal years beginning after December 15, 1997. The
effect on the Company's financial statements will be immaterial. The Company
will adopt FAS 130 on its effective date.
In June 1997, Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131") was issued. FAS 131 is designed to improve the information provided in
financial statements about the different types of business activities in which
the enterprise engages and economic environments in which the enterprise
operates. FAS 131 is effective for fiscal years beginning after December 15,
1997. Earlier application is encouraged. The Company will adopt FAS 131 on its
effective date. Such adoption will have no effect on net income of the Company.
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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 three areas: (i) customized software applications
design, development and integration including, World Wide Web site development;
(ii) Internet outsourcing services; and (iii) 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, and telecommunications.
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"), Marine Midland Bank ("Marine Midland"),
Rainforest Cafe, Incorporated ("Rainforest"), Excalibur Group, a joint venture
between Time Warner Cable and Time, Inc. ("Time Warner"), Brinker International
("Brinker"), Executrain Corporation ("Executrain"), American International
Underwriters ("AIG"), and American Family Life Assurance Corporation ("AFLAC").
The Company has a highly trained staff that is 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 2,900 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. 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. The Company's Marketplace product facilitates the creation and
updating of an on-line store or catalog.
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
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Personal Internet Banker (TM) software, a scaleable financial software package
that maintains a customer's personal banking history and preferences for
Internet banking.
HomeCom's Internet security division provides security consulting services
and 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 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, Microsoft, Netscape and Unisys.
The Company's staff of 26 full-time software engineers design and develop
custom applications 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 World Wide Web is a 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. 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
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software, computer users can connect to a Web site by entering the site's unique
electronic Web address, known as its Universal Resource Locator ("URL"). Users
can navigate the Web sites by utilizing hypertext link capabilities contained in
Web pages. Hypertext links are active areas on a Web page which, when selected
by a user, automatically identify and display a specific page, which can be
located anywhere else on the Web, thus enabling users to move from one Web page
to another without specifying the underlying URL address. Web sites can vary
significantly in complexity and interactivity. A simple Web site may display
only text, and more complex sites may display colored text, graphics, pictures,
sound, animation, video and database information.
The Company believes that increased processor speed, higher
telecommunications bandwidth (resulting in increased transmission speed) and the
development of software standards have led to the growing acceptance of the
Internet as a communications tool. As a result, many businesses are choosing to
re-engineer their distribution, logistics, customer service and marketing
functions into "Information Depots" accessible through their Web sites.
Consequently, the Company believes that there is an expanding market for
developers of sophisticated, graphically enhanced, interactive Web sites.
ENTERPRISE NETWORKS AND INTRANETS
As network technology has advanced, business-wide networking has evolved.
Organizations have developed local area networks ("LANs") and have connected
geographically dispersed LANs into wide area networks ("WANs"). Many LANs employ
proprietary communications software, such as Novell NetWare. Today, in addition
to proprietary protocols, an increasing number of businesses are using the
Internet protocol TCP/IP for communications. TCP/IP facilitates communications
over internal networks using Internet software tools and applications. An
Intranet is a TCP/IP network inside a company that links the company's people
and information in a way that makes information more accessible and facilitates
navigation through all the resources and applications of the company's computing
environment.
Enterprise networks have increasingly used high-cost leased data lines to
create private and secure LANs and WANs. Internet protocol network software now
allows organizations to use the Internet for a lower-cost communications system
by reducing long distance and leased line charges. Businesses now can expand the
reach of and access to their internal information systems and enterprise
applications to allow geographically dispersed facilities, remote offices,
mobile employees, customers and business partners to access their networks
through the Internet at lower communications costs. The integration of LANs and
WANs through the Internet, plus the advancement of encryption security
capabilities, has promoted the use of high-speed virtual private networks
("VPNs"), which may be maintained at a fraction of the operating cost of
dedicated, leased line networks. VPNs that facilitate Internet banking, sales
entry and express delivery shipment tracking services are examples of this
fast-growing segment of the computing industry. The rapid growth of Intranets
and VPNs has increased the need for specialized software applications that
facilitate information delivery and communication using TCP/IP protocol.
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
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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. However, the Company
believes that there is a need for high quality software applications designed to
support these new systems.
THE HOMECOM SOLUTION
HomeCom was established to provide advanced software applications and
integration services to businesses seeking to take advantage of the Internet.
Integration of existing business operations with new Internet technologies is a
costly and complex undertaking which the Company believes requires a high level
of expertise to complete effectively. HomeCom believes that many businesses do
not have the in-house experience and expertise to establish effective
Internet-based communications in order to increase their productivity and
compete more effectively in the marketplace. Also, HomeCom believes that the
growth of electronic commerce over the Internet has been impeded by the
perceived lack of effective security components. Finally, the Company believes
that there presently is a lack of specialized software applications to support
the growing Internet market. Therefore, the Company believes that businesses
will engage specialized firms like HomeCom to implement Internet solutions.
HomeCom believes it is well positioned to become a leading Internet solutions
provider for the following reasons:
- HomeCom focuses on creating Internet "Information Depots" for clients,
including sophisticated database integrated software applications and
interactive Web sites, to provide valuable information to business'
customers, prospects, employees, stockholders and business partners. This
is in contrast to the public relations material that represents much of
the content currently on Web sites.
- The Company has assembled a team of professional programmers, database
experts and graphic artists that is able to create advanced interactive
Web sites with database integration that function as effective
Information Depots. Through developing specialized Internet applications
for clients in vertical industries, HomeCom's team attains valuable
knowledge about industry specific Internet needs and solutions, which it
uses to provide efficient, value-added services to its customers.
- HomeCom's Internet security division furthers 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 develops specialized software applications and markets these
applications to large businesses. The Company intends to focus on
industry-specific applications such as banking, 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, and
telecommunications.
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DEVELOP AND INTEGRATE ADVANCED SECURITY SERVICES
HomeCom's Internet security division provides advanced security integration
consulting services and develops 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. Moreover, the Company has extremely limited sources of
cash. Consequently, the Company has limited resources available to it to
complete an acquisition and no assurance can be given that the Company will be
able to successfully complete any acquisition.
PRODUCTS AND SERVICES
HomeCom provides Internet/Intranet solutions in three integrated areas:
custom software applications design, development and integration; Internet
outsourcing services; 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.
HomeCom is an established provider of advanced Web site design and
implementation services, having developed more than 100 Web sites for clients in
many industries. The Company has a highly trained staff able to design Web sites
ranging from basic "inquiry only" sites to complex, interactive sites capable of
providing on-line commerce, data base integration and manipulation,
sophisticated graphics, animation, sound and other multimedia content.
The Company has developed a standard process for the design and
implementation of Web sites. Initially, the Company's creative director and
project manager meet with the customer to discuss its current methods
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for serving its customers, employers and suppliers, as well as its objectives
and marketing needs. Prices for the design of Web sites currently range from
$5,000 to more than $100,000.
The Company's staff of 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 languages. 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.
During the first nine months of 1996 and 1997, custom Internet and Intranet
applications and integration services (including hardware resales) accounted for
approximately 74% and 56%, respectively, of the Company's net sales.
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 Network Operations Center ("NOC"). HomeCom presently hosts
approximately 2,900 Web sites. HomeCom's NOC is housed in Class A office space
with 24-hour manned on-premises security. Access to the NOC computer room is
key-card 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 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.
During the first nine months of 1996 and 1997, Internet outsourcing
services generated approximately 14% and 33%, respectively, 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.
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Management of the Internet security division has experience in performing
Internet security services for the federal government.
During the first nine months of 1996 and 1997, Internet security services
generated approximately 0% and 8%, respectively, of the Company's net sales.
SALES AND MARKETING
The Company markets its 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, Microsoft, Netscape and Unisys. 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, parts
databases and collaborative and groupware environments. The Company also
utilizes traditional print and media marketing strategies to enhance Company and
product name recognition.
CUSTOMERS
During 1996 and the first nine months of 1997, no customer accounted for
more than 10% of the Company's total net sales. 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 17,000 square feet in two office
buildings in Atlanta, Georgia under leases expiring in March 2001 and October
2002. These facilities serve as the Company's headquarters and computer center.
The Company also has an office in Vienna, Virginia occupying approximately 6,000
square feet under a lease expiring in June 2002.
The Company's Internet services are maintained in its key-card
access-secured, dual Leibert air-conditioned NOC in Class A office space near
the Company's principal offices. Company personnel monitor server and network
functions on a 24 hour per day, 7 days per week basis. Back-up servers replace
production servers in the event of failure or down time. Tape back-ups are
performed on a daily basis and transported to secure off-site storage. Each
server is SNMP managed and utilizes devices located on a separate network to
notify network personnel by pager in the event of problems that are not
otherwise detected by HomeCom's own SNMP.
All power supplied to the NOC 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 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,
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<PAGE> 30
companies that have developed and market application specific Internet software
products, companies that provide software tools that enable customers to develop
specific Internet-enabled software applications and companies that choose to
develop Internet application products internally. Andersen Consulting, L.L.P.,
Electronic Data Systems Corporation ("EDS"), International Business Machines
Corporation ("IBM") and Cap Gemini America are significant custom software
developers, integrators and resellers whose services include a broad range of
Internet and Intranet software applications design and development services.
Companies such as Broadvision, Inc., Edify Corporation and Security First
Network Bank have developed application specific Internet software products that
are broadly marketed and licensed and perform such functions as interactive
one-to-one marketing, human resources benefits inquiry, enrollment and training
and Internet banking. In addition, companies that offer and sell client/server
based Internet-enabled software products, such as Netscape and Microsoft, may in
the future bundle software capabilities and applications with existing products
in a manner which may limit the need for software capabilities and application
services such as those offered by the Company. The Company also competes with
the information technology departments of significant business enterprises who
may choose to design and develop their Internet applications internally. The
emergence of sophisticated software products and tools that enable companies to
build customized Internet-enabled software applications internally also may have
the effect of encouraging internal development and, thus, may materially reduce
the demand for the Company's custom software application services.
The Company's Web site development services face competition from a variety
of sources, from small operations to large global competitors like EDS and
Computer Sciences Corporation. The Company believes Web site development
presently is a fragmented market, with no business commanding a dominant share.
HomeCom believes that as Web sites increase in interactivity and complexity, Web
site development companies will increasingly need to maintain an integrated team
of Intranet-enabled software engineers, advanced graphics programmers,
multi-media artists and Internet security experts in order to compete
effectively for large business customers. Consequently, HomeCom believes that it
will need to continue to expand its personnel and work to maintain leading edge
technology capabilities in order to remain competitive. Although there is likely
to be a continuing market for individual Web site development, the Company
intends to continue to focus its Web site development services on large
businesses with complex interactive requirements.
The Company's Internet outsourcing services face competition from numerous
large and small competitors that provide comparable outsourcing services. Such
competition includes BBN Planet, AT&T, MCI Communications Corporation ("MCI"),
IBM, EDS and 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.
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<PAGE> 31
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 has a registered service mark for
its logo, and has applied for federal registration of the names "HomeCom(TM),"
"Post On The Fly(TM)" and "Personal Internet Banker(TM)." 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. The Company
routinely enters into non-disclosure and confidentiality agreements with
employees, vendors, contractors, consultants and customers.
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 November 20, 1997, the Company employed 40 full-time employees, of whom
27 were technical personnel engaged in maintaining or developing the Company's
products or performing related services, three were marketing and sales
personnel and ten 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 was successfully challenged in federal
district
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<PAGE> 32
court and ultimately found unconstitutional by the United States Supreme Court
in Reno v. American Civil Liberties Union.
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 material legal proceedings.
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<PAGE> 33
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names of the directors and executive officers of the Company, their
ages as of September 30, 1997 and certain information about them are set forth
below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Harvey W. Sax........................ 46 President, Chief Executive Officer and Director
Nat Stricklen........................ 54 Senior Vice President and Director
Krishan Puri......................... 32 Executive Vice President and Director
Gia Bokuchava, Ph.D.................. 32 Chief Technical Officer and Director
Roger Nebel.......................... 43 Vice President and Director
Carl W. Peede........................ 49 Senior Vice President and Chief Operating Officer
Norm H. Smith........................ 34 Chief Financial Officer
Gregory Abowd, Ph.D.(1).............. 33 Director
</TABLE>
- ---------------
(1) Member of the Audit and Compensation Committees.
HARVEY W. SAX is a founder of the Company and has served as President and
Chief Executive Officer of the Company since January 1995 and as Chairman of the
Board of Directors since September 1997. 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 PaineWebber, 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.
NAT STRICKLEN has served as Senior Vice President 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.
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
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<PAGE> 34
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.
CARL W. PEEDE has served as Senior Vice President and Chief Operating
Officer of the Company since November 1997. Mr. Peede joined HomeCom in June
1997 as Senior Vice President and General Manager of Software Products. From
June 1996 to April 1997, Mr. Peede was employed by NetManage, Inc., located in
Cupertino, California, where he was the Senior Vice President of Worldwide
Marketing. From September 1994 to May 1996, Mr. Peede was the Vice President of
Worldwide Marketing at Attachmate/DCA in Bellevue, Washington prior to joining
NetManage, Inc. From January 1993 to September 1994, Mr. Peede managed the
marketing effort for Wall Data, Inc., a high-growth company in Redmond,
Washington. He began his career in 1970 with AT&T Western Electric in Atlanta as
a Project Manager after graduating with a BSEE from Georgia Institute of
Technology and an MBA from Georgia State University, both in Atlanta, Georgia.
NORMAN H. SMITH has served as Chief Financial Officer of the Company since
May 1997. Before joining the Company, Mr. Smith was employed by First Image
Management Company, a division of First Data Corporation, from January 1990 to
May 1997. Mr. Smith served in a number of accounting and finance positions with
First Image, most recently as Executive Director of Finance for the Data
Acquisition Division based in Lexington, Kentucky. Prior to that, Mr. Smith was
employed by Deloitte & Touche as a Senior Accountant in its audit practice. Mr.
Smith received a Master of Business Administration from Xavier University in
1991 and a Bachelor of Business Administration from Eastern Kentucky University
in 1985.
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.
The Company's Board of Directors is divided into three classes. The Class I
director (Dr. Abowd) serves until the 1998 Annual Meeting of Stockholders, the
Class II directors (Dr. Bokuchava and Messrs. Puri and Nebel) serve until the
1999 Annual Meeting of Stockholders and the Class III directors (Messrs. Sax and
Stricklen) serve until the 2000 Annual Meeting of Stockholders. Upon election,
each class serves a three-year 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 officers 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.
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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. As a
result of the September 1997 resignation of Winn Schwartau from the Board of
Directors., Dr. Abowd serves as the sole current member of the Compensation and
Audit Committees. The Company intends to replace Mr. Schwartau with a
nonemployee member in the near future.
DIRECTOR COMPENSATION
Directors do not receive any cash compensation for their services as
members of the Board of Directors but are reimbursed for their reasonable travel
expenses in attending Board of Directors and committee meetings. Directors who
are not employees of the Company are eligible to receive automatic grants of
stock options under the Company's Non-Employee Directors Stock Option Plan, and
may receive additional grants of options under such plan at the discretion of
the Compensation Committee of the Board of Directors. See "Stock Option
Plan -- Non-Employee Directors Stock Option Plan." The Company may in the future
establish a policy for compensating members of the Board of Directors for
attending Board of Directors or committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, compensation of executive officers of the Company was
determined by Harvey W. Sax, the Company's President and Chief Executive
Officer. In September 1996, the Company established a Compensation Committee to
review the performance of executive officers, establish overall employee
compensation policies and recommend salaries and incentive compensation for
officers and employees of the Company. No member of the Compensation Committee
is or will be an executive officer of the Company.
EXECUTIVE COMPENSATION
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
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- --------------------
NUMBER OF SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION(1) SALARY BONUS UNDERLYING OPTIONS COMPENSATION
------------------------------ --------- ------ -------------------- ------------
<S> <C> <C> <C> <C>
Harvey W. Sax............................ $100,000 $0 -0- -0-
President, 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 September 30, 1997, the annual salaries for the Company's executive
officers were as follows: Harvey W. Sax, President and Chief Executive Officer
($135,000); Nat Stricklen, Senior Vice President ($75,000); Norm Smith, Chief
Financial Officer ($67,500); Krishan Puri, Executive Vice President ($100,000);
Gia Bokuchava, Ph.D., Chief Technical Officer ($90,000); Roger Nebel, Vice
President ($100,000); and Carl Peede, Chief Operating Officer ($115,000).
Pursuant to the employment agreements with Dr. Bokuchava and Mr. 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
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<PAGE> 36
eligible to receive cash bonuses 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 information concerning options granted to
the Named Executive Officer during the year ended December 31, 1996:
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(2)
OPTIONS EMPLOYEES PRICE PER EXPIRATION --------------------
EXECUTIVE OFFICER GRANTED(1) FISCAL YEAR SHARE DATE 5% 10%
----------------- ---------- ----------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Harvey W. Sax......................... -0- -- -- -- -- --
</TABLE>
OPTION EXERCISES IN LAST FISCAL AND YEAR-END OPTION VALUES
The following table sets forth the aggregate dollar value of all options
exercised, and the total number of unexercised options held, on December 31,
1996 by the Named Executive Officer:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1996 DECEMBER 31, 1996(1)
ACQUIRED VALUE --------------------------- ---------------------------
EXECUTIVE OFFICER ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harvey W. Sax.................. -0- -- -- -- -- --
</TABLE>
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 (which
is currently reduced to $135,000 by voluntary agreement of Mr. Sax), and for
bonus compensation to be awarded at the discretion of the Compensation Committee
of the Board of Directors.
STOCK OPTION PLANS
Employee Stock Option Plan. The Company's Stock Option Plan (the "Stock
Option Plan") was adopted by the Company's stockholders in September 1996. The
purpose of the Stock Option Plan is to provide incentives for officers and key
employees to promote the success of the Company, and to enhance the Company's
ability to attract and retain the services of such persons. The Company has
reserved 600,000 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
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<PAGE> 37
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 November 20, 1997, options to purchase approximately 418,660 shares
of Common Stock were outstanding under the Stock Option Plan at exercise prices
ranging from $4.06 to $6.13 per share and at a weighted average exercise price
of $4.88 per share. All outstanding options vest 25% per year from their date of
grant.
Non-Employee Directors Stock Option Plan. The Company's Non-Employee
Directors Stock Option Plan (the "Non-Employee Directors Plan") was adopted by
the Company's stockholders in September 1996 and amended in October 1996. The
Company has reserved 300,000 shares of Common Stock for issuance under the
Non-Employee Directors Plan.
The Non-Employee Directors Plan provides for the automatic granting of
non-qualified stock options to directors who are not officers or employees of
the Company ("Non-Employee Directors"). Each Non-Employee Director who is first
appointed or elected to the Board of Directors is granted an option to purchase
10,000 shares of Common Stock. Also, each Non-Employee Director automatically
receives an option to purchase 5,000 shares of Common Stock on the date of each
annual meeting of the Company's stockholders. The Non-Employee Directors Plan
also allows the Compensation Committee to make extraordinary grants of options
to Non-Employee Directors. All options granted under the Non-Employee Directors
Plan vest 50% per year of service by the Non-Employee Director on the Board of
Directors. No option is transferable by the optionee other than by will or laws
of descent and distribution, and each option is exercisable, during the lifetime
of the optionee, only by such optionee. The exercise price of all options will
be the fair market value of the shares of Common Stock on the date of grant, and
the term of each option may not exceed seven years. The Non-Employee Directors
Plan will continue in effect for a period of ten years unless sooner terminated
by the Board of Directors.
During September 1996, Dr. Abowd 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.
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
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<PAGE> 38
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 at a
date to be determined by the Board of Directors (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.
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 September 30, 1997, approximately 40 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. This plan has not yet been implemented. 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
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<PAGE> 39
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> 40
CERTAIN TRANSACTIONS
During the period December 1994 through December 1995, Harvey W. Sax, the
Company's President and Chief Executive Officer, loaned a total of approximately
$63,497 to the Company pursuant to a promissory note payable by the Company on
September 12, 2000, which accrues interest at the prime rate plus 1% per annum.
The Company used approximately $56,000 of the net proceeds of its initial public
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 February 1996, the Company (i) sold for $.0001 per share 335,052 shares
to Margery Germain; and (ii) 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, in May, 1997 the Company issued Mr. Germain
33,333 shares of Common Stock in repayment of the $200,000 outstanding principal
balance of this note.
Mr. David A. Blech, Mrs. Esther Blech and the Edward A. Blech Trust
(collectively the "Blech Interests") have agreed in writing with the Nasdaq
Stock Market, Inc. that, for a period of three years from the date of their
original purchases of securities from 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 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. To the best of the Company's knowledge and belief, the Blech
Interests beneficially own less than 5% of the Common Stock.
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. Gia Bokuchava, Ph.D., Chief Technical Officer and a director,
and Krishan Puri, Executive Vice President and a director, purchased 39,559 and
29,669 shares of Common Stock, respectively, in this transaction. Mr. Vinod
Keni, a former director, purchased 3,955 shares in this transaction. The Company
has agreed with Mr. Keni that all 11,865 options to acquire Common Stock held by
Mr. Keni (at a weighted average exercise price of $5.16 per share) shall
continue to vest as if Mr. Keni were still employed by the Company. The Company
also agreed to cancel and forgive indebtedness of approximately $18,000
represented by the promissory note given by Mr. Keni to purchase such 3,955
shares
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<PAGE> 41
and to give Mr. Keni a cash payment to cover Mr. Keni's estimated tax liability
from such cancellation of indebtedness.
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.
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<PAGE> 42
PRINCIPAL AND SELLING 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; (iii) all executive officers and directors as a group; and
(iv) the Selling Securityholders, certain information with respect to the
beneficial ownership of the Common Stock as of November 20, 1997.
<TABLE>
<CAPTION>
PERCENTAGE NUMBER OF PERCENTAGE
COMMON OF COMMON SHARES OF COMMON OF COMMON
STOCK STOCK COMMON STOCK STOCK
BENEFICIALLY BENEFICIALLY STOCK BENEFICIALLY BENEFICIALLY
OWNED BEFORE OWNED BEFORE OFFERED OWNED AFTER OWNED AFTER
NAME OF BENEFICIAL OWNER (1) OFFERING(2) OFFERING HEREBY OFFERING(2) OFFERING
---------------------------- ------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Harvey W. Sax(3)..................... 844,744 28.6% -- 844,744 25.0%
Nat Stricklen(4)..................... 93,170 3.2 -- 93,170 2.8
Krishan Puri(5)...................... 43,976 1.5 -- 43,976 1.3
Gia Bokuchava, Ph.D. (6)............. 40,059 1.4 -- 40,059 1.2
Roger Nebel(7)....................... 850 * -- 850 *
Gregory Abowd, Ph.D.(8).............. 5,000 * -- 5,000 *
Carl W. Peede(9)..................... -- * -- -- *
First Granite Securities, Inc.(10)... 400,000 11.9 -- 400,000 10.6
Mark Germain(11)..................... 335,052 11.3 -- 335,052 9.9
Margery Germain(12).................. 335,052 11.3 -- 335.052 9.9
FTS Worldwide Corporation(13)........ 200,000 6.3 200,000 0 *
Euro Factors International,
Inc.(14)........................... 87,500 2.9 87,500 0 *
Beauchamp Finance(15)................ 75,000 2.5 75,000 0 *
Colbo(16)............................ 62,500 2.1 62,500 0 *
All executive officers and directors
as a group (7 persons)............. 1,027,799 34.7% -- 1,027,799 30.4%
</TABLE>
- ---------------
* Less than 1%.
(1) Except as otherwise noted, the street address of the named beneficial owner
is Building 14, Suite 100, 3535 Piedmont Road, Atlanta, Georgia 30305.
(2) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
of Common Stock beneficially owned, subject to community property laws
where applicable. Shares of Common Stock subject to options that are
currently exercisable or exercisable within sixty days of December 13, 1997
are deemed to be outstanding and to be beneficially owned by the person
holding such options for the purpose of computing the percentage ownership
of such person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
(3) Excludes 10,000 shares of Common Stock issuable upon the exercise of an
option outstanding as of November 20, 1997 at an exercise price of $4.06
per share which is not currently exercisable and which becomes exercisable
more than 60 days following the date of the date of this prospectus.
(4) Excludes 10,000 shares of Common Stock issuable upon the exercise of an
option outstanding as of November 20, 1997 at an exercise price of $4.06
per share which is not currently exercisable and which becomes exercisable
more than 60 days following the date of the date of this prospectus.
(5) Excludes 20,000 shares of Common Stock issuable upon the exercise of an
option outstanding as of November 20, 1997 at an exercise price of $4.06
per share which is not currently exercisable and which becomes exercisable
more than 60 days following the date of the date of this prospectus.
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<PAGE> 43
(6) Excludes 20,000 shares of Common Stock issuable upon the exercise of an
option outstanding as of November 20, 1997 at an exercise price of $4.06
per share which is not currently exercisable and which becomes exercisable
more than 60 days following the date of the date of this prospectus.
(7) Excludes 10,000 shares of Common Stock issuable upon the exercise of an
option outstanding as of November 20, 1997 at an exercise price of $4.06
per share which is not currently exercisable and which becomes exercisable
more than 60 days following the date of the date of this prospectus. Also
excludes an indeterminate number of shares of Common Stock which may be
issued in connection with the Company's acquisition of HISS. See "Certain
Transactions."
(8) Includes 5,000 shares of Common Stock issuable upon the exercise of an
option outstanding as of November 20, 1997 at an exercise price of $6.50
per share which is currently exercisable and which becomes exercisable more
than 60 days following the date of the date of this prospectus. Excludes
5,000 shares of Common Stock issuable upon the exercise of an option
outstanding as of November 20, 1997 at an exercise price of $6.50 per share
which is not currently exercisable and which becomes exercisable more than
60 days following the date of the date of this prospectus.
(9) Excludes 60,000 shares of Common Stock issuable upon the exercise of
options outstanding as of November 20, 1997 at exercise prices ranging from
$4.06 per share to $6.13 per share which are not currently exercisable and
which become exercisable more than 60 days following the date of the date
of this prospectus.
(10) The address of this security holder is 1276 50th Street, Brooklyn, NY
11219. Includes 400,000 shares of Common Stock issuable upon the exercise
of currently exercisable warrants at an exercise price of $4.00 per share
for 200,000 of the shares of Common Stock issuable thereunder and $6.00 per
share for the remaining 200,000 shares of Common Stock issuable thereunder.
(11) The address of this stockholder is 81 Main Street White Plains, NY 10601.
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.
(12) The address of this stockholder is 6 Olmstead Road Scarsdale, NY 10583.
Includes 15,833 shares of Common Stock owned by Mark Germain.
(13) The address of this Selling Securityholder is 24 Route de Malagnov, Geneva,
Switzerland, CH 1208. Represents shares of Common Stock issuable upon
conversion of an aggregate $800,000 of Debentures held by this Selling
Securityholder. The number of shares of Common Stock represented as
beneficially owned by this Selling Securityholder is estimated based upon
an assumed Conversion Price of $4.00 per share.
(14) The address of this Selling Securityholder is 140 Birmensdorferstrasse,
Zurich, Switzerland, CH 8003. Represents shares of Common Stock issuable
upon conversion of an aggregate $350,000 of Debentures held by this Selling
Securityholder. The number of shares of Common Stock represented as
beneficially owned by this Selling Securityholder is estimated based upon
an assumed Conversion Price of $4.00 per share.
(15) The address of this Selling Securityholder is 140 Birmensdorferstrasse,
Zurich, Switzerland, CH 8003. Represents shares of Common Stock issuable
upon conversion of an aggregate $300,000 of Debentures held by this Selling
Securityholder. The number of shares of Common Stock represented as
beneficially owned by this Selling Securityholder is estimated based upon
an assumed Conversion Price of $4.00 per share.
(16) The address of this Selling Securityholder Selling is Szigetszentmiklos,
Gyari Ut. Hungary H-2310. Represents shares of Common Stock issuable upon
conversion of an aggregate $250,000 of Debentures held by this Selling
Securityholder. The number of shares of Common Stock represented as
beneficially owned by this Selling Securityholder is estimated based upon
an assumed Conversion Price of $4.00 per share.
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<PAGE> 44
DESCRIPTION OF SECURITIES
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 December 15, 1997, the Company had issued and outstanding
2,956,396 shares of Common Stock. As of such date, there were 32 holders of
record of shares of Common Stock. No shares of preferred stock have been issued.
As of September 30, 1997, the Company had outstanding an aggregate $1,700,000 of
its Debentures.
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.
CONVERTIBLE DEBENTURES
GENERAL
The Debentures were issued under the Debenture Agreement between the
Company and the Selling Securityholders. The following summaries of certain
provisions of the Debentures and the Debenture Agreement do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Debentures and the Debenture Agreement, including
the definitions therein of certain terms which are not otherwise defined in this
Prospectus and those terms made a part of the Debenture Agreement.
The Debentures represent general unsecured debt obligations of the Company
and are convertible into Common Stock as described below under "-- Conversion of
Debentures." The Debentures will mature on September 22, 2000, unless earlier
converted into shares of Common Stock at the option of the holders upon written
notice to the Company. Upon maturity, the Company will pay the principal amount
of, and all accrued but unpaid interest on, the Debentures in cash or Conversion
Shares, at its option. The Debentures bear interest from the date of original
issue at the annual rate of 5%, payable on September 22, 2000.
CONVERSION OF DEBENTURES
The Debentures are convertible at the option of the holders. The holders
have agreed, however, that they may convert (i) not more than one-third of the
aggregate value of the Debentures at any time on or after the Registration
Effective Date; (ii) not more than an additional one-third of the aggregate
value of the Debentures at any time on or after the 30th day following the
Registration Effective Date; and (iii) the final one-third of the aggregate
value of the Debentures at any time on or after the 60th day following the
Registration Effective Date. The Debentures are convertible into Common Stock at
a conversion price (the
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<PAGE> 45
"Conversion Price") equal to the lessor of (a) a 25% discount from the closing
bid price of the Common Stock as reported by Nasdaq or other securities
exchanges or markets on which the Common Stock is listed for the previous three
trading days ending on the day preceding notice of conversion, or (b) $4.00 per
share. The Conversion Price is subject to equitable adjustment by the Company
upon the occurrence of certain events, including, but not limited to: (i)
forward and reverse stock splits; (ii) dividend payments on shares of Common
Stock; (iii) subdivision of shares of Common Stock; (iv) combinations or
reclassifications of Common Stock; and (v) issuance of rights, warrants, options
or the like. The Company is not required to issue fractional shares of Common
Stock upon conversion of the Debentures; instead, the number of shares issuable
shall be rounded to the nearest whole share, with the fraction paid in cash at
the discretion of the Company.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Debentures as being the occurrence of
one or more of the following: (i) any of the representations or warranties made
by the Company under the Debentures or the Debenture Agreement shall have been
incorrect when made in any material respect; (ii) the Company shall fail to
perform or observe in any material respect to any other covenant, term,
provision, condition, agreement or obligation of the Company under the
Debentures, the Registration Agreements and the Debenture Agreement, and such
failure shall continue uncured for a period of seven days after written notice
from the holder of the Debentures specifically describing such failure; (iii) a
trustee, liquidator or receiver shall be appointed for the Company or for a
substantial part of its property or business without its consent and shall not
be discharged within thirty days after such appointment; (iv) any governmental
agency or any court of competent jurisdiction at the instance of any
governmental agency shall assume custody or control of the whole or any
substantial portion of the properties or assets of the Company and shall not be
dismissed thirty calendar days thereafter; (v) bankruptcy reorganization,
insolvency or liquidation proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be instituted by or
against the Company, and if instituted against the Company, the Company shall by
any action or answer approve of, consent to or acquiesce in any such proceedings
or admit the material allegations of, or default in answering a petition filed
in any such proceeding; or (vi) the Company's Common Stock is delisted from
trading on The Nasdaq SmallCap(TM) Market unless it is there upon admitted to
trading on a national stock exchange.
The Debentures provide that if any Event of Default shall have occurred and
be continuing, and in each and every such case, unless such Event of Default
shall have been waived in writing by the Holder of the Debentures (which waiver
shall not be deemed to be a waiver of any subsequent Event of Default) at the
option of the Holder and in Holder's sole discretion, the Holder may consider
the Debentures immediately due and payable, without presentment, demand, protest
or notice of any kind, all of which are expressly waived by the Company, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights and remedies provided in the Debentures or
any other rights or remedies afforded by law.
SATISFACTION AND DISCHARGE
The Debentures will cease to be of further effect at the earlier to occur
of when: (i) the Company has paid or caused to be paid the principal of, and
interest on the Debentures when the same has become due and payable upon
maturity; or (ii) all outstanding Debentures have been fully converted into
Conversion Shares.
MODIFICATIONS OF THE DEBENTURES
The Debentures provide that the Debentures nor any terms thereof shall be
amended, waived, discharged or terminated other than by a written instrument
signed by the Company and the holders of the Debentures.
GOVERNING LAW
The Debentures provide that they shall be governed by, and construed in
accordance with, the laws of the State of New York.
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<PAGE> 46
UNDERWRITER WARRANT
In connection with the completion with the Company's initial public
offering, the Company granted its underwriter, Ladenburg Thalman & Co. Inc., a
warrant to acquire 100,000 shares of the Company's Common Stock at an exercise
price of $7.20 per share. The exercise price is subject to adjustment under
certain circumstances. This warrant expires on May 12, 2002 if not earlier
exercised.
WARRANTS ISSUED IN CONNECTION WITH THE DEBENTURE SALE
In connection with the completion of the Debenture Sale, the Company issued
to First Granite Securities, Inc. (the "Warrant Holders"), an entity designated
by the Selling Securityholders, warrants to acquire an aggregate 400,000 shares.
Of these warrants, warrants to acquire an aggregate 200,000 shares are
exercisable at a price of $4.00 per share, and warrants to acquire an aggregate
200,000 are exercisable at a price of $6.00 per share. The exercisable price of
the warrants is subject to adjustment. If not earlier exercised, the warrants
expire on October 27, 2000. In connection with the issuance of the warrants to
the Warrant Holders, the Company has granted the Warrant Holders certain rights
to require the Company to file a registration statement with respect to the sale
of the Common Stock issuable upon exercise of the warrants. Under the terms of
the agreement between the Company and the holders of the warrants, if the
Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of other security holders
exercising registration rights, such holders are entitled to notice of such
registration and are entitled to include therein the shares of Common Stock
issuable upon exercise of the warrants by them. Additionally, such holders are
entitled to require the Company to file a registration statement with respect to
such shares of Common Stock not later than 30 days after the date that the
Debentures become fully convertible in accordance with the terms of the
agreements governing the Debentures. It is anticipated that the Company will
file such registration in March 1998.
LIMITATIONS ON LIABILITY OF DIRECTORS
The Company's Restated Certificate of Incorporation contains provisions
which eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty, other than liability for a
breach of the duty of loyalty, acts or omissions not in good faith that
constitute a breach of the director's duty to the Company, acts that involve
intentional misconduct or a knowing violation of the law, transactions in which
the director receives an improper benefit and acts or omissions for which
liability is expressly provided by an applicable statute. While the Restated
Certificate of Incorporation provides directors with protection from awards for
monetary damages for breach of duties to the Company, it does not eliminate
those duties. Accordingly, the Restated Certificate of Incorporation should not
affect the availability of equitable remedies, such as injunction or rescission,
based on a director's breach of the duty of care. However, equitable remedies
may not provide stockholders adequate monetary compensation for damages caused
by breach of duties to the Company. The Company's Restated Bylaws contain
provisions requiring the indemnification of the Company's directors and
officers, and persons serving at the request of the Company as a director or
officer of another corporation, to the fullest extent permitted under the
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
45
<PAGE> 47
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.
46
<PAGE> 48
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds of the sale of the
Conversion Shares offered hereby. The Conversion Shares may be sold from time to
time to purchasers directly by the Selling Securityholders. Alternatively, the
Selling Securityholders may from time to time offer the Conversion Shares
through brokers, dealers or agents who may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Conversion Shares for whom they may act as agent. The
Selling Securityholders and any such brokers, dealers or agents who participate
in the distribution of the Conversion Shares may be deemed to be "underwriters,"
and any profits on the sale of the Conversion Shares by them and any discounts,
commissions or concessions received by any such brokers, dealers or agents might
be deemed to be underwriting discounts and commissions under the Securities Act.
To the extent the Selling Securityholders may be deemed to be underwriters, the
Selling Securityholders may be subject to certain statutory liabilities of,
including, but not limited to, Sections 11, 12 and 17 of the Securities Act and
Rule 10b-5 under the Exchange Act.
The Selling Securityholders have advised the Company that the Conversion
Shares offered hereby may be sold from time to time in one or more transactions
at fixed prices, at prevailing market prices at the time of sale, at varying
prices determined at the time of sale or at negotiated prices. The Conversion
Shares may be sold by one or more of the following methods, without limitation:
(a) a block trade in which the broker or dealer so engaged will attempt to sell
the Conversion Shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account pursuant
to this Prospectus; (c) ordinary brokerage transactions and transactions in
which the broker solicits purchasers; (d) an exchange distribution in accordance
with the rules of such exchange; (e) face-to-face transactions between sellers
and purchasers without a broker-dealer; (f) through the writing of options; and
(g) other. At any time a particular offer of the Conversion Shares is made, a
revised Prospectus or Prospectus Supplement, if required, will be distributed
which will set forth the aggregate amount and type of Conversion Shares being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions, concessions and
other items constituting compensation from the Selling Securityholders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
Such Prospectus Supplement and, if necessary, a post-effective amendment to the
Registration Statement of which this Prospectus is a part, will be filed with
the Commission to reflect the disclosure of additional information with respect
to the distribution of the Securities. In addition, the Conversion Shares
covered by this Prospectus may be sold in private transactions or under Rule 144
rather than pursuant to this Prospectus.
To the best knowledge of the Company, there are currently no plans,
arrangement or understandings between any Selling Securityholders and any
broker, dealer, agent or underwriter regarding the sale of the Conversion Shares
by the Selling Securityholders. There is no assurance that any Selling
Securityholders will sell any or all of the Conversion Shares offered by it
hereunder or that any such Selling Securityholders will not transfer, devise or
gift such Conversion Shares by other means not described herein.
The Selling Securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M which may limit the timing of purchases and sales of any of the Conversion
Shares by the Selling Securityholders and any other such person. Furthermore,
Regulation M of the Exchange Act may restrict the ability of any person engaged
in the distribution of the Conversion Shares to engage in market-making
activities with respect to the particular Conversion Shares being distributed
for a period of up to five business days prior to the commencement of such
distribution. All of the foregoing may affect the marketability of the
Conversion Shares and the ability of any person or entity to engage in
market-making activities with respect to the Securities.
Pursuant to the Registration Agreement entered into in connection with the
offer and sale of the Debentures by the Company, each of the Company and the
Selling Securityholders will be indemnified by the other against certain
liabilities, including certain liabilities under the Securities Act, or will be
entitled to contribution in connection therewith.
47
<PAGE> 49
The Company has agreed to pay substantially all of the expenses incidental
to the registration, offering and sale of the Conversion Shares to the public
other than commissions, fees and discounts of underwriters, brokers, dealers and
agents.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Morris, Manning & Martin a Limited Liability Partnership,
Atlanta, Georgia.
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 the years
ended December 31, 1995 and 1996, included in this Registration Statement, 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.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements, and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements, and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as the regional offices of the Commission located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports, proxy
statements and other information can also be inspected at the offices of the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006. The Commission maintains a World Wide Web site that
contains reports, proxy and information statements, and other information that
are filed through the Commission's Electronic Data Gathering, Analysis and
Retrieval System. This Web site can be accessed at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Debentures and 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, the
Debentures and the Common Stock, reference is made to the Registration Statement
and the exhibits and schedules thereto. Statements contained in this Prospectus
as to the contents of any contract or other document are not necessarily
complete and, in each instance, reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of the
Registration Statement, including all exhibits thereto, may be obtained from the
Commission's principal office in Washington, D.C. upon payment of the fees
prescribed by the Commission, or may be examined without charge at the offices
of the Commission described above.
48
<PAGE> 50
HOMECOM COMMUNICATIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1995 and 1996............. F-3
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.................... F-4
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... F-5
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.................... F-6
Notes to Financial Statements............................... F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1996 and September 30,
1997...................................................... F-16
Statements of Operations for the Three and Nine Month
Periods Ended
September 30, 1996 and 1997............................... F-17
Statements of Cash Flows for the Nine Months Ended September
30, 1996 and 1997......................................... F-18
Notes to Financial Statements............................... F-19
</TABLE>
F-1
<PAGE> 51
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-2
<PAGE> 52
HOMECOM COMMUNICATIONS, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents................................... $129,095 $ 332,377
Account receivable, net of allowance for uncollectible
accounts of $2,485 and $106,845 as of December 31, 1995
and 1996, respectively.................................... 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............ -- 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-3
<PAGE> 53
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 TAXES............................. (17,452) (5,440) (625,583)
INCOME TAXES......................................... -- -- --
--------- --------- ----------
NET LOSS............................................. $ (17,452) $ (5,440) $ (625,583)
========= ========= ==========
NET LOSS PER SHARE................................... $ (.01) $ (.00) $ (.33)
========= ========= ==========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING........................................ 1,850,447 1,850,447 1,879,696
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-4
<PAGE> 54
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>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN SUBSCRIPTIONS ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT EQUITY (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-5
<PAGE> 55
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 from 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-6
<PAGE> 56
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 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
F-7
<PAGE> 57
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 in connection with the Company's 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 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.
F-8
<PAGE> 58
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 initial public offering price of $6.00 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-9
<PAGE> 59
HOMECOM COMMUNICATIONS, INC.
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.
Future minimum lease payments under capital and operating leases are as
follows as of December 31, 1996:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING 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>
F-10
<PAGE> 60
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 proceedings may arise in the normal course of business.
Management does not believe that there are currently any asserted or unasserted
claims that will have a material adverse effect on the financial position,
results of operations or cash flows of the Company.
5. CONCENTRATION OF CREDIT RISKS:
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable.
The Company places its cash and cash equivalents with quality financial
institutions.
Concentration of credit risk with respect to trade receivables is monitored
by the Company through ongoing credit evaluations of its customers' financial
condition. The Company's sales to its five largest customers represented
approximately 46% and 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.
F-11
<PAGE> 61
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-12
<PAGE> 62
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
WEIGHTED
NUMBER OF OPTIONS 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>
F-13
<PAGE> 63
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-14
<PAGE> 64
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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> 65
HOMECOM COMMUNICATIONS, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(AUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents................................... $ 332,377 $ 2,177,677
Account receivable, net of allowance for uncollectible
accounts of $106,845 and $219,055 as of December 31, 1996
and September 30, 1997, respectively...................... 488,254 657,163
Other current assets........................................ 621 636
---------- -----------
Total current assets.............................. 821,252 2,835,476
FURNITURE, FIXTURES AND EQUIPMENT, NET...................... 359,260 606,839
SOFTWARE DEVELOPMENT COSTS, NET............................. 81,520 96,128
DEPOSITS.................................................... 57,527 57,530
DEFERRED DEBT ISSUE COSTS................................... -- 127,500
DEFERRED OFFERING COSTS..................................... 406,963 --
---------- -----------
Total assets...................................... $1,726,522 $ 3,723,473
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
CURRENT LIABILITIES:
Accounts payable and accrued expenses....................... $ 649,794 $ 545,373
Accrued salaries and payroll taxes payable.................. 309,377 143,813
Accrued vacation............................................ 14,935 14,935
Current portion of notes payable to stockholders............ 989,904 --
Current portion of note payable to bank..................... 13,614 12,126
Unearned revenue............................................ 133,170 157,359
Current portion of obligations under capital leases......... 15,140 --
---------- -----------
Total current liabilities......................... 2,125,934 873,606
CONVERTIBLE DEBENTURES, NET OF DISCOUNT OF $566,667......... -- 1,133,333
NOTE PAYABLE TO STOCKHOLDERS AND AFFILIATES................. 55,677 --
NOTE PAYABLE TO BANK........................................ 47,032 --
OTHER LIABILITIES........................................... 73,424 62,420
OBLIGATIONS UNDER CAPITAL LEASES............................ 45,124 49,022
---------- -----------
Total liabilities................................. 2,347,191 2,118,381
---------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.0001 par value, 15,000,000 shares
authorized, 1,923,063 and 2,956,396 shares issued and
outstanding at December 31, 1996 and September 30, 1997,
respectively.............................................. 192 296
Additional paid-in capital.................................. 472,726 5,936,879
Subscriptions receivable.................................... (468,004) (318,753)
Accumulated deficit......................................... (625,583) (4,013,330)
---------- -----------
Total stockholders' equity (deficit).............. (620,669) 1,605,092
---------- -----------
Total liabilities and stockholders' equity
(deficit)....................................... $1,726,522 $ 3,723,473
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE> 66
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
1996 1997 1996 1997
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
NET SALES:
Service sales............................... $ 623,068 $ 667,806 $1,318,675 $ 2,268,377
Equipment sales............................. 30,950 45,595 152,649 62,598
--------- ----------- ---------- -----------
Total net sales........................ 654,018 713,401 1,471,324 2,330,975
--------- ----------- ---------- -----------
COST OF SALES:
Cost of services............................ 152,866 557,799 271,887 1,252,507
Cost of equipment sold...................... 37,076 42,730 114,552 52,294
--------- ----------- ---------- -----------
Total cost of sales.................... 189,942 600,529 386,439 1,304,801
--------- ----------- ---------- -----------
GROSS PROFIT................................ 464,076 112,872 1,084,885 1,026,174
--------- ----------- ---------- -----------
OPERATING EXPENSES:
Sales and marketing......................... 190,596 627,962 408,131 1,163,072
Product development......................... 37,242 177,961 63,823 375,977
General and administrative.................. 276,963 1,381,769 664,244 2,739,374
Depreciation and amortization............... 24,887 58,225 52,835 138,832
--------- ----------- ---------- -----------
Total operating expenses............... 529,688 2,245,917 1,189,033 4,417,255
--------- ----------- ---------- -----------
OPERATING LOSS.............................. (65,612) (2,133,045) (104,148) (3,391,081)
OTHER EXPENSES (INCOME)
Interest expense............................ 11,257 -- 26,833 53,665
Other expense (income), net................. -- (37,096) -- (56,999)
--------- ----------- ---------- -----------
LOSS BEFORE INCOME TAXES.................... (76,869) (2,095,949) (130,981) (3,387,747)
INCOME TAXES................................ -- -- -- --
--------- ----------- ---------- -----------
NET LOSS.................................... $ (76,869) $(2,095,949) $ (130,981) $(3,387,747)
========= =========== ========== ===========
NET LOSS PER SHARE.......................... $ (.04) $ (.71) $ (.07) $ (1.36)
========= =========== ========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING............. 1,870,156 2,956,396 1,870,156 2,483,258
========= =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-17
<PAGE> 67
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1997
--------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss.................................................... $(130,981) $(3,387,747)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation.............................................. 52,835 138,486
Amortization.............................................. -- 14,547
Forgiveness of subscriptions receivable................... -- 149,251
Provision for bad debts................................... 33,515 194,894
Deferred rent expense..................................... 51,486 (11,004)
Change in operating assets and liabilities:
Accounts receivable.................................... (383,630) (363,803)
Other current assets................................... (4,663) (15)
Deposits............................................... (55,800) (3)
Accounts payable and accrued expenses.................. 87,810 (81,001)
Accrued salaries and payroll taxes payable............. 147,009 (165,564)
Accrued vacation....................................... 29,533 --
Unearned revenue....................................... 84,314 24,189
--------- -----------
Net cash used in operating activities.................. (88,572) (3,487,770)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment............... (329,569) (364,265)
Software development costs.................................. (53,245) (29,155)
--------- -----------
Net cash used in investing activities.................. (382,814) (393,420)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of deferred offering costs.......................... (63,618) (438,867)
Payment of deferred debt issue costs........................ -- (127,500)
Proceeds of issuance of convertible debentures.............. -- 1,700,000
Proceeds from note payable.................................. 70,000 --
Repayment of note payable................................... (7,487) (48,520)
Proceeds from notes payable to stockholders................. 444,904 490,000
Repayment of notes payable to stockholders.................. (4,187) (1,335,581)
Repayment of capital lease obligations...................... -- (33,042)
Proceeds from sale of stock, net of underwriting discounts
and commissions........................................... 100 5,520,000
--------- -----------
Net cash provided by financing activities.............. 439,712 5,726,490
--------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (31,674) 1,845,300
CASH AND CASH EQUIVALENTS at beginning of period............ 129,095 332,377
--------- -----------
CASH AND CASH EQUIVALENTS at end of period.................. $ 97,421 $ 2,177,677
========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON
CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for interest.................... $ 5,190 $ 53,664
========= ===========
</TABLE>
During the nine month period ended September 30, 1997, capital lease
obligations of $21,800 were incurred when the Company entered into leases on
computer equipment.
During the nine month period ended September 30, 1997, the Company issued
33,333 shares of common stock in satisfaction of a $200,000 note payable to
stockholder.
The accompanying notes are an integral part of these Financial Statements.
F-18
<PAGE> 68
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to Article 10 of Regulation S-X of the
Securities and Exchange Commission. The accompanying unaudited financial
statements reflect, in the opinion of management, all adjustments necessary to
achieve a fair statement of the financial position and results of operations of
HomeCom Communications, Inc. (the "Company") for the interim periods presented.
All such adjustments are of a normal and recurring nature. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in this Registration Statement beginning at page F-3.
2. STOCK OFFERING
In May 1997, the Company completed an initial public offering of its common
stock. The Company issued 1,000,000 shares at an initial public offering price
of $6.00 per share. The total proceeds of the offering, net of underwriting
discounts, commissions and offering expenses, were approximately $4,700,000. The
Company used a portion of the proceeds from the initial public offering to repay
outstanding principal amounts of approximately $1,300,000 loaned to the Company
by stockholders and affiliates plus accrued interest of approximately $65,000.
The Company issued 33,333 shares of common stock as payment in full of the
outstanding principal balance of a $200,000 loan from an investor.
3. ISSUANCE OF CONVERTIBLE DEBENTURES
In September 1997, the Company issued $1,700,000 of 5% Convertible
Debentures due September 22, 2000. The Debentures are convertible into shares of
the Company's common stock at the lesser of (a) 75% of the closing bid price of
the Common Stock on the Nasdaq SmallCap(TM) Market for the three trading days
preceding notice of conversion; or (b) $4.00. The number of shares issuable upon
conversion of the Debentures is equal to the aggregate principal balance of the
Debentures divided by the conversion price. Net proceeds to the Company from the
issuance of the Debentures totaled approximately $1,500,000. Outstanding
principal and interest on the Debentures is payable on September 22, 2000. The
Debentures are convertible at the option of the holders. The holders have
agreed, however, that they may convert (i) not more than one-third of the
aggregate value of the Debentures at any time on or after the date on which this
registration statement is declared effective (the "Registration Effective
Date"); (ii) not more than an additional one-third of the aggregate value of the
Debentures at any time on or after the 30th day following the Registration
Effective Date; and (iii) the final one-third of the aggregate value of the
Debentures at any time on or after the 60th day following the Registration
Effective Date. Due to the beneficial conversion feature of the debentures, a
portion of the proceeds ($566,667) has been allocated to additional paid-in
capital. The corresponding discount on the debentures will be amortized over the
period from the date the debentures first become convertible as a non-cash
charge to interest expense. In connection with the issuance of the Debentures,
the Company agreed to issue to a broker designated by the purchaser of the
Debentures three-year warrants to acquire an aggregate 400,000 shares of Common
Stock. These warrants were issued in October 1997. Of these warrants, warrants
to purchase an aggregate 200,000 shares of Common Stock are exercisable at a
price of $4.00 per share, and warrants to purchase the remaining 200,000 shares
of Common stock are exercisable at a price of $6.00 per share. If not earlier
exercised, the warrants expire on October 27, 2000.
4. NET LOSS PER SHARE
Net 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 initial public offering price of $6.00 per share). Pursuant
to Securities and Exchange
F-19
<PAGE> 69
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Commission Staff Accounting Bulletin No. 83, common stock issued for
consideration below the initial public offering price per share and stock
options issued with exercise prices below such price during the twelve-month
period preceding the 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.
5. INCOME TAXES
There was no provision for or cash payment of income taxes for the nine
months ended September 30, 1997 and 1996, respectively, as the Company
anticipates a net taxable loss for the year ended December 31, 1997, and, prior
to February 9, 1996, the Company qualified as a S Corporation for federal and
state income tax purposes.
F-20
<PAGE> 70
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN SO AUTHORIZED BY THE
COMPANY. 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..................... 3
Forwarding Looking Statements.......... 5
Risk Factors........................... 6
Use of Proceeds........................ 13
Price Range of Common Stock............ 13
Dividend Policy........................ 13
Selected Financial Data................ 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 16
Business............................... 22
Management............................. 32
Certain Transactions................... 39
Principal and Selling Stockholders..... 41
Description of Securities.............. 43
Plan of Distribution................... 47
Legal Matters.......................... 48
Experts................................ 48
Additional Information................. 48
Index to Financial Statements.......... F-1
</TABLE>
======================================================
======================================================
HOMECOM
COMMUNICATIONS,
INC.
UP TO
850,000
SHARES OF
COMMON STOCK
ISSUABLE UPON CONVERSION
OF AN AGGREGATE $1,700,000
OF 5% CONVERTIBLE
DEBENTURES
--------------------
PROSPECTUS
--------------------
, 1997
======================================================
<PAGE> 71
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 2,021.67
Nasdaq SmallCap Market additional listing fee............... 8,500.00
Accountants' fees and expenses.............................. 30,000.00
Legal fees and expenses..................................... 45,000.00
Blue Sky fees and expenses.................................. 5,000.00
Transfer Agent's fees and expenses.......................... 500.00
Printing and engraving expenses............................. 2,500.00
Miscellaneous............................................... 1,478.33
----------
Total expenses.............................................. $95,000.00
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law (the "DGCL") permits a corporation to
eliminate or limit the personal liability of a director to the corporation or
its stockholders for monetary damages for breach of duty of care or other duty
as a director, provided that no provision shall eliminate or limit the liability
of a director: (A) for an appropriation, in violation of his duties, of any
business opportunity of the corporation; (B) for acts or omissions which involve
intentional misconduct or a knowing violation of law; (C) for unlawful corporate
distributions; or (D) for any transaction from which the director received an
improper personal benefit. This provision pertains only to breaches of duty by
directors in their capacity as directors (and not in any other corporate
capacity, such as officers) and limits liability only for breaches of fiduciary
duties under Delaware corporate law (and not for violation of other laws, such
as the federal securities laws). The Company's Restated Certificate of
Incorporation (the "Restated Certificate") exonerates the Company's directors
from monetary liability to the extent permitted by this statutory provision.
The Company's Restated Certificate of Incorporation and Restated Bylaws
(the "Restated Bylaws") also provide that the Company shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including any action by or in the right of the
Company), by reason of the fact that such person is or was a director or officer
of the Company, or is or was serving at the request of the Company as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including reasonable attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Company (and with respect to any criminal
action or proceeding, if such person had no reasonable cause to believe such
person's conduct was unlawful), to the maximum extent permitted by, and in the
manner provided by, the DGCL.
Notwithstanding any provisions of the Company's Restated Certificate of
Incorporation and Restated Bylaws to the contrary, the DGCL provides that the
Company shall not indemnify a director or officer for any liability incurred in
a proceeding in which the director is adjudged liable to the Company or is
subjected to injunctive relief in favor of the Company: (1) for any
appropriation, in violation of his duties, of any business opportunity of the
Company; (2) for acts or omissions which involve intentional misconduct or a
knowing violation of law; (3) for unlawful corporate distributions; or (4) for
any transaction from which the director or officer received an improper personal
benefit.
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.
II-1
<PAGE> 72
During the period from its formation in December 1994 through August 1996,
the Registrant has issued the securities set forth below 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. In
May 1997, pursuant to the terms of such promissory notes, the Registrant
issued a total of 33,333 shares of Common Stock to the holders of such
notes in partial repayment of the principal amounts owed thereunder.
5. In August 1996, the Registrant 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 September 1997, the Registrant issued and sold 5% convertible
debentures (the "Debentures") to four private investors for an aggregate
purchase price of $1,700,000. The Debentures were issued pursuant to the
terms of a 5% Convertible Debenture Purchase Agreement dated effective as
of September 19, 1997 (the "Debenture Agreement"). Outstanding principal
and interest on the Debentures is payable on September 22, 2000. The
Debentures are convertible at the option of the holders. The holders have
agreed, however, that they may convert (i) not more than one-third of the
aggregate value of the Debentures at any time on or after the date on which
this registration statement is declared effective (the "Registration
Effective Date"); (ii) not more than an additional one-third of the
aggregate value of the Debentures at any time on or after the 30th day
following the Registration Effective Date; and (iii) the final one-third of
the aggregate value of the Debentures at any time on or after the 60th day
following the Registration Effective Date. The Debentures are convertible
at a conversion price (the "Conversion Price") which is the lesser of (a)
75% of the average closing bid price of the Common Stock as represented by
Nasdaq or on other securities exchanges or markets on which the Common
Stock is listed for the three trading days ending on the day preceding
notice of conversion, or (b) $4.00. The number of shares issuable upon
conversion of the Debentures is equal to the aggregate principle balance of
the Debentures divided by the Conversion Price. The Conversion Price is
subject to adjustment under
II-2
<PAGE> 73
certain circumstances. See "Description of Securities -- Convertible
Debentures". On December 13, 1997, the closing price of the Common Stock,
which is quoted on the Nasdaq SmallCap(TM) Market under the symbol "HCOM,"
was $8.0625 per share. In connection with the issuance of the Debentures,
the Registrant granted to an entity designated by the investors aggregate
warrants to acquire 400,000 shares of Common Stock, with warrants to
acquire 200,000 of such shares exercisable at a price of $4.00 per share
and warrants to acquire the remaining 200,000 of such shares exercisable at
a price of $6.00 per share. If not earlier exercised, these warrants expire
on October 27, 2000.
The sales and issuance of shares listed above were exempt from registration
under the Securities Act by virtue of Sections 4(2) and 3(b) thereof and in
reliance on Rule 701 and Regulation D promulgated thereunder. The recipients of
the above-described securities represented their intention to acquire the
securities for investment only and not with a view to distribution thereof.
Appropriate restrictive legends were affixed to stock certificates and warrants
issued in such transactions.
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 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.*
</TABLE>
II-3
<PAGE> 74
<TABLE>
<C> <S>
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 Registrant and Unisys
Corporation.*
10.16 Marketing Associate Agreement dated February 6, 1997 between the Registrant and Unisys Corporation.*
10.17 Letter agreement dated January 16, 1997 between the Registrant, David A. Blech, Esther Blech and the
Edward A. Blech Trust.*
10.18 HomeCom Communications, Inc. Employee Stock Purchase Plan.*
10.19 5% Convertible Debenture Purchase Agreement dated effective September 19, 1997 between the Registrant,
Euro Factors International, Inc., Beauchamp Finance, FTS Worldwide Corporation and Colbo.
10.20 Form of 5% Convertible Debenture issued by the Registrant and held by Euro Factors International, Inc.,
Beauchamp Finance, FTS Worldwide Corporation and Colbo.
10.21 Registration Rights Agreement dated effective September 19, 1997 between the Registrant, Euro Factors
International, Inc., Beauchamp Finance, FTS Worldwide Corporation and Colbo.
10.22 Letter agreement dated September 23, 1997 between the Registrant, Euro Factors International, Inc.,
Beauchamp Finance, FTS Worldwide Corporation and Colbo.
10.23 Letter agreement dated October 27, 1997 between the Registrant, Euro Factors International, Inc.,
Beauchamp Finance, FTS Worldwide Corporation and Colbo.
10.24 Form of Warrant to purchase 200,000 shares of Common Stock at an exercise price of $4.00 per share issued
by the Registrant to First Granite Securities, Inc.
10.25 Form of Warrant to purchase 200,000 shares of Common Stock at an exercise price of $6.00 per share issued
by the Registrant to First Granite Securities, Inc.
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>
- ---------------
*Incorporated herein by reference to exhibit of the same number in the Form S-1
Registration Statement of the Registrant (Registration No. 333-12219).
**Incorporated herein by reference to exhibit of the same number in the Form
10-Q/A of the Registrant filed with the Commission on December 18, 1997.
ITEM 17. UNDERTAKINGS
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually
II-4
<PAGE> 75
or in the aggregate, represent a fundamental change in the information
set forth in this Registration Statement. Notwithstanding the foregoing,
any increase or decrease in the volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1993 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 1933 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 1933 Act
and will be governed by the final adjudication of such issue.
(c) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the 1933 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.
(2) For purposes of determining any liability under the 1933 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-5
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on the 19 day of November, 1997.
HOMECOM COMMUNICATIONS, INC.
By: /s/ HARVEY W. SAX
--------------------------------------
Harvey W. Sax
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harvey W. Sax and Norman H. Smith, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each of said attorney-in-fact
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ HARVEY W. SAX President and Chief Executive Officer November 19, 1997
- ------------------------------------ (Principal Executive Officer) and Director
Harvey W. Sax
/s/ NAT STRICKLEN Executive Vice President and Director November 19, 1997
- ------------------------------------
Nat Stricklen
/s/ KRISHAN PURI Executive Vice President and Director November 19, 1997
- ------------------------------------
Krishan Puri
/s/ GIA BOKUCHAVA, PH.D. Chief Technical Officer and Director November 19, 1997
- ------------------------------------ (Principal Accounting and Financial
Gia Bokuchava, Ph.D. Officer)
/s/ ROGER NEBEL Vice President and Director November 19, 1997
- ------------------------------------
Roger Nebel
/s/ NORMAN H. SMITH Chief Financial Officer November 19, 1997
- ------------------------------------
Norman H. Smith
/s/ GREGORY ABOWD Director November 19, 1997
- ------------------------------------
Gregory Abowd
</TABLE>
II-6
<PAGE> 1
[MORRIS, MANNING & MARTIN LETTERHEAD]
December 18, 1997
HomeCom Communications, Inc.
Suite 100, Building 14
Piedmont Center
3535 Piedmont Road
Atlanta, Georgia 30305
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have served as counsel for HomeCom Communications, Inc. a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, pursuant to the Company's Registration
Statement on Form S-1 (the "Registration Statement"), of a proposed public
offering of 850,000 shares (the "Shares") of the Company's authorized common
stock, $.0001 par value (the "Common Stock"), of which all 850,000 Shares are to
be sold by certain shareholders of the Company (the "Selling Shareholders")
designated in the Registration Statement.
We have examined and are familiar with originals or copies (certified
or otherwise identified to our satisfaction) of such documents, corporate
records and other instruments relating to the incorporation of the Company and
to the authorization and issuance of the outstanding shares of Common Stock and
the Shares to be sold by the Selling Shareholders, as appropriate, as we have
deemed necessary and advisable.
Based upon the foregoing and having regard for such legal
considerations that we have deemed relevant, it is our opinion that the 850,000
Shares to be sold by the Selling Shareholders will be, upon sale and delivery as
contemplated in the Registration Statement, legally and validly issued, fully
paid and nonassessable.
<PAGE> 2
MORRIS, MANNING & MARTIN
a limited liability partnership
December 18, 1997
Page 2
We hereby consent to the reference to our firm under the heading "Legal
Matters" in the Prospectus contained in the Registration Statement and to the
filing of this Opinion as Exhibit 5.1 thereto.
Very truly yours,
MORRIS, MANNING & MARTIN, L.L.P.
By: /s/ Oby T. Brewer III
-----------------------------
Oby T. Brewer III
<PAGE> 1
EXHIBIT 10.19
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR THE SECURITIES COMMISSION OF ANY STATE
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS SUBSCRIPTION
AGREEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER
TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL.
THE SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT
REQUIRE REGISTRATION OF THE SECURITIES, WHICH OPINION AND WHICH COUNSEL SHALL BE
SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
5% CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
HOMECOM COMMUNICATIONS, INC.
THIS AGREEMENT is made this 19th day of September, 1997,
between HOMECOM COMMUNICATIONS, INC., NASDAQ Symbol "HCOM" (the "Company"), a
Delaware corporation, with its principal office at Building 14, Suite 100, 3535
Piedmont Road, Atlanta, GA 30305 and __________________________ (the
"Purchaser"), with its principle office at ____________________________________.
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Company and the Purchaser agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement:
"Agreement" means this 5% Convertible Debenture Purchase
Agreement including all Exhibits hereto.
"Closing Date" means the date of the delivery of the original
Debentures to the Escrow Agent against a wire transfer of the funds to the
Escrow Agent.
"Closing" means the completion of the purchase and sale of the
Debentures on the Closing Date.
<PAGE> 2
"Common Stock" means the Common Stock of the Company $.0001
par value.
"Conversion Date" means the date on which the Purchaser has
telecopied the Notice of Conversion to the Company.
"Conversion Price" means an amount equal to the lessor of (a)
a twenty-five (25%) percent discount from the closing bid price of the Common
Stock as reported by NASDAQ or on other securities exchanges or markets on which
the Common Stock is listed for the previous three (3) trading days ending on the
day before the Conversion Date, or (b) $6.00.
"Conversion Shares" means the Underlying Common Stock issued
upon the conversion of the Convertible Debenture.
"Conversion Table" means the Purchaser may convert up to
one-third (1/3rd) of its initial investment, including any and all interest and
liquidated damages, if any, from ninety (90) days after the Closing Date, or
upon the Registration Effective Date (whichever is sooner) and may convert up to
an additional one-third (1/3rd), including any and all interest and liquidated
damages, if any, from one hundred twenty (120) days from the Closing Date or
thirty (30) days from the Effective Registration Date (whichever is sooner), and
may convert the remaining portion of its initial investment, including any and
all interest and liquidated damages, if any, after one hundred fifty (150) days
from the Closing Date or sixty (60) days from the Registration Effective Date
(whichever is sooner).
"Convertible Debenture" means the Debenture of the Company
convertible into common stock of the Company as hereinafter provided.
"Debenture" or "Debentures" means the Convertible Debenture or
Convertible Debentures purchased on the Closing Date, as appropriate.
"Potential Material Event" means any of the following: (a) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by determinations in good faith
by the Board of Directors of the Company that disclosure of such information in
the registration statement would be detrimental to the business and affairs of
the Company; or (b) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
"Registration Effective Date" means the date upon which the
registration of the Conversion Shares is declared effective by the Commission.
<PAGE> 3
Section 2. Authorization and Sale of Debenture.
2.1 Agreement to Execute and Deliver the Debenture Agreement
and the Debenture. The Company will borrow One Million, Seven Hundred Thousand
($1,700,000) Dollars from the Purchaser in reliance upon the representations and
warranties of the Purchaser contained in this Agreement. The Purchaser will lend
such sum to the Company, in reliance upon the representations and warranties of
the Company contained in this Agreement. Such loan shall occur on the Closing
Date and shall accrue interest from the Closing Date.
2.2 Authorization. Subject to the terms and conditions of this
Agreement, the Company has authorized the execution and delivery of one or more
Convertible Debentures in an aggregate principal amount of up to One Million,
Seven Hundred Thousand ($1,700,000) Dollars (the "Principal"), with a maturity
date three (3) years after the date of issuance (the "Maturity Date"). The
Company promises to pay to the Purchaser the Principal, if any remains
unconverted, with interest at five (5%) percent per annum, in cash or shares of
Common Stock at the Conversion Price at the discretion of the Company on the
Maturity Date. Such loan shall occur on the Closing Date and shall accrue
interest from the Closing Date. The form of such Debenture is annexed hereto as
Exhibit A.
2.3 Time and Place of Closings. The Closings shall be held at
the offices of Sheldon E. Goldstein, P.C. ("Escrow Agent"), 65 Broadway, 10th
Fl., New York, NY 10006, on the Closing Date.
2.4 Payment and Delivery. At or prior to the Closing, the
following shall occur:
(a) Purchaser shall remit by wire transfer the Purchase
Price to Escrow Agent as per the separate Escrow Agreement in the form of
Exhibit B attached hereto, which shall be executed and delivered by the parties
contemporaneously with this Agreement, as payment in full for the Debenture.
(b) Company shall deliver or cause to be delivered to
Escrow Agent original Debentures, substantially in the form set forth in Exhibit
A hereto, bearing the original signatures of an authorized officer of the
Company.
(c) Wire instructions for Sheldon E. Goldstein, P.C., as
follows:
Chase Manhattan Bank, N.A.
ABA #021000021
For the Account of
United States Trust Company of New York
Account #920-1-073195
In Favor of
Sheldon E. Goldstein, P.C. Attorney Trust Account
Account #59-02347
<PAGE> 4
2.5 Closings. At the closings, the following shall occur:
(a) The Escrow Agent shall deliver the Purchase Price and
the Debenture in accordance with the terms of the Escrow Agreement.
(b) The Company shall cause the legal opinion required
pursuant to the terms of Section 3.17 hereof to be executed and delivered to the
Purchaser.
(c) The Company and Purchaser shall execute and deliver
the Registration Rights Agreement in the form of Exhibit C attached hereto.
Section 3. General Representations and Warranties of the
Company. The Company hereby represents and warrants to, and covenants with, the
Purchaser that the following are true and correct as of the date hereof.
3.1 Organization; Qualification. The Company is a corporation
duly organized and validly existing under the laws of Delaware and is in good
standing under such laws. The Company has all requisite corporate power and
authority to own, lease and operate its properties and assets, and to carry on
its business as presently conducted. The Company is qualified to do business as
a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except where
failure to so qualify would not have a material adverse effect on the Company.
3.2 Capitalization and Conversion. The authorized capital
stock of the Company consists of 15,000,000 Shares of Common Stock, $.0001 par
value, of which 2,956,396 are outstanding. All issued and outstanding Shares of
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable. As of the Closing Date, the Company had reserved from its
authorized but unissued shares of Common Stock a sufficient number of shares of
Common Stock for issuance upon conversion of the aggregate principal amount of
the Debenture. Each such conversion shall reduce the principal amount owing on
the Debenture by the amount stated in the Notice of Conversion (Exhibit D) and
will be reflected in a Convertible Debenture Principal Reduction Schedule signed
by an authorized officer of the Company.
The Purchaser shall be entitled to convert its Debentures into
Common Stock as per Conversion Table defined herein.
3.3 Authorization. The Company has all requisite corporate
right, power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. All corporate action on the
part of the Company, its directors and shareholders necessary for the
authorization, execution, delivery and performance of this Agreement and the
Debenture by the Company, the authorization, sale, issuance and delivery of the
Conversion Shares and the performance of the Company's obligations hereunder has
been taken. This Agreement has been duly executed and delivered by the Company
and constitutes a
<PAGE> 5
legal, valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy as they may apply to the indemnification provisions set forth
in Section 7.3 of this Agreement. Upon their issuance and delivery pursuant to
this Agreement, the Conversion Shares will be validly issued, fully paid and
nonassessable and will be free of any liens or encumbrances except for those
imposed by or on behalf of the Purchaser, its creditors or agents.
3.4 No Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Certificate of Incorporation, and any amendments thereto,
Bylaws and any amendments thereto of the Company or any material mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree statute, law, ordinance, rule or
regulation applicable to the Company, its properties or assets.
3.5 Accuracy of Reports and Information. The Company is in
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12 (g) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company has registered its Common Stock
pursuant to Section 12 of the Exchange Act and the Common Stock is listed and
trades on the NASDAQ National Small Cap Market.
The Company has filed all material required to be filed
pursuant to all reporting obligations, under either Section 13(a) or 15(d) of
the Exchange Act for a period of at least twelve (12) months immediately
preceding the offer and sale of the Debenture (or for such shorter period that
the Company has been required to file such material).
3.6 SEC Filings/Full Disclosure. For a period of at least
twelve (12) months immediately preceding this offer and sale, or such shorter
period that the Company has been required to file such Reports as defined
herein, (i) none of the Company's filings with the Securities and Exchange
Commission contain 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, and (ii) the Company has timely filed all requisite forms, reports
and exhibits thereto with the Securities and Exchange Commission.
There is no fact known to the Company (other than general
economic conditions known to the public generally) that has not been publicly
disclosed by the Company or disclosed in writing to the Purchaser which (i)
could reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) or on earnings, business affairs, properties or assets
of the Company, or (ii) could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to this
Agreement.
<PAGE> 6
A copy of press release proposed to be released by the Company
on or about September 22, 1997 is attached hereto as Schedule 3.6.
The Purchaser agrees that, until such time as the press
release is generally released to the public, the information contained therein
represents confidential information, the Purchaser agrees to treat such
information as confidential, and not to disclose or use such information. In
connection therewith, the Purchaser agrees that the Purchaser will not trade in
the Company's common Stock at any time until such information is generally
released to the public.
3.7 Absence of Undisclosed Liabilities. The Company has no
material liabilities or obligations, absolute or contingent (individually or in
the aggregate), except as set forth in the Reports (as hereinafter defined) or
as incurred in the ordinary course of business after the date of the Reports.
3.8 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or issuance of the
Debenture, or the consummation of any other transaction contemplated hereby,
except the filing with the SEC of a registration statement for the purpose of
registering the Common Stock underlying the Debenture and "Blue Sky" filings
and/or registrations required in connection with the purchase and sale of the
Debentures or the issuance of the Common Stock upon conversion thereof.
3.9 Intellectual Property Rights. Except as disclosed in the
Form 10-Ks, Form 10-Qs and Form 8-Ks filed by the Company for a period of at
least twelve (12) months immediately preceding this offer, or such shorter
period that the Company has been required to file such Reports as defined herein
(the "Reports"), the Company has sufficient trademarks, trade names, patent
rights, copyrights and licenses to conduct its business as presently conducted.
To the Company's knowledge, neither the Company nor its products is infringing
or will infringe any trademark, trade name, patent right, copyright, license,
trade secret or other similar right of others currently in existence; and there
is no claim being made against the Company regarding any trademark, trade name,
patent, copyright, license, trade secret or other intellectual property right
which could have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the Company.
3.10 Material Contracts. Except as set forth in the Reports,
the material agreements to which the Company is a party described in the Reports
are valid agreements, in full force and effect, the Company is not in material
breach or material default (with or without notice or lapse of time, or both)
under any of such agreements, and, to the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default (with or without notice or lapse of time, or both) under any of such
agreements.
3.11 Litigation. Except as disclosed in the Reports, there is
no action, proceeding or investigation pending, or to the Company's knowledge
threatened, against the
<PAGE> 7
Company which might result, either individually or in the aggregate, in any
material adverse change in the business, prospects, conditions, affairs or
operations of the Company. The Company is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company currently
intends to initiate which will materially effect the Company.
3.12 Title to Assets. Except as is required to be set forth in
the Reports, the Company has good and marketable title to all properties and
material assets described in the Reports as owned by it, free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest other
than such as are not material to the business of the Company.
3.13 Subsidiaries. Except as disclosed in the Reports and the
financial statements, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, association or
other business entity.
3.14 Required Governmental Permits. The Company is in
possession of and operating in material compliance with all authorizations,
licenses, certificates, consents, orders and permits from state, federal and
other regulatory authorities which are material to the conduct of its business,
all of which are valid and in full force and effect.
3.15 Listing. The Company will exercise its best efforts to
maintain the listing of its Common Stock on the Nasdaq National Small Cap Market
or other organized United States Markets or Quotron System. The Company has not
received any notice, oral or written, regarding any intention by Nasdaq to
delist the Common Stock.
3.16 Other Outstanding Securities. Except as disclosed in the
Reports, there are no other material outstanding debt or equity securities
presently convertible into Common Stock.
3.17 Legal Opinion. Purchaser shall, upon the purchase of the
Debenture, receive an opinion letter from counsel to the Company, and the
Company represents that it will immediately obtain such an opinion from counsel
to the Company in the form attached as Exhibit E.
3.18 Dilution. The Company is aware and acknowledges that
conversion of the Debentures could cause dilution to existing shareholders and
could significantly increase the outstanding number of shares of Common Stock.
3.19 Financing Restrictions. The Company cannot without the
prior written approval from the Purchaser, obtain any debt or equity financing
which would be convertible into the Company's Common Stock within the later of
one hundred fifty (150) days from the Closing Date or thirty (30) days from the
Registration Effective Date.
3.20 No Undisclosed Liabilities or Events. The Company has no
liabilities or obligations other than those disclosed in the Reports, this
Agreement or those incurred in the
<PAGE> 8
ordinary course of the Company's business since January 1, 1997, and which
individually or in the aggregate, do not or would not have a material adverse
effect on the properties, business, condition (financial or otherwise), results
of operations or prospects of the Company. No event or circumstances has
occurred or exists with respect to the Company or its properties, business,
condition (financial or otherwise), results of operations or prospects, which,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed.
3.21 No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its property
is bound, and neither the execution, nor the delivery by the Company, nor the
performance by the Company of its obligations under this Agreement or the
Transaction Documents, including the conversion provision of the Debentures,
will conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under, any
material indenture, mortgage, deed of trust or other material agreement
applicable to the Company or instrument to which the Company is a party or by
which it is bound or any statute or the Memorandum or Articles of the Company,
or any decree, judgment, order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or its properties, or the
Company's listing agreement for its Common Stock.
3.22 Absence of Events of Default. Except as set forth in the
Reports and this Agreement, no Event of Default, as defined in the respective
agreement to which the Company is a party, and no event which, with the giving
of notice or the passage of time or both, would become an Event of Default (as
so defined), has occurred and is continuing, which would have a material adverse
effect on the Company's business, properties, prospects, condition (financial or
otherwise) or results of operations.
Section 4. Representations, Warranties and Covenants of the
Purchaser. The Purchaser represents and warrants to, and covenants with, the
Company that the following are true and correct as of the date hereof and as of
the Closing Date.
4.1 Authority. The Purchaser has all requisite right, power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Purchaser, its directors, shareholders, members or partners necessary for the
authorization, execution, delivery and performance of this Agreement, and the
purchase of the Debentures as well as their respective conversion and exercise,
and the performance of the Purchaser's obligations hereunder, has been taken.
The Purchaser's signatory has all right, power, authority and capacity to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Purchaser and will constitute the legal, valid and binding obligations of the
Purchaser, enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific
<PAGE> 9
performance, injunctive relief or other equitable remedies, and to limitations
of public policy as they may apply to the indemnification provisions set forth
in Section 7.3 of this Agreement.
4.2 Investment Experience. Purchaser is an "accredited
investor" as defined in Rule 501(a) under the Securities Act. Purchaser is aware
of the Company's business affairs and financial condition and has had access to
and has acquired sufficient information about the Company, including the
Reports, to reach an informed and knowledgeable decision to acquire the
Debentures. Purchaser has such business and financial experience as is required
to give it the capacity to protect its own interests in connection with the
purchase of the Debentures.
4.3 Investment Intent. Without limiting its ability to resell
the underlying Common Stock pursuant to an effective registration statement,
Purchaser represents that it is purchasing the Debentures for its own account as
principal for investment purposes, and not with a view to a distribution.
Purchaser understands that its acquisition of the Debentures have not been
registered under the Securities Act or registered or qualified under any state
securities law in reliance on specific exemptions therefrom, which exemptions
may depend upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein. Purchaser will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchaser or otherwise acquire or take a pledge of) any of
the Debentures or the underlying Common Stock, except in compliance with the
Securities Act and any applicable state securities laws, and the rules and
regulations promulgated thereunder.
4.4 Registration or Exemption Requirements. Purchaser further
acknowledges and understands that the Debentures or the Conversion Shares may
not be resold or otherwise transferred except in a transaction registered under
the Securities Act and any applicable state securities laws or unless an
exemption from such registration is available. Purchaser understands that the
Debentures and, if converted or exercised as the case may be, the Conversion
Shares will be imprinted with a legend that prohibits the transfer of such
securities unless (i) it is registered or such registration is not required
pursuant to an exemption therefrom, and (ii) if the transfer is pursuant to an
exemption from registration other than Rule 144 under the Securities Act and
Purchaser provides an opinion of counsel to the Company, which opinion and which
counsel shall be reasonably satisfactory to the Company to the effect that the
transaction is so exempt.
4.5 No Legal, Tax or Investment Advice. Purchaser understands
that nothing in this Agreement or any other materials presented to Purchaser in
connection with the purchase and sale of the Debentures constitutes legal, tax
or investment advice. Purchaser has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of the Debentures.
4.6 Purchaser Review. Purchaser hereby represents and warrants
that the Purchaser has carefully examined the Reports, and the financial
statements contained therein. The Purchaser acknowledges that the Company has
made available to the Purchaser all documents and information that it has
requested relating to the Company and has provided answers to all of its
questions concerning the Company and the Debenture. Nothing stated in the
<PAGE> 10
previous two sentences, however, shall be deemed to affect the representations
and warranties of the Company contained in this Agreement.
4.7 Restrictions on Conversion of Debenture. The Purchaser or
any subsequent holder of the Debenture (the "Holder") shall be prohibited from
converting any portion of the Debenture which would result in the Purchaser or
the Holder being deemed the beneficial owner, in accordance with the provisions
of Rule 13d-3 of the Exchange Act, of 4.99% or more of the then issued and
outstanding Common Stock of the Company.
4.8 Certain Risks. The Purchaser recognizes that the purchase
of the Debentures and the Conversion Shares involves a high degree of risk in
that:
(i) an investment in the Company is highly speculative
and only investors who can afford the loss of their entire investment
should consider investing in the Company and the Debentures and the
underlying securities;
(ii) a purchaser may not be able to liquidate its
investment;
(iii) transferability of the Debentures and Conversion
Shares is extremely limited;
(iv) in the event of disposition, Purchaser could
sustain the loss of its entire investment;
(v) the Debentures represent non-voting securities,
which have the right to convert into and purchase shares of voting
equity securities in a corporate entity;
(vi) no return on investment, whether through
distributions, appreciation, transferability or otherwise, and no
performance by, through or of the Company, has been promised, assured,
represented or warranted by the Company, or by any director, officer,
employee, agent or representative thereof;
(vii) while the Common Stock is presently quoted and
traded on the NASDAQ National Small Cap Market and while the Purchasers
are beneficiaries of certain registration rights provided herein,
(a) the Debentures and the Conversion Shares are not
registered under applicable federal or state securities
laws, and thus may not be sold, conveyed, assigned or
transferred unless registered under such laws or unless an
exemption from registration is available under such laws,
as more fully described below; and
(b) the Debentures are not quoted, traded or listed for
trading or quotation on the NASDAQ National Small Cap
Market, or any other organized market or quotation system,
and there is therefore no present
<PAGE> 11
public or other market for such Debentures, nor can there
be any assurance that the Common Stock will continue to be
quoted, traded or listed for trading or quotation on the
NASDAQ National Small Cap Market or on any other organized
market or quotation system.
4.9 No Registration, Review or Approval. The Purchaser
acknowledges and understand that the limited private offering and sale of the
Debentures and the Conversion Shares pursuant to this Agreement has not been
reviewed or approved by the SEC or by any state securities commission, authority
or agency, and is not registered under the Act or under the securities or "blue
sky" laws, rules or regulations of any state. The Purchaser acknowledges,
understands and agrees that the Debentures and the Conversion Shares are being
offered and sold hereunder pursuant to (i) a private placement exemption to the
registration provisions of the Act pursuant to Section 3(b) or Section 4(2) of
such Act and Regulation D promulgated under such Act, and (ii) a similar
exemption to the registration provisions of applicable state securities laws.
4.10 No Hedging. The Purchaser shall not, directly or
indirectly, at any time during which the Purchaser holds any Debentures, engage
in any short or other hedging transaction, such as opinion writing, equity swaps
or other types of derivative transaction in the Common Stock or other securities
of the Company or acquire or establish any "put equivalent position" within the
meaning of Rule 16a-1 promulgated under the Exchange Act.
Section 5. Conditions to the Purchaser's Obligation to
Purchase. The Company understands that the Purchaser's obligation to purchase
the Debenture is conditioned upon:
(a) Acceptance by Purchaser of this Debenture Purchase
Agreement for the purchase of the Debenture, as evidenced by the execution of
this Agreement by its authorized officers;
(b) Delivery of the Debentures into Escrow;
(c) Delivery of legal opinion as required by this
Agreement;
(d) Execution and delivery by the Company of the Escrow
Agreement and the Registration Rights Agreement in the form of Exhibits B and C
attached hereto.
Section 6. Conditions to Company's Obligation to Sell.
Purchaser understands that the Company's obligation to sell the Debenture is
conditioned upon:
(a) The receipt and acceptance by the Company of this
Debenture Purchase Agreement for the Debenture as evidenced by execution of this
Debenture Purchase Agreement by the President or any Vice President of the
Purchaser; and
(b) Delivery into escrow by Purchaser of good funds as
payment in full for the purchase of the Debenture.
<PAGE> 12
(c) Execution and delivery by the Purchaser of the Escrow
Agent and the Registration Rights Agreement in the form of Exhibits B and C.
Section 7. Compliance with the Securities Act.
7.1 Registration Rights Agreement. The parties will enter into
a Registration Rights Agreement, annexed hereto as Exhibit C.
7.2 Underwriter. The Company understands that the Purchaser
disclaims being an "underwriter" (as such term is defined under the Securities
Act and the rules and regulations promulgated thereunder (an "Underwriter"), but
Purchaser being deemed an Underwriter shall not relieve the Company of any
obligation it has hereunder, except as may be required by law.
7.3 Indemnification. Each of the Company and the Purchaser
agrees to indemnify the other and to hold the other harmless from and against
any and all losses, damages, liabilities, costs and expenses (including
reasonable attorneys' fees) which the other may sustain or incur in connection
with any material breach by the indemnifying party of any representation,
warranty or covenant made by it in this Agreement.
7.4 Information Available. So long as any registration
statement is effective covering the resale of the Common Stock underlying the
Debenture, the Company will furnish to Purchaser:
(a) as soon as possible after available (but in the case
of the Company's Annual Report to Stockholders, within 150 days after the end of
each fiscal year of the Company), one copy of (i) its Annual Report to
Stockholders (which Annual report shall contain financial statements audited in
accordance with generally accepted accounting principles in the United States of
America by a national firm of certified public accountants); (ii) each of its
Quarterly Reports to Stockholders, and its Quarterly Reports on Form 10-Q; and
(iii) a full copy of the registration statement covering the Conversion Shares
(the foregoing, in each case, including exhibits); and
(b) upon the reasonable request of Purchaser, such other
information that is generally available to the public.
7.5 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Underlying Shares to the public without registration, the
Company agrees to use its best efforts to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date on which the Company becomes subject to the
reporting requirements of the Securities Act or the Exchange Act;
<PAGE> 13
(b) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act;
(c) to furnish to Purchaser forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144, and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as Purchaser may
reasonably request in availing itself of any rule or regulation of the SEC
allowing Purchaser to sell any of the Underlying Shares without registration.
7.6 Temporary Cessation of Offers and Sales by Purchaser. If
at any time or from time to time after the Registration Effective Date, the
Company notifies the Purchasers in writing of the existence of a Potential
Material Event, the Purchasers shall not offer or sell any Conversion Shares or
engage in any other transaction involving or relating to the Registrable Shares,
from the time of the giving of notice with respect to a Potential Material Event
until such Purchasers receive written notice from the Company that such
Potential Material Event either has been disclosed to the public or no longer
constitutes a Potential Material Event; provided, however, that the Company may
not so suspend the right to such holders of Conversion Shares for more than two
twenty (20) day periods in the aggregate during any 12-month period with at
least a ten (10) business day interval between such periods, during the periods
the Registration Statement is required to be in effect.
7.7 Transfer of Common Stock After Registration. Purchaser
hereby covenants with the Company not to make any sale of the Common Stock
except either (i) in accordance with the Registration Statement, in which case
Purchaser covenants to comply with the requirement of delivering a current
prospectus, or (ii) in accordance with Rule 144, in which case Purchaser
covenants to comply with Rule 144.
7.8 Termination of Obligations. The obligations of the Company
pursuant to the Registration Rights Agreement shall cease and terminate upon the
earlier to occur of (i) such time as all of the Common Stock have been re-sold,
or (ii) such time as all of the Common Stock may be re-sold in any three-month
period pursuant to Rule 144 under the Securities Act.
7.9 Legend. The certificate or certificates representing the
Debentures and, upon conversion, the Conversion Shares shall be subject to a
legend restricting transfer under the Securities Act of 1933, such legend to be
substantially as follows:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A
TRANSACTION WHICH IS
<PAGE> 14
EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND
UNDER PROVISIONS OF APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE
OF AN EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE SECURITIES,
WHICH OPINION AND WHICH COUNSEL SHALL BE SATISFACTORY TO THE COMPANY IN
ITS SOLE DISCRETION."
Such securities shall also include any legends required by any applicable state
securities laws.
With respect to the Conversion Shares, the legend(s) shall be
removed and the Company shall issue a replacement certificate without such
legend to the holder of such certificate if such holder provides to the Company
an opinion of counsel reasonably acceptable to the Company, to the effect that a
public sale, transfer or assignment of such stock may be made without
registration.
Section 8. Legal Fees and Expenses. Except as provided in the
Escrow Agreement, each of the parties shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others engaged
by such party) in connection with this Agreement and the transactions
contemplated hereby.
Section 9. Notice of Conversion. Conversion of the Debenture
to Common Stock may be exercised in whole or in part by Purchasers telecopying
an executed and completed Notice of Conversion (in the form annexed hereto as
Exhibit D) to the Company and delivering the original Notice of Conversion and
the certificate representing the Debenture to the Company by express courier
within three (3) business days of exercise. Each date on which a Notice of
Conversion is telecopied to the Company in accordance with the provisions hereof
shall be deemed a Conversion Date. The Company will transmit the certificates
representing the Common Stock issuable upon conversion of all or any part of the
Debenture (together with the certificates representing portions of the Debenture
not so converted) to the Purchaser via express courier within five (5) business
days after the Company has received the original Notice of Conversion and
Debenture certificate being so converted. In addition to any other remedies
which may be available to the Purchaser, in the event that the Company fails for
any reason to effect delivery of such shares of Common Stock within such five
(5) business day period, the Purchaser will be entitled to revoke the relevant
Notice of Conversion by delivering by telecopier with an original by overnight
courier a notice to such effect to the Company whereupon the Company and the
Purchaser shall each be restored to their respective positions immediately prior
to the delivery of the Notice of Conversion. Upon receipt of such Notice the
Company shall return by overnight courier the original certificate representing
the Debenture. The Notice of Conversion and certificate representing the portion
of the Debenture converted shall be delivered as follows:
<PAGE> 15
To the Company:
HomeCom Communications, Inc.
Building 14, Suite 100
3535 Piedmont Road
Atlanta, GA 30305
Attn: Harvey Sax, President/CEO
(tele) (404) 237-4646
(fax) (404) 237-3060
or to such other person at such other place as the Company shall designate to
the Purchaser in writing.
In the event that the Common Stock issuable upon conversion of
the Debenture is not delivered within five (5) business days of receipt by the
Company of a valid Conversion Notice and the Debenture to be converted (such
date of receipt referred to as the "Conversion Date"), the Company shall pay to
the Purchaser, by wire transfer, as liquidated damages for such failure and not
as a penalty, for each $100,000 of Debenture sought to be converted, $500 for
each of the first ten (10) days, and $1,000 per day thereafter that the
Conversion Shares are not delivered, which penalty shall run from the sixth
business day after the Conversion Date.
Section 10. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first class
registered or certified airmail, postage prepaid, and shall be deemed given when
so mailed:
(a) if to the Company, to
HomeCom Communications, Inc.
Building 14, Suite 100
3535 Piedmont Road
Atlanta, GA 30305
Attn: Harvey Sax, President/CEO
(tele) (404) 237-4646
(fax) (404) 237-3060
copy to:
Morris, Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road, NE
Atlanta, GA 30326
Attn: Oby T. Brewer, III
(tele) (404) 233-7000
(fax) ( 404) 365-9532
<PAGE> 16
or to such other person at such other place as the Company shall designate to
the Purchaser in writing;
(b) if to the Purchaser, to
(tele)
(fax)
copy to:
(tele)
(fax)
or at such other address or addresses as may have been furnished to the Company
in writing; or
(c) if to any transferee or transferees of a Purchaser, at
such address or addresses as shall have been furnished to the Company at the
time of the transfer or transfers, or at such other address or addresses as may
have been furnished by such transferee or transferees to the Company in writing.
Section 11. Miscellaneous.
11.1 Entire Agreement. This Agreement, including all Exhibits
and Schedules hereto, embody the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersedes all
prior oral or written agreements and understandings relating to the subject
matter hereof. No statement, representation, warranty, covenant or agreement or
any kind not expressly set forth in this Agreement shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
11.2 Amendments. This Agreement may not be modified or amended
except pursuant to an instrument in writing signed by the Company and by
Purchaser.
11.3 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
<PAGE> 17
11.4 Severability. In case any provision contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
11.5 Governing Law/Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the 1933 Act, without reference to
principles of conflicts of law. Each of the parties consents to the jurisdiction
of the federal district court for the Southern District of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if either party to this Agreement
obtains a judgment against it in such a proceeding, the party which obtained
such judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained, and
each party hereby waives any defenses available to it under local law and agrees
to the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
11.6 Recovery of Attorney's Fees. Should any party bring an
action to enforce the terms of this Agreement then, if Purchaser prevails in
such action it should be entitled to recovery of its attorney's fees from the
Company, and if the Company prevails in such action it shall be entitled to
recovery of its attorney's fees from the Purchasers.
11.7 Fees. The Company acknowledges that Purchaser shall have
no responsibility for the payment of any of its fees in connection with this
offering.
11.8 Counterparts/Facsimile. This Agreement may be executed
in two or more counterparts, each of which shall constitute an original, but
all of which, when taken together, shall constitute but one instrument, and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to the other party. In lieu of the original, a
facsimile transmission or copy of the original shall be as effective and
enforceable as the original.
11.9 Publicity. The Purchaser shall not issue any press
releases or otherwise make any public statement with respect to the transactions
contemplated by this Agreement without the prior written consent of the Company,
except as may be required by applicable law or regulation.
11.10 Survival. The representations and warranties in this
Agreement shall survive Closing.
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized representatives the day and year
first above written.
HOMECOM COMMUNICATIONS, INC.
By /s/ Harvey Sax
---------------------------------
Harvey Sax, Chief Executive Officer
Attest:
/s/ Norman Smith
-------------------------
Norman Smith
Chief Financial Officer
PURCHASER:
-------------------------
By
-----------------------
Officer
<PAGE> 1
EXHIBIT 10.20
No. $ USD
------ ----------
HOMECOM COMMUNICATIONS, INC.
$1,700,000 5% Convertible Debenture
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR THE SECURITIES COMMISSION OF ANY STATE
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS SUBSCRIPTION
AGREEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER
TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL.
THE SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT
REQUIRE REGISTRATION OF THE SECURITIES, WHICH OPINION AND WHICH COUNSEL SHALL BE
SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
THIS DEBENTURE is one of a duly authorized issue of Debentures of HOMECOM
COMMUNICATIONS, INC., a corporation duly organized and existing under the laws
of the State of Delaware (the "ISSUER") issued September __, 1997, designated as
its Five (5%) Percent Convertible Debenture due September __, 2000, in an
aggregate face amount not exceeding One Million, Seven Hundred Thousand
(USD$1,700,000) Dollars, issuable in One Hundred Thousand ($100,000) Dollars par
value face amounts.
FOR VALUE RECEIVED, the ISSUER promises to pay to
the registered holder hereof and its successors and assigns (the "HOLDER"), the
principal sum of:
United States Dollars,
<PAGE> 2
on September __, 2000 (the "Maturity Date"), and to pay interest, as outlined
below, at the rate of 5% per annum, on the principal sum outstanding from time
to time for the term of the Debenture or until the Debenture is completely
converted. Accrual of Interest shall commence on the first business day to occur
after the date hereof and shall continue until payment in full of the principal
sum has been made or duly provided for. The interest so payable will be paid to
the person in whose name this Debenture (or one or more predecessor Debentures)
is registered on the records of the Issuer regarding registration and transfers
of the Debenture (the "Debenture Register"), provided, however, that the
ISSUER'S obligation to a transferee of this Debenture arises only if such
transfer, sale or other disposition is made in accordance with the terms and
conditions contained in the 5% Convertible Debenture Purchase Agreement dated as
of September 19, 1997 between the ISSUER and HOLDER (the "Agreement"). Except
upon an event of default, the principal of, and interest on, this Debenture are
payable only in cash or Conversion Shares (as defined in this Agreement) at the
discretion at the Company, at the address last appearing on the Debenture
register of the ISSUER as designated in writing by the Holder hereof from time
to time. The ISSUER will pay the principal of and all accrued and unpaid
interest due upon this Debenture on the Maturity Date in cash or Conversion
Shares at the Conversion Price, less any amounts required by law to be deducted
or withheld, to the Holder at the last address on the Debenture Register. Such
payment shall constitute a payment of principal and interest hereunder and shall
satisfy and discharge the liability for principal and interest on the Debenture
to the extent of the sum represented by such check plus any amounts so deducted.
The Debenture is subject to the following additional provisions:
1. The Debenture is exchangeable for like Debentures in equal
aggregate principal amount of authorized denominations, as requested by the
HOLDERS surrendering the same. No service charge will be made for such
registration or transfer or exchange.
2. The ISSUER shall be entitled to withhold from all payments
of principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States Income Tax or
other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment
representations of the original HOLDER hereof and may be transferred or
exchanged in the US only in compliance with Securities Act of 1933, as amended
(the "Act") and applicable state securities laws. Prior to the due presentment
for such transfer of this Debenture, the ISSUER and any agent of the ISSUER may
treat the person in whose name this Debenture is duly registered on the ISSUER'S
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and all other purposes, whether or not this debenture is
overdue, and neither the ISSUER nor any such agent shall be affected by notice
to the contrary. The transferee shall be bound, as the original HOLDER by the
same representations and terms described herein and under the Agreement.
-2-
<PAGE> 3
4. The Holder is entitled, at its option, to convert this
Debenture in accordance with the terms and conditions contained in the 5%
Convertible Debenture Purchase Agreement, dated as of September 19, 1997 between
the ISSUER and HOLDER.
No fractional shares or scrip representing fractions of shares
will be issued on conversion, but the number of shares issuable shall be rounded
to the nearest whole share, with the fraction paid in cash at the discretion of
the ISSUER.
The Conversion Price shall be equitably adjusted accordingly
on a pro rata basis in the event of the happening of certain events that would
affect the Common Stock or the Convertible Debenture's value including, but not
limited to, forward and reverse splits, dividend payment on shares, subdivision
of shares, combinations, reclassifications, issuance of rights, warrants,
options or the like. An adjustment made pursuant to this section shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such an event.
5. No provision of this Debenture shall alter or impair the
obligation of the ISSUER, which is absolute and unconditional, upon an Event of
Default (as defined below), to pay the principal of, and interest on this
Debenture at the place, time, and rate, and in the coin or currency herein
prescribed.
6. The ISSUER hereby expressly waives demand and presentment
for payment, notice on nonpayment, protest, notice of protest, notice of
dishonor, notice of acceleration or intent to accelerate, and diligence in
taking any action to collect amounts called for hereunder and shall be directly
and primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
7. The ISSUER agrees to pay all costs and expenses, including
reasonable attorneys' fees, which may be incurred by the Holder in collecting
any amount due or exercising the conversion rights under this Debenture.
If one or more of the following described "Events of Default"
shall occur,
a. Any of the representations or warranties made by the ISSUER
herein, or in the Agreement shall have been incorrect when
made in any material respect; or
b. The ISSUER shall fail to perform or observe in any material
respect any other covenant, term, provision, condition,
agreement or obligation of the ISSUER under this Debenture,
the Registration Rights Agreement and the Convertible Purchase
Agreement between the parties of even date herewith, and such
failure shall continued uncured for a period of seven (7) days
after written notice from the Holder specifically describing
such failure; or
-3-
<PAGE> 4
c. A trustee, liquidator or receiver shall be appointed for
the ISSUER or for a substantial part of its property or
business without its consent and shall not be discharged
within thirty (30) days after such appointment; or
d. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall
assume custody or control of the whole or any substantial
portion of the properties or assets of the ISSUER and shall
not be dismissed within thirty (30) calendar days thereafter;
or
e. Bankruptcy reorganization, Insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief or debtors shall be
instituted by or against the ISSUER, and if instituted against
the ISSUER, ISSUER shall by any action or answer approve of,
consent to or acquiesce in any such proceedings or admit the
material allegations of, or default in answering a petition
filed in any such proceeding; or
f. The ISSUER'S Common Stock is delisted from trading on
NASDAQ National Small Cap Market unless it is thereupon
admitted to trading on a national stock exchange.
Then, or at any time thereafter, and in each and every such case,
unless such Event of Default shall have been waived in writing by the
HOLDER (which waiver shall not be deemed to be a waiver of any
subsequent default) at the option of the HOLDER and in the HOLDER'S
sole discretion, the HOLDER may consider this Debenture immediately due
and payable, without presentment, demand protest or notice of any kind,
all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding,
and HOLDER may immediately, and without expiration of any period of
grace, enforce any and all of the HOLDER'S rights and remedies provided
herein or any other rights or remedies afforded by law.
8. In case any provision of this Debenture is held by a court
of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby.
9. This Debenture and the Agreement referred to in this
Debenture constitute the full and entire understanding and agreement between the
ISSUER and HOLDER with respect hereof. Neither this Debenture nor any terms
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the ISSUER and the HOLDER. Any Capitalized terms shall have
the same meaning as defined in the Agreement. In the event of any
inconsistencies between this Debenture and the Agreement, the Agreement shall
control.
-4-
<PAGE> 5
10. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York.
11. Notwithstanding anything to the contrary herein contained,
Holder shall be prohibited from converting any portion of the Debenture which
would result in the Holder being deemed the beneficial owner, in accordance with
the provisions of Rule 13d-3 of the Securities Exchange Act of 1934, as amended,
of 4.99% or more of the then issued and outstanding Common Stock of the Company.
IN WITNESS WHEREOF, the ISSUER has caused this instrument to
be duly executed by an officer thereunto duly authorized.
HOMECOM COMMUNICATIONS, INC.
By
--------------------------------------
Harvey Sax, Chief Executive Officer
Date:
-5-
<PAGE> 6
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
5% Convertible Debenture)
The undersigned hereby irrevocably elects to convert the below applicable
portion of Debenture No. ____ into shares of common stock of HOMECOM
COMMUNICATIONS, INC. (the "Company") according to the conditions hereof, as of
the date written below.
The undersigned represents and warrants that
(i) All offers and sales by the undersigned of the shares of Common
Stock issuable to the undersigned upon conversion of the
Debenture shall be made pursuant to an exemption from
registration under the Act, or pursuant to registration of the
Common Stock under the Securities Act of 1933, as amended (the
"Securities Act"), subject to any restrictions on sale or
transfer set forth in the 5% Convertible Debenture Purchase
Agreement between the Company and the original holder of the
Certificate submitted herewith for conversion.
(ii) Upon conversion pursuant to the Notice of Conversion, the
undersigned will not own or deemed to beneficially own (within
the meaning of the Securities Exchange Act of 1934) 4.9% or more
of the then issued and outstanding shares of the company.
- ------------------------------- ----------------------------
Date of Conversion Applicable Conversion Price
- ------------------------------- ----------------------------
Number of Common Shares upon $ Amount of Conversion
Conversion
- ------------------------------- ----------------------------
Signature Name
Address: Delivery of Shares to:
----------------------------
<PAGE> 1
EXHIBIT 10.21
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 19th of
September, 1997, between the person and/or entity whose name and address appears
on the signature page attached hereto (individually a "Holder" or collectively
with the holders of the other Securities issued pursuant to a Convertible
Debenture Purchase Agreement of even date herewith, as defined below, the
"Holders") and HOMECOM COMMUNICATIONS, INC., a Delaware corporation having its
principle place of business at Building 14, Suite 100, 3535 Piedmont Road,
Atlanta, GA 30305.
WHEREAS, simultaneously with the execution and delivery of
this Agreement, the Holders are purchasing from the Company, pursuant to a 5%
Convertible Debenture Purchase Agreement dated the date hereof (the
"Agreement"), an aggregate of up to One Million, Seven Hundred Thousand
($1,700,000) Dollars principal amount of Debentures (singularly the "Debenture"
and collectively the "Debentures"); and
WHEREAS, the Debenture is convertible into shares (the
"Conversion Shares") of the Company's Common Stock, par value $.0001 per share
(the "Common Stock"); and
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein with respect to the Conversion Shares.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means each of the Conversion Shares; provided, however,
that with respect to any particular Registrable Security, such security shall
cease to be a Registrable Security when, as of the date of determination, (i) it
has been effectively registered under the Securities Act of 1933, as amended
(the "Securities Act") and disposed of pursuant thereto, (ii) registration under
the Securities Act is no longer required for the immediate public distribution
of such security as a result of the provisions of Rule 144, or (iii) it has
ceased to be outstanding. The term "Registrable Securities" means any and/or all
of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Section 1.
Section 2. Restrictions on Transfer. The Holder acknowledges
and understands that prior to the registration of the Conversion Shares as
provided herein, the Debenture and the Conversion Shares are "restricted
securities" as defined in Rule 144 promulgated under the Act. The Holder
understands that no disposition or transfer of the Debenture or Conversion
Shares may be made by Holder in the absence of (i) an opinion of counsel from
counsel to the Holder, which opinion and counsel shall be reasonably
satisfactory to the Company and its counsel that
<PAGE> 2
which opinion and counsel shall be reasonably satisfactory to the Company and
its counsel that such transfer may be made or (ii) a registration statement
under the Securities Act is then in effect with respect thereto.
Section 3. Registration Rights.
(a) The Company shall prepare and file with the Securities and
Exchange Commission ("SEC"), on one occasion, at the sole expense of the Company
(except as provided in Section 3(c) hereof), in respect of all holders of
Registrable Securities, so as to permit a non-underwritten public offering and
sale of the Registrable Securities under the Act. The number of Conversion
Shares to be registered shall be two hundred (200%) percent of the number of
shares that would be required if all the Registrable Securities were converted
on the day before the filing of the Registration Statement.
(b) The Company will maintain any Registration Statement or
post-effective amendment filed under this Section 3 hereof current under the
Securities Act until the earlier of (i) the date that all of the Registrable
Securities have been sold pursuant to the Registration Statement, (ii) the date
the holders thereof receive an opinion of counsel that the Registrable
Securities may be sold under the provisions of Rule 144 or (iii) the second
anniversary of the effective date of the Registration Statement.
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
any Registration Statement under subparagraph 3(a) and in complying with
applicable securities and Blue Sky laws (including, without limitation, all
attorneys' fees) shall be borne by the Company. The Holder shall bear the cost
of underwriting discounts and commissions, if any, applicable to the Registrable
Securities being registered and the fees and expenses of its counsel. The
Company shall use its best efforts to qualify any of the securities for sale in
such states, up to a maximum number of five (5) states, as such Holder
reasonably designates and shall furnish indemnification in the manner provided
in Section 6 hereof. Holder will pay in advance the costs to the Company to
qualify the securities in more than five (5) states. However, the Company shall
not be required to qualify in any state which will require an escrow or other
restriction relating to the Company and/or the sellers. The Company at its
expense will supply the Holder with copies of such Registration Statement and
the prospectus or offering circular included therein and other related documents
in such quantities as may be reasonably requested by the Holder, not to exceed
500 copies.
(d) The Company shall not be required by this Section 3 to
include a Holder's Registrable Securities in any Registration Statement which is
to be filed if, in the opinion of counsel for both the Holder and the Company
(or, should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Holder and the Company) the
proposed offering or other transfer as to which such registration is requested
is exempt from applicable federal and state securities laws and would result in
all purchasers or transferees obtaining securities which are not "restricted
securities", as defined in Rule 144 under the Securities Act.
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<PAGE> 3
(e) In the event the Registration Statement to be filed by the
Company pursuant to Section 3(a) above is not declared effective by the SEC
within ninety (90) days from the Closing Date up through and including one
hundred twenty (120) days from the Closing Date, as defined in the Agreement,
then the Company will pay Holder (pro rated on a daily basis), as liquidated
damages for such failure and not as a penalty, one (1%) percent of the
outstanding principal amount of the Debentures for each month thereafter until
the Company procures registration of the Common Stock underlying the Debenture
(the "Conversion Shares").
(f) In the event the Registration Statement to be filed by the
Company pursuant to Section 3(a) above is not declared effective by the SEC
within one hundred twenty (120) days from the Closing Date up through and
including one hundred eighty (180) days from the Closing Date, as defined in the
Agreement, then the Company will pay Holder (pro rated on a daily basis), as
liquidated damages for such failure and not as a penalty, two (2%) percent of
the outstanding principal amount of the Debentures until the Company procures
registration of the Common Stock underlying the Debenture (the "Conversion
Shares").
(g) Liquidated damages referenced in Sections 3(e) and 3(f)
shall not exceed five (5%) percent in total of the outstanding principal amount
of the Debentures.
(h) In the event that the Registration Statement to be filed
by the Company pursuant to Section 3(a) above is not declared effective by the
SEC within one hundred eight (180) days from the Closing Date, then from and
after such one hundred eighty (180) days and until the Registration Statement is
declared effective, the interest rate per annum on the Debenture shall be
increased to twelve (12%) percent from five (5%) percent per annum.
If the Company does not remit the damages to the Purchaser as
set forth above, the Company will pay the Purchaser reasonable costs of
collection, including attorneys fees, in addition to the liquidated damages.
Such payment shall be made to the Purchaser in cash or Common Stock at the
option of the Company immediately if the registration of the Conversion Shares
are not effected; provided, however, that the payment of such liquidated damages
shall not relieve the Company from its obligations to register the Conversion
Shares pursuant to this Section. The registration of the Conversion Shares
pursuant to this provision shall not affect or limit Purchaser's other rights or
remedies as set forth in this Agreement.
Notwithstanding the foregoing, the amounts payable by the
Company pursuant to this Section 3 shall not be payable to the extent any delay
in the filing or effectiveness of the Registration Statement occurs because of
an act of, or a failure to act timely by the Investor or its counsel in the
event all of the Registrable Securities may be sold pursuant to Rule 144 or
another available exemption under the Act, or acts beyond the Company's control.
(j) No provision contained herein shall preclude the Company
from selling securities pursuant to any Registration Statement in which it is
required to include Registrable Securities pursuant to this Section 3.
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<PAGE> 4
Section 4. Cooperation with Company. Holders will cooperate with the
Company in all respects in connection with this Agreement, including, timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registrable Securities.
Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the Commission such amendments and
supplements to such registration statement and the Prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Holder or Holders of such securities shall desire to sell or otherwise
dispose of the same (including prospectus supplements with respect to the sales
of securities from time to time in connection with a registration statement
pursuant to Rule 415 of the Commission);
(b) furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the Act, and such other documents, as such Holder may reasonably request (up
to a maximum of 500 copies) in order to facilitate the public sale or other
disposition of the securities owned by such Holder;
(c) use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as the Holder shall reasonably request
(subject to the limitations set forth in Section 3(c) above), and do any and all
other acts and things which may be necessary or advisable to enable each Holder
to consummate the public sale or other disposition in such jurisdiction of the
securities owned by such Holder, except that the Company shall not for any such
purpose be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any general
consent to service of process;
(d) use its best efforts to list such securities on the Nasdaq
Small Cap Market or any securities exchange on which any securities of the
Company is then listed, if the listing of such securities is then permitted
under the rules of such exchange or Nasdaq;
(e) enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
(f) notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
Act, of the happening of any event of
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<PAGE> 5
which it has knowledge as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
Section 6. Indemnification.
(a) In the event of the filing of any Registration Statement
with respect to Registrable Securities pursuant to Section 3 hereof, the Company
agrees to indemnify and hold harmless the Holder and each person, if any, who
controls the Holder within the meaning of the Securities Act ("Distributing
Holders") against any losses, claims, damages or liabilities, joint or several
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
the Distributing Holders may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus, offering circular, notification or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Distributing Holders, specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Securities Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees) to which the Company or any such
officer, director or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses claims, damages or liabilities (or
actions in respect thereof; arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in a Registration
Statement requested by such Distributing Holder, or any related preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such Registration Statement,
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by such Distributing Holder,
specifically for use in the preparation thereof and, provided further, that the
indemnity agreement contained in this Section 6(b) shall not inure to the
benefit of the Company with
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<PAGE> 6
respect to any person asserting such loss, claim, damage or liability who
purchased the Registrable Securities which are the subject thereof if the
Company failed to send or give (in violation of the Securities Act or the rules
and regulations promulgated thereunder) a copy of the prospectus contained in
such Registration Statement to such person at or prior to the written
confirmation to such person of the sale of such Registrable Securities, where
the Company was obligated to do so under the Securities Act or the rules and
regulations promulgated thereunder. This indemnity agreement will be in addition
to any liability which the Distributing Holders may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 6, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Section 6. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, assume the defense thereof, subject to the provisions
herein stated and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under this Section 6 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation, unless
the indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
the Distributing Holder, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Distributing Holder and the indemnifying party and the Distributing Holder shall
have been advised by such counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Distributing Holder, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which firm shall be designated in writing by the Distributing Holder). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
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<PAGE> 7
Section 7. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the Distributing
Holder makes a claim for indemnification pursuant to Section 6 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any Distributing Holder, then the Company and the
applicable Distributing Holder shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. 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 on the one hand or the applicable
Distributing Holder, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Holder agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section 7. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section 7 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. 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.
Section 8. Notices. Any notice pursuant to this Agreement by the
Company or by the Holder shall be in writing and shall be deemed to have been
duly given if delivered by (i) hand, (ii) by facsimile and followed by mail
delivery, or (iii) if mailed by certified mail, return receipt requested,
postage prepaid, addressed as follows:
(a) If to the Holder, to its, his or her address set forth on
the signature page of this Agreement, with a copy to the person designated in
the Agreement.
(b) If to the Company, at HomeCom Communications, Inc.,
Building 14, Suite 100, 3535 Piedmont Road, Atlanta, GA 30305, Attn: Harvey Sax,
President/CEO, (tele) (404) 237-4646, (fax) (404) 237-3060, and a copy to
Morris, Manning & Martin, LLP, 1600 Atlanta Financial Center, 3343 Peachtree
Road, NE, Atlanta, GA 30326, Attn: Oby T. Brewer, III, or to such other address
as any such party may designate by notice to the other party. Notices shall be
deemed given at the time they are delivered personally or five (5) days after
they are mailed in the manner set forth above. If notice is delivered by
facsimile to the Company and followed by mail, delivery shall be deemed given
two (2) days after such facsimile is sent.
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<PAGE> 8
Section 9. Assignment. This Agreement is binding upon and inures to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns. This Agreement cannot be assigned, amended or modified by the
parties hereto, except by written agreement executed by the parties. If
requested by the Company, the Holder shall have furnished to the Company an
opinion of counsel reasonably satisfactory to the Company to such effect.
Section 10. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 11. Headings. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 12. Governing Law, Venue. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such State, without regard to
its principles of conflicts of laws. Each of the parties hereto agrees that in
the event of any dispute arising hereunder venue shall be New York, New York and
each party hereby submits to the jurisdiction of the United States Federal Court
in the Southern District of New York.
Section 13. Severability. If any provision of this Agreement shall for
any reason be held invalid or unenforceable, such invalidity or unenforceablity
shall not affect any other provision hereof and this Agreement shall be
construed as if such invalid or unenforceable provision had never been contained
herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, on the day and year first above written.
HOMECOM COMMUNICATIONS, INC.
By:/s/ Harvey Sax
-----------------------------------
Harvey Sax, Chief Executive Officer
PURCHASER:
By:
----------------------------------
Officer
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<PAGE> 1
EXHIBIT 10.22
HOMECOM COMMUNICATIONS, INC.
Building 14, Suite 100
3535 Piedmont Road
Atlanta, GA 30305
September 23, 1997
To The Purchasers of
HomeCom Communications, Inc.
5% Convertible Debentures
Dear Sirs:
Please be advised that the 5% Convertible Debenture Purchase Agreement and the
Registration Rights Agreement, dated as of September 19, 1997, have been
amended, as follows:
5% Convertible Debenture Purchase Agreement:
3.1 Organization; Qualification. The Company is a corporation
duly organized and validly existing under the laws of Delaware and is in good
standing under such laws. The Company has all requisite corporate power and
authority to own, lease and operate its properties and assets, and to carry on
its business as presently conducted. The Company is qualified to do business as
a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except where
failure to so qualify would not have a material adverse effect on the Company,
and except that the Company is not qualified in New York and Virginia. The
Company will, in the event it is required to do so, qualify to transact business
in New York and Virginia.
Section 9. Notice of Conversion. Conversion of the Debenture
to Common Stock may be exercised in whole or in part by Purchasers telecopying
an executed and completed Notice of Conversion (in the form annexed hereto as
Exhibit D) to the Company and delivering the original Notice of Conversion and
the certificate representing the Debenture to the Company by express courier
within three (3) business days of exercise. Each date on which a Notice of
Conversion is telecopied to the Company in accordance with the provisions hereof
shall be deemed a Conversion Date. The Company will transmit the certificates
representing the Common Stock issuable upon conversion of all or any part of the
Debenture (together with the certificates representing portions of the Debenture
not so converted) to the Purchaser via express courier within five (5) business
days after the Company has received the original Notice of Conversion and
Debenture certificate being so converted. In addition to any other remedies
which may be available to the Purchaser, in the event that the Company fails for
any reason to effect delivery of such shares of Common Stock within such five
(5) business day period, the
<PAGE> 2
Purchaser will be entitled to revoke the relevant Notice of Conversion by
delivering by telecopier with an original by overnight courier a notice to such
effect to the Company whereupon the Company and the Purchaser shall each be
restored to their respective positions immediately prior to the delivery of the
Notice of Conversion. Liquidated damages, under Section 3 below, shall continue
to run from the sixth business day from the original Conversion Date up until
the time that the Notice of Conversion is revoked or the Common Stock has been
delivered at which time liquidation damages shall cease to accrue. Upon receipt
of such Notice the Company shall return by overnight courier the original
certificate representing the Debenture. The Notice of Conversion and certificate
representing the portion of the Debenture converted shall be delivered as
follows:
Registration Rights Agreement:
Section 3 (i) is inserted as follows:
(i) If the Registration Statement covering the Registrable
Securities is not filed in proper form with the Securities and Exchange
Commission within thirty (30) days after the Closing Date, the Company will make
payment to the Holder, as liquidated damages and not as a penalty, in the amount
of one-half (.5%) percent of the outstanding principal amount of debentures for
each month thereafter on a pro rata basis daily up until the 90th day after the
Closing Date.
All Agreements:
"Closing Date" shall be deemed to be the date that the wire transfer from the
Escrow Agent of the entire net proceeds payable to the Company is actually
credited to the Company's account.
Very truly yours,
HOMECOM COMMUNICATIONS, INC.
By /s/ Harvey Sax
----------------------------
Officer
AGREED TO:
Purchasers:
- --------------------------- ---------------------------
- --------------------------- ---------------------------
<PAGE> 1
EXHIBIT 10.23
HOMECOM COMMUNICATIONS, INC.
Suite 100, Building 14
3535 Piedmont Road, N.E.
Atlanta, Georgia 30305
October 27, 1997
VIA FACSIMILE NO. 212/213-2077
& FIRST CLASS MAIL
Eurofactors International Inc.
Beauchamp Finance
FTS Worldwide Corporation
COLBO (collectively, the "Purchasers")
c/o Krieger & Prager
319 Fifth Avenue
New York, New York 10016
Re: Acquisition by the Purchasers of 5% Convertible Debentures of
HomeCom Communications, Inc. (the "Company") in an aggregate
principal amount of $1.7 Million (the "Convertible
Debentures")
Gentlemen:
This letter agreement ("Agreement") amends that certain 5% Convertible
Debenture Purchase Agreement ("Purchase Agreement"), dated as of September 19,
1997 and as amended, between the Purchasers and the Company as set forth herein.
This Agreement also confirms the understanding of the parties hereto with
respect to the Company's issuance of certain warrants to First Granite
Securities, Inc. ("FGS") in connection with the sale of the Convertible
Debentures to the Purchasers, all as more fully described below.
As used herein, the term "Transaction Documents" means the Purchase
Agreement, that certain Convertible Debenture attached to the Purchase Agreement
as Exhibit A, that certain Convertible Debenture Escrow Agreement attached to
the Purchase Agreement as Exhibit B, that certain Registration Rights Agreement
attached to the Purchase Agreement as Exhibit C, Acknowledgment and Release
Agreements in the form attached hereto as Exhibit A from each of The Malachi
Group, Inc., ClarCo Holdings, Inc., FGS and Adar Equities, and this Agreement.
I. AMENDMENT TO PURCHASE AGREEMENT. The parties hereto agree to amend the
Purchase Agreement in accordance with the following:
1. Conversion Price. The definition of "Conversion Price" set
forth in Section 1 of the Purchase Agreement is amended to be and read as
follows:
" "Conversion Price" means an amount equal to the lessor of
(a) a twenty-five (25%) percent discount from the average
closing bid price of the Common Stock as reported by NASDAQ or
on other securities exchanges or markets on which the Common
Stock is listed for the previous three (3) trading days ending
on the day before the Conversion Date, or (b) $4.00."
<PAGE> 2
2. Purchaser Review. Section 4.6 of the Purchase Agreement is
amended by deleting the first sentence of Section 4.6 in its entirety and
substituting in lieu thereof the following:
"The Purchaser hereby represents and warrants that the
Purchaser has carefully examined the reports (including the
financial statements contained therein) and all materials
required to be disclosed under Rule 502(c) under the
Securities Act."
II. ISSUANCE OF WARRANTS. Subject to receipt by the Company of counterparts
of this Agreement executed by each Purchaser, the Purchasers hereby direct the
Company to promptly issue to FGS warrants to purchase common stock (the
"Warrants") in full and complete accord and satisfaction of any and all
obligations to FGS owed by any of the parties hereto, such Warrants to have the
following terms:
SHARES: Common Stock
NUMBER OF SHARES: 400,000
EXERCISE PRICE: 200,000 shares purchasable at an exercise
price of $4.00 per share and 200,000 shares purchasable at an
exercise price of $6.00 per share
TERM OF THE WARRANTS: 3 years
ANTI-DILUTION: Standard weighted average anti-dilution rights
The parties agree that the Warrants shall be in the form attached
hereto as Exhibit B and shall be promptly signed and issued to FGS by the
Company upon receipt of the Transaction Documents.
III. ACKNOWLEDGMENT AND RELEASE. For and in consideration of the agreement
by the Company to amend the Purchase Agreement as set forth herein and to issue
the Warrants to FGS, each Purchaser and each of their respective officers,
directors, employees and affiliates (collectively "Purchaser Affiliates"), by
executing this Agreement, hereby releases, acquits and forever discharges the
Company and each of its officers, directors, employees, parents, subsidiaries
and affiliates (collectively, "Company Affiliates") from any and all claims,
demands, or obligations which any of the Purchasers or the Purchaser Affiliates
had, now has or may later claim to have against them, known or unknown, from the
beginning of time to the date of this Agreement, whether now accrued or to
accrue hereafter, involving any matters relating to the payment of compensation
or commissions, whether in cash, stock or warrants to acquire stock, in
connection with the sale of the Convertible Debentures (including, without
limitation, the issuance of the Warrants to FGS and the payment of cash
commissions to The Malachi Group, Inc.).
IV. MISCELLANEOUS.
1. This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Georgia.
2. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original as against any party whose
signature appears thereon, and all of such counterparts shall together
constitute one and the same instrument. This Agreement shall become
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<PAGE> 3
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories. This Agreement may be executed and delivered by fax (telecopier);
any original signatures that are initially delivered by fax shall be physically
delivered with reasonable promptness thereafter.
3. This Agreement shall become effective on the date the Company
has received an executed counterpart of this Agreement from each of the
Purchasers.
4. This Agreement shall constitute the full and complete
agreement between the parties concerning its subject matter and fully supersedes
any and all other prior agreements or understandings between the parties
regarding the subject matter hereto. This Agreement shall not be modified or
amended except by written instrument signed by all of the parties hereto.
Very truly yours,
HomeCom Communications, Inc.
By: /s/ Harvey Sax
---------------------------------
Harvey Sax, President
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE> 4
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
Accepted and agreed to by the undersigned Purchasers:
Eurofactors International, Inc.
By:
-------------------------------
Print Name:
-----------------------
Print Title:
-----------------------
Attest:
-----------------------
Print Name:
-----------------------
Signed, sealed and delivered in the presence of:
- ------------------------------
Notary Public
My commission expires:
---------
[NOTARIAL SEAL]
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<PAGE> 5
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
Accepted and agreed to by the undersigned Purchasers:
FTS Worldwide Corporation
By:
-------------------------------
Print Name:
----------------------
Print Title:
----------------------
By:
------------------------------
Print Name:
----------------------
Print Title:
----------------------
Signed, sealed and delivered in the presence of:
- ------------------------------
Notary Public
My commission expires:
--------
[NOTARIAL SEAL]
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<PAGE> 6
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
Accepted and agreed to by the undersigned Purchasers:
Beauchamp Finance
By:
-------------------------------
Print Name:
----------------------
Print Title:
----------------------
Attest:
---------------------------
Print Title:
----------------------
Signed, sealed and delivered in the presence of:
- ------------------------------
Notary Public
My commission expires:
--------
[NOTARIAL SEAL]
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<PAGE> 7
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
Accepted and agreed to by the undersigned Purchasers:
COLBO
By:
-------------------------------
Print Name:
----------------------
Print Title:
----------------------
Attest:
---------------------------
Print Title:
----------------------
Signed, sealed and delivered in the presence of:
- ------------------------------
Notary Public
My commission expires:
--------
[NOTARIAL SEAL]
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<PAGE> 1
EXHIBIT 10.24
STOCK PURCHASE WARRANT
HOMECOM COMMUNICATIONS, INC.
COMMON STOCK
($.0001 PAR VALUE)
DATED OCTOBER 27, 1997
200,000 SHARES VOID AFTER OCTOBER 27,2000
This certifies that, for value received, FIRST GRANITE SECURITIES, INC.
(the "Holder"), its permitted successors and assigns, is entitled, upon the due
exercise hereof at any time during the period commencing on OCTOBER 27, 1997,
and terminating at 5:00 p.m. E.S.T. on OCTOBER 27, 2000, to purchase Two Hundred
Thousand (200,000) shares of common stock, $.0001 par value per share ("Common
Stock"), of HOMECOM COMMUNICATIONS, INC., a Delaware corporation (hereinafter
called "HomeCom"), such number of shares being subject to adjustment upon the
occurrence of the contingencies set forth in this Warrant. The purchase price
payable upon the exercise of this Warrant shall be $4.00 per share multiplied by
the number of shares of Common Stock being purchased (hereinafter referred to as
the "Exercise Price"), subject to adjustment upon the occurrence of the
contingencies set forth in this Warrant. Shares issuable upon exercise of this
Warrant are hereinafter referred to as the "Warrant Shares."
SECTION I. DURATION AND EXERCISE OF WARRANT. This Warrant shall expire on
5:00 p.m. E.S.T. on OCTOBER 27, 2000 (the "Expiration Date"). After the
Expiration Date, any unexercised portion of this Warrant will be wholly void
and of no value. This Warrant may be exercised by the Holder on any business
day beginning on the date hereof and on or prior to the Expiration Date. For
purposes of this Warrant, the term "business day" means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions
in New York, New York are authorized or obligated by law or executive order to
close.
Subject to the provisions of this Warrant, the Holder shall have the
right to purchase from HomeCom (and HomeCom shall as soon as practicable,
subject to Section V, issue and sell to such Holder) Two Hundred Thousand
(200,000) fully paid and nonassessable shares of Common Stock, including any
shares of any class or series of stock into which such shares may hereafter be
changed and subject to the adjustments contemplated by Section IV hereof, at
the Exercise Price, upon surrender to HomeCom of this Warrant, together with a
Warrant Exercise Agreement in the form attached hereto as EXHIBIT 1 duly filled
in and executed by the Holder or his duly authorized agent, and upon payment of
the Exercise Price in lawful money of the United States of America in cash, by
cashier's check payable to the order of HomeCom or by wire transfer to
HomeCom's account of immediately available funds. The number of Warrant Shares,
and the amount and type of securities or other property purchasable upon
exercise of this Warrant shall be subject to adjustment as provided in Section
IV.
<PAGE> 2
Subject to Section IV, (i) upon such surrender of this Warrant and
payment of the Exercise Price on or prior to the Expiration Date, HomeCom shall
deliver or cause to be delivered to the Holder certificates or other
appropriate instruments for the Warrant Shares and any other securities, and
such other property issuable upon the exercise of this Warrant, in such name or
names as the Holder shall designate on the Form of Exercise attached thereto;
and (ii) such Warrant Shares, securities and other property shall be deemed to
have been issued, and any person so designated therein shall be deemed to have
become, the holder of record of such Warrant Shares, securities or property as
of the date of the surrender of this Warrant and payment of the Exercise Price.
This Warrant shall be exercisable, at the election of the Holder,
either in its entirety or from time to time in part only. Upon the exercise of
only a portion of this Warrant, the Holder shall be required to pay HomeCom
upon exercise of such portion of this Warrant a fraction of the Exercise Price
equal to the fraction of this Warrant so exercised. In the event that less than
all of this Warrant is exercised, HomeCom shall cause a new Warrant to be
issued to the Holder or such person or entity as shall be designated in the
Form of Exercise for the remaining portion of the Warrant.
SECTION II. REGISTRATION; TRANSFERS AND EXCHANGES. HomeCom shall maintain at
its executive offices a register reflecting the ownership of the Warrant Shares
and any permitted transfers thereof from time to time (the "Warrant Register").
HomeCom may deem and treat the Holder of this Warrant as indicated in
the Warrant Register as the absolute owner thereof (notwithstanding any
notation of ownership or other writing thereon made by anyone) for the purpose
of any exercise thereof, any distribution to the Holder thereof and for all
other purposes, and HomeCom shall not be affected in any way by any notice to
the contrary. Upon written notice to HomeCom by the Holder and its permitted
transferee of a transfer of this Warrant in accordance with the terms hereof,
HomeCom shall reflect such transfer in the Warrant Register.
Holder acknowledges and understands that neither this Warrant nor the
Warrant Shares are registered under the Securities Act of 1933, as amended
("Federal Act") or under any state securities law. If at any time during which
this Warrant is exercisable according to its terms there is no effective
Registration Statement on file with the Securities and Exchange Commission (the
"Commission") covering the Warrant Shares then acquirable hereunder, the offer
and sale of the Warrant Shares to the holder of this Warrant must be exempt
from the registration requirements of the Federal Act, and such state
securities laws as shall be applicable; and in the case of an exemption, only
if HomeCom has received an opinion of counsel that such transaction does not
require registration of the Warrant Shares, which opinion and which counsel
shall be satisfactory to HomeCom in its sole discretion. HomeCom may condition
such exercise upon its receipt of such representations, factual assurances and
legal opinions as it shall deem necessary to determine and document the
availability of any such exemption and may further condition such exercise upon
such undertakings by the Holder or such restriction upon the transferability of
the Warrant Shares to be acquired hereunder as it shall determine to be
necessary to effectuate and protect the claim to any such exemption.
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<PAGE> 3
If this Warrant at any time becomes mutilated, lost, stolen or
destroyed, HomeCom will issue in exchange and substitution for and upon
cancellation of the mutilated Warrant, or in lieu of and in substitution for
the Warrant lost, stolen or destroyed, a new Warrant of like tenor and
representing an equivalent Warrant, but only upon receipt of evidence
satisfactory to HomeCom of such loss, theft or destruction of such Warrant and
indemnity reasonably satisfactory to HomeCom.
SECTION III. PAYMENT OF TAXES. HomeCom shall not be required to pay any
transfer, documentary, stamp or other taxes imposed under any federal, state or
local laws on Warrants issued pursuant to transfers or exchanges or under other
circumstances covered in Sections II and V hereof.
HomeCom shall not be required to pay any tax or taxes or government
charges of any kind that may be payable in respect of any issuance of any stock
certificates for Warrant Shares, any certificates or other instruments for any
other securities, or any other property purchased upon exercise of this
Warrant. HomeCom shall not be required to issue or deliver such stock
certificates, certificates or other instruments for other securities, or other
property unless or until the person requesting the issuance thereof shall have
paid to HomeCom the amount of any such tax or government charge or shall have
established to the satisfaction of HomeCom that such tax or government charge
has been paid.
SECTION IV. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES PURCHASABLE
HEREUNDER. The Exercise Price and the number of Warrant Shares purchasable upon
the exercise of the Warrant are subject to adjustment from time to time upon
the occurrence of the events enumerated in this Section IV.
A. In case HomeCom shall at any time after the date of this
Warrant (i) declare a dividend on the Common Stock payable in
shares of its capital stock (whether shares of Common Stock
or of capital stock of any other class), (ii) subdivide the
outstanding Common Stock, (iii) combine the outstanding
Common Stock into a smaller number of shares or (iv) issue
any shares of its capital stock in a reclassification of the
Common Stock (including any such reclassification in
connection with a consolidation or merger in which HomeCom is
the continuing corporation), the Exercise Price in effect at
the time of the record date for such dividend or of the
effective date of such subdivision, combination or
reclassification, shall be proportionately adjusted so that
the Holder of the Warrant exercised after such time shall be
entitled to receive the aggregate number and kind of shares
of capital stock which, if such Warrant had been exercised
immediately prior to such date, he would have owned upon such
exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event
listed above shall occur.
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<PAGE> 4
1. No adjustment in the Exercise Price shall be
required unless such adjustment would require an
increase or decrease of at least five cents ($.05)
in such price; provided, however, that any
adjustments which by reason of this Section IV are
not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
2. In the event that at any time, as a result of an
adjustment made pursuant to Section IV the holder of
the Warrant thereafter exercised shall become
entitled to receive any shares of capital stock of
HomeCom other than shares of Common Stock,
thereafter the number of such other shares so
receivable upon exercise of the Warrant shall be
subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to
the provisions with respect to the Common Stock
purchasable pursuant to this Warrant.
3. Upon each adjustment of the Exercise Price as a
result of the calculations made in Section IV, the
Warrant outstanding immediately prior to the making
of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Exercise Price,
that number of Warrant Shares (calculated to the
nearest hundredth) obtained by (A) multiplying the
number of Warrant Shares purchasable upon exercise
of the Warrant immediately prior to such adjustment
of the number of Warrant Shares by the Exercise
Price in effect immediately prior to such adjustment
of the Exercise Price and (B) dividing the product
so obtained by the Exercise Price in effect
immediately after such adjustment of the Exercise
Price.
B. In case of any capital reorganization of HomeCom, or of any
reclassification of the Common Stock (other than a change in
par value, or from no par value to par value, or as a result
of subdivision or combination), or in case of the
consolidation of HomeCom with or the merger of HomeCom with
any other corporation or association (other than a
consolidation or merger in which (i) HomeCom is the
continuing corporation and (ii) the holders of HomeCom's
Common Stock immediately prior to such merger or
consolidation continue as holders of Common Stock after such
merger or consolidation) or of the sale of the properties and
assets of HomeCom as, or substantially as, an entirety to any
other corporation or association, the Warrant shall after
such reorganization, reclassification, consolidation, merger
or sale be exercisable, upon the terms and conditions
specified herein, for the number of shares of stock or other
securities or property to which a holder of the number of
Warrant Shares purchasable (at the time of such
reorganization, reclassification, consolidation, merger or
sale) upon exercise of such Warrant would have been entitled
upon such reorganization, reclassification, consolidation,
merger or sale; and in any such case, if necessary, the
provisions set forth in this Section IV with respect to the
rights and interests thereafter of the holder of the Warrant
shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other
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<PAGE> 5
securities or property thereafter deliverable on the exercise of
the Warrant. The subdivision or combination of shares of Common
Stock at any time outstanding into a greater or lesser number of
shares shall not be deemed to be a reclassification of the
Common Stock for the purposes of this Section IV. HomeCom shall
not effect any such consolidation, merger or sale, unless prior
to or simultaneously with the consummation thereof the successor
corporation or association (if other than HomeCom) resulting
from such consolidation or merger or the entity purchasing such
assets or other appropriate entity shall assume, by written
instrument executed and delivered to HomeCom, the obligation to
deliver to the holder of the Warrant such shares of stock,
securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase and the
obligations under this Warrant.
SECTION V. FRACTIONAL WARRANTS AND FRACTIONAL WARRANT SHARES. HomeCom
expressly agrees that the Holder of this Warrant shall be entitled to exchange
such Warrant for fractions of Warrants upon surrender of this Warrant to
HomeCom in exchange for Warrants reflecting such fractions of Warrants;
provided, however, that HomeCom will not be required to issue any fractional
Warrants representing fractional shares of Common Stock upon exercise of this
Warrant or distribute stock certificates or other instruments that evidence
fractional shares of Common Stock and HomeCom will pay a cash adjustment in
respect of any fractional shares of Common Stock or fractional shares of
securities otherwise issuable upon the exercise of this Warrant.
SECTION VI. NO RIGHTS AS STOCKHOLDERS. Nothing contained in this Warrant
shall be construed as conferring upon the Holder the right to vote, receive
dividends or to be deemed for any purpose the holder of Warrant Shares or of
any other securities of HomeCom that may at any time be issuable on the
exercise of this Warrant, nor shall anything contained herein be construed to
confer upon the Holder, as such, any of the rights of a stockholder of HomeCom
or any right to vote on matters submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issue of stock, reclassification of stock, change of par
value, consolidation, merger, conveyance, or, without limitation, otherwise),
or to receive notice of meetings, or to receive subscription rights or
otherwise, until this Warrant shall have been exercised as provided herein.
SECTION VII. ISSUANCE OF NEW WARRANTS. Notwithstanding any of the provisions
of this Warrant to the contrary, HomeCom may, at its option, issue a new Warrant
in such form as may be approved by its Board of Directors which reflect any
adjustment or change in the number or kind or class of shares of stock or other
securities or property purchasable under this Warrant made in accordance with
the provisions hereof. HomeCom may, at its option, require the Holder of this
Warrant to surrender its then current Warrant for any such new Warrant.
SECTION VIII. NOTICES. All instructions, notices and other communications to be
given to any party hereto shall be in writing and shall be personally delivered
or sent by first class or certified mail, postage prepaid and return receipt
requested, and shall be deemed to be given for purposes
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<PAGE> 6
of this Warrant on the day when delivered to the intended party (if by personal
delivery) or three (3) days after mailing (if by mail) at its address specified
below:
(a) If to HomeCom:
Building 14, Suite 100
3535 Piedmont Road
Atlanta, Georgia 30305
Attn: Harvey Sax, President/CEO
(P)(404) 237-4646
(F)(404) 237-3060
or such other address as HomeCom may designate from time to time by written
notice to the Holder.
(b) If to the Holder:
First Granite Securities, Inc.
1276 50th Street
Brooklyn, New York 11219
Attention: Shauel Seitler
(P) (718) 437-2379
(F) (718) 437-2169
or such other address as the Holder may designate from time to time by written
notice to HomeCom.
SECTION IX. SUPPLEMENTS AND AMENDMENTS. This Warrant may be amended and
supplemented in writing signed by HomeCom and the Holder.
SECTION X. SUCCESSORS. This Warrant shall be binding upon and inure to the
benefit of the respective successors and permitted assigns hereunder of HomeCom
or the Holder.
SECTION XI. TERMINATION. This Warrant shall terminate at the close of
business on the Expiration Date. Notwithstanding the foregoing, this Warrant
will terminate on any earlier date when this Warrant has been exercised in full
or has been redeemed or acquired by HomeCom.
SECTION XII. GOVERNING LAW. This Warrant shall be governed by and construed
in accordance with the laws of the State of Georgia.
SECTION XIII. JURISDICTION AND VENUE. Any judicial proceedings brought by or
against any party on any dispute arising out of this Warrant or any matter
related thereto shall be brought in the state or federal courts of Fulton
County, Georgia and, by execution and delivery of this Warrant, each of the
parties accepts for itself the exclusive jurisdiction and venue of the
aforesaid courts as trial courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection
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<PAGE> 7
with this Warrant after exhaustion of all appeals taken (or by the appropriate
appellate court if such appellate court renders judgment).
SECTION XIV. BENEFITS OF THIS AGREEMENT. Nothing in this Warrant shall be
construed to give to any person or corporation other than HomeCom and the
Holder of this Warrant any legal or equitable right, remedy or claim under this
Warrant, and this Warrant shall be for the sole and exclusive benefit of
HomeCom and the Holder hereof.
SECTION XV. SEVERABILITY. If any provision of this Warrant is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable; this Warrant shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; and the remaining provisions of this Warrant
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or its severance from this Warrant.
Furthermore, in lieu of such illegal, invalid or unenforceable provision there
shall be added automatically as a part of this Warrant a provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable.
SECTION XVI. HEADINGS. The section and subsection headings herein are for
convenience only and shall not affect the construction hereof.
IN WITNESS WHEREOF, HomeCom has caused this Warrant to be duly
executed as of the day and year first above written.
HOMECOM INC.
By: /s/ Harvey Sax
-----------------------------------
Harvey Sax, President/CEO
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<PAGE> 1
EXHIBIT 10.25
STOCK PURCHASE WARRANT
HOMECOM COMMUNICATIONS, INC.
COMMON STOCK
($.0001 PAR VALUE)
DATED OCTOBER 27, 1997
200,000 SHARES VOID AFTER OCTOBER 27, 2000
This certifies that, for value received, FIRST GRANITE SECURITIES, INC.
("the Holder"), its permitted successors and assigns, is entitled, upon the due
exercise hereof at any time during the period commencing on OCTOBER 27, 1997,
and terminating at 5:00 p.m. E.S.T. on OCTOBER 27, 2000, to purchase Two Hundred
Thousand (200,000) shares of common stock, $.0001 par value per share ("Common
Stock"), of HOMECOM COMMUNICATIONS, INC., a Delaware corporation (hereinafter
called "HomeCom"), such number of shares being subject to adjustment upon the
occurrence of the contingencies set forth in this Warrant. The purchase price
payable upon the exercise of this Warrant shall be $6.00 per share multiplied by
the number of shares of Common Stock being purchased (hereinafter referred to as
the "Exercise Price"), subject to adjustment upon the occurrence of the
contingencies set forth in this Warrant. Shares issuable upon exercise of this
Warrant are hereinafter referred to as the "Warrant Shares."
SECTION I. DURATION AND EXERCISE OF WARRANT. This Warrant shall expire on
5:00 p.m. E.S.T. on OCTOBER 27, 2000 (the "Expiration Date"). After the
Expiration Date, any unexercised portion of this Warrant will be wholly void
and of no value. This Warrant may be exercised by the Holder on any business
day beginning on the date hereof and on or prior to the Expiration Date. For
purposes of this Warrant, the term "business day" means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions
in New York, New York are authorized or obligated by law or executive order to
close.
Subject to the provisions of this Warrant, the Holder shall have the
right to purchase from HomeCom (and HomeCom shall as soon as practicable,
subject to Section V, issue and sell to such Holder) Two Hundred Thousand
(200,000) fully paid and nonassessable shares of Common Stock, including any
shares of any class or series of stock into which such shares may hereafter be
changed and subject to the adjustments contemplated by Section IV hereof, at
the Exercise Price, upon surrender to HomeCom of this Warrant, together with a
Warrant Exercise Agreement in the form attached hereto as EXHIBIT 1 duly filled
in and executed by the Holder or his duly authorized agent, and upon payment of
the Exercise Price in lawful money of the United States of America in cash, by
cashier's check payable to the order of HomeCom or by wire transfer to
HomeCom's account of immediately available funds. The number of Warrant Shares,
and the amount and type of securities or other property purchasable upon
exercise of this Warrant shall be subject to adjustment as provided in Section
IV.
<PAGE> 2
Subject to Section IV, (i) upon such surrender of this Warrant and
payment of the Exercise Price on or prior to the Expiration Date, HomeCom shall
deliver or cause to be delivered to the Holder certificates or other
appropriate instruments for the Warrant Shares and any other securities, and
such other property issuable upon the exercise of this Warrant, in such name or
names as the Holder shall designate on the Form of Exercise attached thereto;
and (ii) such Warrant Shares, securities and other property shall be deemed to
have been issued, and any person so designated therein shall be deemed to have
become, the holder of record of such Warrant Shares, securities or property as
of the date of the surrender of this Warrant and payment of the Exercise Price.
This Warrant shall be exercisable, at the election of the Holder,
either in its entirety or from time to time in part only. Upon the exercise of
only a portion of this Warrant, the Holder shall be required to pay HomeCom
upon exercise of such portion of this Warrant a fraction of the Exercise Price
equal to the fraction of this Warrant so exercised. In the event that less than
all of this Warrant is exercised, HomeCom shall cause a new Warrant to be
issued to the Holder or such person or entity as shall be designated in the
Form of Exercise for the remaining portion of the Warrant.
SECTION II. REGISTRATION; TRANSFERS AND EXCHANGES. HomeCom shall maintain at
its executive offices a register reflecting the ownership of the Warrant Shares
and any permitted transfers thereof from time to time (the "Warrant Register").
HomeCom may deem and treat the Holder of this Warrant as indicated in
the Warrant Register as the absolute owner thereof (notwithstanding any
notation of ownership or other writing thereon made by anyone) for the purpose
of any exercise thereof, any distribution to the Holder thereof and for all
other purposes, and HomeCom shall not be affected in any way by any notice to
the contrary. Upon written notice to HomeCom by the Holder and its permitted
transferee of a transfer of this Warrant in accordance with the terms hereof,
HomeCom shall reflect such transfer in the Warrant Register.
Holder acknowledges and understands that neither this Warrant nor the
Warrant Shares are registered under the Securities Act of 1933, as amended
("Federal Act") or under any state securities law. If at any time during which
this Warrant is exercisable according to its terms there is no effective
Registration Statement on file with the Securities and Exchange Commission (the
"Commission") covering the Warrant Shares then acquirable hereunder, the offer
and sale of the Warrant Shares to the holder of this Warrant must be exempt
from the registration requirements of the Federal Act, and such state
securities laws as shall be applicable; and in the case of an exemption, only
if HomeCom has received an opinion of counsel that such transaction does not
require registration of the Warrant Shares, which opinion and which counsel
shall be satisfactory to HomeCom in its sole discretion. HomeCom may condition
such exercise upon its receipt of such representations, factual assurances and
legal opinions as it shall deem necessary to determine and document the
availability of any such exemption and may further condition such exercise upon
such undertakings by the Holder or such restriction upon the transferability of
the Warrant Shares to be acquired hereunder as it shall determine to be
necessary to effectuate and protect the claim to any such exemption.
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<PAGE> 3
If this Warrant at any time becomes mutilated, lost, stolen or
destroyed, HomeCom will issue in exchange and substitution for and upon
cancellation of the mutilated Warrant, or in lieu of and in substitution for
the Warrant lost, stolen or destroyed, a new Warrant of like tenor and
representing an equivalent Warrant, but only upon receipt of evidence
satisfactory to HomeCom of such loss, theft or destruction of such Warrant and
indemnity reasonably satisfactory to HomeCom.
SECTION III. PAYMENT OF TAXES. HomeCom shall not be required to pay any
transfer, documentary, stamp or other taxes imposed under any federal, state or
local laws on Warrants issued pursuant to transfers or exchanges or under other
circumstances covered in Sections II and V hereof.
HomeCom shall not be required to pay any tax or taxes or government
charges of any kind that may be payable in respect of any issuance of any stock
certificates for Warrant Shares, any certificates or other instruments for any
other securities, or any other property purchased upon exercise of this
Warrant. HomeCom shall not be required to issue or deliver such stock
certificates, certificates or other instruments for other securities, or other
property unless or until the person requesting the issuance thereof shall have
paid to HomeCom the amount of any such tax or government charge or shall have
established to the satisfaction of HomeCom that such tax or government charge
has been paid.
SECTION IV. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES PURCHASABLE
HEREUNDER. The Exercise Price and the number of Warrant Shares purchasable upon
the exercise of the Warrant are subject to adjustment from time to time upon
the occurrence of the events enumerated in this Section IV.
A. In case HomeCom shall at any time after the date of this Warrant
(i) declare a dividend on the Common Stock payable in shares of
its capital stock (whether shares of Common Stock or of capital
stock of any other class), (ii) subdivide the outstanding Common
Stock, (iii) combine the outstanding Common Stock into a smaller
number of shares or (iv) issue any shares of its capital stock
in a reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in
which HomeCom is the continuing corporation), the Exercise Price
in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or
reclassification, shall be proportionately adjusted so that the
Holder of the Warrant exercised after such time shall be
entitled to receive the aggregate number and kind of shares of
capital stock which, if such Warrant had been exercised
immediately prior to such date, he would have owned upon such
exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed
above shall occur.
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<PAGE> 4
1. No adjustment in the Exercise Price shall be
required unless such adjustment would require an
increase or decrease of at least five cents ($.05)
in such price; provided, however, that any
adjustments which by reason of this Section IV are
not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
2. In the event that at any time, as a result of an
adjustment made pursuant to Section IV the holder of
the Warrant thereafter exercised shall become
entitled to receive any shares of capital stock of
HomeCom other than shares of Common Stock,
thereafter the number of such other shares so
receivable upon exercise of the Warrant shall be
subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to
the provisions with respect to the Common Stock
purchasable pursuant to this Warrant.
3. Upon each adjustment of the Exercise Price as a
result of the calculations made in Section IV, the
Warrant outstanding immediately prior to the making
of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Exercise Price,
that number of Warrant Shares (calculated to the
nearest hundredth) obtained by (A) multiplying the
number of Warrant Shares purchasable upon exercise
of the Warrant immediately prior to such adjustment
of the number of Warrant Shares by the Exercise
Price in effect immediately prior to such adjustment
of the Exercise Price and (B) dividing the product
so obtained by the Exercise Price in effect
immediately after such adjustment of the Exercise
Price.
B. In case of any capital reorganization of HomeCom, or of any
reclassification of the Common Stock (other than a change in
par value, or from no par value to par value, or as a result
of subdivision or combination), or in case of the
consolidation of HomeCom with or the merger of HomeCom with
any other corporation or association (other than a
consolidation or merger in which (i) HomeCom is the
continuing corporation and (ii) the holders of HomeCom's
Common Stock immediately prior to such merger or
consolidation continue as holders of Common Stock after such
merger or consolidation) or of the sale of the properties and
assets of HomeCom as, or substantially as, an entirety to any
other corporation or association, the Warrant shall after
such reorganization, reclassification, consolidation, merger
or sale be exercisable, upon the terms and conditions
specified herein, for the number of shares of stock or other
securities or property to which a holder of the number of
Warrant Shares purchasable (at the time of such
reorganization, reclassification, consolidation, merger or
sale) upon exercise of such Warrant would have been entitled
upon such reorganization, reclassification, consolidation,
merger or sale; and in any such case, if necessary, the
provisions set forth in this Section IV with respect to the
rights and interests thereafter of the holder of the Warrant
shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other
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<PAGE> 5
securities or property thereafter deliverable on the exercise
of the Warrant. The subdivision or combination of shares of
Common Stock at any time outstanding into a greater or lesser
number of shares shall not be deemed to be a reclassification
of the Common Stock for the purposes of this Section IV.
HomeCom shall not effect any such consolidation, merger or
sale, unless prior to or simultaneously with the consummation
thereof the successor corporation or association (if other
than HomeCom) resulting from such consolidation or merger or
the entity purchasing such assets or other appropriate entity
shall assume, by written instrument executed and delivered to
HomeCom, the obligation to deliver to the holder of the
Warrant such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be
entitled to purchase and the other obligations under this
Warrant.
SECTION V. FRACTIONAL WARRANTS AND FRACTIONAL WARRANT SHARES. HomeCom
expressly agrees that the Holder of this Warrant shall be entitled to exchange
such Warrant for fractions of Warrants upon surrender of this Warrant to
HomeCom in exchange for Warrants reflecting such fractions of Warrants;
provided, however, that HomeCom will not be required to issue any fractional
Warrants representing fractional shares of Common Stock upon exercise of this
Warrant or distribute stock certificates or other instruments that evidence
fractional shares of Common Stock and HomeCom will pay a cash adjustment in
respect of any fractional shares of Common Stock or fractional shares of
securities otherwise issuable upon the exercise of this Warrant.
SECTION VI. NO RIGHTS AS STOCKHOLDERS. Nothing contained in this Warrant
shall be construed as conferring upon the Holder the right to vote, receive
dividends or to be deemed for any purpose the holder of Warrant Shares or of
any other securities of HomeCom that may at any time be issuable on the
exercise of this Warrant, nor shall anything contained herein be construed to
confer upon the Holder, as such, any of the rights of a stockholder of HomeCom
or any right to vote on matters submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issue of stock, reclassification of stock, change of par
value, consolidation, merger, conveyance, or, without limitation, otherwise),
or to receive notice of meetings, or to receive subscription rights or
otherwise, until this Warrant shall have been exercised as provided herein.
SECTION VII. ISSUANCE OF NEW WARRANTS. Notwithstanding any of the provisions
of this Warrant to the contrary, HomeCom may, at its option, issue a new
Warrant in such form as may be approved by its Board of Directors which reflect
any adjustment or change in the number or kind or class of shares of stock or
other securities or property purchasable under this Warrant made in accordance
with the provisions hereof. HomeCom may, at its option, require the Holder of
this Warrant to surrender its then current Warrant for any such new Warrant.
SECTION VIII. NOTICES. All instructions, notices and other communications to be
given to any party hereto shall be in writing and shall be personally delivered
or sent by first class or certified mail, postage prepaid and return receipt
requested, and shall be deemed to be given for purposes
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of this Warrant on the day when delivered to the intended party (if by personal
delivery) or three (3) days after mailing (if by mail) at its address specified
below:
(a) If to HomeCom:
Building 14, Suite 100
3535 Piedmont Road
Atlanta, Georgia 30305
Attn: Harvey Sax, President/CEO
(P)(404) 237-4646
(F)(404) 237-3060
or such other address as HomeCom may designate from time to time by written
notice to the Holder.
(b) If to the Holder:
First Granite Securities, Inc.
1276 50th Street
Brooklyn, New York 11219
Attention: Shauel Seitler
(P) (718) 437-2379
(F) (718) 437-2169
or such other address as the Holder may designate from time to time by written
notice to HomeCom.
SECTION IX. SUPPLEMENTS AND AMENDMENTS. This Warrant may be amended and
supplemented in writing signed by HomeCom and the Holder.
SECTION X. SUCCESSORS. This Warrant shall be binding upon and inure to the
benefit of the respective successors and permitted assigns hereunder of HomeCom
or the Holder.
SECTION XI. TERMINATION. This Warrant shall terminate at the close of
business on the Expiration Date. Notwithstanding the foregoing, this Warrant
will terminate on any earlier date when this Warrant has been exercised in full
or has been redeemed or acquired by HomeCom.
SECTION XII. GOVERNING LAW. This Warrant shall be governed by and construed
in accordance with the laws of the State of Georgia.
SECTION XIII. JURISDICTION AND VENUE. Any judicial proceedings brought by or
against any party on any dispute arising out of this Warrant or any matter
related thereto shall be brought in the state or federal courts of Fulton
County, Georgia and, by execution and delivery of this Warrant, each of the
parties accepts for itself the exclusive jurisdiction and venue of the
aforesaid courts as trial courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection
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with this Warrant after exhaustion of all appeals taken (or by the appropriate
appellate court if such appellate court renders judgment).
SECTION XIV. BENEFITS OF THIS AGREEMENT. Nothing in this Warrant shall be
construed to give to any person or corporation other than HomeCom and the
Holder of this Warrant any legal or equitable right, remedy or claim under this
Warrant, and this Warrant shall be for the sole and exclusive benefit of
HomeCom and the Holder hereof.
SECTION XV. SEVERABILITY. If any provision of this Warrant is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable; this Warrant shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; and the remaining provisions of this Warrant
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or its severance from this Warrant.
Furthermore, in lieu of such illegal, invalid or unenforceable provision there
shall be added automatically as a part of this Warrant a provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable.
SECTION XVI. HEADINGS. The section and subsection headings herein are for
convenience only and shall not affect the construction hereof.
IN WITNESS WHEREOF, HomeCom has caused this Warrant to be duly
executed as of the day and year first above written.
HOMECOM INC.
By: /s/ Harvey Sax
-----------------------------
Harvey Sax, President/CEO
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
HomeCom Communications, Inc. 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
December 18, 1997
