<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1998.
REGISTRATION NO. 333-42599
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 1
TO
Form S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
HOMECOM COMMUNICATIONS, INC.
(exact name of registrant as specified in its charter)
<TABLE>
<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. [ ]
------------------------------------
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.
================================================================================
<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 of the Debentures 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 sooner of the date on which this registration statement is declared
effective (the "Registration Effective Date") or December 26, 1997; (ii) not
more than an additional one-third of the aggregate value of the Debentures at
any time on or after the sooner of the 30th day following the Registration
Effective Date or January 25, 1998; and (iii) the final one-third of the
aggregate value of the Debentures at any time on or after the sooner of the 60th
day following the Registration Effective Date or February 24, 1998. As a result
of these agreements, two-thirds of the aggregate value of the Debentures are
convertible at the option of the holders immediately as of the date of this
Prospectus and the balance of the Debentures will become convertible on February
24, 1998. 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 January 27, 1998, the closing bid price
of the Common Stock, which is quoted on the Nasdaq SmallCap(TM) Market under the
symbol "HCOM," was $3.59375 per share and the average closing bid price of the
Common Stock for the three trading days ended January 27, 1998 was $3.7604 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.
In December 1997, the Company issued 20,000 shares of its Series A
Convertible Preferred Stock (the "Series A Preferred Stock") to private
investors (the "Series A Preferred Holders") for an aggregate purchase
---------------
continued on next page
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 , 1998
<PAGE> 3
continued from previous page
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price of $2,000,000. Net proceeds to the Company were approximately $1.8
million. Pursuant to Registration Rights Agreements with the Series A Preferred
Holders (the "Preferred Registration Agreements"), the Company agreed to file on
or before January 31, 1998 a registration statement covering the shares of
Common Stock issuable upon conversion of the Series A Preferred Stock (the
"Series A Preferred Stock Registration Statement"). The Series A Preferred
Holders have agreed that they may convert (i) not more than one-half of the
Series A Preferred Stock at any time on or after the 30th day following the
Registration Effective Date; and (ii) the second one-half of the Series A
Preferred Stock at any time on or after the 60th day following the Registration
Effective Date. However, the Series A Preferred Holders also have agreed that
they may not convert any of the Series A Preferred Stock until on or after the
later of 30 days after the Registration Effective Date or February 27, 1998. The
Series A Preferred Stock is convertible into a number of shares of Common Stock
equal to the quotient of (a) the product of the number of shares of Series A
Preferred Stock being converted multiplied by $100.00 divided by (b) the
then-applicable conversion price. The conversion price for the Series A
Preferred Stock (the "Series A Preferred Conversion Price") is the lesser of (i)
80% of the average closing bid price of the Company's Common Stock for the five
trading days ending on the day the Company actually receives a conversion
notice; or (ii) $14.50625. The Series A Preferred Conversion Price is subject to
adjustment under certain circumstances. See "Description of Securities -- Series
A Convertible Preferred Stock." On January 27, 1998, the closing bid price of
the Common Stock on the Nasdaq SmallCap(TM) Market was $3.59375 per share and
the average of the closing bid price of the Common Stock for the five trading
days ending January 27, 1998 was $3.625 per share.
In connection with the issuance and sale of the Series A Preferred Stock,
the Company granted warrants to the Series A Preferred Holders to acquire an
aggregate of 75,000 shares of Common Stock, with warrants to purchase 62,500
shares of Common Stock having an exercise price per share equal to $14.50625 and
warrants to purchase 12,500 shares of Common Stock having an exercise price per
share equal to $15.825. The Company also granted 50,000 warrants to a placement
agent at an exercise price of $15.825 per share. These warrants to purchase an
aggregate 125,000 shares of Common Stock (the "Series A Preferred Stock
Warrants") will expire on December 31, 2000 and are eligible to be exercised at
any time on or after June 23, 1998. See "Description of Securities -- Warrants."
The Series A Preferred Stock Registration Statement will cover (i) the shares of
Common Stock issuable upon conversion of the Series A Preferred Stock (which
would be 689,655 shares assuming that the Series A Preferred Holders had
exercised their conversion privileges after the close of business on January 27,
1998, which would have resulted in a conversion price of $2.90 per share); (ii)
125,000 shares of Common Stock issuable upon the exercise of the Series A
Preferred Stock Warrants; (iii) 100,000 shares of Common Stock issuable upon the
exercise of warrants granted to the Company's underwriter in connection with its
initial public offering; and (iv) 400,000 shares of Common Stock issuable upon
the exercise of warrants granted in connection with the Debenture Sale. See
"Description of Securities -- Warrants."
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.
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.
2
<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 of the Debentures 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 sooner of the date on
which this registration statement is declared
effective (the "Registration Effective Date") or
December 26, 1997; (ii) not more than an additional
one-third of the aggregate value of the Debentures
at any time on or after the sooner of the 30th day
following the Registration Effective Date or
January 25, 1998; and (iii) the final one-third of
the aggregate value of the Debentures at any time
on or after the sooner of the 60th day following
the Registration Effective Date or February 24,
1998. As a result of these agreements, two-thirds
of the aggregate value of the Debentures are
convertible at the option of the holders
immediately as of the date of this Prospectus and
the balance of the Debentures will become
convertible on February 24, 1998. 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
3
<PAGE> 5
conversion of the Debentures. See "Risk
Factors -- Variability of Number of Shares of
Common Stock Issuable Upon Conversion of Debentures
and Series A Preferred Stock."
RISK FACTORS............... An investment in the securities offered hereby
involves a high degree of risk. See "Risk Factors."
NASDAQ SMALLCAP(TM)
MARKET SYMBOL............ HCOM
RECENT SALE OF PREFERRED
STOCK.................... In December 1997, the Company issued 20,000 shares
of its Series A Convertible Preferred Stock (the
"Series A Preferred Stock") to private investors
(the "Series A Preferred Holders") for an aggregate
purchase price of $2,000,000. Net proceeds to the
Company were approximately $1.8 million. Pursuant
to Registration Rights Agreements with the Series A
Preferred Holders (the "Preferred Registration
Agreements"), the Company agreed to file on or
before January 31, 1998 a registration statement
covering the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock (the
"Series A Preferred Stock Registration Statement").
The Series A Preferred Holders have agreed that
they may convert (i) not more than one-half of the
Series A Preferred Stock at any time on or after
the 30th day following the Registration Effective
Date; and (ii) the second one-half of the Series A
Preferred Stock at any time on or after the 60th
day following the Registration Effective Date.
However, the Series A Preferred Holders also have
agreed that they may not convert any of the Series
A Preferred Stock until on or after the later of 30
days after the Registration Effective Date or
February 27, 1998. The Series A Preferred Stock is
convertible into a number of shares of Common Stock
equal to the quotient of (a) the product of the
number of shares of Series A Preferred Stock being
converted multiplied by $100.00 divided by (b) the
then-applicable conversion price. The conversion
price for the Series A Preferred Stock (the "Series
A Preferred Conversion Price") is the lesser of (i)
80% of the average closing bid price of the
Company's Common Stock for the five trading days
ending on the day the Company actually receives a
conversion notice; or (ii) $14.50625. The Series A
Preferred Conversion Price is subject to adjustment
under certain circumstances. See "Description of
Securities -- Series A Convertible Preferred
Stock." On January 27, 1998, the closing bid price
of the Common Stock on the Nasdaq SmallCap(TM)
Market was $3.59375 per share and the average of
the closing bid price of the Common Stock for the
five trading days ending January 27, 1998 was
$3.625 per share.
In connection with the issuance and sale of the
Series A Preferred Stock, the Company granted
warrants to the Series A Preferred Holders to
acquire an aggregate of 75,000 shares of Common
Stock, with warrants to purchase 62,500 shares of
Common Stock having an exercise price per share
equal to $14.50625 and warrants to purchase 12,500
shares of Common Stock having an exercise price per
share equal to $15.825. The Company also granted
50,000 warrants to a placement agent at an exercise
price of $15.825 per share. These warrants to
purchase an aggregate 125,000 shares of Common
Stock (the "Series A Preferred Stock Warrants")
will expire on December 31, 2000 and are eligible
to be exercised at any time on or after June 23,
1998. See "Description of Securities -- Warrants."
The Series A Preferred Stock Registration
4
<PAGE> 6
Statement will cover (i) the shares of Common Stock
issuable upon conversion of the Series A Preferred
Stock (which would be 689,655 shares assuming that
the Series A Preferred Holders had exercised their
conversion privileges after the close of business
on January 27, 1998, which would have resulted in a
conversion price of $2.90 per share); (ii) 125,000
shares of Common Stock issuable upon the exercise
of the Series A Preferred Stock Warrants; (iii)
100,000 shares of Common Stock issuable upon the
exercise of warrants granted to the Company's
underwriter in connection with its initial public
offering; and (iv) 400,000 shares of Common Stock
issuable upon the exercise of warrants granted in
connection with the Debenture Sale. See
"Description of Securities -- Warrants."
COMMON STOCK OUTSTANDING
BEFORE OFFERING(1)....... 2,956,396
COMMON STOCK OUTSTANDING
AFTER ISSUANCE OF THE
COMMON STOCK THAT IS
ISSUABLE UPON CONVERSION
OF THE
DEBENTURES(1)(2)......... 3,559,166
COMMON STOCK OUTSTANDING
AFTER ISSUANCE OF THE
COMMON STOCK THAT IS
ISSUABLE UPON CONVERSION
OF THE SERIES A PREFERRED
STOCK(1)(3).............. 3,646,051
COMMON STOCK OUTSTANDING
AFTER ISSUANCE OF THE
COMMON STOCK THAT IS
ISSUABLE UPON CONVERSION
OF BOTH THE DEBENTURES
AND THE SERIES A
PREFERRED
STOCK(1)(2)(3)........... 4,248,821
- ---------------
(1) Excludes: (i) 600,000 shares reserved for issuance under the Company's Stock
Option Plan, of which options to acquire 537,160 shares of Common Stock are
issuable upon the exercise of outstanding options granted at exercise prices
ranging from $3.69 to $8.06 per share and weighted average exercise price of
$4.75 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;
(v) 400,000 shares of Common Stock that are 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; (vi) 125,000 shares of Common Stock that are
issuable upon exercise of the Series A Preferred Stock Warrants, of which
warrants to acquire 62,500 shares are exercisable at a price equal to
$14.50625 per share and warrants to purchase the remaining 62,500 shares are
exercisable at a price of $15.825 per share; and (vii) 25,000 shares of
Common Stock that are issuable upon exercise of warrants granted in
connection with the Company's organization of InsureRate at an exercise
price of $3.70 per share. See "Management -- Incentive Plans," "Description
of Securities -- Convertible Debentures," "Description of
Securities -- Series A Preferred Stock," and "Description of Securities --
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."
5
<PAGE> 7
(2) Assumes that all holders of Debentures elect to convert the Debentures into
an aggregate 602,770 shares of Common Stock at a Conversion Price of
$2.8203125 per share, which represents the Conversion Price that would be in
effect if the Company received notice of conversion as of the date of this
Prospectus. See "Description of Securities -- Convertible Debentures."
(3) Assumes that all holders of the Series A Preferred Stock elect to convert
the Series A Preferred Stock into an aggregate 689,655 shares of Common
Stock at a conversion price of $2.90 per share, which represents the Series
A Preferred Conversion Price that would be in effect if the Company received
notice of conversion after the close of business on January 27, 1998. See
"Description of Securities -- Series A Convertible Preferred Stock."
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
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>
- ---------------
(1) Based on the average closing bid price of the Common Stock for the three
trading days ended January 27, 1998, the Conversion Price would be
$2.8203125 per share. Pro forma balance sheet data reflect conversion of an
aggregate $1.7 million of Debentures into an aggregate 602,770 shares of
Common Stock at the assumed Conversion Price of $2.8203125 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."
6
<PAGE> 8
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. On December 23, 1997, the Company issued and sold 20,000 shares of
Series A Preferred Stock to the Series A Preferred Holders for aggregate net
proceeds of approximately $1.8 million. The proceeds will be used for general
working capital purposes. 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
7
<PAGE> 9
the Company to achieve break-even or profitable operations, the Company will be
forced to seek protection from its creditors.
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, the Company must satisfy continued listing standards
that will apply to the Company commencing in February 1998. These new criteria
will require the Company to maintain (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. The Company anticipates that it will satisfy the new maintenance
criteria when such criteria become applicable to the Company in February 1998.
There is, however, a substantial risk that the Company will not satisfy Nasdaq's
new maintenance criteria as of March 31, 1998. In particular, if the Company
continues to incur substantial losses (which is probable), the Company's net
tangible assets may fall below $2,000,000 as of March 31, 1998. In such event,
in order to satisfy Nasdaq's $2,000,000 net tangible asset requirement, the
Company may be required to request the conversion of a substantial portion of
the Debentures (which would have the result of reducing liabilities and
therefore increasing net tangible assets), over which the Company has no
control, or obtain additional equity financing. There can be no assurance that
the Company will be able to obtain additional equity financing on terms
satisfactory to the Company, or at all. 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.
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,
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<PAGE> 10
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 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."
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<PAGE> 11
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.
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
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<PAGE> 12
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. Pursuant to the Preferred Registration Agreements, the Company is
required to file a registration statement on or before January 31, 1998 with
respect to the shares of Common Stock issuable upon conversion of the Series A
Preferred Stock. If the Series A Preferred Holders had given notice of
conversion after the close of trading on January 27 1998, the Series A Preferred
Conversion Price would have been $2.90 resulting in the issuance of 689,655
shares of Common Stock. Because the Series A Preferred Conversion Price is
variable, the number of shares of Common Stock that are issuable upon conversion
may increase significantly. See "Risk Factors -- Variability of Number of Shares
of Common Stock Issuable Upon Conversion of Debentures and Series A Preferred
Stock." The Company also intends to include in such registration statement (i)
125,000 shares of Common Stock issuable upon exercise of the Series A Preferred
Stock Warrants; (ii) 100,000 shares of Common Stock issuable upon the exercise
of warrants granted to the Company's underwriter in connection with its initial
public offering; and (iii) 400,000 shares of Common Stock issuable upon exercise
of warrants granted in connection with the Debenture Sale. 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 any of the shares described above 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 3,559,166 shares of Common Stock (assuming full
conversion of the Debentures at a Conversion Price of $2.8203125), will have
outstanding options to purchase of 547,160 shares of Common Stock pursuant to
the Company's stock option plans at a weighted average exercise price of
approximately $4.80 per share, and will have outstanding warrants to acquire an
aggregate 650,000 shares at a weighted average exercise price of approximately
$7.24 per share. Additionally, the Company will have outstanding 20,000 shares
of Series A Preferred Stock, which would be convertible into an aggregate
689,655 shares of Common Stock if the Company had received notice of conversion
after the close of business on January 27, 1998, based on a conversion price of
$2.90 per share (which is determined as 80% of the average closing bid price for
the Company's Common Stock for the five trading days ended January 27, 1998).
The number of shares of
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Common Stock issuable upon conversion of the Debentures or the Series A
Preferred Stock can increase significantly if the price of the Company's Common
Stock is lower than its current price for the period preceding the date the
Company receives notice of conversion of the Debentures or the Series A
Preferred Stock. Pursuant to the Series A Preferred Registration Agreement, the
Company is required to file a registration statement on or before January 31,
1998 with respect to the shares of Common Stock issuable upon conversion of the
Series A Preferred Stock. If the Series A Preferred Holders had given notice of
conversion after the close of trading on January 27, 1998, the Series A
Preferred Conversion Price would have been $2.90 resulting in the issuance of
689,655 shares of Common Stock. Because the Series A Preferred Conversion Price
is variable, the number of shares of Common Stock that are issuable upon
conversion may increase significantly. See "Risk Factors -- Variability of
Number of Shares of Common Stock Issuable Upon Conversion of Debentures and
Series A Preferred Stock." The Company also intends to include in such
registration statement (i) 125,000 shares of Common Stock issuable upon exercise
of the Series A Preferred Stock Warrants; (ii) 100,000 shares of Common Stock
issuable upon the exercise of warrants granted to the Company's underwriter in
connection with its initial public offering; and (iii) 400,000 shares of Common
Stock issuable upon exercise of warrants granted in connection with the
Debenture Sale. Of the 3,559,166 shares outstanding after this offering,
approximately 1,602,770 shares (including the 602,770 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 537,160 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 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. Pursuant to the Preferred
Registration Agreements, the Company is required to file a registration
statement on or before January 31, 1998 with respect to the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock. If the Series A
Preferred Holders had given notice of conversion after the close of trading on
January 27, 1998, the Series A Preferred Conversion Price would have been $2.90
resulting in the issuance of 689,655 shares of Common Stock. Because the Series
A Preferred Conversion Price is variable, the number of shares of Common Stock
that are issuable upon conversion may increase significantly. See "Risk
Factors -- Variability of Number of Shares of Common Stock Issuable Upon
Conversion of Debentures and Series A Preferred Stock." The Company also intends
to include in such registration statement (i) 125,000 shares of Common Stock
issuable upon exercise of the Series A Preferred Stock Warrants; (ii) 100,000
shares of Common Stock issuable upon the exercise of warrants granted to the
Company's underwriter in connection with its initial public offering; and (iii)
400,000 shares of Common Stock issuable upon exercise of warrants granted in
connection with the Debenture Sale. See "Description of Securities -- Warrants."
After the effective date of the Series A Preferred Registration Statement,
shares registered thereunder generally will be available for resale in the
public market.
VARIABILITY OF NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
DEBENTURES AND SERIES A PREFERRED STOCK. The number of shares of Common Stock
issuable upon conversion of the Debentures and Series A Preferred Stock is
essentially unlimited. If the price of the Common Stock as reported by the
Nasdaq SmallCap(TM) Market, declines to a price less than $3.59375 per share,
the Company will be required to issue substantially more than the 602,770 shares
assumed hereunder to be issuable upon conversion of the Debentures and
substantially more than the 689,655 shares assumed hereunder to be issuable upon
conversion of the Series A Preferred Stock. 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 holders 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
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Stock will not fall significantly below $3.59375 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 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 Securities -- Limitations on Liability of Directors."
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 Securities -- 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 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
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regulations may decrease the growth of the Internet, which could in turn
decrease the demand for the Company's products and services, increase the
Company's cost of doing business, cause the Company to modify its operations, or
otherwise have an adverse effect on the Company's business, financial condition
or operating results. Moreover, the applicability to the Internet of existing
laws governing issues such as property ownership, libel and personal privacy is
uncertain. The Company cannot predict the impact, if any, that future regulation
or regulatory changes may have on its business. In addition, Web site developers
such as the Company face potential liability for the actions of customers and
others using their services, including liability for infringement of
intellectual property rights, rights of publicity, defamation, libel, fraud,
misrepresentation, unauthorized computer access, theft, tort liability and
criminal activity under the laws of the United States, various states and
foreign jurisdictions. Any imposition of liability could have a material adverse
effect on the Company. The Company's network services are transmitted to its
customers over dedicated and public telephone lines. These transmissions are
governed by regulatory policies establishing charges and terms for
communications. Changes in the regulatory environment relating to the
telecommunications and media industry, including regulatory changes which
directly or indirectly affect use of or access to the Internet or increase the
likelihood or scope of competition from regional telephone companies, could have
a material adverse effect on the Company.
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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......................................... 15.56 2.63
1998
- ----
First quarter (through January 27, 1998)............... $ 15.78 $ 3.16
</TABLE>
On January 27, 1998, the last reported sale price of the Common Stock as
reported by the Nasdaq SmallCap(TM) Market was $3.59375 per share. As of January
27, 1998, there were 30 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.
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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>
16
<PAGE> 18
<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 average closing bid of the Common Stock for the three trading
days ended January 27, 1998, the Conversion Price would be $2.8203125 per
share. Pro forma balance sheet data reflect conversion of an aggregate $1.7
million of Debentures into an aggregate 602,770 shares of Common Stock at
the assumed Conversion Price of $2.8203125 per share.
17
<PAGE> 19
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.
18
<PAGE> 20
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
19
<PAGE> 21
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.
20
<PAGE> 22
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
21
<PAGE> 23
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. On
December 23, 1997, the Company issued and sold 20,000 shares of Series A
Preferred Stock to the Series A Preferred Holders for aggregate net proceeds of
approximately $1.8 million. The proceeds will be used for general working
capital purposes. 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.
22
<PAGE> 24
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 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.
23
<PAGE> 25
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
24
<PAGE> 26
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 29 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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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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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 January 27, 1998, the Company employed 46 full-time employees, of whom
29 were technical personnel engaged in maintaining or developing the Company's
products or performing related services, 7 were marketing and sales personnel
and 10 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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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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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 H. Puri...................... 32 Executive Vice President and Director
Gia Bokuchava, Ph.D.................. 32 Chief Technical Officer and Director
Roger J. Nebel....................... 44 Vice President and Director
Carl W. Peede........................ 50 Senior Vice President and Chief Operating Officer
Norman 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 H. 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> 36
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 J. 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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<PAGE> 37
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> 38
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> 39
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 January 27, 1998, options to purchase 537,160 shares of Common Stock
were outstanding under the Stock Option Plan at exercise prices ranging from
$3.69 to $8.06 per share and at a weighted average exercise price of $4.75 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> 40
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 will be eligible to participate. The 401(k) Plan will include a
salary deferral arrangement pursuant to which participants may contribute
amounts not to exceed limitations imposed by the Code. Subject to certain Code
limitations, the Company may make a matching contribution of up to $1,000 of the
salary deferral contributions of participants at a rate of 50% of the
participant's contributions, up to 4% of the participant's salary. The Company
may also make an additional contribution to the 401(k) Plan each year at the
discretion of the Board of Directors. A separate account will be maintained for
each participant in the
39
<PAGE> 41
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.
40
<PAGE> 42
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> 43
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.
RECENT TRANSACTIONS
SALE OF SERIES A PREFERRED STOCK
In December 1997, the Company issued 20,000 shares of its Series A
Convertible Preferred Stock (the "Series A Preferred Stock") to private
investors (the "Series A Preferred Holders") for an aggregate purchase price of
$2,000,000. Net proceeds to the Company were approximately $1.8 million.
Pursuant to Registration Rights Agreements with the Series A Preferred Holders
(the "Preferred Registration Agreements"), the Company agreed to file on or
before January 31, 1998 a registration statement covering the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock (the "Series A
Preferred Stock Registration Statement"). The Series A Preferred Holders have
agreed that they may convert (i) not more than one-half of the Series A
Preferred Stock at any time on or after the 30th day following the Registration
Effective Date; and (ii) the second one-half of the Series A Preferred Stock at
any time on or after the 60th day following the Registration Effective Date.
However, the Series A Preferred Holders also have agreed that they may not
convert any of the Series A Preferred Stock until on or after the later of 30
days after the Registration Effective Date or February 27, 1998. The Series A
Preferred Stock is convertible into a number of shares of Common Stock equal to
the quotient of (a) the product of the number of shares of Series A Preferred
Stock being converted multiplied by $100.00 divided by (b) the then-applicable
conversion price. The conversion price for the Series A Preferred Stock (the
"Series A Preferred Conversion Price") is the lesser of (i) 80% of the average
closing bid price of the Company's Common Stock for the five trading days ending
on the day the Company actually receives a conversion notice; or (ii) $14.50625.
The Series A Preferred Conversion Price is subject to adjustment under certain
circumstances. See "Description of Securities -- Series A Convertible Preferred
Stock." On January 27, 1998, the closing bid price of the Common Stock on the
Nasdaq SmallCap(TM) Market was $3.59375 per share and the average of the closing
bid price of the Common Stock for the five trading days ending January 27, 1998
was $3.625 per share.
In connection with the issuance and sale of the Series A Preferred Stock,
the Company granted warrants to the Series A Preferred Holders to acquire an
aggregate of 75,000 shares of Common Stock, with warrants to purchase 62,500
shares of Common Stock having an exercise price per share equal to $14.50625 and
warrants
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<PAGE> 44
to purchase 12,500 shares of Common Stock having an exercise price per equal to
$15.825. The Company also granted 50,000 warrants to a placement agent at an
exercise price of $15.825 per share. These warrants to purchase an aggregate
125,000 shares of Common Stock (the "Series A Preferred Stock Warrants") will
expire on December 31, 2000 and are eligible to be exercised at any time on or
after June 23, 1998. See "Description of Securities -- Warrants." The Series A
Preferred Stock Registration Statement will cover (i) the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock (which would be 689,655
shares assuming that the Series A Preferred Holders had exercised their
conversion privileges after the close of business on January 27, 1998, which
would have resulted in a conversion price of $2.90 per share); (ii) 125,000
shares of Common Stock issuable upon the exercise of the Series A Preferred
Stock Warrants; (iii) 100,000 shares of Common Stock issuable upon the exercise
of warrants granted to the Company's underwriter in connection with its initial
public offering; and (iv) 400,000 shares of Common Stock issuable upon the
exercise of warrants granted in connection with the Debenture Sale. See
"Description of Securities -- Warrants."
INSURERATE
In January 1998, the Company formed InsureRate, Inc. ("InsureRate") for the
purpose of providing Internet web development and web hosting services to
entities engaged in the sale, marketing or underwriting of insurance and other
financial products and services. The Company has committed to loan InsureRate up
to $100,000 for the operation of InsureRate's business, including the purchase
of machinery, equipment, fixtures and furnishings, leasehold improvements and
other necessary business expenses and working capital needs. The unpaid
principal balance of this loan will bear interest at the Applicable Federal
Rate. The outstanding principal balance advanced to InsureRate plus accrued
interest is payable in January 2008. InsureRate has the option to repay this
loan to HomeCom in either cash or in shares of common stock of InsureRate having
a value on the repayment date equal to the aggregate principal amount advanced
by HomeCom to InsureRate, together with interest thereon.
The Company, InsureRate, Jerome R. Corsi ("Corsi") and Hamilton Dorsey
Alston Company ("HDA") (a licensed insurance agency) are parties to an agreement
(the "Purchase Agreement") pursuant to which HDA purchased InsureRate common
stock for a total purchase price of $100,000. As a result of the transaction
consummated by the Purchase Agreement, all of the outstanding InsureRate Stock
is, subject to the contingency described below, currently held in the following
amounts: the Company owns 56.67% of InsureRate's Common Stock, HDA owns 33.33%
and Corsi owns 10%.
InsureRate has agreed to deposit the $100,000 received from HDA into an
escrow account. Pursuant to an escrow agreement with a third party escrow agent,
HDA has the sole and absolute discretion until 9:00 a.m. Atlanta, Georgia time
on February 22, 1998, for any or no reason, to cause the escrow agent to deliver
to HDA the escrowed funds, without interest, upon receipt by the escrow agent
from HDA of the share certificate representing HDA's shares of InsureRate stock.
These shares would be delivered to the Company resulting in the ownership by
HomeCom of 90% of InsureRate's Common Stock.
The Company and HDA concurrently entered into a shareholders agreement
which, among other things, provides that: (i) the Company has a right of first
refusal to purchase HDA's InsureRate stock prior to a proposed sale of such
stock by HDA to a third party unaffiliated with HDA; (ii) HDA has the right to
cause the Company to purchase from HDA all of HDA's InsureRate stock at a
purchase price equal to $100,000 at any time, payable by HomeCom at its sole
discretion either in the form of cash or shares of Common Stock of HomeCom
having a value equal to $100,000; provided, however, that if HDA exercises such
right within 30 days after the date on which InsureRate's Internet web site is
first open for public access through the World Wide Web on the Internet, then
the Company must pay the $100,000 in cash; and (iii) the Company has the right
to purchase from HDA 50% of HDA's InsureRate stock at a purchase price equal to
$50,000 at any time; provided that HDA may, in its sole discretion, elect to
receive the purchase price either in the form of cash or shares of the Company's
Common Stock.
HDA and InsureRate also signed a Web Development and Hosting Services
Agreement whereby InsureRate agreed to perform for HDA Internet web site
development services for the creation of an Internet
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<PAGE> 45
web site located on InsureRate's web servers for the marketing of group and
individual insurance products according to the specifications submitted by HDA
to InsureRate. Under the terms of this agreement, InsureRate will offer to HDA
the right to market and advertise any other insurance products to be offered on
InsureRate's web servers prior to offering that right to any other insurance
agency. If HDA declines to offer any product or service on InsureRate's web
site, then InsureRate may offer the right to market the product or service to
any other insurance agency on its web site or any web server of InsureRate. HDA
will pay a quarterly hosting fee to InsureRate not to exceed two-thirds of the
revenue earned by HDA during the preceding calendar quarter from all agency and
brokerage agreements between HDA and each insurer for which HDA markets and
sells insurance products or services on InsureRate's web site.
As an inducement for HDA to enter into the Web Development and Hosting
Services Agreement, HomeCom granted to HDA a warrant to purchase 25,000 shares
of the Company's Common Stock for an exercise price of $3.70 per share. HDA may
exercise this warrant according to the following vesting schedule: (i) 8,333.33
shares are purchasable as of January 23, 1999; (ii) 8,333.33 shares are
purchasable as of January 23, 2000; and (iii) 8,333.33 shares are purchasable as
of January 23, 2001. This warrant expires on March 31, 2001 if not earlier
exercised.
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<PAGE> 46
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 January 27, 1998.
<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(3)
- --------------------------- ------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Harvey W. Sax(4)............... 844,744 28.6% -- 844,744 25.0%
Nat Stricklen(5)............... 68,170 2.3 -- 68,170 1.9
Krishan H. Puri(6)............. 43,976 1.5 -- 43,976 1.3
Gia Bokuchava, Ph.D.(7)........ 40,059 1.4 -- 40,059 1.2
Roger J. Nebel(8).............. 2,100 * -- 2,100 *
Gregory Abowd, Ph.D.(9)........ 5,000 * -- 5,000 *
Carl W. Peede(10).............. -- * -- -- *
Norman H. Smith(11)............ -- * -- -- *
First Granite Securities,
Inc.(12)..................... 400,000 11.9 -- 400,000 10.1
Mark Germain(13)............... 350,885 11.9 -- 350,885 9.9
Margery Germain(14)............ 350,885 11.9 -- 350,885 9.9
FTS Worldwide
Corporation(15).............. 283,657 8.8 283,657 0 *
Euro Factors International,
Inc.(16)..................... 124,100 4.0 124,100 0 *
Beauchamp Finance(17).......... 106,371 3.5 106,371 0 *
COLBO(18)...................... 88,643 2.9 88,643 0 *
Dominion Capital Fund,
LTD.(19)..................... 517,241 14.9 -- 517,241 12.7
Sovereign Partners, L.P.(20)... 172,414 5.5 -- 172,414 4.6
All executive officers and
directors as a group (8
persons)..................... 1,004,049 33.9% -- 1,004,049 28.2%
</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) The percentage of Common Stock beneficially owned after the offering
assumes that the Debentures are convertible into an aggregate 602,770
shares at a Conversion Price of $2.8203125 per share, which is the
Conversion Price that would be effective if the Company received notice of
conversion of the Debentures after the close of trading on January 27,
1998. The Conversion Price of the Debentures is variable, and the number of
shares issuable upon conversion of the Debentures will increase if the
average closing bid price of the Company's Common Stock is less than $3.76
per share for the three trading days immediately prior to issuance. See
"Description of Securities -- Convertible Debentures."
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<PAGE> 47
(4) Excludes 10,000 shares of Common Stock issuable upon the exercise of an
option outstanding as of January 27, 1998 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 14,000 shares of Common Stock issuable upon the exercise of
options outstanding as of January 27, 1998 at a weighted average exercise
price of $4.61 per share which are not currently exercisable and which
become exercisable more than 60 days following the date of the date of this
Prospectus.
(6) Excludes 25,000 shares of Common Stock issuable upon the exercise of
options outstanding as of November 20, 1997 at a weighted average exercise
price of $4.45 per share which are not currently exercisable and which
become exercisable more than 60 days following the date of the date of this
Prospectus.
(7) Excludes 25,000 shares of Common Stock issuable upon the exercise of
options outstanding as of January 27, 1998 at a weighted average exercise
price of $4.45 per share which are not currently exercisable and which
become exercisable more than 60 days following the date of the date of this
Prospectus.
(8) Includes 1,250 shares of Common Stock issuable upon the exercise of an
option outstanding as of January 27, 1998 at an exercise price of $6.00 per
share. Excludes 18,750 shares of Common Stock issuable upon the exercise of
options outstanding as of January 27, 1998, at a weighted average exercise
price of $5.07 per share which are not currently exercisable and which
become 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."
(9) Includes 5,000 shares of Common Stock issuable upon the exercise of an
option outstanding as of January 27, 1998 at an exercise price of $6.50 per
share which is currently exercisable. 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.
(10) Excludes 60,000 shares of Common Stock issuable upon the exercise of
options outstanding as of January 27, 1998 at a weighted average exercise
price of $5.10 per share which are not currently exercisable and which
become exercisable more than 60 days following the date of the date of this
Prospectus.
(11) Excludes 25,000 shares of Common Stock issuable upon the exercise of
options outstanding as of January 27, 1998 at a weighted average exercise
price of $4.84 per share, which are not currently exercisable and which
become exercisable more than 60 days following the date of this Prospectus.
(12) 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.
(13) 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.
(14) The address of this stockholder is 6 Olmstead Road Scarsdale, NY 10583.
Includes 15,833 shares of Common Stock owned by Mark Germain.
(15) 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 $2.8203125.
(16) 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 $2.8203125.
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<PAGE> 48
(17) 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 $2.8203125.
(18) The address of this Selling Securityholder 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 $2.8203125.
(19) The address of this shareholder is Bahamas Financial Centre, Third Floor,
Charlotte & Shirley Street, Nassau, Bahamas CB-13136. Represents shares of
Common Stock issuable upon conversion of an aggregate 15,000 shares of
Series A Preferred Stock. The number of shares of Common Stock represented
as beneficially owned by this shareholder is estimated based upon an
assumed Series A Preferred Conversion Price of $2.90.
(20) The address of this shareholder is Bahamas Financial Centre, Third Floor,
Charlotte & Shirley Street, Nassau, Bahamas CB-13136. Represents shares of
Common Stock issuable upon conversion of 5,000 shares of Series A Preferred
Stock held by the shareholder. The number of shares of Common Stock
represented as beneficially owned by this shareholder is estimated based
upon an assumed Series A Preferred Conversion Price of $2.90.
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<PAGE> 49
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 January 27, 1998, the Company had issued and outstanding
2,956,396 shares of Common Stock and 20,000 shares of Series A Preferred Stock.
As of such date, there were 30 holders of record of shares of Common Stock and
two holders of record of the Series A Preferred Stock. As of January 27, 1998,
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.
SERIES A CONVERTIBLE PREFERRED STOCK
The Company has designated 20,000 shares of its preferred stock as Series A
Convertible Preferred Stock (the "Series A Preferred Stock"). In transactions
completed in December 1997, the Company issued 20,000 shares of the Series A
Preferred Stock for aggregate consideration of $2,000,000. See "Recent Sale of
Series A Preferred Stock." The shares of Series A Preferred Stock have the
designations, rights and preferences described below.
DIVIDENDS
The holders of the Series A Preferred Stock are entitled to receive
dividends pari passu, on an as-converted basis, with any dividend which shall be
declared and paid upon or set aside for the Common Stock in any year, when, as,
and if declared by the Board of Directors of the Company out of funds legally
available for that purpose, with each share of Series A Preferred Stock being
entitled to receive dividends based on the number of shares of Common Stock into
which a share of Series A Preferred Stock could be converted on the record date
for the dividend. Dividends shall be payable in cash, stock or otherwise in an
amount not less than the per share amount, if any, of any cash, stock, or other
dividend declared on the Common Stock during such fiscal year.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or not, the holders of Series A Preferred Stock shall be
entitled to receive, before any amount shall be paid to holders of Common Stock,
an amount per share equal to $100.00 for each outstanding share of Series A
Preferred Stock (as equitably adjusted for stock splits, combinations or similar
events and hereafter individually referred to as
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<PAGE> 50
the "Original Issue Price") plus, in each case, all declared and unpaid
dividends, if any (such amount being herein referred to as the "Series A
Preference"). If, upon the occurrence of a liquidation, dissolution or winding
up, the assets and surplus funds distributed among the holders of Series A
Preferred Stock shall be insufficient to permit the payment to such holders of
the full amount of the Series A Preference, then the entire assets and surplus
funds of the Company legally available for distribution shall be distributed
ratably among the holders of Series A Preferred Stock based upon the aggregate
Original Issue Price of Series A Preferred Stock held by each holder. If, upon
the occurrence of a liquidation, dissolution or winding up, after the payment to
the holders of all series of Preferred Stock of the full amount of the Series A
Preference, assets or surplus funds remain in the Company, all such remaining
assets and surplus funds shall be distributed ratably among the holders of the
Common Stock. A liquidation, dissolution or winding up of the Company shall be
deemed to be occasioned by, and to include, the Company's sale of all or
substantially all of its assets or the acquisition of the Company by another
entity by means of merger, consolidation or reorganization (other than a merger
which solely effects a change of domicile) or consolidation, where, after such
merger or consolidation, less than 50% of the surviving entity is held by
persons who were stockholders of the Company immediately before the merger,
consolidation or reorganization.
VOTING RIGHTS
Each holder of shares of Series A Preferred Stock shall be entitled to the
number of votes equal to the number of full shares of Common Stock into which
such holder's shares of Series A Preferred Stock could be converted on the
record date for the vote or written consent of shareholders and, except as
otherwise required by law, shall have voting rights and powers equal to the
voting rights and powers of the Common Stock. Each holder of Series A Preferred
Stock shall be entitled to notice of any stockholders' meeting in accordance
with the bylaws of the Company and shall vote together with (and not as a
separate class from) holders of the Common Stock upon all other matters
submitted to a vote of shareholders. Fractional votes shall not, however, be
permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares of Common Stock into which shares of Series A
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half rounded upward to one).
CONVERSION
Each share of Series A Preferred Stock shall be convertible, at the option
of the holder thereof, into a number of shares of Common Stock equal to the
quotient of (a) the product of the number of shares of Series A Preferred Stock
being converted multiplied by $100 divided by (b) the then-applicable Conversion
Price. The Conversion Price shall equal the lesser of: (i) 80% of the average
closing bid price of the Common Stock for the five trading days ending on the
day the Company actually receives a conversion notice, or (ii) 100% of the
closing bid price of the Common Stock on the closing date of the sale of the
Series A Preferred Stock. Upon conversion, all declared and unpaid dividends on
the Series A Preferred Stock shall be paid, to the extent funds are legally
available therefor, either in cash or in shares of Common Stock of the Company,
at the election of the Company, wherein the shares of Common Stock shall be
valued at the Closing Price on the day the Company actually receives a
conversion notice. The Series A Preferred Stock shall be convertible into shares
of Common Stock not earlier than the following: (i) the first one-half at any
time on or after the 30th day following the effective date the registration
statement of which this Prospectus is a part (the "Registration Effective
Date"), and (ii) the second one-half at any time on or after the 60th day
following the Registration Effective Date. Notwithstanding the foregoing, the
Series A Preferred Stock shall not be convertible into shares of Common Stock
under any circumstances until the later of (x) 150 days after the closing date
of the sale of the Debentures or (y) 30 days after the Registration Effective
Date.
ANTIDILUTION ADJUSTMENTS
The number of shares of Common Stock issuable upon conversion of the Series
A Preferred Stock is subject to adjustment for stock splits, stock dividends,
any distribution payable in securities of the Company other than shares of
Common Stock and provision is not made for payment of such distribution to
holders of the Series A Preferred Stock on an as-converted basis or any change
of the Common Stock into the same or a
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<PAGE> 51
different number of shares of any other class or classes of stock, whether by
capital reorganization, reclassification or otherwise (other than a subdivision,
combination or consolidation of shares provided for above).
REDEMPTION
The Company shall have the right to call for redemption all or any part of
the outstanding Series A Preferred Stock, at any time or from time to time,
including after receipt of conversion notice, prior to the issuance shares of
Common Stock upon conversion of the Series A Preferred Stock. The redemption
price (the "Redemption Price") for each share of Series A Preferred Stock
redeemed shall be equal to (a) the sum of $100 per share, plus all accrued but
unpaid dividends thereon up to the including the Redemption Date (as defined
below), multiplied by (b) one hundred twenty-five (125%) percent. The Redemption
Price shall be payable in cash within ten business days following the date the
Company initiates the delivery of a redemption notice to the holders of Series A
Preferred Stock.
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 "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
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<PAGE> 52
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.
WARRANTS
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.
In connection with the completion of the Debenture Sale, the Company issued
to First Granite Securities, Inc. (the "Debenture Warrant Holder"), an entity
designated by the Selling Securityholders, warrants to acquire an aggregate
400,000 shares (the "Debenture Warrants"). Of the Debenture 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 shares are exercisable at a
price of $6.00 per share. The exercise price of the Debenture Warrants is
subject to adjustment. If not earlier exercised, the Debenture Warrants expire
on October 27, 2000.
51
<PAGE> 53
In connection with the completion of the sale of the Series A Preferred
Stock, the Company issued the Series A Preferred Stock Warrants. The Series A
Preferred Stock Warrants represent the right to acquire an aggregate 125,000
shares of Common Stock, with warrants to purchase 62,500 shares of Common Stock
having an exercise price per share equal to $14.50625 and warrants to purchase
the remaining 62,500 shares having an exercise price equal to $15.825. The
Series A Preferred Stock Warrants will expire on December 31, 2000 and are
eligible to be exercised at any time on or after June 23, 1998. The Company
intends to register the shares of Common Stock issuable upon exercise of the
Series A Preferred Stock Warrants together with the shares of Series A Preferred
Stock. See "-- Registration Rights."
In connection with the purchase of InsureRate common stock by HDA and as an
inducement for HDA to enter into the Web Development and Hosting Services
Agreement, HomeCom granted to HDA a warrant for the purchase of 25,000 shares of
the unregistered Common Stock of HomeCom for an aggregate purchase price of
$92,500. HDA may exercise its right to purchase such shares subject to the
following vesting schedule: (i) 8,333.33 shares are purchasable as of January
23, 1999; (ii) 8,333.33 shares are purchasable as of January 23, 2000; and (iii)
8,333.33 shares are purchasable as of January 23, 2001. This warrant expires on
March 31, 2001 if not earlier exercised.
REGISTRATION RIGHTS
Pursuant to the Preferred Registration Agreements, the Company is required
to file a registration statement on or before January 31, 1998 with respect to
the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock. If the Series A Preferred Holders had given notice of conversion after
the close of trading on January 27, 1998, the Series A Preferred Conversion
Price would have been $2.90 resulting in the issuance of 689,655 shares of
Common Stock. Because the Series A Preferred Conversion Price is variable, the
number of shares of Common Stock that are issuable upon conversion may increase
significantly. The Company also intends to include in such registration
statement (i) 125,000 shares of Common Stock issuable upon exercise of the
Series A Preferred Stock Warrants; (ii) 100,000 shares of Common Stock issuable
upon the exercise of warrants granted to the Company's underwriter in connection
with its initial public offering; and (iii) 400,000 shares of Common Stock
issuable upon exercise of warrants granted in connection with the Debenture
Sale.
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
52
<PAGE> 54
affiliate or associate of such person, who is an "interested stockholder" for a
period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person becoming an
interested stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder, (ii) the interested stockholder acquired 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
it an interested stockholder (excluding shares owned by persons who are both
officers and directors of the corporation and shares held by certain employee
stock ownership plans) or (iii) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined (with certain limited exceptions) as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation that was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the date on which it
is sought to be determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws by action of
its stockholders to exempt itself from coverage, provided that such charter or
bylaw amendment shall not become effective until twelve months after the date it
is adopted. Neither the Restated Certificate of Incorporation nor the Restated
Bylaws of the Company contains any such exclusion, although the Board of
Directors has excluded the stockholders of the Company prior to the offering
from the coverage of Section 203.
53
<PAGE> 55
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.
54
<PAGE> 56
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.
55
<PAGE> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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. ISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK
In December 1997, the Company issued 20,000 shares of its Series A
Convertible Preferred Stock (the "Series A Preferred Stock") to private
investors (the "Series A Preferred Holders") for an aggregate purchase price of
$2,000,000. Net proceeds to the Company were approximately $1.8 million.
Pursuant to Registration Rights Agreements with the Series A Preferred Holders,
the Company agreed to file on or before
F-19
<PAGE> 76
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
January 31, 1998 a registration statement covering the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock (the "Series A
Preferred Stock Registration Statement"). The Series A Preferred Holders have
agreed that they may convert (i) not more than one-half of the Series A
Preferred Stock at any time on or after the 30th day following the effective
date of the Series A Preferred Stock Registration Statement; and (ii) the second
one-half of the Series A Preferred Stock at any time on or after the 60th day
following the effective date of the Series A Preferred Stock Registration
Statement. However, the Series A Preferred Holders also have agreed that they
may not convert any of the Series A Preferred Stock until on or after the later
of 30 days after the Registration Effective Date or February 27, 1998. The
Series A Preferred Stock is convertible into a number of shares of Common Stock
equal to the quotient of (a) the product of the number of shares of Series A
Preferred Stock being converted multiplied by $100.00 divided by (b) the
then-applicable conversion price. The conversion price for the Series A
Preferred Stock is the lesser of (i) 80% of the average closing bid price of the
Company's Common Stock for the five trading days ending on the day the Company
actually receives a conversion notice; or (ii) $14.50625.
A discount of $500,000 results from an allocation of the proceeds to the
beneficial conversion feature. This discount is analogous to a dividend and will
be recognized as a return to the Series A Preferred Holders over the minimum
period such holders realize that return.
In connection with the issuance and sale of the Series A Preferred Stock,
the Company granted warrants to the Series A Preferred Holders to acquire an
aggregate of 75,000 shares of Common Stock, with warrants to purchase 62,500
shares of Common Stock having an exercise price per share equal to $14.50625 and
warrants to purchase 12,500 shares of Common Stock having an exercise price per
share equal to $15.825. The Company also granted 50,000 warrants to a placement
agent at an exercise price of $15.825 per share. These warrants will expire on
December 31, 2000 and are eligible to be exercised at any time on or after June
23, 1998.
5. 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 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.
6. 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> 77
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN SO AUTHORIZED BY THE
COMPANY. 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.......... 6
Risk Factors........................... 7
Use of Proceeds........................ 15
Price Range of Common Stock............ 15
Dividend Policy........................ 15
Selected Financial Data................ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 18
Business............................... 24
Management............................. 34
Certain Transactions................... 41
Recent Transactions.................... 42
Principal and Selling Stockholders..... 45
Description of Securities.............. 48
Plan of Distribution................... 54
Legal Matters.......................... 55
Experts................................ 55
Available Information.................. 55
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
--------------------
, 1998
======================================================
<PAGE> 78
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> 79
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 of the
Debentures 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 sooner of the date on which this registration statement is declared
effective (the "Registration Effective Date") or December 26, 1997; (ii)
not more than an additional one-third of the aggregate value of the
Debentures at any time on or after the sooner of the 30th day following the
Registration Effective Date or January 25, 1998; and (iii) the final
one-third of the aggregate value of the Debentures at any time on or after
the sooner of the 60th day following the Registration Effective Date or
February 24, 1998. As a result of these agreements, two-thirds of the
aggregate value of the Debentures are convertible at the option of the
holders immediately as of the date of this Prospectus and the balance of
the Debentures will become convertible on February 24, 1998. 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
II-2
<PAGE> 80
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
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.
10. In December 1997, the Registrant issued 20,000 shares of its
Series A Convertible Preferred Stock (the "Series A Preferred Stock") to
private investors (the "Series A Preferred Holders") for an aggregate
purchase price of $2,000,000. Net proceeds to the Registrant were
approximately $1.8 million. Pursuant to Registration Rights Agreements with
the Series A Preferred Holders (the "Preferred Registration Agreements"),
the Registrant agreed to file on or before January 31, 1998 a registration
statement covering the shares of Common Stock issuable upon conversion of
the Series A Preferred Stock (the "Series A Preferred Stock Registration
Statement"). The Series A Preferred Holders have agreed that they may
convert (i) not more than one-half of the Series A Preferred Stock at any
time on or after the 30th day following the effective date of this
registration statement (the "Registration Effective Date"); and (ii) the
second one-half of the Series A Preferred Stock at any time on or after the
60th day following the Registration Effective Date. However, the Series A
Preferred Holders also have agreed that they may not convert any of the
Series A Preferred Stock until on or after the later of 30 days after the
Registration Effective Date or February 27, 1998. The Series A Preferred
Stock is convertible into a number of shares of Common Stock equal to the
quotient of (a) the product of the number of shares of Series A Preferred
Stock being converted multiplied by $100.00 divided by (b) the then-
applicable conversion price. The conversion price for the Series A
Preferred Stock (the "Series A Preferred Conversion Price") is the lesser
of (i) 80% of the average closing bid price of the Registrant's Common
Stock for the five trading days ending on the day the Registrant actually
receives a conversion notice; or (ii) $14.50625. The Series A Preferred
Conversion Price is subject to adjustment under certain circumstances. On
January 27, 1998, the closing bid price of the Common Stock on the Nasdaq
SmallCap(TM) Market was $3.59375 per share and the average of the Closing
bid price of the Common Stock for the five trading days ending January 27,
1998 was $3.625 per share.
In connection with the issuance and sale of the Series A Preferred
Stock, the Registrant granted warrants to the Series A Preferred Holders to
acquire an aggregate of 75,000 shares of Common Stock, with warrants to
purchase 62,500 shares of Common Stock having an exercise price per share
equal to $14.50625 and warrants to purchase 12,500 shares of Common Stock
having an exercise price per share equal to $15.825. The Registrant also
granted 50,000 warrants to a placement agent at an exercise price of
$15.825 per share. These warrants to purchase an aggregate 125,000 shares
of Common Stock (the "Series A Preferred Stock Warrants") will expire on
December 31, 2000 and are eligible to be exercised at any time on or after
June 23, 1998. The Series A Preferred Stock Registration Statement will
cover (i) the shares of Common Stock issuable upon conversion of the Series
A Preferred Stock (which would be 689,655 shares assuming that the holders
of the Series A Preferred Stock had exercised their conversion privileges
after the close of business on January 27, 1998 which would have resulted
in a conversion price of $2.90 per share); (ii) 125,000 shares of Common
Stock issuable upon the exercise of the Series A Preferred Stock Warrants;
(iii) 100,000 shares of Common Stock issuable upon the exercise of warrants
granted to the Registrant's underwriter in connection with its initial
public offering; and (iv) 400,000 shares of Common Stock issuable upon the
exercise of warrants granted in connection with the Registrant's sale of
the Debentures.
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
II-3
<PAGE> 81
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.*
3.3 Certificate of Designation of Series A Convertible Preferred
Stock.
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.*
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.*
</TABLE>
II-4
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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.***
10.26 Form of Securities Purchase Agreement between the
Registrant, Sovereign Partners, L.P. and Dominion Capital
Fund, LTD. dated as of December 23, 1997.
10.27 Form of Registration Rights Agreement between the
Registrant, Sovereign Partners, L.P. and Dominion Capital
Fund, LTD. dated as of December 23, 1997.
10.28 Form of Warrant to purchase 18,750 shares of Common Stock
issued by the Registrant to Sovereign Partners, L.P.
10.29 Form of Warrant to purchase 56,250 shares of Common Stock
issued by the Registrant to Dominion Capital Fund, LTD.
10.30 Common Stock Purchase Agreement dated January 23, 1998 by
and among InsureRate, Inc., the Registrant, Jerome R. Corsi
and Hamilton Dorsey Alston Company.
10.31 Escrow Agreement dated as of January 23, 1998 by and among
InsureRate, Inc., Hamilton Dorsey Alston Company, the
Registrant, Jerome R. Corsi and SunTrust Bank, Atlanta.
10.32 Shareholders Agreement dated January 23, 1998 by and among
Hamilton Dorsey Alston Company, the Registrant and
InsureRate, Inc.
10.33 Web Development and Hosting Services Agreement dated January
23, 1998, by and among InsureRate, Inc. and Hamilton Dorsey
Alston Company.
10.34 Form of Warrant to purchase 25,000 shares of Common Stock
for an aggregate purchase price of $92,500 by the Registrant
to Hamilton Dorsey Alston Company.
10.35 Loan Agreement dated January 23, 1998 by and between
InsureRate, Inc. and the Registrant.
10.36 Form of Master Note issued by the Registrant to InsureRate,
Inc.
21.1 List of Subsidiaries.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Morris, Manning & Martin, L.L.P. (included in
Exhibit 5.1).***
</TABLE>
II-5
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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.
***Previously filed.
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 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.
II-6
<PAGE> 84
(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-7
<PAGE> 85
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 29th day of January, 1998.
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/ NORMAN H. SMITH President and Chief Executive Officer January 29, 1998
as Attorney-In-Fact (Principal Executive Officer) and
- ------------------------------------------ Director
Harvey W. Sax
/s/ NORMAN H. SMITH Executive Vice President and Director January 29, 1998
as Attorney-In-Fact
- ------------------------------------------
Nat Stricklen
/s/ NORMAN H. SMITH Executive Vice President and Director January 29, 1998
as Attorney-In-Fact
- ------------------------------------------
Krishan H. Puri
/s/ NORMAN H. SMITH Chief Technical Officer and Director January 29, 1998
as Attorney-In-Fact
- ------------------------------------------
Gia Bokuchava, Ph.D.
/s/ NORMAN H. SMITH Vice President and Director January 29, 1998
as Attorney-In-Fact
- ------------------------------------------
Roger J. Nebel
/s/ NORMAN H. SMITH Chief Financial Officer January 29, 1998
- ------------------------------------------
Norman H. Smith
/s/ NORMAN H. SMITH Director January 29, 1998
as Attorney-In-Fact
- ------------------------------------------
Gregory Abowd
</TABLE>
II-8
<PAGE> 1
EXHIBIT 3.3
HOMECOM COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION, RIGHTS, PREFERENCES,
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
1. DESIGNATION.
Twenty thousand (20,000) shares of the Corporation's authorized but
unissued $.01 par value per share preferred stock are hereby designated Series A
Convertible Preferred Stock (the "Series A Preferred Stock").
2. DIVIDENDS.
The holders of the Series A Preferred Stock shall be entitled to
receive dividends pari passu, on an as-converted basis, with any dividend which
shall be declared and paid upon or set aside for the Common Stock in any year,
when, as, and if declared by the Board of Directors of the Corporation out of
funds legally available for that purpose, with each share of Series A Preferred
Stock being entitled to receive dividends based on the number of shares of
Common Stock into which a share of Series A Preferred Stock could be converted
on the record date for the dividend. Dividends shall be payable in cash, stock
or otherwise in an amount not less than the per share amount, if any, of any
cash, stock, or other dividend declared on the Common Stock during such fiscal
year.
3. LIQUIDATION RIGHTS.
3.1 In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or not, the holders of Series A Preferred
Stock shall be entitled to receive, before any amount shall be paid to holders
of Common Stock, an amount per share equal to $100.00 for each outstanding share
of Series A Preferred Stock as equitably adjusted for stock splits, combinations
or similar events and hereafter individually referred to as the "Original Issue
Price") plus, in each case, all declared and unpaid dividends, if any (such
amount being herein referred to as the "Series A Preference"). If, upon the
occurrence of a liquidation, dissolution or winding up, the assets and surplus
funds distributed among the holders of Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full amount of the
Series A Preference, then the entire assets and surplus funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of Series A Preferred Stock based upon the aggregate Original Issue
Price of Series A Preferred Stock held by each holder. If, upon the occurrence
of a liquidation, dissolution or winding up, after the payment to the holders of
all series of Preferred Stock of the full amount of the Series A Preference,
assets or surplus funds remain in the Corporation, all such remaining assets and
surplus funds shall be distributed ratably among the holders of the Common
Stock.
<PAGE> 2
3.2. For purposes of Section 3.1, a liquidation, dissolution
or winding up of the Corporation shall be deemed to be occasioned by, and to
include, the Corporation's sale of all or substantially all of its assets or the
acquisition of the Corporation by another entity by means of merger,
consolidation or reorganization (other than a merger which solely effects a
change of domicile) or consolidation, where, after such merger or consolidation,
less than fifty percent (50%) of the surviving entity is held by persons who
were shareholders of the Corporation immediately before the merger,
consolidation or reorganization.
4. VOTING RIGHTS.
Each holder of shares of Series A Preferred Stock shall be entitled to
the number of votes equal to the number of full shares of Common Stock into
which such holder's shares of Series A Preferred Stock could be converted on the
record date for the vote or written consent of shareholders and, except as
otherwise required by law, shall have voting rights and powers equal to the
voting rights and powers of the Common Stock. Each holder of Series A Preferred
Stock shall be entitled to notice of any shareholders' meeting in accordance
with the bylaws of the Corporation and shall vote together with (and not as a
separate class from) holders of the Common Stock upon all other matters
submitted to a vote of shareholders. Fractional votes shall not, however, be
permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares of Common Stock into which shares of Series A
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half rounded upward to one).
5. CONVERSION.
The holders of the Series A Preferred Stock have conversion rights as
follows (the "Conversion Rights"):
5.1 Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, in accordance with
the Conversion Table set forth in Section 5.2 hereof, at the office of the
Corporation or any transfer agent for the Series A Preferred Stock into a number
of shares of Common Stock equal to the quotient of (a) the product of the number
of shares of Series A Preferred Stock being converted multiplied by $100 divided
by (b) the then-applicable Conversion Price. The Conversion Price shall equal
the lesser of: (i) 80% of the average Closing Price (as defined below) for the
five trading days ending on the day the Company actually receives a Conversion
Notice (as defined in Section 5.3 hereof), or (ii) 110% of the Closing Price on
the closing date of the sale of the Series A Preferred Stock. As used herein,
the term "Closing Price" means the closing bid price of the Corporation's Common
Stock on The Nasdaq SmallCap Market or such other exchange on which the
Corporation's Common Stock is then listed on the trading day for which such
closing bid price is being determined, as reported by Nasdaq or a reputable
financial reporting service. Upon conversion, all declared and unpaid dividends
on the Series A Preferred Stock shall be paid, to the extent funds are legally
available therefor, either in cash or in shares of Common Stock of the
Corporation, at the election of the Corporation, wherein the shares of Common
Stock shall be valued at the Closing Price on the day the Corporation actually
receives a Conversion Notice.
-2-
<PAGE> 3
5.2 Conversion Table. The Series A Preferred Stock shall be
convertible into shares of Common Stock according to the following conversion
table (the "Conversion Table"): (i) the first one-half at any time on or after
the effective date (the "Registration Effective Date") plus 30 days of a
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of shares of the Corporation's Common Stock issuable upon
conversion of the Corporation's 5% convertible debentures (the "Debentures")
issued on September 22, 1997, and (ii) the second one-half at any time on or
after the Registration Effective Date plus 60 days. Notwithstanding the
foregoing, the Series A Preferred Stock shall not be convertible into shares of
Common Stock under any circumstances until the later of (x) 150 days after the
closing date of the sale of the Debentures pursuant to that certain 5%
Convertible Debenture Purchase Agreement dated as of September 19, 1997 among
the Corporation and certain investors or (y) 30 days after the Registration
Effective Date.
5.3 Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled (after
aggregating all shares of Series A Preferred Stock held by such holder such that
the maximum number of whole shares of Common Stock is issued to such holder upon
conversion), the Corporation shall pay cash equal to such fraction multiplied by
the Closing Price on the day the Corporation actually receives a Conversion
Notice. Before any holder of Series A Preferred Stock shall be entitled to
convert the same into full shares of Common Stock and to receive certificates
therefor, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice ("Conversion Notice") to
the Corporation at such office (the Conversion Notice shall be given by either
physical delivery or facsimile to the Corporation at (404) 237-3060, Attn:
President, with a copy to (404) 365-9532, Attn: Oby T. Brewer III, (or at such
other numbers as may be identified by written notice to the holders of Series A
Preferred Stock) and if by facsimile, physical delivery must follow within three
(3) business days after the date of facsimile transmission at such address as
may be identified by written notice to the holders of Series A Preferred Stock)
that it elects to convert the same; provided, however, that the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such automatic conversion unless the certificates evidencing
such shares of Series A Preferred Stock are either delivered to the Corporation
or its transfer agent as provided above, or the holder notifies the Corporation
or its transfer agent that such certificates have been lost, stolen or destroyed
and executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
The Corporation shall, as soon as practicable after such delivery, or
after such agreement and indemnification, cause its transfer agent to issue and
deliver at such office to such holder of Series A Preferred Stock, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid and a check payable to the holder in the amount
of any cash amounts payable as the result of a conversion into fractional shares
of Common Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the day the Corporation actually receives a
Conversion Notice, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion
-3-
<PAGE> 4
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date.
5.4 Adjustments of Conversion Price for Diluting Issues.
(a) Adjustments for Subdivisions, Combinations or Consolidations of
Common Stock. In the event the outstanding shares of Common Stock shall be
subdivided (by stock split, stock dividend or otherwise), into a greater number
of shares of Common Stock, the Conversion Price then in effect shall,
concurrently with the effectiveness of such subdivision, be proportionately
decreased. In the event the outstanding shares of Common Stock shall be combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, the Conversion Price then in effect shall, concurrently
with the effectiveness of such combination or consolidation, be proportionately
increased.
(b) Adjustments for Other Distributions. In the event the Corporation
at any time or from time to time makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive, any distribution
payable in securities of the Corporation other than shares of Common Stock and
other than as otherwise adjusted in this Section 5, (and provision is not made
for payment of such distribution to holders of the Series A Preferred Stock on
an as-converted basis) then and in each such event provision shall be made so
that the holders of Series A Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Corporation which they would have
received had their shares of Series A Preferred Stock been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the date of conversion, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section 5 with
respect to the rights of the holders of the Series A Preferred Stock.
(c) Adjustments for Reclassification, Exchange and Substitution. If
the Common Stock issuable upon conversion of the Series A Preferred Stock shall
be changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision, combination or consolidation of shares
provided for above), the Conversion Price then in effect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted such that the Series A Preferred Stock shall be
convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of such shares of Series A Preferred Stock immediately before that
change.
5.5. No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of
-4-
<PAGE> 5
this Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
6. REDEMPTION
6.1 Optional Redemption. Notwithstanding any other provision hereof to
the contrary, the Corporation shall have the right to call for redemption all or
any part of the outstanding Series A Preferred Stock, at any time or from time
to time, including after receipt of a Conversion Notice, prior to the issuance
shares of Common Stock upon conversion of the Series A Preferred Stock. The
redemption price (the "Redemption Price") for each share of Series A Preferred
Stock redeemed pursuant to this Section 6 shall be equal to (a) the sum of $100
per share, plus all accrued but unpaid dividends thereon up to and including the
Redemption Date (as defined below), multiplied by (b) one hundred twenty-five
(125%) percent. The Redemption Price shall be payable in cash within ten (10)
business days following the date the Corporation initiates the delivery of a
Redemption Notice (as defined below) to the holders of Series A Preferred Stock.
6.2 Equitable Adjustment. The Redemption Price set forth in this
Section 6 shall be subject to equitable adjustment whenever there shall occur a
stock split, stock dividend, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the Corporation's
securities.
6.3 Redemption Notice. In the event the Corporation elects to exercise
its optional redemption rights pursuant to Section 6.1 hereof, the Corporation
shall give written notice by facsimile, registered or certified U. S. Mail, or
reputable overnight courier (hereinafter referred to as the "Redemption Notice")
to each holder of record of the Series A Preferred Stock, at its address shown
on the records of the Corporation, not less than five (5) days prior to the
redemption date stated therein. The Redemption Notice shall contain (i) the
number of shares of Series A Preferred Stock held by the holder being redeemed
by the Corporation, (ii) the applicable Redemption Price, and (iii) the
effective date of the redemption (the "Redemption Date").
6.4 Surrender of Certificates. On or before the Redemption Date, each
holder of shares of Series A Preferred Stock to be redeemed shall surrender the
certificate(s) representing such shares to the Corporation at its principal
place of business, and, on the Redemption Date, the Redemption Price for such
shares as set forth in this Section 6 shall be paid in readily available funds
to, or to the order of, the person whose name appears on such certificate(s) and
each surrendered certificate shall be cancelled and retired.
6.5 Dividends after Redemption. From and after the Redemption Date, no
shares of Series A Preferred Stock subject to redemption shall be entitled to
any further dividends and all rights of the holders of such shares shall cease
with respect to such shares subject to payment of the Redemption Price for such
shares.
-5-
<PAGE> 6
7. NO REISSUANCE OF SERIES A PREFERRED STOCK.
No share or shares of Series A Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion, or otherwise shall be
reissued as Series A Preferred Stock having the designations set forth herein;
provided, however, that all such shares shall be eligible for reissuance as
preferred stock having such designations, rights, preferences, qualifications,
limitations and restrictions as the Board of Directors of the Corporation may
determine from time to time.
8. RESIDUAL RIGHTS.
All rights accruing to the outstanding shares of the Corporation not
expressly provided for to the contrary herein shall be vested with the Common
Stock.
This Certificate of Designation of stock was duly adopted on December
19, 1997 by the Board of Directors prior to the issuance of shares of Series A
Preferred Stock. Shareholder action was not required.
[SIGNATURE ON NEXT PAGE]
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be executed by its duly authorized officer as of the 19th day of
December, 1997.
HOMECOM COMMUNICATIONS, INC.
By:
---------------------------------
Harvey W. Sax, President
-7-
<PAGE> 1
EXHIBIT 10.26
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of
acceptance set forth below, is entered into by and between HOMECOM
COMMUNICATIONS, INC., a Delaware corporation, with headquarters located at 3575
Peachtree Road, Building 14, Suite 100, Atlanta, GA 30305 (the "Company"), and
the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded, inter alia, by Rule 506 under Regulation
D ("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act"), and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and
subject to the conditions of this Agreement, shares of the Series A Convertible
Preferred Stock, par value $0.01 per share (the "Convertible Preferred Stock"),
of the Company which which will be convertible into shares of Common Stock,
$0.0001 par value per share of the Company (the "Common Stock"), upon the terms
and subject to the conditions of the such Convertible Preferred Stock, together
with the Warrants (as defined below) exercisable for the purchase of shares of
Common Stock (the "Warrant Shares"), and subject to acceptance of this Agreement
by the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
A. PURCHASE; CERTAIN DEFINITIONS. (i) The undersigned hereby
agrees to purchase from the Company shares of the Convertible Preferred Stock in
the amount set forth on the signature page of this Agreement (the "Preferred
Stock"), out of a total offering of $2,000,000 of such Convertible Preferred
Stock, and having the terms and conditions set forth in the Certificate of
Designation, Rights, Preferences, Qualifications, Limitations and Restrictions
of the Company attached hereto as ANNEX I (the "Certificate of Designations").
Without limiting the terms provided in the Certificate of Designations, the
Convertible Preferred Stock shall provide that of any outstanding shares of such
Convertible Preferred Stock shall automatically convert into Common Stock on the
second anniversary of the Closing Date (the "Maturity Date") on the terms
provided in the Certificate of Designations for a voluntary conversion (a
1
<PAGE> 2
"Mandatory Conversion") The purchase price for the Preferred Stock shall be as
set forth on the signature page hereto (the "Purchase Price") and shall be
payable in United States Dollars.
(ii) As used herein, the term "Preferred Stock" means the
Preferred Stock, together with all shares, if any, of the securities of the
Company issued as dividends thereon, unless the context otherwise requires.
(iii) As used herein, the term "Securities" means the
Preferred Stock, the Warrants and the Common Stock issuable upon conversion of
the Preferred Stock or the exercise of the Warrants.
B. FORM OF PAYMENT. The Buyer shall pay the Purchase Price
(less, with the consent of the Company, an amount not to exceed, with respect to
such Buyer, (i) $25,000, multiplied by (ii) a fraction (the "Buyer Fraction"),
of which the numerator is the Purchase Price for the Preferred Stock being
purchased by such Buyer and the denominator is $2,000,000) by delivering
immediately available good funds in United States Dollars to the escrow agent
(the "Escrow Agent") identified in the Joint Escrow Instructions attached hereto
as ANNEX II (the "Joint Escrow Instructions"). No later than the Closing Date
(as defined below), but in any event promptly following payment by the Buyer to
the Escrow Agent of such amount of the Purchase Price, the Company shall deliver
the Preferred Stock duly executed on behalf of the Company to the Escrow Agent
or such party designated in writing by the Escrow Agent. By signing this
Agreement, each of the Buyer and the Company, subject to acceptance by the
Escrow Agent, agrees to all of the terms and conditions of, and becomes a party
to, the Joint Escrow Instructions, all of the provisions of which are
incorporated herein by this reference as if set forth in full.
C. METHOD OF PAYMENT. Payment into escrow on account of the
Purchase Price shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No.: -
The Buyer represents and warrants that, on or before the date of the Buyer's
execution of this Agreement, the Buyer has deposited the Purchase Price (subject
to adjustment as contemplated by Section 1(b) hereof, with the Escrow Agent.
2
<PAGE> 3
D. ESCROW PROPERTY. Funds deposited on account of the Purchase
Price and certificates representing the Preferred Stock delivered to the Escrow
Agent as contemplated by Sections 1(b) and (c) hereof are referred to as the
"Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
A. Without limiting the Buyer's right to sell the Common Stock
pursuant to the Registration Statement (as that term is defined in the
Registration Rights Agreement defined below), the Buyer is purchasing the
Preferred Stock and the Warrants and will be acquiring the shares of Common
Stock issuable upon conversion of the Preferred Stock (the "Converted Shares")
and the Warrant Shares for its own account for investment only and not with a
view towards the public sale or distribution thereof and not with a view to or
for sale in connection with any distribution thereof.
B. The Buyer is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3), (ii) experienced in making investments of the kind
described in this Agreement and the related documents, (iii) able, by reason of
the business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its investment
in the Securities.
C. All subsequent offers and sales of the Preferred Stock and
the shares of Common Stock representing the Converted Shares and the Warrant
Shares (such Common Stock sometimes referred to as the "Shares") by the Buyer
shall be made pursuant to registration of the Shares under the 1933 Act or
pursuant to an exemption from registration.
D. The Buyer understands that the Preferred Stock is being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Buyer's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Preferred Stock.
E. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Preferred Stock and
the offer of the Shares which have been requested by the Buyer, including ANNEX
V hereto. The Buyer and its advisors, if any, have been afforded the
3
<PAGE> 4
opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries. Without limiting the generality of
the foregoing, the Buyer has obtained and reviewed the Company's (1)
Registration Statement on Form S-1, filed with the SEC on September 18, 1996, as
amended on November 1, 1996, March 19, 1997, April 15, 1997 and April 29, 1997,
(2) Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1997,
June 30, 1997 and September 30, 1997, and (3) Current Report on Form 8-K, dated
October 9, 1997 (the "Company's SEC Documents").
F. The Buyer understands that its investment in the Securities
involves a high degree of risk.
G. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities.
H. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Buyer and is a valid and binding
agreement of the Buyer enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
I. Notwithstanding the provisions hereof or of the Preferred
Stock, in no event (except (i) with respect to a Mandatory Conversion or (ii) if
the Company is in default under any provision of the Certificate of Designations
or of any of the Transaction Agreements, as defined below) shall the holder be
entitled to convert any Preferred Stock to the extent that, after such
conversion, the sum of (1) the number of shares of Common Stock beneficially
owned by the Buyer and its affiliates (other than shares of Common Stock which
may be deemed beneficially owned through the ownership of the unconverted
portion of the Preferred Stock), and (2) the number of shares of Common Stock
issuable upon the conversion of the Preferred Stock with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Buyer and its affiliates of more than 4.99% of the outstanding
shares of Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
except as otherwise provided in clause (1) of such proviso.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
A. CONCERNING THE PREFERRED STOCK AND THE SHARES. The
Preferred Stock has been duly authorized, and when issued, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such
4
<PAGE> 5
holder. There are no preemptive rights of any stockholder of the Company, as
such, to acquire the Preferred Stock, the Warrants or the Shares.
B. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or condition (financial or otherwise) of the Company. The Company has registered
its Common Stock pursuant to Section 12 of the 1934 Act, and the Common Stock is
listed and traded on The NASDAQ/SmallCap Market. The Company has received no
notice, either oral or written, with respect to the continued eligibility of the
Common Stock for such listing, and the Company has maintained all requirements
for the continuation of such listing; provided, however, that the Buyer
acknowledges that the Company, prior to the date hereof, is not in compliance
with the continuation requirements of The NASDAQ/SmallCap Market which were
adopted in August 1997 and will be applicable to the Company commencing in
February 1998.
C. AUTHORIZED SHARES. The Company has sufficient authorized
and unissued Shares as may be reasonably necessary to effect the conversion of
the Preferred Stock and to issue the Warrant Shares. The Converted Shares and
the Warrant Shares have been duly authorized and, when issued upon conversion
of, or as interest on, the Preferred Stock or upon exercise of the Warrants,
each in accordance with its respective terms, will be duly and validly issued,
fully paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such holder.
D. SECURITIES PURCHASE AGREEMENT; REGISTRATION RIGHTS
AGREEMENT AND STOCK. This Agreement and the Registration Rights Agreement, the
form of which is attached hereto as ANNEX IV (the "Registration Rights
Agreement"), and the transactions contemplated thereby, have been duly and
validly authorized by the Company, this Agreement has been duly executed and
delivered by the Company and this Agreement is, and the Warrants and the
Registration Rights Agreement, when executed and delivered by the Company, will
be, valid and binding agreements of the Company enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium, and other similar laws
affecting the enforcement of creditors' rights generally; and the Preferred
Stock will be duly and validly authorized and, when executed and delivered on
behalf of the Company in accordance with this Agreement, will be a valid and
binding obligation of the Company in accordance with its terms, subject to
general principles of equity and to bankruptcy, insolvency, moratorium, or other
similar laws affecting the enforcement of creditors' rights generally.
5
<PAGE> 6
E. NON-CONTRAVENTION. Except as provided in ANNEX V hereto,
the execution and delivery of this Agreement and the Registration Rights
Agreement by the Company, the issuance of the Securities, and the consummation
by the Company of the other transactions contemplated by this Agreement, the
Registration Rights Agreement, and the Preferred Stock do not and will not
conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under (i) the articles of incorporation
or by-laws of the Company, each as currently in effect, (ii) any indenture,
mortgage, deed of trust, or other material agreement or instrument to which the
Company is a party or by which it or any of its properties or assets are bound,
including any listing agreement for the Common Stock except as herein set forth,
(iii) to its knowledge, any existing applicable law, rule, or regulation or any
applicable decree, judgment, or order of any court, United States federal or
state regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, or (iv) the
Company's listing agreement for its Common Stock, except such conflict, breach
or default which would not have a material adverse effect on the Company or on
the transactions contemplated herein.
F. APPROVALS. Except as provided in ANNEX V hereto, no
authorization, approval or consent of any court, governmental body, regulatory
agency, self-regulatory organization, or stock exchange or market or the
Stockholders of the Company is required to be obtained by the Company for the
issuance and sale of the Securities to the Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained.
G. SEC FILINGS. None of the Company's SEC Documents contained,
at the time they were filed, any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements made therein in light of the circumstances under which they were
made, not misleading. Except as set forth on ANNEX V hereto, the Company has
since October 1, 1996 timely filed all requisite forms, reports and exhibits
thereto with the SEC.
H. ABSENCE OF CERTAIN CHANGES. Since September 30, 1997, there
has been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or otherwise), or results
of operations of the Company, except as disclosed in ANNEX V or in the Company's
SEC Documents. Since September 30, 1997, except as provided in the Company's SEC
Documents, the Company has not (i) incurred or become subject to any material
liabilities (absolute or contingent) except liabilities incurred in the ordinary
course of business consistent with past practices; (ii) discharged or satisfied
any material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) suffered
any substantial losses (other than losses from operations for the last
6
<PAGE> 7
quarter of calendar year 1997) or waived any rights of material value, whether
or not in the ordinary course of business, or suffered the loss of any material
amount of existing business; (vi) made any changes in employee compensation,
except in the ordinary course of business consistent with past practices; or
(vii) experienced any material problems with labor or management in connection
with the terms and conditions of their employment.
I. FULL DISCLOSURE. There is no fact known to the Company
(other than general economic conditions known to the public generally or as
disclosed in the Company's SEC Documents), that has not been disclosed in
writing to the Buyer that (i) would reasonably be expected to have a material
adverse effect on the business or financial condition of the Company or (ii)
would reasonably be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement or any of the
agreements contemplated hereby (collectively, including this Agreement, the
"Transaction Agreements").
J. ABSENCE OF LITIGATION. Except as set forth in ANNEX V
hereto, and in the Company's SEC Documents, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body pending or, to the knowledge of the Company, threatened against or
affecting the Company, wherein an unfavorable decision, ruling or finding would
have a material adverse effect on the properties, business or financial
condition, or results of operation of the Company and its subsidiaries taken as
a whole or the transactions contemplated by any of the Transaction Agreements or
which would adversely affect the validity or enforceability of, or the authority
or ability of the Company to perform its obligations under, any of the
Transaction Agreements.
K. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in ANNEX
V hereto and Section 3(e) hereof, no Event of Default (or its equivalent term),
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 (or its equivalent term) (as so defined in such
agreement), has occurred and is continuing, which would have a material adverse
effect on the Company's financial condition or results of operations.
L. PRIOR ISSUES. Except as set forth in ANNEX V, during the
twelve (12) months preceding the date hereof, the Company has not issued any
convertible securities.
M. NO UNDISCLOSED LIABILITIES OR EVENTS. Except as set forth
in ANNEX V hereto, the Company has no liabilities or obligations other than
those disclosed in the Company's SEC Documents or those incurred in the ordinary
course of the Company's business since September 30, 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), or
results of operations of the Company. No event or circumstances has occurred or
exists with respect to the Company or its properties, business, condition
(financial or otherwise), or results of operations, which, under applicable law,
rule or regulation, requires public disclosure or
7
<PAGE> 8
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed.
N. NO DEFAULT. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any material indenture, mortgage, deed of trust or other
material instrument or agreement to which it is a party or by which it or its
property is bound.
O. NO INTEGRATED OFFERING. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since October 1, 1996, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under Rule
506 of Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
P. DILUTION. The number of Shares issuable upon conversion of
the Preferred Stock and the exercise of the Warrants may increase substantially
in certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to the
conversion of the Preferred Stock. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The board
of directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Shares upon
conversion of the Preferred Stock and upon exercise of the Warrants is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the
Preferred Stock has not been and is not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other
8
<PAGE> 9
person is under any obligation to register the Securities (other than pursuant
to the Registration Rights Agreement) under the 1933 Act or to comply with the
terms and conditions of any exemption thereunder.
B. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that
the Preferred Stock and the Warrants, and, until such time as the Common Stock
has been registered under the 1933 Act as contemplated by the Registration
Rights Agreement and sold in accordance with an effective Registration
Statement, certificates and other instruments representing any of the Securities
shall bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF
COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.
C. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to
enter into the Registration Rights Agreement on or before the Closing Date.
D. FILINGS. The Company undertakes and agrees to make all
necessary filings in connection with the sale of the Preferred Stock to the
Buyer under any United States laws and regulations applicable to the Company, or
by any domestic securities exchange or trading market, and to provide a copy
thereof to the Buyer promptly after such filing.
E. REPORTING STATUS. So long as the Buyer beneficially owns
any of the Preferred Stock, the Company shall file all reports required to be
filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination. The Company will take all reasonable action under
its control to continue the listing and trading of its Common Stock on The
NASDAQ/SmallCap Market and will comply in all material respects with the
Company's reporting, filing and other obligations under the by-laws or rules of
the National Association of Securities Dealers, Inc. ("NASD") or The
NASDAQ/SmallCap Market.
F. USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Preferred Stock (excluding amounts paid by the Company for legal
fees, finder's fees and escrow fees in connection with the sale of the Preferred
Stock) for internal working capital purposes, and shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person.
9
<PAGE> 10
G. CERTAIN AGREEMENTS. (i) The Company covenants and agrees
that it will not, without the prior written consent of the Buyer, enter into any
subsequent or further offer or sale of Common Stock or securities convertible
into Common Stock (collectively, "New Common Stock") with any third party
pursuant to a transaction which in any manner permits the sale of the New Common
Stock on any date which is earlier than ninety (90) days after the Effective
Date (as defined below).
(ii) The provisions of subparagraph (g)(i) will not apply to
(x) the issuance of securities (other than for cash) in connection with an
acquisition, merger, consolidation, sale of assets, disposition, or (y) the
exchange of the capital stock for assets, stock or other joint venture
interests; provided, however, that any action contemplated under this
subparagraph (g)(ii) is subject to the condition that registration rights, if
any, in connection with such action shall not require the filing of a
Registration Statement in respect of such stock prior to sixty (60) days after
the Effective Date.
(iii) If and only if the Registration Statement is then
currently effective, the provisions of subparagraph (g)(i) will also not apply
to an underwritten public offering of shares of Common Stock, provided such
offering is made at at least the then market price of the shares of Common Stock
(subject to discounts to market customary for secondary underwritten offerings).
(iv) The term "Effective Date" means the effective date of
the Registration Statement covering the Registrable Securities.
H. AVAILABLE SHARES. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, shares of
Common Stock sufficient to yield one hundred fifty percent (150%) of the number
of shares of Common Stock issuable (i) at conversion as may be required to
satisfy the conversion rights of the Buyer pursuant to the terms and conditions
of the Preferred Stock (assuming for such purposes that all Preferred Stock is
currently eligible to be converted, whether or not such eligibility in fact
exists at any given time) and (ii) upon exercise as may be required to satisfy
the exercise rights of the Buyer pursuant to the terms and conditions of the
Warrants (assuming for such purposes that all Warrants are currently eligible to
be exercised, whether or not such eligibility in fact exists at any given time).
I. WARRANTS. (i) The Company agrees to issue to the Buyer on
or immediately after the Closing Date transferable warrants in the form annexed
hereto as ANNEX VI (the "Warrants"), for the purchase of the number of shares of
Common Stock equal to seventy-five thousand (75,000) multiplied by the Buyer
Fraction, together with registration rights as provided in the Registration
Rights Agreement. The Warrants shall bear an exercise price equal to a
percentage of the closing bid price of the Common Stock on the Closing Date in
accordance with the following schedule:
10
<PAGE> 11
<TABLE>
<CAPTION>
At Price (as Percentage of
Amount of Warrants Exercisable Closing Date Closing Bid Price)
------------------------------ --------------------------------
<C> <C>
625/750 of the shares of Common Stock covered by the Warrant 110%
125/750 of the shares of Common Stock covered by the Warrant 120%
</TABLE>
(ii) The Warrants shall be exercisable during the period
commencing six (6) months after the Closing Date and continuing through and
including the third anniversary of the Closing Date, and during such period
shall be exercisable in whole or in part at any time or from time to time.
(iii) The Warrants may not be transferred except as
contemplated by Section 5 hereof.
(iv) The Buyer acknowledges that the Warrants provide that,
under certain circumstances specified therein, the holder of Warrant Shares may
be restricted from transferring such Warrant Shares.
J. CERTAIN PROVISIONS REGARDING REDEMPTION OF PREFERRED STOCK.
Anything in the Certificate of Designations or elsewhere in the Transaction
Agreements to the contrary notwithstanding, the Company agrees that in the event
the Company gives a Redemption Notice as provided in Section 6 of the
Certificate of Designations, but does not timely pay the Redemption Price to the
Buyer as provided in Section 6.1 of the Certificate of Designations, (i) the
Company shall pay to the holder of such Preferred Stock as liquidated damages an
amount equal to two and one-half percent (2.5%) of the liquidation amount of
such Preferred Stock, (ii) the Redemption Notice shall be deemed null and void
ab initio, (iii) the Company may not issue another Redemption Notice for a
period of sixty (60) days from the last date the Redemption Price was due, (iv)
in the sole and absolute discretion of the holder of the Preferred Stock, any
Conversion Notice issued prior to the Redemption Notice shall be honored in
accordance with its terms or deemed withdrawn, and (v) the holder of the
Preferred Stock will retain all rights to issue a Conversion Notice, subject to
the right of the Company to issue a Redemption Notice after the expiration of
the period referred to in the preceding clause (iii) of this paragraph.
K. HEDGING TRANSACTIONS. Prior to the time that the Buyer has
converted at least sixty percent (60%) of the Preferred Stock originally
acquired by the Buyer hereby, the Buyer shall not, directly or indirectly,
engage in any short or other hedging transaction, such as option writing, equity
swaps or other types of derivative transactions 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 1934 Act.
5. TRANSFER AGENT INSTRUCTIONS.
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<PAGE> 12
a. Promptly following the Closing Date, the Company will
irrevocably instruct its transfer agent to issue Common Stock from time to time
upon conversion of the Preferred Stock in such amounts as specified from time to
time by the Company to the transfer agent, bearing the restrictive legend
specified in Section 4(b) of this Agreement prior to registration of the Shares
under the 1933 Act, registered in the name of the Buyer or its nominee and in
such denominations to be specified by the Buyer in connection with each
conversion of the Preferred Stock. The Company warrants that no instruction
other than such instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 4(a) hereof prior to registration and
sale of the Shares under the 1933 Act will be given by the Company to the
transfer agent and that the Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement, and applicable law. Nothing in
this Section shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities. If the
Buyer provides the Company with an opinion of counsel, which counsel and which
opinion shall be reasonably satisfactory to the Company and its counsel, that
registration of a resale by the Buyer of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not required under the
1933 Act and that such shares may be transferred to the transferee free of
resale restrictions, the Company shall (except as provided in clause (2) of
Section 4(a) of this Agreement) permit the transfer of the Securities and, in
the case of the Converted Shares or the Warrant Shares, as the case may be,
promptly instruct the Company's transfer agent to issue one or more certificates
for Common Stock without legend in such name and in such denominations as
specified by the Buyer.
b. (i) The Company will permit the Buyer to exercise its
right to convert the Preferred Stock by telecopying an executed and completed
Notice of Conversion to the Company at (404) 237-3060, Attn: President, with a
copy telecopied to the Company's counsel at (404) 365-9532, Attn: Oby T. Brewer,
III, Esq. (or such other telecopier numbers or addressees as may be identified
by notice from the Company to the Buyer in the manner contemplated by Section 11
hereof) and by delivering within three (3) business days thereafter, the
original Notice of Conversion and the certificates representing the Preferred
Stock being converted, with duly accompanied stock power executed by the Buyer
with signature thereon acknowledged by a Medallion Guaranty, to the Company by
express courier, with a copy to the transfer agent.
(ii) The term "Conversion Date" means, with respect to any
conversion elected by the holder of the Preferred Stock, the date specified in
the Notice of Conversion, provided the copy of the Notice of Conversion is
telecopied to or otherwise delivered to the Company in accordance with the
provisions hereof so that is received by the Company on or before such specified
date and the original Notice of Conversion and accompanying certificates of the
converted Preferred Stock, duly endorsed as contemplated by the immediately
preceding subparagraph (i), are received by the Company within the three (3)
business days referred to in said subparagraph (i). If any of the foregoing
conditions is not met, the Conversion Date shall be the first business day
following actual receipt by the Company of the Notice of Conversion. The
Conversion Date for the Mandatory Conversion shall be the Maturity Date.
12
<PAGE> 13
(iii) the Company will transmit (or cause it transfer
agent to transmit) the certificates representing the Converted Shares issuable
upon conversion of any Preferred Stock (together with certificates representing
the Preferred Stock not being so converted) to the Buyer via express courier, by
electronic transfer or otherwise, within three (3) business days after receipt
by the Company of the original Notice of Conversion and the certificate
representing the Preferred Stock being converted (the "Delivery Date").
(iv) Anything herein to the contrary notwithstanding, the
Buyer specifically acknowledges that the right to convert the Preferred Stock
may be limited by the provisions of Section 5.2 of the Certificate of
Designations, which Section provides for certain restrictions on the time when
such conversions can be effected.
c. The Company understands that a delay in the issuance of the
shares of Common Stock beyond the Delivery Date could result in economic loss to
the Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer for late issuance of Shares upon Conversion in
accordance with the following schedule (where "Number of Business Days Late" is
defined as the number of business days beyond five (5) business days from
Delivery Date:
<TABLE>
<CAPTION>
Late Payment For Each $10,000
Number of of Preferred Stock Liquidation
Business Days Late Amount Being Converted
------------------ -------------------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
</TABLE>
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Buyer's right to
pursue actual damages for the Company's failure to issue and deliver the Common
Stock to the Buyer. Furthermore, in addition to any other remedies which may be
available to the Buyer, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock within five
13
<PAGE> 14
(5) business days after the Delivery Date, the Buyer will be entitled to revoke
the relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and the Buyer shall each be restored to their
respective positions immediately prior to delivery of such Notice of Conversion.
d. If, by the relevant Delivery Date, the Company fails for
any reason to deliver the Shares to be issued upon conversion of the Preferred
Stock and after such Delivery Date, the holder of the Preferred Stock being
converted (a "Converting Holder") purchases, in an open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Converting Holder not
in material violation of the terms of this Agreement (the "Sold Shares"), which
delivery such Converting Holder anticipated to make using the Shares to be
issued upon such conversion (a "Buy-In"), the Company shall pay to the
Converting Holder, in addition to all other amounts contemplated in other
provisions of the Transaction Agreements, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall pay the
Buy-In Adjustment Amount to the Company in immediately available funds
immediately upon demand by the Converting Holder. By way of illustration and not
in limitation of the foregoing, if the Converting Holder purchases shares of
Common Stock having a total purchase price (including brokerage commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.
e. In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Company's transfer agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of the Buyer and its compliance with
the provisions contained in this paragraph, so long as the certificates therefor
do not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
6. DELIVERY INSTRUCTIONS.
The Preferred Stock shall be delivered by the Company to the
Escrow Agent pursuant to Section 1(b) hereof, on a delivery against payment
basis, no later than on the Closing Date.
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<PAGE> 15
7. CLOSING DATE.
(i) The closing of the issuance and sale of the Preferred
Stock shall occur on the date (the "Closing Date") which is the first NYSE
trading day after
(x) the Escrow Agent advises the Company and the Buyer in writing that
the Escrow Agent or its authorized designee, as the case may be, has
received (1) the Purchase Price (subject to adjustment as provided in
Section 1(b) hereof), (2) each of this Agreement and the Registration
Rights Agreement executed by the Company, (3) this Agreement executed
by the Buyer, and (4) the Preferred Stock as provided in Section 1(c)
hereof; and
(y) the fulfillment or waiver of all other closing conditions
pursuant to Sections 8 and 9 hereof
or such other date and time as is mutually agreed upon in writing by the Company
and the Buyer, but in no event later than December 31, 1997.
(ii) The closing of the purchase and issuance of Preferred
Stock shall occur on the Closing Date at the offices of the Escrow Agent and
shall take place no later than 12:00 Noon, New York time, on such day or such
other time as is mutually agreed upon by the Company and the Buyer.
(iii) Notwithstanding anything to the contrary contained
herein, the Escrow Agent will be authorized to release the Escrow Property only
upon satisfaction of the conditions set forth in Sections 8 and 9 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell
the Preferred Stock to the Buyer pursuant to this Agreement on the Closing Date
is conditioned upon:
A. The execution and delivery of this Agreement by the Buyer;
B. Delivery by or the Buyer to the Escrow Agent of good
funds as payment in full of the Purchase Price (adjusted as contemplated by
Section 1(b) hereof) in accordance with this Agreement;
C. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement, as if made on such date,
and the performance by the Buyer on or before such date of all covenants and
agreements of the Buyer required to be performed on or before such date;
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<PAGE> 16
D. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained; and
E. The completion and execution of an Investor Questionnaire,
substantially in the form of ANNEX VII annexed hereto, by the Buyer and the
delivery thereof to the Company.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to
purchase the Preferred Stock on the Closing Date is conditioned upon:
A. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company;
B. Delivery by the Company to the Escrow Agent of the
Preferred Stock in accordance with this Agreement;
C. The accuracy in all material respects on the Closing Date
of the representations and warranties of the Company contained in this
Agreement. as if made on such date, and the performance by the Company on or
before such date of all covenants and agreements of the Company required to be
performed on or before such date;
D. The Registration Rights Agreement shall be in full force
and effect on the Closing Date and the Company shall not be in default
thereunder; and
E. On or before the Closing Date, the Buyer or the Escrow
Agent shall have received an opinion of counsel for the Company, dated the
Closing Date, in form, scope and substance reasonably satisfactory to the Buyer,
substantially to the effect set forth in ANNEX III attached hereto.
10. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City 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.
b. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
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<PAGE> 17
c. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original.
d. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. Terms used in the singular case shall be deemed to refer to the
plural case and terms used in the plural case shall be deemed to refer to the
singular case, unless the context otherwise requires. Terms used in the
masculine, feminine or neuter gender shall be deemed to refer to any other
gender, unless the context otherwise requires.
e. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction. f. This
Agreement may be amended only by an instrument in writing signed by the party to
be charged with enforcement thereof.
g. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
11. NOTICES. Except as and to the extent otherwise specified
herein (such as with respect to the giving of a Notice of Conversion), any
notice which shall be required or permitted hereunder shall be given in writing
and shall be deemed effectively given on the earliest of
(i) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile
transmission,
(ii) the seventh business day after deposit, postage prepaid,
in the United States Postal Service by registered or certified
mail, or
(iii) the third business day after mailing by recognized
international express courier, with delivery costs and fees
prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: HOMECOM COMMUNICATIONS, INC.
3535 Peachtree Road
Building 14, Suite 100
Atlanta, GA 30305
ATTN: Harvey W. Sax
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<PAGE> 18
Telecopier No.: (404) 237- 3060
Telephone No.: (404) 237 - 4646
with a copy to:
Morris, Manning & Martin
3343 Peachtree Road, N.E.
Suite 1600
Atlanta, GA 30326
ATTN: Oby T. Brewer, III, Esq.
Telecopier No.: (404) 365 - 9532
Telephone No.: (404) 233 - 7000
BUYER: At the address set forth on the signature page
of this Agreement.
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
Telephone No.: (212) 689-3322
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
Company's and the Buyer's representations and warranties herein shall survive
the execution and delivery of this Agreement and the delivery of the Preferred
Stock and the Purchase Price, and shall inure to the benefit of the Buyer and
the Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE> 19
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyer or one of its officers thereunto duly authorized as of the date set
forth below.
NUMBER OF SHARES OF PREFERRED STOCK TO BE PURCHASED:
AGGREGATE PURCHASE PRICE OF SUCH PREFERRED STOCK: $
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this ________ day of
___________________, 1997.
- ---------------------------------- -----------------------------------
Address Printed Name of Subscriber
- ----------------------------------
By:
--------------------------------
Telecopier No. (Signature of Authorized Person)
--------------------
-----------------------------------
Printed Name and Title
- ----------------------------------
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
HOMECOM COMMUNICATIONS, INC.
By:
------------------------------
Title:
------------------------------
Date:
------------------------------
<PAGE> 20
ANNEX I AMENDMENT TO/EXCERPT FROM CERTIFICATE OF
INCORPORATION or CERTIFICATE OF DESIGNATIONS
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI FORM OF WARRANT
ANNEX VII FORM OF INVESTOR QUESTIONNAIRE
<PAGE> 21
ANNEX V
TO
SECURITIES PURCHASE AGREEMENT
COMPANY DISCLOSURE
[TO BE SUPPLIED]
<PAGE> 1
EXHIBIT 10.27
ANNEX IV
TO
SECURITIES PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 23,
1997 (this "Agreement"), is made by and between HOMECOM COMMUNICATIONS, INC., a
Delaware corporation (the "Company"), and the entity named on the signature page
hereto (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of December 23, 1997, between the
Initial Investor and the Company (the "Securities Purchase Agreement";
capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Securities Purchase Agreement), the Company has agreed to issue
and sell to the Initial Investor 15,000 shares of Series A Convertible Preferred
Stock, par value $0.01per share of the Company, in an aggregate purchase price
(the "Purchase Price") of $1,500,000 (the "Preferred Stock," which term, as used
herein shall have the meaning ascribed to it in the Securities Purchase
Agreement); and
WHEREAS, the Company has agreed to issue the Warrants to the
Initial Investor in connection with the issuance of the Preferred Stock; and
WHEREAS, the Preferred Stock is convertible into shares of
Common Stock (the "Conversion Shares") upon the terms and subject to the
conditions contained in the Certificate of Designations and the Warrants may be
exercised for the purchase of shares of Common Stock (the "Warrant Shares") upon
the terms and conditions of the Warrants; and
WHEREAS, to induce the Initial Investor to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares and the Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
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<PAGE> 2
1. DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
(a) "Investor" means the Initial Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(b) "Potential Material Event" means any of the following: (i)
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 (ii) 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.
(c) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(d) "Registrable Securities" means the Conversion Shares and
the Warrant Shares.
(e) "Registration Statement" means a registration statement of
the Company under the Securities Act.
2. REGISTRATION.
(A) MANDATORY REGISTRATION. The Company shall prepare and file
with the SEC, as soon as possible after the Closing Date, but in no event later
than January 31, 1998 (the actual date of filing or January 31, 1998, whichever
is earlier, being referred to herein as the "Filing Date"), either a
Registration Statement on Form S-1 or Form SB-2 (the form which is filed, the
"Registration Statement") registering for resale by the Investor a sufficient
number of shares of Common Stock for the Initial Investors to sell the
Registrable Securities (but in no event less than two hundred percent (200%) of
the aggregate number of shares (i) into which the Preferred Stock would be
convertible at the time of filing of the Registration Statement [assuming for
such purposes that all Preferred Stock had been eligible to be converted, and
had been converted, into Conversion Shares in accordance with their terms,
whether or not such
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<PAGE> 3
eligibility or conversion had in fact occurred as of such date] and (ii) which
would be issued upon exercise of all of the Warrants at the time of filing of
the Registration Statement [assuming for such purposes that all Warrants had
been eligible to be exercised and had been exercised in accordance with their
terms, whether or not such eligibility or exercise had in fact occurred as of
such date]). Such Registration Statement or amended Registration Statement shall
also state that, in accordance with Rule 416 and 457 under the Securities Act,
it also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of the Preferred Stock and the exercise of
the Warrants resulting from adjustment in the Conversion Price or the Warrant
exercise price, as the case may be, or to prevent dilution resulting from stock
splits, or stock dividends. The Company will use its reasonable best efforts to
cause such Registration Statement to be declared effective no later than ninety
(90) days after the Filing Date. If at any time the number of shares of Common
Stock into which the Preferred Stock may be converted and which would be issued
upon exercise of the Warrants exceeds the aggregate number of shares of Common
Stock then registered, the Company shall, within ten (10) business days after
receipt of a written notice from any Investor, either (i) amend the Registration
Statement filed by the Company pursuant to the preceding sentence, if such
Registration Statement has not been declared effective by the SEC at that time,
to register all shares of Common Stock into which the Preferred Stock may
currently or in the future be converted and which would be issued currently or
in the future upon exercise of the Warrants, or (ii) if such Registration
Statement has been declared effective by the SEC at that time, file with the SEC
an additional Registration Statement to register the shares of Common Stock into
which the Preferred Stock may currently or in the future be converted and which
would be issued currently or in the future upon exercise of the Warrants that
exceed the aggregate number of shares of Common Stock already registered.
(B) PAYMENTS BY THE COMPANY.
(i) If the Registration Statement covering the
Registrable Securities is not effective by March 31, 1998 (the "Required
Effective Date"), then the Company will make payments to the Initial Investor in
such amounts and at such times as shall be determined pursuant to this Section
2(b).
(ii) The amount (the "Periodic Amount") to be paid by the
Company to the Initial Investor shall be determined as of each Computation Date
(as defined below) and such amount shall be equal to (A) two percent (2%) of the
Purchase Price for the period from the date following the Required Effective
Date to the first relevant Computation Date, and (B) two percent (2%) of the
Purchase Price to each Computation Date thereafter; provided, however, that if
the period in which the final Computation Date occurs (the "Final Period") is
less than thirty (30) days, the Periodic Amount for such Final Period shall be
equal to two percent (2%) of the Purchase Price, multiplied by a fraction, of
which
(x) the numerator is the number of trading days NASDAQ was open for
business for the period from and including the day following the
later of the Required
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<PAGE> 4
Effective Date or the immediately preceding Computation Date
through and including the final day of the Final Period, and
(y) the denominator is the sum of (1) the numerator determined by clause
(x), plus (2) the number of trading days on which NASDAQ is scheduled
to be opened during the period from and including the day following
the last day of the Final Period though and including the thirtieth
day following the later of the Required Effective Date or the
Computation Date immediately preceding the Final Period.
(iii) Each Periodic Amount will be payable to the Investor by the
Company upon demand of the Investor and shall be payable (w) in cash or other
immediately available funds or, (x) after the Effective Date and provided the
Registration Statement is then still effective, at the election of the Company,
in Common Stock equal in value to the Periodic Amount then payable to the
Investor (the "Payment in Stock Option"). For purposes of the Payment in Stock
Option, (y) the "value" of each share of Common Stock referred to in the
immediately preceding sentence shall be equal to the closing bid price of the
Common Stock on the third trading day immediately preceding the date of the
issue of the Common Stock issued in connection therewith and (z) the Common
Stock so issued shall be covered by the Registration Statement or otherwise
freely tradeable without restriction.
(iv) The parties acknowledge that the damages which may be
incurred by the Investor if the Registration Statement has not been declared
effective by the Required Registration Date may be difficult to ascertain. The
parties agree that the Periodic Amount represent a reasonable estimate on the
part of the parties, as of the date of this Agreement, of the amount of such
damages and the sole and exclusive remedy of the Investor with respect to such
default by the Company.
(v) Notwithstanding the foregoing, the amounts payable by the
Company pursuant to this provision shall not be payable to the extent any delay
in the effectiveness of the Registration Statement occurs because of an act of,
or a failure to act or to act timely by the Initial Investor or its counsel, or
in the event all of the Registrable Securities may be sold pursuant to Rule 144
or another available exemption under the Act.
(vi) "Computation Date" means (i) the date which is the earlier
of (A) thirty (30) days after the Required Effective Date, or (B) the date after
the Required Effective Date on which the Registration Statement is declared
effective, and (ii) each date which is the earlier of (A) thirty (30) days after
the previous Computation Date or (B) the date after the previous Computation
Date on which the Registration Statement is declared effective.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the
Registrable Securities, the Company shall do each of the following.
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<PAGE> 5
(a) Prepare promptly, and file with the SEC by January 31, 1998, a
Registration Statement with respect to not less than the number of Registrable
Securities provided in Section 2(a) above, and thereafter use its reasonable
best efforts to cause each Registration Statement relating to Registrable
Securities to become effective by the Required Effective Date and keep the
Registration Statement effective at all times until the earliest (the
"Registration Period") of (i) the date that is two (2) years after the Closing
Date, (ii) the date when the Investors may sell all Registrable Securities under
Rule 144 or (iii) the date the Investors no longer own any of the Registrable
Securities, which Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration effective at all times during the Registration Period, and,
during the Registration Period, comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities of the Company
covered by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the Registration
Statement;
(c) The Company shall permit a single firm of counsel designated by the
Initial Investors to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time (but not less than three (3)
business days) prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects.
(d) Furnish to each Investor whose Registrable Securities are included in
the Registration Statement and its legal counsel identified to the Company, (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the 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, in light of the circumstances under which they were made,
not misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue
5
<PAGE> 6
statement or omission, and deliver a number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the SEC
of a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(g) Notwithstanding the foregoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies the Investors in writing of the existence of a Potential Material
Event, the Investors shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until such Investor receives 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 Registrable Securities
for more than two twenty (20) day periods in the aggregate during any 12-month
period ("Suspension 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;
(h) Use its reasonable efforts to secure designation of all the Registrable
Securities covered by the Registration Statement on The NASDAQ SmallCap Market
and the quotation of the Registrable Securities on The NASDAQ SmallCap Market;
or if, despite the Company's reasonable efforts to satisfy the preceding clause,
the Company is unsuccessful in doing so, to secure NASDAQ/OTC Bulletin Board
authorization and quotation for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities;
(i) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(j) Cooperate with the Investors who hold Registrable Securities (or,
subject to receipt by the Company of appropriate notice and documentation, as
may be required by the Securities Purchase Agreement, the Certificate of
Designations, the Warrants or this Agreement, securities convertible into
Registrable Securities) being offered to facilitate the timely preparation and
delivery of certificates for the Registrable Securities sold pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investors may reasonably request, and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities
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<PAGE> 7
(with copies to the Investors whose Registrable Securities or securities
convertible into Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel with respect
to the Registrable Securities sold pursuant thereto; Provided, however, that
nothing in this subparagraph (j) shall be deemed to waive any of the provisions
regarding the conditions or method of conversion of Preferred Stock or exercise
of Warrants into Registrable Securities; and
(k) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of the Registrable Securities
held by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) days prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
such Investor (the "Requested Information") if such Investor elects to have any
of such Investor's Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor;
(b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e) or 3(f),
above, such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
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<PAGE> 8
5. EXPENSES OF REGISTRATION. All reasonable expenses (other than
underwriting discounts and commissions of the Investor and legal fees of counsel
to the Investor) incurred in connection with registrations, filings or
qualifications pursuant to Section 3, including, without limitation, all
registration, listing, and qualifications fees, printers and accounting fees,
the fees and disbursements of counsel for the Company, shall be borne by the
Company.
6. INDEMNIFICATION. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (each, an
"Indemnified Person" or "Indemnified Party"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to clause (b) of this Section 6, the Company shall reimburse the Investors,
promptly as such expenses are incurred and are due and payable, for any legal
fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a) shall not (I) apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; (II) be available to the extent such Claim is based on a failure of the
Investor to deliver or cause to be delivered the prospectus made available by
the Company; or
8
<PAGE> 9
(III) apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld. Each Investor will indemnify the Company and its
officers, directors and agents against any claims arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company, by or on behalf of such Investor, expressly
for use in connection with the preparation of the Registration Statement,
subject to such limitations and conditions as are applicable to the
Indemnification provided by the Company to this Section 6. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be. In case any
such action is brought against any Indemnified Person or 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 Person or Indemnified Party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such Indemnified Person or Indemnified Party under this Section 6 for
any legal or other reasonable out-of-pocket expenses subsequently incurred by
such Indemnified Person or Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation, unless the indemnifying
party shall not pursue the action of its final conclusion. The Indemnified
Person or 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
reasonable out-of-pocket 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 Person or
Indemnified Party. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum
9
<PAGE> 10
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(a) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation; and (c) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) 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; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any portion of any Preferred Stock of the Company which is
convertible into such securities) permitted or allowable by the terms of the
Securities Purchase Agreement only if: (a) the Investor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment, (b)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, and (d) at or before the time the Company received the written notice
contemplated by clause (b) of this sentence the transferee or assignee agrees in
writing with or in favor of the Company to be bound by all of the provisions
contained herein, a copy of which shall be provided to the Company. The copies
referred to in
10
<PAGE> 11
clauses (a) and (d) of the immediately preceding sentence may be redacted to
delete certain financial and other details of the transaction between the
Investor and the transferee if the same is included in the document to be
provided to the Company. In the event of any delay in filing or effectiveness of
the Registration Statement as a result of such assignment, the Company shall not
be liable for any damages arising from such delay, or the payments set forth in
Section 2(c) hereof.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold an eighty (80%) percent
interest of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the
Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given when personally delivered (by hand,
by courier, by telephone line facsimile transmission, receipt confirmed, or
other means) or sent by certified mail, return receipt requested, properly
addressed and with proper postage pre-paid (i) if to the Company, HOMECOM
COMMUNICATIONS, INC., 8535 Peachtree Road, Building 14, Suite 100, Atlanta GA
30305, ATTN: President, Telecopier No.: (404) 237 - 3060; with a copy to Morris,
Manning & Martin, LLP, 3343 Peachtree Road, N.E., Suite 1600, Atlanta, GA 30326,
ATTN: Oby T. Brewer, III, Esq., Telecopier No.: (404) 365 - 9532; (ii) if to the
Initial Investor, at the address set forth under its name in the Securities
Purchase Agreement, with a copy to Samuel Krieger, Esq., Krieger & Prager, 319
Fifth Avenue, Third Floor, New York, NY 10016, Telecopier No.: (212) 213-2077;
and (iii) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b), and shall be
effective, when personally delivered, upon receipt and, when so sent by
registered or certified mail, four (4) calendar days after deposit with the
United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
11
<PAGE> 12
(d) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Delaware for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City 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
coveniens, to the bringing of any such proceeding in such jurisdictions.
(e) If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(j) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3(a) hereof, or any delay in such performance could
result in loss to the Investors, and the Company agrees that, in addition to any
other liability the Company may have by reason of such failure or delay, the
Company shall be liable for all direct damages caused by any such failure or
delay, unless the same is the result of force majeure. Neither party shall be
liable for consequential damages.
(k) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
HOMECOM COMMUNICATIONS, INC.
By:
-----------------------------------
Name:
Title:
--------------------------------------
By:
-----------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.28
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
HOMECOM COMMUNICATIONS, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions.
In consideration of good and valuable consideration, the receipt of which
is hereby acknowledged by HOMECOM COMMUNICATIONS, INC., a New York corporation
(the "Company"), SOVEREIGN PARTNERS, LP or registered assigns (the "Holder") is
hereby granted the right to purchase at any time during the period commencing
June 23, 1998 and continuing through and including 5:00 P.M., New York City
time, on December 31, 2000 (the "Expiration Date"), Eighteen Thousand Seven
Hundred Fifty (18,750) fully paid and nonassessable shares of the Company's
Common Stock, par value $0.0001 per share (the "Common Stock") at an initial
exercise price per share (the "Exercise Price") specified in the schedule below
subject to further adjustment as set forth in Section 6 hereof:
(a) Warrants for 15,625 shares of Common Stock shares at $14.50625 per
share; and
(b) Warrants for 3,125 shares of Common Stock shares at $15.825 per
share.
2. Exercise of Warrants. This Warrant is exercisable in whole or in part at
the Exercise Price per share of Common Stock payable hereunder, payable in cash
or by certified or official bank check. Upon surrender of this Warrant
Certificate with the annexed Notice of Exercise Form duly executed, together
with payment of the Exercise Price for the shares of Common Stock purchased, the
Holder shall be entitled to receive a certificate or certificates for the shares
of Common Stock so purchased.
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant
<PAGE> 2
such number of shares of its Common Stock as shall be required for issuance upon
exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) receipt of reasonably
satisfactory indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the Exercise Price is
required pursuant to this Section 6, the Holder shall be entitled to purchase
such number of additional shares of Common Stock as will cause (i) the total
number of shares of Common Stock Holder is entitled to purchase pursuant to this
Warrant, multiplied by (ii) the adjusted purchase price per share, to equal
(iii) the dollar amount of the total number of shares of Common Stock Holder is
entitled to purchase before adjustment multiplied by the total purchase price
before adjustment.
6.2 Capital Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the Common Stock, recapitalization,
merger or consolidation, or like capital adjustment affecting the Common Stock
of the Company, the provisions of this Section 6 shall be applied as if such
capital adjustment event had occurred immediately prior to the date of this
Warrant and the original purchase price had been fairly allocated to the stock
resulting from such capital adjustment; and in other respects the provisions of
this Section shall be applied in a fair, equitable and reasonable manner so as
to give effect, as nearly as may be, to the purposes hereof. A rights offering
to stockholders shall be deemed a stock dividend to the extent of the bargain
purchase element of the rights.
6.3 Adjustment for Spin Off. If, for any reason, prior to the exercise
of this Warrant in full, the Company spins off or otherwise divests itself of a
part of its business or operations or disposes all or of a part of its assets in
a transaction (the "Spin Off") in which the Company does not receive
compensation for such business, operations or assets, but causes securities of
another entity (the "Spin Off Securities") to be issued to security holders of
the Company, then
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<PAGE> 3
(a) the Company shall cause (i) to be reserved Spin Off Securities
equal to the number thereof which would have been issued to the Holder had
all of the Holder's unexercised Warrants outstanding on the record date
(the "Record Date") for determining the amount and number of Spin Off
Securities to be issued to security holders of the Company (the
"Outstanding Warrants") been exercised as of the close of business on the
trading day immediately before the Record Date (the "Reserved Spin Off
Shares"), and (ii) to be issued to the Holder on the exercise of all or
any of the Outstanding Warrants, such amount of the Reserved Spin Off
Shares equal to (x) the Reserved Spin Off Shares multiplied by (y) a
fraction, of which (I) the numerator is the amount of the Outstanding
Warrants then being exercised, and (II) the denominator is the amount of
the Outstanding Warrants; and
(b) the Exercise Price on the Outstanding Warrants shall be adjusted
immediately after consummation of the Spin Off by multiplying the Exercise
Price by a fraction (if, but only if, such fraction is less than 1.0), the
numerator of which is the average Market Price of the Common Stock (as
defined in the Securities Purchase Agreement, dated December 23, 1997,
between the Company and the Holder or the Holder's predecessor in interest
with respect to this Warrant) on the five (5) trading days immediately
following the fifth trading day after the Record Date, and the denominator
of which is the average Market Price of the Common Stock on the five (5)
trading days immediately preceding the Record Date; and such adjusted
Exercise Price shall be deemed to be the Exercise Price with respect to
the Outstanding Warrants after the Record Date.
7. Transfer to Comply with the Securities Act; Registration Rights.
(a) This Warrant has not been registered under the Securities Act of
1933, as amended, (the "Act") and has been issued to the Holder for investment
and not with a view to the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares or any other security
issued or issuable upon exercise of this Warrant may be sold, transferred,
pledged or hypothecated in the absence of an effective registration statement
under the Act relating to such security or an opinion of counsel satisfactory to
the Company that registration is not required under the Act. Each certificate
for the Warrant, the Warrant Shares and any other security issued or issuable
upon exercise of this Warrant shall contain a legend on the face thereof, in
form and substance satisfactory to counsel for the Company, setting forth the
restrictions on transfer contained in this Section.
(b) The Company agrees to file a registration statement, which shall
include the Warrant Shares, on Form S-1 or Form SB-2 or another available form
(the "Registration Statement"), pursuant to the Act, no later than January 31,
1998 and to have the registration of the Warrant Shares completed and effective
by the earlier of (a) five (5) days after notice from the Securities and
Exchange Commission that the Registration Statement may be declared effective or
(b) March 31, 1998.
3
<PAGE> 4
(c) The Holder of this Warrant acknowledges that the Company issued 20,000
shares of Series A Convertible Preferred Stock (the "Preferred Stock") in
December 1997, the terms of which give the Company the right to redeem the
Preferred Stock. The Holder hereby agrees, notwithstanding anything herein to
the contrary, that, if and only if
(i) the Company redeems more than fifty percent (50%) of the Preferred
Stock within a period of thirty (30) days (a "Preferred Redemption"), and
(ii) Common Stock or other securities of the Company convertible into
Common Stock are contemporaneously with or subsequent to such redemption
offered for sale in a public, underwritten offering and the underwriter
thereof so requests,
then, during a period (the "Restrictive Period"), not to exceed one hundred
eighty (180) days, following the effective date of the first such redemption
which is part of the Preferred Redemption, the Holder will not sell or otherwise
transfer or dispose of any shares of Common Stock issuable upon exercise of this
Warrant; provided, however, that this provision shall not restrict the Holder's
right to exercise this Warrant for the purchase of Common Stock during the
Restrictive Period. The Holder of this Warrant understands that the Company may
impose stop-transfer instructions with respect to the Common Stock subject to
the restrictions of the immediately preceding sentence until the end of the
Restrictive Period.
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
HOMECOM COMMUNICATIONS, INC.
3535 Peachtree Road
Building 14, Suite 100
Atlanta, GA 30305
ATTN: President
Telecopier No.: (404) 237 - 3060
Telephone No.: (404) 237 - 4646
with a copy to:
Morris, Manning & Martin
3343 Peachtree Road, N.E.
Suite 1600
4
<PAGE> 5
Atlanta, GA 30326
ATTN: Oby T. Brewer, III, Esq.
Telecopier No.: (404) 365 - 9532
Telephone No.: (404) 233 - 7000
(ii) if to the Holder, to:
SOVEREIGN PARTNERS, LP c/o Thomson Kernaghan & Co., Ltd.
365 Bay St.
Toronto, Ontario, Canada M5H 2V2
ATTN: Mark Valentine
Telecopier No.: (416) 367 - 8055
Telephone No.: (416) -
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
Telephone No.: (212) 689-3322
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant may be
amended or supplemented only by an instrument in writing signed by the parties
hereto. This Warrant contains the full understanding of the parties hereto with
respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
11. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
[Balance of page intentionally left blank]
5
<PAGE> 6
12. Descriptive Headings. Descriptive headings of the several Sections of
this Warrant are inserted for convenience only and shall not control or affect
the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
23rd day of December, 1997.
HOMECOM COMMUNICATIONS, INC.
By:
-----------------------------------
Name:
Its:
Attest:
- ------------------------
Name:
Title:
6
<PAGE> 7
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of , 1997, to purchase shares of
the Common Stock, par value $0.0001 per share, of HOMECOM COMMUNICATIONS, INC.
and tenders herewith payment in accordance with Section 1 of said Common Stock
Purchase Warrant.
Please deliver the stock certificate to:
Dated:
-------------------------------
By:
----------------------------------
[ ] CAASH: $
------------------------
<PAGE> 1
EXHIBIT 10.29
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
HOMECOM COMMUNICATIONS, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions.
In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by HOMECOM COMMUNICATIONS, INC., a New
York corporation (the "Company"), DOMINION CAPITAL FUND, LTD. or registered
assigns (the "Holder") is hereby granted the right to purchase at any time
during the period commencing June 23, 1998 and continuing through and including
5:00 P.M., New York City time, on December 31, 2000 (the "Expiration Date"),
Fifty-Six Thousand Two Hundred Fifty (56,250) fully paid and nonassessable
shares of the Company=s Common Stock, par value $0.0001 per share (the "Common
Stock") at an initial exercise price per share (the "Exercise Price") specified
in the schedule below subject to further adjustment as set forth in Section 6
hereof:
(a) Warrants for 46,875 shares of Common Stock shares at $14.50625 per
share; and
(b) Warrants for 9,375 shares of Common Stock shares at $15.825 per
share.
2. Exercise of Warrants. This Warrant is exercisable in whole
or in part at the Exercise Price per share of Common Stock payable hereunder,
payable in cash or by certified or official bank check. Upon surrender of this
Warrant Certificate with the annexed Notice of Exercise Form duly executed,
together with payment of the Exercise Price for the shares of Common Stock
purchased, the Holder shall be entitled to receive a certificate or certificates
for the shares of Common Stock so purchased.
3. Reservation of Shares. The Company hereby agrees that at
all times during the term of this Warrant there shall be reserved for issuance
upon exercise of this Warrant such number of shares of its Common Stock as shall
be required for issuance upon exercise of this Warrant (the "Warrant Shares").
<PAGE> 2
4. Mutilation or Loss of Warrant. Upon receipt by the Company
of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the Exercise
Price is required pursuant to this Section 6, the Holder shall be entitled to
purchase such number of additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is entitled to purchase pursuant
to this Warrant, multiplied by (ii) the adjusted purchase price per share, to
equal (iii) the dollar amount of the total number of shares of Common Stock
Holder is entitled to purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2 Capital Adjustments. In case of any stock split or reverse
stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be deemed a stock dividend to
the extent of the bargain purchase element of the rights.
6.3 Adjustment for Spin Off. If, for any reason, prior to the
exercise of this Warrant in full, the Company spins off or otherwise divests
itself of a part of its business or operations or disposes all or of a part of
its assets in a transaction (the "Spin Off") in which the Company does not
receive compensation for such business, operations or assets, but causes
securities of another entity (the "Spin Off Securities") to be issued to
security holders of the Company, then
(a) the Company shall cause (i) to be reserved Spin Off
Securities equal to the number thereof which would have been issued to
the Holder had all of the Holder=s unexercised Warrants outstanding on
the record date (the "Record Date") for determining the amount and
number of Spin Off Securities to be issued to security holders of the
2
<PAGE> 3
Company (the "Outstanding Warrants") been exercised as of the close of
business on the trading day immediately before the Record Date (the
"Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the
exercise of all or any of the Outstanding Warrants, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (I) the numerator is the amount
of the Outstanding Warrants then being exercised, and (II) the
denominator is the amount of the Outstanding Warrants; and
(b) the Exercise Price on the Outstanding Warrants shall be
adjusted immediately after consummation of the Spin Off by multiplying
the Exercise Price by a fraction (if, but only if, such fraction is
less than 1.0), the numerator of which is the average Market Price of
the Common Stock (as defined in the Securities Purchase Agreement,
dated December 23, 1997, between the Company and the Holder or the
Holder's predecessor in interest with respect to this Warrant) on the
five (5) trading days immediately following the fifth trading day after
the Record Date, and the denominator of which is the average Market
Price of the Common Stock on the five (5) trading days immediately
preceding the Record Date; and such adjusted Exercise Price shall be
deemed to be the Exercise Price with respect to the Outstanding
Warrants after the Record Date.
7. Transfer to Comply with the Securities Act; Registration
Rights.
(a) This Warrant has not been registered under the Securities
Act of 1933, as amended, (the "Act") and has been issued to the Holder for
investment and not with a view to the distribution of either the Warrant or the
Warrant Shares. Neither this Warrant nor any of the Warrant Shares or any other
security issued or issuable upon exercise of this Warrant may be sold,
transferred, pledged or hypothecated in the absence of an effective registration
statement under the Act relating to such security or an opinion of counsel
satisfactory to the Company that registration is not required under the Act.
Each certificate for the Warrant, the Warrant Shares and any other security
issued or issuable upon exercise of this Warrant shall contain a legend on the
face thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this Section.
(b) The Company agrees to file a registration statement, which
shall include the Warrant Shares, on Form S-1 or Form SB-2 or another available
form (the "Registration Statement"), pursuant to the Act, no later than January
31, 1998 and to have the registration of the Warrant Shares completed and
effective by March 31, 1998.
(c) The Holder of this Warrant acknowledges that the Company
issued 20,000 shares of Series A Convertible Preferred Stock (the "Preferred
Stock") in December 1997, the terms of which give the Company the right to
redeem the Preferred Stock. The Holder hereby agrees, notwithstanding anything
herein to the contrary, that, if and only if
3
<PAGE> 4
(i) the Company redeems more than fifty percent (50%) of the Preferred
Stock within a period of thirty (30) days (a "Preferred Redemption"),
and
(ii) Common Stock or other securities of the Company convertible into
Common Stock are contemporaneously with or subsequent to such
redemption offered for sale in a public, underwritten offering (the
"Secondary Offering") and the underwriter thereof so requests,
then, during a period (the "Restrictive Period"), not to exceed one hundred
eighty (180) days, following the effective date of the registration statement
for the Secondary Offering, the Holder will not sell or otherwise transfer or
dispose of any shares of Common Stock issued or issuable upon exercise of this
Warrant; provided, however, that this provision shall not restrict the Holder=s
right to exercise this Warrant for the purchase of Common Stock during the
Restrictive Period and shall only be enforceable with respect to one Secondary
Offering. The Holder of this Warrant agrees (i) to execute and deliver for the
benefit of the underwriter of the Secondary Offering an agreement reflecting
substantially the terms of this Section 7(c), and (ii) that the Company may
impose stop-transfer instructions with respect to the Common Stock subject to
the restrictions of the immediately preceding sentence until the end of the
Restrictive Period.
8. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:
(i) if to the Company, to:
HOMECOM COMMUNICATIONS, INC.
3535 Peachtree Road
Building 14, Suite 100
Atlanta, GA 30305
ATTN: President
Telecopier No.: (404) 237 - 3060
Telephone No.: (404) 237 - 4646
with a copy to:
Morris, Manning & Martin
3343 Peachtree Road, N.E.
Suite 1600
Atlanta, GA 30326
ATTN: Oby T. Brewer, III, Esq.
4
<PAGE> 5
Telecopier No.: (404) 365 - 9532
Telephone No.: (404) 233 - 7000
(ii) if to the Holder, to:
DOMINION CAPITAL FUND, LTD.
c/o Thomson Kernaghan & Co., Ltd.
365 Bay St.
Toronto, Ontario, Canada M5H 2V2
ATTN: Mark Valentine
Telecopier No.: (416) 367 - 8055
Telephone No.: (416) 860 - 6130
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
Telephone No.: (212) 689-3322
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant
may be amended or supplemented only by an instrument in writing signed by the
parties hereto. This Warrant contains the full understanding of the parties
hereto with respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such State.
11. Counterparts. This Warrant may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
[Balance of page intentionally left blank]
5
<PAGE> 6
12. Descriptive Headings. Descriptive headings of the several
Sections of this Warrant are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the 23rd day of December, 1997.
HOMECOM COMMUNICATIONS, INC.
By:
-----------------------------------
Name:
Its:
Attest:
- ------------------------
Name:
Title:
6
<PAGE> 7
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of , 1997, to purchase shares of
the Common Stock, par value $0.0001 per share, of HOMECOM COMMUNICATIONS, INC.
and tenders herewith payment in accordance with Section 1 of said Common Stock
Purchase Warrant.
Please deliver the stock certificate to:
Dated:
-------------------------
By:
----------------------------------
[ ] CASH: $
-----------------------
<PAGE> 1
EXHIBIT 10.30
EXECUTION ORIGINAL
===============================================================
COMMON STOCK PURCHASE AGREEMENT
DATED JANUARY 23, 1998,
BY AND AMONG
INSURERATE, INC.,
HOMECOM COMMUNICATIONS, INC.,
JEROME R. CORSI
AND
HAMILTON DORSEY ALSTON COMPANY
===============================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I..................................................................... 1
PURCHASE, SALE AND TERMS OF COMMON SHARES..................................... 1
1.1. PURCHASE AND SALE........................................................ 1
1.2. PURCHASE PRICE AND CLOSING............................................... 1
1.3. REPRESENTATIONS BY THE PURCHASER......................................... 2
1.4. BROKERS OR FINDERS....................................................... 4
ARTICLE II.................................................................... 4
CONDITIONS TO THE PURCHASER'S OBLIGATIONS..................................... 4
2.1. REPRESENTATIONS AND WARRANTIES........................................... 4
2.2. DOCUMENTATION AT CLOSING................................................. 4
ARTICLE III................................................................... 5
REPRESENTATIONS AND WARRANTIES................................................ 5
OF THE COMPANY................................................................ 5
3.1. ORGANIZATION AND STANDING OF THE COMPANY................................. 5
3.2. CORPORATE ACTION......................................................... 6
3.3. SECURITIES ACT OF 1933................................................... 6
3.4. CAPITALIZATION; STATUS OF CAPITAL STOCK.................................. 6
3.5. NO BROKERS OR FINDERS.................................................... 7
ARTICLE IV.................................................................... 7
REPRESENTATIONS AND WARRANTIES OF HOMECOM..................................... 7
4.1. ORGANIZATION AND STANDING OF HOMECOM..................................... 7
4.2. CORPORATE ACTION......................................................... 7
4.3. OWNERSHIP OF COMPANY STOCK............................................... 8
4.4. BROKERS OF FINDERS....................................................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF CORSI............................ 8
5.1. AUTHORITY................................................................ 8
5.2. OWNERSHIP OF COMPANY STOCK............................................... 8
5.3. NO BROKERS OF FINDERS.................................................... 8
ARTICLE VI. DEFINITIONS....................................................... 8
6.1. CERTAIN DEFINED TERMS.................................................... 8
ARTICLE VII................................................................... 11
INDEMNIFICATION............................................................... 11
7.1. INDEMNIFICATION BY COMPANY............................................... 11
7.2. INDEMNIFICATION BY PURCHASER............................................. 11
7.3. INDEMNIFICATION PROCEDURE................................................ 11
7.4. INDEMNIFICATION LIMITATIONS.............................................. 12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VIII. MISCELLANEOUS................................................... 12
8.1. NO WAIVER; CUMULATIVE REMEDIES........................................... 12
8.2. ENTIRE AGREEMENT; AMENDMENTS............................................. 13
8.3. ADDRESSES FOR NOTICES.................................................... 13
8.4. BINDING EFFECT; ASSIGNMENT............................................... 14
8.5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES............................... 14
8.6. SEVERABILITY............................................................. 14
8.7. CONFIDENTIALITY.......................................................... 14
8.8. GOVERNING LAW............................................................ 15
8.9. HEADINGS................................................................. 15
8.10. COUNTERPARTS............................................................ 15
8.11. FURTHER ASSURANCES...................................................... 15
</TABLE>
Schedule 3.5 Balance Sheet
Schedule 3.7 Intellectual Property Matters
Exhibit 2.2(e) Shareholders' Agreement
Exhibit 2.2(f) Services Agreement
Exhibit 2.2(g) Warrant
ii
<PAGE> 4
COMMON STOCK PURCHASE AGREEMENT
As of January 23, 1998
To the Hamilton Dorsey Alston Company (the "Purchaser")
Re: Acquisition of Stock of InsureRate, Inc.
Gentlemen:
InsureRate Inc., a Georgia corporation (the "Company"), agrees with you as to
the purchase and sale of A certain number of shares of the Company's Common
Stock, pursuant to the terms and conditions set forth in this Common Stock
Purchase Agreement ("Agreement"). Certain capitalized terms used in this
Agreement shall have the meanings assigned to them in Article V hereof.
ARTICLE I.
PURCHASE, SALE AND TERMS OF COMMON SHARES
1.1. Purchase and Sale.
The Company has authorized the issuance, sale and exchange of 33,333.33
shares of Common Stock (the "Common Shares") of its authorized but unissued
shares of Common Stock, $ .01 par value (the "Common Stock"), at a purchase
price of $ 3.00 per share to the Purchaser, for an aggregate purchase price of
$100,000.00. The Common Shares shall be purchased by the Purchaser as of the
date hereof.
1.2. Purchase Price and Closing.
(a) At the Closing (as defined below), the Company will
deliver to the Purchaser a certificate for 33,333.33 Common Shares, representing
thirty-three and thirty-three one hundredths percent (33.33%) of the total
issued and outstanding shares of Common Stock, registered in the Purchaser's
name (or its nominee), against immediately available funds delivered by
Purchaser to Company.
(b) The Closing of the purchase, sale and exchange of the
Common Shares to be acquired by a Purchaser from the Company under this
Agreement (the "Closing") shall take place on the date hereof at the offices of
Morris, Manning & Martin, L.L.P., 3343 Peachtree Road, N.E., 1600 Atlanta
Financial Center, Atlanta, Georgia 30326, or at such time and date thereafter as
the Purchaser and the Company may agree.
(c) At the Closing, and in addition to the delivery by the
Company to the Purchaser of a certificate for 33,333 Common Shares as set forth
in paragraph (a) of this Section, (i) HomeCom Communications, Inc., a Georgia
corporation ("HomeCom"), shall surrender its
<PAGE> 5
certificate(s) representing all of the issued and outstanding shares of the
Company for which HomeCom is the owner of record, and shall receive from the
Company therefor a certificate for 56,666.67 shares of its Common Stock,
representing fifty-six and sixty-seven one hundredths percent (56.67%) of the
total issued and outstanding shares of Common Stock, registered in HomeCom's
name (or its nominee), and (ii) Jerome R. Corsi, an individual resident of the
State of New Jersey ("Corsi"), shall surrender his certificate(s) representing
all of the issued and outstanding shares of the Company for which Corsi is the
owner of record, and shall receive from the Company therefor a certificate for
10,000 shares of its Common Stock, representing ten percent (10%) of the total
issued and outstanding shares of the Common Stock, registered in Corsi's name
(or its nominee).
1.3. Representations by the Purchaser.
(a) Organization and Standing of the Purchaser. The Purchaser
is a duly organized and validly existing corporation in good standing under the
laws of the State of Georgia and has all requisite corporate power and authority
for the ownership and operation of its properties and for the carrying on of its
business as now conducted and as now proposed to be conducted and to execute and
deliver this Agreement and the Other Agreements, and to perform its other
obligations pursuant hereto and thereto.
(b) Corporate Action. This Agreement and the Other Agreements
have been duly authorized, executed and delivered by the Purchaser and the
officers of the Purchaser, respectively, and constitute the legal, valid and
binding obligations of the Purchaser, enforceable against the Purchaser in
accordance with their respective terms.
(c) Investment Representations. The Purchaser represents that
it is its present intention to acquire the Common Shares to be acquired by it
hereunder for its own account (and it will be the sole beneficial owner thereof)
and that the Common Shares are being and will be acquired by it for the purpose
of investment and not with a view to distribution or resale thereof, except
pursuant to registration under the Securities Act or exemption therefrom. The
acquisition by the Purchaser of the Common Shares acquired by it shall
constitute a confirmation of this representation by the Purchaser. The Purchaser
further represents that it understands and agrees that, until registered under
the Securities Act or transferred pursuant to the provisions of Rule 144 or Rule
144A as promulgated by the Commission, all certificates evidencing any of the
Common Shares, whether upon initial issuance or upon any transfer thereof, shall
bear a legend, prominently stamped or printed thereon, reading substantially as
follows:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or applicable state securities laws. These securities
have been acquired for investment and not with a view to
distribution or resale. These securities may not be offered
for sale, sold, delivered after sale, transferred, pledged or
hypothecated in the absence of an effective registration
statement covering such Common Shares under the Act and any
applicable state securities
2
<PAGE> 6
laws, or the availability, in the opinion of counsel, of an
exemption from registration thereunder."
(d) Access to Information. The Purchaser or its representative
during the course of this transaction, and prior to the purchase of any Common
Shares, has had the opportunity to ask questions of and receive answers from
management of the Company concerning the terms and conditions of the offering of
the Common Shares and the additional information, documents, records and books
relative to the business, assets, financial condition, results of operations and
liabilities (contingent or otherwise) of the Company.
(e) General Access. The Purchaser or its representative has
received and read or reviewed, and is familiar with, this Agreement and the
other agreements executed or delivered herewith, including the terms of the
Common Stock, and confirms that all documents, records and books pertaining to
the Purchaser's investment in the Company and requested by the Purchaser or its
representative have been made available or delivered to it.
(f) Sophistication and Knowledge. The Purchaser or its
representative has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the purchase of
the Common Shares. The Purchaser can bear the economic risks of this investment
and can afford a complete loss of its investment.
(g) Transfer Restrictions Imposed by Securities Laws. The
Purchaser understands that: (i) the Common Shares have not been registered under
the Securities Act or applicable state securities laws, and, therefore, cannot
be resold unless they are subsequently registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration
is available; and (ii) the Purchaser is and must be purchasing the Common Shares
for investment for the account of the Purchaser only, and not for the account or
benefit of others nor with any present view toward resale or other distribution
thereof. The Purchaser agrees (A) not to resell or otherwise dispose of all or
any part of the Common Shares purchased by it, except as permitted by law,
including, without limitation, any regulations under the Securities Act and
applicable state securities laws; (B) that the Company does not have any present
intention and is under no obligation to register the Common Shares under the
Securities Act and applicable state securities laws, except as provided in
Article IV hereof; and (C) that Rule 144 or Rule 144A under the Securities Act
may not be available as a basis for exemption from registration of the Common
Shares thereunder.
(h) Lack of Liquidity. The Purchaser has no present need for
liquidity in connection with its purchase of the Common Shares.
(i) Accredited Investor Status. The Purchaser is an
"Accredited Investor" as that term is defined in Rule 501 of Regulation D
promulgated under the Securities Act.
1.4. No Brokers or Finders. The Purchaser represents that no Person has
or will have, as a result of the transactions contemplated by this Agreement,
any right, interest or valid claim against or upon the Company for any
commission, fee or other compensation as a finder or broker because of any act
or omission by the Purchaser or its respective agents.
3
<PAGE> 7
ARTICLE II.
CONDITIONS TO THE PURCHASER'S OBLIGATIONS
The obligation of the Purchaser to purchase and pay for the Common
Shares to be purchased by it at the Closing is subject to the following
conditions:
2.1. Representations and Warranties. Each of the representations and
warranties of (a) the Company set forth in Article III hereof, (b) HomeCom, set
forth in Article IV hereof, and (c) Corsi, set forth in Article V hereof shall
be true, accurate and correct on the hereof.
2.2. Documentation at Closing. The Purchaser shall have received prior
to or at the Closing all of the following materials, each in form and substance
satisfactory to the Purchaser and their counsel, and each of the following
events shall have occurred, or each of the following documents shall have been
delivered prior to or simultaneously with the Closing:
(a) A copy of the Articles of Incorporation of the Company, as
amended or restated to date, together with such evidence as may be available of
the filing thereof; a copy of the resolutions of the Board of Directors of the
Company providing for the approval of the approval of this Agreement, the
issuance of the Common Shares, and all other agreements or matters contemplated
hereby or executed in connection herewith; and a copy of the By-laws of the
Company, all of which have been certified by the Secretary of the Company to be
true, complete and correct in every particular; and certified copies of all
documents evidencing other necessary corporate or other action and governmental
approvals, if any, required to be obtained at or prior to the Closing with
respect to this Agreement and the issuance of the Common Shares.
(b) A certificate of the Secretary or an Assistant Secretary
of the Company which shall certify the names of the officers of the Company
authorized to sign this Agreement, the certificates for the Common Shares and
the other documents, instruments or certificates to be delivered pursuant to
this Agreement by the Company, any of its officers, together with the true
signatures of such officers. A Certificate of the Secretary of State of the
State of Georgia as to the due incorporation and good standing of the Company
shall have been provided to the Purchaser.
(d) All corporate and other action and governmental filings
necessary to effectuate the terms of this Agreement, the Common Shares and the
Other Agreements shall have been made or taken.
(e) A fully-executed copy of that certain Shareholders'
Agreement dated of even date herewith, by and among HomeCom, the Company and the
Purchaser, in substantially the form attached hereto as Exhibit 2.2(e).
(f) A fully-executed copy of that certain Web Hosting Services
Agreement dated of even date herewith, by and between the Company and the
Purchaser, in substantially the form attached hereto as Exhibit 2.2(f).
4
<PAGE> 8
Additionally, HomeCom shall have delivered to the Purchaser a
warrant for the purchase of 25,000 shares of the unregistered common stock of
HomeCom (the "Warrant"), substantially in the form attached hereto as Exhibit
2.2(g).
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants, as of the date hereof, as follows:
3.1. Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the State of Georgia and has all requisite corporate power and authority for the
ownership and operation of its properties and for the carrying on of its
business as now conducted and as now proposed to be conducted and to execute and
deliver this Agreement and the Other Agreements, to issue, sell and deliver the
Common Shares and to perform its other obligations pursuant hereto and thereto.
The Company is duly licensed or qualified and in good standing as a foreign
corporation authorized to do business in all jurisdictions wherein the character
of the property owned or leased or the nature of the activities conducted by it
makes such licensing or qualification necessary, except where the failure to be
so licensed or qualified would not have a material adverse effect on the
business, operations or financial condition of the Company. The Company has
delivered to the Purchaser true, correct and complete copies of its Certificate
of Incorporation and By-laws or other governing documents, as currently in
effect, and has made available to the Purchaser for its review all of the
Company's minute books and stock records, and such stock records are correct and
complete, and accurately reflect the stock ownership of the Company's capital
stock.
3.2. Corporate Action. This Agreement and the Other Agreements have
been duly authorized, executed and delivered by the Company and the officers of
the Company, respectively, and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms. The Common Shares have been duly authorized. The
issuance, sale and delivery of the Common Shares have been duly authorized by
all required corporation action; the Common Shares have been validly issued, are
fully paid and nonassessable, with no personal liability attaching to the
ownership thereof, and are free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company, except as set forth
in this Agreement.
3.3. Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Common Shares hereunder. Neither the Company nor
anyone acting on its behalf has or will sell, offer to sell or solicit offers to
buy the Common Shares or similar securities to, or solicit offers with respect
thereto from, or enter into any preliminary conversations or negotiations
relating thereto with, any Person, so as to bring the issuance and sale of the
Common Shares under the registration provisions of the Securities Act and
applicable state securities laws.
5
<PAGE> 9
3.4. Capitalization; Status of Capital Stock. Immediately prior to the
Closing, the Company shall have a total authorized capitalization consisting of
1,000,000 shares of Common Stock, $ .01 par value, with 100,000 shares of Common
Stock issued and outstanding, as follows: (i) 85,000 shares of Common Stock
issued to HomeCom; and (ii) 15,000 shares of Common Stock issued to Corsi. As of
the Closing, the Company will have a total authorized capitalization consisting
of 1,000,000 shares of Common Stock, $ .01 par value, with 100,000 shares of
Common Stock issued and outstanding, as follows: (i) 56,666.67 shares of Common
Stock will be issued to HomeCom; (ii) 10,000 shares of Common Stock will be
issued to Corsi; and (iii) 33,333.33 shares of Common Stock (the Common Shares)
will be issued to the Purchaser. Such Common Stock, when issued and delivered in
accordance with the terms hereof, will be duly authorized, validly issued,
fully-paid and non-assessable. None of the Common Shares acquired by Purchaser
hereunder have been issued in violation of any preemptive or subscription
rights, and the company is not a party to any contract, agreement, arrangement,
commitment, plan or understanding restricting or otherwise relating to the
voting, dividend, ownership or transfer rights of any of the Common Shares.
3.5. Balance Sheet. Attached hereto as Schedule 3.5 is a true and
correct copy of the Company's balance sheet (the "Balance Sheet") dated as of
January 22, 1998 (the "Balance Sheet Date"). The Balance Sheet presents fairly
the financial position of the operations of the Company as of the Balance Sheet
Date.
3.6. Delivery of Materials. The Company hereby confirms that all
documents, records and books pertaining to the Purchaser's investment in the
Company and requested by the Purchaser or its representative have been made
available or delivered to the Purchaser.
3.7. Intellectual Property Matters. The Company has exclusive ownership
rights to its corporate name as a domestic corporation under the laws of the
State of Georgia. Attached hereto as Schedule 3.7 is a true and correct copy of
a Trademark Search Report dated November 20, 1997, prepared by Corsearch with
respect to marks "InsureRate" and "Insure Rate."
3.8. No Brokers or Finders.
The Company represents that no Person has or will have, as a result of
the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the other parties to this Agreement for any commission,
fee or other compensation as a finder or broker because of any act or omission
by the Company or its respective agents.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF HOMECOM
4.1. Organization and Standing of HomeCom.
HomeCom is a duly organized and validly existing corporation in good
standing under the laws of the State of Georgia and has all requisite corporate
power and authority for the ownership and operation of its properties and for
the carrying on of its business as now
6
<PAGE> 10
conducted and as now proposed to be conducted and to execute and deliver this
Agreement and the Other Agreements to which it is a party, and to perform its
other obligations pursuant hereto and thereto.
4.2. Corporate Action.
This Agreement and the Other Agreements to which HomeCom is a party
have been duly authorized, executed and delivered by HomeCom and the officers of
HomeCom, respectively, and constitute the legal, valid and binding obligations
HomeCom, enforceable against HomeCom in accordance with their respective terms.
4.3. Ownership of Company Stock.
Immediately prior to the Closing, HomeCom was the record owner of
85,000 shares of the Company's Common Stock, representing 85% of the Company's
total issued and outstanding Common Stock.
4.4. No Brokers or Finders.
HomeCom represents that no Person has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or valid claim
against or upon the Company for any commission, fee or other compensation as a
finder or broker because of any act or omission by HomeCom or its respective
agents.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF CORSI
5.1. Authority.
Corsi has all requisite execute and deliver this Agreement and the
Other Agreements to which it is a party, and to perform its other obligations
pursuant hereto and thereto. This Agreement and the Other Agreements to which
Corsi is a party have been duly authorized, executed and delivered by Corsi and
constitute the legal, valid and binding obligations of Corsi, enforceable
against Corsi in accordance with their respective terms.
5.2. Ownership of Company Stock.
Immediately prior to the Closing, Corsi was the record owner of 15,000
shares of the Company's Common Stock, representing 15% of the Company's total
issued and outstanding Common Stock.
5.3. No Brokers orFinders.
Corsi represents that no Person has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or valid claim
against or upon the Company
7
<PAGE> 11
for any commission, fee or other compensation as a finder or broker because of
any act or omission by Corsi or its respective agents.
ARTICLE VI.
DEFINITIONS
6.1. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Accredited Investor" shall have the meaning assigned to that term in
Rule 501 under the Securities Act.
"Affiliate" means (i) any Person, directly or indirectly, controlling,
controlled by or under common control with another Person; or (ii) any officer,
director, partner, or direct or indirect beneficial or legal owner of 10% or
greater equity or voting interest of such Person. "Control" of any Person shall
mean the right to direct the management or operations of such Person, whether by
voting rights, contract or otherwise.
"Agreement" means this Common Stock Purchase Agreement as from time to
time amended and in effect between the parties, including all Exhibits hereto.
"Association" shall have the meaning assigned to that term in Section
5.1.
"Board of Directors" means the board of directors of the Company as
constituted from time to time.
"Closing" shall have the meaning assigned to that term in Section 1.2.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act or Exchange Act.
"Common Stock" includes (a) the Company's Common Stock, $ .01 par
value, as authorized on the date of this Agreement, and (b) any other capital
stock of any class or classes (however designated) of the Company authorized on
or after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any Common Shares entitled to preference, and the holders of
which shall ordinarily, in the absence of contingencies or in the absence of any
provision to the contrary in the Company's Certificate of Incorporation, be
entitled to vote for the election of directors of the Company (even though the
right so to vote has been suspended by the happening of such a contingency or
provision).
"Company" means InsureRate, Inc., a Georgia corporation, and its
successors and assigns.
8
<PAGE> 12
"Copyrights" means United States and foreign copyrights, copyrightable
works, and mask work, whether registered or unregistered, and pending
applications to register the same.
"Corsi" means Jerome R. Corsi, an individual resident of the State of
New Jersey.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
(or of any other Federal agency then administering the Exchange Act) thereunder,
all as the same shall be in effect at the time.
"HomeCom" means HomeCom Communications, Inc., a Georgia corporation.
"Intellectual Property" means Copyrights, Patent Rights, Trademarks,
Trade Secrets, and Software and all agreements, contracts, licenses,
sublicenses, assignments and indemnities which relate or pertain to any of the
foregoing.
"Other Agreements" shall mean this Agreement, the Shareholders'
Agreement, the Services Agreement and the agreements, documents, assignments and
instruments related hereto and thereto to be executed and delivered by the
Company pursuant to this Agreement.
"Patent Rights" means United States and foreign patents, patent
applications, continuations, continuations-in-part, divisions, reissues, patent
disclosures, inventions (whether or not patentable or reduced to practice) and
improvements thereto.
"Person" means an individual, corporation, partnership, joint venture,
trust, university, or unincorporated organization, or a government, or any
agency or political subdivision thereof.
"Purchaser" shall have the meaning assigned to that term in Section 1.1
of this Agreement and shall include the original Purchaser and also any other
holder of any of the Common Shares.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission (or of
any other Federal agency then administering the Securities Act) thereunder, all
as the same shall be in effect at the time.
"Services Agreement" shall have the meaning set forth in Section 2.2(f)
of this Agreement.
"Shareholders' Agreement" shall have the meaning set forth in Section
2.2(e) of this Agreement.
"Software" means computer software programs and software systems,
including all databases, compilations, tool sets, compilers, higher level or
"proprietary" languages, related documentation and materials, whether in source
code, object code or human readable form; provided, however, that Software shall
not include computer software programs licensed to The Company that are
available through a commercial distributor or in consumer retail stores and are
subject to "shrink-wrap" license agreements.
9
<PAGE> 13
"Trademarks" means United States, state and foreign trademarks, service
marks, logos, trade dress and trade names (including all assumed or fictitious
names under which The Company is conducting business or has within the previous
five (5) years conducted business), whether or registered or unregistered, and
pending applications to register the foregoing.
"Trade Secrets" means confidential ideas, trade secrets, know-how,
concepts, methods, processes, formulae, reports, data, consumer lists, mailing
lists, business plans, or other proprietary information.
ARTICLE VII.
INDEMNIFICATION
7.1. Indemnification by Company.
The Company agrees, from and after the Closing Date, to indemnify,
defend and hold harmless Purchaser, and Purchaser's agents, successors and
assigns from any loss, damage, expense, liability, claim or controversy,
including, without limitation, attorneys' fees and expenses of litigation (a
"Loss") arising out of any one or more of the matters set forth below:
(a) any inaccuracy or breach of any representation, warranty or
covenant of the Company contained in this Agreement;
(b) any person asserting any claim against Purchaser to any rights in
and to the Common Shares following the Closing Date, to the extent that such
claim arises or is alleged to arise by, through or under the Company;
(c) any obligation or liability of the Company arising prior to the
Closing Date which is not in the ordinary course of the Company's business,
whether or not such obligation or liability is fixed or contingent, or
liquidated or unliquidated, and whether or not such liability or obligation was
known to the Company or any of its employees, officers, directors or
shareholders on the Closing Date;
(d) any obligation or liability of the Company related to any claim,
action, suit or investigation relating to the Company's Intellectual Property
which is made, threatened or asserted on or after the Closing Date against
Purchaser with respect to acts or omissions of the Company or its officers,
directors, employees, contractors, or agents occurring before the Closing Date;
and
(e) any liability of the Company for any and all federal, state or
local taxes for any period ending on or before the Closing Date, with respect to
any item or matter occurring prior to the Closing Date or arising from the
transactions contemplated by this Agreement.
7.2. Indemnification by Purchaser.
Purchaser agrees from and after the date hereof to indemnify, defend
and hold harmless the Company, HomeCom and Corsi and each of the Company's
officers, directors, shareholders,
10
<PAGE> 14
employees and agents from any Loss arising out of any inaccuracy or breach of
any representations, warranties or covenants of Purchaser contained in this
Agreement.
7.3. Indemnification Procedure.
(a) In order to be indemnified and held harmless, pursuant to Sections
7.1 or 7.2, a party entitled to be indemnified and held harmless pursuant to
such Section (the "Indemnified Party") shall notify the party liable for such
indemnification (the "Indemnifying Party") in writing immediately upon becoming
aware of any claim or demand which the Indemnified Party has determined has
given or could give rise to a right of indemnification under this Agreement.
Subject to the Indemnifying Party's right to defend in good faith third party
claims as hereinafter provided, the Indemnifying Party shall satisfy its
obligations under this Section 7.3 within thirty (30) days after the receipt of
written notice thereof from the Indemnified Party.
(b) If the Indemnified Party shall notify the Indemnifying Party of any
claim or demand pursuant to Section 7.3(a), and if such claim or demand relates
to a claim or demand asserted by a third party against the Indemnified Party
which the Indemnifying Party acknowledges is a claim or demand for which it must
indemnify or hold harmless the Indemnified Party under Section 7.1 or 7.2, the
Indemnifying Party shall have the right to employ counsel acceptable to the
Indemnified Party to defend any such claim or demand asserted against the
Indemnified Party. The Indemnified Party shall have the right to participate in
the defense of any such claim or demand. The Indemnifying Party shall notify the
Indemnified Party in writing, as promptly as possible (but in any case before
the due date for the answer or response to a claim) after the date of the notice
of claim given by the Indemnified Party to the Indemnifying Party under Section
7.3(a) of its election to defend in good faith any such third party claim or
demand. So long as the Indemnifying Party is defending in good faith any such
claim or demand asserted by a third party against the Indemnified Party, the
Indemnified Party shall not settle or compromise such claim or demand. The
Indemnified Party shall make available to the Indemnifying Party or its agents
all records and other materials in the Indemnified Party's possession reasonably
required by it for its use in contesting any third party claim or demand.
Whether or not the Indemnifying Party elects to defend any such claim or demand,
the Indemnified Party shall have no obligations to do so.
7.4. Indemnification Limitations.
(a) All of the representations and warranties made by the Company and
the Purchaser shall survive the closing of the transactions contemplated hereby
and shall continue until 5:00 p.m., Atlanta, Georgia time, on the date which is
one (1) year following the Closing Date (the "Expiration Date").
(b) No claim for indemnification may be made after the Closing by the
Indemnified Party, unless the aggregate amount of all Losses incurred by the
Indemnified Party and otherwise indemnified against hereunder with respect to
all claims exceeds Ten Thousand Dollars ($10,000) (the "Basket"). If the
Indemnified Party incurs such Losses in an amount exceeding the Basket, the
Indemnified Party shall be entitled to indemnification in the full amount of
such Losses, irrespective of such threshold amount.
11
<PAGE> 15
ARTICLE VIII.
MISCELLANEOUS
8.1. No Waiver; Cumulative Remedies. No failure or delay on the part of
any party to this Agreement in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
8.2. Entire Agreement; Amendments.
This Agreement, together with the Schedules and Exhibits herein
referenced, contains the entire agreement among the parties hereto with respect
to the transactions contemplated herein, and all prior understandings, and
agreements and the letter of intent among the parties hereto are hereby
terminated in their entirety and are of no further force or effect. This
Agreement shall not be modified or otherwise amended except by an instrument in
writing signed by or on behalf of the parties hereto.
8.3. Addresses for Notices. All notices, consents, requests, demands
and other communications hereunder shall be in writing and shall be deemed to
have been duly given or delivered (i) if delivered personally, (ii) if delivered
by certified mail, return receipt requested, with proper postage prepaid, (iii)
if delivered by facsimile, or (iv) if delivered by recognized courier
contracting for same day or next day delivery:
(a) To Purchaser:
Hamilton Dorsey Alston Company
3350 Cumberland Circle, Suite 100
Atlanta, Georgia 30339-3346
Attn: Curt L. Goetsch, Senior Vice President
Telecopy: (770) 850-9375
(b) To the Company:
InsureRate, Inc.
Building 14, Suite 100
3535 Piedmont Road
Atlanta, Georgia 30308
Attn: Jerome R. Corsi, President
Telecopy: (404) 237-3060
With a Copy to:
Morris, Manning & Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, N. E.
Atlanta, Georgia 30326
Attn: Brian T. Casey, Esq.
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<PAGE> 16
Telecopy: (404) 365-9532
(c) To HomeCom:
HomeCom Communications, Inc.
Building 14, Suite 100
3535 Piedmont Road
Atlanta, Georgia 30308
Attn: Harvey Sax, President
Telecopy: (404) 237-3060
(d) To Corsi:
Jerome R. Corsi
41 Copeland Road
Denville, New Jersey 07834
Telecopy: (973) 442-0736
or at such other address as the parties hereto shall have last
designated by notice to the other parties. Any item delivered personally or by
recognized courier contracting for same day or next day delivery shall be deemed
delivered on the date of delivery. Facsimile deliveries shall be deemed
delivered on the date of transmission by the sender provided sender has evidence
of successful transmission and receipt. Any item mailed shall be deemed to have
been delivered on the date evidenced on the return receipt.
8.4. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
successors and assigns.
8.5. Survival of Representations and Warranties. All representations,
warranties, agreements and covenants made or undertaken by the parties to this
Agreement, or contained in any other instrument or document delivered in
connection herewith or therewith, are material, have been relied upon by the
other parties hereto, shall survive the Closing hereunder, and shall not merge
in the performance of any obligation by any party hereto.
8.6. Severability. The provisions of this Agreement, the Other
Agreements, and the terms of the Common Stock are severable and, in the event
that any court of competent jurisdiction shall determine that any one or more of
the provisions or part of a provision contained in this Agreement, the Other
Agreements or the terms of the Common Stock shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement, the Other Agreements or the terms of the Common Stock; but this
Agreement, the Other Agreements and the terms of the Common Stock shall be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of a provision, had never been contained herein, and such provisions or
part reformed so that it would be valid, legal and enforceable to the maximum
extent possible.
13
<PAGE> 17
8.7. Confidentiality. The Purchaser agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which the Purchaser may obtain from the Company pursuant to
any reports, statements or other materials financial statements, reports and
other materials submitted by the Company to the Purchaser pursuant to this
Agreement, or pursuant to any visitation or inspection rights, unless such
information is known, or until such information becomes known, to the public;
provided, however, that the Purchaser may disclose such information (i) on a
confidential basis to its attorneys, accountants, consultants and other
professionals to the extent necessary to obtain their services in connection
with its investment in the Company or as required by applicable law.
8.8. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of Georgia, and without
giving effect to choice of laws provisions.
8.9. Headings. Article, section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
8.10. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
8.11. Further Assurances. From and after the date of this Agreement the
parties hereto agree to execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement and the
Common Shares.
14
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Purchase Agreement to be executed as of the date first above written.
"COMPANY": "PURCHASER":
INSURERATE, INC. HAMILTON DORSEY ALSTON COMPANY
By: /s/ Jerome R. Corsi By: /s/ Curt L. Goetsch
----------------------------- -----------------------------------------
Jerome R. Corsi, President Curt L. Goetsch, Senior Vice President
"CORSI":
/s/ Jerome R. Corsi
--------------------------------------------
Jerome R. Corsi
"HOMECOM":
HOMECOM COMMUNICATIONS, INC.
By: /s/ Harvey Sax
-----------------------------------------
Harvey Sax, President
15
<PAGE> 19
EXHIBIT 3.5
BALANCE SHEET
<PAGE> 20
EXHIBIT 3.7
INTELLECTUAL PROPERTY MATTERS
<PAGE> 1
EXHIBIT 10.31
ESCROW AGREEMENT
This Escrow Agreement (the "Agreement") is made as of this 23rd day of
January, 1998, by and among InsureRate, Inc., a Georgia corporation
("InsureRate"), Hamilton Dorsey Alston Company, a Georgia corporation ("HDA"),
HomeCom Communications, Inc., a Georgia corporation and the majority shareholder
of InsureRate ("HomeCom"), Jerome R. Corsi, an individual resident of the State
of New Jersey ("Corsi"), and SunTrust Bank, Atlanta, a Georgia corporation (the
"Escrow Agent").
R E C I T A L S :
WHEREAS, contemporaneously herewith, InsureRate, HDA, HomeCom and Corsi
have entered into that certain Common Stock Purchase Agreement dated as of
January 23, 1998 (the "Purchase Agreement"), pursuant to which HDA has agreed to
purchase, and InsureRate has agreed to sell to HDA, 33,333.33 shares of the
common stock of InsureRate (the "Common Shares"), evidenced by share certificate
no. 5 (the "Share Certificate"), for the aggregate purchase price of $100,000.00
(the "Purchase Price"); and
WHEREAS, a condition precedent to the acquisition by HDA of the Common
Shares pursuant to the Purchase Agreement is that HomeCom lend to InsureRate the
principal amount of $100,000.00 (the "Loaned Funds"), pursuant to the terms and
conditions set forth in that certain Loan Agreement dated as of January 23, 1998
(the "Loan Agreement"), by and between HomeCom, as borrower, and InsureRate, as
lender; and
WHEREAS, InsureRate, HDA, HomeCom and Corsi each have agreed that
InsureRate shall deposit the Loaned Funds with the Escrow Agent; and
WHEREAS, insofar as the Escrow Agent is concerned, this Escrow
Agreement shall be the sole document governing the obligations of the Escrow
Agent relating to the Loaned Funds deposited with the Escrow Agent;
NOW, THEREFORE, in consideration of the premises, covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged conclusively by the
parties hereto, the parties, intending to be legally bound hereby, agree as
follows:
1. ESCROW FUND. Contemporaneously herewith, InsureRate has delivered to
the Escrow Agent the Loaned Funds, in the amount set forth above, by HomeCom's
check to the order of SunTrust Bank, Atlanta for credit to InsureRate. The
Escrow Agent hereby acknowledges receipt of the Loaned Funds, in the amount set
forth above, and agrees to hold, safeguard, invest, administer, and distribute
the same as provided herein. InsureRate agrees to pay the Escrow Agent's fees
for its services hereunder and to reimburse the Escrow Agent for its reasonable
expenses and disbursements incurred in the performance of such services.
2. INVESTMENT OF ESCROW FUND. The Loaned Funds shall be deposited by
the Escrow Agent in a separate and distinct interest bearing account reasonably
acceptable to InsureRate,
<PAGE> 2
HomeCom, HDA and Corsi, in a federated treasury obligation money market fund
bearing interest at a rate customary for like accounts held with the Escrow
Agent (the Loaned Funds, together with all interest thereon, are collectively
referred to as the "Escrow Funds").
3. DISBURSEMENT OF ESCROW FUND. The Escrow Agent shall hold the Escrow
Funds until the earliest of the following events shall have occurred:
(i) HDA Election. From the date of this Agreement until 9:00
a.m. Atlanta, Georgia time on February 22, 1998, HDA has the sole and absolute
discretion, for any or no reason, to cause the Escrow Agent to deliver to HDA
the Loaned Funds, without any interest accrued thereon, upon (a) receipt by the
Escrow Agent of a letter from HDA, executed by its President, substantially in
the form of Exhibit A attached hereto, stating that HDA elects to exercise its
right under this Agreement to request delivery of the Loaned Funds, without any
interest accrued thereon (the "HDA Delivery Letter"), (b) receipt by InsureRate,
HomeCom and Corsi of a notice from HDA stating that HDA elects to exercise its
right under this Agreement to request delivery of the Loaned Funds, without any
interest accrued thereon (the "HDA Delivery Notice"), which HDA Delivery Notice
shall also be delivered to the Escrow Agent with an executed statement by HDA
stating that said notice has been delivered to InsureRate, HomeCom and Corsi,
and (c) concurrently with the delivery by HDA of the HDA Delivery Letter and the
HDA Delivery Notice, receipt by the Escrow Agent from HDA of the Share
Certificate, which shall be delivered (x) free and clear of all liens, claims,
charges, pledges, assignments, security interests or other encumbrances of any
kind or nature, and (y) together with a stock power in favor of InsureRate, duly
executed by HDA's President. Upon the delivery of the Loaned Funds to HDA
pursuant to this subparagraph (i), the interest accrued thereon, if any, shall
be delivered by the Escrow Agent to InsureRate in immediately available funds.
(ii) Mutual Agreement. From the date of this Agreement until
9:00 a.m. Atlanta, Georgia time on February 22, 1998, HomeCom, InsureRate, HDA
and Corsi may deliver to the Escrow Agent a written notice executed by each of
the parties (which executed notice may be in counterparts), directing the Escrow
Agent to deliver to InsureRate the Escrow Funds.
(iii) Elapse of Time. Each of HomeCom, InsureRate, HDA and
Corsi hereby agrees that if neither of the events described in subparagraphs (i)
and (ii) of this Section 3 have occurred prior to 9:00 a.m. Atlanta, Georgia
time on February 22, 1998, then at such time each of HomeCom, InsureRate, HDA
and Corsi shall be deemed to have satisfied fully the terms and conditions of
this Agreement, and the Escrow Agent hereby is directed in writing by each of
HomeCom, InsureRate, HDA and Corsi to deliver promptly to InsureRate the Escrow
Funds.
Upon the earliest of the events set forth in subparagraphs
(i), (ii) and (iii) of this Section 3 to occur, the Escrow Agent shall disburse
the Loaned Funds or the Escrow Funds, as applicable, by wire transfer in
accordance with the instructions given in writing by InsureRate or HDA, as
applicable. The Escrow Agent shall notify promptly either InsureRate or HDA, as
applicable, that such wire has been initiated, shall advise InsureRate or HDA,
as applicable, of the confirmation number thereof and shall cooperate reasonably
with InsureRate or HDA, as applicable, in the event of any complications
regarding such wire transfer.
2
<PAGE> 3
4. TERM OF ESCROW AGREEMENT. The term of this escrow shall commence on
the date hereof and shall continue thereafter until disbursement by Escrow Agent
of the entire Escrow Funds held hereunder as provided in Section 3 herein.
5. ACTIONS OF THE ESCROW AGENT. The acceptance by the Escrow Agent of
its duties hereunder is subject to the following terms and conditions, which all
parties hereto agree shall govern and control with respect to the rights, duties
and claims of the Escrow Agent:
(a) The Escrow Agent acts hereunder as a depository. The
duties of Escrow Agent hereunder are only such as are herein specifically
provided, being purely ministerial in nature, and the Escrow Agent shall have no
responsibility in respect of any of the Escrow Funds held or deposited with it
other than faithfully to follow the instructions herein contained.
(b) The Escrow Agent shall be protected in acting upon any
written notice, request, waiver, consent, receipt or other paper or document
which the Escrow Agent in good faith believes to be genuine.
(c) The Escrow Agent shall not be liable for any error of
judgment, or for any act done or step taken or omitted by it in good faith, or
for any mistake of fact or law, or for anything which it may do or refrain from
doing in connection herewith, except its own gross negligence or willful
misconduct. InsureRate, HomeCom, HDA and Corsi each agree, jointly and
severally, to indemnify Escrow Agent from any and all claims, costs, and damages
(including reasonable attorneys' fees and expenses) incurred by or asserted
against Escrow Agent arising in connection with Escrow Agent's acts or
omissions, other than those of gross negligence or willful misconduct, under
this Escrow Agreement, and such indemnification shall survive the termination of
this Agreement.
(d) The Escrow Agent is authorized to and may consult with,
and obtain advice from, legal counsel in the event any dispute, conflict or
question arises as to the construction of any of the provisions hereof or its
duties hereunder. Escrow Agent shall incur no liability and shall be fully
protected for acting in good faith in accordance with the written opinion and
instructions of such counsel.
6. NOTICE. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given when personally delivered, one day after being delivered to an
overnight courier, or when telecopied (with a confirmatory copy sent by
overnight courier) addressed to the party to whom such notice relates at the
following addresses:
(a) To HDA:
Hamilton Dorsey Alston Company
3350 Cumberland Circle, Suite 100
Atlanta, Georgia 30339-3346
Attn: Curt L. Goetsch, Senior Vice President
Telecopy: (770) 850-9375
Tax Id. No. 58-1277825
3
<PAGE> 4
(b) To InsureRate:
InsureRate, Inc.
Building 14, Suite 100
3535 Piedmont Road
Atlanta, Georgia 30308
Attn: Jerome R. Corsi, President
Telecopy: (404) 237-3060
Tax Id. No. 58-2362545
With a Copy to:
Morris, Manning & Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, N. E.
Atlanta, Georgia 30326
Attn: Brian T. Casey, Esq.
Telecopy: (404) 365-9532
(c) To HomeCom:
HomeCom Communications, Inc.
Building 14, Suite 100
3535 Piedmont Road
Atlanta, Georgia 30308
Attn: Harvey Sax, President
Telecopy: (404) 237-3060
(d) To Corsi:
Jerome R. Corsi
41 Copeland Road
Denville, New Jersey 07834
Telecopy: (973) 442-0736
(e) To Escrow Agent:
SunTrust Bank, Atlanta
Corporate Trust Department
58 Edgewood Avenue, Room 400 - Annex
Atlanta, Georgia 30303
Attn: Ronald C. Painter, Vice President
Telecopy: (404) 332-3966
or at such alternative addresses as may be specified by the parties by notice
given in the manner provided herein.
7. MISCELLANEOUS.
(a) Benefit. This Agreement shall bind all parties, their respective
successors, assigns, heirs, executors and administrators.
4
<PAGE> 5
(b) Entire Agreement. This Agreement contains the entire agreement of
the parties relating to the subject matter hereof and may not be changed except
by a writing signed by the party against whom the enforcement of any waiver,
change, extension, modification or discharge is sought.
(c) Waiver of Breach of Violation Not Deemed Continuing. The waiver by
any party hereto of a breach or violation of any provision of this Agreement
shall not operate as, or be construed to be, a waiver of any subsequent breach
hereof.
(d) Governing Law. This Agreement shall be governed by and construed
according to the laws of the State of Georgia, without regard to its conflicts
of law principles.
(e) Other Agreements. The Escrow Agreement is not a party to, nor is it
bound by, nor need it give consideration to the terms or provisions of, any
other agreement or undertaking among InsureRate, HDA, HomeCom or Corsi, or any
of them, or between InsureRate, HDA, HomeCom or Corsi, or any of them, and other
persons, or any agreement or undertaking which may be evidenced by or disclosed
by Loaned Funds, the Share Certificate and the documents related thereto, it
being the intention of the parties hereto that the Escrow Agent assent to and be
obligated to give consideration only to the terms and provisions hereof.
[SIGNATURES APPEAR ON NEXT PAGE]
5
<PAGE> 6
[SIGNATURE PAGE TO ESCROW AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
"INSURERATE": "HDA":
INSURERATE, INC. HAMILTON DORSEY ALSTON COMPANY
By: By:
------------------------------------ --------------------------------
Jerome R. Corsi, President Curt L. Goetsch,
Senior Vice President
"ESCROW AGENT": "CORSI":
SUNTRUST BANK, ATLANTA -----------------------------------
Jerome R. Corsi
By:
------------------------------------
Ronald C. Painter, Vice President
"HOMECOM":
HOMECOM COMMUNICATIONS, INC.
By:
--------------------------------
Harvey Sax, President
6
<PAGE> 7
EXHIBIT A
FORM OF HDA DELIVERY LETTER
[Date]
SunTrust Bank, Atlanta
Corporate Trust Department
58 Edgewood Avenue, Room 400 - Annex
Atlanta, Georgia 30303
Attn: Ronald C. Painter, Vice President
Re: Delivery Notice of Hamilton Dorsey Alston Company
Dear Mr. Painter:
Pursuant to Section 3(i) of that certain Escrow Agreement dated January
23, 1998 (the "Escrow Agreement") by and among InsureRate, Inc., a Georgia
corporation ("InsureRate"), Hamilton Dorsey Alston Company, a Georgia
corporation ("HDA"), HomeCom Communications, Inc., a Georgia corporation and the
majority shareholder of InsureRate ("HomeCom"), Jerome R. Corsi, an individual
resident of the State of New Jersey ("Corsi"), and SunTrust Bank, Atlanta, a
Georgia corporation (the "Escrow Agent"), prior to 9:00 a.m. Atlanta, Georgia
time on February 22, 1998, HDA has the sole and absolute discretion, for any or
no reason, to cause the Escrow Agent to deliver to it the Loaned Funds (as
defined in the Escrow Agreement), without any interest accrued thereon, subject
to (a) receipt of this letter by the Escrow Agent, (b) receipt by InsureRate,
HomeCom and Corsi of a notice from HDA stating that HDA elects to exercise its
right under the Escrow Agreement to request delivery of the Loaned Funds,
without any interest accrued thereon (the "HDA Delivery Notice"), which notice
is to be delivered to the Escrow Agent with an executed statement by HDA stating
that said notice has been delivered to InsureRate, HomeCom and Corsi, and (c)
concurrently with the delivery by HDA of this letter and the HDA Delivery
Notice, receipt by the Escrow Agent of the Share Certificate (as defined in the
Escrow Agreement) from HDA, which Share Certificate is to be delivered (x) free
and clear of all liens, claims, charges, pledges, assignments, security
interests or other encumbrances of any kind or nature, and (y) together with a
stock power in favor of InsureRate, duly executed by HDA's President.
(1) This letter serves as notice by HDA that it elects to exercise its
right to cause the Escrow Agent to deliver to HDA the Loaned Funds, without any
interest accrued thereon.
(2) HDA certifies that it has delivered a copy of the HDA Delivery
Notice to each of InsureRate, HomeCom and Corsi. Attached hereto please find
confirmation of such delivery.
(3) Enclosed please find the original Share Certificate, delivered to
you free and clear of all liens, claims, charges, pledges, assignments, security
interests or other encumbrances of any kind or nature, together with a stock
power in favor of InsureRate, duly executed by HDA's President.
Sincerely,
HAMILTON DORSEY ALSTON COMPANY
By:
----------------------------------------
John C. Hamilton, President
<PAGE> 1
EXHIBIT 10.32
EXHIBIT 2.2 (e)
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT (the "Agreement") is made and entered into
as of the date below written by and among Hamilton Dorsey Alston Company, a
Georgia corporation ("HDA"), HomeCom Communications, Inc., a Georgia corporation
"(HomeCom"), and InsureRate, Inc., a Georgia corporation (the "Company").
R E C I T A L S :
WHEREAS, HDA owns thirty-three thousand three hundred thirty-three and
33/100 (33,333.33) shares (the "HDA Stock") and HomeCom owns fifty-six thousand
six hundred sixty-six and 67/100 (56,666.67) shares of the issued and
outstanding common stock, par value $.01 per share, of the Company (the
"Stock");
WHEREAS, the parties hereto believe it is in their respective best
interests to enter into this Agreement providing for, among other things,
restrictions on the transfer of shares of the HDA Stock and the right of HDA to
sell the HDA Stock to HomeCom and the right of HomeCom to purchase the HDA
Stock, upon the occurrence of certain events as provided herein.
NOW THEREFORE, for and in consideration of the premises and the mutual
promises, covenants and agreements herein contained, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the Parties, each intending to be legally bound, covenant and
hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used herein, the following terms shall have the respective meanings
set forth below:
1.1 "Affiliate" means, with respect to a Person, any other person
directly or indirectly controlling, controlled by, or under common control with,
such first Person, where control shall be presumed to exist by the ownership of
ten percent (10%) or more of the outstanding voting capital interests of a
Person.
1.2 "Agreement" means this Agreement as originally executed, or as it
may from time to time be amended by one or more written amendments or
modification agreements executed by all Parties.
1.3 "Business Day" shall mean any day other than a day on which
national banks located in Atlanta, Georgia are required to be closed.
<PAGE> 2
1.4 "Company" shall have the meaning set forth in the first paragraph
of this Agreement.
1.5 "HomeCom" shall have the meaning set forth in the first paragraph
of this Agreement.
1.6 "HDA" shall have the meaning set forth in the first paragraph of
this Agreement.
1.7 "Person" means any individual, corporation, partnership (general or
limited), limited liability company, joint venture, association, joint-stock
company, trust, unincorporated organization or government, or any agency or
political subdivision thereof.
1.8 "Shareholder" means HDA or HomeCom.
ARTICLE 2
RESTRICTIONS ON TRANSFER AND ENCUMBRANCE OF HDA STOCK
Except as otherwise expressly permitted by the terms of this Agreement,
HDA shall not sell, assign, transfer, give, pledge, encumber, hypothecate or
otherwise dispose of, any the shares of the HDA Stock, whether now owned or
hereafter acquired (any such disposition being hereinafter referred to as a
"Share Transfer"), to any Person (including without limitation an existing
shareholder of the Company). Any Share Transfer made by HDA not in strict
accordance with the terms of this Agreement shall be deemed null and void ab
initio and have no force or effect whatsoever.
ARTICLE 3
RIGHT OF FIRST REFUSAL OF HOMECOM FOR TRANSFERS BY HDA
If HDA desires to cause a Share Transfer, upon receiving an arm's
length written offer to purchase any of the HDA Stock (the "Offered Stock") from
a bona fide, third party unaffiliated with HDA (an "Offer"), which Offer HDA
desires to accept, HDA shall first offer to HomeCom the option to purchase the
Offered Stock as follows:
3.1 Notice. HDA shall give HomeCom notice (the "First Refusal Notice")
of its intention to effect a Share Transfer of the Offered Stock. The First
Refusal Notice shall provide a full description of all the material terms of the
proposed Share Transfer, including without limitation the identities and
addresses of all real parties in interest, the price per share, the terms of
payment, and a copy of the Offer duly signed by the Offeror.
3.2 Election and Exercise of Rights. HomeCom shall have the right to
purchase all, but not less than all, of the Offered Stock by giving notice of
exercise of such purchase right to HDA within thirty (30) Business Days after
HomeCom's receipt of the First Refusal Notice from HDA.
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<PAGE> 3
3.3 Terms. If HDA has received an Offer, the purchase price at which
HomeCom may purchase the Offered Stock shall be the price per share contained in
the Offer, and such purchase and sale shall occur upon the same terms and
conditions contained in the Offer; provided, however, that HomeCom may, at its
option, pay the purchase price for the Offered Stock by paying twenty percent
(20%) of the total purchase price in immediately available funds (cash or
equivalent conveyed by bank wire transfer or federal funds check) and delivering
to HDA a promissory note of HomeCom for the balance of the purchase price
payable in equal monthly installments of principal and interest over the two (2)
year period following the date of the closing of such transaction and bearing
interest on the outstanding principal balance thereof at a per annum simple
interest rate equal to the prime interest rate as stated in the Wall Street
Journal on the date of such purchase of the Offered Stock by HomeCom.
3.4 No Bona Fide Offer. If HomeCom has determined in good faith that
HDA has received no Offer, HomeCom shall not be obligated to purchase the
Offered Stock upon such terms, and HDA may not cause a Share Transfer to the
alleged Offeror. HomeCom shall give notice to HDA and the Board of Directors of
the Company of such finding prior to the expiration of the time within which
HomeCom may exercise the option contained in Section 3.2 hereof to purchase the
Offered Stock. The Board of Directors of the Company shall, within ten (10)
Business Days after receipt of such Notice, determine whether the Offer is bona
fide and deliver notice of such determination to the Shareholders. The decision
of the Board of Directors of the Company shall be final, binding, conclusive and
non-appealable by the Shareholders. If the Board of Directors of the Company
shall determine that the Offer is bona fide, then HomeCom shall have five (5)
Business Days after receipt of notice of such determination to exercise the
option contained in Section 3.2 hereof.
3.5 Closing Procedure. If, pursuant to Section 3.2 hereof, HomeCom
exercises the right to purchase the Offered Stock from HDA, the closing for such
transaction shall be held at the Company's principal place of business thirty
(30) Business Days after the date of receipt by HomeCom of notice of such
exercise, at 10:00 a.m., or at such other place and time as may be mutually
agreed between HDA and HomeCom. At such closing, HomeCom shall purchase (subject
to Section 3.3 hereof) the Offered Stock on the same terms and conditions as
contained in the First Refusal Notice, and HDA shall deliver the Offered Stock
to HomeCom free and clear of all encumbrances with applicable transfer stamps,
if any, affixed and with warranties of title delivering the Offered Stock free
and clear, and shall execute and transfer all documents necessary to effectuate
such purchase.
3.6 Failure or Refusal of HomeCom to Exercise Option. If HomeCom fails
or refuses to exercise the option contained in Section 3.2 hereof, HDA may, for
a period of thirty (30) days after (i) receipt of HomeCom's affirmative written
refusal or (ii) expiration of all time periods for the exercise of the option
contained in Section 3.2 hereof (the "Share Transfer Period"), effect the Share
Transfer to the bona fide, third party purchaser based upon the terms of the
Share Transfer contained in the First Refusal Notice. Upon expiration of the
Share Transfer Period, HDA shall not have the right to effect the contemplated
Share Transfer and any purported Share Transfer effected after the Share
Transfer Period shall be null and void ab initio without legal force or effect.
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<PAGE> 4
ARTICLE 4
PUT AND CALL OPTIONS
4.1 Put by HDA. HDA shall have the right to cause HomeCom to purchase
from HDA all (and only all) of the HDA Stock at a purchase price equal to one
hundred thousand dollars and no/100 ($100,000) (the "Put Purchase Price") at any
time by delivering a written notice to HomeCom stating that HDA has elected to
exercise such right. HomeCom, at its sole discretion, may pay the Put Purchase
Price either in the form of (a) cash or (b) shares of the unregistered common
stock of HomeCom having a value equal to the Put Purchase Price; provided,
however, that if HDA exercises such right within thirty (30) days after the date
on which the Company's internet web site is first open for public access through
the World Wide Web on the Internet, then HomeCom shall pay the entire Put
Purchase Price in cash.
4.2 Call by HomeCom.
(a) HomeCom shall have the right to purchase from HDA fifty percent
(50% ) of the HDA Stock at a purchase price equal to one hundred thousand and
no/100 dollars ($100,000) (the "Call Purchase Price") at any time by delivering
a written notice to HDA stating that HomeCom has elected to exercise such right.
HDA may, in its sole discretion, elect to receive the Call Purchase Price either
in the form of (a) cash or (b) shares of the unregistered common stock of
HomeCom.
(b) Notwithstanding anything contained herein to the contrary, HomeCom
shall have the right to purchase all the HDA Stock at a purchase price equal to
one hundred thousand dollars ($100,000) upon any "Change in Control" of HDA. For
purposes of this Agreement, a "Change in Control" of HDA shall mean the
acquisition by any Person, who is not an Affiliate of HDA on the date hereof, of
twenty-five percent (25%) or more of the total outstanding voting capital stock
of HDA.
4.3 Closing Procedure. If, pursuant to Section 4.1 or 4.2 hereof, HDA
exercises its right to sell the HDA Stock to HomeCom or HomeCom exercises the
right to purchase fifty percent (50%) of the HDA Stock from HDA, respectively,
the closing for such transaction shall be held at the Company's principal place
of business thirty (30) Business Days after the date of receipt by HomeCom of
notice of such exercise, at 10:00 a.m., or at such other place and time as may
be mutually agreed between HDA and HomeCom. At such closing, HDA shall deliver
the certificates evidencing the HDA Stock to be sold to HomeCom free and clear
of all encumbrances with applicable transfer stamps, if any, affixed and with
warranties of title delivering the Offered Stock free and clear, and shall
execute and transfer all documents necessary to effectuate such purchase. If,
pursuant to Section 4.1 or 4.2 hereof, the purchase price to be paid upon the
exercise of the right to sell or the right to purchase HDA Stock, as
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<PAGE> 5
applicable, shall be paid in shares of unregistered common stock of HomeCom,
then (i) the value of each such share shall be calculated by computing the
average daily closing price of the common stock of HomeCom for the period of
time from the date of the delivery of written notice of the exercise of such
right to sell or right to purchase, as applicable, until and including the
business day immediately preceding the date of the closing of the transaction,
using for each daily closing price the last reported sale price per share of the
common stock of HomeCom as reported on the National Association of Securities
Dealers Automated Quotations System ("Nasdaq") National Market (the "Average
Daily Closing Price"), and (ii) the purchase price to be paid upon the exercise
of the right to sell or the right to purchase HDA Stock, as applicable, shall be
divided by the Average Daily Closing Price to determine the number of shares of
unregistered common stock of HomeCom to be delivered upon such exercise.
ARTICLE 5
DRAG-ALONG RIGHTS
5.1 Drag-Along Rights of HomeCom. If HomeCom proposes to effect a Share
Transfer to any third parties other than an Affiliate of HomeCom of any shares
of Stock owned by HomeCom, then, if requested by HomeCom, HDA shall join HomeCom
in such sale on a pro rata basis equal to the total number of shares of Stock
owned by HomeCom to be sold to such third party purchasers (the "Purchasers") by
HomeCom and HDA multiplied by a fraction, the numerator of which shall be the
total number of shares of the HDA Stock, and the denominator of which shall be
the total number of shares of Stock then owned by HomeCom plus the total number
of shares of the HDA Stock, for a purchase price per share of the Stock equal to
the purchase price per share to be paid by the Purchasers to HomeCom and, on the
same terms and conditions applicable to HomeCom.
ARTICLE 6
RESTRICTIVE COVENANTS OF HDA
6.1 Covenants Not to Solicit.
(a) Customers; Providers. So long as HDA owns any capital
stock of the Company and for a period of two (2) years thereafter (the
"Restricted Period"), HDA shall not, on HDA's own behalf or on behalf of any
Person, firm, partnership, association, corporation or business organization,
entity or enterprise ("Other Entity"), solicit, contact, call upon, communicate
with or attempt to communicate with (i) any holder of an insurance policy or any
individual or entity insured under an insurance policy, which was purchased or
otherwise acquired through the Company's Internet web site, using an Internet
platform on the World Wide Web which is directly competitive with the Company's
Internet web site and (b) any insurance company or other provider of financial
services which has marketed its products or services through the Company's
Internet web site with a view to providing "Competitive Services" to such
insurance company or financial services provider. For the purposes of this
Agreement, the term "Competitive Services" shall mean the marketing or
distribution of insurance or other
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<PAGE> 6
financial services or products using an Internet platform on the World Wide Web
which is substantially similar to the Company's web site.
(b) Employees. During the Restricted Period, HDA shall not, on
HDA's own behalf or on behalf of any Other Entity, recruit or hire, or attempt
to solicit or recruit or hire, any employees of the Company or any of its
affiliates who were employed by the Company during the Restricted Period.
6.2 Confidentiality.
(a) The Company may from time to time disclose to HDA certain Trade
Secrets and Confidential Information (as defined below). HDA acknowledges and
agrees that the Trade Secrets and Confidential Information are the sole and
exclusive property of the Company (or a third party providing such information
to the Company) and that the Company or such third party owns all worldwide
rights therein under patent, copyright, trade secret, confidential information,
or other property right. HDA acknowledges and agrees that the disclosure of the
Trade Secrets and Confidential Information to HDA does not confer upon HDA any
license, interest or rights of any kind in or to the Trade Secrets or
Confidential Information. Except in the performance of services for the Company,
HDA will hold in confidence and not reproduce, distribute, transmit, reverse
engineer, decompile, disassemble, or transfer, directly or indirectly, in any
form, by any means, or for any purpose, the Trade Secrets or the Confidential
Information or any portion thereof. HDA agrees to return to the Company, upon
request by the Company, the Trade Secrets and Confidential Information and all
materials relating thereto and copies thereof.
(b) HDA's obligations under this Agreement with regard to the Trade
Secrets shall remain in effect for as long as such information shall remain a
trade secret under applicable law. HDA acknowledges that its obligations with
regard to the Confidential Information shall remain in effect while HDA during
the Restricted Period. As used herein, "Trade Secrets" means information of the
Company, its licensors, suppliers, customers, or prospective licensors or
customers, including, but not limited to, technical or nontechnical data,
formulas, patterns, compilations, programs, devices, methods, techniques,
drawings, processes, financial data, financial plans, product plans, or a list
of actual or potential customers, suppliers, employees or independent
contractors, which (i) derives economic value, actual or potential, from not
being generally known to, and not being readily ascertainable by proper means
by, other persons who can obtain economic value from its disclosure or use and
(ii) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy. As used herein, "Confidential Information" means
information, other than Trade Secrets, that is of value to its owner and is
treated as confidential; provided, however, that HDA shall not be restricted
from disclosing or using Confidential Information that: (i) is or becomes
generally available to the public other than as a result of an unauthorized
disclosure; (ii) was known to HDA on a non-confidential basis and not in
contravention of applicable law or a confidentiality or other similar agreement
before its disclosure to HDA by the Company or one of the Company's officers or
(iii) is required to be disclosed by law, court order or other legal process;
provided, however, that in the event disclosure is required by law, HDA shall
provide the Company with prompt notice of such requirement so that the Company
may seek an appropriate protective order prior to any such
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<PAGE> 7
required disclosure by HDA. Confidential Information may include, but not be
limited to, future business plans, licensing strategies, advertising campaigns,
information regarding executives, employees and independent contractors and the
terms and conditions of this Agreement.
6.3 Acknowledgments. The parties hereto agree that: (i) the periods of
restriction and Territory of restriction contained in this Agreement are fair
and reasonable in that they are reasonably required for the protection of the
Company; (ii) by having access to information concerning employees and actual or
prospective customers of the Company, HDA shall obtain a competitive advantage
as to such parties; (iii) the covenants and agreements of HDA contained in this
Agreement are reasonably necessary to protect the interests of the Company in
whose favor said covenants and agreements are imposed in light of the nature of
the Company's business and the involvement of HDA in such business; (iv) the
restrictions imposed by this Agreement are not greater than are necessary for
the protection of the Company in light of the substantial harm that the Company
will suffer should HDA breach any of the provisions of said covenants or
agreements and (v) the covenants and agreements of HDA contained in this
Agreement form material consideration for this Agreement.
6.4 Remedy for Breach. HDA agrees that remedies at law of the Company
for any actual or threatened breach by HDA of the covenants contained in
Sections 8.1 through 8.3 of this Agreement would be inadequate and that the
Company shall be entitled to specific performance of the covenants in such
paragraphs or injunctive relief against activities in violation of such
paragraphs, or both, by temporary or permanent injunction or other appropriate
judicial remedy, writ or order, in addition to any damages and legal expenses
(including attorney's fees) which the Company may be legally entitled to
recover. HDA acknowledges and agrees that the covenants contained in Sections
6.1 through 6.3 of this Agreement shall be construed as agreements independent
of any other provision of this or any other agreement between the parties
hereto, and that the existence of any claim or cause of action by HDA against
the Company, whether predicated upon this or any other agreement, shall not
constitute a defense to the enforcement by the Company of said covenants.
6.5 Survival. Notwithstanding anything to the contrary contained
herein, all of the terms and conditions contained in Sections 6.1, 6.2, 6.3 and
6.4 hereof shall survive any termination of this Agreement.
ARTICLE 7
TERMINATION
7.1 Termination. The term of this Agreement and all obligations
hereunder (except all obligations which by their terms survive the termination
of this Agreement) shall terminate without notice upon the earlier occurrence of
any of the following events:
(a) The Company's adjudication as a bankrupt, the Company's
execution of a general assignment for the benefit of creditors, or the
appointment of a receiver for the Company;
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<PAGE> 8
(b) Voluntary or involuntary legal dissolution of the Company;
(c) All the common stock of the Company becoming owned by any
one (1) Shareholder; or
(d) The mutual agreement of the parties as expressed in a
writing clearly indicating such intent and duly signed by all the
parties.
(e) The date which is ten (10) years after the date hereof.
ARTICLE 8
MISCELLANEOUS
8.1 Stock Legend. In addition to the standard investment restrictive
legends, necessary to comply with applicable securities laws, and any other
required legends, each certificate representing shares of Stock shall bear on
its reverse side a legend stating substantially the following:
"THIS CERTIFICATE AND THE SHARES EVIDENCED HEREBY MAY NOT BE SOLD,
GIVEN, PLEDGED, ASSIGNED, HYPOTHECATED, TRANSFERRED ENCUMBERED,
REDEEMED OR OTHERWISE DISPOSED OF, EXCEPT ACCORDING TO THE TERMS AND
CONDITIONS OF THAT CERTAIN SHAREHOLDERS' AGREEMENT AMONG THE COMPANY
AND CERTAIN OF ITS SHAREHOLDERS DATED JANUARY ___, 1998."
All additional Stock certificate(s) acquired by any Shareholder shall bear a
similar legend.
8.2 Dividends, Splits, and Similar Matters. If as a result of a stock
dividend, stock split, recapitalization, or other adjustment in the Company's
capital stock or as a result of a merger, consolidation, or other reorganization
of the Company, the number of the Company's shares of capital stock increases,
reduces, or otherwise changes, and if any Shareholder shall thereupon be
entitled to new, additional or different shares, such new shares shall upon
issuance automatically be subject to the terms, conditions and restrictions
herein contained relating to the original shares of Stock owned by the
Shareholder.
8.3 Options, Rights or Warrants. If options, rights or warrants are
awarded with respect to any Securities of the Company, or if any Shareholder
exercises such options, rights or warrants, the shares of securities issuable
upon such exercise shall likewise be subject to the terms, conditions and
restrictions herein contained relating to the original Stock.
8.4 Original Issuance of Stock. After the date hereof, the Company
shall not issue any unissued shares or treasury shares of the Stock to any
person who is not a party to this Agreement unless (a) the Person(s) acquiring
such stock agree in writing to be bound by the terms and conditions of this
Agreement, and (b) the stock certificates representing such shares bear a legend
substantially in the form set forth in Section 10.1 hereof.
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8.5 Stock Transfers. Any shares of Stock transferred by a Shareholder
in accordance with the term hereof to a Person not currently a party to this
Agreement, shall remain subject to the terms, conditions and restrictions of
this Agreement and any transferee, as a condition precedent to such transfer,
shall execute all such written acknowledgments, amendments or other agreements
or documents as the Company may reasonably request, as necessary to effectuate
this provision.
8.6 Notices and Other Communications. All notices of objections, other
notices or other communications required or permitted hereunder must be in
writing and shall be deemed effectively given (a) upon delivery, when delivered
personally against receipt therefor, (b) upon delivery when sent by certified
mail, postage prepaid and return receipt requested, (c) upon transmission, when
transmitted by telecopier, facsimile, telex or other electronic transmission
method, provided that receipt is confirmed and notice is sent by certified mail,
postage prepaid and return receipt requested, or (d) upon delivery, when sent by
Federal Express or other nationally recognized overnight delivery service.
If more than one (1) party is entitled to receive a specific notice or
other communication, the same shall be deemed to have been effectively given
when given to all of the parties entitled to receive the same, in the manner
described above. Any such notice shall be sent to the party to whom notice is
intended to be given at its address as shown below:
If to the Company: InsureRate, Inc.
Building 14, Suite 100
3535 Piedmont Road
Atlanta, Georgia 30308
Attention: Jerome R. Corsi, President
Facsimile: (404) 237-3060
If to HomeCom: HomeCom Communications, Inc.
Building 14, Suite 100
3535 Piedmont Road
Atlanta, Georgia 30308
Attention: Harvey Sax, President
Facsimile: (404) 237-3060
If to HDA: Hamilton Dorsey Alston Company
Suite 100
3350 Cumberland Circle
Atlanta, Georgia 30339-3346
Facsimile: (770) 850-9375
All notices, requests, claims, demands and other communications
required or permitted to be made hereunder shall be in writing and shall be
given (and shall be deemed to be received on the date given) by hand, cable,
telegram, telex, telecopy (with receipt confirmed) or by overnight courier
service, to the respective parties hereto at their addresses set forth below
their signatures
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hereto, and a copy of each such notice, request, claim, demand or other
communication shall be sent to the then registered agent of the Company at its
registered office.
8.7 Assignment; Delegation. No Party may assign any of its rights, or
delegate any of its duties, pursuant to the terms of this Agreement, without the
prior written consent of all other Parties.
8.8 Entire Agreement. This Agreement supersedes all prior discussions
and agreements by the Parties, with respect to the transactions described
herein, and constitutes the sole and entire agreement between the parties hereto
as to such transactions.
8.9 Applicable Law. This Agreement has been negotiated, drafted, and
executed in Georgia, and shall be construed and enforced according to the laws
of the State of Georgia.
8.10 Validity. If any provision of this Agreement is held for any
reason to be invalid, it will not invalidate any other provisions of this
Agreement which are in themselves valid, nor will it invalidate the provisions
of any other agreement between the parties hereto.
8.11 Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants made in this Agreement are cumulative,
are in addition to those imposed by law or equity, and will survive the
execution and delivery hereof, and the termination of the term hereof where
applicable.
8.12 Headings. The titles of the articles and subsections hereof appear
as a matter of convenience only and shall not affect the interpretations
thereof.
8.13 Waiver. Nothing contained in this Agreement shall prevent the
written waiver of the provisions of this Agreement by the parties hereto;
provided, however, that waiver by any party of a breach by any other party of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach by such party. No waiver shall be valid unless in writing
and signed by all other parties hereto.
8.14 Word Forms. Words importing the singular number shall include the
plural number and vice versa, and any pronoun used shall be deemed to cover all
genders.
8.15 Further Assurances. The parties hereto agree to execute and
deliver in a timely fashion any and all additional documents reasonably
necessary to effectuate the purposes of this Agreement.
8.16 Dividends. No dividends shall be paid or any distributions made
with respect to any Stock sold, transferred, pledged, assigned, given,
encumbered, or otherwise disposed of in breach of the terms of this Agreement,
and no such transfer be registered on the books or records of the Company.
8.17 Amendment. This Agreement may not be amended, modified or
supplemented except in a writing duly signed by all the parties hereto and
clearly expressing such intent.
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8.18 Binding Agreement. This Agreement, and all of its provisions,
shall be binding upon and inure to the benefit of all the parties hereto, and
their respective heirs, Legal Representative(s), successors and permitted
assigns, without any further act or action by any party hereto; provided,
however, such transfer will not be recognized on the books and records of the
Company and will not be valid unless such transfer occurs pursuant to the terms
hereof and such heir, Legal Representative, successor or permitted assign has
consented in writing to the terms and conditions hereof.
8.19 Conflicting Agreements. Each party hereto represents and warrants
that the execution, delivery and performance of this Agreement by such party
does not conflict with the terms of any agreement, judicial decree or order to
which such party is a party or is subject.
8.20 Adequacy of Consideration. This Agreement constitutes a separate
agreement independently supported by good and adequate consideration, the
receipt and sufficiency of which is hereby acknowledged. This Agreement shall be
interpreted, construed, enforced, and conclusively deemed separate, apart from,
and independent of any other agreement between and among the parties hereto. Any
claim or cause of action of any party hereto against any other party hereto
arising under any other agreement between or among the parties, or out of any
set of facts, shall not constitute a defense to the enforcement of covenants and
agreements contained in this Agreement.
8.21 Enforceability. The parties recognize and acknowledge that it is
impossible to measure in money the damages which would result to any party
hereto as a result of the failure of any one of the parties hereto to perform
any of the obligations imposed pursuant to the terms of this Agreement. If any
party hereto or its Legal Representative should institute an action or
proceeding in equity to enforce the provisions hereof, any party hereto against
whom such action or proceeding is brought hereby waives the claim or defense
that such complaining party or its Legal Representative has an adequate remedy
at law, and such party or such Legal Representative shall not urge in any action
or proceeding the claim or defense that such remedy at law exists. Each party
hereto agrees that specific performance, or injunctive relief, as the case may
be, is an appropriate remedy for any breach hereof; provided, however, that
nothing contained herein shall prevent any party hereto from seeking a remedy at
law in connection with any breach of this Agreement by the other party hereto.
8.22 Judicial Interpretation. If a provision in this Agreement requires
judicial interpretation, the judicial body interpreting or construing the same
shall not apply the assumption that the terms hereof shall be more strictly
construed against one party hereto by reason of the rule of construction that an
instrument must be construed more strictly against the party which itself or
through its agents prepared the same, the parties hereto hereby agreeing that
all parties hereto and their agents have participated in preparation hereof
equally.
8.23 Consent to Jurisdiction. Each party hereto agrees to the exclusive
jurisdiction of the United States District Court for the Northern District of
Georgia with respect to any claim or cause of action, whether in law or equity,
including specific performance, arising under or relating to this Agreement, and
waives personal service of any and all process upon it, and
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consents that all services of process may be made by certified or registered
mail, postage pre-paid and return receipt requested, to the address of the
parties set forth in Section 10.6 hereof. Each party hereto waives any objection
based on forum nonconveniens and waives any objection to venue of any action
instituted hereunder. Each party hereto waives trial by jury in any action
brought hereunder. Each party hereto agrees that a final judgment in any such
action shall be conclusive and may be enforced in any other jurisdiction by suit
on a judgment or in any other manner provided by law. Nothing in this Section
10.23 shall affect the right of any party hereto to serve legal process in any
other manner permitted by law. To the extent that any party hereto has or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process with respect to itself or its property, such party hereby waives
(to the fullest extent permitted by applicable law) such immunity in respect of
its obligations hereunder.
8.24 Time. Time is of the essence with respect to this Agreement and
the exercising by any party hereto of any rights or performance by any party
hereto of any duties contained herein.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed this 23rd day of January 1998.
"COMPANY"
InsureRate, Inc.
By:
-----------------------------------------
Jerome R. Corsi, President
"HDA"
Hamilton Dorsey Alston Company
By:
-----------------------------------------
Curt L. Goetsch, Senior Vice President
"HOMECOM"
HomeCom Communications, Inc.
By:
-----------------------------------------
Harvey Sax, President
ACKNOWLEDGED AND ACCEPTED
ON THIS 23RD DAY OF JANUARY, 1998:
(SEAL)
- -------------------------------
Jerome R. Corsi
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EXHIBIT 10.33
EXHIBIT 2.2 (F)
WEB DEVELOPMENT AND HOSTING SERVICES AGREEMENT
This Web Development and Hosting Services Agreement (the "Agreement")
is entered on the date below written by and between InsureRate, Inc., a Georgia
corporation ("InsureRate"), and Hamilton Dorsey Alston Company, a Georgia
corporation ("HDA").
R E C I T A L S:
WHEREAS, InsureRate is engaged in the business of providing Internet
web development and web hosting services to entities engaged in the sale,
marketing or underwriting of insurance and other financial products and
services;
WHEREAS, HDA is a duly licensed insurance agency and is licensed to
solicit the sale of and sell certain insurance services and products in certain
states of the United States;
WHEREAS, HDA desires to engage InsureRate to provide certain web page
development and web hosting services to HDA in connection with HDA's business.
NOW, THEREFORE, for and in consideration of the mutual premises set
forth herein and for other good and valuable consideration the receipt and
sufficiency of which is acknowledged and accepted by each of the parties hereto,
and subject to the terms and conditions stated herein, the parties hereto agree
as follows.
1. Web Page Development Schedule.
(a) InsureRate agrees to perform for HDA Internet web site development
services (the "Development Services") for the creation of an internet web site
located on InsureRate's servers (the "Wed Site") for the marketing of group and
individual insurance products in the lines of insurance described on Exhibit A
hereto (the "Exclusive Products") according to the specifications submitted by
HDA to InsureRate. InsureRate shall offer to HDA the right to market and
advertise any other insurance products to be offered on InsureRate's web servers
prior to offering such right to any other insurance agency. If HDA declines to
offer any such product or service on the Web Site, then InsureRate may offer the
right to market such product or service to any other insurance agency on the Web
Site or any web server of InsureRate.
(b) HDA may change its content or add to it as frequently as HDA wishes
with the approval of InsureRate, which approval shall not be unreasonably
withheld or delayed. InsureRate will promptly provide changes to links, text,
and graphics, project management, and programming for the Web Site as requested
by HDA.
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2. Exclusive License.
InsureRate hereby grants to HDA an exclusive license to display on the
Internet World Wide Web the Web pages in the form prepared by InsureRate
pursuant to performing the Development Services ("Work Product") and to copy and
modify the Work Product, except for the Programming Code, and create derivative
works of the Work Product, except for the Programming Code, for such display on
the World Wide Web of Web pages of HDA only. The Work Product shall only be used
for Web pages of HDA and its affiliates and shall not be used for any other
party. Notwithstanding the above, HDA shall not allow any party to copy, modify
or create derivative works of the programming code or other code that is not
HTML ("Programming Code"). HDA and other parties shall not reverse engineer or
decompile any of the Work Product. In consideration of this license, HDA agree
that any copies, modifications and derivative works of the Work Product shall
retain all copyright and other proprietary notices of InsureRate as originally
contained therein. All materials delivered to InsureRate by HDA ("HDA's
Material") shall remain the property of HDA and InsureRate shall not have the
right to use HDA's Material except in performing the Development Services for
HDA. HDA warrants that all information provided to InsureRate is either owned by
HDA or HDA has a right to use such information for the purposes contemplated
herein. All Work Product, except for HDA's Material, shall be the sole property
of InsureRate, and InsureRate reserves all rights in the Work Product, subject
to the above license. InsureRate uses core modules of software code to build
Programming Code and does not grant HDA resale or licensing rights to the
Programming Code. All Work Product is subject to intellectual property rights
reserved by InsureRate and/or others, and may not be further licensed or
transferred to others. HDA authorizes InsureRate to use, display, demonstrate
and place on the World Wide Web the Work Product for marketing purposes of
InsureRate. InsureRate is entitled to place a small hyperlinked logo at the
bottom of any Web Site page and/or Programming code or applications created for
HDA.
3. Limited Warranty.
InsureRate warrants that for a period of 90 days from the date of first
installation of HDA's Web page Work Product on the server described above, the
coding of such Work Product shall be reasonably HTML-compliant and will perform
substantially as described in the attached proposal, if any. InsureRate agrees
to provide support and maintenance for any Work Product for a period of 90 days
of HDA's first usage of said Work Product. Notwithstanding the foregoing, the
sole and exclusive remedy for a breach of the warranties shall be that
InsureRate shall replace the nonconforming coding to make such Work Product
reasonably HTML-compliant. HDA acknowledges that HTML is an industry standard
that contains some ambiguous provisions and that does not completely address all
issues associated with the coding of Web pages accessible via the World Wide
Web. HDA also acknowledges that HTML is a standard that will be amended from
time to time and that not all "browsers" used by third parties to access the
World Wide Web implement HTML in the same way. Variations in HTML coding
associated with ambiguities or revisions to the HTML standard or variations
among World Wide Web browsers shall not be the basis for a claim of breach of
Insurerate's warranties under this Agreement. HDA acknowledges that InsureRate
develops primarily for the Netscape Browser. Many enhanced features of this
browser appear broken or nonexistent on other browsers such as
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CompuServe, Prodigy, etc. If HDA needs its Web Site and/or Programming Code
viewed by the broadest possible audience, additional special programming may be
required and such additional services are not covered unless specifically
indicated in writing in this proposal. Notwithstanding anything contained herein
to the contrary, InsureRate makes no representation or warranty to HDA, express
or implied, that the Web Site can or will process any date information relating
to the change of the year 2000.
4. Web Site Maintenance Schedule.
(a) InsureRate will perform maintenance during the Term ("Maintenance
Period") on the Web Site. During the Maintenance Period, InsureRate will provide
services to correct any errors in the operation of all the Web Site's
applications and to maintain the function of such applications and the Web Site.
During the Maintenance Period, HDA is entitled to receive any free upgrades of
any Web Site applications provided by InsureRate, provided that HDA shall not be
entitled to receive any applications that were not originally placed in the Web
Site by InsureRate or to receive any new products announced by InsureRate.
InsureRate is not obligated to perform any maintenance or fulfill any warranty
obligation if HDA has modified any source code in the Web Site or any of the
applications in the Web Site.
(b) InsureRate shall not be obligated pursuant to these maintenance
Services to incorporate into the Web Site any new material that constitutes more
than fifteen (15%) percent of material in the Web Site and/or I-net Applications
contained therein. For the purposes of determining new material exceeding 15% ,
the average number of pages during any term will be used as the divisor for the
number of new pages added. InsureRate will inform HDA before doing any work
under this maintenance Schedule if InsureRate believes that the maintenance
exceeds the amount of changes that InsureRate is obligated to make under the
annual maintenance contract in place at the time. These maintenance Services do
not include creation of new applications or Programming Code. InsureRate's
maintenance Services are limited to changes in the static content of the Web
Site, unless otherwise provided herein.
(c) Unfortunately, computers need routine maintenance and sometimes
break down. Also, COMPANY cannot control the timing or volume of attempts to
access Insurerate's web server. As a result, InsureRate does not guarantee or
warrant that HDA or any third parties will be able to access the Web Site at any
particular time.
InsureRate's access services are provided on an "as-is, as-available" basis.
5. Web Site Hosting Services.
During the Term, InsureRate will provide the hosting of the Web Site
files described in Section 2 hereof on the web servers of InsureRate.
6. Web Hosting Maintenance Fees.
HDA shall pay a quarterly hosting fee to InsureRate on or before the
tenth (10th) day of each quarter equal an amount (the "Web Hosting Rate")
mutually agreed upon in writing by HDA and InsureRate pursuant to a business
plan approved by both of them (the "Approved
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Business Plan") not to exceed two thirds (2/3)of the revenue earned by HDA
during the preceding calendar quarter from all agency and brokerage agreements
between HDA and each insurer for which HDA markets and sells insurance products
or services on the Web Site (each, an "HDA Web Carrier"). Notwithstanding
anything herein contained to the contrary, for any insurance product or service
of an HDA Web Carrier which is marketed on the Web Site, the Web Hosting Rate
shall be adjusted downward, by an amount mutually agreed upon by HDA and
InsureRate, if the actual costs of HDA's administration thereof exceeds or is
reasonably likely to exceed the amount of expenses contemplated in the Approved
Business Plan.
7. HDA's Covenants. During the Term of this Agreement,
(a) HDA shall not represent to any person or entity that InsureRate is
an insurance agency or engaged in the solicitation or sale or any insurance
products.
(b) HDA shall not breach the terms of any agency agreement between HDA
and any insurer.
(c) HDA shall maintain, at its sole expense, all licenses required by
any applicable state insurance laws, regulations or bulletins for HDA's
marketing, solicitation and sale of any insurance product placed on the Web
Site.
(d) HDA shall not solicit the sale of any insurance product or
application therefor in any jurisdiction in which HDA is not duly licensed and
will use its good faith efforts to obtain any insurance agency licenses that
InsureRate determines are required in order for HDA to use the Web Site for the
marketing and sale of insurance products or services in any state.
(e) HDA shall comply with Insurerate's content standards as described
below:
(i) Adult-Oriented Sites. InsureRate's policy is NOT to
host "Adult Oriented" Web sites. There are various legal and logistical
reasons as to why InsureRate has decided to instigate this policy,
among others: adult sites typically generate an enormous amount of
traffic disproportionate to the amount of useful information provided.
(ii) Spamming. InsureRate has a strict policy against
spamming. Users who spam via E-mail, newsgroups, etc. are not allowed
on InsureRate's servers. HDA will receive a warning from InsureRate
after the first such complaint from any of InsureRate's clients. If
InsureRate receives any additional complaints, the Web Site will be
removed, and this Agreement will be terminated by InsureRate. This is a
zero toleration policy. Spamming is not allowed with any InsureRate
account.
(iii) Reservation of Rights. InsureRate reserves the right to
remove objectionable content, determined in InsureRate's sole
discretion, from any Web site or account on InsureRate's servers.
(f) HDA shall comply with all applicable federal, state and local laws
in using the Web Site.
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(g) HDA shall keep its books and records and account for all
commissions and other revenue earned form HDA Web Carriers in accordance with
generally accepted accounting principles and customary practices of insurance
agencies in the United States.
(h) HDA shall not make any attempt to gain unauthorized access to any
other systems or networks. HDA understands that the information available
through InsureRate or interconnecting networks may not be accurate. HDA
understands that internetworking communications are not secure, and may be
subject to interception or loss. InsureRate makes no warranties of any kind,
either express, implied, or statutory concerning the data or information
available through the InsureRate network.
8. Term of Agreement.
The initial term of this Agreement (the "Initial Term") shall commence
on January 26, 1998 and continue for a period of five (5) years, unless
terminated earlier as provided herein. This Agreement shall automatically renew
for an additional term of five (5) years at the expiration of the Initial term
unless either party gives the other written notice of its desire not to renew at
least ninety (90) days prior to the expiration of the Initial Terms.
9. Representations and Warranties By InsureRate. InsureRate represents and
warrants to HDA as follows:
(a) InsureRate is a corporation duly organized and existing under the
laws of the State of Georgia and has all requisite corporate authority to own
its properties and to carry on its business as now conducted. InsureRate is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where such qualification is necessary.
(b) The execution, performance and delivery of this Agreement by
InsureRate are within InsureRate's corporate powers and have duly authorized by
all necessary corporate action on the part of InsureRate. This Agreement
constitutes the valid and binding agreement of InsureRate enforceable against
InsureRate in accordance with its terms, except as (i) the enforceability hereof
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally and (ii) the availability of equitable
remedies may limited by equitable principle of general applicability.
(c) The execution, performance and delivery of this Agreement by
InsureRate require no action by or in respect of, or filing with, any
governmental body, agency, or official.
(d) The execution, performance and delivery of this Agreement by
InsureRate do not and will not violate (i) the articles of incorporation or
bylaws of InsureRate, (ii) violate any applicable law, rule, regulation,
judgment, order or decree or alter or impair any licenses, franchise, permit or
other similar authorization held by InsureRate, or (iii) require the consent or
other action of any person or entity.
(e) There is no action, suit, investigation or proceeding pending
against, or the knowledge of InsureRate, threatened against or affecting
InsureRate before any court or arbiter or
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any governmental or regulatory body, agency or official, which would could
adversely affect InsureRate's ability to perform its obligations under this
Agreement.
(f) INSURERATE DOES NOT MAKE ANY EXPRESS OR IMPLIED WARRANTIES OR
CONDITIONS, WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES AND CONDITIONS OF MERCHANTABILITY, AGAINST
INFRINGEMENT AND OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO SERVICES
CONTEMPLATED TO BE PROVIDED BY INSURERATE UNDER THIS AGREEMENT.
10. Representations and Warranties By HDA. HDA represents and warrants to
InsureRate as follows:
(a) HDA is a corporation duly organized and existing under the laws of
the State of Georgia and has all requisite corporate authority to own its
properties and to carry on its business as now conducted. HDA is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction where such qualification is necessary.
(b) HDA is duly licensed as any insurance agency to sell property,
casualty, life and health insurance certain states of the United States. HDA's
authority to sell such insurance in such states is not restricted in any
respect, and all such licenses are in full force and effect.
(c) The execution, performance and delivery of this Agreement by HDA
are within HDA's corporate powers and have duly authorized by all necessary
corporate action on the part of HDA. This Agreement constitutes the valid and
binding agreement of HDA enforceable by InsureRate against HDA in accordance
with its terms, except as (i) the enforceability hereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting creditors'
rights generally and (ii) the availability of equitable remedies may limited by
equitable principle of general applicability.
(d) The execution, performance and delivery of this Agreement by HDA
require no action by or in respect of, or filing with, any governmental body,
agency, or official.
(e) The execution, performance and delivery of this Agreement by HDA do
not and will not violate (i) the articles of incorporation or bylaws of HDA,
(ii) violate any applicable law, rule, regulation, judgment, order or decree or
alter or impair any licenses, franchise, permit or other similar authorization
held by HDA, or (iii) require the consent or other action of any person or
entity.
(f) There is no action, suit, investigation or proceeding pending
against, or the knowledge of HDA, threatened against or affecting HDA before any
court or arbiter or any governmental or regulatory body, agency or official,
which would could adversely affect HDA's ability to perform its obligations
under this Agreement or any agreement between HDA and any insurer or the ability
of HDA to market and sell insurance products on the Internet.
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(g) HDA owns the unregistered trademark for the mark "HDA" free and
clear of all liens and encumbrances, and HDA has not licensed such trademark to
any other person or entity.
(h) During the Term, HDA shall not market or solicit any insurance
product or service on an Internet web site (other than the Web Site) which is
engaged in direct competition with InsureRate.
11. Nondisclosure.
HDA and INSURERATE acknowledge that the other party may disclose to
them ("Recipient") certain Proprietary Material in the performance of this
Agreement. Recipient agrees (i) to hold the Proprietary Material in strict
confidence, (ii) not to use the Proprietary Material other than for the
performance of this Agreement, and, (iii) to disclose the Proprietary Material
only to full time employees of Recipient requiring such material for performance
of the Services in accordance with this Agreement, and who have undertaken an
obligation of confidentiality and limitation of use consistent with this
Agreement. "Trade Secrets" means information of Recipient that is a trade secret
under applicable law. "Confidential Information" means confidential or
proprietary information of value to INSURERATE other than Trade Secrets.
"Proprietary Material" means Trade Secrets and Confidential Information. This
obligation will continue during the Term and for three (3) years thereafter for
Confidential Information and for Trade Secrets as long as they are Trade Secrets
under applicable law.
12. Trademarks.
INSURERATE grants HDA permission to utilize and HDA agrees to maintain
and display certain INSURERATE designated trademarks and symbols in HDA's web
site in the form placed by INSURERATE pursuant to the Services.
13. Limitation of Liability.
INSURERATE AND HDA SHALL IN NO EVENT BE LIABLE FOR ANY INCIDENTAL,
CONSEQUENTIAL, OR ANY OTHER INDIRECT LOSS OR DAMAGE, INCLUDING LOST PROFITS,
ARISING OUT OF THIS AGREEMENT OR ANY OBLIGATION RESULTING THEREFROM, OR THE USE
OR PERFORMANCE OF ANY SERVICE, WHETHER IN AN ACTION FOR OR ARISING OUT OF ANY
CAUSE WHATSOEVER, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT
INCLUDING NEGLIGENCE, STRICT LIABILITY OR OTHERWISE. INSURERATE'S ENTIRE
LIABILITY FOR ANY CLAIM, LOSS, DAMAGE, OR EXPENSE FROM ANY CAUSE WHATSOEVER,
REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT INCLUDING
NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, SHALL BE LIMITED TO DIRECT, PROVEN
DAMAGES IN AN AMOUNT NOT TO EXCEED THE SUMS PAID BY HDA TO INSURERATE HEREUNDER,
IN AGGREGATE FOR ALL SUCH CLAIMS.
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14. Termination.
A. This Agreement may be terminated as follows:
(i) by the mutual written consent of each of InsureRate and HDA;
(ii) by InsureRate upon a Change in Control by delivering
to HDA written notice of termination within thirty
(30) days after InsureRate receives notice of such
Change in Control;
(iii) by InsureRate if any of HDA's licenses, permits or
other authorizations issued by any federal or state
insurance regulatory authority shall become
suspended, revoked or non-renewed or subject to a
proceeding therefor;
(iv) by InsureRate upon the voluntary or involuntary
filing against HDA of any petition under any federal
or state bankruptcy, receivership, liquidation,
rehabilitation, administrative supervision or similar
law;
(v) by InsureRate if HDA breaches any term or provision of this
Agreement or any duty owed by HDA to InsureRate pursuant to
this Agreement;
(vi) by InsureRate if HDA shall violate any applicable
material federal, state or local law, regulation or
rule in connection with this Agreement;
(vii) by HDA if InsureRate shall breach any material term or
provision of this Agreement;
(viii) by HDA upon the voluntary or involuntary filing against
InsureRate of any petition or bankruptcy, receivership or
similar law; or
(ix) by either HDA or InsureRate for any or no reason by
delivering to the other party at least sixty (60)
days prior written notice of termination.
15. Indemnification.
(a) By InsureRate. InsureRate shall indemnify and hold harmless HDA
from and against any and all losses, claims, damages (compensatory and
punitive), liabilities and expenses, including reasonable costs of investigation
and legal counsel fees and disbursements, which may be imposed upon or incurred
by HDA or its directors, officer and employees as the result of any breach by
InsureRate of this Agreement or any negligent or willful misconduct of
InsureRate in rendering or performing any of the services contemplated herein to
be performed by InsureRate.
(b) By HDA. HDA shall indemnify and hold harmless InsureRate, any
person or entity which provides Internet web services to InsureRate and each of
their shareholders, directors, officers and employees (collectively, the
"InsureRate Indemnitees") from and against any and all losses, claims, damages
(compensatory and punitive), liabilities and expenses, including reasonable
costs of investigation and legal counsel fees and disbursements, which may be
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imposed upon or incurred by any of the InsureRate Indemnitees as the result of
or in connection with:
(i) any breach by HDA of this Agreement or any negligent or
willful misconduct of HDA in connection with this Agreement;
(ii) any claim, suit, action or proceeding brought against
any of the InsureRate Indemnitees by any agent, producer, subagent or
subproducer of HDA;
(iii) any claim, suit, action or proceeding brought against
any of the InsureRate Indemnitees by any HDA Web Carrier related to any
agreement between HDA and such HDA Web Carrier;
(iv) any claim, suit, action or proceeding brought against
any of the InsureRate Indemnitees related to any trademark or service mark of
HDA or any of HDA Web Carriers; and
(v) any claim, suit, action or proceeding brought against
any of the InsureRate Indemnitees by insurance regulatory body, agency or
official related to any act or omission by HDA.
(c) Indemnification Procedure.
(i) In order to be indemnified and held harmless, pursuant
to Sections 15 (a) or (b) hereof, a party entitled to be indemnified and held
harmless pursuant to such Section (the "Indemnified Party") shall notify the
party liable for such indemnification (the "Indemnifying Party") in writing
immediately upon becoming aware of any claim or demand which the Indemnified
Party has determined has given or could give rise to a right of indemnification
under this Agreement. Subject to the Indemnifying Party's right to defend in
good faith third party claims as hereinafter provided, the Indemnifying Party
shall satisfy its obligations under this Section 15 within thirty (30) days
after the receipt of written notice thereof from the Indemnified Party.
(ii) If the Indemnified Party shall notify the Indemnifying
Party of any claim or demand pursuant to Section 15, and if such claim or demand
relates to a claim or demand asserted by a third party against the Indemnified
Party which the Indemnifying Party acknowledges is a claim or demand for which
it must indemnify or hold harmless the Indemnified Party under Section 15 (a) or
(b), the Indemnifying Party shall have the right to employ counsel acceptable to
the Indemnified Party to defend any such claim or demand asserted against the
Indemnified Party. The Indemnified Party shall have the right to participate in
the defense of any such claim or demand. The Indemnifying Party shall notify the
Indemnified Party in writing, as promptly as possible (but in any case before
the due date for the answer or response to a claim) after the date of the notice
of claim given by the Indemnified Party to the Indemnifying Party under Section
15 of its election to defend in good faith any such third party claim or demand.
So long as the Indemnifying Party is defending in good faith any such claim or
demand asserted by a third party against the Indemnified Party, the Indemnified
Party shall not settle or compromise such claim or demand. The Indemnified Party
shall make available to the
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Indemnifying Party or its agents all records and other materials in the
Indemnified Party's possession reasonably required by it for its use in
contesting any third party claim or demand. Whether or not the Indemnifying
Party elects to defend any such claim or demand, the Indemnified Party shall
have no obligations to do so.
16. Miscellaneous.
(a) Amendment. This Agreement may be amended at any time only
by the mutual agreement of the parties hereto. Any such amendment must be in
writing and signed by the duly authorized representatives of the parties hereto.
(b) Binding Effect. This Agreement shall inure to the benefit
of and be binding upon each of the successors and permitted assigns of the
parties hereto.
(c) Counterparts. This Agreement may be executed in two (2)
counterparts, each of which shall be deemed to be an original, but which
together shall constitute but one and the same instrument.
(d) Entire Agreement. This Agreement contains the entire
agreement between the parties hereto and supersedes any and all prior
agreements, arrangements or understandings (whether written or oral) between
InsureRate and HDA relating to the subject matter hereof. No representation,
inducement, promise or agreement, oral or otherwise, made by any party hereto
which is not embodied or referred to herein is or shall be of no force or
effect.
(e) Governing Law. This Agreement, and the rights and
obligations of the parties hereto, shall be governed by and construed in
accordance with the laws of the State of Georgia without regard to its
applicable principles of conflicts of laws.
(f) Headings and References. The section headings contained in
this Agreement are inserted for convenience of reference only and shall not
affect the meaning or interpretation of this Agreement or any term or provision
hereof.
(g) Nature of Relationship. The relationship between
InsureRate and HDA under this Agreement shall be that only of an independent
contractor. Nothing contained in this Agreement shall be construed as creating
or deemed to create the relationship of employer and employee, a partnership, a
joint venture, agency or other association between InsureRate and HDA or any of
their respective affiliates, directors, officers, employees, agents or
sub-agents.
(h) No Assignment. This Agreement shall not be assignable by
any party hereto without prior written consent of the other party hereto and any
attempt to assign this Agreement without such consent shall be void.
(i) Notices and Other Communications. All notices of
objections, other notices or other communications required or permitted
hereunder must be in writing and shall be deemed effectively given (a) upon
delivery, when delivered personally against receipt therefor, (b) upon delivery
when sent by certified mail, postage prepaid and return receipt requested, (c)
upon
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transmission, when transmitted by telecopier, facsimile, telex or other
electronic transmission method, provided that receipt is confirmed and notice is
sent by certified mail, postage prepaid and return receipt requested, or (d)
upon delivery, when sent by Federal Express or other nationally recognized
overnight delivery service.
If more than one (1) party is entitled to receive a specific notice or
other communication, the same shall be deemed to have been effectively given
when given to all of the parties entitled to receive the same, in the manner
described above. Any such notice shall be sent to the party to whom notice is
intended to be given at its address as shown below:
If to InsureRate: InsureRate, Inc.
Building 14, Suite 100
3535 Piedmont Road
Atlanta, Georgia 30308
Attention: Jerome R. Corsi, President
Facsimile: (404) 237-3060
with a copy to: Morris, Manning & Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
Attention: Brian T. Casey, Esq.
Facsimile: (404) 365-9532
If to HDA Hamilton Dorsey Alston Company
Suite 100
3350 Cumberland Circle
Atlanta, Georgia 30339-3356
Attention: Curt L. Goetsch, Senior Vice
President
Facsimile: (770) 850-9375
(j) No Third Party Beneficiaries. Nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies, including any rights or remedies as an intended or incidental third
party beneficiary, of any nature under or by reason of this Agreement.
(k) Inspection. Each party hereto and its authorized
representatives and agents shall have the right to inspect, audit and copy, at
the offices of the other party hereto, any of the records, books or accounts
(regardless of the medium in which they are maintained) of the other party
pertaining in any way to any of the transactions or services contemplated herein
by delivering to the other party hereto at least two (2) days prior written
notice of inspection
11
<PAGE> 12
IN WITNESS WHEREOF the undersigned have affixed their hands and seal
this the 23rd day of January, 1998.
INSURERATE, INC.
By:
--------------------------------------
Jerome R. Corsi, President
[CORPORATE SEAL]
HAMILTON DORSEY ALSTON
COMPANY
By:
--------------------------------------
Curt L. Goetsch, Senior Vice President
[CORPORATE SEAL]
12
<PAGE> 1
EXHIBIT 10.34
EXHIBIT 2.2(G)
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS 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 WARRANT 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 MAKER HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES
NOT REQUIRE REGISTRATION OF THE WARRANT, WHICH OPINION AND WHICH COUNSEL SHALL
BE SATISFACTORY TO THE MAKER IN ITS SOLE DISCRETION.
HOMECOM COMMUNICATIONS, INC.
Warrant for the Purchase of Shares of Common Stock
25,000 SHARES
FOR VALUE RECEIVED, HOMECOM COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), hereby certifies that HAMILTON DORSEY ALSTON
Company or its permitted assigns, is entitled to purchase from the Company,
subject to the vesting schedule described herein, and in all events, prior to
5:00 P.M., Atlanta, Georgia time, on January 23, 2001, TWENTY FIVE THOUSAND
(25,000) fully paid and non-assessable shares of the common stock, $.0001 par
value per share, of the Company for an aggregate purchase price of $92,500.00
(computed on the basis of $3.70 per share). Hereinafter, (i) said common stock,
together with any other equity securities which may be issued by the Company
with respect thereto or in substitution therefor, is referred to as the "Common
Stock," (ii) the shares of the Common Stock purchasable hereunder or under any
other Warrant (as hereinafter defined) are referred to individually as a
"Warrant Share," and collectively as the "Warrant Shares," (iii) the aggregate
purchase price payable for the Warrant Shares hereunder is referred to as the
"Aggregate Warrant Price," (iv) the price payable for each of the Warrant Shares
hereunder is referred to as the "Per Share Warrant Price," (v) this Warrant, all
similar Warrants issued on the date hereof and all Warrants hereafter issued in
exchange or substitution for this Warrant or such similar Warrants are referred
to as the "Warrants," and (vi) the holder of this Warrant is referred to as the
"Holder" and the holder of this Warrant and all other Warrants or Warrant Shares
issued upon the exercise of any Warrant are referred to as the "Holders." The
Aggregate Warrant Price is not subject to adjustment. The Per Share Warrant
Price is subject to adjustment as hereinafter provided, and in the event of any
such adjustment, the number of Warrant Shares shall be adjusted to equal the
<PAGE> 2
number determined by dividing the Aggregate Warrant Price by the Per Share
Warrant Price in effect immediately after such adjustment.
1. Exercise of Warrant.
(a) The right to purchase shares of Common Stock pursuant to
this Warrant is subject to vesting as described below, and the Holder may not
exercise its right to purchase such shares, except only as to such rights which
are fully vested in accordance with the following vesting schedule. The right to
purchase the first eight thousand three hundred thirty-three and 33/100
(8,333.33) shares of Common Stock purchasable hereunder shall become vested as
of January 23, 1999, the right to purchase the second eight thousand three
hundred thirty-three and 33/100 (8,333.33) shares of Common Stock purchasable
hereunder shall become vested as of January 23, 2000, and the right to purchase
the third eight thousand three hundred thirty-three and 33/100 (8,333.33) shares
of Common Stock purchasable hereunder shall become vested as of January 23,
2001. After the right to purchase any share of Common Stock purchasable under
this Warrant has become fully vested, the Holder may thereafter exercise this
Warrant, in whole at any time or in part from time to time, with respect to such
vested shares prior to 5:00 P.M., Atlanta, Georgia time, on March 31, 2001 (such
period, with respect to such the vested rights to purchase shares, being the
"Exercise Period"), by the Holder by the surrender of this Warrant, together
with the Warrant Exercise Agreement in the form attached hereto as Exhibit A
duly completed and executed by the Holder or its duly authorized agent, and upon
payment of the Aggregate Warrant Price, or the proportionate part thereof if
this Warrant is exercised in part. Payment for Warrant Shares shall be made by
certified or official bank check payable to the order of the Company.
Notwithstanding anything contained herein to the contrary, this Warrant shall
terminate on March 31, 2001 (the "Expiration Date"). If this Warrant is
exercised in part, this Warrant must be exercised for a number of whole shares
of the Common Stock, and the Holder is entitled to receive a new Warrant
covering the Warrant Shares in respect of which this Warrant has not been
exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such exercise and surrender of
this Warrant, the Company will (i) issue a certificate or certificates in the
name of the Holder for the largest number of whole shares of the Common Stock to
which the Holder shall be entitled and, if this Warrant is exercised in whole,
in lieu of any fractional share of the Common Stock to which the Holder shall be
entitled, pay to the Holder cash in an amount equal to the fair value of such
fractional share (determined in such reasonable manner as the Board of Directors
of the Company shall determine), and (ii) deliver the other securities and
properties receivable upon the exercise of this Warrant, or the proportionate
part thereof if this Warrant is exercised in part, pursuant to the provisions of
this Warrant.
(b) The market price of a share of the Common Stock (the
"Market Price") on any date of determination shall be (i) the last reported sale
price per share of the Common Stock on the business day immediately preceding
the date of determination as reported on the National Association of Securities
Dealers Automated Quotations System ("Nasdaq") National Market (the "National
Market"), or (ii) if there is no such reported sale on the date in question, the
average of the closing bid and asked quotations as so reported on the National
Market, or (iii) if the Common Stock is not then listed on the National Market,
the last reported sale price per share of the Common Stock on such national
securities exchange upon which the Common Stock is
-2-
<PAGE> 3
then listed, or (iv) if the Common Stock is not then listed on any national
securities exchange, the average of the closing bid and asked quotations in the
over-the-counter market as reported by Nasdaq, or if not so reported, as
reported by the National Quotations Bureau or a similar organization. In the
absence of such quotations, the Board of Directors of the Company shall
determine in good faith the fair market value per share of the Common Stock,
which shall for these purposes be deemed to be the market price, which
determination shall be set forth in a certificate executed by an officer of the
Company showing the facts upon which the market price is based.
2. Reservation of Warrant Shares; Listing. The Company agrees that,
prior to the expiration of this Warrant, the Company will at all times (a) have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and rights of first refusal
and (b) if the Company hereafter lists the Common Stock on any national
securities exchange, keep the shares of the Common Stock receivable upon the
exercise of this Warrant authorized for listing on such exchange upon notice of
issuance.
3. Protection Against Dilution.
(a) If, at any time or from time to time after the date of
this Warrant, the Company shall issue or distribute to the holders of shares of
the Common Stock (i) securities, other than shares of the Common Stock, or (ii)
property, other than cash, without payment therefor, with respect to the Common
Stock, then, and in each such case, the Holder, upon the exercise of this
Warrant, shall be entitled to receive the securities and property which the
Holder would hold on the date of such exercise if, on the date of this Warrant,
the Holder had been the holder of record of the number of shares of the Common
Stock subscribed for upon such exercise and, during the period from the date of
this Warrant to and including the date of such exercise, had retained such
shares and the securities and properties receivable by the Holder during such
period. Notice of each such distribution shall be forthwith mailed to the
Holder.
(b) If, at any time or from time to time after the date of
this Warrant, the Company shall (i) pay a dividend or make a distribution on its
capital stock in shares of the Common Stock, (ii) subdivide its outstanding
shares of the Common Stock into a greater number of shares, (iii) combine its
outstanding shares of the Common Stock into a smaller number of shares or (iv)
issue by reclassification of the Common Stock any shares of capital stock of the
Company, the Per Share Warrant Price shall be adjusted so that the Holder upon
the exercise hereof shall be entitled to receive the number of shares of the
Common Stock or other capital stock of the Company which the Holder would have
owned immediately following such action had such Warrant been exercised
immediately prior thereto. An adjustment made pursuant to this Section 3(b)
shall become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
(c) In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company is
the continuing corporation, or in
-3-
<PAGE> 4
case of any sale or conveyance to another entity of the property of the Company
as an entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another entity (including any exchange effected in
connection with a merger of another corporation with the Company), the Holder of
this Warrant shall have the right thereafter to receive on the exercise of this
Warrant the kind and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale or conveyance (collectively
herein referred to as a "Transaction") had this Warrant been exercised
immediately prior to the effective date of such Transaction and, in any such
case, if necessary, appropriate adjustment shall be made in the application of
the provisions set forth in this Section 3 with respect to the rights and
interests thereafter of the Holder of this Warrant to the end that the
provisions set forth in this Section 3 shall thereafter correspondingly be made
applicable, as nearly as may reasonably be, in relation to any shares of stock
or other securities or property thereafter deliverable on the exercise of this
Warrant. The above provisions of this Section 3(c) shall similarly apply to
successive Transactions. The issuer of any shares of stock or other securities
or property thereafter deliverable on the exercise of this Warrant shall be
responsible for all of the agreements and obligations of the Company hereunder.
Notice of any Transaction and of said provisions so proposed to be made, shall
be mailed to the Holders of the Warrants not less than 30 days prior to such
event. A sale of all or substantially all of the assets of the Company for a
consideration consisting primarily of securities shall be deemed a consolidation
or merger for the foregoing purposes. Alternatively, in the event of a
Transaction, the Company may unilaterally cancel and terminate this Warrant in
exchange for (a) the cash or whole shares which the holder hereof would be
entitled to receive in the Transaction in exchange for the number of shares of
the Company issuable upon exercise hereof minus (b) the cash, or whole shares of
the survivor in the Transaction, equal in value to the exercise price.
(d) If the Board of Directors of the Company shall (i) declare
any dividend or other distribution with respect to the Common Stock, other than
a cash dividend payable otherwise than out of earnings or earned surplus, (ii)
offer to the holders of shares of the Common Stock any additional shares of the
Common Stock, any securities convertible into or exercisable for shares of the
Common Stock or any rights to subscribe thereto or (iii) propose a dissolution,
liquidation or winding up of the Company, the Company shall mail notice thereof
to the Holders of the Warrants not less than 15 days prior to the record date
fixed for determining stockholders entitled to participate in such dividend,
distribution, offer or subscription right or to vote on such dissolution,
liquidation or winding up.
(e) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of the Common Stock and other capital stock of the Company, the Board of
Directors of the Company (whose determination shall be conclusive and shall be
described in a written notice to the Holder of any Warrant promptly after such
adjustment) shall determine the allocation of the adjusted Per Share Warrant
Price between or among shares or such classes of capital stock or shares of the
Common Stock and other capital stock and any subsequent adjustments made
pursuant to this Section 3 shall apply equally to each such resulting class of
capital stock.
-4-
<PAGE> 5
4. Fully Paid Stock; Taxes. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights, rights of first refusal or other contractual rights to
purchase securities of the Company, and the Company will take all such actions
as may be necessary to assure that the par value or stated value, if any, per
share of the Common Stock is at all times equal to or less than the then Per
Share Warrant Price. The Company further covenants and agrees that it will pay,
when due and payable, any and all federal and state stamp, original issue or
similar taxes which may be payable in respect of the issue of any Warrant Share
or certificate therefor.
5. Non-Transferability. This Warrant may not be sold, transferred,
assigned, pledged or hypothecated by the Holder. The Company may treat the
registered Holder of this Warrant as he or it appears on the Company's books at
any time as the Holder for all purposes. The Company shall permit any Holder of
a Warrant or his or its duly authorized attorney, upon written request during
ordinary business hours, to inspect and copy or make extracts from its books
showing the registered holders of Warrants. All Warrants issued upon the
transfer or assignment of this Warrant will be dated the same date as this
Warrant, and all rights of the Holder thereof shall be identical to those of the
Holder of this Warrant.
6. 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 the Company 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 the Company 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.
7. Issuance of New Warrants. Notwithstanding any of the provisions of
this Warrant to the contrary, the Company 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. The Company may, at its option, require the Holder
of this Warrant to surrender its then current Warrant for any such new Warrant.
8. Loss, etc., of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
-5-
<PAGE> 6
9. Communication. No notice or other communication under this Warrant
shall be effective unless, but any notice or other communication shall be
effective and shall be deemed to have been given if, the same is in writing and
is mailed by first-class mail, postage prepaid, addressed to:
(a) the Company at Fourteen Piedmont Center,
Suite 100, 3535 Piedmont Road, Atlanta, Georgia 30305, or such
other address as the Company has designated in writing to the
Holder, or
(b) the Holder at 3350 Cumberland Circle, Suite
100, Atlanta, Georgia 30339-3346 or such other address as the
Holder has designated in writing to the Company.
10. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
11. Applicable Law. This Warrant shall be governed by and construed in
accordance with the law of the State of Georgia, without giving effect to the
principles of conflicts of law thereof.
12. Supplements and Amendments. This Warrant may be amended or
supplemented at any time in writing signed by the Company and the Holder.
13. Successors. This Warrant shall be binding upon and inure to the
benefit of the respective successors and permitted assigns hereunder of the
Company or the Holder.
14. 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 the Company.
15. 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 with this Warrant after exhaustion of all appeals
taken (or by the appropriate appellate court if such appellate court renders
judgment).
16. Benefits of this Agreement. Nothing in this Warrant shall be
construed to give to any person or corporation other than the Company 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 the
Company and the Holder hereof.
17. 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
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<PAGE> 7
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.
-7-
<PAGE> 8
IN WITNESS WHEREOF, HomeCom Communications, Inc. has caused
this Warrant to be signed by its a duly authorized officer and its corporate
seal to be hereunto affixed and attested by its Secretary this 23rd day of
January, 1998.
HOMECOM COMMUNICATIONS, INC.
By:
---------------------------------
Harvey Sax, President
ATTEST:
- -----------------------------
Name:
Title:
[Corporate Seal]
-8-
<PAGE> 9
EXHIBIT A
Warrant Exercise Agreement
<PAGE> 10
EXHIBIT A
HOMECOM COMMUNICATIONS, INC.
WARRANT EXERCISE AGREEMENT
INCLUDING INVESTOR SUITABILITY REPRESENTATIONS
THE SECURITIES OF HOMECOM COMMUNICATIONS, INC. WHICH WILL BE ISSUED UPON THE
EXERCISE OF THE WARRANTS (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE "BLUE SKY" OR SECURITIES LAWS. THE
SECURITIES CANNOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE RESTRICTIONS ON
TRANSFERABILITY CONTAINED IN THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS
AND WILL NOT BE TRANSFERRED OF RECORD EXCEPT IN COMPLIANCE WITH SUCH LAWS.
This WARRANT EXERCISE AGREEMENT (the "Agreement") dated as of _____ , ___ is
made and entered into between HOMECOM COMMUNICATIONS, INC., a Delaware
corporation ("HomeCom" or the "Company"); and the person executing this
Agreement as the investor (the "Investor"). By executing this Agreement,
Investor acknowledges that Investor understands that the Company is relying
upon the accuracy of the representations and warranties of Investor contained
herein in complying with its obligations under applicable securities laws.
WITNESSETH:
WHEREAS, the Investor desires to exercise a Warrant to acquire shares of the
Company's Common Stock;
NOW, THEREFORE, for and in consideration of ten dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Investor agree as follows:
1. EXERCISE OF THE WARRANTS. Subject to the terms and conditions set forth
herein, Investor hereby exercises the Warrant to acquire the number of shares of
Common Stock of HomeCom set forth below the Investor's signature hereto (the
"Securities"). The Warrant shall be deemed exercised only when and if this
Agreement is countersigned by HomeCom. HomeCom shall countersign this Agreement
only if HomeCom determines that this Agreement is fully completed and executed
by the Investor and that the Investor has represented that the Investor is an
"accredited investor" as defined under Regulation D of the Securities Act of
1933, as amended (the "1933 Act").
2. INVESTOR'S REPRESENTATIONS AND WARRANTIES. Investor represents, warrants
and covenants to HomeCom as of the date hereof that:
a. Investor is a resident of the state shown in Investor's address below and
will be the sole party in interest as to the Securities subscribed for and is
acquiring the Securities for Investor's own account, for investment only and not
with a view toward the resale or distribution thereof.
b. Investor must bear the economic risk of this investment for an indefinite
period of time because the Securities are not registered under the 1933 Act or
the securities laws of any state or other jurisdiction. Investor has been
advised that the Securities are not being registered under the 1933 Act upon the
basis that tile transactions
<PAGE> 11
involving their sale are exempt from such registration requirements as
transactions by an issuer not involving any public offering in reliance on
Sections 4(2) and 3(b) of the 1933 Act, and that reliance by HomeComm on such
exemption is predicated in part on Investor's representations set forth in this
Agreement. Investor acknowledges that HomeCom makes no representations of any
kind concerning its intent or ability to offer or sell the Securities to the
public, under Rule 144 or otherwise, except as set forth in the Warrant.
Investor further understands that HomeCom makes no covenant, representation or
warranty with respect to the registration of the Securities the Securities
Exchange Act of 1934, as amended, or its dissemination to the public of any
current financial or other information concerning HomeCom, except as set forth
in the Warrant.
c. Investor is able to bear the economic risk of losing Investor's entire
investment in HomeCom, which is not disproportionate to Investor's net worth,
and that Investor has adequate means of providing for Investor's current needs
and personal contingencies without regard to the investment in HomeCom. Investor
further represents and warrants that Investor is an "accredited investor" as
defined in Rule 501(a) Regulation D promulgated pursuant to the 1933 Act.
d. In connection with Investor's purchase of any of the Securities no oral or
written representations or warranties have been made to Investor other than
those contained herein.
e. To the extent Investor has deemed necessary, Investor has consulted with
Investors attorney, financial advisors and others regarding all financial,
securities and tax aspects of the proposed investment, and that said advisors
have reviewed this Agreement and all documents relating hereto on Investor's
behalf Investor and Investor's advisors have sufficient knowledge and experience
in business and financial matters to evaluate HomeCom, to evaluate the risks and
merits of an investment in HomeCom, to make an informed investment decision with
respect thereto, and to protect Investor's interest in connection with
Investor's purchase of the Securities without need for the additional
information which would be required to be included in more complete registration
statements effective under the 1933 Act. Investor acknowledges that an
investment in HomeCom involves a high degree of risk, and Investor represents
that Investor and Investor's advisors have engaged in a complete and thorough
independent analysis of HomeCom (including the financial condition of HomeCom
and have independently determined the advisability and suitability of Investor's
investment in HomeCom while taking into account Investor's level of
sophistication, financial resources (including the percentage of Investor's
total assets that this investment will represent), tolerance for risk, and
investment objectives.
f. Investor and Investor's advisors have had an opportunity to ask questions
of and to receive answers from the officers of HomeCom and to obtain additional
information in writing to the extent that HomeCom possesses such information or
could acquire it without unreasonable effort or expense: (i) relative to HomeCom
and the offering of the Securities; and (ii) necessary to verify the accuracy of
any information, documents, books and records furnished. All such materials and
information requested by Investor and Investor's advisors (including information
requested to verify information previously furnished) have been made available
and examined by Investor or Investor's advisors. Investor further acknowledges
that Investor and Investor's advisors have met with (or have been provided an
opportunity to meet with) HomeCom's Chief Financial Officer and have had an
opportunity to ask any and all questions of, and receive answers to their
satisfaction from, such Chief Financial Officer. Investor acknowledges that all
discussions with officers of HomeCom as well as any written information issued
by HomeCom, were intended to describe the aspects of HomeCom's business and
prospects which it believes to be material but were not necessarily a thorough
or exhaustive description. Investor acknowledges that HomeCom has not provided
any information to Investor regarding HomeCom's future prospects for success nor
has HomeCom made any representations or warranties to Investor regarding the
merits or advisability of purchasing the Securities.
g. Investor will not attempt to pledge, transfer, convey or otherwise dispose
of the Securities except in a transaction that is the subject of either (i) an
effective registration statement under the 1933 Act and any applicable state
securities laws, or (ii) an opinion of counsel, which opinion of counsel shall
be satisfactory to HomeCom, to the effect that such registration is not
required. HomeCom may rely on such an opinion of Investor's counsel in making
such determination. Investor consents to the placement of legends on any
certificates or documents representing any of the Securities, or any securities
issuable thereunder, stating that they have not been registered under the 1933
Act or any applicable state securities laws and setting forth or referring to
the restrictions
<PAGE> 12
on transferability and sale thereof. Investor is aware that HomeCom will make a
notation in its appropriate records, and notify its transfer agent, with respect
to the restrictions on the transferability of the Securities.
h. If Investor is an individual, he or she is at least 21 years of age or
older or, if Investor is a partnership, then each of its individual partners is
of at least such age.
i. Investor is the beneficial owner of the Warrants registered in its name,
that such Warrants are free and clear of all liens and encumbrances, and that
there are no liens or encumbrances on Investor's right to receive the Securities
on the exercise of the Warrant.
3. INDEMNIFICATION. Investor recognizes that the sale of the Securities to it
will be based upon its representations and warranties set forth above and on
other written information supplied by Investor to HomeCom. Investor agrees to
indemnify and to hold harmless HomeCom, and its affiliates from and against any
and all loss, damage, liability or expense, including costs and reasonable
attorney's fees, arising out of or based upon any false representation or
warranty made by Investor in this Warrant Exercise Agreement and/or any failure
by Investor to fulfill any covenants or agreements set forth herein or in the
other documents executed and delivered by him in connection with this
transaction.
4. TERMS OF OFFERING. No commission or similar compensation will be paid in
connection with the purchase of the Securities pursuant to the exercise of the
Warrants.
5. RESALE OF SECURITIES. Investor understands that if a public market for the
Securities should be maintained (as to which no assurance can be given), Rule
144 (the "Rule") promulgated under the Securities Act, subject to all of its
terms and conditions, permits the public resale (in limited amounts) of
securities acquired in nonpublic offerings such as the Securities without having
to satisfy the registration requirements of the Securities Act. Investor further
understands that, except as set forth in the Warrant, HomeCom makes no
representation or warranty regarding its fulfillment in the future of any
reporting requirements under the Securities Exchange Act of 1934, as amended, or
its dissemination to the public of any current financial or other information
concerning HomeCom, which in most circumstances is required by the Rule as one
of the conditions of its availability. Accordingly, Investor recognizes that
notwithstanding the ultimate development and maintenance of a public market for
the Securities, he may not be able to take advantage of the resale provisions of
the Rule and may be unable to publicly offer or sell any of such Shares unless
the rights to have the Securities registered for resale, as set out in the
Warrant, become available to him.
6. SURVIVAL OF REGISTRATION RIGHTS AND OTHER INVESTOR PROTECTIONS. Neither the
execution of this Agreement nor the exercise or partial exercise of the Warrant
shall terminate the registration rights of the Investor set forth in the
Warrant, if any, which shall survive such execution and exercise.
7. FURTHER INVESTOR SUITABILITY REPRESENTATIONS. Investor understands that the
Securities offered by HomeCom will not be registered under the 1933 Act.
Investor also understands that in order to ensure that the offering and sale of
the Securities are exempt from registration undo the 1933 Act, HomeCom is
required to have reasonable grounds to believe that Investor qualifies as an
"accredited investor" as defined in Rule 501(a) of Regulation D promulgated by
the Securities and Exchange Commission under the 1933 Act. Investor understands
that the information supplied in this section will be disclosed to no one other
than officers and agents of HomeCom without Investor's consent unless it is
necessary for HomeCom to use such information to support the exemptions from
registration under the 1933 Act and under the law of any state or other
jurisdiction.
<PAGE> 13
In order to induce HomeCom to permit Investor to purchase a portion of the
Securities, Investor makes the following representations and warranties:
A. BACKGROUND AND ADMINISTRATIVE INFORMATION.
NAME(S) IN WHICH INTERESTS ARE TO BE HELD:
- --------------------------------------------------------------------------------
First Name Initial Last Name
- --------------------------------------------------------------------------------
First Name Initial Last Name
- --------------------------------------------------------------------------------
Entity
SOCIAL SECURITY NUMBER(S): OR TAX IDENTIFICATION NUMBER(S):
- ------------------------------------ --------------------------------
- ------------------------------------ --------------------------------
Manner in which title to be held (please check one):
_ Individual Ownership
_ Community Property
_ Tenants in Common
_ Joint Tenants with
Right of Survivorship
_ Partnership*
_ Corporation**
_ As Custodian, Executor Agreement or Trustee for_____________ ***
* If a partnership, a copy of the partnership agreement must be attached to
the Subscription Agreement.
** If a corporation, a certified resolution authorizing this investment must
be attached to the Subscription Agreement.
*** If a custodian, trustee or executor, a copy of the trust, testamentary
document or other agreement authorizing this investment must be attached to
the Subscription Agreement.
CORRESPONDENCE ADDRESS:
- --------------------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
City State Zip Code
<PAGE> 14
BROKER'S TELEPHONE NUMBER: BUSINESS ( )_________________
CHECKS SHOULD BE MAILED TO:
(Please check one) ____ Correspondence Address
____ Account Officer (Specify
____ name and address below)
____ Other (specify below)
STATE (OR OTHER JURISDICTION) IN WHICH BROKER RECEIVED SUBSCRIPTION AGREEMENT:
- --------------------------------------------------------------------------------
DESCRIBE ANY PRE-EXISTING PERSONAL OR BUSINESS RELATIONSHIP WITH THE COMPANY, ID
OFFICERS OR DIRECTORS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B. BROKER SUITABILITY REQUIREMENTS.
The financial information and representations in this section are required to
be provided to the Company for Broker to qualify to purchase Securities. Broker
must INITIAL the paragraph below which describes the suitability requirement
under which Broker intends to qualify. Upon request of the Company, Broker must
provide information to document the representation initialed, as described
within each paragraph.
ONLY ONE PARAGRAPH NEED BE INITIALED.
_____ 1. INDIVIDUAL NET WORTH SUITABILITY
Initials
This suitability requirement may be selected only by an
individual(s), and NOT by a corporation, partnership, trust, estate,
unincorporated association or other entity.
Broker represents and warrants that his or her individual net worth
(excluding automobiles, principal residence and furnishings) with
spouse exceeds $l,000,000.
OR
<PAGE> 15
<TABLE>
<S> <C>
________ 2. INDIVIDUAL INCOME SUITABILITY
Initials
This suitability requirement may be selected only by an individual(s),
and NOT by a corporation, partnership, trust, estate, unincorporated
association or other entity.
Broker represents and warrants that his or her individual income was
in excess of $200,000, or his or her joint income with spouse was in
excess of $300,000, in each of the two most recent years and he or she
reasonably expects his or her net income to reach such level in the
current year.
OR
________ 3. DIRECTOR OR EXECUTIVE OFFICER SUITABILITY
Initials
This suitability requirement may be selected only by an individual(s),
and NOT by a corporation, partnership, trust, estate, unincorporated
association or other entity.
Broker represents and warrants that he or she is a director, executive
officer or general partner of the Company, or a director, executive
officer or general partner of a general partner of the Company. For
purposes hereof, "executive officer" shall mean the President, any
Vice President in charge of a principal business unit, division or
function (such as sales, administration or finance), any other officer
who performs a policy-making function, or any other person who
performs similar policy-making functions for the Company.
OR
4. Certain Qualified Organizations
Purchase represents and warrants that it is (check one):
________ a. A corporation, partnership, Massachusetts or similar
Initials business trust, or organization Initials described
in Section 501(cX3) of the Internal Revenue Code of
1986 (tax exempt organization), not formed for the
specific purpose of acquiring Securities, having
total assets in excess of $5,000,000.
________ b. A bank, savings and loan association or other similar
Initials institution (as defined in Initials Sections 3(aX2)
and 3(a)(5)(A) of the 1933 Act).
________ c. An insurance company (as defined in Section 2(13) of
Initials the 1933 Act). Initial,
________ d. An investment company registered under the Investment
Initials Company Act of 1940. Initials
________ e. A business development company (as defined in Section 2
Initials (a)(48) of the Investment Company Act of 1940) or a
private business development company (as defined in
Section 202(aX22) of the Investment Advisers Act of 1940).
________ f. A Small Business Investment Company licensed by the
Initials U.S. Small Business Administration under Sections
301(c) or (d) of the Small Business Investment Act of
1958.
________ g. A broker or dealer registered pursuant to Section 15 of
Initials the Securities Exchange Act of 1934, as amended.
</TABLE>
<PAGE> 16
<TABLE>
<S> <C>
________ h. A plan established and maintained by a state, its political
Initials subdivisions, or any agency or instrumentality of a state or
its political subdivisions for the benefit of its Purchasers,
which plan has total assets in excess of $5,000,000.
________ i. An Purchaser benefit plan within the meaning of the Purchaser
Initials Retirement Income Security Act of 1974 ("ERISA"), if the
investment decision is made by a "Plan Fiduciary", as defined
in Section 3(21) of such Act, which is either a bank, savings
and loan association, insurance company or registered
investment adviser.
________ j. An Purchaser benefit plan within the meaning of ERISA having
Initials total assets in excess of $5,000,000.
________ k. A self-directed Purchaser benefit plan within the meaning of
Initials ERISA, with investment decisions made solely by persons who
are accredited investors as defined in Rule 501(a) of
Regulation D.
________ l. A trust with total assets in excess of $5,000,000 not formed
Initials for the specific purpose of acquiring the Securities, whose
purchase is directed by a sophisticated person (i.e., a
person who has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits
and risks of an investment in the Securities).
</TABLE>
NOTE: If you claim suitability under this paragraph (3), the Company may
require that you provide appropriate information supporting your claim to
status as a Qualified Organization.
OR
________ 5. ENTITY SUITABILITY
Initials
The Investor represents and warrants that it is a corporation, a
partnership, an unincorporated association or other similar entity,
and that each owner of an equity interest in the entity satisfies
the suitability requirements of either paragraphs (1), (2) or (3)
above. An entity may be newly formed for the purpose of purchasing
a Security.
NOTE: If you claim suitability under this paragraph (4), you must
submit a list of each of the owners with an equity interest
in the entity, setting forth the address, telephone number
and social security or tax identification number and list
for EACH such owner the information required under
paragraphs (1), (2) or (3) above. These separate pages must
be validly signed by or on behalf of each such owner or
beneficiary. Alternatively, each such owner or beneficiary
may complete a separate copy of the Subscription Agreement.
________ 6. NONE OF THE ABOVE.
Initials
7. MISCELLANEOUS.
a. This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia.
b. This Agreement and the Securities issuable to Investor in connection
herewith contain the entire agreement between the parties with respect to the
subject matter hereof. The provisions of this Agreement may not be modified or
waived except in writing.
<PAGE> 17
c. The headings of this Agreement are for convenience of reference only, and
they shall not limit or otherwise affect the interpretation of any term or
provision hereof.
d. This Agreement and the rights, powers and duties set forth herein shall,
except as set forth herein, bind and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties hereto. Investor may not assign any of Investor's rights or interests in
and under this Agreement without the prior written consent of HomeCom, and any
attempted assignment without such consent shall be void and without effect.
8. ACCEPTANCE. This Agreement is subject to rejection or acceptance by
HomeCom, in its absolute discretion.
9. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall constitute an original. HomeCom shall retain one
counterpart, and one counterpart shall be returned to Investor upon acceptance
thereof by HomeCom.
[SIGNATURES ON NEXT PAGE]
<PAGE> 18
IN WITNESS WHEREOF, Investor has executed this Warrant Exercise Agreement this
_____ day of _______________, ___.
FOR CORPORATE, TRUST, OR FOR INDIVIDUAL PURCHASER(S)
PARTNERSHIP PURCHASERS
(1)
--------------------------------
Signature of Purchaser
- -------------------------------------
Name of Purchaser (Please print)
--------------------------------
By: Name of Purchaser (Please Print)
----------------------------------
Title:
-------------------------------
(2)
--------------------------------
Signature of Purchaser
--------------------------------
Name of Purchaser (Please Print)
TO BE COMPLETED BY COMPANY
The proposed exercise of the HomeCom Warrant for shares of HomeCom
Common Stock is accepted this ________ day of_____________, ______.
HOMECOM COMMUNICATIONS, INC.,
a Delaware corporation
By:
--------------------------------
Harvey W. Sax, President
<PAGE> 1
EXHIBIT 10.35
EXECUTION ORIGINAL
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), is made and entered into this 23rd
day of January, 1998, by and between INSURERATE, INC., a Georgia corporation
("Borrower"), and HOMECOM COMMUNICATIONS, a Georgia corporation ("Lender").
W I T N E S S E T H :
WHEREAS, Lender currently owns eighty-five percent (85%) of the total
common stock of Borrower; and
WHEREAS, Lender has agreed to loan (the "Loan") to Borrower up to One
Hundred Thousand and No/100 Dollars ($100,000.00) for the operation of
Borrower's business, including, but not limited to, the purchase of machinery,
equipment, fixtures and furnishings, leasehold improvements and other necessary
business expenses and working capital needs, repayable at the end of ten (10)
years in the form of cash or common stock of Borrower; and
WHEREAS, the Lender and Borrower each desire to enter into the Loan,
pursuant to the terms and conditions set forth herein;
NOW, THEREFORE, for and in consideration of the premises, covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I.
AMOUNT AND TERMS OF LOAN
1.1. Term Loan. The Lender agrees, subject to the terms and conditions
hereof, to loan to Borrower an aggregate principal amount of up to One Hundred
Thousand and No/100 Dollars ($100,000.00)(the "Maximum Loan Amount"). Subject to
the terms and conditions of this Agreement and in reliance upon the
representations and warranties of Borrower set forth herein, the Lender agrees
to lend to Borrower amounts of principal up to the Maximum Loan Amount at such
times and in such amounts as shall be requested by Borrower in accordance with
this Agreement. Amounts borrowed by Borrower pursuant to this Agreement and
repaid or prepaid by Borrower may not be reborrowed.
1.2. Advances of Principal. From time to time, and upon the written
request of Borrower, funds will be advanced by Lender to Borrower (each an
"Advance"). The amount and date of each Advance shall be at the discretion of
Borrower; provided, however, that the sum total of the Advances shall not exceed
the Maximum Loan Amount. The Loan, together with any Advances thereunder, shall
be evidenced by a promissory note and the advance requests attached thereto, in
the form of Exhibit 1.2 attached hereto (the "Master Note").
<PAGE> 2
1.3 Interest Rate. The unpaid principal balance of all Advances to
Borrower shall bear interest at the Applicable Interest Rate (as such term is
defined in the Master Note). Interest shall be calculated on the basis of actual
number of days elapsed over a year of 360 days.
1.4 Payment Date; Manner of Payment. The outstanding principal balance
advanced to Borrower plus accrued but unpaid interest thereon shall be payable
on the tenth (10th) anniversary of the date hereof (the "Payment Date").
Borrower shall have the option to repay the Lender on the Payment Date in either
lawful money of the United States of America or in shares of common stock of the
Borrower having a value on the Payment Date equal to the aggregate principal
amount advanced by Lender to Borrower, together with interest thereon, in
accordance with the terms and conditions of the Master Note.
ARTICLE II.
CONDITIONS OF CLOSING AND BORROWING
2.1. Closing. The closing of the transaction contemplated by this
Agreement (the "Closing") shall take place on the date hereof, at the offices of
Morris, Manning & Martin, L.L.P., 1600 Atlanta Financial Center, 3343 Peachtree
Road, N.E., Atlanta, Georgia 30326, or at such other date, time and place as the
Lender and Borrower may mutually agree.
2.2. Conditions Precedent to the Closing and to Advances. As a
condition precedent to the Lender's making the Loan and Advances hereunder,
Borrower shall deliver to Lender on the Closing Date (as defined below), the
following, in form and substance satisfactory to Lender:
(a) The Master Note, executed by Borrower; thereafter, each
Advance shall be made pursuant an advance request substantially in the form of
Exhibit A attached to the Master Note.
(b) Such other documents as may reasonably be required by
Lender or Lender's counsel.
Additionally, (i) all representations and warranties of Borrower
contained in this Agreement and the other Loan Documents (as defined below)
shall be true, correct and complete as of the date of the Closing (the "Closing
Date"), (ii) Borrower shall not be in violation of any of the covenants
contained in this Agreement and the other Loan Documents, (iii) no Event of
Default (as defined in Article V) shall have occurred and be continuing, and
(iv) Borrower shall have satisfied each condition to Closing set forth herein;
and (v) all representations and warranties of Borrower contained in this
Agreement and the other Loan Documents shall be true, correct and complete as of
the date of each Advance (each an "Advance Date"), (vi) Borrower shall not be in
violation of any of the covenants contained in this Agreement and the other Loan
Documents on any Advance Date, (vii) no Event of Default shall have occurred and
be continuing on any Advance Date, and (viii) Borrower shall have satisfied each
condition to Closing set forth herein as of each Advance Date.
The Loan documents, including this Agreement, the Master Note, and the
documents related thereto (collectively, the "Loan Documents") shall set forth
the matters contained in this Agreement and contain such other provisions as are
deemed necessary or desirable by Lender.
-2-
<PAGE> 3
The form and substance of all such documents must be satisfactory to Lender
prior to disbursement by Lender of any of the proceeds of the Loan.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower represents and warrants to, and agrees with Lender as follows:
3.1. Power, Organization and Ownership. Borrower is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Georgia, has the power and authority to own or lease and operate its properties
and to carry on its business as now being and hereafter proposed to be
conducted, and is duly qualified and in good standing as a foreign corporation
and authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification or
authorization. Immediately prior to the Closing, Lender owns eighty-five percent
(85%) of the total common stock of Borrower, and Corsi owns fifteen percent
(15%) of the total common stock of Borrower.
3.2. Authorization; Enforceability. Borrower has the power and its
Board of Directors has taken all necessary action to authorize it to execute,
deliver, and perform this Agreement and each of the other Loan Documents to
which it is a party in accordance with the terms hereof and thereof and to
consummate the transactions contemplated hereby and thereby. This Agreement has
been duly executed by Borrower, and is a legal, valid and binding obligation of
Borrower, enforceable in accordance with its terms, subject, as to enforcement
of remedies, to the following qualifications: (i) an order of specific
performance and an injunction are discretionary remedies and, in particular, may
not be available where damages are considered an adequate remedy at law; and
(ii) enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction, and other similar laws affecting enforcement of
creditors' rights generally (insofar as any such law relates to the bankruptcy,
insolvency, or similar event of Borrower).
3.3. Financial Condition. Borrower currently is financially solvent and
capable of meeting its financial obligations as they become due. Borrower, after
giving effect to the transactions contemplated hereby and by the other Loan
Documents, will be solvent and capable of meeting its financial obligations as
they become due.
3.4. Liabilities; Litigation. Except for liabilities incurred in the
ordinary course of business, Borrower has no material (individually or in the
aggregate) liabilities, direct or contingent. There is no litigation, legal or
administrative proceeding, investigation, or other action of any nature pending
or, to the knowledge of Borrower, threatened, against or affecting Borrower or
any of its respective properties, which involves the possibility of any judgment
or liability, which would materially affect Borrower's ability to repay the Loan
or otherwise perform hereunder.
3.5. No Violation. None of the execution and delivery of this
Agreement, the consummation of the transactions contemplated herein or
compliance with the terms and provisions hereof will conflict with or result in
a breach of, or require any consent under any applicable law or regulation, or
any order, writ, injunction or decree of any court or governmental authority or
agency, or constitute a default under any material agreement or instrument by
which Borrower is bound.
-3-
<PAGE> 4
ARTICLE IV.
COVENANTS BY BORROWER
Until all the obligations of Borrower under this Agreement have been
performed and paid in full, Borrower covenants and agrees as follows:
4.1. Maintenance of Business and Corporate Existence. Borrower shall
comply with all valid and applicable statutes, ordinances, rules and regulations
and shall keep in force and effect all licenses, permits, bonds and franchises
necessary for the proper conduct of its business.
4.2. Adverse Changes and Litigation. Borrower shall immediately inform
Lender of any material adverse change in its financial condition and shall
promptly inform Lender of any litigation or threatened litigation, or of the
occurrence of any other event or circumstance which might substantially affect
the financial condition or business of Borrower.
4.3. Management, Ownership and Maintenance of Properties. No material
change in the management or ownership of Borrower, or in the manner in which its
business is conducted shall be made without the prior written consent of Lender.
Borrower shall maintain or cause to be maintained all properties used or useful
in its business in good repair, working order, and condition, reasonable wear
and tear excepted.
4.4. Financial Statements. Borrower shall keep adequate records and
books of account in which complete entries are made in accordance with its
accounting principles, consistently applied, and Borrower will furnish to Lender
such financial statements and information as Lender may from time to time
request.
4.5. Other Debts. Borrower shall not directly or indirectly incur,
create, assume or permit to exist any obligation for payment of borrowed money,
excepting only unsecured current liabilities incurred in the ordinary course of
business and obligations contemplated by this Agreement, without the express
written consent of Lender, which consent shall not be unreasonably withheld.
Further, Borrower shall not guarantee the obligations of any person or entity,
excepting only obligations contemplated by this Agreement.
4.6. Bulk Sale. Borrower shall not, without the prior written consent
of Lender, sell, transfer or convey all or any part of its interest in its
assets to another entity.
4.7. Taxes. Borrower shall pay and discharge all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
upon any properties belonging to it prior to the date on which penalties attach
thereto, and all lawful claims for labor, materials, and supplies which, if
unpaid, might become a lien or charge upon any of its properties; except that no
such tax, assessment, charge, levy, or claim need be paid which is being
contested in good faith by appropriate proceedings and for which adequate
reserves shall have been set aside on the appropriate books, but only for so
long as such tax, assessment, charge, levy, or claim does not become a lien or
charge, and no foreclosure, distraint, sale, or similar proceeding shall have
been commenced and remain unstayed for a period of thirty (30) days after such
commencement. Borrower shall timely file all information returns required by
federal, state, or local tax authorities.
-4-
<PAGE> 5
4.8. Examination of Records. Borrower shall permit representatives of
the Lender, upon reasonable notice, to (a) visit and inspect the properties of
Borrower during normal business hours, (b) inspect and make extracts from and
copies of Borrower's books and records, and (c) discuss with the principal
officers of Borrower its businesses, assets, liabilities, financial positions,
results of operations, and business prospects.
4.9. Use of Proceeds. Borrower shall use the proceeds of the Loan
solely to operate Borrower's business, which shall include, but not be limited
to, the purchase of machinery, equipment, fixtures and furnishings, leasehold
improvements, and other necessary business expenses and working capital needs
incurred by Borrower.
4.10. Further Assurances. Borrower shall cure promptly, or cause to be
cured promptly, defects in the creation and issuance of the Master Note, the
execution and delivery of the Loan Documents (including this Agreement), and the
perfection of any liens in favor of the Lender resulting from any act or failure
to act by Borrower or any employee or officer thereof. Borrower, at its expense,
shall promptly execute and deliver to the Lender, or cause to be executed and
delivered to the Lender, all such other and further documents, agreements, and
instruments, in compliance with or accomplishment of the covenants and
agreements of Borrower in the Loan Documents, including this Agreement, or to
correct any omissions in the Loan Documents, or more fully to state the
obligations set out herein or in any of the Loan Documents, or to perfect,
protect, or preserve any liens created pursuant to any of the Loan Documents, or
to make any recordings, to file any notices, or to obtain any consents, all as
may be necessary or appropriate in connection herewith, as may be reasonably
requested by the Lender.
ARTICLE V.
EVENTS OF DEFAULT
The occurrence of any one or more of the following shall constitute an
"Event of Default," whatever the reason for such event, and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or non-governmental body:
(a) Any representation or warranty made under this Agreement
or in connection with this Agreement (including, without limitation, any
warranty, representation or statement in the application of Borrower for the
Loan or in any accompanying financial statements) shall prove incorrect or
misleading in any material respect when made.
(b) Nonpayment, when due, of any principal, accrued interest,
premium, fee or other charge due under the Master Note.
(c) Default by Borrower in the due observance or performance
of any term, covenant, condition or agreement on its part to be performed under
this Loan Agreement, the Master Note, or under any other Loan Document
contemplated by this Loan Agreement.
(d) If Borrower shall: make a general assignment for the
benefit of its creditors; file a voluntary petition in bankruptcy or be the
subject of an involuntary petition in bankruptcy; be adjudicated as bankrupt or
insolvent; file any petition or answer seeking,
-5-
<PAGE> 6
consenting to, or acquiescing in, reorganization, arrangement, composition,
liquidation, dissolution or similar relief, under any present or future statute,
law or regulation; file an answer admitting or failing to deny the material
allegations of the petition against it for any such relief; admit in writing its
inability to pay its debts as they mature; discontinue business; or be unable to
pay debts as they become due.
(e) Borrower fails to have vacated or set aside within thirty
(30) days of its entry any court order appointing a receiver or trustee for all
or a substantial portion of Borrower's property.
(f) Borrower suffers or permits any lien, encumbrance or security
interest to attach to any of its property, except as herein otherwise expressly
permitted, or if any judgment shall be entered against Borrower or any
attachment shall be made against any property of Borrower, which judgment or
attachment shall remain undischarged, unbonded, or undismissed for a period of
ten (10) days.
(g) Borrower defaults in the payment of any principal or interest
on any obligation to Lender or to any other creditor.
ARTICLE VI.
REMEDIES ON EVENT OF DEFAULT
6.1. Declare Note Due. Upon the occurrence of any Event of Default, as
defined in this Agreement, the Master Note, or any other Loan Document
contemplated by this Agreement, Lender, at its option, may declare the entire
unpaid principal balance of the Master Note advanced to Borrower to be forthwith
due and payable, and thereupon such balance shall become so due and payable
without presentment, protest or further demand or notice of any kind, all of
which are hereby expressly waived, and Borrower will forthwith pay to Lender the
entire advanced principal amounts and the interest accrued thereon, in
accordance with the terms and conditions of the Master Note.
6.2. Other Remedies. Upon the occurrence or discovery of an Event of
Default, Lender, in addition to its option to declare the entire unpaid amount
advanced to Borrower under the Master Note due and payable, at its option may:
(a) move to protect its rights and remedies, by action at law or equity, or by
any other lawful remedy to enforce payment; and (b) exercise any and all rights
of setoff which Lender may have against any account, fund or property of any
kind, tangible or intangible, belonging to Borrower and which shall be in
Lender's possession or under Lender's control.
6.3. Cumulative Remedies. The rights and remedies of the Lender
hereunder shall be cumulative and not exclusive.
ARTICLE VII.
MISCELLANEOUS
7.1. Amendments. No amendment of any provisions of this Agreement, nor
consent to any departure of Borrower therefrom, shall in any event be effective
unless the same shall be
-6-
<PAGE> 7
in writing and signed by Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
7.2. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed to have been given three (3) days after
deposit in the mail, designated as certified mail, return receipt requested,
post-prepaid, or one (1) day after being entrusted to a reputable commercial
overnight delivery service, or upon transmission of a telecopy addressed to the
party to which such notice is directed at its address determined as provided in
this Section 7.2. All notices and other communications under this Agreement
shall be given to the parties hereto at the following addresses:
If to Borrower:
InsureRate, Inc.
41 Copeland Road
Denville, New Jersey 07834
Attention: Jerome R. Corsi, President
Telecopy No.: (973) 442-0736
If to Lender:
HomeCom Communications, Inc.
Building 14, Suite 100
Piedmont Center
3535 Piedmont Road
Atlanta, Georgia 30305
Attention: Harvey Sax, President
Telecopy No.: (404) 237-3060
7.3. Governing Law; Parties Bound. This Agreement and the other Loan
Documents shall be governed by and construed in accordance with the laws of the
State of Georgia, without regard to its conflicts of laws principals. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto, their successors and assigns.
7.4. Attorneys' Fees; Expenses. If Lender shall incur any cost or
expense, including, without limitation, reasonable attorneys' fees, in
connection with this Agreement, the Master Note or the Loan, in any manner
whatsoever, direct or indirect, whether with regard to the collection of amounts
due, defense of Lender or otherwise, upon demand by Lender, Borrower shall pay
the same or shall reimburse Lender therefor in full.
7.5. Assignment by Borrower. Neither this Agreement nor any of
Borrower's rights hereunder shall be assignable by Borrower without receipt of
the prior written consent of Lender.
7.6. No Waiver; Remedies. No failure on the part of Lender, and no
delay in exercising any right under this Agreement, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right under this
Agreement preclude any other or further exercise thereof or the exercise of any
other right.
7.7. Severability. In the event that any clause or provisions of this
Agreement or any document or instrument contemplated by this Agreement shall be
held to be invalid by any court
-7-
<PAGE> 8
of competent jurisdiction, the invalidity of such clause or provision shall not
affect any of the remaining portions or provisions of this Agreement.
7.8. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto concerning the subject matter hereof and supersedes
all prior and contemporaneous oral or written agreements, commitments or
understandings with respect to the matters provided for herein.
7.9. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall be deemed
one and the same Agreement.
IN WITNESS WHEREOF, the parties have executed this Loan Agreement as of
the date first above written.
BORROWER:
INSURERATE, INC.
By: /s/ Jerome R. Corsi
---------------------------------
Jerome R. Corsi, President
Attest: /s/ Harvey Sax
-----------------------------
Harvey Sax, Secretary
(CORPORATE SEAL)
LENDER:
HOMECOM COMMUNICATIONS, INC.
By: /s/ Harvey Sax
---------------------------------
Harvey Sax, President
Attest:
-----------------------------
(CORPORATE SEAL)
-8-
<PAGE> 1
EXHIBIT 10.36
EXECUTION ORIGINAL
MASTER NOTE
$100,000.00 January 23, 1998
Maximum Loan Amount Original Issue Date
FOR VALUE RECEIVED, the undersigned, InsureRate, Inc., a Georgia
corporation ("Borrower"), promises to pay to the order of HomeCom
Communications, Inc., a Georgia corporation ("Lender"), at the principal office
of Lender, or at such other place as Lender may designate, the principal sum of
up to One Hundred Thousand and No/100 Dollars ($100,000.00) (the "Maximum Loan
Amount"), pursuant to advance requests made by the Borrower in the form attached
hereto as Exhibit A, together with interest on each such advance at the
Applicable Federal Rate, as such term is defined in Section 1274(d)(1) of the
Internal Revenue Code of 1986, as amended (the "Applicable Interest Rate"),] in:
(a) a lawful money of the United States of America; or (b) common stock of the
Borrower, having a value on the Payment Date (as defined below) equal to the
aggregate principal amount advanced to the Borrower, together with interest
thereon as set forth herein; provided, that the Borrower shall have the option
to repay the Lender on the Payment Date in either lawful money of the United
States of America or in shares of common stock of the Buyer. Interest shall be
calculated on the basis of actual number of days elapsed over a year of 360
days. Amounts borrowed hereunder and repaid or prepaid by Borrower may not be
reborrowed.
The outstanding principal balance advanced to Borrower plus accrued but
unpaid interest thereon shall be payable on the tenth (10th) anniversary of the
Original Issue Date of this Note (the "Payment Date").
If the day on which a payment is due pursuant to the terms of this Note
is not a day on which banks in the State of Georgia are generally open, such
payment shall be due on the next occurring business day.
If any default in payment or any other default occurs hereunder, then
the entire indebtedness evidenced hereby shall, at the option of Lender and
without notice to Borrower, at once become due and payable and may be collected
forthwith. So long as any default exists hereunder, interest shall accrue on
each amount of outstanding principal balance advanced to the Borrower at the
Applicable Interest Rate on each such advanced amount plus the interest rate of
two percent (2%) per annum. Time is of the essence of this Note. In the event
this Note, or any part thereof, is collected by or through an attorney-at-law,
Borrower agrees to pay all costs of collection including, but not limited to,
reasonable attorneys' fees.
This Note may be prepaid in whole or in part, without additional
interest or prepayment charges. No failure to accelerate the debt evidenced
hereby by reason of default hereunder, acceptance of a partial or past due
payment, or indulgences granted from time to time shall be construed (i) as a
novation of this Note or as a reinstatement of the indebtedness evidenced hereby
or as a waiver of such right of acceleration or of the right of Lender
thereafter to insist upon strict compliance with the terms of this Note, or (ii)
to prevent the exercise of such right of acceleration or any other right granted
hereunder or by any applicable laws; and Borrower hereby expressly waives the
benefit of any statute or rule of law or equity now provided, or which may
hereafter be provided, which would produce a result contrary to or in conflict
with the foregoing. No extension of the time for the payment of this Note or any
installment due hereunder, made by agreement with any person now or hereafter
liable for the payment of this Note, shall operate to release, discharge,
modify, change or affect the original liability of Borrower under this Note,
either in whole or in part, unless Lender agrees otherwise in writing. This Note
may not be changed
<PAGE> 2
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment and all other notices are hereby waived by Borrower. Borrower
hereby further waives and renounces, to the fullest extent permitted by law, all
rights to the benefits of any statute of limitations and any moratorium,
reinstatement, marshaling, forbearance, valuation, stay, extension, redemption,
appraisement, exemption and homestead now or hereafter provided by the laws of
the United States of America and of each state thereof, both as to itself and in
and to all of Borrower's property, against the enforcement and collection of the
obligations evidenced by this Note or any other loan documents.
If, from any circumstances whatsoever, fulfillment of any provision of
this Note, at the time performance of such provision shall be due, shall involve
transcending the limit of validity presently prescribed by any applicable usury
statute or any other applicable law with regard to obligations of like character
and amount, then the obligation to be fulfilled shall be reduced to the limit of
such validity, so that in no event shall any exaction be possible under this
Note or under any other loan documents that is in excess of the current limit of
such validity, but such obligation shall be fulfilled to the limit of such
validity.
As used herein, the terms "Borrower" and "Lender" shall be deemed to
include their respective heirs, executors, legal representatives, successors,
successors-in-title and assigns, whether by voluntary action of the parties or
by operation of law.
IN WITNESS WHEREOF, Borrower has executed this Note under seal as of
the date first above written.
WITNESS: BORROWER:
- ----------------------------------- INSURERATE, INC.
Print Name:
-------------------------
By: /s/ Jerome R. Corsi
--------------------------
Name: Jerome R. Corsi
Title: President
Acknowledged and Agreed:
LENDER:
HOMECOM COMMUNICATIONS, INC.
By: /s/ Harvey Sax
------------------------------------
Name: Harvey Sax
Title: President
-2-
<PAGE> 3
EXHIBIT A
ADVANCE REQUEST NO. ___
Pursuant to the attached Master Note dated January 23, 1998,
the undersigned hereby elects to have advanced to it by HomeCom Communications,
Inc. (the "Lender") the principal amount of __________________ and __/00 Dollars
($__________)(the "Advanced Amount").
The date of this Advance Request shall be _______ __, ____.
Interest on the Advanced Amount shall accrue at the Applicable Interest Rate (as
defined in the Master Note) as of the date hereof. Subject to the terms and
conditions of the Master Note, the Advanced Amount and the accrued interest
thereon shall be due and payable by the Borrower on the Payment Date (as defined
in the Master Note).
The undersigned hereby acknowledges and agrees that should the
Advanced Amount requested hereunder cause the aggregate principal amount to be
advanced by the Lender pursuant to the Master Note to exceed the Maximum Loan
Amount (as defined in the Master Note), the Lender shall be obligated only to
advance to the Borrower such amount as will not cause the aggregate principal
amount advanced by the Lender to the Borrower to exceed the Maximum Loan Amount.
IN WITNESS WHEREOF, the undersigned has executed this Advance
Request No. ___ on the date set forth in the second paragraph hereof.
INSURERATE, INC.
By:
---------------------------------
Name:
Title:
-3-
<PAGE> 1
EXHIBIT 21.1
HOMECOM COMMUNICATIONS, INC.
List of Subsidiaries
The subsidiaries of the Registrant are as follows:
InsureRate, Inc.* Organized in the state of Georgia
The company does business in the name listed above.
- ----------------------
* Joint Venture
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-42599) 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
January 28, 1998
