<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
<TABLE>
<C> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
Commission File Number: 0-29204
HomeCom Communications, Inc.
(Exact name of registrant specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-2153309
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
BUILDING 14, SUITE 100
3535 PIEDMONT ROAD
ATLANTA, GEORGIA 30305
(Address of principal executive offices and zip code]
Registrant's Telephone Number, Including Area Code:
(404) 237-4646
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
<S> <C>
Common Stock, par value $0.0001 per share The Nasdaq SmallCap(TM) Market
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the average of the closing bid and ask quotations for
the Common Stock on March 26, 1999 as reported by The Nasdaq Stock Market, was
approximately $30,505,000. The shares of Common Stock held by each officer and
director and by each person known to the company who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes. As of March 26, 1999, Registrant
had outstanding 6,399,571 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement to be filed on or about April
30, 1999, for the Annual Meeting of Shareholders to be held on or about June 21,
1999 is incorporated by reference in Part III of this Form 10-K to the extent
stated herein.
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<PAGE> 2
TABLE OF CONTENTS
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ITEM NO. DESCRIPTION PAGE NO.
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PART I
1. BUSINESS.................................................... 1
2. PROPERTIES.................................................. 6
3. LEGAL PROCEEDINGS........................................... 6
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 7
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS......................................... 7
6. SELECTED FINANCIAL DATA..................................... 8
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 9
8. FINANCIAL STATEMENTS........................................ 14
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 32
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 32
11. EXECUTIVE COMPENSATION...................................... 32
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 32
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 32
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K......................................................... 32
SIGNATURES.................................................. 32
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PART I
ITEM 1. BUSINESS
GENERAL
HomeCom Communications, Inc. is a Delaware corporation, organized in 1994
to provide advanced software applications and integration services to businesses
seeking to take advantage of the Internet. In the fourth quarter of 1997, the
Company made a strategic decision to move away from horizontally focused
Internet Web design and hosting services to become a vertically focused
financial applications and solutions provider to the financial services market,
including banking, insurance, and securities brokerage firms.
HomeCom Communications, Inc. develops and markets specialized software
applications, products and services that enable consumers and financial
institutions to use the Internet and intranets/extranets to obtain and
communicate important business information, conduct commercial transactions and
improve business productivity. HomeCom's principal mission is to enable
financial institutions to establish an electronic channel to consumers and
business by providing secure, innovative, Internet-based solutions to the
banking, insurance and brokerage industries. As a technology provider to this
electronic channel, HomeCom intends to continually enrich the content, host and
maintain its own as well as third party software applications, and to provide
strategic consulting to financial institutions on e-commerce and marketing.
HomeCom derives revenue from software licensing, application development, and
hosting and transactions fees. HomeCom has grown to approximately 100 full-time
employees and occupies approximately 30,000 square feet of office space with
offices in Atlanta, Houston, New York City, and the Washington, D.C. area.
HomeCom's solutions, which are built around industry standards such as Open
Financial Exchange ("OFX"), are designed to enable its clients to increase
revenues, achieve distinct competitive advantages, reduce costs, and improve
customer support. The Company employs full time multimedia artists, Ph.D.
computer programmers, Internet security experts, licensed financial brokers and
agents, and network engineers. HomeCom provides Internet/intranet solutions in
three areas: (i) the design, development and integration of customized software
application, including World Wide Web site development and related network
outsourcing; (ii) the development, sale and integration of HomeCom's existing
software applications into the client's operations; and, (iii) security
consulting and integration services.
PRODUCTS AND SERVICES
Businesses such as banks, brokerage firms, and insurance companies can use
HomeCom's Personal Internet Banker(TM) and InsureRate(TM) software to allow
customers to access account information and insurance quotes. Its Harvey(TM)
software collects demographic information from users for personally tailored
marketing efforts. HomeCom also creates Web sites, designs custom software for
interactive Web sites, intranets/extranets, sells third party Internet security
software, and provides server hosting and outsourcing facilities.
HomeCom provides its product and service offerings through four distinct
but integrated business units:
- HomeCom Financial Applications, Solutions and Technology ("FAST") creates
Internet and intranet business applications, solutions and technology
focused on the banking, insurance and brokerage client markets.
Applications include software programs ranging from simple mathematical
calculators to extremely sophisticated intranets/extranets communicating
with legacy systems and client/server databases. HomeCom also provides
turnkey hosting and security integration services for these applications.
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- HomeCom's Financial Solutions provides cost effective, one-stop financial
services to the banking, credit union and brokerage industries that allow
customers on-line access to transact personal banking business. HomeCom's
turnkey solutions are targeted to the 14,000 banks and credit unions with
assets between $500 million and $20 billion:
- Personal Internet Banker(TM) ("PIB") provides interactive Internet
banking including bill payment, balance inquiry, funds transfer, and
statement download for checking, savings and credit card accounts.
- Harvey(TM) enables banks to both advertise and market targeted consumers
based on demographics and web site browsing preferences. As consumers
interact with the financial institution's web site, Harvey(TM) mines the
data they enter on application forms, adds information about what they
looked at or clicked on and then combines that information with data
from a variety of legacy systems to dramatically increase the financial
institution's cross selling and profit capability.
- Post on the Fly(TM) Conference is an online bulletin board,
collaboration and conferencing system, allowing customers to capture
their most valuable property -- the living, moving body of knowledge
within an organization, its business partners and its customers.
Specifically designed for the needs of financial services companies,
Conference can run unlimited numbers of investor forums, private analyst
meetings, financial planning workshops, or customer support groups.
- HomeCom Internet Security Services ("HISS") provides professional
services to businesses that are concerned about network applications and
information security. Management and technological staff directly support
end customers by offering both consulting and integration engagements.
HomeCom believes HISS world-class services provide a distinct competitive
edge to the financial services industry. Customers include Fortune 500
financial service providers, airlines, energy companies, media
conglomerates, manufacturers and others. Since its inception in 1996,
HISS has successfully completed nearly 50 contract engagements including
eleven with Fortune 500 companies. Its customers include Citicorp, the
CIA, Fiserv, Washington Post, Reebok, Raytheon E-Systems, MCI WorldCom,
Crestar, HomeDepot and others. HISS is the only business unit that
provides services to non-financial institutions. Management believes that
knowledge gained from these assignments serves it well in the financial
services marketplace.
- HomeCom's InsureRate(TM) provides consumer information and education on
insurance via its website -- www.insurerate.com. Consumers are also
offered a choice of competitively priced and innovative insurance
products for direct purchase via the Internet. InsureRate's technology
makes it a low cost insurance product vendor. Management also intends to
add broker/dealer operations and expects to derive additional profits by
sharing in the reinsurance product selling agreements and sharing
management fees on client assets that it accumulates. Management expects
to offer a selection of fixed annuity, term life, modified endowment
contracts, long-term care, personal auto, homeowners and other policies.
On March 24, 1999, HomeCom acquired First Institutional Marketing, Inc.
("FIMI") which (i) provides innovative insurance products and marketing
programs for the commercial banking industry, (ii) introduces banks to
the sale of insurance and investment products, and (iii) trains bank
personnel to market and sell leading insurance and investment products to
their customers. The Company plans to combine FIMI and InsureRate(TM) to
provide integrated insurance offerings. InsureRate(TM) will in effect
become the electronic distribution arm of FIMI. FIMI was recognized as
the 7th largest third party marketing company selling insurance products
in the banking channel in 1996 and has sold $2 billion worth of annuities
through this channel. In 1998 FIMI generated approximately $4 million in
revenues.
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
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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 the financial services industry.
The Company's staff of 58 full-time software engineers design and develop
custom applications and software products. The Company's software engineers have
experience with various computer operating systems, including Sun Solaris, SGI's
IRIX, Windows NT, Digitars 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.
ACQUISITIONS AND DIVESTITURES
On April 16, 1998, the Company acquired all of the outstanding capital
stock of The Insurance Resource Center, Inc. ("IRC") for 351,391 shares of the
Company's common stock. IRC provides Internet development and hosting services
to the insurance industry and was incorporated into the Company's FAST group.
On November 6, 1998 the Company signed a definitive agreement and plan of
merger (the "Merger Agreement") to acquire, among other things, all of the
outstanding shares of First Institutional Marketing, Inc. and certain of its
affiliates ("FIMI") for 1,252,174 shares of common stock. In addition, the
Company entered into employment agreements for an initial term of 3 years with
the three principals of FIMI, calling for them to continue in their current
roles for the acquired companies. On March 24, 1999, the Company completed this
acquisition.
On June 9, 1998, the Company sold substantially all of the assets of its
HostAmerica Internet network outsourcing services division to Sage Acquisition
Corp. ("Sage") for cash of $4,250,000 and Sage's assumption of approximately
$250,000 of unearned revenue. The Company recorded a gain on the sale of
approximately $4,402,000. This transaction allowed the Company to further
consolidate its business focus on the financial services market.
The Company will seek to make additional strategic and tactical
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 additional binding
agreements or commitments. Moreover, the Company has extremely limited sources
of cash. Consequently, the Company has limited resources available to complete
an acquisition and no assurance can be given that the Company will be able to
successfully complete any additional acquisitions.
SALES AND MARKETING
The Company's products and services have been developed to serve the needs
of the financial services market, including banking, insurance, and securities
brokerage. The Company markets its products and services through its direct
sales force, print advertising and its own Web site. The Company also generates
customer leads through its business partner relationships with leading
technology companies. The Company also utilizes traditional print and media
marketing strategies to enhance Company and product name recognition.
In February 1999, HomeCom and USATODAY created a marketing alliance to
provide direct online access and online promotion for InsureRate(TM). The
agreement should build further momentum for sales to banks, credit unions,
brokerage companies and other financial institutions.
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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 application design and development, the Company
competes with numerous businesses that also provide software design and
development services, companies that have developed and market application
specific Internet software products, companies that provide software tools that
enable customers to develop specific Internet-enabled software applications and
companies that choose to develop Internet application products internally.
Andersen Consulting L.L.P., Electronic Data Systems Corporation ("EDS"),
International Business Machines Corporation ("IBM") and Cap Gemini America are
significant custom software developers, integrators and resellers whose services
include a broad range of Internet and Intranet software applications design and
development services. Companies such as Broadvision, Inc., Edify Corporation and
Security First Network Bank have developed application specific Internet
software products that are broadly marketed and licensed and perform such
functions as interactive one-to-one marketing, human resources benefits inquiry,
enrollment and training and Internet banking. In addition, companies that offer
and sell client/server based Internet-enabled software products, such as
Netscape and Microsoft, may in the future bundle software capabilities and
applications with existing products in a manner which may limit the need for
software capabilities and application services such as those offered by the
Company. The Company also competes with the information technology departments
of significant business enterprises who may choose to design and develop their
Internet applications internally. The emergence of sophisticated software
products and tools that enable companies to build customized Internet-enabled
software applications internally also may have the effect of encouraging
internal development and, thus, may materially reduce the demand for the
Company's custom software application services.
The Company's security services division faces competition from many
sources, including companies that provide security consulting services and
companies that market specific Internet-based security solutions. Such
competitors include Digital Equipment Corporation, IBM, Andersen Consulting,
L.L.P. and EDS. In addition, many companies currently market Internet-based
application-specific software products that incorporate security and
confidentiality features and functions.
The Company believes that the rapid expansion of the market for Internet
software applications will foster the growth of many significant competitors
performing comparable services and offering comparable products to those offered
by the Company. The Company competes on the basis of creative talent, price,
reliability of services, and responsiveness. Many of the Company's current and
prospective competitors have substantially greater financial, technical,
marketing and other resources than the Company. The Company believes that it
presently competes favorably with respect to each of its various service
offerings. There can be no assurance that the Company's present and proposed
products will be able to compete successfully with current or future competitors
or that competitive pressures faced by the Company will not have a material
adverse effect on the Company's business, financial condition and operating
results.
INTELLECTUAL PROPERTY RIGHTS
In accordance with industry practice, the Company relies primarily on a
combination of copyright, patent and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company seeks to protect its software, documentation and other
written materials principally under trade secret and copyright laws, which
afford only limited protection. The Company 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 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
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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.
CUSTOMERS
During 1996, 1997 and 1998, 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.
EMPLOYEES
At March 26, 1999, the Company employed 103 full-time employees, of whom 58
were technical personnel engaged in maintaining or developing the Company's
products or performing related services, 33 were marketing and sales personnel
and 12 were involved in administration and finance.
INSURANCE
The Company maintains liability and other insurance that it believes to be
customary and generally consistent with industry practice. The Company believes
that such insurance is adequate to cover potential claims relating to its
existing business activities.
GOVERNMENT REGULATION
The Telecommunications Act of 1996 (the "1996 Telecommunications Act"),
which became effective on February 8, 1996, imposes criminal liability on
persons sending or displaying in a manner available to minors indecent material
on an interactive computer service such as the Internet. The 1996
Telecommunications Act also imposes criminal liability on an entity knowingly
permitting facilities under its control to be used for those activities. The
constitutionality of these provisions was successfully challenged in federal
district 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, characteristics, and quality of
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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.
ITEM 2. PROPERTIES
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 McLean, Virginia occupying approximately 6,000
square feet under a lease expiring in June 2002, and an office in New York City
occupying approximately 3,400 square feet under a lease expiring in January
2003.
The Company's Internet services are maintained in its key-card
access-secured, dual Leibert air-conditioned Network Operations Center ("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 Simple Network Management Protocol
("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 Synchronous Optical Network
("SONET") and Fiber Distributed Data Interface ("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.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings. From time to
time, the Company is involved in various routine legal proceedings incidental to
the conduct of its business.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
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>
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HIGH LOW
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1997
Second quarter (since initial public offering -- May 8,
1997)..................................................... $ 7.25 $6.00
Third quarter............................................... 6.50 2.13
Fourth quarter.............................................. 15.56 2.63
1998
First quarter............................................... $16.00 $2.00
Second quarter.............................................. 18.25 1.13
Third quarter............................................... 4.94 1.63
Fourth quarter.............................................. 8.88 1.38
1999
First quarter (through March 26, 1999)...................... $ 7.63 $3.50
</TABLE>
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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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of HomeCom Communications, Inc.
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
related notes.
<TABLE>
<CAPTION>
DECEMBER 2
(INCORPORATION) YEAR ENDED DECEMBER 31,
TO DECEMBER 31, ---------------------------------------------------
1994 1995 1996 1997 1998
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STATEMENT OF OPERATIONS DATA:
Net sales:
Service sales................. $ -- $ 327,574 $2,112,878 $ 2,792,306 $ 2,941,047
Equipment sales............... -- -- 185,977 86,322 351,363
---------- ---------- ---------- ----------- -----------
Total net sales....... -- 327,574 2,298,855 2,878,628 3,292,410
---------- ---------- ---------- ----------- -----------
Cost of sales:
Cost of services.............. -- 59,871 715,377 2,254,200 2,372,617
Cost of equipment sold........ -- -- 128,938 68,974 228,694
---------- ---------- ---------- ----------- -----------
Total cost of sales... -- 59,871 844,315 2,323,174 2,601,311
---------- ---------- ---------- ----------- -----------
Gross profit.................... -- 267,703 1,454,540 555,454 691,099
---------- ---------- ---------- ----------- -----------
Operating expenses:
Sales and marketing........... 1,045 124,253 962,200 1,499,397 1,392,306
Product development........... -- 20,239 78,887 514,655 677,590
General and administrative.... 16,407 121,313 909,230 2,733,924 3,406,876
Depreciation and
amortization............... -- 3,722 85,068 238,537 542,269
---------- ---------- ---------- ----------- -----------
Total operating
expenses............ 17,452 269,527 2,035,405 4,986,513 6,019,041
---------- ---------- ---------- ----------- -----------
Operating loss.................. (17,452) (1,824) (580,865) (4,431,059) (5,327,942)
Other expenses (income):
Gain on sale of division...... -- -- -- -- (4,402,076)
Interest expense, net......... -- 3,469 51,272 543,420 445,216
Other expense (income), net... -- 147 (6,554) (93,800) (166,942)
---------- ---------- ---------- ----------- -----------
Loss before income taxes........ (17,452) (5,440) (625,583) (4,881,181) (1,204,140)
Income taxes.................... -- -- -- -- --
---------- ---------- ---------- ----------- -----------
Net loss........................ (17,452) (5,440) (625,583) (4,881,181) (1,204,140)
Preferred stock dividend........ -- -- -- -- (666,667)
---------- ---------- ---------- ----------- -----------
Loss applicable to common
shareholders.................. $ (17,452) $ (5,440) $ (625,583) $(4,881,181) $(1,870,807)
========== ========== ========== =========== ===========
Basic and diluted loss per
share......................... $ (0.01) $ (0.00) $ (0.34) $ (1.88) $ (0.44)
========== ========== ========== =========== ===========
Weighted average common shares
outstanding................... 1,850,447 1,850,447 1,862,223 2,602,515 4,287,183
========== ========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1994 1995 1996 1997 1998
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BALANCE SHEET DATA:
Working capital (deficit)................ $8,455 $133,792 $(1,304,682) $2,721,930 $2,265,725
Total assets............................. 10,254 247,382 1,726,522 4,664,779 4,565,490
Long-term obligations.................... -- 160,792 147,833 1,652,009 88,242
Total liabilities........................ -- 242,568 2,347,191 2,708,007 1,117,041
Stockholders' equity (deficit)........... 10,254 4,814 (620,669) 1,956,772 3,448,449
</TABLE>
8
<PAGE> 11
Selected quarterly financial data for the Company is as follows:
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
1998:
Revenue.................................... $ 882,427 $ 897,153 $ 711,295 $ 801,535
Gross profit............................... 369,702 264,299 11,011 91,020
Net income (loss) available to common
shareholders............................ (1,569,630) 2,623,821 (1,616,316) (1,308,682)
Basis and diluted earnings (loss) per
share................................... $ (0.51) $ 0.63 $ (0.33) $ (0.26)
1997:
Revenue.................................... $ 909,177 $ 708,397 $ 713,401 $ 547,653
Gross profit (loss)........................ 444,699 196,774 (58,788) (27,231)
Net loss available to common
shareholders............................ (374,650) (917,148) (2,095,949) (1,493,434)
Basis and diluted loss per share........... $ (0.19) $ (0.35) $ (0.71) $ (0.51)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information contained herein, some matters discussed
in this report constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company notes that a variety of
risk factors could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in the
Company's forward-looking statements. Reference is made in particular to the
discussion set forth in the Company's Registration Statements on Forms S-1 (File
Nos. 333-12219, 333-42599, 333-45383 and 333-56795) and S-3 (333-73123).
GENERAL
HomeCom Communications, Inc. specializes in Internet/intranet solutions
software applications, products and services that enable consumers and financial
institutions to interface important business information, conduct commercial
transactions and improve business productivity. HomeCom derives revenue from
software licensing, application development, hosting and transaction fees in
three areas: (i) the design, development and integration of customized software
applications, including World Wide Web site development and related network
outsourcing; (ii) the integration of HomeCom's existing software applications in
to the client's operations; and (iii) security consulting and integration
services.
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. The Company historically has operated with no significant backlog
because its services are provided as requested by customers. As a result,
revenues in any period are substantially affected by the amount of services
requested by its customers. 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 could
therefore have a material adverse effect on the Company's results of operations,
financial condition, and cash flows.
RESULTS OF OPERATIONS
Year Ended December 31, 1997 as Compared to Year Ended December 31, 1998
Net Sales. Net sales increased 14.4% from $2,878,628 in 1997 to $3,292,410
in 1998. Revenues from service sales increased 5.3% from $2,792,306 in 1997 to
$2,941,047 in 1998. This increase of $148,741 is primarily attributable to an
increase in security consulting revenue of approximately $169,000. Revenues from
equipment sales increased from $86,322 in 1997 to $351,363 during 1998 due to
increased sales of security hardware and software.
Cost of Sales. Cost of sales includes salaries for programmers, technical
staff and customer support, as well as a pro-rata allocation of
telecommunications, facilities and data center costs. Cost of sales for services
9
<PAGE> 12
increased from $2,254,200, or 78.3% of revenues in 1997 to $2,372,617, or 72.1%
of revenues in 1998. This increase reflects increased costs for technical
personnel hired in advance of anticipated revenue growth, offset by costs
eliminated due to the sale of HostAmerica in June 1998. The decrease in cost of
sales as a percentage of revenues is due to the mix of products and services
sold.
Gross Profit. Gross profit increased by $135,645 from $555,454 in 1997 to
$691,099 in 1998. Gross profit margins also increased from 19.3% during 1997 to
21.0% during 1998. This increase as a percentage of net sales is due to the mix
of products and services sold.
Sales and Marketing. Sales and marketing expenses include salaries,
variable commissions, and bonuses for the sales force, advertising and
promotional marketing materials, and a pro-rata allocation of
telecommunications, facilities and data center costs. Sales and marketing
expenses decreased 7.1% from $1,499,397 in 1997 to $1,392,306 in 1998. This
decrease was primarily attributable to a decrease in advertising and promotional
marketing materials. As a percentage of net sales, these expenses decreased from
52.1% in 1997 to 42.3% in 1998.
Product Development. Product development costs consist of personnel costs
required to conduct the Company's product development efforts, and a pro-rata
allocation of telecommunications, facilities and data center costs. Management
believes that continuing investment in product development is required to
compete effectively in the Company's industry. Total expenditures for product
development were $677,590, or 20.6% of net sales in 1998, of which none were
capitalized. This compares to total product development expenditures of
$683,488, or 23.7% of net sales in 1997, of which $168,833 were capitalized.
General and Administrative. General and administrative expenses include
salaries for administrative personnel, insurance and other administrative
expenses, as well as a pro-rata allocation of telecommunications, and facilities
and data center costs. General and administrative expenses increased from
$2,733,924 in 1997 to $3,406,876 in 1998. As a percentage of net sales, these
expenses increased from 95.0% in 1997 to 103.5% in 1998. These increases reflect
additional expenditures for operational and administrative support personnel
incurred to support anticipated growth, professional services for public and
investor relations, and accounting and legal support for the Company's
securities filings and divestiture activities.
Depreciation and Amortization. Depreciation and amortization includes
depreciation and amortization of computers, network equipment, office equipment,
equipment under capital leases, and goodwill increased from $238,537, or 8.3% of
net sales in 1997 to $542,269, or 16.5% in 1998, reflecting increased
expenditures on capital equipment and the amortization of goodwill associated
with the IRC acquisition.
Other Income. During 1998, the Company recorded a gain on the sale of its
HostAmerica division of $4,402,076 (see Note 9).
Interest Expense. Interest expense decreased from $543,420 in 1997 to
$445,216 during 1998, due to lower amortization of the discount associated with
the convertible debentures issued in September 1997.
Year Ended December 31, 1996 as Compared to Year Ended December 31, 1997
Net Sales. Net sales increased 25.2% from $2,298,855 in 1996 to $2,878,628
in 1997. Revenues from service sales increased 32.2% from $2,112,878 in 1996 to
$2,792,306 in 1997. This increase of $679,428 is primarily attributable to
increases in hosting revenues of approximately $472,000 and security consulting
revenue of approximately $308,000. Revenues from equipment sales decreased from
$185,977 during 1996 to $86,322 during 1997, reflecting lower security hardware
and software sales.
Cost of Sales. Cost of sales for services increased from $715,377, or
31.1% of revenues in 1996 to $2,254,200, or 78.3% of revenues in 1997. This
increase reflects higher overall payroll costs associated with increasing the
Company's technical staff to a high of approximately 60 persons in July 1997 to
create available capacity for anticipated revenue growth which did not occur. As
part of an effort to control cash expenditures, the Company subsequently reduced
this staff to approximately 30 persons by December 31, 1997.
Gross Profit. Gross profit decreased by $899,086 from $1,454,540 in 1996
to $555,454 in 1997. Gross profit margins decreased from 63.3% in 1996 to 19.3%
in 1997. This decrease as a percentage of net sales
10
<PAGE> 13
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 increased 55.8% from
$962,220 in 1996 to $1,499,397 in 1997. This increase was primarily attributable
to an increase in advertising and marketing expenses. As a percentage of net
sales, these expenses increased from 41.9% in 1996 to 52.1% in 1997. During the
third quarter of 1997, the Company implemented procedures intended to
substantially reduce advertising and marketing expenses.
Product Development. Total expenditures for product development were
$683,488, or 23.7% of net sales in 1997, of which $168,833 were capitalized.
This compares to total product development expenditures of $163,069, or 7.1% of
sales, in 1996, of which $84,182 were capitalized. This increase was due to
increases in product development staff and expenditures for the Company's
Personal Internet Banker(TM) product.
General and Administrative. General and administrative expenses increased
from $909,230 in 1996 to $2,733,924 in 1997. As a percentage of net sales, these
expenses increased from 39.6% in 1996 to 95.0% in 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 public relations and other professional services.
Depreciation and Amortization. Depreciation and amortization increased
from $85,068, or 3.7% of net sales in 1996 to $238,537, or 8.3% in 1997,
reflecting increased expenditures on capital equipment.
Interest Expense. Interest expense increased from $51,272 in 1996 to
$543,420 during 1997, principally reflecting $443,889 of amortization of the
discount associated with the convertible debentures issued in September 1997.
RECENTLY ISSUED ACCOUNTING STANDARDS
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133). FAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1,
2000 for the Company). FAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Management of the
Company anticipates that, due to its limited use of derivative instruments, the
adoption of FAS 133 will not have a significant effect on the Company's results
of operations or its financial position.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company has substantially limited unused sources of capital. As of
December 31, 1998, the Company had net working capital of approximately $2.3
million. Management has undertaken steps to address the Company's ongoing cash
requirements including concentrating the Company's market focus, identifying
additional operational and administrative efficiencies, and actively managing
working capital. The Company also may consider raising additional capital
through additional debt and equity offerings.
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 or on terms that will not
significantly dilute the interests of existing stockholders. If the Company
exhausts its
11
<PAGE> 14
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 business lines. 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 $4,404,190 for year ended
December 31, 1998. The Company has primarily financed its operations to date
through public and private sales of debt and equity securities and loans from
its principal stockholders and affiliates. 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 $4.7 million. 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 an
aggregate $1.7 million principal amount of the Company's 5% convertible
debentures due September 22, 2000. Net proceeds from the sale of the debentures
was approximately $1.5 million. In December 1997, the Company issued 20,000
shares of Series A preferred stock for aggregate net proceeds of approximately
$1.8 million. During 1998, the Company's 5% convertible debentures and its
Series A preferred stock were converted into 961,460 and 711,456 shares of
common stock, respectively. In June 1998, the Company sold its HostAmerica
division to Sage Acquisition Corp., for net proceeds of approximately
$4,250,000.
On March 25, 1999, the Company issued 125 shares of its Series B Preferred
Stock for an aggregate purchase price of $2,500,000. Net proceeds to the Company
from the Series B preferred sale were approximately $2,280,000. The Series B
preferred stock is convertible at the option of the holder into a number of
shares of common stock equal to a share-based factor. The Series B conversion
price is the lesser of (i) the average closing bid price during any four (4)
consecutive trading days during the twenty-five (25) consecutive trading day
period ending one (1) trading day prior to the day the notice of conversion is
sent to the Company, or (ii) $5.23. The shares may be redeemed by the Company at
a price equal to 120% of the face amount of the shares.
The Company spent $362,689 and $387,209 during 1998 and 1997, 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 December 31, 1998 consist primarily
of leases on its Atlanta, Vienna, Virginia and New York City facilities.
Accounts receivable, net of allowance for doubtful accounts, totaled
$680,790 as of December 31, 1998. 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.
YEAR 2000
Many existing computer programs were originally designed to use only two
digits to identify a year in date fields. As a result, date-sensitive software
applications may recognize a date using "00" as the year 1900 rather than the
year 2000. If not corrected, these applications could fail or produce erroneous
results when working with dates in the year 2000 and beyond. If not properly
addressed, the Year 2000 issue could have a material effect on the Company's
financial position and future operating results. The Company primarily relies on
12
<PAGE> 15
industry standard operating systems and applications for its internal systems
rather than proprietary software, and based on its review of its significant
internal programs and systems, has determined that they are substantially Year
2000 compliant. In addition, the Company is seeking confirmation from its
primary telecommunications service providers that they are developing and
implementing plans to become Year 2000 compliant. Information received to date
has indicated that such respondents are in the process of implementing
remediation procedures to ensure that their computer systems, services, or
products are Year 2000 compliant by December 31, 1999. However, the Company has
not undertaken an in-depth evaluation of such providers in relation to the Year
2000 issue. In addition, the Company cannot predict whether or not all of these
vendors' programs will be successful. To the extent that these vendors fail to
resolve any Year 2000 issues on a timely basis or in a manner that is compatible
with the Company's systems, that failure could have a material adverse effect on
the Company's financial position and future operating results. The Company is
using internal resources to identify and correct its systems for Year 2000
compliance, and expects any incremental costs associated with addressing this
issue to be minimal. The Company does not believe that the costs of addressing
Year 2000 issues will be material to its financial position or future operating
results.
13
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... 15
Balance Sheets as of December 31, 1997 and 1998............. 16
Statements of Operations for Each of the Three Years in the
Period Ended December 31, 1998............................ 17
Statements of Stockholders' Equity (Deficit) for Each of the
Three Years in the Period Ended December 31, 1998......... 18
Statements of Cash Flows for Each of the Three Years in the
Period Ended December 31, 1998............................ 19
Notes to Financial Statements............................... 21
</TABLE>
14
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
HomeCom Communications, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of HomeCom
Communications, Inc. at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 29, 1999
15
<PAGE> 18
HOMECOM COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,187,948 $ 2,291,932
Restricted cash........................................... -- 250,000
Accounts receivable, net.................................. 470,839 680,790
Other current assets...................................... -- 4,796
----------- -----------
Total current assets............................... 3,658,787 3,227,518
FURNITURE, FIXTURES AND EQUIPMENT, NET...................... 627,624 797,263
SOFTWARE DEVELOPMENT COSTS, NET............................. 31,778 --
DEPOSITS.................................................... 85,731 80,231
DEFERRED ACQUISITION COSTS.................................. -- 109,158
DEFERRED DEBT ISSUE COSTS................................... 248,359 --
INTANGIBLE ASSETS, NET...................................... -- 351,320
OTHER NON-CURRENT ASSETS.................................... 12,500 --
----------- -----------
Total assets....................................... $ 4,664,779 $ 4,565,490
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 427,886 $ 424,094
Accrued payroll liabilities............................... 264,180 300,927
Unearned revenue.......................................... 190,978 128,345
Current portion of obligations under capital leases....... 53,813 108,427
----------- -----------
Total current liabilities.......................... 936,857 961,793
----------- -----------
CONVERTIBLE DEBENTURES, NET OF DISCOUNT OF $122,778 AS OF
DECEMBER 31, 1997......................................... 1,577,222 --
OBLIGATIONS UNDER CAPITAL LEASES............................ 74,787 88,242
OTHER LIABILITIES........................................... 119,141 67,006
----------- -----------
Total liabilities.................................. 2,708,007 1,117,041
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 15,000,000 shares
authorized, 2,956,396 and 5,072,397 shares issued and
outstanding at December 31, 1997 and 1998,
respectively............................................ 295 507
Preferred stock, Series A, convertible, $100 par value,
1,000,000 shares authorized, 20,000 and 0 shares issued
and outstanding at December 31, 1997 and 1998,
respectively; participating; $2,000,000 liquidation
value at December 31, 1997.............................. 200 --
Additional paid-in capital................................ 7,800,542 10,355,724
Subscriptions receivable.................................. (337,501) (196,878)
Accumulated deficit....................................... (5,506,764) (6,710,904)
----------- -----------
Total stockholders' equity......................... 1,956,772 3,448,449
----------- -----------
Total liabilities and stockholders' equity......... $ 4,664,779 $ 4,565,490
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 19
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
NET SALES:
Service sales.......................................... $2,112,878 $ 2,792,306 $ 2,941,047
Equipment sales........................................ 185,977 86,322 351,363
---------- ----------- -----------
Total net sales................................ 2,298,855 2,878,628 3,292,410
---------- ----------- -----------
COST OF SALES:
Cost of services....................................... 715,377 2,254,200 2,372,617
Cost of equipment sold................................. 128,938 68,974 228,694
---------- ----------- -----------
Total cost of sales............................ 844,315 2,323,174 2,601,311
---------- ----------- -----------
GROSS PROFIT............................................. 1,454,540 555,454 691,099
---------- ----------- -----------
OPERATING EXPENSES:
Sales and marketing.................................... 962,220 1,499,397 1,392,306
Product development.................................... 78,887 514,655 677,590
General and administrative............................. 909,230 2,733,924 3,406,876
Depreciation and amortization.......................... 85,068 238,537 542,269
---------- ----------- -----------
Total operating expenses....................... 2,035,405 4,986,513 6,019,041
---------- ----------- -----------
OPERATING LOSS........................................... (580,865) (4,431,059) (5,327,942)
OTHER EXPENSES (INCOME)
Gain on sale of division............................... -- -- (4,402,076)
Interest expense....................................... 51,272 543,420 445,216
Other expense (income), net............................ (6,554) (93,298) (166,942)
---------- ----------- -----------
LOSS BEFORE INCOME TAXES................................. (625,583) (4,881,181) (1,204,140)
INCOME TAXES............................................. -- -- --
---------- ----------- -----------
NET LOSS................................................. (625,583) (4,881,181) (1,204,140)
PREFERRED STOCK DIVIDEND................................. -- -- (666,667)
---------- ----------- -----------
LOSS APPLICABLE TO COMMON SHAREHOLDERS................... $ (625,583) $(4,881,181) $(1,870,807)
========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE......................... $ (0.34) $ (1.88) $ (0.44)
========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............ 1,862,223 2,602,515 4,287,183
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 20
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- --------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------- ------ --------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........................... -- -- 1,000 27,706 --
Conversion from S to C corporation................... (22,892)
Issuance of stock.................................... 19,663 468,104
Net loss.............................................
Stock split and recapitalization to $0.0001 par
value.............................................. -- -- 1,902,400 (495,618) 495,618
------- ----- --------- --------- -----------
BALANCE, December 31, 1996........................... -- -- 1,923,063 192 472,726
Conversion of note payable to common shares.......... 33,333 3 199,997
Issuance of common shares, net of offering costs..... 1,000,000 100 4,672,489
Issuance of preferred shares, net of offering
costs.............................................. 20,000 200 1,799,052
Issuance of warrants and compensatory stock
options............................................ 89,611
Cancellation of subscriptions receivable under
employment agreements..............................
Favorable conversion feature of convertible
debentures......................................... 566,667
Net loss............................................. -- -- -- -- --
------- ----- --------- --------- -----------
BALANCE, December 31, 1997........................... 20,000 200 2,956,396 295 7,800,542
Issuance of stock.................................... 443,085 45 884,086
Conversion of convertible debentures to common
shares............................................. 961,460 96 1,699,904
Conversion of preferred stock to common shares....... (20,000) (200) 711,456 71 129
Cancellation of subscriptions receivable under
employment agreements..............................
Other................................................ (28,937)
Net loss............................................. -- -- -- -- --
------- ----- --------- --------- -----------
BALANCE, December 31, 1998........................... -- $ -- 5,072,397 $ 507 $10,355,724
======= ===== ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
SUBSCRIPTIONS ACCUMULATED STOCKHOLDERS'
RECEIVABLE DEFICIT EQUITY (DEFICIT)
------------- ----------- -----------------
<S> <C> <C> <C>
BALANCE, December 31, 1995.................................. (22,892) 4,814
Conversion from S to C corporation.......................... 22,892 --
Issuance of stock........................................... (468,004) 100
Net loss.................................................... (625,583) (625,583)
Stock split and recapitalization to $0.0001 par value....... -- -- --
--------- ----------- -----------
BALANCE, December 31, 1996.................................. (468,004) (625,583) (620,669)
Conversion of note payable to common shares................. 200,000
Issuance of common shares, net of offering costs............ 4,672,589
Issuance of preferred shares, net of offering costs......... 1,799,252
Issuance of warrants and compensatory stock options......... 89,611
Cancellation of subscriptions receivable under.............. --
employment agreements..................................... 130,503 130,503
Favorable conversion feature of convertible debentures...... 566,667
Net loss.................................................... -- (4,881,181) (4,881,181)
--------- ----------- -----------
BALANCE, December 31, 1997.................................. (337,501) (5,506,764) 1,956,772
Issuance of stock........................................... 884,131
Conversion of convertible debentures to common shares....... 1,700,000
Conversion of preferred stock to common shares.............. --
Cancellation of subscriptions receivable under employment
agreements................................................ 140,623 140,623
Other....................................................... (28,937)
Net loss.................................................... -- (1,204,140) (1,204,140)
--------- ----------- -----------
BALANCE, December 31, 1998.................................. $(196,878) $(6,710,904) $ 3,448,449
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
18
<PAGE> 21
HOMECOM COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(625,583) $(4,881,181) $(1,204,140)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization....................... 87,733 457,113 542,269
Amortization of debt discount....................... -- 443,889 122,778
Amortization of debt issue costs.................... -- 22,578 283,754
Forgiveness of subscriptions receivable............. -- 130,501 140,623
Expense recorded for issuance of warrants........... -- -- 36,093
Non-cash compensation expense....................... -- -- 44,933
Gain on sale of division............................ -- -- (4,402,076)
Provision for bad debts............................. 104,360 244,893 167,675
Deferred rent expense............................... 73,424 45,717 (52,135)
Change in operating assets and liabilities:
Accounts receivable............................... (506,289) (227,478) (309,248)
Accounts payable and accrued expenses............. 316,641 (221,908) (3,793)
Accrued payroll liabilities....................... 284,367 (74,274) 36,747
Unearned revenue.................................. 90,691 57,808 187,367
Other............................................. (41,266) (21,674) 4,964
--------- ----------- -----------
Net cash used in operating activities............... (215,925) (4,024,016) (4,404,190)
--------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment.......... (349,646) (387,209) (362,689)
Proceeds from sale of division, net of restricted cash
of $250,000......................................... -- -- 4,000,000
Payment of acquisition costs........................... -- -- (152,407)
Software development costs............................. (84,182) (168,834) --
--------- ----------- -----------
Net cash provided by (used in) investing
activities........................................ (433,828) (556,043) 3,484,904
--------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of deferred offering costs..................... (88,096) (415,448) (28,937)
Payment of deferred debt issue costs................... -- (220,937) (35,395)
Repayment of capital lease obligations................. (4,404) (51,010) (144,492)
Proceeds from issuance of common shares and exercise of
warrants............................................ -- -- 232,094
Payment of preferred stock issue costs................. -- (190,748) --
Proceeds from issuance of convertible debentures and
warrants............................................ -- 1,700,000 --
Proceeds from issuance of preferred shares and
warrants............................................ -- 2,000,000 --
Proceeds from notes payable to stockholders............ 889,904 490,000 --
Repayment of notes payable to stockholders............. (5,115) (1,335,581) --
Proceeds from note payable............................. 70,000 -- --
Repayment of note payable.............................. (9,354) (60,646) --
Proceeds from sale of stock, net of underwriting
discounts and commissions........................... 100 5,520,000 --
--------- ----------- -----------
Net cash provided by financing activities........... 853,035 7,435,630 23,270
--------- ----------- -----------
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... 203,282 2,855,571 (896,016)
CASH AND CASH EQUIVALENTS at beginning of period......... 129,095 332,377 3,187,948
--------- ----------- -----------
CASH AND CASH EQUIVALENTS at end of period............... $ 332,377 $ 3,187,948 $ 2,291,932
========= =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON
CASH INVESTING AND FINANCING ACTIVITIES:
Interest paid.......................................... $ 6,277 $ 56,365 $ 16,277
========= =========== ===========
Capital lease obligations incurred during year on lease
of computer equipment............................... $ 64,667 $ 119,346 $ 208,065
========= =========== ===========
Conversion of notes payable to affiliate to common
stock............................................... $ -- $ 200,000 $ --
========= =========== ===========
Issuance of warrants and compensatory stock options.... $ -- $ 89,611 $ --
========= =========== ===========
</TABLE>
During 1998, the Company issued 351,391 shares of common stock for the net
assets of The Insurance Resource Center, Inc.
During 1998, $1,700,000 of convertible debentures were converted into 961,460
shares of common stock.
During 1998, 20,000 shares of preferred stock were converted into 711,456 shares
of common stock.
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 23
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
HomeCom Communications, Inc. (the "Company") specializes in Internet
application solutions for the financial services industry. HomeCom's integrated
Web-enabled solutions for one-stop financial services include a complete range
of products and services such as secure banking services, fee-income producing
insurance and brokerage products, and intelligent one-to-one marketing. In
addition, HomeCom offers custom Web development and hosting services, as well as
Internet security products and 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, has an accumulated deficit at December 31, 1998, and has used
substantial cash in its operations. Management believes that future debt and
equity offerings and successful commercialization of its products and services
will generate the required capital necessary to continue as a going concern.
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.
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.
RESTRICTED CASH
Under the terms of the sale of the Company's HostAmerica division in June,
1998, $250,000 of the proceeds of the sale are to be held in escrow until May 1,
1999 for the purpose of indemnifying the Purchaser for representations and
warranties made by the Company under the Asset Purchase Agreement.
ACCOUNTS RECEIVABLE, NET
Accounts receivables are shown net of the allowance for doubtful accounts.
The allowance was approximately $161,000 and $95,000 at December 31, 1997 and
1998, respectively. Write-offs were approximately $191,000 and $233,000 for the
years ended December 31, 1997 and 1998, 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.
21
<PAGE> 24
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
Amortization of capitalized software development costs totaled approximately
$3,000, $219,000, and $32,000 in 1996, 1997, and 1998, respectively. These
expenses are included in cost of sales. At December 31, 1998, capitalized
software development costs have been fully amortized.
DEFERRED ACQUISITION COSTS
Costs incurred in connection with the Company's acquisition of First
Institutional Marketing, Inc. have been deferred. These costs consist of legal,
accounting, and printing costs and will be capitalized upon the closing of this
transaction.
DEFERRED DEBT ISSUE COSTS
Costs in connection with the Company's offering of convertible debentures
were deferred and amortized over the term of the debt. As of December 31, 1998,
all of the convertible debentures had been converted into shares of common stock
and, accordingly, all of the deferred debt issue costs had been amortized.
INTANGIBLE ASSETS
Intangible assets consist of cost in excess of net assets acquired arising
from the purchase of The Insurance Resource Center, Inc. ("IRC") which is being
amortized using the straight-line method over three years. Impairment of value,
if any, is recognized in the period in which it is determined. Management
assesses the recoverability of intangible assets at each balance sheet date
based on undiscounted projected cash flows and operating income.
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.
REVENUE RECOGNITION
The Company recognizes revenues on web page development and specialized
software application contracts using the percentage-of-completion method. 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 services being performed.
22
<PAGE> 25
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ADVERTISING EXPENSES
Advertising costs are expensed when incurred. Advertising expenses were
approximately $724,000 and $263,000 for the years ended December 31, 1997 and
1998, respectively.
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. 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 $2,500,000 at
December 31, 1998 is primarily due to operating loss carryforwards generated
since February 9, 1996, and is fully offset by a valuation allowance. The effect
of a change in the valuation allowance that results from a change in
circumstances that causes a change in judgment about the realizability of the
related deferred tax asset in future years would be included in income in that
period.
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.
BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share ("EPS") are calculated according to
the provisions of Statement of Financial Accounting Standards No. 128, "Earnings
per Share" ("FAS 128"). Due to the net loss position of the Company for each of
the three years in the period ending December 31, 1998, the numerator and
denominator are the same for both basic and diluted EPS.
OTHER MATTERS
Certain prior year amounts have been reclassified to conform to current
year presentation.
2. FURNITURE, FIXTURES AND EQUIPMENT, NET
Furniture, fixtures and equipment, net, are comprised of the following as
of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
-------- ----------
<S> <C> <C>
Furniture and fixtures...................................... $191,107 $ 257,424
Computer equipment.......................................... 579,486 861,400
Computer equipment under capital leases..................... 184,012 382,055
-------- ----------
954,605 1,500,879
Less: accumulated depreciation and amortization............. (326,981) (703,616)
-------- ----------
$627,624 $ 797,263
======== ==========
</TABLE>
23
<PAGE> 26
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. NOTES PAYABLE
Notes payable are comprised of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Convertible debentures (interest accrues at 5%), payable
September 22, 2000, non-collateralized, convertible at the
option of the holders into shares of the Company's common
stock, net of unamortized discount of $122,778............ $1,577,222 --
Less current maturities of notes payable.................... -- --
---------- ----------
$1,577,222 $ --
========== ==========
</TABLE>
These notes were converted into 961,460 shares of common stock during 1998.
4. SEGMENT INFORMATION
During 1998, HomeCom reorganized into five separate business units,
organized on the basis of products and services. Prior to that time, the Company
operated in a single business segment. The Company has determined that its
reportable segments are those that are based on the Company's method of internal
reporting, which disaggregates its business by product and service category into
business units. HomeCom's reportable segments are: custom Web development
(FAST), Internet outsourcing services (HostAmerica), Internet security services
(HISS), software products, and InsureRate. On June 9, 1998, the Company sold
substantially all of the assets of its HostAmerica Internet outsourcing services
business unit to Sage Acquisition Corp.
The table below presents information about the reported business unit
income for HomeCom Communications, Inc. for the year ended December 31, 1998:
<TABLE>
<CAPTION>
SOFTWARE RECONCILING CONSOLIDATED
FAST HOSTAMERICA HISS PRODUCTS INSURERATE ITEMS TOTALS
------ ----------- ---- -------- ---------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues......................... $1,950 $531 $782 $ 29 $ 0 $ 0 $ 3,292
Net Income (Loss)................ $ (363) $256 $(67) $(443) $(357) $(230) $(1,204)
</TABLE>
- - ---------------
Reconciling items represent adjustments that are made to the total of the
segments' operating income in order to arrive at consolidated net loss and
include the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Depreciation and amortization............................... $ (587)
Interest expense, net....................................... (278)
Gain on sale of division.................................... 4,402
Corporate sales and marketing and product development
expenses.................................................. (360)
General and administrative expenses......................... (3,407)
-------
$ (230)
=======
</TABLE>
The Company evaluates the performance of its segments based on segment
revenue and identifiable segment direct expenses, consisting primarily of
salaries and wages, travel and other costs of segment operating and sales
personnel. Common expenses for general and administrative costs, facilities,
equipment, telecommunications, and depreciation and amortization expenses are
not allocated to the business segments but are included in Corporate expenses.
Corporate expenses are included as part of the Reconciling Items column in the
table above.
24
<PAGE> 27
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenues for the years ended December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
SOFTWARE CONSOLIDATED
FAST HOSTAMERICA HISS PRODUCTS INSURERATE TOTALS
------ ----------- ---- -------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues -- 1997........................... $1,792 $692 $375 $ 20 $ -- $2,879
Revenues -- 1996........................... $1,845 $304 $70 $ 80 $ -- $2,299
</TABLE>
Prior year operating income (loss) by segment is not presented as the
information is not available.
Asset information by reportable segment is not reported since the Company
does not produce such information internally. All of the Company's revenues and
expenses originate in the United States. No single customer accounted for more
than 10% of the Company's revenues. Therefore, no additional disclosures about
major customers are presented.
5. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under noncancelable operating
lease agreements expiring through 2002. The Company has entered into several
capital leases of computer equipment.
Future minimum lease payments under capital and operating leases are as
follows as of December 31, 1998:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
1999...................................................... $ 123,571 $ 524,171
2000...................................................... 69,654 534,529
2001...................................................... 25,785 338,789
2002...................................................... -- 234,424
2003...................................................... -- --
--------- ----------
Total minimum lease payments.............................. 219,010 $1,631,913
==========
Less: amount representing interest........................ (22,341)
---------
Present value of minimum lease payments................... 196,669
Less: current portion..................................... (108,427)
---------
$ 88,242
=========
</TABLE>
The Company leases office space in New York City, Vienna, Virginia and
Atlanta, Georgia. The total amount of the base rent payments is being charged to
expense on a straight-line method over the term of these leases. The Company has
recorded a deferred credit to reflect the excess of rent expense over cash
payments since inception of the leases.
Rental expense under operating leases was approximately $227,000, $507,000
and $440,000 for the years ended December 31, 1996, 1997, and 1998,
respectively.
Various legal proceedings may arise in the normal course of business.
Additionally, 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
25
<PAGE> 28
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
6. 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 26%, 15%, and 27% of total revenues for the
years ended December 31, 1996, 1997, and 1998, respectively. No customer
accounted for more than 10% of the revenues of the Company during 1996, 1997 or
1998. The five most significant customer balances represented approximately 26%
and 50% of the gross accounts receivable balance at December 31, 1997 and 1998,
respectively.
7. EQUITY AND CONVERTIBLE DEBT TRANSACTIONS
All share and per share amounts presented below have been adjusted to
reflect the 93.07-for-one stock split effective September 11, 1996.
During 1995, the Company issued warrants to its former Board of Advisors to
purchase 37,228 shares of common stock for total consideration of $4.00. The
warrants were granted at the fair market value of the common stock at the time
of issuance. These warrants were exercised in August 1996.
During February 1996, the Company issued 707,332 additional shares to the
previous sole stockholder, 93,070 shares to an executive officer of the Company
pursuant to the exercise of options granted in connection with the founding of
the Company, and 893,472 shares to four private investors.
In August 1996, the Company sold to certain key employees an aggregate of
102,855 shares of common stock for an aggregate consideration of $468,004,
payable through the issuance of promissory notes payable in four equal
installments, bearing interest at 8% per annum and secured by the shares of
common stock purchased therewith. Also in August 1996, the Company entered into
employment agreements with such persons which provide that, assuming continued
employment with the Company, for each of the first four years of employment, the
Company will issue a bonus to the employee in the amount necessary to repay the
annual amount due under such promissory note (plus the taxes due by the employee
as a consequence of receiving such bonus). Pursuant to the terms of the
employment agreements, the Company will continue to make these annual payments
if the employee is terminated other than "for cause," as defined in the
employment agreements. Pursuant to the terms of the subscription agreements for
such shares, if the employee's employment is terminated within such four-year
period, the Company has the right to repurchase that percentage of the shares
purchased by the employee which shall equal the percentage of the promissory
note which is not yet due, payment for such repurchase to be made by canceling
the applicable outstanding amount of the promissory note. For financial
reporting purposes, these notes receivable have been presented as a separate
component of stockholders' equity.
In September 1996, the Company amended and restated its Certificate of
Incorporation (i) to reclassify its common stock from no par value stock to
stock with a par value of $0.0001 per share, (ii) to increase the authorized
shares of common stock to 15,000,000, and (iii) to authorize the issuance of
1,000,000 shares of $0.01 par value preferred stock. In addition, 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,
26
<PAGE> 29
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
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.
In connection with the completion with the Company's initial public
offering, the Company granted its underwriter warrants 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. These
warrants expire on May 12, 2002 if not earlier exercised.
In September 1997, the Company issued $1,700,000 of 5% convertible
debentures due September 22, 2000. 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. During 1998, the
full principal amount of the debentures was fully converted into 961,460 shares
of common stock. As of December 31, 1998, $44,596 of interest has been accrued
for the debentures, and is payable on September 22, 2000. 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 was amortized in 1998 as a non-cash charge to interest expense.
In connection with the issuance of the debentures, the Company issued 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, 50,000 were exercised in December 1998 at an
exercise price of $4.00 per share. At December 31, 1998, warrants to purchase
150,000 shares of common stock are outstanding and exercisable at a price of
$4.00 per share, and warrants to purchase the remaining 200,000 shares of common
stock are outstanding and exercisable at a price of $6.00 per share. If not
earlier exercised, the warrants expire on October 27, 2000.
In December 1997, the Company issued 20,000 shares of its Series A
preferred stock for an aggregate purchase price of $2,000,000. Net proceeds to
the Company from the Series A preferred stock issuance were approximately
$1,800,000. As of December 31, 1998, the preferred stock had been fully
converted into 711,456 shares of common stock. A discount of $666,667 results
from an allocation of the proceeds to the beneficial conversion feature. This
discount is analogous to a dividend and was recognized as a return to the Series
A preferred holders over the period the preferred stock was outstanding.
In connection with the issuance and sale of the Series A preferred stock,
the Company granted the Series A preferred warrants 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. The Series A preferred stock warrants will
expire on December 31, 2000.
At December 31, 1998, 600,000 warrants are outstanding at a weighted
average exercise price of $7.51.
On April 16, 1998, the Company issued 351,391 shares of common stock to
acquire all of the outstanding capital stock of The Insurance Resource Center,
Inc.
27
<PAGE> 30
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On October 7, 1998, the Company issued 18,959 shares of common stock to the
former holders of HISS's capital stock as an earnout payment, which was recorded
as compensation expense.
8. STOCK OPTION PLANS
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. On March 3,
1999 at a Special Meeting of Stockholders, the Company's stockholders approved
an amendment to the Stock Option Plan which increased the number of shares
reserved for issuance under the Stock Option Plan to 2,000,000. 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 1997 and 1998, 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 options was at or above the fair
market value of the stock on the grant date.
The Company's Non-Employee Directors' Stock Option Plan (the "Directors'
Plan") was adopted by the Company's stockholders in September 1996. Shares of
common stock may be sold or awarded to directors who are not officers or
employees of the Company ("Non-Employee Directors"). The Company has reserved
300,000 shares of common stock for issuance under the Directors' Plan.
The Directors' Plan provides for the automatic granting of an option to
purchase 10,000 shares of common stock to each Non-Employee Director who is
first appointed or elected to the Board of Directors. Also, each Non-Employee
Director is automatically granted an option to purchase 5,000 shares of common
stock on the date of each annual meeting of the Company's stockholders.
Furthermore, the Directors' Plan allows the Board of Directors to make
extraordinary grants of options to Non-Employee Directors.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). This statement requires that companies with
stock-based compensation plans either recognize compensation expense based on
new fair value accounting method or continue to apply the provisions of
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25") and disclose pro forma net income and earnings per share
assuming the fair value method had been applied.
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options. The Company has recognized no
compensation expense for options issued to employees and non-employee directors.
For the years ended December 31, 1997 and 1998, the Company recognized
approximately $5,000 and $36,000, respectively, in expense for stock issued to
non-employees.
Pro forma information regarding loss per share is required by FAS 123 and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate..................................... 6.46% 5.93% 5.11%
Volatility factors of the expected market price of the
Company's common stock.................................... 80% 90% 110%
Weighted average expected life of the options............... 4 years 5 years 5 years
</TABLE>
28
<PAGE> 31
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation cost for the Company's stock-based compensation plans been
determined under the provisions consistent with FAS 123, the Company's net loss
and loss per share for the years ended December 31, 1997 and 1998, would have
been the pro forma amounts listed below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Loss applicable to common shareholders:
As reported.................................... $(625,583) $(4,881,181) $(1,870,807)
Pro forma...................................... (676,776) (5,012,634) (2,351,259)
Basic and diluted loss per share:
As reported.................................... (0.34) (1.88) (0.44)
Pro forma...................................... (0.36) (1.93) (0.55)
</TABLE>
Option activity under all of the stock option plans is summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1998
---------------------------- ---------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year... 220,543 $6.30 421,160 $4.95
Granted............................ 599,555 5.26 312,700 3.35
Exercised.......................... 0 -- (4,375) 4.06
Forfeited.......................... (398,938) 5.80 (170,875) 3.34
--------- --------
Outstanding at end of year......... 421,160 4.95 558,610 4.59
========= ========
Options exercisable at year end.... 3,090 127,791
========= ========
Shares available for future
grant............................ 178,840 41,390
========= ========
Weighted-average fair value of
options granted during the year
at the shares' fair value........ $ 3.71 $ 2.79
========= ========
</TABLE>
The following table summarizes information about fixed options outstanding
at December 31, 1998.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING CONTRACTUAL
EXERCISE PRICES SHARES LIFE
- - --------------- ------- ---------------------
<S> <C> <C>
$1.91 - 2.18.............................................. 50,700 9.6
$3.69 - 4.72.............................................. 329,111 8.9
$6.00 - 8.06.............................................. 178,799 8.5
-------
558,610 8.8
=======
</TABLE>
9. ACQUISITIONS AND DIVESTITURES
In August 1996, HomeCom acquired all of the outstanding capital stock of
HomeCom Internet Security Services, Inc. ("HISS"), a start-up company formed in
July 1996 to provide Internet and Intranet security system consulting services.
Consideration to the former holders of HISS' capital stock consisted of 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. In 1998, the Company
incurred approximately $45,000 in compensation expense in the form of issuing
18,959 shares of common stock to certain former holders of HISS' capital stock.
The maximum additional potential liability under the earnout agreement is
$134,800, payable in common stock or cash at the
29
<PAGE> 32
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's option. The Company does not expect this additional potential
liability to be paid, due to HISS net income limitations.
On April 16, 1998, the Company acquired all of the outstanding capital
stock of The Insurance Resource Center, Inc. ("IRC") for total consideration of
approximately $571,000, consisting of 351,391 shares of the Company's common
stock. IRC provides Internet development and hosting services to the insurance
industry. The Company has accounted for this acquisition as a purchase
transaction. Approximately $460,000 was recorded as an intangible asset and is
being amortized over three years. At December 31, 1998, the net unamortized
balance of this intangible asset was $351,000, net of $109,000 of accumulated
amortization.
On June 9, 1998, the Company sold substantially all of the assets of its
HostAmerica Internet network outsourcing services division to Sage Acquisition
Corp. ("Sage") for cash of $4,250,000 and Sage's assumption of approximately
$250,000 of unearned revenue. The Company recorded a gain on the sale of
approximately $4,402,000. The assets sold consisted of computer network
equipment and service contracts.
10. INCOME TAXES
Deferred income taxes 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 are as follows, as of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Temporary differences:
Allowance for uncollectibles................................ $ 61,009 $ 36,246
Vacation accrual............................................ 11,049 33,586
Depreciation................................................ 2,317 4,826
Deferred rent expense....................................... 45,274 25,462
Software development expenses............................... 55,599 35,138
----------- -----------
175,248 135,258
Net operating loss carryforward............................. 1,903,040 2,357,670
----------- -----------
Deferred tax asset.......................................... 2,078,288 2,492,928
Valuation allowance......................................... (2,078,288) (2,492,928)
----------- -----------
Net deferred tax asset...................................... $ 0 $ 0
=========== ===========
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards for
income tax purposes of approximately $6,200,000 which begin to expire in 2011.
Realization of these assets is contingent on having future taxable earnings. In
addition, certain stock transactions during 1997 resulted in the Company
incurring an ownership change as defined in Internal Revenue Code Section 382.
The result of this ownership change is to substantially limit the utilization of
the Company's net operating loss carry-forwards in the future. Based on the
cumulative losses in recent years and the limitation and the use of the
company's net operating losses management believes that a full valuation
allowance should be recorded against the deferred tax asset. The income tax
benefit differs from the amounts computed by applying the Federal statutory rate
of 34% to loss before taxes principally as a result of the recording of the
valuation allowance.
11. SUBSEQUENT EVENTS
On March 24, 1999, the Company acquired First Institutional Marketing, Inc.
and certain of its affiliates ("FIMI") of Houston, Texas for 1,252,174 shares of
common stock. FIMI offers insurance and investment products to banks,
broker/dealers, insurance agencies and retail consumers. FIMI markets its
products
30
<PAGE> 33
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
primarily to insurance agencies affiliated with commercial banks and
broker/dealers. The Company will account for this acquisition as a purchase
transaction.
On March 25, 1999, the Company issued 125 shares of its Series B Preferred
Stock for an aggregate purchase price of $2,500,000. Net proceeds to the Company
from the Series B preferred sale were approximately $2,280,000. The Series B
preferred stock is convertible at the option of the holder into a number of
shares of common stock equal to a share-based factor. The Series B conversion
price is the lesser of (i) the average closing bid price during any four (4)
consecutive trading days during the twenty-five (25) consecutive trading day
period ending one (1) trading day prior to the day the notice of conversion is
sent to the Company, or (ii) $5.23. The shares may be redeemed by the Company at
a price equal to 120% of the face amount of the shares.
In connection with the issuance and sale of the Series B preferred stock,
the Company granted the Series B preferred warrants to acquire an aggregate
225,000 shares of common stock at an exercise price of $5.70. The Company also
granted 25,000 warrants to a placement agent at an exercise price of $5.70. The
Series B preferred warrants will expire on March 24, 2004.
31
<PAGE> 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information required by this item is incorporated by reference from
the information contained in the Company's Proxy Statement for the Annual
Meeting of Shareholders expected to be filed with the Commission on or about
April 30, 1999 under the captions "Directors and Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included in the Company's
Proxy Statement for the Annual Meeting of Shareholders expected to be filed with
the Commission on or about April 30, 1999 under the caption "Executive
Compensation" and is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be included in the Company's
Proxy Statement for the Annual Meeting of Shareholders expected to be filed with
the Commission on or about April 30, 1999 under the caption "Security Ownership
of Certain Beneficial Owners and Management" and is incorporated by reference
herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included in the Company's
Proxy Statement for the Annual Meeting of Shareholders expected to be filed with
the Commission on or about April 30, 1999 under the caption "Certain
Transactions" and is incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)1. Financial Statements
The consolidated financial statements, notes thereto and report of
independent accountants thereon, filed as part hereof, are listed in Item 8.
2. Financial Statement Schedules
Financial Statement scheduled have been omitted as the required information
is not applicable or the required information has been incorporated in the
consolidated financial statements and related notes incorporated by reference
herein.
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- - ------- -----------------------
<C> <C> <S>
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.*
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- - ------- -----------------------
<C> <C> <S>
4.3 -- Form of Warrant.*
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.*
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.***
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- - ------- -----------------------
<C> <C> <S>
10.23 -- Letter agreement dated September 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.***
10.37 -- Form of Warrant to purchase 50,000 shares of Common Stock
issued by the Registrant to the Malachi Group, Inc.****
10.38 -- Letter Agreement, dated April 8, 1998 by and among the
Company, Eurofactors International Inc., Beauchamp France,
FTS Worldwide Corporation and COLBO.****
10.39 -- Letter Agreement, dated April 8, 1998 by and between First
Granite Securities, Inc. and the Company.****
10.40 -- Letter Agreement, dated April 17, 1998 by and among
Sovereign Partners, L.P., Dominion Capital Fund and the
Company.****
10.41 -- Agreement and Plan of Reorganization by and among The
Insurance Resource Center, Inc., Tim Strong, James Higham,
Cameron M. Harris & Company and the Company, dated as of
April 15, 1998.+
10.42 -- Employment Agreement by and between the Company and Tim
Higham, dated as of April 16, 1998.+
10.44 -- Asset Purchase Agreement by and between the Company and Sage
Networks Acquisition Corp. dated as of June 10, 1998.++
10.45 -- Escrow Agreement by and between the Company and Sage
Networks Acquisition Corp. dated as of June 10, 1998.++
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- - ------- -----------------------
<C> <C> <S>
10.46 -- Transitional Services Agreement by and between the Company
and Sage Networks Acquisition Corp. dated as of June 10,
1998.++
10.47 -- Co-Location Agreement by and between the Company and Sage
Networks, Inc. dated as of June 10, 1998.++
10.48 -- Agreement and Plan of Merger by and among HomeCom
Communications, Inc., FIMI Securities Acquisition Corp.,
Inc., ATF Acquisition Corp., and Daniel A. Delity, James Wm.
Ellsworth, and David B. Frank dated as of November 6, 1998,
together with exhibits.+++
10.49 -- Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock HomeCom Communications,
Inc. dated as of March 24, 1999.
10.50 -- Securities Purchase Agreement dated as of March 25, 1999 by
and among HomeCom Communications, Inc. and CPR (USA), Inc.,
Liberty View Funds, L.P., and Liberty View Fund, L.L.C.
10.51 -- Registration Rights Agreement dated as of March 25, 1999 by
and among HomeCom Communications, Inc. and CPR (USA), Inc.,
Liberty View Funds, L.P., and Liberty View Fund, L.L.C.
10.52 -- Transfer Agent Instructions dated as of March 25, 1999.
10.53 -- Transfer Agent Legal Opinion dated as of March 25, 1999.
10.54 -- Placement Agency Agreement dated as of March 25, 1999 by and
between HomeCom Communications, Inc. and J.P. Turner &
Company, L.L.C.
21.1 -- List of Subsidiaries.***
23.1 -- Consent of PricewaterhouseCoopers LLP.
27.1 -- Financial Data Schedules (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.
*** Incorporated herein by reference to exhibit of the same number in the Form
S-1 Registration Statement of the Registrant (Registration No. 333-42599).
**** Incorporated herein by reference to exhibit of the same number in the Form
S-1 Registration Statement of the Registrant filed with the Commission on
February 2, 1998.
+ Incorporated herein by reference to exhibit of the same number in the Form
S-1 Registration Statement of the Registrant (Registration No. 333-45383).
++ Incorporated herein by reference to exhibit of the same number in Form 8-K
of the Registrant filed with the Commission on June 25, 1998.
+++ Incorporated herein by reference to exhibit of the same number in Form 8-K
of the Registrant filed with the Commission on November 18, 1998.
(B) Reports on Form 8-K
On April 28, 1998, the Company filed a report on Form 8-K under Item 5 with
respect to its renegotiation of certain terms and conditions of the Series A
Convertible Preferred Stock private placement which was consummated in December
1997, and 5% Convertible Debentures private placement which was consummated in
September 1997.
On June 25, 1998, the Company filed a report on Form 8-K under Item 2 with
respect to its sale of substantially all of the assets of its HostAmerica
Internet network outsourcing services division to Sage Acquisition Corp. for
$4,500,000.
35
<PAGE> 38
On November 18, 1998, the Company filed a report on Form 8-K under Item 5
with respect to its signing a definitive agreement and plan of merger to
acquire, among other things, all of the outstanding shares of First
Institutional Marketing, Inc. and certain of its affiliates ("FIMI") for
1,252,174 shares of common stock. In addition, the Company entered into
employment agreements for an initial term of 3 years with the three principals
of FIMI, calling for them to continue in their current roles for the acquired
companies.
36
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HOMECOM COMMUNICATIONS, INC.
By: /s/ Harvey W. Sax
------------------------------------
Harvey W. Sax
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Harvey W. Sax President; Chief Executive March 26, 1999
- - ----------------------------------------------------- Officer; Director
Harvey W. Sax
/s/ Nat Stricklen Senior Vice President -- Sales March 26, 1999
- - ----------------------------------------------------- & Marketing; Director
Nat Stricklen
/s/ Norman H. Smith Vice President -- Chief March 26, 1999
- - ----------------------------------------------------- Financial Officer
Norman H. Smith
/s/ Daniel A. Delity President, First Institutional March 26, 1999
- - ----------------------------------------------------- Marketing, Inc.; Director
Daniel A. Delity
/s/James Wm. Ellsworth Vice President, First March 26, 1999
- - ----------------------------------------------------- Institutional Marketing,
James Wm. Ellsworth Inc.; Director
/s/ Krishan Puri Executive Vice President; March 26, 1999
- - ----------------------------------------------------- Director
Krishan Puri
/s/ Gia Bokuchava, Ph.D. Chief Technical Officer; March 26, 1999
- - ----------------------------------------------------- Director
Gia Bokuchava, Ph.D.
/s/ Roger J. Nebel Vice President; Director March 26, 1999
- - -----------------------------------------------------
Roger J. Nebel
/s/ Claude A. Thomas Director March 26, 1999
- - -----------------------------------------------------
Claude A. Thomas
/s/ William Walker Director March 26, 1999
- - -----------------------------------------------------
William Walker
</TABLE>
37
<PAGE> 1
EXHIBIT 10.49
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
HOMECOM COMMUNICATIONS, INC.
HomeCom Communications, Inc. (the "COMPANY"), a corporation organized
and existing under the General Corporation Law of the State of Delaware, does
hereby certify that, pursuant to authority conferred upon the Board of Directors
of the Company by the Certificate of Incorporation of the Company, and pursuant
to Section 151 of the General Corporation Law of the State of Delaware, the
Board of Directors of the Company at a meeting duly held, adopted resolutions
(i) authorizing a series of the Company's authorized preferred stock, $.01 par
value per share, and (ii) providing for the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of 125 shares of Series B Convertible
Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 125 shares
of Series B Convertible Preferred Stock (the "SERIES B PREFERRED
SHARES"), $.01 par value per share, which shall have the following
powers, designations, preferences and other special rights:
(1) Dividends. The Series B Preferred Shares shall not
bear any dividends.
(2) Holder's Conversion of Series B Preferred Shares. A
holder of Series B Preferred Shares shall have the right, at such
holder's option, to convert the Series B Preferred Shares into shares
of the Company's common stock, $.01 par value per share (the "COMMON
STOCK"), on the following terms and conditions:
(a) Conversion Right. Subject to the provisions
of Sections 2(g) and 3(a) below, at any time or times on or
after the earlier of (i) 90 days after the Issuance Date (as
defined herein), (ii) 5 days after receiving a "no-review"
status from the U.S. Securities and Exchange Commission in
connection with a registration statement ("REGISTRATION
STATEMENT") covering the resale of Common Stock issued upon
conversion of the Series B Preferred Shares and required to be
filed by the Company pursuant to the Registration Rights
Agreement between the Company and its initial holders of
Series B Preferred Shares (the "REGISTRATION RIGHTS
AGREEMENT"), (iii) the date that the Registration Statement is
declared effective by
<PAGE> 2
the U.S. Securities and Exchange Commission (the "SEC") any
holder of Series B Preferred Shares shall be entitled to
convert any Series B Preferred Shares into fully paid and
nonassessable shares (rounded to the nearest whole share in
accordance with Section 2(h) below) of Common Stock, at the
Conversion Rate (as defined below); provided, however, that,
as long as any Holder is subject to laws, rules, or
regulations which would prohibit such owner from owning in
excess of 4.99%, in no event shall any holder be entitled to
convert Series B Preferred Shares in excess of that number of
Series B Preferred Shares which, upon giving effect to such
conversion, would cause the aggregate number of shares of
Common Stock beneficially owned by the holder and its
affiliates to exceed 4.99% of the outstanding shares of the
Common Stock following such conversion. For purposes of the
foregoing proviso, the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates
shall include the number of shares of Common Stock issuable
upon conversion of the Series B Preferred Shares with respect
to which the determination of such proviso is being made, but
shall exclude the number of shares of Common Stock which would
be issuable upon (i) conversion of the remaining, nonconverted
Series B Preferred Shares beneficially owned by the holder and
its affiliates beneficially owned by the holder and its
affiliates. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended.
(b) Conversion Rate. The number of shares of
Common Stock issuable upon conversion of each of the Series B
Preferred Shares pursuant to Section (2)(a) shall be
determined according to the following formula (the "CONVERSION
RATE");
(.05)(N/365)(20,000) + 20,000
-----------------------------
CONVERSION PRICE
For purposes of this Certificate of Designations, the
following terms shall have the following meanings:
(i) "CONVERSION PRICE" means as, of
any Conversion Date (as defined below), the Market
Conversion Price, each in effect as of such date, if
applicable, and subject to adjustment as provided
herein, but in no event shall the Conversion Price
exceed the Fixed Conversion Price;
(ii) "FIXED CONVERSION PRICE" means
$5.23, subject to adjustment, as provided herein.
(iii) "MARKET CONVERSION PRICE" means,
the Average Market Price during any four (4)
consecutive trading days (the "Market Price Days") as
determined by the Holder during the twenty-five (25)
consecutive trading day
-2-
<PAGE> 3
period ending one (1) Trading Day prior to the date
that the Notice of Conversion (as defined herein) is
sent to the Company as provided herein;
(iv) "AVERAGE MARKET PRICE" means, with
respect to any security for any period, that price
which shall be computed as the arithmetic average of
the Closing Bid Prices (as defined below) for such
security for each trading day in such period;
(v) "CLOSING BID PRICE" means, for any
security as of any date, the last closing bid price
on the Nasdaq SmallCap Market(TM) (tHE "NASDAQ-SM")
as reported by Bloomberg Financial Markets
("BLOOMBERG"), or, if the Nasdaq-SM is not the
principal trading market for such security, the last
closing bid price of such security on the principal
securities exchange or trading market where such
security is listed or traded as reported by Bloomberg
(the "Trading Market"), or if the foregoing do not
apply, the last closing bid price of such security in
the over-the-counter market on the pink sheets or
bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported
for such security by Bloomberg, the last closing
trade price of such security as reported by
Bloomberg. If the Closing Bid Price cannot be
calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such
security on such date shall be the fair market value
as reasonably determined in good faith by the Board
of Directors of the Company (all as appropriately
adjusted for any stock dividend, stock split or other
similar transaction during such period); and
(vi) "N" means the number of days from,
but excluding, the Issuance Date through and
including the Conversion Date for the Series B
Preferred Shares for which conversion is being
elected.
(vii) "ISSUANCE DATE" means the date of
issuance of the Series B Preferred Shares.
(viii) "TRADING DAY" means any day on
which the Company's Common Stock is traded on the
Principal Trading Market.
(c) Adjustment to Conversion Price - Dilution
and Other Events. In order to prevent dilution of the rights
granted under this Certificate of Designations, the Conversion
Price will be subject to adjustment from time to time as
provided in this Section 2(d).
(i) Adjustment of Fixed Conversion
Price upon Subdivision or Combination of Common
Stock. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding
shares of Common Stock into a greater number of
shares, the Fixed Conversion Price in effect
immediately prior to such subdivision will be
proportionately reduced. If the Company at any time
combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding
shares of Common Stock into a smaller number of
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<PAGE> 4
shares, the Fixed Conversion Price in effect
immediately prior to such combination will be
proportionately increased.
(ii) Reorganization, Reclassification,
Consolidation, Merger, or Sale. Any recapitalization,
reorganization reclassification, consolidation.
merger, sale of all or substantially all of the
Company's assets to another Person (as defined below)
or other similar transaction which is effected in
such a way that holders of Common Stock are entitled
to receive (either directly or upon subsequent
liquidation) stock, securities or assess with respect
to or in exchange for Common Stock is referred to
herein as in "Organic Change." Prior to the
consummation of any Organic Change, the Company will
make appropriate provision (in form and substance
satisfactory to the holders of a majority of the
Series B Preferred Shares then outstanding) to insure
that each of the holders of the Series B Preferred
Shares will thereafter have the right to acquire and
receive in lieu of or in addition to (as the case may
be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the
conversion of such holder's Series B Preferred
Shares, such shares of stock, securities or assets as
may be issued or payable with respect to or in
exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable
upon the conversion of such holder's Series B
Preferred Shares had such Organic Change not taken
place. In any such case, the Company will make
appropriate provision (in form and substance
satisfactory to the holders of a majority of the
Series B Preferred Shares then outstanding) with
respect to such holders' rights and interests to
insure that the provisions of this Section 2(c) and
Section 2(a) below will thereafter be applicable to
the Series B Preferred Shares. The Company will not
effect any such consolidation, merger or sale, unless
prior to the consummation thereof the successor
entity (if other than the Company) resulting from
consolidation or merger or the entity purchasing such
assets assumes, by written instrument (in form and
substance satisfactory to the holders of a majority
of the Series B Preferred Shares then outstanding),
the obligation to deliver to each holder of Series B
Preferred Shares such shares of stock, securities or
assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
For purposes of this Agreement, "PERSON" shall mean
an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust,
an unincorporated organization and a government or
any department or agency thereof.
-4-
<PAGE> 5
(iii) Notices.
(A) Immediately upon any
adjustment of the Conversion Price, the
Company will give written notice thereof to
each holder of Series B Preferred Shares,
setting forth in reasonable detail and
certifying the calculation of such
adjustment.
(B) The Company will give
written notice to each holder of Series B
Preferred Shares at least twenty (20) days
prior to the date on which the Company
closes its books or takes a record (I) with
respect to any dividend or distribution upon
the Common Stock, (II) with respect to any
pro rata subscription offer to holders of
Common Stock or (III) for determining rights
to vote with respect to any Organic Change,
dissolution or liquidation.
(C) The Company will also give
written notice to each holder of Series B
Preferred Shares at least twenty (20) days
prior to the date on which any Organic
Change, Major Transaction (as defined
below), dissolution or liquidation will take
place.
(d) Mechanics of Conversion. Subject to the
Company's inability to fully satisfy its obligations under a
Conversion Notice (as defined below) as provided for in
Section 2(c) below:
(i) Holder's Delivery Requirements. To
convert Series B Preferred Shares into full shares of
Common Stock on any date (the "CONVERSION DATE"), the
holder thereof shall (A) deliver or transmit by
facsimile, for receipt on or prior to 11:59 p.m.,
Eastern Standard Time, on such date, a copy of a
fully executed notice of conversion in the form
attached hereto as Exhibit I (the "CONVERSION
NOTICE") to the Company or its designated transfer
agent (the "TRANSFER AGENT"), and (B) surrender to a
common carrier for delivery to the Company or the
Transfer Agent as soon as practicable following such
date, the original certificates representing the
Series B Preferred Shares being converted (or an
indemnification undertaking with respect to such
shares in the case of their loss, theft or
destruction) (the "PREFERRED STOCK CERTIFICATES") and
the originally executed Conversion Notice.
(ii) Company's Response. Upon receipt by
the Company of a facsimile copy of a Conversion
Notice, the Company shall immediately send, via
Facsimile, a confirmation of receipt of such
Conversion Notice to such holder. Upon receipt by the
Company or the Transfer Agent of the Preferred Stock
Certificates to be converted pursuant to a Conversion
Notice, together with the originally executed
Conversion Notice, the Company or the Transfer
-5-
<PAGE> 6
Agent (as applicable) shall, within five (5) business
days following the date of receipt, (A) issue and
surrender to a common carrier for overnight delivery
to the address as specified in the Conversion Notice,
a certificate, registered in the name of the holder
or its designee, for the number of shares of Common
Stock to which the holder shall be entitled or (B)
credit the aggregate number of shares of Common Stock
to which the holder shall be entitled to the holder's
or its designee's balance account at The Depository
Trust Company.
(iii) Dispute Resolution. In the case of
a dispute as to the determination of the Average
Market Price or the arithmetic calculation of the
Conversion Rate, the Company shall promptly issue to
the holder the number of shares of Common Stock that
is not disputed and shall submit the disputed
determinations or arithmetic calculations to the
holder via facsimile within three (3) business days
of receipt of such holder's Conversion Notice. If
such holder and the Company are unable to agree upon
the determination of the Average Market Price or
arithmetic calculation of the Conversion Rate within
three (3) business days of such disputed
determination or arithmetic calculation being
submitted to the holder, then the Company shall
within one (1) business day submit via facsimile (A)
the disputed determination of the Average Market
Price to an independent, reputable investment bank or
(B) the disputed arithmetic calculation of the
Conversion Rate to its independent, outside
accountant. The Company shall cause the investment
bank or the accountant, as the case may be, to
perform the determinations or calculations and notify
the Company and the holder of the results no later
than forty-eight (48) hours from the time it receives
the disputed determinations or calculations. Such
investment bank's or accountant's determination or
calculation, as the case may be, shall be binding
upon all parties absent manifest error.
(iv) Record Holder. The person or
persons entitled to receive the shares of Common
Stock issuable upon a conversion of Series B
Preferred Shares shall be treated for all purposes as
the record holder or holders of such shares of Common
Stock on the Conversion Date.
(e) Nasdaq Compliance. So long as the Common
Stock is listed for trading on Nasdaq-SM or an exchange or
quotation system with a rule substantially similar to Rule
4460(i) then, notwithstanding anything to the contrary
contained herein if, at any time, the aggregate number of
shares of Common Stock then issued upon conversion of the
Series B Preferred Shares (including any shares of capital
stock or rights to acquire shares of capital stock issued by
the Corporation which are aggregated or integrated with the
Common Stock issued or issuable upon conversion of the Series
B Preferred Stock for purposes of such rule) equals 19.99% of
the "Outstanding Common Amount" (as hereinafter defined), the
Series B Preferred
-6-
<PAGE> 7
Stock shall, from that time forward, cease to be convertible
into Common Stock in accordance with the terms hereof, unless
the Corporation has obtained approval of the (i) issuance of
the Common Stock upon conversion of the Series B Preferred
Stock by a majority of the total votes cast on such proposal,
in person or by proxy, by the holders of the then-outstanding
Common Stock (not including any shares of Common Stock held by
present or former holders of Series B Preferred Stock that
were issued upon conversion of Series B Preferred Stock that
were issued upon conversion of Series B Preferred Stock) (the
"STOCKHOLDER APPROVAL"), or (ii) conversion of Series B
Preferred Stock, or (iii) shall have otherwise obtained
permission to allow such issuances from Nasdaq in accordance
with Nasdaq Rule 4460(i). If the Corporation's Common Stock is
not then listed on Nasdaq or an exchange or quotation system
that has a rule substantially similar to Rule 4460(i) then the
limitations set forth herein shall be inapplicable and of no
force and effect. For purposes of this paragraph, "OUTSTANDING
COMMON AMOUNT" means (i) the number of shares of the Common
Stock outstanding on the date of issuance of the Series B
Preferred Stock pursuant to the Purchase Agreement plus (ii)
any additional shares of Common Stock issued thereafter in
respect of such shares pursuant to a stock dividend, stock
split or similar event. The maximum number of shares of Common
Stock issuable as a result of the 19.99% limitation set forth
herein is hereinafter referred to as the "MAXIMUM SHARE
AMOUNT." With respect to each holder of Series B Preferred
Stock, the Maximum Share Amount shall refer to such holder's
pro rata share thereof. In the event that Corporation obtains
Stockholder Approval or the approval of Nasdaq, by reason of
the inapplicability of the rules of Nasdaq or otherwise and
concludes that it is able to increase the number of shares to
be issued above the Maximum Share Amount (such increased
number being the "NEW MAXIMUM SHARE AMOUNT"), the references
to Maximum Share Amount, above, shall be deemed to be,
instead, references to the greater New Maximum Share Amount.
In the event that Stockholder Approval is obtained, there are
insufficient reserved or authorized shares or a registration
statement covering the additional shares of Common Stock which
constitute the New Maximum Share Amount is not effective prior
to the Maximum Share Amount being issued (if such registration
statement is necessary to allow for the public resale of such
securities), the Maximum Share Amount shall remain unchanged;
provided, however, that the holders of Series B Preferred
Stock may grant an extension to obtain a sufficient reserved
or authorized amount of shares or of the effective date of
such registration statement. In the event that (a) the
aggregate number of shares of Common Stock actually issued
upon conversion of the outstanding Series B Preferred Stock
represents at least twenty percent (20%) of the Maximum Share
Amount and (b) the sum of (x) the aggregate number of shares
of Common Stock issued upon conversion of Series B Preferred
Stock plus (y) the aggregate number of shares of Common Stock
that remain issuable upon conversion of Series B Preferred
Stock and based on the Conversion Price then in effect),
represents at least one hundred percent (100%) of the Maximum
Share Amount (the "TRIGGERING EVENT"), the Corporation will
use its best reasonable efforts to seek and obtain Stockholder
Approval (or
-7-
<PAGE> 8
obtain such other relief as will allow conversions hereunder
in excess of the Maximum Share Amount) within sixty (60) days
of such Triggering Event and before the Mandatory Redemption
Date (the "STOCKHOLDER APPROVAL DEADLINE").
(f) Mandatory Conversion. If any Series B
Preferred Shares remain outstanding on March 24, 2002, then,
notwithstanding the limitations on conversions provided in
Section 2(a), all such Series B Preferred Shares shall be
converted as of such date in accordance with this Section 2 as
if the holders of such Series B Preferred Shares had given the
Conversion Notice on March 24, 2002, and the Conversion Date
had been fixed as of March 24, 2002, (the "MANDATORY
CONVERSION DATE") for all purposes of this Section 2, and all
holders of Series B Preferred Shares shall thereupon and with
two (2) business days thereafter surrender all Preferred Stock
Certificates, duly endorsed for cancellation, to the Company
or the Transfer Agent. No person shall thereafter have any
rights in respect of Series B Preferred Shares, except the
right to receive shares of Common Stock on conversion thereof
as provided in this Section 2.
(g) Fractional Shares. The Company shall not
issue any fraction of a share of Common Stock upon any
conversion. All shares of Common Stock (including fractions
thereof) issuable upon conversion of more than one share of
the Series B Preferred Shares by a holder thereof shall be
aggregated for purposes of determining whether the conversion
would result in the issuance of a fraction of a share of
Common Stock. lf, after the aforementioned aggregation, the
issuance would result in the issuance of a fraction of it
share of Common Stock, the Company shall round such fraction
of a share of Common Stock up or down to the nearest whole
share.
(h) Taxes. The Company shall pay any and all
taxes which may be imposed upon it with respect to the
issuance and delivery of Common Stock upon the conversion of
the Series B Preferred Shares.
(3) Company's Right to Redeem at its Election.
(a) At any time, commencing upon the earlier to
occur of (i) 110 days after the Issuance Date, or (ii) the
date that the Registration Statement becomes effective with
the SEC, the Company shall have the right, in it sole
discretion, to redeem ("REDEMPTION AT COMPANY'S ELECTION"),
from time to time, any or all of the Series B Preferred Stock;
provided, (i) Company shall first provide ten (10) days
advance written notice as provided in subparagraph 3(a)(ii)
below, and (ii) that the Company shall only be entitled to
redeem Series B Preferred Stock having an aggregate Stated
Value (as defined below) of at least Five Hundred Thousand
Dollars ($500,000). If the Company elects to redeem some, but
not all, of the Series B Preferred Stock, the Company shall
redeem a pro-rata amount from each Holder of the Series B
Preferred Stock.
-8-
<PAGE> 9
(i) Redemption Price At Company's
Election. The "REDEMPTION PRICE AT COMPANY'S
ELECTION" shall be calculated as 120% of Stated
Value, as that term is defined below, of the Series B
Preferred Stock. For purposes hereof, "STATED VALUE"
shall mean the original principal amount of Preferred
Stock being redeemed.
(ii) Mechanics of Redemption at
Company's Election. The Company shall effect each
such redemption by giving at least ten (10) days
prior written notice ("NOTICE OF REDEMPTION AT
COMPANY'S ELECTION") to (A) the Holders of the Series
B Preferred Stock selected for redemption at the
address and facsimile number of such Holder appearing
in the Company's Series B Preferred Stock register
and (B) the Transfer Agent, which Notice of
Redemption At Company's Election shall be deemed to
have been delivered three (3) business days after the
Company's mailing (by overnight or two (2) day
courier, with a copy by facsimile) of such Notice of
Redemption at Company's Election. Such Notice of
Redemption At Company's Election shall indicate (i)
the number of shares of Series B Preferred Stock that
have been selected for redemption, (ii) the date
which such redemption is to become effective (the
"DATE OF REDEMPTION AT COMPANY'S ELECTION") and (iii)
the applicable Redemption Price At Company's
Election, as defined in subsection (a)(i) above.
Notwithstanding the above, Holder may convert into
Common Stock, prior to the close of business on the
Date of Redemption at Company's Election, any Series
B Preferred Stock which it is otherwise entitled to
convert, including Series B Preferred Stock that has
been selected for redemption at Company's election
pursuant to this subsection 3(a).
(b) Company Must Have Immediately Available
Funds. The Company shall not be entitled to send any
Redemption Notice and begin the redemption procedure under
Sections 3(a) unless it has the full amount of the redemption
price in cash, available in an immediately available escrow
account in a bank or similar financial institution.
(c) Payment of Redemption Price. Each Holder
submitting Preferred Stock being redeemed under this Section 3
shall send their Series B Preferred Stock Certificates to
redeemed to the Company or its Transfer Agent, and the Company
shall pay the applicable redemption price to that Holder
within five (5) business days of the Date of Redemption at
Company's Election.
(4) Holder's Right to Redeem at its Election.
(a) In the event that the Company has issued to
the Holders the Maximum Share Amount and has failed to obtain
Stockholder Approval within the Stockholder Approval Deadline,
the Holder shall have the one time right, in it sole
discretion, for
-9-
<PAGE> 10
so long as the Company has failed to obtain Stockholder
Approval beyond the Stockholder Approval Deadline to cause the
Company to redeem ("REDEMPTION AT HOLDER'S ELECTION"), all of
the Series B Preferred Stock; provided, Holder shall first
provide fifteen (15) days advance written notice as provided
in subparagraph 4(a)(ii) below.
(i) Redemption Price At Holder's
Election. The "REDEMPTION PRICE AT HOLDER'S ELECTION"
shall be calculated as 120% of Stated Value.
(ii) Mechanics of Redemption at Holder's
Election. The Buyer shall effect each such redemption
by giving at least fifteen (15) days prior written
notice ("NOTICE OF REDEMPTION AT COMPANY'S ELECTION")
to (A) the Company and (B) the Transfer Agent, which
Notice of Redemption At Holder's Election shall be
deemed to have been delivered three (3) business days
after the Buyer's mailing (by overnight or two (2)
day courier, with a copy by facsimile) of such Notice
of Redemption at Buyer's Election. Such Notice of
Redemption At Buyer's Election shall indicate (i) the
number of shares of Series B Preferred Stock that
have been selected for redemption, (ii) the date
which such redemption is to become effective (the
"DATE OF REDEMPTION AT BUYER'S ELECTION") and (iii)
the applicable Redemption Price At Buyer's Election,
as defined in subsection (a)(i) above.
(b) Payment of Redemption Price. Each Holder
submitting Preferred Stock being redeemed under this Section 4
shall send their Series B Preferred Stock Certificates to
redeemed to the Company or its Transfer Agent, and the Company
shall pay the applicable redemption price to that Holder
within five (5) business days of the Date of Redemption at
Holder's Election.
(5) Reissuance of Certificates. In the event of a
conversion or redemption pursuant to this Certificate of Designations
of less than all of the Series B Preferred Shares represented by a
particular Preferred Stock Certificate, the Company shall promptly
cause to be issued and delivered to the holder of such Series B
Preferred Shares a Preferred stock certificate representing the
remaining Series B Preferred Shares which have not been so converted or
redeemed.
(6) Reservation of Shares. The Company shall, so long as
any of the Series B Preferred Shares are outstanding reserve and keep
available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Series B Preferred
Shares, such number of shares of Common Stock as shall from time to
time be sufficient to affect the conversion of all of the Series B
Preferred Shares then outstanding; provided that the number of shares
of Common Stock so reserved shall at no time be less than 100% of the
number of shares of Common Stock for which the Series B Preferred
Shares are at any time convertible,
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<PAGE> 11
(7) Voting Rights. Holders of Series B Preferred Shares
shall have no voting rights, except as required by law, including but
not limited to the General Corporation Law of the State of Delaware and
as expressly provided in this Certificate of Designations.
(8) Liquidation, Dissolution, Winding-Up. In the event of
any voluntary or involuntary liquidation, dissolution, or winding up of
the Company, the holders of the Series B Preferred Shares shall be
entitled to receive in cash out of the assets of the Company, whether
from capital or from earnings available for distribution to its
stockholders (the "PREFERRED FUNDS"), before any amount shall be paid
to the holders of any of the capital stock of the Company of any class
junior in rank to the Series B Preferred Shares in respect of the
preferences as to the distributions and payments on the liquidation,
dissolution and winding up of the Company, an amount per Series B
Preferred Share equal to the sum of (i) $20,000 and (ii) an amount
equal to the product of (.05) (N/365) ($20,000) (such sum being
referred to as the "LIQUIDATION VALUE"); provided that, if the
Preferred Funds are insufficient to pay the full amount due to the
holders of Series B Preferred Shares and holders of shares of other
classes or series of preferred stock of the Company that are of equal
rank with the Series B Preferred Shares as to payments of Preferred
Funds (the "PARI PASSU SHARES"), then each holder of Series B Preferred
Shares and Pari Passu Shares shall receive a percentage of the
Preferred Funds equal to the full amount of Preferred Funds payable to
such holder as a liquidation preference, in accordance with their
respective Certificate of Designations, Preferences and Rights as a
percentage or the full amount of Preferred Funds payable to all holders
of Series B Preferred Shares and Pari Passu Shares. The purchase or
redemption by the Company of stock of any class in any manner permitted
by law, shall not for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other Person,
nor the sale or transfer by the Company of less than substantially all
of its assets, shall, for the purposes hereof, be deemed to be a
liquidation, dissolution or winding up of the Company. No holder of
Series B Preferred Shares shall be entitled to receive any amounts with
respect thereto upon any liquidation, dissolution or winding up of the
Company other than the amounts provided for herein.
(9) Preferred Rate. All shares of Common Stock shall be
of junior rank to all Series B Preferred Shares in respect to the
preferences as to distributions and payments upon the liquidation,
dissolution, and winding up of the Company. The rights of the shares of
Common Stock shall be subject to the Preferences and relative rights of
the Series B Preferred Shares. The Series B Preferred Shares shall be
of greater rank than any Series of Common or Preferred Stock
hereinafter issued by the Company. Without the prior express written
consent of the holders of not less than a majority of the then
outstanding Series B Preferred Shares, the Company shall not hereafter
authorize or issue additional or other capital stock that is of senior
or equal rank to the Series B Preferred Shares in respect of the
preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Company. Without the prior express
written consent of the holders of not less than a majority of the then
outstanding Series B Preferred Shares, the Company shall not hereafter
authorize or make any amendment to the Company's Certificate of
Incorporation or bylaws,
-11-
<PAGE> 12
or make any resolution of the board of directors with the Delaware
Secretary of State containing any provisions, which would materially
and adversely affect or otherwise impair the rights or relative
priority of the holders of the Series B Preferred Shares relative to
the holders of the Common Stock or the holders of any other class of
capital stock. In the event of the merger or consolidation of the
Company with or into another corporation, the Series B Preferred Shares
shall maintain their relative powers, designations, and preferences
provided for herein and no merger shall result inconsistent therewith.
(10) Restriction on Dividends. If any Series B Preferred
Shares are outstanding, without the prior express written consent of
the holders of not less than a majority of the then outstanding Series
B Preferred Shares, the Company shall not directly or indirectly
declare, pay or make any dividends or other distributions upon any of
the Common Stock so long as written notice thereof has been given to
holders of the Series B Preferred Shares at least thirty (30) days
prior to the earlier of (a) the record date taken for or (b) the
payment of any such dividend or other distribution. Notwithstanding the
foregoing, this Section 10 shall not prohibit the Company from
declaring and paying a dividend in cash with respect to the Common
Stock so long as the Company: (i) pays simultaneously to each holder of
Series B Preferred Shares an amount in cash equal to the amount such
holder would have received had all of such holder's Series B Preferred
Shares been converted to Common Stock pursuant to Section 2 hereof one
business day prior to the record date for any such dividend, and (ii)
after giving effect to the payment of any dividend and any other
payments required in connection therewith including to the holders of
the Series B Preferred Shares under clause 10(i) hereof, the Company
has in cash or cash equivalents an amount equal to the aggregate of:
(A) all of its liabilities reflected on its most recently available
balance sheet, (B) the amount of any indebtedness incurred by the
Company or any of its subsidiaries since its most recent balance sheet
and (C) 120% of the amount payable to all holders of any shares of any
class of preferred stock of the Company assuming a liquidation of the
Company as the date of its most recently available balance sheet.
(11) Vote to Change the Terms of Series B Preferred
Shares. The affirmative vote at a meeting duly called for such purpose
or the written consent without a meeting, of the holders of not less
than a majority of the then outstanding Series B Preferred Shares,
shall be required for any change to this Certificate of Designations or
the Company's Certificate of Incorporation which would amend, alter,
change or repeal any of the powers, designations, preferences and
rights of the Series B Preferred Shares.
(12) Lost or Stolen Certificates. Upon receipt by the
Company of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any Preferred Stock Certificates
representing the Series B Preferred Shares, and, in the case of loss,
theft or destruction, of any indemnification undertaking by the holder
to the Company and, in the case of mutilation, upon surrender and
cancellation of the Preferred Stock Certificate(s), the Company shall
execute and deliver new preferred stock certificate(s) of like tenor
and date; provided, however, the Company shall not be obligated to
re-issue preferred stock
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<PAGE> 13
certificates if the holder contemporaneously requests the Company to
convert such Series B Preferred Shares into Common Stock.
(13) Withholding Tax Obligations. Notwithstanding anything
herein to the contrary, to the extent that the Company receives advice
in writing from its counsel that there is a reasonable basis to believe
that the Company is required by applicable federal laws or regulations
and delivers a copy of such written advice to the holders of the Series
B Preferred Shares so effected, the Company may reasonably condition
the making of any distribution (as such term is defined under
applicable federal tax law and regulations) in respect of any Series B
Preferred Share on the holder of such Series B Preferred Shares
depositing with the Company an amount of cash sufficient to enable the
Company to satisfy its withholding tax obligations (the "WITHHOLDING
TAX") with respect to such distribution. Notwithstanding the foregoing
or anything to the contrary, if any holder of the Series B Preferred
Shares so effected receives advice in writing from its counsel that
there is a reasonable basis to believe that the Company is not so
required by applicable federal laws or regulations and delivers a copy
of such written advice to the Company, the Company shall not be
permitted to condition the making of any such distribution in respect
of any Series B Preferred Share on the holder of such Series B
Preferred Shares depositing with the Company any Withholding Tax with
respect to such distribution, provided, however, the Company may
reasonably condition the making of any such distribution in respect of
any Series B Preferred Share on the holder of such Series B Preferred
Shares executing and delivering to the Company, at the election of the
holder, either: (i) if applicable, a property completed Internal
Revenue Service Form 4224, or (a) an indemnification agreement in
reasonably acceptable form, with respect to any federal tax liability,
penalties and interest that may be imposed upon the Company by the
Internal Revenue Service as a result of the Company's failure to
withhold in connection with such distribution to such holder.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Harvey W. Sax, its Chief Executive Officer, as of
the 24th day of March, 1999.
HOMECOM COMMUNICATIONS, INC.
By:
-----------------------------------
Harvey W. Sax
Chief Executive Officer
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<PAGE> 14
EXHIBIT I
HOMECOM COMMUNICATIONS, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and
Rights of HomeCom Communications, Inc. (the "CERTIFICATE OF DESIGNATIONS"). In
accordance with and pursuant to the Certificate of Designations, the undersigned
hereby elects to convert the number of shares of Series B Convertible Preferred
Stock, $.01 par value per share (the "SERIES B PREFERRED SHARES"), of HomeCom
Communications, Inc., a Delaware corporation (the "COMPANY"), indicated below
into shares of Common Stock, $.01 par value per share (the "COMMON STOCK"), of
the Company, by tendering the stock certificate(s) representing the share(s) of
Series B Preferred Shares specified below as of the date specified below.
The undersigned acknowledges that any sales by the undersigned of the
securities issuable to the undersigned upon conversion of the Series B Preferred
Shares shall be made only pursuant to (i) a registration statement effective
under the Securities Act of 1933, as amended (the "ACT"), or (ii) advice of
counsel that such sale is exempt from registration required by Section 5 of the
Act.
Date of Conversion:
-----------------------------------------------
Number of Series B
Preferred Shares to be converted
-----------------------------------------------
Stock certificate no(s). of Series B
Preferred Shares to be converted:
-----------------------------------------------
Please confirm the following
information:
Conversion Price:
-----------------------------------------------
Four Consecutive Days Comprising Pricing Period
and Prices:
-----------------------------------------------
Number of shares of Common Stock
to be issued:
-----------------------------------------------
<PAGE> 15
please issue the Common Stock into which the Series B Preferred Shares are being
converted in the following name and to the following address:
Issue to:(1)
--------------------------------------
--------------------------------------
Facsimile Number:
--------------------------------------
Authorization:
--------------------------------------
By:
-----------------------------------
Title:
--------------------------------
Dated:
--------------------------------------
ACKNOWLEDGED AND AGREED:
HOMECOM COMMUNICATIONS, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Date:
-------------------------------
- - -----------------
(1)If other than to the record holder of the Series B Preferred Shares,
any applicable transfer tax must be paid by the undersigned.
<PAGE> 1
EXHIBIT 10.50
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of March 25,
1999, by and among HomeCom Communications, Inc., a Delaware corporation, with
headquarters located at Fourteen Piedmont Center, Suite 100, 3535 Piedmont Road,
Atlanta, Georgia 30305 (the "COMPANY"), and the investor listed on the Schedule
of Buyers attached hereto (individually, a "BUYER" or collectively "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration pursuant
to Section 4(2) and/or Regulation D ("REGULATION D") at the sole election of
Buyer in the event that a registration statement filed by the Company pursuant
to Section 2(a) of the Registration Rights Agreement (described below) is not
declared effective by the Registration Deadline (as defined therein) as
promulgated by the U.S. Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 ACT") by the Registration Deadline
(as defined in the Registration Rights Agreement);
B. The Company has authorized the following new series of its
Preferred Stock, $.0001 par value per share (the "PREFERRED STOCK"): the
Company's Series B Convertible Preferred Stock (the "SERIES B PREFERRED
SHARES"), which shall be convertible into shares of the Company's Common Stock,
$.0001 par value per share (the "COMMON STOCK") (as converted, the "CONVERSION
SHARES"), in accordance with the terms of the Company Certificate of
Designations, Preferences, and Rights of the Series B Preferred Shares,
substantially in the form attached hereto as Exhibit "A" (the "CERTIFICATE OF
DESIGNATIONS");
C. The Buyer wishes to purchase, upon the terms and conditions
stated in this Agreement, an aggregate amount of up to 125 shares of Series B
Preferred Stock in the respective amounts set forth opposite each Buyer's name
on the Schedule of Buyers;
D. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit "B" (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws; and
E. The holders of Series B Preferred Shares and shall receive
stock purchase warrants to acquire shares of Common Stock substantially in the
form attached as Exhibit "C."
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NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF SERIES B PREFERRED STOCK.
a. Purchase of Series B Preferred Stock. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and
7 below, the Company shall issue and sell to the Buyers and the Buyers
shall purchase from the Company an aggregate principal amount of
______________ shares of Series B Preferred Stock and Warrants, in the
respective amounts set forth opposite each Buyer's name on the Schedule
of Buyers (the "CLOSING").
b. Closing Date. The date and time of the Closing (the
"CLOSING DATE") shall be 10:00 a.m. Eastern Standard Time, within five
(5) business days following the date hereof, subject to notification of
satisfaction (or waiver) of the conditions to the Closing set forth in
Sections 6 and 7 below (or such later date as is mutually agreed to by
the Company and the Buyer). The Closing shall occur on the Closing Date
at the offices of Sims Moss Kline & Davis LLP, 400 Northpark Town
Center, Suite 310, 1000 Abernathy Road, N.E., Atlanta, Georgia 30328.
c. Form of Payment. On the Closing Date, (i) each Buyer
shall pay the Purchase Price to the Company for the Series B Preferred
Shares to be issued and sold to such Buyer at the Closing, by wire
transfer of immediately available funds in accordance with the
Company's written wire instructions, and (ii) the Company shall deliver
to each Buyer, certificates representing such Series B Preferred Stock
and Warrants which such Buyer is then purchasing (as indicated opposite
such Buyer's name on the Schedule of Buyers), duly executed on behalf
of the Company and registered in the name of such Buyer or its designee
(the "CERTIFICATES").
2. BUYER'S REPRESENTATIONS AND WARRANTEES.
Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Series B Preferred Shares, (ii) upon conversion of the Series B
Preferred Shares, will acquire the Conversion Shares then issuable, and
any Warrants, (iii) will acquire any Warrants issuable, and (iv) upon
exercise of the Warrants, will acquire the shares of Common Stock
issuable upon exercise thereof (the "WARRANT SHARES") for its own
account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the 1933 Act; provided,
however, that by making the representations herein, such Buyer does not
agree to hold any Series B Preferred Shares or Conversion Shares for
any minimum or other specific term and reserves the right to dispose of
Series B Preferred Shares, Conversion Shares, Warrants, or Warrant
Shares at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
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b. Accredited Investor Status. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a)(3) of
Regulation D.
c. Reliance on Exemptions. Such Buyer understands that
the Series B Preferred Shares, the Conversion Shares, the Warrants, and
the Warrant Shares are 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 in
part upon the truth and accuracy of, and such Buyer's compliance with,
the representations, warranties, agreements, acknowledgments and
understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to
acquire such securities.
d. Information. Such 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 Series B Preferred Shares, the Conversion Shares,
the Warrants, and the Warrant Shares, which have been requested by such
Buyer. Such Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. Neither such inquiries nor
any other due diligence investigations conducted by such Buyer or its
advisors, if any, or its representatives shall modify, amend or affect
such Buyer's right to rely on the Company's representations and
warranties contained in Section 3 below. Such Buyer understands that
its investment in the Series B Preferred Shares, the Conversion Shares,
the Warrants, and the Warrant Shares involves a high degree of risk.
Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with
respect to its acquisition of the Series B Preferred Shares, the
Conversion Shares, the Warrants, and the Warrant Shares.
e. No Governmental Review. Such 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 Series B Preferred Shares, the Conversion Shares,
the Warrants, and the Warrant Shares or the fairness or suitability of
the investment in the Series B Preferred Shares and the Conversion
Shares, nor have such authorities passed upon or endorsed the merits of
the offering of the Series B Preferred Shares and the Conversion
Shares.
f. Transfer or Resale. Such Buyer understands that
except as provided in the Registration Rights Agreement: (i) the Series
B Preferred Shares and the Conversion Shares have not been and are not
being registered under the 1933 Act or any state securities laws, and
may not be offered for sale, sold, assigned or transferred unless (a)
subsequently registered thereunder, (b) such Buyer shall have delivered
to the Company an opinion of counsel, in a generally acceptable form,
to the effect that such securities to be sold, assigned or transferred
may be sold, assigned or transferred pursuant to an exemption from such
registration, or (c) such Buyer provides the Company with reasonable
assurance that such securities can be sold, assigned or transferred
pursuant to Rule 144 or promulgated under the 1933 Act (or a successor
rule thereto); (ii) any sale of such securities made in reliance on
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Rule 144 promulgated under the 1933 Act (or a successor rule thereto)
("RULE 144") may be made only in accordance with the terms of Rule 144
and further, if Rule 144 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 defined 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 (iii) neither the Company nor any other person is
under any obligation to register such securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of
any exemption thereunder.
g. Legends. Such Buyer understands that the certificates
or other instruments representing the Series B Preferred Shares, the
Warrants and, until such time as the sale of the Conversion Shares and
Warrants have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the
Conversion Shares, and the Warrant Shares shall bear a restrictive
legend in substantially the following form (and a stoptransfer order
may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
AN OPINION OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of the
Series B Preferred Shares, the Conversion Shares, the Warrants, or the
Warrant Shares upon which it is stamped, if, unless otherwise required
by state securities laws, (i) the sale of the Conversion Shares or the
Warrant Shares is registered under the 1933 Act, (ii) in connection
with a sale transaction, such holder provides the Company with an
opinion of counsel, in an acceptable form, to the effect that a public
sale, assignment or transfer of the Series B Preferred Shares, the
Conversion Shares, the Warrants, or the Warrant Shares may be made
without registration under the 1933 Act, or (iii) such holder provides
the Company with reasonable assurances that the Series B Preferred
Shares, the Conversion Shares, the Warrants, or the Warrant Shares can
be sold pursuant to Rule 144 without any restriction as to the number
of securities acquired as of a particular date that can then be
immediately sold.
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h. Authorization, Enforcement. This Agreement has been
duly and validly authorized, executed and delivered on behalf of such
Buyer and is a valid and binding agreement of such Buyer enforceable in
accordance with its terms, subject as enforceability to general
principles of equity and to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating
to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.
i. Residency. Such Buyer is a resident of that
country specified in its address on the Schedule of Buyers.
j. No Scheme to Evade Registration. Buyer
represents and warrants to the Company that the acquisition of the
Series B Preferred Stock and the Conversion Shares is not a transaction
(or any element of a series of transactions) that is part of a plan or
scheme by the Buyer to evade the registration provisions of the 1933
Act.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its
subsidiaries are corporations duly organized and validly existing in
good standing under the laws of the jurisdiction in which they are
incorporated, and have the requisite corporate power to own their
properties and to carry on their business as now being conducted. Each
of the Company and its subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes
such qualification necessary, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries taken as a whole.
b. Authorization, Enforcement, Compliance with Other
Instruments. (i) The Company has the requisite corporate power and
authority to enter into and perform this Agreement, the Registration
Rights Agreement and any related agreements, and to issue the Series B
Preferred Shares, the Conversion Shares, the Warrants, and the Warrant
Shares in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Registration Rights
Agreement and any related agreements by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Series B Preferred
Shares and the Warrants and the reservation for issuance and the
issuance of the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise thereof, have been duly authorized by the
Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors or its stockholders,
(iii) this Agreement and the Registration Rights Agreement and any
related agreements have been duly executed and delivered by the
Company, (iv) this Agreement, the Registration Rights Agreement and any
related agreements constitute the valid and binding obligations of the
Company enforceable against
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the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors' rights and remedies, and (v) prior to the
Closing Date, the Certificate of Designations has been filed with the
Secretary of State of the State of Delaware and will be in full force
and effect, enforceable against the Company in accordance with its
terms.
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 15,000,000 shares of Common
Stock, of which as of the date hereof 6,399,571 were issued and
outstanding, and 1,000,000 shares of Preferred Stock of which no series
of Preferred Stock or debentures or notes were issued and outstanding.
All of such outstanding shares have been validly issued and are fully
paid and nonassessable. Except as disclosed in Schedule 3(c), no shares
of Common Stock or preferred stock are subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or
permitted by the Company. Except as disclosed in Schedule 3(c), as of
the effective date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of
its subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its subsidiaries is or may
become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, (ii) there are no
outstanding debt securities and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of their securities under the
1933 Act (except the Registration Rights Agreement). There are no
securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Series B
Preferred Shares, the Conversion Shares, the Warrants, or the Warrant
Shares as described in this Agreement. The Company has furnished to the
Buyer true and correct copies of the Company's Certificate of
Incorporation, as amended and as in effect on the date hereof (the
"CERTIFICATE OF INCORPORATION"), and the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS"), and the terms of all
securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Series B Preferred Shares
are duly authorized and, upon issuance in accordance with the terms
hereof, shall be (i) validly issued, fully paid and nonassessable, are
free from all taxes, liens and charges with respect to the issue
thereof and are entitled to the rights and preferences set forth in the
Series B Preferred Shares. The Conversion Shares issuable upon
conversion of the Series B Preferred Shares have been duly authorized
and reserved for issuance. Upon conversion or exercise in accordance
with the Series B Preferred Shares or the Warrants, the Conversion
Shares and the Warrant Shares will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges
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with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock.
e. No Conflicts. Except as disclosed in Schedule 3(e),
the execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a material violation of the
Certificate of Incorporation, any Certificate of Designations,
Preferences, and Rights of any outstanding series of preferred stock of
the Company or By-laws or (ii) conflict with or constitute a default
(or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party,
or result in a violation of any law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations
and the rules and regulations of the principal market or exchange on
which the Common Stock is traded or listed) applicable to the Company
or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries is bound or affected. Except as
disclosed in Schedule 3(e), neither the Company nor its subsidiaries is
in violation of any term of or in default under its Certificate of
Incorporation or Bylaws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its
subsidiaries. The business of the Company and its subsidiaries is not
being conducted, and shall not be conducted in violation of any law,
ordinance, regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the
1933 Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under or
contemplated by this Agreement or the Registration Rights Agreement in
accordance with the terms hereof or thereof except as disclosed in
Schedule 3(e), all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the
date hereof.
f. SEC Documents: Financial Statements. Since January 1,
1999, the Company has filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to
the reporting requirements of the Securities Exchange Act of 1934, as
amended (the "1934 ACT") (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein,
being hereinafter referred to as the "SEC DOCUMENTS"). The Company has
delivered to the Buyer or its representative true and complete copies
of the SEC Documents. As of their respective dates, the financial
statements of the Company attached as Schedule 3(f) hereto (the
"FINANCIAL STATEMENTS") complied as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting
principles,
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consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto,
or (ii) in the case of unaudited interim statements, to the extent they
may exclude footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and
cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
g. Absence of Certain Changes. Except as disclosed in
Schedule 3(g), since January 1, 1999, there has been no material
adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or
prospects of the Company or its subsidiaries. The Company has not taken
any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company or its
subsidiaries have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending
or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company, the Common Stock or any of
the Company's subsidiaries, wherein an unfavorable decision, ruling or
finding would (i) have a material adverse effect on the transactions
contemplated hereby (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of the documents
contemplated herein or (iii), except as expressly set forth in Schedule
3(h), have a material adverse effect on the business, operations,
properties, financial condition or results of operation of the Company
and its subsidiaries taken as a whole.
i. Acknowledgment Regarding Buyer's Purchase of
Series B Preferred Shares. The Company acknowledges and agrees that the
Buyer is acting solely in the capacity of an arm's length purchaser
with respect to this Agreement and the transactions contemplated
hereby.
j. No Undisclosed Events, Liabilities,
Developments or Circumstances. No event, liability, development or
circumstance has occurred or exists, or is contemplated to occur, with
respect to the Company or its subsidiaries or their respective
business, properties, prospects, operations or financial condition,
which could be material but which has not been publicly announced or
disclosed in writing to the Buyer.
k. No General Solicitation. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the 1933 Act) in connection
with the offer or sale of the Series B Preferred Shares, the Conversion
Shares, the Warrants, or the Warrant Shares. The Company represents
that it has not offered the Series B Preferred
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Stock or Conversion Shares to the Buyer in the U.S. or, to the best
knowledge of the Company, to any person in the United States or any
U.S. person.
1. No Integrated Offering. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that
would require registration of the Series B Preferred Shares, the
Conversion Shares, the Warrants, and the Warrant Shares under the 1933
Act or cause this offering of Series B Preferred Shares, the Conversion
Shares, the Warrants, or the Warrant Shares to be integrated with prior
offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions.
m. Employee Relations. Neither the Company nor any of
its subsidiaries is involved in any labor dispute nor, to the knowledge
of the Company or any of its subsidiaries, is any such dispute
threatened. None of the Company's or its subsidiaries' employees is a
member of a union and the Company and its subsidiaries believe that
their relations with their employees are good.
n. Title. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is
material to the business of the Company and its subsidiaries, in each
case free and clear of all liens, encumbrances and defects except such
as are described in Schedule 3(n) or such as do not materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions as are not material and do
not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries.
o. Regulatory Permits. The Company and its subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary
to conduct their respective businesses, and neither the Company nor any
such subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit.
p. Tax Status. Except as set forth on Schedule 3(p), the
Company and each of its subsidiaries has made or filed all federal and
state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and only to
the extent that the Company and each of its subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown
or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its
books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
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declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim.
q. Fees and Rights of First Refusal. The Company is not
obligated to offer the securities offered hereunder on a right of first
refusal basis or otherwise to any third parties including, but not
limited to, current or former shareholders of the Company,
underwriters, brokers, agents or other third parties.
r. Shareholder Approval. The Company covenants
to submit to its, shareholders at its next shareholder meeting a
proposal for ratification of the issuance of the Series B Preferred
Stock and the Conversion Shares, if and as required by the rules of the
National Association of Securities Dealers, Inc. (the "NASD")
applicable to the transaction or in the event of a Triggering Event as
defined in the Certificate of Designations, the Company covenants to
use its best efforts to seek to obtain Stockholder Approval (as defined
in the Certificate of Designations) for approval to issue additional
shares of Common Stock in excess of the Maximum Share Amounts (as
defined in the Certificate of Designations).
s. Defaults. No default by the Company or, to the best
knowledge of the Company, any other party exists in the due performance
under any material agreements to which the Company is a party or to
which any of its assets is subject (collectively, the "Company
Agreements"). The Company Agreements are in full force and effect in
accordance with their respective terms.
(t) No Violation. The Company is not in violation of: (i)
its charter or by-laws; (ii) any material indenture, mortgage, deed or
trust, note, or other agreement or instrument to which the Company is a
party of by which it is or may be bound or to which any of its assets
may be subject; (iii) any material statute, rule, or regulation; or
(iv) any judgment, decree, or order applicable to the Company, in which
violation or violations, individually or in the aggregate, might result
in any material adverse change in the condition (financial or
otherwise) or prospects of the Company.
(u) Intellectual Property. To the best knowledge of the
Company, the Company owns all right, title, and interest in, or
possesses adequate and enforceable rights to use, all patents, patent
applications, trademarks, trade names, service marks, copyrights,
rights, licenses, franchises, trade secrets, confidential information,
processes, and formulations necessary for the conduct of its business
(collectively, the "INTANGIBLES"). To the best knowledge of the
Company, it has not infringed upon the rights of others with respect to
the Intangibles and the Company has not received notice that it has or
may have infringed or is infringing upon the rights of others with
respect to the Intangibles, or any notice of conflict with the asserted
rights of others with respect to the Intangibles which could,
individually, or in the aggregate, materially and adversely affect the
condition (financial or otherwise) or prospects of the Company. To the
best knowledge of the Company, no others have infringed upon the
Intangibles.
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(v) Finders, Etc. The Company is not obligated to pay,
and has not obligated the Buyer to pay, a finder's or origination fee
in connection with the Offering and agrees to indemnify the Buyer from
any such claim made by any other person.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts
timely to satisfy each of the conditions to be satisfied by it as
provided in this Agreement.
b. Form D. The Company agrees to file a Form D with
respect to the Series B Preferred Shares and the Conversion Shares as
required under Regulation D and to provide a copy thereof to each Buyer
promptly after such filing. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is
necessary to qualify the Series B Preferred Shares and the Conversion
Shares for, or obtain exemption for the Series B Preferred Shares and
the Conversion Shares for, sale to the Buyers at the Closing pursuant
to this Agreement under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of any such
action so taken to the Buyers on or prior to the Closing Date.
c. Reporting Status. Until the earlier of (i) the date
as of which the Investors (as that term is defined in the Registration
Rights Agreement) may sell all of the Conversion Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto), or (ii) the date on which (A) the Investors shall
have sold all the Conversion Shares and (B) none of the Series B
Preferred Shares is outstanding (the "REGISTRATION PERIOD"), the
Company shall file all reports required to be filed with the SEC
pursuant to 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 otherwise
permit such termination.
d. Use of Proceeds. The Company will use the proceeds
from the sale of the Series B Preferred Shares for substantially the
same purposes and in substantially the same amounts as indicated in
Schedule 4(d).
e. Financial Information. The Company agrees to send the
following to each Buyer during the Registration Period: (i) within five
(5) days after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current
Reports on Form 8-K and any registration statements or amendments filed
pursuant to the 1933 Act; (ii) within one (1) day after release
thereof, copies of all press releases issued by the Company or any of
its subsidiaries and (ii) copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.
-11-
<PAGE> 12
f. Reservation of Shares. The Company shall
take all action necessary to at all times have authorized, and reserved
for the purpose of issuance, no less than 100% of the number of shares
of Common Stock needed to provide for the issuance of the Conversion
Shares and Warrant Shares; provided that all shares of the Common Stock
authorized and not otherwise reserved for other purposes as of the date
hereof shall be reserved for the purpose of issuance of the Conversion
Shares.
g. Listings. The Company shall promptly secure the
listing of all Registrable Securities (as defined in the Registration
Rights Agreement) upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so
long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares from time to time issuable under the
terms of this Agreement and the Registration Rights Agreement. The
Company shall maintain the Common Stock's authorization for quotation
in the over-the counter market. The Company shall promptly provide to
each Buyer copies of any notices it receives regarding the continued
eligibility of the Common Stock for trading on the Nasdaq SmallCap
Market(TM).
h. Expenses. Except as provided in Section 9.o. herein.
Each of the Company and the Buyer shall pay all costs and expenses
(including legal fees and disbursements) incurred by such party in
connection with the negotiation, investigation, preparation, execution
and delivery of this Agreement, the Registration Rights Agreement, and
all related documents.
i. Additional Financing; Right of First
Refusal. The Company shall not consummate any equity financing
(including any debt financing with an equity component) or issue any
equity securities of the Company or securities convertible or
exchangeable into or for equity securities of the Company or securities
convertible or exchangeable into or for equity securities of the
Company (including any debt securities with an equity component) in any
form ("FUTURE OFFERINGS") during the period beginning on the date
hereof and ending on March 24, 2000, unless it shall have first
delivered to each Buyer or designees appointed by such Buyer, written
notice (the "FUTURE OFFERING NOTICE") describing the proposed Future
Offering in reasonable detail, including the terms and conditions
thereof, and providing each Buyer an option to participate in such
financing or purchase such securities, on the same terms and conditions
thereof, up to its Series B Aggregate Percentage (as defined below) of
the Series B Financing Amount (as defined below), as of the date of
delivery of the Future Offering Notice, in the Future Offering (the
limitations referred to in this sentence are collectively referred to
as the "CAPITAL RAISING LIMITATION"). In addition to the foregoing
limitation on Future Offerings, during the period beginning on the date
hereof and ending ninety (90) days from the Issuance Date (as defined
in the Certificate of Designations), the Company shall not consummate
any Future Offerings without the written consent of a majority of the
then existing holders of Series B Convertible Preferred Stock, which
consent shall not be unreasonably withheld. Such holders agreed to
respond to the Company's request within five (5) days of receipt of
notice requesting consent by the
-12-
<PAGE> 13
Company. For purposes of this Section 4(i), "SERIES B AGGREGATE
PERCENTAGE" at any time with respect to any Buyer shall mean the
percentage obtained by dividing (i) the aggregate number of Conversion
Shares issued or issuable, as if a conversion occurred on such date,
upon conversion of the Series B Preferred Shares then owned by such
Buyer by (ii) the aggregate number of Conversion Shares issued or
issuable, as if a conversion occurred on such date, upon conversion of
all of the Series B Preferred Shares initially held by all of the
Buyers. For purposes of this Section 4(i), "SERIES B FINANCING AMOUNT"
shall mean shall mean $2,500,000. A Buyer can exercise its option to
participate in a Future Offering by delivering written notice thereof
to participate to the Company within ten (10) days of receipt of a
Future Offering Notice, which notice shall state the quantity of
securities being offered in the Future Offering that such Buyer will
purchase, up to its Series B Aggregate Percentage of the Series B
Financing Amount, and that number of securities it is willing to
purchase in excess thereof. In the event the Company has not sold such
securities of the Future Offering within the sixty (60) day period
after the receipt of the Future Offering Notice, the Company shall not
thereafter issue or sell such securities without first offering such
securities to the Buyers in the manner provided in this Section 4(i).
The Capital Raising Limitations provided herein shall not apply to (i)
a loan from a commercial bank, (ii) any transaction involving the
Company's issuances of securities in connection with (A) a merger,
consolidation or sale of assets, (B) any strategic partnership, joint
venture, or relationship (the primary purpose of which is not to raise
equity capital), or (C) the disposition or acquisition of a business,
product, or license by the Company, (iii) the issuance of securities
pursuant to (A) a firm commitment, underwritten public offering, (B)
upon exercise or conversion of the Company's options, warrants, or
other convertible securities outstanding as of the date hereof or
issued after the date hereof not in violation of this Agreement, (C)
the grant of additional options or warrants or the issuance of
additional securities, under any Company stock option or restricted
stock plan for the benefit of the Company's employees, directors, or
consultants which such plan exists as of the date hereof and is set
forth in any disclosure schedule attached hereto, or (iv) any issuance
of securities or financing whereby the net consideration received or to
be received by the Company and any of its subsidiaries is less than
$500,000 in (i) any single transaction, (ii) any series of related
transactions, or (iii) series of unrelated transactions to the same
person or entity or to a group of persons and/or entities acting in
concert.
(j) No Short Sales of the Common Stock. So long as (i) a
Buyer or any of its affiliates beneficially owns any of Series B
Preferred Shares, (ii) the Company has not issued any publicly traded
convertible securities and (iii) the Issuer is not in material default
under the terms of the Series B Preferred Shares, each Buyer and its
affiliates shall not directly or indirectly engage in any short sales
or third party short sales of the Company's Common Stock or hold a "put
equivalent position" with respect to the Common Stock (as defined in
Rule 16a-1 under the 1934 Act). Notwithstanding anything contained to
the contrary in this Section 4(j), in the event that following date
hereof the Company enters into a private placement transaction (other
than in connection with employee benefit plans, employee or consultant
compensation, or in connection with mergers and acquisitions) which
permits the investors rights to engage in short sales of Common Stock,
the restrictions contained in this
-13-
<PAGE> 14
Section 4(j) shall be automatically modified to permit the Buyer to
engage in short sales of Common Stock substantially to the extent
permitted by the Company with respect to such private placement
investors and to the extent permitted by applicable law.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agent
to issue certificates, registered in the name of the Buyer or its respective
nominee(s), for the Conversion Shares and Warrant Shares in such amounts as
specified from time to time by the Buyer to the Company upon conversion of the
Series B Preferred Shares or exercise of the Warrants (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"), or exercise of the Warrants. Prior to registration of the
Conversion Shares and Warrant Shares under the 1933 Act, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of such shares under the 1933 Act) will be
given by the Company to its transfer agent and that the Series B Preferred
Shares, the Conversion Shares, the Warrants, and the Warrant Shares shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section 5 shall affect in any way the Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of the
Series B Preferred Shares, the Conversion Shares, the Warrants, and the Warrant
Shares. If the Buyer provides the Company with an opinion of counsel,
satisfactory in form, and substance to the Company, that registration of a
resale by the Buyer of any of the Series B Preferred Shares, the Conversion
Shares, the Warrants, or the Warrant Shares is not required under the 1933 Act,
the Company shall permit the transfer, and, in the case of the Conversion Shares
or the Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by the Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Series B
Preferred Shares to the Buyer at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
a. The Buyer shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
b. The Certificate of Designations shall have been filed
with the Secretary of State of the State of Delaware.
c. The Buyer shall have delivered to the Company the
Purchase Price for the Series B Preferred Shares being purchased by the
Buyer at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
-14-
<PAGE> 15
d. The representations and warranties of the Buyer shall
be true and correct in all material respects as of the date when made
and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
the Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Buyer at
or prior to the Closing Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer hereunder to purchase the Series B
Preferred Shares at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Buyer's sole benefit and may be waived by the Buyer at
any time in its sole discretion:
a. The Company shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Buyer.
b. The Common Stock shall be authorized for quotation on
the Nasdaq SmallCap Market(TM) and trading in the Common Stock shall
not have been suspended for any reason and all of the Conversion Shares
issuable upon conversion of the Series B Preferred Shares shall be
approved for listing.
c. The representations and warranties of the Company
shall be true and correct in all material respects (except to the
extent that any of such representations and warranties is already
qualified as to materiality in Section 3 above, in which case, such
representations and warranties shall be true and correct without
further qualification) as of the date when made and as of the Closing
Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. The Buyer shall have received a certificate, executed by
the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be
reasonably requested by the Buyer including, without limitation an
update as of the Closing Date regarding the representation contained in
Section 3(c) above.
d. The Buyer shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to the Buyer and in substantially the
form of Exhibit "D" attached hereto.
e. The Company shall have executed and delivered to the
Buyer the Certificates (in such denominations as the Buyer shall
request) for the Series B Preferred Shares and Warrants being purchased
by the Buyer at the Closing.
-15-
<PAGE> 16
f. The Board of Directors of the Company shall have
adopted the resolutions in substantially the form of Exhibit "E"
attached hereto.
g. As of the Closing Date, the Company shall as of the
Closing Date have reserved out of its authorized and unissued Common
Stock, solely for the purpose of effecting the conversion of the Series
B Preferred Shares, such number of shares of Common Stock equal to or
greater than 100% of the number of shares of Common Stock for which are
issuable upon conversion of all of the Series B Preferred Shares which
and the Warrant Shares could be issued at any time under this
Agreement.
h. The Irrevocable Transfer Agent Instructions, in form
and substance satisfactory to the Buyer, shall have been delivered to
and acknowledged in writing by the Company's transfer agent.
i. Harvey W. Sax, James Ellsworth, Daniel Delity, David
Frank, Cameron Harris & Company, Tim Higham, Kris Puri, Nat Stricklen,
Gia Bokuchava, and Mark & Margery Germaine, which together constitute
approximately 40% of the issued and outstanding shares of Common Stock
as of the date hereof, shall have executed those proxies with regard to
voting their shares in favor of any Stockholder Approval for Common
Stock in excess of the Maximum Share Amount in substantially the Form
attached as Exhibit "F."
8. INDEMNIFICATION.
In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Series B Preferred Shares, the Conversion Shares,
and the Warrants, and the Warrant Shares hereunder and in addition to all of the
Company's other obligations under this Agreement, the Company shall defend,
protect, indemnify, reimburse, and hold harmless the Buyer and each other holder
of the Series B Preferred Shares, the Conversion Shares, and the Warrants, and
the Warrant Shares and all of their officers, directors, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "INDEMNITEES")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
the Indemnitees or any of them as a result of, or arising out of, or relating to
(a) any misrepresentation or breach of any representation or warranty made by
the Company in this Agreement, the Series B Preferred Shares, the Warrants, or
the Registration Rights Agreement or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement, the
Certificate of Designations, the Warrants, or the Registration Rights Agreement
or any other certificate, instrument or document contemplated hereby or thereby,
or (c) any cause of action, suit or claim brought or made against such
Indemnitee and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement or any other instrument, document
or agreement executed pursuant hereto by any of the Indemnities, any transaction
financed or to be financed in
-16-
<PAGE> 17
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Series B Preferred Shares or the status of the Buyer or holder of the Series
B Preferred Shares, the Warrants, or the Conversion Shares or the Warrant
Shares, as an investor in the Company, except for the Indemnified Liability
which directly or primarily results from the particular Indemnitee's gross
negligence or willful misconduct for which such holder shall indemnify the
Company in the same manner as provided in this Section 8. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
9. GOVERNING LAW: MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Delaware
without regard to the principles of conflict of laws. Any dispute or
controversy between the parties arising in connection with this
agreement or the subject matter contemplated by this agreement shall be
resolved by arbitration before a three-member panel of the American
Arbitration Association in accordance with the commercial arbitration
rules of said forum and the Federal Arbitration Act, 9 U.S.C. 1 et
seq., with the resulting award being final and conclusive. Said
arbitrators shall be empowered to award all forms of relief and damages
claimed, including, but not limited to, attorney's fees, expenses of
litigation and arbitration, exemplary damages, and prejudgment
interest. Notwithstanding the foregoing, Buyer may at any time and at
its option, whether or not an arbitration action is then pending,
initiate a civil action for temporary and permanent injunctive and
other equitable relief against Company. Company acknowledges that upon
any breach of Buyer's conversion rights hereunder, Buyer's resulting
injury may not be adequately compensated by a remedy at law.
Accordingly, upon such breach, Buyer, at its election and without
limitation of its other remedies, shall be entitled to pursue a claim
for specific performance of this Agreement, and Company hereby waives
the right to assert any defense thereto that Purchaser has an adequate
remedy at law.
b. Counterparts. This Agreement may be executed in two
or more identical counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts
have been signed by each party and delivered to the other party. In the
event any signature page is delivered by facsimile transmission, the
party using such means of delivery shall cause four (4) additional
original executed signature pages to be physically delivered to the
other party within five (5) days of the execution and delivery hereof
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. 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 in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other
jurisdiction.
-17-
<PAGE> 18
e. Entire Agreement, Amendments. This Agreement
supersedes all other prior oral or written agreements between the
Buyer, the Company, their affiliates and persons acting on their behalf
with respect to the matters discussed herein, and this Agreement and
the instruments referenced herein contain the entire understanding of
the parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company
nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in
writing signed by the party to be charged with enforcement.
f. Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of
this Agreement must be in writing and will be deemed to have been
delivered (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile, provided a copy is mailed by U.S.
certified mail, return receipt requested; (iii) three (3) days after
being sent by U.S. certified mail, return receipt requested, or (iv)
one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
Fourteen Piedmont Center, Suite 100
3535 Piedmont Road
Atlanta, Georgia 30305
Attn: President
Telephone: (404) 237-4646
Facsimile: (404) 273-3060
With a copy to:
Raymond L. Moss, Esq.
Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Telephone: (770) 481-7201
Facsimile: (770) 481-7210
-18-
<PAGE> 19
If to the Transfer Agent:
American Stock Transfer
40 Wall Street
New York, New York 10005
Attn: Carlos Pinto
Telephone: (718) 921-8206
Facsimile: (718) 921-8336
If to the Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to the Buyer's counsel as set forth on the Schedule
of Buyers. Each party shall provide five (5) days' prior written notice
to the other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their
respective successors and assigns. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior
written consent of the Buyer. The Buyer may assign its rights hereunder
without the consent of the Company, provided, however, that the Company
is given written notice by such holder at the time of such transfer,
stating the name and address of such transferee and any such assignment
shall not release the Buyer from its obligations hereunder unless such
obligations are assumed by such assignee and the Company has consented
to such assignment and assumption.
h. No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor
may any provision hereof be enforced by, any other person.
i. Survival. The representations and warranties of the
Company and the Buyer contained in Sections 2 and 3 shall survive for a
period of two years from the date hereof, the agreements and covenants
set forth in Sections 4, 5 and 9, the indemnification provisions set
forth in Section 8, shall survive the Closing. The Buyer shall be
responsible only for its own representations, warranties, agreements
and covenants hereunder.
j. Publicity. The Company and the Buyer shall have the
right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the
prior approval of the Buyer, to make any press release or other public
disclosure with respect to such transactions as is required by
applicable law and regulations (although the Buyer shall be consulted
by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a
copy thereof).
k. Further Assurances. Each party shall do and perform,
or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably
-19-
<PAGE> 20
request in order to carry out the intent and accomplish the purposes of
this Agreement and the consummation of the transactions contemplated
hereby.
1. Termination. In the event that the Closing shall not
have occurred with respect to the Buyer on or before five (5) business
days from the date hereof due to the Company's or the Buyer's failure
to satisfy the conditions set forth in Sections 6 and 7 above (and the
nonbreaching party's failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this
Agreement with respect to such breaching party at the close of business
on such date without liability of any party to any other party.
m. Placement Agent. The Company acknowledges that it has
engaged J.P. Turner & Company, L.L.C. as a placement agent in
connection with the sale of the Series B Preferred Shares. The Company
shall be responsible for and shall indemnify Buyer against the payment
of placement agent fees and warrants relating to or arising out of the
transactions contemplated hereby and any other brokers', finders', or
other similar fees, which may be actually due and payable. The Buyers
acknowledge that they have made their investment in reliance upon their
own independent due diligence investigation of the Company, and the
documents executed in connection therewith, and have not relied upon
any statements or representations by the Placement Agent in connection
therewith.
n. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will
be applied against any party.
o. Costs and Expenses. Each party shall bear the costs
and expenses in connection with the negotiation, execution and
performance of this Agreement provided however that at Closing the
Company agrees to pay the reasonable and actual fees and expenses of
the one counsel to the Buyer in an amount not to exceed $15,000.
10. CONFIDENTIALITY.
(a) As much of the information and other material
furnished under or in connection with this Agreement (whether furnished
before, on or after the date hereof) as constitutes or contains
confidential business, financial or other information of the Company or
its subsidiaries, each Buyer covenants for itself, and, as applicable,
for its directors, officers, affiliates and partners, that it will use
due care to prevent its officers, directors, partners, employees,
counsel, accountants and other representatives from disclosing such
information to persons other than their respective authorized
employees, counsel, accountants, shareholders, partners, limited
partners and other authorized representatives. Notwithstanding the
foregoing, if a Buyer is advised by such counsel that such disclosure
or delivery is required by law, regulation or judicial or
administrative order, then they may disclose or deliver such
information or other after giving written notice to the Company of such
requirements.
-20-
<PAGE> 21
For purposes of this Section 10(a), "due care" means at least
the same level of care that a Buyer would use to protect the
confidentiality of its own sensitive or proprietary information, and
this obligation shall survive termination of this Agreement.
(b) To the extent that any of the information furnished
by the Company to the Buyers hereof would constitute material,
nonpublic information for purposes of the Exchange Act, Buyers agree
not to engage in any purchase or sale of securities while in possession
of such information and prior to the time that such information is made
generally known to the public and Buyers agree to use due care to
prevent their officers, directors, partners, employees, counsel and
other representatives, who have been given access to such material,
nonpublic information, from engaging in any such purchase or sale
during such period.
-21-
<PAGE> 22
IN WITNESS WHEREOF, the Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
"COMPANY"
HOMECOM COMMUNICATIONS, INC.
By:
---------------------------------------------
Name: Harvey W. Sax
Its: Chairman of the Board and Chief Executive
Officer
"BUYER"
CPR (USA), INC.
By:
---------------------------------------------
Name: Steven S. Rogers
Title: Managing Director
"BUYER"
LIBERTYVIEW FUNDS, L.P.
By:
---------------------------------------------
Name: Steven S. Rogers
Title:
"BUYER"
LIBERTYVIEW FUND, L.L.C.
By:
---------------------------------------------
Name: Steven S. Rogers
Title:
<PAGE> 23
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
NUMBER OF SERIES B
BUYER'S NAME ADDRESS/FACSIMILE NUMBER OF BUYER PREFERRED SHARES
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
c/o LibertyView Capital Management 62.5
CPR (USA), Inc. 101 Hudson Street, Suite 3700
Jersey City, NJ 07302
- - -----------------------------------------------------------------------------------------------------------
LibertyView Funds, L.P. c/o LibertyView Capital Management 50
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
- - -----------------------------------------------------------------------------------------------------------
c/o LibertyView Capital Management 12.5
LibertyView Fund, L.L.C. 101 Hudson Street, Suite 3700
Jersey City, NJ 07302
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 24
SCHEDULE 3(C)
CAPITALIZATION
<TABLE>
<CAPTION>
Outstanding Warrants:
- - --------------------
<S> <C> <C> <C>
Ladenburg Thalmann & Co., Inc. 100,000 $ 7.20 May 12, 2002
First Granite Securities, Inc. 75,000 $ 4.00 October 27, 2000
First Granite Securities, Inc. 200,000 $ 6.00 October 27, 2000
Dominion Capital Fund, LTD,
Sovereign Partners, LP,
and Southridge Capital, Inc. 62,500 $14.50625 December 31, 2000
Dominion Capital Fund, LTD,
Sovereign Partners, LP,
and Southridge Capital, Inc. 62,500 $ 15.825 December 31, 2000
FIMI principals 300,000 $ 3.7375 March 9, 2004
Employee Stock Options approximately approximately
750,000 $ 4.50
Obligations to Register Securities:
FIMI principals 626,087
</TABLE>
<PAGE> 25
SCHEDULE 3(E)
CONFLICTS
None.
<PAGE> 26
SCHEDULE 3(F)
FINANCIAL STATEMENTS
Reference is made to all public filings made by the Company with the
SEC available at http://www.sec.gov/.
<PAGE> 27
SCHEDULE 3(H)
LITIGATION
None.
<PAGE> 28
SCHEDULE 3(N)
LIENS
None.
<PAGE> 29
SCHEDULE 3(P)
TAX STATUS
None.
<PAGE> 30
SCHEDULE 4(D)
USE OF PROCEEDS
Working capital.
<PAGE> 1
EXHIBIT 10.51
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of March 25,
1999, by and among HomeCom Communications, Inc., a Delaware corporation, with
headquarters at Fourteen Piedmont Center, Suite 100, 3535 Piedmont Road,
Atlanta, Georgia 30305 (the "COMPANY"), and the undersigned buyer (the "BUYER").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, (i) to issue and sell to the Buyer's shares of
the Company's Series B Preferred Stock (the "PREFERRED STOCK"), which will be
convertible into shares of the Company's common stock, $.0001 par value per
share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES") in accordance
with the terms of (i) the Company's Certificate of Designations, Preferences and
Rights of Series B Preferred Shares (the "CERTIFICATE OF DESIGNATIONS") and (ii)
as set forth in the Securities Purchase Agreement, to be issued warrants (the
"WARRANTS") which will be exercisable to purchase shares of Common Stock (the
"WARRANT SHARES"); and
B. To induce the Buyers 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 "1933 ACT"), and
applicable state securities laws:
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
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
a. "INVESTOR" means the Buyer and any transferee or assignee
thereof to whom the Buyer assigns its rights under this Agreement and
who agrees to become bound by the provisions of this Agreement in
accordance with Section 9.
b. "PERSON" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an
individual, a governmental or political subdivision thereof or a
governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("RULE 415"), and the declaration or
ordering of
<PAGE> 2
effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. REGISTRABLE SECURITIES" means the Conversion Shares and the
Warrant Shares issued or issuable upon conversion of the Preferred
Stock and the exercise of the Warrants, respectively, and any shares of
capital stock issued or issuable with respect to the Conversion Shares,
the Warrant Shares, the Warrants, or the Preferred Stock as a result of
any stock split, stock dividend, recapitalization, exchange, merger,
consolidation, reorganization, or similar event.
e. "REGISTRATION STATEMENT" means a registration statement of
the Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement, the
Certificate of Designations, or the Warrants, as applicable.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on
or prior to April 26, 1999, file with the SEC a Registration Statement
or Registration Statements (as is necessary) on Form S-3 (or, if such
form is unavailable for such a registration, on such other form as is
available for such a registration, subject to the consent of each Buyer
and the provisions of Section 2(e), which consent will not be
unreasonably withheld), covering the resale of all of the Registrable
Securities, which Registration Statement(s) shall state that, in
accordance with Rule 416 promulgated under the 1933 Act, such
Registration Statement(s) also covers such indeterminate number of
additional shares of Common Stock (i) to prevent dilution resulting
from stock splits, stock dividends or similar transactions and (ii) by
reason of changes in the Conversion Price or Conversion Rate of the
Preferred Stock in accordance with the terms thereof Such Registration
Statement shall initially register for resale at least 1,225,000 shares
of Common Stock, subject to adjustment as provided in Section 3(b), and
such registered shares of Common Stock shall be allocated among the
Investors pro rata based on the total number of Registrable Securities
issued or issuable as of each date that a Registration Statement, as
amended, relating to the resale of the Registrable Securities is
declared effective by the SEC. The Company shall use its best efforts
to have the Registration Statement declared effective by the SEC within
ninety (90) days after the issuance of the Preferred Stock (the
"REGISTRATION DEADLINE"). The Company shall permit the registration
statement to become effective within five (5) business days after
receipt of a "no review" notice from the SEC. In the event that the
Registration Statement is not declared effective by the Registration
Deadline, the Company shall pay to the Buyers, on a monthly basis, 2%
of the face amount of the outstanding Preferred Stock in cash or Common
Stock at the election of the Company for every thirty (30) days
thereafter (pro-rated for partial months) until the Registration is
declared effective. In addition, in the event that during the
Registration Period (as defined herein) (i) the Registration Statement
is no longer effective, (ii) the Prospectus forming a part of the
Registration Statement is no longer current, or (iii) the SEC has
issued a "stop order" with respect to the Registration Statement,
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<PAGE> 3
the Company shall have thirty (30) days to take appropriate action to
cause the Registration Statement to become effective. In the event that
during the Registration Period the Company is unable to cause the
Registration Statement to become effective, removes the stop order or
makes the Prospectus current, as the case may be, within such thirty
(30) day period, the Company shall pay to the then existing holders of
Preferred Stock, on a monthly basis, 2% of the face amount of the
outstanding Preferred Stock in cash or Common Stock at the election of
the Company for every thirty (30) days thereafter (pro-rated for
partial months) until the Registration Statement is declared effective,
removes the stop order or makes the Prospectus current, as the case may
be.
b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) involves an
underwritten offering, the Buyers shall have the right to select one
legal counsel and an investment banker or bankers and manager or
managers to administer their interest in the offering, which investment
banker or bankers or manager or managers shall be reasonably
satisfactory to the Company.
c. Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the
Company proposes to file with the SEC a Registration Statement relating
to an offering for its own account or the account of others under the
1933 Act of any of its securities (other than on Form S-4 or Form S-8
or their then equivalents relating to securities to be issued solely in
connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee
benefit plans) the Company shall promptly send to each Investor who is
entitled to registration rights under this Section 2(c) written notice
of the Company's intention to file a Registration Statement and of such
Investor's rights under this Section 2(c) and, if within twenty (20)
days after receipt of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all
or any part of the Registrable Securities such Investor requests to be
registered, subject to the priorities set forth in Section 2(d) below.
No right to registration of Registrable Securities under this Section
2(c) shall be construed to limit any registration required under
Section 2(a). The obligations of the Company under this Section 2(c)
may be waived by Investors holding a majority of the Registrable
Securities. If an offering in connection with which an Investor is
entitled to registration under this Section 2(c) is an underwritten
offering, then each Investor whose Registrable Securities are included
in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten
offering using the same underwriter or underwriters and, subject to the
provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
d. Priority in Piggy-Back Registration Rights in connection
with Registrations or Company Account. If the registration referred to
in Section 2(c) is to be an underwritten public offering for the
account of the Company and the managing underwriter(s) advise the
Company in writing, that in their reasonable good faith opinion,
marketing or other factors dictate that a limitation on the number of
shares of Common Stock which may be included in the Registration
Statement is necessary to facilitate and not adversely affect the
proposed offering, then the Company shall include in such registration:
(1) first, all securities the
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<PAGE> 4
Company proposes to sell for its own account, (2) second, up to the
full number of securities proposed to be registered for the account of
the holders of securities entitled to inclusion of their securities in
the Registration Statement by reason of demand registration rights, and
(3) third, the securities requested to be registered by the Investors
and other holders of securities entitled to participate in the
registration on a pari passu basis, drawn from them pro rata based on
the number each has requested to be included in such registration.
e. Eligibility for Form S-3. The Company represents, warrants,
and covenants that it is currently eligible to utilize Form S-3 and
that it has filed and shall file all reports required to be filed by
the Company with the SEC in a timely manner so as to obtain and
maintain such eligibility for the use of Form S-3. In the event that
Form S-3 is not available for sale by the Investors of the Registrable
Securities, then (i) the Company, with the consent of each Investor
pursuant to Section 2(a), shall register the sale of the Registrable
Securities on another appropriate form, such as Form S-1 and (ii) the
Company shall undertake to register the Registrable Securities on Form
S-3 as soon as such form is available.
3 . RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(c) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2(a), the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on
or prior to the thirtieth (30th) day following the date of issuance of
any Preferred Stock, for the registration of Registrable Securities
pursuant to Section 2(a)) and use its best efforts to cause such
Registration Statement(s) relating to Registrable Securities to become
effective as soon as possible after such filing (by the ninetieth
(90th) day following the issuance of the relevant Preferred Stock for
the registration of Registrable Securities pursuant to Section 2(a),
and keep the Registration Statement(s) effective pursuant to Rule 415
at all times until the earlier of (i) the date as of which the
Investors may sell all of the Registrable Securities without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto) or (ii) the date on which (A) the Investors shall
have sold all the Registrable Securities and (B) none of the Preferred
Stock and Warrants are outstanding (the "REGISTRATION PERIOD"), which
Registration Statement(s) (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. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement(s) and the prospectus(es) used in connection
with the Registration Statement(s), which prospectus(es) are to be
filed pursuant to Rule 424 promulgated under the 1933 Act, as may be
necessary to keep the Registration Statement(s) effective at all times
during the
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<PAGE> 5
Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration
Statement(s) until such time as all of such Registrable Securities
shall 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(s). In the event the number of shares available
under a Registration Statement filed pursuant to this Agreement is
insufficient to cover all of the Registrable Securities, the Company
shall amend the Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or
both, so as to cover all of the Registrable Securities, in each case,
as soon as practicable, but in any event within fifteen (15) days after
the necessity therefor arises (based on the market price of the Common
Stock and other relevant factors on which the Company reasonably elects
to rely). The Company shall use its best efforts to cause such
amendment and/or new Registration Statement to become effective as soon
as practicable following the filing thereof. For purposes of the
foregoing provision, the number of shares available under a
Registration Statement shall be deemed "insufficient to cover all of
the Registrable Securities" if at any time the number of Registrable
Securities issued or issuable upon conversion of the Preferred Stock
and exercise of the Warrants is greater than the quotient determined by
dividing (i) the number of shares of Common Stock available for resale
under such Registration Statement by (ii) 1.0. For purposes of the
calculation set forth in the foregoing sentence, any restrictions on
the convertibility of the Preferred Stock shall be disregarded and such
calculation shall assume that the Preferred Stock are then convertible
into shares of Common Stock at the then prevailing Conversion Rate (as
defined in the Preferred Stock) and that the Warrants are exercisable
at the prevailing exercise price.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement(s)
and its legal counsel without charge (i) promptly after the same is
prepared and filed with the SEC at least one copy of the Registration
Statement and any amendment thereto, including financial statements and
schedules, all documents incorporated therein by reference and all
exhibits, the prospectus(es) included in such Registration Statement(s)
(including each preliminary prospectus ) and, with regards to the
Registration Statement, any correspondence by or on behalf of the
Company to the SEC or the staff of the SEC and any correspondence from
the SEC or the staff of the SEC to the Company or its representatives,
(ii) upon the effectiveness of any Registration Statement, ten (10)
copies of the prospectus included in such Registration Statement and
all amendments and supplements thereto (or such other number of copies
as such Investor may reasonably request) and (iii) such other
documents, including any preliminary prospectus, as such Investor may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration
Statement(s) under such other securities or "blue sky" laws of such
jurisdictions in the United States as any Investor reasonably requests,
(ii) prepare and file in those jurisdictions, such amendments
(including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such
other actions as may be necessary to maintain such registrations and
qualifications in effect
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<PAGE> 6
at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to quality the Registrable
Securities for sale in such jurisdictions; provided, however, that the
Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(d),
(b) subject itself to general taxation in any such jurisdiction, or (c)
file a general consent to service of process in any such jurisdiction.
The Company shall promptly notify each Investor who holds Registrable
Securities of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any
of the Registrable Securities for sale under the securities or "blue
sky" laws of any jurisdiction in the United States or its receipt of
actual notice of the initiation or threatening of any proceeding for
such purpose.
e. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select
underwriters for the offering, the Company shall enter into and perform
its obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and
contribution obligations, with the underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor in writing of the
happening of any event, of which the Company has knowledge, as a result
of which the prospectus included in a Registration Statement, as then
in effect, includes an untrue statement of a material fact or omission
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 promptly prepare a supplement or
amendment to the Registration Statement to correct such untrue
statement or omission, and deliver ten (10) copies of such supplement
or amendment to each Investor (or such other number of copies as such
Investor may reasonably request). The Company shall also promptly
notify each Investor in writing (i) when a prospectus or any prospectus
supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become
effective (notification of such effectiveness shall be delivered to
each Investor by facsimile on the same day of such effectiveness and by
overnight mail) (ii) of any request by the SEC for amendments or
supplements to a Registration Statement or related prospectus or
related information, (iii) of the Company's reasonable determination
that a post-effective amendment to a Registration Statement would be
appropriate.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any
of the Registrable Securities for sale in any jurisdiction and, if such
an order or suspension is issued, to obtain the withdrawal of such
order or suspension at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (and, in the event
of an underwritten offering, the managing underwriters) of the issuance
of such order and the resolution thereof or its receipt of actual
notice of the initiation or threat of any proceeding for such purpose.
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<PAGE> 7
h. The Company shall permit each Investor a single firm of
counsel or such other counsel as thereafter designated as selling
stockholders' counsel by the Investors who hold a majority of the
Registrable Securities being sold, to review and comment upon the
Registration Statement(s) and all amendments and supplements thereto at
least five (5) days prior to their filing with the SEC, and not file
any document in a form to which such counsel reasonably objects. The
Company shall not submit a request for acceleration of the
effectiveness of a Registration Statement(s) or any amendment or
supplement thereto without the prior approval of such counsel, which
consent shall not be unreasonably withheld.
i. At the request of the Investors who hold a majority of the
Registrable Securities being sold, the Company shall furnish, on the
date that Registrable Securities are delivered to an underwriter, if
any, for sale in connection with the Registration Statement (i) if
required by an underwriter, a letter, dated such date, from the
Company's independent certified public accountants in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering,
addressed to the underwriters, and (ii) an opinion, dated as of such
date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the underwriters
and the Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition
pursuant to a Registration Statement, (iii) one firm of attorneys and
one firm of accountants or other agents retained by the Investors, and
(iv) one firm of attorneys retained by all such underwriters
(collectively, the "INSPECTORS") all pertinent financial and other
records, and pertinent corporate documents and properties of the
Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its
due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector
may reasonably request for purposes of such due diligence provided,
however, that each Inspector shall hold in strict confidence and shall
not make any disclosure (except to an Investor) or use of any Record or
other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release
of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or
(c) the information in such Records has been made generally available
to the public other than by disclosure in violation of this or any
other agreement. Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the
Company unless (i) disclosure of such
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<PAGE> 8
information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (iii)
the release of such information is ordered pursuant to a subpoena or
other final, non-appealable order from a court or governmental body of
competent jurisdiction, or (iv) such information has been made
generally available to the public other than by disclosure in violation
of this or any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning an Investor is
sought in or by a court or governmental body of competent jurisdiction
or through other means, give prompt written notice to such Investor and
allow such Investor, at the Investor's expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective
order for, such information.
l. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to
be listed on each national securities exchange on which securities of
the same class or series issued by the Company are then listed, if any,
if the listing of such Registrable Securities is then permitted under
the rules of such exchange, (ii) to secure designation and quotation of
all the Registrable Securities covered by the Registration Statement on
the Nasdaq National Market System, (iii) if, despite the Company's best
efforts to satisfy the preceding clause (i) or (ii), the Company is
unsuccessful in satisfying the preceding clause (i) or (ii) to secure
the inclusion for quotation on the Nasdaq SmallCap Market for such
Registrable Securities or, (iv) if, despite the Company's best efforts
to satisfy the preceding clause (iii), the Company is unsuccessful in
satisfying the preceding clause (iii), to secure the inclusion for
quotation on the over-the-counter market for such Registrable
Securities, and, without limiting the generality of the foregoing, in
the case of clause (iii) or (iv), 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. The
Company shall pay all fees and expenses in connection with satisfying
its obligation under this Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any
managing underwriter or underwriters, to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities to be offered pursuant
to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the managing
underwriter or underwriters, if any, or, if there is no managing
underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters,
if any, or the Investors may request. Not later than the date on which
any Registration Statement registering the resale of Registrable
Securities is declared effective, the Company shall deliver to its
transfer agent instructions, accompanied by any reasonably required
opinion of counsel, that permit sales of unlegended securities in a
timely fashion that complies with then mandated securities settlement
procedures for regular way market transactions.
n. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of
Registrable Securities pursuant to a Registration Statement.
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<PAGE> 9
o. The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of
such Registration Statement.
p. If requested by the managing underwriters or an Investor,
the Company shall immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters
and the Investors agree should be included therein relating to the sale
and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable
Securities being sold to such underwriters, the purchase price being
paid therefor by such underwriters and with respect to any other terms
of the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; make all required
filings of such prospectus supplement or post-effective amendment as
soon as notified of the matters to be incorporated in such prospectus
supplement or post-effective amendment; and supplement or make
amendments to any Registration Statement if requested by a shareholder
or any underwriter of such Registrable Securities.
q. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement
to be registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition of
such Registrable Securities.
r. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with
any registration hereunder.
4. OBLIGATIONS OF THE INVESTORS.
a. At least five (5) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify
each Investor in writing of the information the Company requires from
each such Investor if such Investor elects to have any of such
Investor's Registrable Securities included in the Registration
Statement. 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.
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(s) 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.
c. In the event Investors holding a majority of the
Registrable Securities being registered determine to engage the
services of an underwriter, each Investor agrees to enter
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<PAGE> 10
into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as
are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor
notifies the Company in writing of such Investor's election to exclude
all of such Investor's Registrable Securities from the Registration
Statement(s).
d. 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(g) or the first sentence of 3(f), such Investor will
immediately discontinue disposition of Registrable Securities pursuant
to the Registration Statement(s) covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(g) or the first sentence
of 3(f) and, if so directed by the Company, such Investor shall deliver
to the Company (at the expense of the Company) or destroy all copies in
such Investor's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such
Investor's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Investors entitled hereunder
to approve such arrangements, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of
such underwriting arrangements, and (iii) agrees to pay its pro rata
share of all underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company shall be borne by the Company.
The Investors shall bear the fees and disbursements of their counsel.
6. INDEMNIFICATION
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who
holds such Registrable Securities, the directors, officers, partners,
employees, agents and each Person, if any, who controls any Investor
within the meaning of the 1933 Act or the Securities Exchange Act of
1934, as amended (the "1934 ACT"), and any underwriter (as defined in
the 1933 Act) for the Investors, and the directors and officers of, and
each Person, if any, who controls, any such underwriter within the
meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED
PERSON"), against any losses, claims, damages, liabilities, judgments,
fines, penalties,
-10-
<PAGE> 11
charges, costs, attorneys' fees, amounts paid in settlement or
expenses, joint or several, (collectively, "CLAIMS") incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other regulatory
agency, body or the SEC, whether pending or threatened, whether or not
an indemnified party is or may be a party thereto ("INDEMNIFIED
DAMAGES"), to which any of them may become subject insofar as such
Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in
any filing made in connection with the qualification of the offering
under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("BLUE SKY FILING"), or the
omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which the statements therein were made, not
misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to
the effective date of such Registration Statement, or 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 1933 Act, the 1934
Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale
of the Registrable Securities pursuant to a Registration Statement (the
matters in the foregoing clauses (i) through (iii) being, collectively,
"VIOLATIONS"). Subject to the restrictions set forth in Section 6(d)
with respect to the number of legal counsel, the Company shall
reimburse the Investors and each such underwriter or controlling
person, 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): (i) shall not
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 any Indemnified Person or underwriter for
such 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); (ii) with respect to any
preliminary prospectus, shall not inure to the benefit of any such
person from whom the person asserting any such Claim purchased the
Registrable Securities that are the subject thereof (or to the benefit
of any person controlling such person) if the untrue statement or
mission of material fact contained in the preliminary prospectus was
corrected in the prospectus, as then amended or supplemented, if such
prospectus was timely made available by the Company pursuant to Section
3(c), and the Indemnified Person was promptly advised in writing not to
use the incorrect prospectus prior to the use giving rise to a
violation and such Indemnified Person, notwithstanding such advice,
used it; (iii) shall not be available to the extent such Claim is based
on a failure of the Investor to deliver or to cause to be delivered the
prospectus made available by the Company; and (iv) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the
-11-
<PAGE> 12
Company, which consent shall not be unreasonably withheld. 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. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and
not jointly indemnify, hold harmless and defend, to the same extent and
in the same manner as is set forth in Section 6(a), the Company, each
of its directors, each of its officers who signs the Registration
Statement, each Person, if any, who controls the Company within the
meaning of the 1933 Act or the 1934 Act (collectively and together with
an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim or
Indemnified Damages to which any of them may become subject, under the
1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in
each case to the extent, and only to the extent, that such Violation
occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and, subject to Section
6(d), such Investor will reimburse any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 6(b) and Section 7 shall not apply
to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on
behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect
to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis
in the prospectus, as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in any distribution, to the same
extent as provided above, with respect to information such persons so
furnished in writing expressly for inclusion in the Registration
Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of
any action or proceeding (including any governmental action or
proceeding) involving a Claim 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; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and
expenses to be paid by the
-12-
<PAGE> 13
indemnifying party, if, in the reasonable opinion of counsel retained
by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party
would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other
party represented by such counsel in such proceeding. The Company shall
pay reasonable fees for only one separate legal counsel for the
Investors, which counsel shall be acceptable to the Company and such
legal counsel shall be selected by the Investors holding a majority in
interest of the Registrable Securities included in the Registration
Statement to which the Claim relates. The Indemnified Party or
Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the indemnifying party
all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or claim. The
indemnifying party shall keep the Indemnified Party or Indemnified
Person fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. No indemnifying party
shall be liable for any settlement of any action, claim or proceeding
effected without its written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition
its consent. No indemnifying party shall, without the consent of the
Indemnified Party or Indemnified Person, consent to entry of any
judgment or enter into any settlement or other compromise which does
not include as an unconditional term thereof the giving by the claimant
or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such claim or litigation.
Following indemnification as provided for hereunder, the indemnifying
party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person with respect to all third parties, firms or
corporations relating to the matter for which indemnification has been
made. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall
relieve such indemnifying party of any liability to the Indemnified
Person or Indemnified Party under this Section 6.
e. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified
Party or Indemnified Person against the indemnifying party or others,
and (ii) any liabilities the indemnifying party may be subject to
pursuant to the law.
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
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:
(i) 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; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (iii) 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.
-13-
<PAGE> 14
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 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 1933 Act and the 1934 Act
so long as the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company's obligations
under Section 4(c) of the Securities Purchase Agreement) and the filing
of such reports and other documents is required for the applicable
provisions of Rule 144; 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 1933 Act and the 1934 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 REGISTRATION RIGHTS.
The rights to have the Company register Registrable Securities pursuant
to this Agreement shall be automatically assignable by the Investors to any
transferee of all or any portion of Registrable Securities if: (i) 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; (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned; (iii) before
the time the Company receives the written notice contemplated by clause (ii) of
this sentence the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions contained herein; (iv) such transferee shall
be an "ACCREDITED INVESTOR" as that term is defined in Rule 501 of Regulation D
promulgated under the 1933 Act; and (v) in the event the assignment occurs
subsequent to the date of effectiveness of the Registration Statement required
to be filed pursuant to Section 2(a), the transferee agrees to pay all
reasonable expenses of amending or supplementing such Registration Statement to
reflect such assignment.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions 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 a majority of the Registrable Securities.
-14-
<PAGE> 15
Any amendment or waiver effected in accordance with this Section 10 shall be
binding upon each Investor and the Company. After the date hereof, as long as at
least 25% of the Preferred Stock is outstanding, the Company shall not grant
registration rights to any private placement investor which shall be superior as
to priority in registration to those granted to the Investors hereunder.
Notwithstanding anything contained herein to the contrary, the Company may grant
registration rights which are pari passu to those granted to the investors
hereunder. The restrictions imposed by the preceding two sentences shall not
apply to registration rights granted in connection to employee benefit plans,
employee, or consultant compensation or in connection with mergers and
acquisitions.
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. Any notices consents, waivers or other communications
required or permitted to be given under the terms of this Agreement
must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile, provided a copy is mailed by U.S. certified mail, return
receipt requested; (iii) three (3) days after being sent by U.S.
certified mail, return receipt requested, or (d) one (1) day after
deposit with a nationally recognized overnight delivery service, in
each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company: HomeCom Communications, Inc.
Fourteen Piedmont Center, Suite 100
3535 Piedmont Road
Atlanta, Georgia 30305
Facsimile: (404) 237-4646
With a copy to: Raymond L. Moss, Esq.
Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Facsimile: (770) 481-7210
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's counsel as set forth on the Schedule of
Buyers. Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
-15-
<PAGE> 16
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws. 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 in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other
jurisdiction.
e. This Agreement and the Securities Purchase Agreement
constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or
referred to herein and therein. This Agreement and the Securities
Purchase Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and
thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit and of and be binding upon the permitted
successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
h. This Agreement may be executed in two or more identical
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
facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
-16-
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
HOMECOM COMMUNICATIONS, INC.
By:
-----------------------------------
Name: Harvey W. Sax
Its: Chairman of the Board and Chief
Executive Officer
"BUYER"
CPR (USA), INC.
By:
-----------------------------------
Name: Steven S. Rogers
Title: Managing Director
"BUYER"
LIBERTYVIEW FUNDS, L.P.
By:
-----------------------------------
Name: Steven S. Rogers
Title:
"BUYER"
LIBERTYVIEW FUND, L.L.C.
By:
-----------------------------------
Name: Steven S. Rogers
Title:
-17-
<PAGE> 18
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER OF SERIES B
BUYER'S NAME ADDRESS/FACSIMILE NUMBER OF BUYER PREFERRED SHARES
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
c/o LibertyView Capital Management 62.5
CPR (USA), Inc. 101 Hudson Street, Suite 3700
Jersey City, NJ 07302
LibertyView Funds, L.P. c/o LibertyView Capital Management 50
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
c/o LibertyView Capital Management 12.5
LibertyView Fund, L.L.C. 101 Hudson Street, Suite 3700
Jersey City, NJ 07302
</TABLE>
<PAGE> 1
EXHIBIT 10.52
TRANSFER AGENT INSTRUCTIONS
HOMECOM COMMUNICATIONS, INC.
March 25, 1999
American Stock Transfer
40 Wall Street
New York, New York 10005
ATTN: CARLOS PINTO
Dear Mr. Pinto:
Reference is made to that certain Securities Purchase Agreement, of
even date herewith, by and among HomeCom Communications, Inc., a Delaware
corporation (the "COMPANY"), and each of the subscribers listed in Exhibit "A"
attached hereto (collectively, the "HOLDERS") pursuant to which the Company is
issuing to the Holders an aggregate of 125 shares of Series B Preferred Stock,
$.0001 par value, of the Company (the "PREFERRED SHARES"). This letter shall
serve as our irrevocable authorization and direction to you (provided that you
are the transfer agent of the Company at such time) to issue shares (the
"CONVERSION SHARES") of Common Stock, $.0001 par value (the "COMMON STOCK"), of
the Company to or upon the order of a Holder from time to time upon (i)
surrender to you of a properly completed and duly executed Conversion Notice, in
the form attached hereto as Exhibit I, which has been properly agreed and
acknowledged by the Company as indicated by the signature of a duly authorized
officer of the Company thereon and (ii) certificates representing Preferred
Shares being converted (or an indemnification undertaking with respect to such
shares in the case of their loss, theft or destruction). So long as you have
previously received: (i) written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares has been
declared effective by the U.S. Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 ACT"), and (ii) a copy
of such Registration Statement, Certificates representing the Conversion Shares
shall not bear any legend restricting transfer of the Conversion Shares thereby
and should not be subject to any stop-transfer restriction. However, if you have
not previously received (i) written confirmation from counsel to the Company
that a registration statement covering resales of the Conversion Shares has been
declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and (ii) a copy of such registration
statement, then the certificates representing the Conversion Shares shall bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A REASONABLY
<PAGE> 2
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT."
provided, however, that the Company may from time to time notify you to place
stop transfer restrictions on the certificates for the Conversion Shares in the
event a registration statement covering the Conversion Shares is subject to
amendment for events then current.
An opinion of counsel to the Company that the issuance of the
Conversion Shares to the Holders will be exempt from registration under the 1933
Act is attached hereto as Exhibit II.
Please be advised that the Holders are relying upon this letter as an
inducement to enter into the Securities Purchase Agreement and, accordingly,
each Holder is a third party beneficiary to these instructions.
Should you have any questions concerning this matter please contact me
at (404) 237-4646.
Very truly yours,
HOMECOM COMMUNICATIONS, INC.
By:
----------------------------------------
Name: Norm Smith
Its: Chief Financial Officer and Secretary
ACKNOWLEDGED AND AGREED:
TRANSFER AGENT
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Date:
------------------------------------
Enclosure
cc: Holders
<PAGE> 3
EXHIBIT "A"
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER OF SERIES B
BUYER'S NAME ADDRESS/FACSIMILE NUMBER OF BUYER PREFERRED SHARES
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
c/o LibertyView Capital Management 62.5
CPR (USA), Inc. 101 Hudson Street, Suite 3700
Jersey City, NJ 07302
LibertyView Funds, L.P. c/o LibertyView Capital Management 50
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
c/o LibertyView Capital Management 12.5
LibertyView Fund, L.L.C. 101 Hudson Street, Suite 3700
Jersey City, NJ 07302
</TABLE>
<PAGE> 4
EXHIBIT I
HOMECOM COMMUNICATIONS, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
HomeCom Communications, Inc. (the "CERTIFICATE OF DESIGNATIONS"). In accordance
with and pursuant to the Certificate of Designations, the undersigned hereby
elects to convert the number of shares of Series B Convertible Preferred Stock,
$.01 par value per share (the "SERIES B PREFERRED SHARES"), of HomeCom
Communications, Inc., a Delaware corporation (the "COMPANY"), indicated below
into shares of Common Stock, $.01 par value per share (the "COMMON STOCK"), of
the Company, by tendering the stock certificate(s) representing the share(s) of
Series B Preferred Shares specified below as of the date specified below.
The undersigned acknowledges that any sales by the undersigned of the securities
issuable to the undersigned upon conversion of the Series B Preferred Shares
shall be made only pursuant to (i) a registration statement effective under the
Securities Act of 1933, as amended (the "ACT"), or (ii) advice of counsel that
such sale is exempt from registration required by Section 5 of the Act.
Date of Conversion:
-------------------------------------
Number of Series B
Preferred Shares to be converted
-------------------------------------
Stock certificate no(s). of Series B
Preferred Shares to be converted:
-------------------------------------
Please confirm the following information:
Conversion Price:
-------------------------------------
Four Consecutive Days Comprising
Pricing Period and Prices:
-------------------------------------
Number of shares of Common
Stock to be issued:
-------------------------------------
<PAGE> 5
please issue the Common Stock into which the Series B Preferred Shares are being
converted in the following name and to the following address:
Issue to:(1)
-------------------------------------
-------------------------------------
Facsimile Number:
-------------------------------------
Authorization:
-------------------------------------
By:
----------------------------------
Title:
-------------------------------
Dated:
-------------------------------------
ACKNOWLEDGED AND AGREED:
HOMECOM COMMUNICATIONS, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Dated:
-------------------------------
- - --------------------
(1) If other than to the record holder of the Series B Preferred Shares,
any applicable transfer tax must be paid by the undersigned.
<PAGE> 6
EXHIBIT II
HOMECOM COMMUNICATIONS, INC.
Attached hereto.
<PAGE> 1
EXHIBIT 10.53
March 25, 1999
American Stock Transfer
40 Wall Street
New York, New York 10005
ATTN: CARLOS PINTO
Dear Mr. Pinto:
We have acted as counsel to HomeCom Communications, Inc.., a Delaware
corporation (the "COMPANY"), in connection with the Securities Purchase
Agreement, dated as of March 25, 1999, between the holders listed in Exhibit
"A," attached hereto (the "Holders) and the Company (the "AGREEMENT") and the
transactions contemplated therein including, without limitation, the issuance of
the Series B Convertible Preferred Stock (the "SERIES B SHARES").
In so acting, we have examined the Agreement, the Certificate of
Designations, Preferences and Rights With respect to the Series B Shares (the
"CERTIFICATE OF DESIGNATIONS"), the Irrevocable Transfer Agent Instructions (the
"TRANSACTION AGREEMENTS") and the Company's Certificate of Incorporation, as in
effect on the date hereof, and we have examined and considered such corporate
records, certificates and matters of law as we have deemed appropriate as a
basis for our opinions set forth below.
Based upon the foregoing and subject to the assumptions, limitations,
qualifications and exceptions stated herein, we are of the opinion that as of
the date hereof.
(1) Upon conversion of the Series B Preferred Shares in accordance with
the terms of the Certificate of Designation, the shares of the Company's common
stock to be issued to the holders thereof (the "CONVERSION SHARES") will be
validly issued, fully paid and non-assessable, and free from all taxes, liens
and charges with respect to the issue thereof.
(2) Based upon the representations, warranties and covenants set forth
in the Agreement, Conversion Shares may be issued to the Holders without
registration under the Securities Act of 1933, as amended.
(3) The certificates for the Conversion Shares should bear the
following legend:
<PAGE> 2
American Stock Transfer
March 25, 1999
Page 2
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER THE ACT."
These opinions are limited to the matters expressly stated herein and
are rendered solely your benefit and may not be quoted or relied upon for any
other purpose or by an other person.
The opinions expressed herein are subject to the following assumptions,
limitations, qualifications and exceptions:
(a) We have assumed the genuineness of all signatures, the authenticity
of all Transaction Agreements submitted to us as originals, the conformity with
originals of all Transaction Agreements submitted to us as copies, the
authenticity of certificates of public officials and the due authorization,
execution and delivery of all Transaction Agreements (except the due
authorization, execution and delivery by the Company of the Transaction
Agreements).
(b) We have assumed that the Holders each have the legal right,
capacity and power to enter into, enforce and perform all of its obligations
under the Transaction Agreements. Furthermore, we have assumed the due
authorization by the Holders of all requisite action and the due execution and
delivery of the Transaction Agreements by the Holders, and that the Transaction
Agreements are valid and binding upon the Holders and are enforceable against
the Holders in accordance with their terms.
Our examination of law relevant to the matters covered by this opinion
is limited to the laws of the State of Georgia, the Corporate Law of the State
of Delaware and the federal United States law specifically referred to herein,
and we express no opinion as to the effect on the matters covered by this
opinion of the laws of any other jurisdiction.
<PAGE> 3
American Stock Transfer
March 25, 1999
Page 3
This opinion in given as of the date hereof and we assume no
obligation, to update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention or any changes in laws
which may hereafter occur.
Very truly yours,
SIMS MOSS KLINE & DAVIS LLP
<PAGE> 4
EXHIBIT "A"
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER OF SERIES B
BUYER'S NAME ADDRESS/FACSIMILE NUMBER OF BUYER PREFERRED SHARES
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
c/o LibertyView Capital Management 62.5
CPR (USA), Inc. 101 Hudson Street, Suite 3700
Jersey City, NJ 07302
LibertyView Funds, L.P. c/o LibertyView Capital Management 50
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
c/o LibertyView Capital Management 12.5
LibertyView Fund, L.L.C. 101 Hudson Street, Suite 3700
Jersey City, NJ 07302
</TABLE>
<PAGE> 1
EXHIBIT 10.54
PLACEMENT AGENCY AGREEMENT
THIS AGREEMENT ("AGREEMENT"), made as of the 25th day of March, 1999,
by and between HomeCom Communications, Inc., a Delaware corporation ("COMPANY"),
and J.P. Turner & Company, L.L.C., a Georgia limited liability corporation (the
"AGENT").
WITNESSETH:
WHEREAS, the Company proposes to issue and sell to certain investors
(the "INVESTORS") 125 shares of its Series B Convertible Preferred Stock
("SERIES B PREFERRED STOCK") resulting in gross proceeds up to $2,500,000 (the
Series B Preferred Stock to be sold, hereinafter referred to as the
"SECURITIES") (the "OFFERING") not involving a public offering without
registration under the Securities Act of 1933, as amended (the "'33ACT"),
pursuant to exemptions from the registration requirements of the Act under
Regulation D promulgated under the Act ("REGULATION D"), as described below; and
WHEREAS, the Agent has offered to assist the Company in placing the
Securities on a "best efforts basis", and the Company desires to secure the
services of the Agent on the terms and conditions hereinafter set forth;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
promises, conditions and covenants herein contained, the parties hereto do
hereby agree as follows:
1. Engagement of Agent. The Company hereby appoints the Agent, as its
placement agent for the Offering, to sell up to $2,500,000 stated value of
securities (the "MAXIMUM SECURITIES") on a "best efforts basis," resulting in
gross proceeds to the Company of up to $2,500,000. The Offering shall be made in
two tranches (the "TRANCHES"). The Agent, subject to the terms and conditions
herein set forth, accepts such appointment and agrees to use its best efforts to
find purchasers for the Securities. The parties expressly acknowledge that the
Agent has not rendered financial advice to the Company in connection with the
Offering, but has only sought out qualified purchasers for the Offering on a
best efforts basis.
2. Representations and Warranties of the Company. In order to induce
the Agent to enter into this Agreement, the Company hereby represents and
warrants to and agrees with the Agent as follows:
2.1 Offering Documents. The Company and the Investors have prepared a
Securities Purchase Agreement, Registration Rights Agreement, and Certificate of
Designations, Preferences and Rights and certain exhibits thereto for the Series
B Preferred Stock in connection with the sale of the Securities, which documents
have been or will be sent to the Investors. As used in this Agreement, the term
"OFFERING DOCUMENTS" refers to and means the Securities Purchase Agreement,
Registration Rights Agreement, and Certificate of Designations, Preferences, and
Rights and certain exhibits thereto, for the Series B Preferred Stock and all
amendments, exhibits and supplements thereto, together with any other documents
which are provided to the Agent by, or approved for Agent's use by, the Company
for the purpose of this Offering.
2.2 Provision of Offering Documents. The Company shall deliver to the
Agent, without charge, as many copies of the Offering Documents as the Agent may
reasonably require for the purposes contemplated by this Agreement. The Company
authorizes the Agent, in connection with the Offering of the Securities, to use
the Offering Documents as from time to time amended or supplemented in
connection with the offering and sale of the Securities and in accordance with
the applicable provisions of the '33 Act and
<PAGE> 2
Regulation D. The Company consents to the Agent's distribution of the Offering
Documents to the Investor as a disclosure document about the Company, its
business, prospects, financial condition and other matters.
2.3 Accuracy of Offering Documents. The Offering Documents, at the time
of filing, conformed in all material respects with the requirements, to the
extent applicable, of the '34 Act and the applicable Rules and Regulations and
did not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. On the Closing Date (as hereinafter defined), the Offering Documents
will contain all statements which are required to be stated therein in
accordance with the '34 Act and the Rules and Regulations for the purposes of
the proposed Offering, and all statements of material fact contained in the
Offering Documents will be true and correct, and the Offering Documents will not
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
provided, however, that the Company does not make any representations or
warranties as to the information contained in or omitted from the Offering
Documents in reliance upon written information furnished on behalf of the Agent
or the Investors specifically for use therein.
2.4 Duty to Amend. If during such period of time as in the reasonable
opinion of the Agent or its counsel any Offering Documents relating to this
offering are required to be delivered under the '34 Act, any event occurs or any
event known to the Company relating to or affecting the Company shall occur as a
result of which the Offering Documents as then amended or supplemented would
include an untrue statement of a material fact, or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if it is necessary at any time
after the date hereof to amend or supplement the Offering Documents to comply
with the '34 Act or the applicable Rules and Regulations, the Company shall
forthwith notify the Agent thereof and shall prepare such further amendment or
supplement to the Offering Documents as may be required and shall furnish and
deliver to the Agent and to others, whose names and addresses are designated by
the Agent, all at the cost of the Company, a reasonable number of copies of the
amendment or supplement or of the amended or supplemented Offering Documents
which, as so amended or supplemented, will not contain an untrue statement of a
material fact or omit to state any material fact necessary in order to make the
Offering Documents not misleading in the light of the circumstances when it is
delivered to the Investor and which will comply in all respects with the
requirements (to the extent applicable) of the '34 Act and the applicable Rules
and Regulations.
2.5 Corporate Condition. The Company's condition is as described in its
Offering Documents, except for changes in the ordinary course of business and
normal year-end adjustments that are not in the aggregate materially adverse to
the Company. The Offering Documents, taken as a whole, present fairly the
business and financial position of the Company as of the Closing Date, except
for the current cash position of the Company.
2.6 No Material Adverse Change. Except as may be reflected in or
contemplated by the Offering Documents, subsequent to the dates as of which
information is given in the Offering Documents, and prior to the Closing Date,
there shall not have been any material adverse change in the condition,
financial or otherwise, or in the results of operations of the Company or in its
business taken as a whole.
2.7 No Defaults. Except as disclosed in the Offering Documents or in
writing to the Agent, the Company is not in default in any material respect in
the performance of any obligation, agreement or condition contained in any
material debenture, note or other evidence of indebtedness or any material
indenture or loan agreement of the Company. The execution and delivery of this
Agreement, and the
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<PAGE> 3
consummation of the transactions herein contemplated, and compliance with the
terms of this Agreement will not conflict with or result in a breach of any of
the terms, conditions or provisions of, or constitute a default under, the
Articles of Incorporation or By-Laws of the Company (in any respect that is
material to the Company), any material note, indenture, mortgage, deed of trust,
or other agreement or instrument to which the Company is a party or by which the
Company or any property of the Company is bound, or to the Company's knowledge,
any existing law, order, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality, agency or body, arbitration tribunal
or court, domestic or foreign, having jurisdiction over the Company or any
property of the Company. The consent, approval, authorization or order of any
court or governmental instrumentality, agency or body is not required for the
consummation of the transactions herein contemplated except such as may be
required under the '33 Act or under the Blue Sky or securities laws of any state
or jurisdiction.
2.8 Incorporation and Standing. The Company is, and at the Closing
Date will be, duly formed and validly existing in good standing as a corporation
under the laws of the State of Delaware and with full power and authority
(corporate and other) to own its properties and conduct its business, present
and proposed, as described in the Offering Documents; the Company, has full
power and authority to enter into this Agreement; and the Company is duly
qualified and in good standing as a foreign entity in each jurisdiction in which
the failure to so qualify would have a material adverse effect on the Company or
its properties.
2.9 Legality of Outstanding Securities. Prior to the Closing Date, the
outstanding securities of the Company have been duly and validly authorized and
issued, fully paid and nonassessable and conform in all material respects to the
statements with regard thereto contained in the Offering Documents.
2.10 Legality of Securities. The Securities, when sold and delivered,
will constitute legal, valid and binding obligations of the Company, enforceable
in accordance with the terms thereof, and shall be duly and validly issued and
outstanding, fully paid and nonassessable. The Securities, when issued, shall be
duly and validly issued and outstanding, fully paid and non-assessable.
2.11 Litigation. Except as set forth in the Offering Documents, there
is now, and at the Closing Date there will be, no action, suit or proceeding
before any court or governmental agency, authority or body pending or, to the
knowledge of the Company, threatened, which might result in judgements against
the Company not adequately covered by insurance or which collectively might
result in any material adverse change in the condition (financial or otherwise)
or business of the Company or which would materially adversely affect the
properties or assets of the Company.
2.12 Finders. The Company does not know of any outstanding claims for
services in the nature of a finder's fee or origination fees with respect to the
sale of the Securities hereunder for which the Agent may be responsible, and the
Company will indemnify the Agent from any liability for such fees by any party
who has a claim for such compensation from the Company and for which person the
Agent is not legally responsible.
2.13 Tax Returns. The Company has filed all federal and state tax
returns which are required to be filed, and has paid all taxes shown on such
returns and on all assessments received by it to the extent such taxes have
become due. All taxes with respect to which the Company is obligated have been
paid or adequate accruals have been set up to cover any such unpaid taxes.
-3-
<PAGE> 4
2.14 Authority. The execution and delivery by the Company of this
Agreement have been duly authorized by all necessary action, and this Agreement
is the valid, binding and legally enforceable obligation of the Company subject
to standard qualifications as to the availability of equitable remedies, the
effect of bankruptcy and other laws relating to the protection of debtors and
public policy opinions promulgated by the Commission with respect to
indemnification against liabilities under the '33 Act.
2.15 Actions by the Company. The Company will not take any action which
will impair the effectiveness of the transactions contemplated by this
Agreement.
3. Issue, Sale and Delivery of the Securities.
3.1 Deliveries of Securities. Certificates in such form that, subject
to applicable transfer restrictions as described in the Securities Purchase
Agreement, they can be negotiated by the Investor for the Securities, and
warrants representing the Agent's warrant compensation described in Section 3.4
below ("WARRANTS"), shall be delivered by the Company to the Escrow Agent, with
copies made available to the Agent for checking at least one (1) full business
day prior to the Closing Date. The certificates for the Securities and the
Warrants shall be delivered at the Closing (as defined hereinafter).
3.2 Escrow of Funds. Pursuant to the Escrow Agreement, a copy of which
is attached hereto as Exhibit "B" (the "ESCROW AGREEMENT"), executed by the
Company, the Agent and the escrow agent (the "ESCROW AGENT"), the Investor shall
place all funds for purchase of Securities and the Company will place the
Securities for the Closing in an escrow account set up by the Escrow Agent. Upon
the Closing, Escrow Agent shall release the subscription funds to the Company
and the certificates representing the Securities shall be released by the
Company to the Investor (the "CLOSING").
3.3 Closing Date. The Closing shall take place at the offices of Sims
Moss Kline & Davis LLP, 400 Northpark Town Center, Suite 310, 1000 Abernathy
Road, NE, Atlanta, Georgia 30328 at such time and date ("CLOSING DATE") as
mutually agreed by the Company and the Agent. The Closing Date may be changed by
mutual agreement of the Investor, the Company, and the Agent.
3.4 Agent's Compensation. The Company shall pay the Agent:
(a) A commission of eight percent (8.0%) of the gross
subscription proceeds (the "GROSS PROCEEDS") to be paid upon the
Closing on the Closing Date; and
(b) In addition to the fees and reimbursement of costs set
forth in Sections 3.4 and 3.5 of this Agreement, the Company shall
issue to the Agent warrants ("WARRANTS") to purchase shares of the
Company's Common Stock, in an amount equal to___________ Warrants for
each $1,000,000 of Gross Proceeds of each, which shall be exercisable
for the Company's Common Stock on a one-for-one basis at a price per
share equal to $___________ per share. The term of the Warrants shall
be five years. Agent understands that the Warrants shall not be
exercisable and no shares of Common Stock will be reserved for issuance
upon the exercise of the Warrants until completion of the Registration
Statement as described in the Registration Rights Agreement. The shares
of Common Stock issuable upon exercise of the Warrants shall have
registration rights as described in the Registration Rights Agreement,
set forth as an exhibit to the Securities Purchase Agreement; it being
understood that, if the SEC requires removal of the Warrants from any
registration statement in which the Warrants have a right by contract
to be included, the removal of the Warrants shall not constitute a
breach of contract by the Company, and the Company will use reasonable
best efforts
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<PAGE> 5
to include the Warrants (or underlying shares) in a registration
statement in a manner acceptable to the SEC.
3.5 Payment of Fees. The Escrow Agent shall be instructed to pay all
fees directly to the Agent from the Gross Proceeds of the Closing,
simultaneously with the transfer of Gross Proceeds to the Company.
4. Offering of the Securities on Behalf of the Company.
4.1 In offering the Securities for sale, the Agent shall offer them
solely as an agent for the Company, and such offer shall be made upon the terms
and subject to the conditions set forth in the Offering Documents. The Agent
shall commence making such offer as an agent for the Company as soon as possible
following delivery of the Offering Documents in a manner consistent with federal
or state securities laws.
4.2 The Agent will not make offers to sell the Securities to, or
solicit offers to subscribe for any Securities from, persons or entities that
are not "accredited investors" as defined in Regulation D.
5. Confidentiality/Protection of Clients.
5.1 The Company agrees to maintain the confidentiality of the Agent's
clients, except as required by applicable law. Such clients shall be those
entities which invest in the Offering and [NAME OTHER INVESTORS DIRECTLY
CONTACTED BY AGENT IN CONNECTION WITH THIS OFFERING] (the "CLIENTS"). For a
period of one year from the Closing, the Company will not solicit or enter into
any financing transaction with the Clients without the written consent of Agent
and payment to Agent compensation no less than the compensation to be paid to
Agent hereunder for raising a like amount.
5.2 In the event that Company breaches Section 5.1 of this Agreement,
Agent shall be entitled to receive compensation in the same proportion to the
financing done without Agent's participation as the compensation to Agent under
this Agreement bears to the financing raised in this Offering.
6. Covenants of the Company. The Company covenants and agrees with the
Agent that:
6.1 After the date hereof, the Company will not at any time, prepare
and distribute any amendment or supplement to the Offering Documents, of which
amendment or supplement the Agent shall not previously have been advised and the
Agent and its counsel furnished with a copy within a reasonable time period
prior to the proposed adoption thereof, or to which the Agent shall have
reasonably objected in writing on the ground that it is not in compliance with
the '34 Act or the Rules and Regulations (if applicable).
6.2 The Company will pay, whether or not the transactions contemplated
hereunder are consummated or this Agreement is prevented from becoming effective
or is terminated, all costs and expenses incident to the performance of its
obligations under this Agreement, including all expenses incident to the
authorization of the Securities and their issue and delivery to the Agent, any
original issue taxes in connection therewith, all transfer taxes, if any,
incident to the initial sale of the Securities, the fees and expenses of the
Company's counsel (except as provided below) and accountants, the cost of
reproduction and furnishing to the Agent copies of the Offering Documents as
herein provided; provided, however, that the Company shall not be responsible
for the payment of fees and costs incurred by Agent, including attorney's fees
of or any costs incurred by the Agent's counsel.
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<PAGE> 6
6.3 The Company shall be responsible for making any and all filings
required by the Blue Sky authorities and filings required by the laws of the
jurisdictions in which Investor is located, if any.
7. Indemnification.
7.1 The Company agrees to indemnify and hold harmless the Agent, each
person who controls the Agent within the meaning of Section 15 of the '33 Act
and the Agent's employees, accountants, attorneys and agents (the "AGENT'S
INDEMNITEES") against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the '33Act or
any other statute or at common law for any legal or other expenses (including
the costs of any investigation and preparation) incurred by them in connection
with any litigation, whether or not resulting in any liability, but only insofar
as such losses, claims, damages, liabilities and litigation arise out of or are
based upon any untrue statement of material fact contained in the Offering
Documents or any amendment or supplement thereto or any application or other
document filed in any state or jurisdiction in order to qualify the Securities
under the Blue Sky or securities laws thereof, or the omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, under the circumstances under which they were made, not
misleading, all as of the date of the Offering Documents or of such amendment as
the case may be; provided, however, that the indemnity agreement contained in
this Section 7.1 shall not apply to amount paid in settlement of any such
litigation, if such settlements are made without the consent of the Company, nor
shall it apply to the Agent's Indemnitees in respect to any such losses, claims,
damages or liabilities arising out of or based upon any such untrue statement or
alleged untrue statement or any such omission or alleged omission, if such
statement or omission was made in reliance upon information furnished in writing
to the Company by the Agent specifically for use in connection with the
preparation of the Offering Documents or any such amendment or supplement
thereto or any application or other document filed in any state or jurisdiction
in order to qualify the Securities under the Blue Sky or securities law thereof.
This indemnity agreement is in addition to any other liability which the Company
may otherwise have to the Agent's Indemnitees. The Agent's Indemnitees agree,
within ten (10) days after the receipt by them of written notice of the
commencement of any action against them in respect to which indemnity may be
sought from the Company under this Section 7.1, to notify the Company in writing
of the commencement of such action; provided, however, that the failure of the
Agent's Indemnitees to notify the Company of any such action shall not relieve
the Company from any liability which it may have to the Agent's Indemnitees on
account of the indemnity agreement contained in this Section 7.1, unless such
delay materially prejudices the rights of the Company. Upon such notice, the
Company shall be entitled to participate in (and, to the extent that the Company
shall wish, to direct) the defense thereof at its own expense, but such defense
shall be conducted by counsel of recognized standing and reasonably satisfactory
to the Agent's Indemnitees, defendant or defendants, in such litigation. The
Company agrees to notify the Agent's Indemnitees promptly of the commencement of
any litigation or proceedings against the Company or any of the Company's
officers or directors of which the Company may be advised in connection with the
issue and sale of any of the Securities and to furnish to the Agent's
Indemnitees, at their request, to provide copies of all pleadings therein and to
permit the Company's Indemnitees to be observers therein and apprise the Agent's
Indemnitees of all developments therein, all at the Company's expense.
7.2 The Agent agrees, in the same manner and to the same extent as set
forth in Section 7.1 above, to indemnify and hold harmless the Company, each
person who controls the Company within the meaning of Section 15 of the '33 Act
and the Company's and Company's employees, accountants, attorneys and agents
(the "COMPANY'S INDEMNITEES") with respect to (i) any statement in or omission
from the Offering Documents or any amendment or supplement thereto or any
application or other document filed in any state or jurisdiction in order to
qualify F the Securities under the Blue Sky or securities laws thereof, or any
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<PAGE> 7
information furnished pursuant to this Agreement, if such statement or omission
was made in reliance upon information furnished in writing to the Company by the
Agent on its behalf specifically for use in connection with the preparation
thereof or supplement thereto, or (ii) any untrue statement of a material fact
made by the Agent or its agents not based on statements in the Offering
Documents or authorized in writing by the Company, or with respect to any
misleading statement made by the Agent or its agents resulting from the omission
of material facts which misleading statement is not based upon the Offering
Documents, or information furnished in writing by the Company or, (iii) any
breach of any material representation, warranty or covenant made by the Agent in
this Agreement. The Agent's liability hereunder shall be limited to the amount
received by it for acting as Agent in connection with the Offering. The Agent
shall not be liable for amounts paid in settlement of any such litigation if
such settlement was effected without its consent. In case of the commencement of
any action in respect of which indemnity may be sought from the Agent, the
Company's Indemnitees shall have the same obligation to give notice as set forth
in Section 7.1 above, subject to the same loss of indemnity in the event such
notice is not so timely given, and the Agent shall have the same right to
participate in (and, to the extent that it shall wish, to direct) the defense of
such action at its own expense, but such defense shall be conducted by counsel
of recognized standing reasonably satisfactory to the Company. The Agent agrees
to notify the Company's Indemnitees and, at their request, to provide copies of
all pleadings therein and to permit the Company's Indemnitees to be observers
therein and apprise them of all the developments therein, all at the Agent's
expense.
8. Effectiveness of Agreement. This Agreement shall become effective
(i) at 9:00 a.m., New York City time, on the date hereof or (ii) upon release by
the Escrow Agent of the Securities for offering after the date hereof, whichever
shall last occur.
9. Termination.
9.1 This Agreement may be terminated by the Agent by notice to the
Company in the event that the Company shall have failed or been unable to comply
with any of the terms, conditions or provisions of this Agreement on the part of
the Company to be performed, complied with or fulfilled within the respective
times, if any, herein provided for, unless compliance therewith or performance
or satisfaction thereof shall have been expressly waived by the Agent in
writing.
9.2 This Agreement may be terminated by the Company by notice to the
Agent in the event that the Agent shall have failed or been unable to comply
with any of the terms, conditions or provisions of this Agreement on the part of
the Agent to be performed, complied with or fulfilled within the respective
times, if any, herein provided for, unless compliance therewith or performance
or satisfaction thereof shall have been expressly waived by the Company in
writing.
9.3 Any termination of this Agreement pursuant to this Section shall
be without liability of any character (including, but not limited to, loss of
anticipated profits or consequential damages) on the part of any party thereto,
except that the Company shall remain obligated to pay the costs and expenses
provided to be paid by it specified in Sections 3, 5, and 6; and the Company
and the Agent shall be obligated to pay, respectively, all losses, claims,
damages or liabilities, joint or several, under Section 7.1 in the case of the
Company and Section 7.2 in the case of the Agent.
10. Agent's Representations, Warranties, and Covenants. The Agent
represents and warrants to and agrees with the Company that:
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<PAGE> 8
10.1 Agent is a corporation duly incorporated and existing under the
laws of the state of Georgia Agent is registered with the Securities Exchange
Commission and the NASD.
10.2 There is not now pending or threatened against the Agent any
action or proceeding of which the Agent has been advised, either in any court of
competent jurisdiction, before the Commission or before any state securities
commission or the NASD, concerning the Agent's activities which would impair the
ability of the Agent to conduct the Offering as contemplated by this Agreement.
10.3 All corporate actions by Agent required for the execution,
delivery and performance of this Agreement have been taken. The execution and
delivery of this Agreement by the Agent, the observance and performance thereof,
and the consummation of the transactions contemplated herein or in the Offering
Documents do not and will not constitute a material breach of, or a material
default under, any instrument or agreement by which the Agent is bound, and does
not and will not, to the best of the Agent's knowledge, contravene any existing
law, decree or order applicable to it. This Agreement constitutes a valid and
binding agreement of Agent, enforceable in accordance with its terms.
10.4 Agent understands and acknowledges that the Securities are not
being registered under the '33 Act, and that the Offering is to be conducted
pursuant to Regulation D. Accordingly, in conducting its activities under this
Agreement Agent shall offer Securities only to "accredited investors," as
defined in Regulation D.
10.5 Agent's representations and warranties under this Section shall be
true and correct as of the Closing, and shall survive the Closing for a period
of one year.
11. Notices. Except as otherwise expressly provided in this Agreement:
11.1 Whenever notice is required by the provisions of this Agreement to
be given to the Company, such notice shall be in writing, addressed to the
Company, at:
If to Company: HomeCom Communications, Inc.
Fourteen Piedmont Center, Suite 100
3535 Piedmont Road
Atlanta, Georgia 30305
Fax No.: (404) 237-3060
Attn: Treasurer
With a Copy to: Raymond L. Moss, Esq.
Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Fax No.: (770) 481-7201
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<PAGE> 9
11.2 Whenever notice is required by the provisions of this Agreement to
be given to the Agent, such notice shall be given in writing, addressed to the
Agent, at:
If to the Agent: J.P. Turner & Company, L.L.C.
3340 Peachtree Road, Suite 450
Atlanta, Georgia 30326
Attn: Timothy McAfee, William Mello, John Clark
11.3 Any notice instructing the Escrow Agent to distribute monies or
Securities held in Escrow must be signed by authorized agents of both the
Company and the Agent in order to be valid.
12. Miscellaneous.
12.1 Benefit. This Agreement is made solely for the benefit of the
Agent and the Company, their respective officers and directors and any
controlling person referred to in Section 15 of the '33 Act and their respective
successors and assigns, and no other person may acquire or have any right under
or by virtue of this Agreement, including, without limitation, the holders of
any Securities. The term "successor" or the term"successors and assigns" as used
in this Agreement shall not include any purchasers, as such, of any of the
Securities.
12.2 Survival. The respective indemnities, agreements, representations,
warranties, covenants and other statements of the Company and the Agent, or the
officers, directors or controlling persons of the Company and the Agent as set
forth in or made pursuant to this Agreement and the indemnity agreements of the
Company and the Agent contained in Section 7 hereof shall survive and remain in
full force and effect for a period of three (3) years from the date hereof,
regardless of (i) any investigation made by or on behalf of the Company or the
Agent or any such officer, director or controlling person of the Company or of
the Agent; (ii) delivery of or payment for the Securities; or (iii) the Closing
Date, and any successor of the Company or the Agent or any controlling person,
officer or director thereof, as the case may be, shall be entitled to the
benefits hereof.
12.3 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Georgia without regard to the
principles of conflict of laws. Any dispute or controversy between the parties
arising in connection with this agreement or the subject matter contemplated by
this agreement shall be resolved by arbitration before a three-member panel of
the American Arbitration Association in accordance with the commercial
arbitration rules of said forum and the Federal Arbitration Act, 9 U.S.C. 1 et
seq., with the resulting award being final and conclusive. Said arbitrators
shall be empowered to award all forms of relief and damages claimed, including,
but not limited to, attorney's fees, expenses of litigation and arbitration,
exemplary damages, and prejudgment interest. The parties further agree that any
arbitration action between them shall be heard in Atlanta, Georgia.
12.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
12.5 Confidential Information. All confidential financial or business
information (except publicly available or freely usable material otherwise
obtained from another source) respecting either party will be used solely by the
other party in connection with the within transactions, be revealed only to
employees or contractors of such other party who are necessary to the conduct of
such transactions, and be otherwise held in strict confidence.
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<PAGE> 10
12.6 Public Announcements. Prior to the Closing Date, neither party
hereto will issue any public announcement concerning the within transactions
without the approval of the other party.
12.7 Finders. The parties acknowledge that no person has acted as a
finder in connection with the transactions contemplated herein and each will
agree to indemnify the other with respect to any other claim for a finder's fee
in connection with the offering.
12.8 Recitals. The recitals to this Agreement are a material part
hereof, and each recital is incorporated into this Agreement by reference and
made a part of this Agreement.
12.9 Independent Counsel. The Parties to this Agreement acknowledge
that Company has received independent counsel from the law firm of Sims Moss
Kline & Davis LLP which is acting as its counsel. Agent and each of the
Investors have been advised by Sims Moss Kline & Davis LLP to seek independent
advice with respect to the terms and conditions of this Agreement as well as all
of the Offering Documents before signing them. The parties hereby acknowledge
that Sims Moss Kline & Davis LLP has acted as counsel to Agent in other matters
unrelated to this Offering and consent to its representation herein on behalf of
the Company.
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement
to be executed as of the day and year first above written.
"THE COMPANY"
HOMECOM COMMUNICATIONS, INC.
By:
------------------------------------------
Harvey W. Sax
Chairman of the Board and Chief Executive
Officer
"THE AGENT"
J.P. TURNER & COMPANY, L.L.C.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
-10-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
HomeCom Communications, Inc. on Form S-3 (File No. 333-73123) and Forms S-8
(File Nos. 333-68187, 333-60435, 333-60437) of our report, dated March 29, 1999,
on our audits of the financial statements of HomeCom Communications, Inc. as of
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, which report is included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HOMECOM COMMUNICATIONS, INC. FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,541,932
<SECURITIES> 0
<RECEIVABLES> 776,174
<ALLOWANCES> 95,384
<INVENTORY> 0
<CURRENT-ASSETS> 3,227,518
<PP&E> 1,500,879
<DEPRECIATION> 703,616
<TOTAL-ASSETS> 4,565,490
<CURRENT-LIABILITIES> 961,793
<BONDS> 0
0
0
<COMMON> 507
<OTHER-SE> 3,447,942
<TOTAL-LIABILITY-AND-EQUITY> 4,565,490
<SALES> 351,363
<TOTAL-REVENUES> 3,292,410
<CGS> 228,694
<TOTAL-COSTS> 2,601,311
<OTHER-EXPENSES> 5,851,366
<LOSS-PROVISION> 167,675
<INTEREST-EXPENSE> 445,216
<INCOME-PRETAX> (1,204,140)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,204,140)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,204,140)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
