<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 5, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------
HOMECOM COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
----------------------------------
<TABLE>
<S> <C>
DELAWARE 7371
(State or other jurisdiction (Primary Standard Industrial
of incorporation Classification Code Number)
<CAPTION>
DELAWARE 58-2153309
of incorporation Identification No.)
<CAPTION>
(State or other jurisdiction (I.R.S. Employer
</TABLE>
------------------------
BUILDING 14, SUITE 100, 3535 PIEDMONT ROAD
ATLANTA, GEORGIA 30305
(404) 237-4646
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
----------------------------------
HARVEY W. SAX
CHIEF EXECUTIVE OFFICER
HOMECOM COMMUNICATIONS, INC.
BUILDING 14, SUITE 100, 3535 PIEDMONT ROAD
ATLANTA, GEORGIA 30305
(404) 237-4646
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------------------
COPIES TO:
RAYMOND L. MOSS, ESQUIRE
SIMS MOSS KLINE & DAVIS LLP
400 NORTHPARK TOWN CENTER
SUITE 310
1000 ABERNATHY ROAD
ATLANTA, GEORGIA 30328
(770) 481-7200
----------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective until September 28,
2001, or until such earlier time that all of the shares registered hereunder
have been sold.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE REGISTERED BE REGISTERED(1) OFFERING PRICE PER SHARE AGGREGATE OFFERING PRICE(2)
<S> <C> <C> <C>
Common Stock, par value $0.0001 per share 1,777,812 shares $3.390 $6,026,783
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common Stock, par value $0.0001 per share $1,675.45
</TABLE>
(1) Shares of Common Stock which may be offered by the selling stockholders
pursuant to this Registration Statement consist of shares issuable upon (i)
conversion of $3,500,000 principal amount of Series C Convertible Preferred
Stock and exercise of related warrants ("Series C Warrants") to purchase
59,574 shares of Common Stock and (ii) conversion of $1,500,000 principal
amount of Series D Convertible Preferred Stock and exercise of related
warrants ("Series D Warrants") to purchase 25,000 shares of Common Stock. In
connection with the sale of the Series C Convertible Preferred Stock and the
Series C Warrants, HomeCom agreed to file a registration statement covering
at least 1,244,444 shares of Common Stock issuable upon conversion of the
Series C Convertible Preferred Stock and exercise of the Series C Warrants.
In connection with the sale of the Series D Convertible Preferred Stock and
the Series D Warrants, HomeCom agreed to file a registration statement
covering at least 533,368 shares of Common Stock issuable upon conversion of
the Series D Convertible Preferred Stock and exercise of the Series D
Warrants. If all the Series C Convertible Preferred Stock had been converted
as of September 27, 1999, the conversion price would have been $3.15 per
share of Common Stock, and 1,111,111 shares of Common Stock would have been
issuable as a result of such conversion. An additional 59,574 shares of
Common Stock would be issuable if all the Series C Warrants were exercised,
for a total of 1,170,685 shares of Common Stock. If all the Series D
Convertible Preferred Stock had been converted as of September 27, 1999, the
conversion price would have been $3.15 per share of Common Stock, and
476,190 shares of Common Stock would have been issuable as a result of such
conversion. An additional 25,000 shares of Common Stock would be issuable if
all the Series D Warrants were exercised, for a total of 501,190 shares of
Common Stock. This Registration Statement covers further shares of Common
Stock in the event the actual number of shares issuable upon conversion of
the Series C Convertible Preferred Stock or Series D Convertible Preferred
Stock increases as a result of adjustments in their respective conversion
formulas. In addition to the shares set forth in the table, the amount to be
registered includes an indeterminate number of shares of Common Stock
issuable upon (i) conversion of the Series C Convertible Preferred Stock and
exercise of the Series C Warrants and (ii) conversion of the Series D
Convertible Preferred Stock and exercise of the Series D Warrants, in each
case solely as a result of stock splits, stock dividends and similar
transactions in accordance with Rule 416 of Regulation C under the
Securities Act of 1933, but not including additional shares that may be
issuable due to the operation of the conversion formulas applicable to the
Series C Convertible Preferred Stock or the Series D Convertible Preferred
Stock. Rule 416 does not apply to any additional shares that would be
issuable to holders of the Series C Convertible Preferred Stock or the
Series D Convertible Preferred Stock as a result of changes in the market
price of the Common Stock, and HomeCom is not relying on Rule 416 to
register any additional shares issuable as a result of the operation of the
conversion formulas applicable to the Series C Convertible Preferred Stock
or the Series D Convertible Preferred Stock.
(2) Estimated solely for the purpose of computing the amount of the registration
fee, based on the average of the high and low prices for the Company's
common stock as reported on the Nasdaq SmallCap Market-TM- on October 1,
1999, in accordance with Rule 457 under the Securities Act of 1933.
----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THIS REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
HOMECOM COMMUNICATIONS, INC.
1,777,812 SHARES OF COMMON STOCK
THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE RISK FACTORS DESCRIBED BEGINNING ON PAGE 4 IN
DETERMINING WHETHER TO PURCHASE SHARES OF HOMECOM.
These shares of common stock are being offered by the selling shareholder
identified on page 42 of this prospectus in the section entitled "Principal and
Selling Shareholders." The selling shareholder may sell these shares from time
to time:
- on the NASDAQ SmallCap Market-TM-;
- on the over-the-counter market;
- in transactions directly with market makers; or
- in privately negotiated transactions.
We will not receive any portion of the proceeds from the sale of these
shares.
HomeCom's common stock is quoted on the Nasdaq SmallCap Market-TM- under the
symbol HCOM.
The selling shareholder will determine the price of the shares independent
of HomeCom. On September 27, 1999, the last sale price of the common stock on
the Nasdaq SmallCap Market-TM- was $3.8125 per share.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
UNDERWRITING SELLING
PRICE TO PUBLIC DISCOUNTS AND COMMISSION SHAREHOLDERS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
PER SHARE..................
TOTAL...................... SEE TEXT ABOVE SEE TEXT ABOVE SEE TEXT ABOVE
</TABLE>
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
The date of this prospectus is October 5, 1999
<PAGE>
PROSPECTUS SUMMARY
HomeCom 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. Through September 7,
1999, HomeCom provided 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. In October, 1999, we sold our security consulting and
integration services operations for proceeds of approximately $1.35 million in
common stock in the non-public acquiror and $200,000 cash, and entered into a
joint marketing program with the acquiror.
As used in this prospectus, HomeCom refers to HomeCom Communications, Inc.,
a Delaware corporation, and its wholly owned subsidiaries. HomeCom was
incorporated on December 2, 1994, under the laws of Delaware. Our principal
executive offices are located at Building 14, Suite 100, 3535 Piedmont Road,
Atlanta, Georgia 30305 and our telephone number is (404) 237-4646.
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
DECEMBER 2, SIX MONTHS SIX MONTHS
(INCORPORATION) YEAR ENDED DECEMBER 31, ENDED ENDED
TO DECEMBER 31, -------------------------------------------- JUNE 30, JUNE 30,
1994 1995 1996 1997 1998 1999 1998
--------------- --------- --------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ -- $ 327,574 $2,298,855 $2,878,628 $3,292,410 $3,047,393 $1,779,580
Operating loss................... $ (17,452) (1,824) (580,865) (4,431,059) (5,327,942) (3,782,383) (2,309,845)
Net income (loss)................ (17,452) (5,440) (625,583) (4,881,181) (1,204,140) (3,758,626) 1,720,858
Basic earnings (loss) per
share.......................... $ (.01) $ (.00) $ (.34) $ (1.88) $ (.44) $ (.77) $ .29
Diluted earnings (loss) per
share.......................... $ (.01) $ (.00) $ (.34) $ (1.88) $ (.44) $ (.77) $ .25
Weighted average common shares
outstanding--basic............. 1,850,447 1,850,447 1,862,223 2,602,515 4,287,183 5,912,072 3,637,803
Weighted average common shares
outstanding--diluted........... 1,850,447 1,850,447 1,862,223 2,602,515 4,287,183 5,912,072 4,782,516
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------ JUNE 30,
1994 1995 1996 1997 1998 1999
--------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................. $ 8,455 $ 133,792 $(1,304,682) $2,721,930 $2,265,725 $ 584,263
Total assets.......................................... 10,254 247,382 1,726,522 4,664,779 4,565,490 10,547,150
Long-term obligations................................. -- 160,792 147,833 1,652,009 88,242 1,882,829
Total liabilities..................................... -- 242,568 2,347,191 2,708,007 1,117,041 2,640,800
Redeemable preferred stock............................ -- -- -- -- -- 1,659,323
Common stock and other stockholders' equity
(deficit)........................................... 10,254 4,814 (620,669) 1,956,772 3,448,449 6,247,027
</TABLE>
3
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
and Exchange Act, including certain statements contained under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
concerning HomeCom's expectations, beliefs, or strategies regarding increased
future revenues and operations, and certain statements contained under
"Business" concerning the development and marketing of customized internet
applications and security consulting services and the effect of market
conditions and competition. When used in this prospectus, the words "believes,"
"intends," "anticipates" and similar expressions are intended to identify
forward-looking statements. All forward-looking statements included in this
prospectus are based on information available to HomeCom on the date hereof, and
HomeCom assumes no obligation to update any such forward-looking statements.
Such statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected or implied by such
forward-looking statements. Such risks and uncertainties include the timing and
acceptance of new product introductions, the actions of HomeCom's competitors
and business partners, and those discussed under the caption "Risk Factors."
RISK FACTORS
WE WILL REQUIRE ADDITIONAL CAPITAL TO FINANCE OUR OPERATING LOSSES AND CAPITAL
REQUIREMENTS
We have incurred substantial operating losses, and we will require
substantial sums of cash in our operations for at least the next 12 months. We
may also need to spend significant amounts of cash to:
- fund continued growth, and offset operating losses;
- take advantage of unanticipated opportunities, such as major strategic
alliances or other special marketing opportunities, acquisitions of
complementary businesses or assets, or the development of new products; or
- react to unanticipated developments or competitive pressures.
On September 7, 1999, we announced a restructuring of our business
consistent with our core internet banking, insurance offerings, and professional
services operations. This restructuring is expected to result in a reduction of
expenses of approximately $3.5 million over the next twelve months, and a
reduction in our personnel by about 60 employees, to about 95 employees (after
taking into effect the anticipated divestiture of our security consulting and
integration division). There is no such assurance that such actions will be
sufficient. The Company currently only has sufficient working capital to last
until approximately December 31, 1999. If the Company exhausts its current
sources of capital and is not able to obtain additional capital, the Company
will be required to undertake additional steps to continue its operations. Such
steps may include further reduction of the Company's operating costs and other
expenditures, including additional 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 some or all 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 positive cash flows, the Company will
be forced to seek protection from its creditors. The aforementioned factors
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements included in this prospectus have been prepared
assuming the Company is a going concern and do not include any adjustments that
might result should the Company be unable to continue as a going concern.
4
<PAGE>
In September, 1999, HomeCom entered into a letter of intent with J.P. Turner
& Company, L.L.C. to consummate an underwritten public offering of $10 million
of the securities of the Company. There is no assurance that such public
offering will be successful, or that HomeCom will not exhaust its current
capital resources before the consummation of the offering.
WE HAVE A LIMITED OPERATING HISTORY
We have a limited operating history. Our growth plans are subject to the
risks, expenses, and uncertainties frequently encountered by young companies
that operate exclusively in the new and evolving markets for internet products
and services. If we fail to achieve our growth plans, our prospects, and the
market for our shares, will be adversely affected. Successfully implementing our
growth plans depends on the following factors:
- Our ability to attract, retain, and motivate qualified people;
- Our ability to upgrade and commercialize products and services;
- Our ability to effectively integrate the technology and operations of
businesses or technologies we have acquired; and
- Our development or acquisition of services or products equal or superior
to those of our competitors.
WE EXPECT TO INCUR CONTINUED LOSSES
As of June 30, 1999, we had an accumulated deficit of approximately $11.3
million. We expect to continue to experience significant losses for at least the
next 12 months. This will be primarily due to increased sales and marketing,
product development, customer service and support, and operating costs incurred
in support of our product and service offerings. If we cannot generate
sufficient revenues to offset our operating expenses, our business and operating
results will continue to be materially adversely affected.
OUR MARGINS MAY CONTINUE TO DECLINE DUE TO PRICE EROSION
The market for internet and intranet products and services is highly
competitive and is characterized by significant pressures to reduce prices,
incorporate new capabilities, and accelerate completion schedules. This increase
in competition has resulted in significant price competition, which in turn has
resulted in significant reductions in the average selling price of many of our
products and services, including our web site development and hosting services.
We have not been able to offset the effects of price reductions through an
increase in the number of our customers, higher revenue from enhanced services,
or cost reductions, and we expect that our margins may continue to decline. This
decline, if it continues, will negatively affect our results, and may negatively
affect the market for our shares. Our gross margins for each of the past two
years have been approximately 20%, which represents a significant decline from
the gross margins we achieved in 1996 of approximately 63%.
There are no substantial barriers to entry in our market, and we expect that
competition will continue to intensify. In addition, we compete with many other
companies that have longer operating histories, longer customer relationships,
and substantially greater financial, management, technical development, sales,
marketing, and other resources. Many nationally known companies and regional
local companies across the country are involved in Internet and intranet
applications, including the development and support of web sites and internet
applications, and the number of these companies is increasing.
5
<PAGE>
WE DEPEND UPON CONTINUED GROWTH IN USE OF THE INTERNET
Our future success is dependent upon continued growth in the use of the
internet and the web. The internet may not prove to be a viable commercial
marketplace for many reasons, including:
- lack of acceptable security technologies,
- potentially inadequate development of the necessary infrastructure, or
- timely development and commercialization of performance improvements.
If the internet continues to experience significant growth in the number of
users and level of services, the internet infrastructure may not be able to
support the demands placed upon it, and the performance and reliability of the
web may be adversely affected.
OUR STOCK PRICE MAY BE VOLATILE
The trading price of our shares has been, and may continue to be, subject to
wide fluctuations. During 1999, the closing sale prices of our shares on the
Nasdaq SmallCap Market-TM- has ranged from $3.50 to $9.6875. The stock price may
fluctuate in response to a number of events and factors such as:
- quarterly variations in operating results,
- announcements of technological innovations or new products and media
products by us or our competitors,
- changes in financial estimates and recommendations by securities analysts,
- the operating and stock price performance of other companies that
investors view as comparable, and
- news reports related to trends in our markets.
In addition, the stock market in general and the market prices for
internet-related companies in particular have experienced extreme volatility and
often have been unrelated to the operating performance of those companies. These
broad market and industry fluctuations may adversely affect the price of the
stock regardless of our operating performance.
WE MAY NOT PROPERLY MANAGE OUR GROWTH
Our growth has placed a significant strain on our managerial, operational
and financial resources. To manage our growth, we must continue to implement and
improve our operational and financial systems and to expand, train, and manage
our employee base. Our systems, procedures or controls may not be adequate to
support our operations. Our management may not be able to achieve the rapid
execution necessary to support our market opportunity. Any failure to
effectively manage growth could have a material adverse effect on our business,
operating results, or financial condition.
WE MAY NOT PROPERLY HANDLE THE RISKS ASSOCIATED WITH ACQUISITIONS
As part of our business strategy, we have completed several acquisitions and
expect to enter into additional business combinations to further our goal to
become a leading provider of internet software solutions for the financial
services industry. Acquisition transactions are accompanied by many risks, and
we may not be successful in addressing one or more of these risks. These risks
include:
- the difficulty of assimilating the operations and personnel of the
acquired companies;
- the difficulties of managing geographically separate business units;
6
<PAGE>
- the difficulty of incorporating acquired technology or content and rights
into our product and services;
- unanticipated expenses relating to technology integration;
- the maintenance of uniform standards, controls, procedures, and policies;
and
- the impairment of relationships with employees and customers as a result
of any integration or management changes.
Since February 1999, we have completed two acquisitions which have added
approximately 35 employees to HomeCom.
WE DEPEND ON KEY PERSONNEL
We depend upon the continued services of our senior management for our
continued success. The loss of any member of senior management, such as Harvey
Sax, Dan Delity, David Frank, or James Wm. Ellsworth, could have a serious
negative impact upon our business and operating results. We can provide no
assurances that we will be able to retain our senior management or other key
personnel. Although we have entered into employment agreements with each of our
executive officers that contain non-competition and nondisclosure provisions,
our ability to benefit from them is uncertain because these provisions are
typically limited in geographic scope and time, and may not effectively prohibit
competition due to the global nature of the internet.
OUR AVERAGE SALES CYCLE MAY LENGTHEN
Our development and implementation of interactive web sites and intranet
software applications involves a lengthy sales cycle, which can be as long as
six to nine months. Extensive web sites, development or licensing of our
products may also involve substantial commitment of capital by potential
customers as well as the attendant delays frequently associated with approving
larger capital expenditures and reviewing new technologies that affect key
operations. If our average sales cycle continues to lengthen, we will face
increased costs, potentially lower profit margins and a potential inability to
achieve our target and sales goals.
WE MAY INCUR LOSSES FROM DEFECTS IN OUR PRODUCTS AND SERVICES
Web site services and other services based on software and computing systems
frequently encounter development and completion delays. Software may contain
undetected errors or failures when introduced, especially in the case of web
sites when the volume of traffic on the site increases. Errors found in the
software, underlying web site, or other project may result in delays in
completion, commercial release, or acceptance of the software, web site, or
other project. In addition, we may incur unanticipated additional costs in order
to cure any defect or be obligated to refund money paid to us or pay for damages
caused by any delay or defect. Applications or products developed by us may
contain undetected errors or failures when first introduced. If software errors
are discovered after introduction, we could experience delays and lost revenues
during the period required to correct these errors. Despite our best efforts to
the contrary, errors may be found in new applications, products, or releases
after the commencement of installation or shipment. These problems can result in
losses, or in delays in receiving revenues.
WE MAY INCUR LOSSES FROM SECURITY RISKS
Our software and equipment is vulnerable to computer viruses or similar
disruptive problems caused by customers or other internet users. Computer
viruses or problems caused by third parties, such as hackers, could lead to
interruptions, delays, or termination of service to our customers. Third parties
could also potentially jeopardize security of confidential information stored in
our computer systems or our customers' computer systems by their inappropriate
use of the internet, which could cause losses to us and
7
<PAGE>
to our customers. Inappropriate use of the internet includes attempting to gain
unauthorized access to information or systems. Although we intend to continue to
implement security measures to prevent this, hackers have circumvented security
measures in the past, and may be able to circumvent our security measures or the
security measures of third parties in the future. Further, until more
comprehensive technologies are developed, the security and privacy concerns of
existing and potential customers may inhibit the growth of the internet service
industry in general and our customer base and revenue in particular. We do not
have errors and omissions, product liability, or other insurance to protect
against risks caused by computer viruses or other misuse of software or
equipment by third parties.
WE MAY NOT BE SUCCESSFUL IN PROTECTING OUR PROPRIETARY RIGHTS OR AVOIDING CLAIMS
THAT WE INFRINGED THE PROPRIETARY RIGHTS OF OTHERS
Our success depends in part upon our software and related documentation. We
principally rely on copyright, trade secret, confidentiality procedures, and
contract laws to protect our proprietary technology. The steps we have taken may
not be adequate to prevent misappropriation of our technology, and our
competitors may independently develop technologies that are substantially
equivalent or superior to our technologies. We have a registered service mark
for our logo and have applied for federal registration of the names HomeCom,
Post On the Fly-TM-, and Personal Internet Banker-TM-. In addition, the laws of
some foreign countries do not protect our proprietary rights to as great an
extent as the laws of the United States. Although we do not believe that the
software or trademarks we use or any of the other elements of our business
infringe on the proprietary rights of any third parties, third parties may
assert claims of infringement against us in the future and may succeed in
securing injunctive relief or money damages. We could incur substantial costs
and diversion of management resources in the defense of any claims relating to
proprietary rights, which could materially adversely affect our business,
financial condition, and results of operations.
THERE ARE A SUBSTANTIAL NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE
The market for the shares may be adversely affected as a result of sales of
a large number of shares in the market, or a perception that large sales may
occur. This could also limit HomeCom's ability to raise capital through
offerings of shares, or to effect acquisitions utilizing shares as part or all
of the purchase price.
HomeCom has 6,669,453 shares outstanding as of July 23, 1999. Of that
amount, 3,799,646 shares, or approximately 57%, will be freely tradable without
restriction or further registration under the Securities Act, except for any
shares purchased by affiliates of HomeCom, as that term is defined in Rule 144
under the Securities Act. That number includes 626,087 shares issued in
connection with a recently completed acquisition, and HomeCom has filed a
registration statement covering those shares. The holders of those shares have
agreed not to sell one-half, or 313,043, of such shares until June 24, 1999 and
to limit sales on a cumulative basis to no more than one-sixth of these 313,043
shares during each month for the following six months. These restrictions do not
apply in the event that the shares have traded above $10.00 per share on each of
the five trading days prior to any single sale, so long as the sale is made at a
price per share of at least $10.00. We have also issued 185,342 shares in
connection with a recently completed acquisition, and we have filed a
registration statement, which is not yet effective, covering 92,671, or
one-half, of those shares.
The remaining 2,869,807 shares, or approximately 43% of the outstanding
shares, may be sold in the public market only if registered or sold under an
exemption from registration such as Rule 144.
In addition, there are also the following shares that may become available
for resale in the public markets:
- There are outstanding warrants to acquire an aggregate of 468,125 shares
at a weighted average exercise price of $8.52 per share. The shares
issuable upon exercise of the warrants have been
8
<PAGE>
registered under the Securities Act, and will be available for resale upon
issuance following exercise of the warrants. Warrants to acquire an
additional 300,000 shares at an exercise price of $3.74 per share were
issued in conjunction with the acquisition of First Institutional
Marketing, Inc. ("FIMI") and certain of its affiliates. The shares
issuable upon exercise of these warrants have not been registered under
the Securities Act and are not currently available for resale upon
issuance following exercise of the warrants.
- There are outstanding options to purchase 892,069 shares under our
employee stock option plan at a weighted average exercise price of $4.91
per share, and 25,000 shares under our non-employee directors option plan.
As of July 31, 1999, 9,457 shares have been issued under our employee
stock purchase plan at a weighted average price of $2.64 per share. We
have filed a registration statement on Form S-8 under the Securities Act
to register the potential sale of 300,000 shares reserved for issuance
under our stock option plan and the 150,000 shares reserved for issuance
under our stock purchase plan. Except for shares held by our affiliates,
shares purchased under our stock option and purchase plans generally will
be available for resale in the public market.
- On March 25, 1999, we completed a private placement for cash of $2,500,000
principal amount of our series B convertible stock and related warrants to
purchase shares of common stock. Under the terms of the private placement
agreements, we filed a registration statement covering the resale of up to
1,280,000 shares of Common Stock issuable upon conversion of the series B
preferred stock and exercise of the warrants. If all the shares of series
B preferred stock were converted, and all the related warrants exercised,
as of August 13, 1999, HomeCom would be required to issue approximately
769,751 shares of common stock, or approximately 11.5% of the number of
shares of common stock outstanding as of August 13, 1999. The total number
of shares of common stock issuable upon such conversion and exercise will
vary, based upon the closing bid prices of HomeCom's common stock. The
terms of the series B preferred stock and the warrants, including the
conversion rights of the series B preferred stock, are more fully
described in this prospectus under "Description of Capital Stock," in
particular the subsections entitled "Series B Convertible Preferred Stock"
on page 45 and "Warrants" on page 56. Pursuant to certain registration
rights granted to the investors in the private placement, we were
obligated to pay penalties if the registration statement was not filed and
declared effective within specified time periods. We are not presently in
compliance with such provisions, and we have elected to pay such penalties
by issuing investors additional shares of common stock. As of September 3,
1999, such penalties amount to an aggregate of 18,163 shares of common
stock, which shares were included in the registration statement.
- On July 28, 1999, we completed a private placement for cash of $3,500,000
principal amount of our series C convertible preferred stock and related
warrants to purchase 59,574 shares of common stock. This prospectus covers
up to 1,244,444 shares of Common Stock issuable upon conversion of the
series C preferred stock and warrants. If all the shares of series C
preferred stock were converted, and all the related warrants exercised, as
of September 27, 1999, HomeCom would be required to issue approximately
1,111,111 shares of common stock, or approximately 16.7% of the number of
shares of common stock outstanding as of September 27, 1999. The total
number of shares of common stock issuable upon such conversion and
exercise will vary, based upon the closing bid prices of HomeCom's common
stock. The terms of the series C preferred stock and the warrants,
including registration rights of the holders of series C preferred stock,
are more fully described in the prospectus under "Description of Capital
Stock," in particular the subsections entitled "Series C Convertible
Preferred Stock" on page 49 and "Warrants" on page 56.
- On September 28, 1999, we completed a private placement for cash of
$1,500,000 principal amount of our series D convertible preferred stock
and related warrants to purchase 25,000 shares of common stock. If all the
shares of series D preferred stock were converted, and all the related
warrants exercised, as of September 27, 1999, HomeCom would be required to
issue approximately
9
<PAGE>
501,190 shares of common stock, or approximately 7.5% of the number of
shares of common stock outstanding as of September 27, 1999. The total
number of shares of common stock issuable upon such conversion and
exercise will vary, based upon the closing bid prices of HomeCom's common
stock. The terms of the series D preferred stock and the warrants,
including registration rights of the holders of series D preferred stock,
are more fully described in the prospectus under "Description of Capital
Stock," in particular the subsections entitled "Series D Convertible
Preferred Stock" on page 52 and "Warrants" on page 56.
PREFERRED STOCK HAS RIGHTS SENIOR TO THE SHARES
We have the right to issue up to 10,000,000 shares of preferred stock and to
fix the rights, preferences, privileges and restrictions, which include voting
rights, of the preferred stock without shareholder approval. There is presently
issued and outstanding 125 shares of series B preferred stock, 175 shares of
series C preferred stock and 75 shares of Series D preferred stock. The rights
of holders of common stock may be adversely affected by the rights of holders of
the preferred stock, including any preferred stock that may be issued in the
future. In addition, the issuance of additional shares of preferred stock could
make it more difficult for a third party to acquire control of HomeCom, even if
the change of control would be beneficial to shareholders.
WE HAVE ANTI-TAKEOVER PROVISIONS IN PLACE
Our restated certificate of incorporation provides that our board is divided
into three classes of directors with each class serving a staggered three-year
term. The division of the board of directors into three classes may discourage a
third party from making a tender offer or commencing a proxy contest to obtain
control of HomeCom, and may serve to maintain the incumbency of the present
board of directors.
THERE ARE LIMITATIONS ON THE LIABILITY OF OUR DIRECTORS AND OFFICERS
Our restated certificate of incorporation provides that our directors shall
have no personal liability for some breaches of their fiduciary duties. In
addition, our restated bylaws provide for mandatory indemnification of directors
and officers to the fullest extent permitted by Delaware law. These limitations
on personal liability do not apply to liabilities under the federal securities
laws. However these provisions may reduce the likelihood of derivative
litigation against directors and officers and may discourage stockholders from
bringing a lawsuit against directors and officers for a breach of their
fiduciary duties.
THERE ARE UNCERTAINTIES ASSOCIATED WITH GOVERNMENT REGULATION AND OTHER LEGAL
ISSUES
There are currently few laws or regulations directly applicable to access to
or commerce on the internet. Due to the increased popularity and the use of the
internet, it is possible that laws and regulations may be adopted, covering
issues such as:
- user privacy,
- defamation,
- pricing,
- taxation,
- content regulation,
- quality of products and services, and
- intellectual property ownership and infringement.
Legislation of this type could expose us to substantial liability. It could
also dampen the growth in use of the web, decrease the acceptance of the web as
a communications and commercial medium, or require us to incur significant
expense in complying with any new regulations. Other nations, including Germany,
have taken actions to restrict the free flow of material considered to be
objectionable on the web. The European Union has recently adopted privacy and
copyright directives that may impose additional burdens and costs on our
international operations. In addition, several telecommunication carriers,
including
10
<PAGE>
America's Carriers Telecommunications Association, are seeking to have
telecommunications over the web regulated by the Federal Communication
Commission in the same manner as other telecommunication services. Because the
growing popularity and use of the web has burdened the existing
telecommunications infrastructure, many areas with high web use have begun to
experience interruptions in phone service. Local telephone carriers, including
Pacific Bell, have petitioned the Federal Communications Commission to regulate
service providers and impose access fees. Increased regulation, or the
imposition of access fees, could substantially increase the cost of
communicating on the web and potentially decrease the demand for our products. A
number of proposals have been made at the federal, state, and local level that
would impose additional taxes on the sale of goods and services through the
internet. These proposals, if adopted, could substantially impair the growth of
electronic commerce and could adversely affect our opportunity to derive
financial benefit from the sale of goods and services through the internet.
THERE ARE POTENTIAL COMMERCE-RELATED LIABILITIES
We are offering and intend to continue to offer insurance and securities
products through the internet. These activities will expose us to a number of
additional risks and uncertainties, including:
- potential liabilities for wrongful or illegal activities that may be
conducted in connection with the sale of securities and insurance
products;
- consumer fraud and false or deceptive advertising or sales practices;
- breach of contract claims related to the sales of insurance and securities
products;
- claims that materials included in our sites infringe on third-party
patents, copyrights, trademarks or other intellectual property rights or
are libelous, defamatory, or breach third-party confidentiality or privacy
rights;
- claims relating to any failure to appropriately collect or remit sales or
other taxes arising from commerce transactions;
- claims that may be brought by customers as a result of losses resulting
from any down time or other performance failures in our services; and
- state laws limiting the sale of insurance and securities products.
Although we maintain liability insurance, insurance may not cover these claims
or may not be adequate. Even if the claims do not result in material liability,
investigating and defending claims of this type is expensive.
FAILURE TO OBTAIN YEAR 2000 COMPLIANCE MAY HAVE ADVERSE EFFECTS ON US
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 our financial
position and future operating results.
We rely primarily on industry standard operating systems and applications
for our internal systems rather than proprietary software, and based on review
of significant internal programs and systems, we have determined that they are
substantially year 2000 compliant. In addition, we are seeking confirmation from
our primary telecommunications service providers that they are developing and
implementing plans to become year 2000 compliant. Information we have received
so far has indicated that they 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, we have not undertaken an in-depth
evaluation of these providers in relation to the year 2000 issue. In addition,
we 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 our systems,
that failure could have a material adverse effect on our financial position and
future operating results. We are using internal resources to identify and
correct our systems for year 2000 compliance, and we expect any incremental
costs associated with addressing this issue to be minimal. We do not believe
that the costs of addressing year 2000 issues will be material to our future
operating results or financial position.
11
<PAGE>
MANAGEMENT AND SIGNIFICANT STOCKHOLDERS CAN EXERCISE INFLUENCE OVER HOMECOM
Based upon stock ownership as of August 12, 1999, our executive officers,
directors, and 5% stockholders and their affiliates own an aggregate of 38% of
our outstanding shares. As a result, these persons acting together will have the
ability to control all matters submitted to our shareholders for approval and to
control the management and affairs of HomeCom. This concentration of ownership
may have the effect of delaying or preventing a change in control of HomeCom,
impede a merger, consolidation, or takeover or other business combination, or
discourage a potential acquiror from attempting to obtain control. This
concentration of control could also have a negative effect on the market price
of your shares.
SELLING SHAREHOLDERS WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
The conversion of preferred shares in conjunction with this offering may
result in immediate and substantial dilution to the existing shareholders. To
the extent that currently outstanding options and warrants are exercised or
converted, there will be further dilution in your shares. Please refer to the
information above under "There Are a Substantial Number of Shares Eligible For
Future Sale."
WE MAY NOT MAINTAIN NASDAQ LISTING REQUIREMENTS
If we are unable to maintain the standards for continued listing, our shares
could be subject to delisting from the Nasdaq SmallCap Market-TM-. If our shares
were delisted, trading, if any, of our shares would be conducted in the
over-the-counter market on the OTC Bulletin Board established for securities
that do not meet the Nasdaq SmallCap Market-TM- listing requirements or in what
are commonly referred to as the pink sheets. As a result, investors may find it
more difficult to dispose of or to obtain accurate price quotations on the
shares. Under the currently effective criteria for continued listing of
securities on the Nasdaq SmallCap Market-TM-, a company must maintain $2,000,000
in net tangible assets, a minimum bid price of $1.00, and a public float of at
least $1,000,000.
THE SHARES MAY BECOME SUBJECT TO RISKS OF LOW PRICED STOCKS
In the absence of the shares being quoted in Nasdaq, or listed on an
exchange, trading in the shares would be covered by Rule 15g-9 promulgated under
the Securities Exchange Act of 1934, if our shares are a penny stock. The
applicability of this rule, if it occurs, could materially adversely affect the
ability of broker-dealers to sell our shares and the ability of purchasers in
this offering to sell their shares in the secondary market.
Under that rule, broker-dealers who recommend penny stocks to persons other
than established customers and accredited investors, who are generally investors
with net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 together with a spouse, must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction before the sale.
The SEC has adopted regulations that generally defined a penny stock to be
any equity security that has a market price of less than $5.00 per share.
However, exemptions to this rule include:
- an equity security listed on the Nasdaq Stock Market-TM-, and
- an equity security issued by an issuer that has:
- net tangible assets of at least $2,000,000, if the issuer has been in
continuous operation for three years,
- net tangible assets of at least $5,000,000, if the issuer has been in
continuous operation for less than three years, or
12
<PAGE>
- average revenue of at least $6,000,000 for the preceding three years.
Unless an exception is available, the regulations require the delivery,
before any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the associated risks.
ISSUANCE OF SHARES TO SELLING SHAREHOLDERS
SERIES C CONVERTIBLE PREFERRED STOCK AND WARRANTS
On July 28, 1999, we completed a private placement of $3,500,000 principal
amount of our series C convertible preferred stock and related warrants to
purchase our common stock. The series C preferred stock and warrants were sold
in a private placement in reliance on Rule 506 of the Securities Act of 1933,
which provides an exemption from registration for sales to accredited investors,
as defined by Rule 501 under Regulation D of the Securities Act. Under the terms
of the private placement, we agreed to file a registration statement under the
Securities Act covering a minimum of 1,244,444 shares of common stock issuable
upon conversion of the series C preferred stock and exercise of the warrants. We
are obligated to pay penalties if the registration statement is not filed and/or
declared effective within specified time periods.
The series C preferred stock has an initial stated value of $20,000 per
share, which increases at the rate of 6% per year. Each series C preferred share
is convertible, beginning 120 days following the date of issuance, at the option
of the holder, into a number of shares of common stock determined by dividing
the stated value by the lesser of (a) $5.875, and (b) 82.5% of the average of
the closing bid prices for the five trading days prior to the date of
conversion.
We may, at our option at any time after the 90(th) day following the
issuance of the series C preferred stock through July 22, 2001, prohibit holders
of the series C preferred stock from exercising any conversion rights for up to
90 days, provided that specified conditions are met. If we exercise that right,
we are required to compensate the holders of the series C preferred stock in
cash in an amount equal to 3% of the principal amount of the series C preferred
stock held by each holder for each thirty days that the prohibition is in
effect, pro-rated for partial months, or, at our option, deliver common stock in
payment of such amount, based on the average closing bid prices for the common
stock for the twenty trading days preceding the end of each calendar month
during the period conversion is prohibited.
The right of the holders of the series C preferred stock to convert their
shares is also subject to the following restrictions: (i) during the period
beginning on the issuance date through the following 120 days, each holder may
not convert more than 25% of the series C preferred stock purchased by such
holder; (ii) during the period beginning on the issuance date through the
following 150 days, each holder may not convert more than 50% of the series C
preferred stock purchased by such holder; and (iii) during the period beginning
on the issuance date through the following 180 days, each holder may not convert
more than 75% of the series C preferred stock purchased by such holder.
At any time after the issuance date, we have the right, in our sole
discretion, to redeem, from time to time, any or all of the series C preferred
stock; provided that specified conditions are met, including that we have cash,
credit or standby underwriting facilities available to fund the redemption. The
redemption price is calculated as (i) 105% of the original purchase price for
the first 30 days following the issuance date; (ii) 110% of the original
purchase price for the next 90 days and (iii) 120% of the original purchase
price after 120 days from the issuance date.
The warrants expire on July 27, 2004 and have an exercise price of $7.34 per
share, subject to adjustment under specified circumstances.
13
<PAGE>
SERIES D CONVERTIBLE PREFERRED STOCK AND WARRANTS
On September 28, 1999, we completed a private placement of $1,500,000
principal amount of our series D convertible preferred stock and related
warrants to purchase 25,000 shares of our common stock. The series D preferred
stock and warrants were sold in a private placement in reliance on Rule 506 of
the Securities Act of 1933, which provides an exemption from registration for
sales to accredited investors, as defined by Rule 501 under Regulation D of the
Securities Act. Under the terms of the private placement, we agreed to file a
registration statement under the Securities Act covering a minimum of 533,368
shares of common stock issuable upon conversion of the series D preferred stock
and exercise of the warrants. We are obligated to pay penalties if the
registration statement is not filed and/or declared effective within specified
time periods.
The series D preferred stock has an initial stated value of $20,000 per
share, which increases at the rate of 6% per year. Each series D preferred share
is convertible, beginning on the date of this prospectus, at the option of the
holder, into a number of shares of common stock determined by dividing the
stated value by the lesser of (a) $5.875, and (b) 82.5% of the average of the
closing bid prices for the five trading days prior to the date of conversion.
We may, at our option at any time after the 90(th) day following the
issuance of the series D preferred stock through September 28, 2001, prohibit
holders of the series D preferred stock from exercising any conversion rights
for up to 90 days, provided that specified conditions are met. If we exercise
that right, we are required to compensate the holders of the series D preferred
stock in cash in an amount equal to 3% of the principal amount of the series D
preferred stock held by each holder for each thirty days that the prohibition is
in effect, pro-rated for partial months, or, at our option, deliver common stock
in payment of such amount, based on the average closing bid prices for the
common stock for the twenty trading days preceding the end of each calendar
month during the period conversion is prohibited.
The right of the holders of the series D preferred stock to convert their
shares is also subject to the following restrictions: (i) during the period
beginning on the issuance date through the following 120 days, each holder may
not convert more than 25% of the series D preferred stock purchased by such
holder; (ii) during the period beginning on the issuance date through the
following 150 days, each holder may not convert more than 50% of the series D
preferred stock purchased by such holder; and (iii) during the period beginning
on the issuance date through the following 180 days, each holder may not convert
more than 75% of the series D preferred stock purchased by such holder.
At any time after the issuance date, we have the right, in our sole
discretion, to redeem, from time to time, any or all of the series D preferred
stock; provided that specified conditions are met, including that we have cash,
credit or standby underwriting facilities available to fund the redemption. The
redemption price is calculated as (i) 105% of the original purchase price for
the first 30 days following the issuance date; (ii) 110% of the original
purchase price for the next 90 days and (iii) 120% of the original purchase
price after 120 days from the issuance date.
The warrants expire on September 27, 2004 and have an exercise price of
$7.34 per share, subject to adjustment under specified circumstances.
USE OF PROCEEDS
The proceeds from the sale of the shares covered by this prospectus are
entirely for the benefit of the selling shareholders. We will not receive any
proceeds from the sale of the shares by the selling shareholders.
14
<PAGE>
PRICE RANGE OF COMMON STOCK
HomeCom's Common Stock is traded on the Nasdaq SmallCap-TM- Market under the
symbol "HCOM." The following table shows for the periods indicated the high and
low sale prices for the Common Stock as reported by the Nasdaq SmallCap-TM-
Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1997:
Second quarter (since May 8, 1997).............................................................. $ 7.25 $ 6.00
Third quarter................................................................................... 6.50 2.13
Fourth quarter.................................................................................. 15.56 2.63
1998:
First quarter................................................................................... 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................................................................................... 7.63 3.50
Second quarter.................................................................................. 9.69 5.00
Third quarter (through September 27, 1999)...................................................... 6.69 2.78
</TABLE>
On September 27, 1999, the last reported sale price of the shares as
reported by the Nasdaq SmallCap(TM) Market was $3.8125 per share. As of July 23,
1999, there were 67 holders of record of the shares.
15
<PAGE>
DIVIDEND POLICY
HomeCom has not paid any cash dividends on its capital stock to date.
HomeCom 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.
SELECTED FINANCIAL DATA
The following selected historical financial data have been derived from the
audited and unaudited financial statements of HomeCom. The data should be read
in conjunction with the financial statements, related notes and other financial
information included herein.
<TABLE>
<CAPTION>
DECEMBER 2
(INCORPORATION) YEAR ENDED DECEMBER 31, SIX MONTHS SIX MONTHS
TO DECEMBER 31, -------------------------------------------- ENDED JUNE 30, ENDED JUNE 30,
1994 1995 1996 1997 1998 1999 1998
--------------- --------- --------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS
DATA:
Net sales:
Service sales........... $ -- $ 327,574 $2,112,878 $2,792,306 $2,941,047 $ 2,952,930 $ 1,619,029
Equipment sales......... -- -- 185,977 86,322 351,363 94,463 160,551
--------------- --------- --------- ---------- ---------- -------------- --------------
Total net sales....... -- 327,574 2,298,855 2,878,628 3,292,410 3,047,393 1,779,580
--------------- --------- --------- ---------- ---------- -------------- --------------
Cost of sales:
Cost of services........ -- 59,871 715,377 2,254,200 2,372,617 1,903,090 1,042,298
Cost of equipment
sold.................. -- -- 128,938 68,974 228,694 65,165 99,392
--------------- --------- --------- ---------- ---------- -------------- --------------
Total cost of sales... -- 59,871 844,315 2,323,174 2,601,311 1,968,255 1,141,690
--------------- --------- --------- ---------- ---------- -------------- --------------
Gross profit.............. -- 267,703 1,454,540 555,454 691,099 1,079,138 637,890
--------------- --------- --------- ---------- ---------- -------------- --------------
Operating expenses:
Sales and marketing..... 1,045 124,253 962,200 1,499,397 1,392,306 1,637,397 595,237
Product development..... -- 20,239 78,887 514,655 677,590 350,579 220,421
General and
administrative........ 16,407 121,313 909,230 2,733,924 3,406,876 2,264,722 1,914,920
Depreciation and
amortization.......... -- 3,722 85,068 238,537 542,269 608,823 217,157
--------------- --------- --------- ---------- ---------- -------------- --------------
Total operating
expenses................ 17,452 269,527 2,035,405 4,986,513 6,019,041 4,861,521 2,947,735
--------------- --------- --------- ---------- ---------- -------------- --------------
Operating loss............ (17,452) (1,824) (580,865) (4,431,059) (5,327,942) (3,782,383) (2,309,845)
Other expenses (income):
Gain on sale of
division.............. -- -- -- -- (4,402,076) -- (4,402,076)
Interest expense, net... -- 3,469 51,272 543,420 445,216 16,153 438,529
Other expense (income),
net................... -- 147 (6,554) (93,800) (166,942) (39,910) (67,156)
--------------- --------- --------- ---------- ---------- -------------- --------------
Income (loss) before
income taxes............ (17,452) (5,440) (625,583) (4,881,181) (1,204,140) (3,758,626) 1,720,858
Income taxes.............. -- -- -- -- -- -- --
Net income (loss)......... (17,452) (5,440) (625,583) (4,881,181) (1,204,140) (3,758,626) 1,720,858
Preferred stock
dividend................ -- -- -- -- (666,667) (792,390) (666,667)
--------------- --------- --------- ---------- ---------- -------------- --------------
Net income (loss)
applicable to common
shareholders............ $ (17,452) $ (5,440) $(625,583) $(4,881,181) $(1,870,807) $ (4,551,016) $ 1,054,191
--------------- --------- --------- ---------- ---------- -------------- --------------
--------------- --------- --------- ---------- ---------- -------------- --------------
Basic earnings (loss) per
share................... $ (0.01) $ (0.00) $ (0.34) $ (1.88) $ (0.44) $ (0.77) $ 0.29
--------------- --------- --------- ---------- ---------- -------------- --------------
--------------- --------- --------- ---------- ---------- -------------- --------------
Diluted earnings (loss)
per share............... $ (0.01) $ (0.00) $ (0.34) $ (1.88) $ (0.44) $ (0.77) $ 0.25
--------------- --------- --------- ---------- ---------- -------------- --------------
--------------- --------- --------- ---------- ---------- -------------- --------------
Weighted average common
shares
outstanding--basic...... 1,850,447 1,850,447 1,862,223 2,602,515 4,287,183 5,912,016 3,637,803
--------------- --------- --------- ---------- ---------- -------------- --------------
--------------- --------- --------- ---------- ---------- -------------- --------------
Weighted average common
shares outstanding--
diluted................. 1,850,447 1,850,447 1,862,223 2,602,515 4,287,183 5,912,016 4,782,516
--------------- --------- --------- ---------- ---------- -------------- --------------
--------------- --------- --------- ---------- ---------- -------------- --------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------ JUNE 30,
1994 1995 1996 1997 1998 1999
--------- --------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Working capital (deficit)............................ $ 8,455 $ 133,792 $(1,304,682) $2,721,930 $2,265,725 $ 584,263
Total assets......................................... 10,254 247,382 1,726,522 4,664,779 4,565,490 10,547,150
Long-term obligations................................ -- 160,792 147,833 1,652,009 88,242 1,882,829
Total liabilities.................................... -- 242,568 2,347,191 2,708,007 1,117,041 2,640,800
Redeemable preferred stock........................... -- -- -- -- -- 1,659,323
Common stock and other stockholders' equity
(deficit).......................................... 10,254 4,814 (620,669) 1,956,772 3,448,449 6,247,027
</TABLE>
Selected quarterly financial data for the Company is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------
MARCH 31 JUNE 30
---------- ----------
<S> <C> <C> <C> <C>
1999:
Revenue:.................................................. $1,042,337 $2,005,056
Gross Profit.............................................. 365,612 795,757
Net income (loss) applicable to common shareholders....... (1,371,586) (2,387,039)
Basic and diluted earnings (loss) per share............... (0.26) (0.48)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ ------------
<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) applicable to common shareholders....... (1,569,630) 2,623,821 (1,616,316) (1,308,682)
Basic earnings (loss) per share........................... $ (0.51) $ 0.63 $ (0.33) $ (0.26)
Diluted earnings (loss) per share......................... $ (0.51) $ 0.54 $ (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 applicable to common shareholders................ (374,650) (917,148) (2,095,949) (1,493,434)
Basic and diluted earnings (loss) per share............... $ (0.19) $ (0.35) $ (0.71) $ (0.51)
</TABLE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Combined Statements of Operations for the
six month periods ended June 30, 1999 and 1998, and the year ended December 31,
1998, have been prepared to reflect adjustments to the Company's historical
results of operations to give effect to the acquisition of FIMI and Ganymede
Corporation ("Ganymede") and the divestitures of HostAmerica and its security
services division ("security") as if each transaction had occurred on January 1,
1998. A pro forma balance sheet is not included as each of the acquisitions and
the divestiture are reflected in HomeCom's June 30, 1999 balance sheet included
elsewhere in this Registration Statement.
These pro forma statements of operations have been prepared by the Company
based on the audited financial statements of FIMI and Ganymede for the year
ended December 31, 1998, and the unaudited interim financial statements of FIMI
for the period from January 1 through March 24, 1999 (date of acquisition) and
for the six-month period ended June 30, 1998, and of Ganymede for the period
from January 1 through April 23, 1999 (date of acquisition) and for the
six-month period ended June 30, 1998, included elsewhere in this Registration
Statement.
These pro forma statements are not necessarily indicative of the results of
operations which would have been attained had each of the acquisitions and the
divestiture been consummated on the dates indicated or which may be attained in
the future. These pro forma statements should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and notes thereto of
HomeCom, FIMI and Ganymede, included herein.
17
<PAGE>
HOMECOM COMMUNICATIONS, INC.
PRO-FORMA UNAUDITED COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO-FORMA PRO-FORMA
HOMECOM FIMI GANYMEDE HOSTAMERICA SECURITY ADJUSTMENTS AS ADJUSTED
----------- ----------- ----------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales................. $ 3,292,410 $ 3,972,049 $ 665,359 $ (533,159) $ (575,964) $ -- $ 6,820,695
Cost of Sales............. 2,601,311 3,168,026 511,278 (210,796) (642,976) -- 5,426,843
----------- ----------- ----------- ------------ ---------- ------------ -----------
Gross Profit.............. 691,099 804,023 154,081 (322,363) (67,012) -- 1,259,828
432,012(2)
Operating Expenses........ 6,019,041 883,180 205,180 (53,593) -- 1,044,168(1) 8,529,988
----------- ----------- ----------- ------------ ---------- ------------ -----------
Operating Income (Loss)... (5,327,942) (79,157) (51,099) (268,770) (67,012) (1,476,180) (7,270,160)
Other Expenses (Income),
Net..................... (4,123,802) (1,066) 18,150 -- -- -- (4,106,718)
----------- ----------- ----------- ------------ ---------- ------------ -----------
Income (Loss) Before
Income Taxes............ (1,204,140) (78,091) (69,249) (268,770) (67,012) (1,476,180) (3,163,442)
Income Taxes.............. -- -- -- -- -- -- --
----------- ----------- ----------- ------------ ---------- ------------ -----------
Net Income (Loss)......... (1,204,140) (78,091) (69,249) (268,770) (67,012) (1,476,180) (3,163,442)
Preferred Stock Dividend.. (666,667) -- -- -- -- -- (666,667)
----------- ----------- ----------- ------------ ---------- ------------ -----------
Income (Loss) Applicable
to Common
Shareholders............ (1,870,807) (78,091) (69,249) (268,770) (67,012) (1,476,180) (3,830,109)
----------- ----------- ----------- ------------ ---------- ------------ -----------
Basic and Diluted Loss Per
Share................... $ (0.44) $ (0.06) $ (0.37) $ -- -- $ -- $ (0.67)
----------- ----------- ----------- ------------ ---------- ------------ -----------
----------- ----------- ----------- ------------ ---------- ------------ -----------
Weighted Average Common
Shares Outstanding...... 4,287,183 1,252,174 185,342 -- -- -- 5,724,699
----------- ----------- ----------- ------------ ---------- ------------ -----------
----------- ----------- ----------- ------------ ---------- ------------ -----------
</TABLE>
18
<PAGE>
HOMECOM COMMUNICATIONS, INC.
PRO-FORMA UNAUDITED COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------
1999
---------------------------------------------------------------------------
PRO-FORMA
HOMECOM FIMI GANYMEDE HA SECURITY ADJUSTMENTS
----------- ---------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales......................................... $ 3,047,393 $ 682,933 $275,619 $ -- $(163,236) $ --
Cost of Sales..................................... 1,968,255 498,350 341,508 -- (414,633) --
----------- ---------- --------- --------- --------- -----------------
Gross Profit...................................... 1,079,138 184,583 (65,889 ) -- 251,397 --
Operating Expenses................................ 4,861,521 332,329 -- -- -- 405,046
----------- ---------- --------- --------- --------- -----------------
Operating Income (Loss)........................... (3,782,383) (147,746) (65,889 ) -- 251,397 (405,046)
Other Expenses (Income), Net...................... (23,757) -- 7,729 -- -- --
----------- ---------- --------- --------- --------- -----------------
Income (Loss) Before Income Taxes................. (3,758,626) (147,746) (73,618 ) -- 251,397 (405,046)
Income Taxes...................................... -- -- -- -- -- --
----------- ---------- --------- --------- --------- -----------------
Net Income (Loss)................................. (3,758,626) (147,746) (73,618 ) -- 251,397 (405,046)
Preferred Stock Dividend.......................... (792,390) -- -- -- -- --
----------- ---------- --------- --------- --------- -----------------
Income (Loss) Applicable to Common Shareholders... (4,551,016) (147,746) (73,618 ) -- 251,397 (405,046)
----------- ---------- --------- --------- --------- -----------------
----------- ---------- --------- --------- --------- -----------------
Basic Earnings (Loss) Per Share................... $ (0.77) $ (0.26) $ (0.61 ) $ -- -- $ --
----------- ---------- --------- --------- --------- -----------------
----------- ---------- --------- --------- --------- -----------------
Diluted Earnings (Loss) Per Share................. $ (0.77) $ (0.26) $ (0.61 ) $ -- $ --
----------- ---------- --------- --------- --------- -----------------
----------- ---------- --------- --------- --------- -----------------
Weighted Average Common Shares Outstanding
Basic........................................... 5,912,072 574,201 120,831 -- -- --
----------- ---------- --------- --------- --------- -----------------
----------- ---------- --------- --------- --------- -----------------
Weighted Average Common Shares Outstanding
Diluted......................................... 5,912,072 574,201 120,831 -- --
----------- ---------- --------- --------- --------- -----------------
----------- ---------- --------- --------- --------- -----------------
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------
1998
---------------------------------------------------------------------------
PRO-FORMA
HOMECOM FIMI GANYMEDE HA SECURITY ADJUSTMENTS
----------- ---------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales......................................... $ 1,779,580 $2,044,491 $368,256 $(533,159) $(289,973) $ --
Cost of Sales..................................... 1,141,690 904,170 372,067 (210,796) (274,034) --
----------- ---------- --------- --------- --------- -----------------
Gross Profit...................................... 637,890 1,140,321 (5,811 ) (322,363) (15,939) --
Operating Expenses................................ 2,947,735 1,100,252 -- (53,593) -- 738,090(1)(2)
----------- ---------- --------- --------- --------- -----------------
Operating Income (Loss)........................... (2,309,845) 40,069 (5,811 ) (268,770) (15,939) (738,090)
Other Expenses (Income), Net...................... (4,030,703) -- -- -- -- --
----------- ---------- --------- --------- --------- -----------------
Income (Loss) Before Income Taxes................. 1,720,858 40,069 (5,811 ) (268,770) (15,939) (738,090)
Income Taxes...................................... -- -- -- -- -- --
----------- ---------- --------- --------- --------- -----------------
Net Income (Loss)................................. 1,720,858 40,069 (5,811 ) (268,770) (15,939) (738,090)
Preferred Stock Dividend.......................... (666,667) -- -- -- -- --
----------- ---------- --------- --------- --------- -----------------
Income (Loss) Applicable to Common Shareholders... 1,054,191 40,069 (5,811 ) (268,770) (15,939) (738,090)
----------- ---------- --------- --------- --------- -----------------
----------- ---------- --------- --------- --------- -----------------
Basic Earnings (Loss) Per Share................... $ 0.29 $ 0.03 $ (0.03 ) $ -- -- $ --
----------- ---------- --------- --------- --------- -----------------
----------- ---------- --------- --------- --------- -----------------
Diluted Earnings (Loss) Per Share................. $ 0.25 $ 0.03 $ (0.03 ) $ -- $ --
----------- ---------- --------- --------- --------- -----------------
----------- ---------- --------- --------- --------- -----------------
Weighted Average Common Shares Outstanding
Basic........................................... 3,637,803 1,252,174 185,342 -- -- --
----------- ---------- --------- --------- --------- -----------------
----------- ---------- --------- --------- --------- -----------------
Weighted Average Common Shares Outstanding
Diluted......................................... 4,782,516 1,252,174 185,342 -- --
----------- ---------- --------- --------- --------- -----------------
----------- ---------- --------- --------- --------- -----------------
<CAPTION>
PRO-FORMA
AS ADJUSTED
-----------
<S> <C>
Net Sales......................................... $3,842,709
Cost of Sales..................................... 2,393,480
-----------
Gross Profit...................................... 1,449,229
Operating Expenses................................ 5,598,896
-----------
Operating Income (Loss)........................... (4,149,667 )
Other Expenses (Income), Net...................... (16,028 )
-----------
Income (Loss) Before Income Taxes................. (4,133,639 )
Income Taxes...................................... --
-----------
Net Income (Loss)................................. (4,133,639 )
Preferred Stock Dividend.......................... (792,390 )
-----------
Income (Loss) Applicable to Common Shareholders... (4,926,029 )
-----------
-----------
Basic Earnings (Loss) Per Share................... $ (0.75 )
-----------
-----------
Diluted Earnings (Loss) Per Share................. $ (0.75 )
-----------
-----------
Weighted Average Common Shares Outstanding
Basic........................................... 6,607,104
-----------
-----------
Weighted Average Common Shares Outstanding
Diluted......................................... 6,607,104
-----------
-----------
PRO-FORMA
AS ADJUSTED
-----------
<S> <C>
Net Sales......................................... $3,369,195
Cost of Sales..................................... 1,935,097
-----------
Gross Profit...................................... 1,434,098
Operating Expenses................................ 4,732,484
-----------
Operating Income (Loss)........................... (3,298,386 )
Other Expenses (Income), Net...................... (4,030,703 )
-----------
Income (Loss) Before Income Taxes................. 732,317
Income Taxes...................................... --
-----------
Net Income (Loss)................................. 733,317
Preferred Stock Dividend.......................... (666,667 )
-----------
Income (Loss) Applicable to Common Shareholders... 65,650
-----------
-----------
Basic Earnings (Loss) Per Share................... $ 0.01
-----------
-----------
Diluted Earnings (Loss) Per Share................. $ 0.01
-----------
-----------
Weighted Average Common Shares Outstanding
Basic........................................... 5,075,319
-----------
-----------
Weighted Average Common Shares Outstanding
Diluted......................................... 6,220,032
-----------
-----------
</TABLE>
(1) To record amortization of the intangibles of FIMI assuming the acquisition
had been completed on January 1, 1998. Intangible assets are being amortized
over approximately 3 years, resulting in annual amortization expense of
$1,044,168.
(2) To record amortization of the intangibles of Ganymede assuming the
acquisition had been completed on January 1, 1998. Intangible assets are
being amortized over 3 years, resulting in annual amortization expense of
$432,012.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, some matters discussed
in this prospectus 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 HomeCom's actual results and experience to differ
materially from the anticipated results or other expectations expressed in
HomeCom's forward-looking statements. Reference is made in particular to the
discussions set forth in HomeCom's Annual Report on Form 10-K/A for the year
ended December 31, 1998, HomeCom's Quarterly Report on Form 10-Q for the
quarterly periods ended March 31, 1999 and June 30, 1999, and 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 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 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.
HomeCom's revenues and operating results have varied substantially from
period to period, and should not be relied upon as an indication of future
results. HomeCom 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 HomeCom to pay underutilized employees and could therefore have a
material adverse effect on HomeCom's results of operations, financial condition,
and cash flows.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
NET SALES. Net sales increased 71.2% from $1,779,580 in the first six
months of 1998 to $3,047,393 in the first six months of 1999. Revenues from
service sales increased 82.4% from $1,619,029 in the first six months of 1998 to
$2,952,930 in the first six months of 1999. This increase of $1,333,901 is
primarily attributable to increases in custom application development revenues
of approximately $736,000, software product sales of approximately $80,000, and
insurance sales of approximately $893,000 from the FIMI acquisition, offset by
lower security services revenue of approximately $78,000 and lower hosting
revenues of approximately $309,000 due to the sale of HostAmerica in June 1998.
Revenue from equipment sales decreased from $160,551 in the first six months of
1998 to $94,463 in the first six months of 1999. This decrease of $66,088 was
attributable to decreased 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
20
<PAGE>
services increased from $1,042,298, or 58.6% of revenues in the first six months
of 1998 to $1,903,090, or 62.4% of revenues in the first six months of 1999.
This increase reflects the FIMI acquisition, as well as 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.
GROSS PROFIT. Gross profit increased by $441,248 from $637,890 in the first
six months of 1998 to $1,079,138 in the first six months of 1999. Gross profit
margins were 35.4% during the first six months of 1999, compared to 35.8% during
the first six months of 1998.
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 increased 175.1% from $595,237 in 1998 to $1,637,397 in 1999. This
increase was primarily attributable to commissions on insurance sales due to the
FIMI acquisition, as well as increased advertising, public relations, and
marketing costs. As a percentage of net sales, these expenses increased from
33.4% in 1998 to 53.7% in 1999.
PRODUCT DEVELOPMENT. Product development costs consist of personnel costs
required to conduct HomeCom'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 HomeCom's industry. Total expenditures for product
development were $350,579, or 11.5% of net sales in the first six months of
1999. This compares to total product development expenditures of $220,421, or
12.4% of sales in the first six months of 1998.
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
$1,914,920 in the first six months of 1998 to $2,264,722 in the first six months
of 1999. As a percentage of net sales, these expenses decreased from 107.6% in
the first six months of 1998 to 74.3% in the first six months of 1999, due
primarily to increases in revenues without proportional increases in general and
administrative expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization includes
depreciation and amortization of computers, network equipment, office equipment,
equipment under capital leases, and intangible assets. Depreciation and
amortization increased from $217,157 in the first six months of 1998 to $608,823
in the first six months of 1999, reflecting increased expenditures on capital
equipment and amortization of intangible assets associated with the acquisitions
of First Institutional Marketing Inc. and Ganymede Corporation.
OTHER INCOME. During the six months ended June 30, 1998, HomeCom recorded a
gain on the sale of its HostAmerica division of $4,402,076.
INTEREST EXPENSE. Interest expense decreased from $438,529 in the first six
months of 1998 to $16,153 during the first six months of 1999, principally
reflecting amortization of the discount ($122,778) and debt issue costs
($283,754) incurred in 1998 for HomeCom's 5% convertible debentures issued in
September 1997.
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.
21
<PAGE>
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
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 HomeCom'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 HomeCom'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 HomeCom'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 The Insurance Resource Center acquisition.
OTHER INCOME. During 1998, HomeCom recorded a gain on the sale of its
HostAmerica division of $4,402,076 (see Note 9 to the Financial Statements
included in this prospectus).
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.
22
<PAGE>
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 HomeCom'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, HomeCom 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 primarily reflects increased
costs incurred by HomeCom 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, HomeCom 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 HomeCom'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, HomeCom
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
In June 1998, the Financial Accounting Standards Board (the "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 HomeCom
anticipates that, due to its limited use of derivative instruments, the adoption
of FAS 133 will not have a significant effect on HomeCom's results of operations
or its financial position.
In June 1999, the FASB issued Statement of Financial Accounting Standards
No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement
23
<PAGE>
No. 133 ("FAS 137"). FAS 137 defers the effective date of FAS 133 until fiscal
quarters beginning after June 15, 2000 (January 1, 2001 for HomeCom).
LIQUIDITY AND CAPITAL RESOURCES
HomeCom has substantially limited sources of capital. As of June 30, 1999,
HomeCom had net working capital of approximately $600,000. Management has
undertaken steps to address HomeCom's ongoing cash requirements including
concentrating HomeCom's market focus, identifying additional operational and
administrative efficiencies, and actively managing working capital. HomeCom
intends to continue to raise additional capital through additional debt and
equity offerings.
Because HomeCom expects to continue to incur substantial operating losses,
HomeCom will continue to use substantial sums of cash in its operations for an
indefinite period. Accordingly, HomeCom will be required to obtain additional
capital. No assurance can be given that HomeCom will be successful in its
efforts to obtain additional capital, or that capital will be available on terms
acceptable to HomeCom or on terms that will not significantly dilute the
interests of existing stockholders. In September 1999, HomeCom announced that it
had entered into a letter of intent with J.P. Turner & Company, L.L.C. to
consummate an underwritten public offering of $10 million of the securities of
HomeCom. There is no assurance that such public offering will be successful, or
that HomeCom will not exhaust its current capital resources before the
consummation of the offering.
On September 7, 1999, we announced a restructuring of our business
consistent with our core internet banking, insurance offerings, and professional
services operations. This restructuring is expected to result in a reduction of
expenses of approximately $3.5 million over the next twelve months, and a
reduction in our personnel by about 60 employees, to about 95 employees (after
taking into effect the anticipated divestiture of our security consulting and
integration division). There is no such assurance that such actions will be
sufficient. HomeCom currently only has sufficient working capital to last until
approximately December 31, 1999. If HomeCom exhausts its current sources of
capital and is not able to obtain additional capital, HomeCom will be required
to undertake additional steps to continue its operations. Such steps may include
further reduction of HomeCom's operating costs and other expenditures, including
additional reductions of personnel and suspension of salary increases and
capital expenditures. If such measures are not sufficient, HomeCom may elect to
implement other cost reduction actions as HomeCom may determine are necessary
and in the Company's best interests, including the possible sale of some or all
of HomeCom's business lines. Any such actions undertaken may limit HomeCom'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 HomeCom exhausts its sources of capital, and
subsequent cost reduction measures are not sufficient to allow HomeCom to
achieve positive cash flows, HomeCom will be forced to seek protection from its
creditors. The aforementioned factors raise substantial doubt about HomeCom's
ability to continue as a going concern. The financial statements included in
this prospectus have been prepared assuming HomeCom is a going concern and do
not include any adjustments that might result should HomeCom be unable to
continue as a going concern.
Net cash used in operating activities was $3,471,778 for six months ended
June 30, 1999. HomeCom 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, HomeCom 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 HomeCom 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, HomeCom completed the issuance of an aggregate $1.7 million
principal amount of HomeCom's 5% convertible debentures due September 22, 2000.
Net proceeds from the sale of the debentures was approximately $1.5 million. In
December 1997, HomeCom issued 20,000 shares of series A preferred stock for
aggregate net proceeds of approximately $1.8 million. During 1998, HomeCom's 5%
convertible debentures and its series A preferred stock were converted into
961,460 and 711,456 shares of common
24
<PAGE>
stock, respectively. In June 1998, HomeCom sold its HostAmerica division to Sage
Acquisition Corp., for net proceeds of approximately $4,500,000. In March 1999,
HomeCom issued 125 shares of its series B preferred stock for aggregate net
proceeds of approximately $2.3 million. On July 28, 1999, HomeCom sold 175
shares of its series C preferred stock for net proceeds of approximately $3.3
million. On September 28, 1999, HomeCom sold 75 shares of its series D preferred
stock for net proceeds of approximately $1.5 million.
HomeCom spent $252,793 and $240,831 during the six months ended June 30,
1999 and 1998, respectively, for the purchase of capital equipment. These
amounts were expended primarily for computer equipment, communications equipment
and software necessary for HomeCom to increase its presence in the internet and
intranet applications marketplace. HomeCom's commitments as of December 31, 1998
consist primarily of leases on its Atlanta, Vienna, Virginia, Houston, Texas,
Chicago, and New York City facilities.
Accounts receivable, net of allowance for doubtful accounts, totaled
$1,250,644 as of June 30, 1999. Trade receivables are monitored by HomeCom
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 HomeCom. 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 HomeCom.
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 HomeCom's
financial position and future operating results. HomeCom primarily relies on
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, HomeCom 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, HomeCom has not undertaken an in-depth
evaluation of such providers in relation to the year 2000 issue. In addition,
HomeCom 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 HomeCom's
systems, that failure could have a material adverse effect on HomeCom's
financial position and future operating results. HomeCom 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. HomeCom does not believe that the costs of addressing year 2000 issues
will be material to its financial position or future operating results.
25
<PAGE>
BUSINESS
GENERAL
HomeCom 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 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 150 full-time employees and occupies approximately 41,000 square
feet of office space with offices in Atlanta, Houston, Chicago, 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. Through September 7, 1999 HomeCom provided
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. In
September, 1999, we announced that we expect to divest our security consulting
and integration services operations for proceeds of approximately $1.35 million
in common stock in the non-public acquiror and $200,000 cash, and to enter into
a joint marketing program with the acquiror.
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's Software Products 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.
26
<PAGE>
- 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'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.
and affiliated companies, which (i) provide innovative insurance products
and marketing programs for the commercial banking industry, (ii)
introduce banks to the sale of insurance and investment products, and
(iii) train bank personnel to market and sell leading insurance and
investment products to their customers. The Company has combined First
Institutional Marketing and InsureRate-TM- to provide integrated
insurance offerings. InsureRate-TM- is the electronic distribution arm of
First Institutional Marketing.
- 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.
- 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.
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. In
September, 1999, we announced that we expect to divest our security
consulting and integration services operations for proceeds of
approximately $1.35 million in common stock of the non-public acquiror and
$200,000 in cash, and to enter into a joint marketing program with the
acquiror.
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. HomeCom works closely with its customers to analyze and design
internet-based software solutions that facilitate the
27
<PAGE>
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. HomeCom plans to
leverage this knowledge to develop additional internet-enabled applications
targeted for the financial services industry.
HomeCom's staff of 32 full-time software engineers design and develop custom
applications and software products. HomeCom's software engineers have experience
with various computer operating systems, including Sun Solaris, SGI's IRIX,
Windows NT, Digital 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. HomeCom'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, HomeCom acquired all of the outstanding capital stock of
The Insurance Resource Center, Inc. for 351,391 shares of HomeCom's common
stock. The Insurance Resource Center provides Internet development and hosting
services to the insurance industry and was incorporated into HomeCom's FAST
group.
On June 9, 1998, HomeCom sold substantially all of the assets of its
HostAmerica Internet network outsourcing services division to Sage Acquisition
Corp. for cash of $4,250,000 and Sage's assumption of approximately $250,000 of
unearned revenue. HomeCom recorded a gain on the sale of approximately
$4,402,000. This transaction allowed HomeCom to further consolidate its business
focus on the financial services market.
On November 6, 1998, HomeCom signed a definitive agreement and plan of
merger to acquire, among other things, all of the outstanding shares of the
First Institutional Marketing companies for 1,252,174 shares of common stock. In
addition, HomeCom entered into employment agreements for an initial term of 3
years with the three principals of First Institutional Marketing, calling for
them to continue in their current roles for the acquired companies. On March 24,
1999, HomeCom completed this acquisition.
On April 23, 1999, HomeCom acquired all the outstanding shares of Ganymede
Corporation for total consideration of 185,342 shares of common stock and
$100,000 cash. Ganymede is a Chicago-based web site developer for financial
institutions. In addition, the Company entered into employment agreements with
the three principals of Ganymede, calling for them to continue in their current
roles for the acquired company.
In October, 1999, we sold our security consulting and integration services
operations for proceeds of approximately $1.35 million in common stock in the
non-public acquiror and $200,000 cash, and entered into a joint marketing
program with the acquiror.
HomeCom 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, HomeCom has not entered into any additional binding agreements or
commitments. Moreover, HomeCom has extremely limited sources of cash.
Consequently, HomeCom has limited resources available to complete an acquisition
and no assurance can be given that HomeCom will be able to successfully complete
any additional acquisitions.
28
<PAGE>
SALES AND MARKETING
HomeCom's products and services have been developed to serve the needs of
the financial services market, including banking, insurance, and securities
brokerage. HomeCom markets its products and services through its direct sales
force, print advertising and its own Web site. HomeCom also generates customer
leads through its business partner relationships with leading technology
companies. HomeCom also utilizes traditional print and media marketing
strategies to enhance Company and product name recognition.
In February 1999, HomeCom and USA TODAY 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.
COMPETITION
The market for specialized internet applications is highly competitive, and
HomeCom expects that this competition will intensify in the future. In providing
specialized software application design and development, HomeCom 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 HomeCom. HomeCom 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 HomeCom's custom software application services.
HomeCom'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.
HomeCom 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 HomeCom. HomeCom competes on the basis of creative talent, price, reliability
of services, and responsiveness. Many of HomeCom's current and prospective
competitors have substantially greater financial, technical, marketing and other
resources than HomeCom. HomeCom believes that it presently competes favorably
with respect to each of its various service offerings. There can be no assurance
that HomeCom's present and proposed products will be able to compete
successfully with current or future competitors or that competitive pressures
faced by HomeCom will not have a material adverse effect on HomeCom's business,
financial condition and operating results.
29
<PAGE>
INTELLECTUAL PROPERTY RIGHTS
In accordance with industry practice, HomeCom relies primarily on a
combination of copyright, patent and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. HomeCom seeks to protect its software, documentation and other written
materials principally under trade secret and copyright laws, which afford only
limited protection. HomeCom 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 HomeCom's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of
HomeCom's products or to obtain and use information that HomeCom regards as
proprietary. There can be no assurance that HomeCom's means of protecting its
proprietary rights will be adequate or that HomeCom's competitors will not
independently develop competing products and services. In addition, the laws of
some foreign countries do not protect HomeCom's proprietary rights to as great
an extent as the laws of the United States. HomeCom does not believe that any of
its proposed products infringe the proprietary rights of third parties. There
can be no assurance, however, that third parties will not claim infringement by
HomeCom with respect to its products. HomeCom 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 HomeCom to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to HomeCom. In addition, Web site developers such
as HomeCom 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. HomeCom routinely enters into non-disclosure and
confidentiality agreements with employees, vendors, contractors, consultants and
customers.
There can be no assurance that HomeCom's means of protecting its proprietary
rights will be adequate or that HomeCom's competitors will not independently
develop similar technology. HomeCom 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
HomeCom's total net sales. Because substantially all of HomeCom's customers have
retained HomeCom for a single project, customers from whom HomeCom generated
substantial revenue in one quarter generally have not been a substantial source
of revenue in a subsequent quarter.
EMPLOYEES
At July 31, 1999, HomeCom employed 152 full-time employees, of whom 62 were
technical personnel engaged in maintaining or developing HomeCom's products or
performing related services, 54 were marketing, sales, or sales support
personnel and 36 were involved in administration and finance. The restructuring
announced on September 7, 1999 is expected to result in a reduction in our
personnel by about 60 employees, to about 95 employees (after taking into effect
the divestiture of our security consulting and integration division).
30
<PAGE>
INSURANCE
HomeCom maintains liability and other insurance that it believes to be
customary and generally consistent with industry practice. HomeCom 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, HomeCom 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 HomeCom
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 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 HomeCom's products and
services and increase HomeCom's cost of doing business or cause HomeCom to
modify its operations, or otherwise have an adverse effect on HomeCom'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. HomeCom cannot predict the impact, if
any, that future regulation or regulatory changes may have on its business. In
addition, Web site developers such as HomeCom 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 HomeCom.
In addition, HomeCom'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 HomeCom'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 HomeCom.
HomeCom 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 HomeCom's headquarters and computer center. HomeCom also has
an office in McLean, Virginia occupying approximately 6,000 square feet under a
lease expiring in June 2002, an office in New York City occupying approximately
3,400 square feet under a lease expiring in January 2003, an office in Houston,
Texas occupying approximately 12,000 square feet under a lease expiring in June
2004, and an office in Chicago occupying approximately 2,800 square feet under a
lease expiring in October 1999.
HomeCom'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 HomeCom's principal offices. Company personnel monitor server and
network functions on a 24 hour per day, 7 days per week
31
<PAGE>
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. HomeCom has acquired and installed multiple Cisco routers for
connection to the internet, which automatically redistribute traffic load in the
event of telecommunications failure.
HomeCom believes that the properties which it currently has under lease are
adequate to serve HomeCom's business operations for the foreseeable future.
HomeCom 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 HomeCom's business.
LEGAL PROCEEDINGS
HomeCom is not a party to any material legal proceedings. From time to time,
HomeCom is involved in various routine legal proceedings incidental to the
conduct of its business.
32
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
AGE AT
NAME JUNE 30, 1999 POSITION
- ------------------------------------------------ ----------------- ------------------------------------------------
<S> <C> <C>
Harvey W. Sax (2)............................... 47 President, Chief Executive Officer and Director
Krishan H. Puri................................. 34 Executive Vice President and Director
Gia Bokuchava, Ph.D............................. 35 Chief Technical Officer and Director
Roger J. Nebel.................................. 46 Vice President and Director
Norman H. Smith................................. 36 Chief Financial Officer
William Walker (1).............................. 57 Director
Claude A. Thomas (1) (2)........................ 56 Director
Daniel A. Delity................................ 39 Director
James Wm. Ellsworth (2)......................... 43 Director
</TABLE>
- ------------------------
(1) Member of the Audit and Compensation Committees.
(2) Member of the Executive Committee.
The principal occupations for the past five years or more of the nominees
for director and the six directors whose term of office will continue after the
Annual Meeting are set forth below.
Harvey W. Sax is a founder of HomeCom and has served as President and Chief
Executive Officer of the Company since January 1995 and as Chairman of the Board
of Directors since September 1997. He was Secretary of the Company from December
1994 until January 1995. From October 1994 until December 1995, when he began
working as a full-time employee of HomeCom, Mr. Sax served as a Vice President
of Oppenheimer & Co., Inc. From February 1993 until September 1994, Mr. Sax
served as a Senior Vice President of D. Blech & Co. From July 1992 until
February 1993, Mr. Sax was a Vice President of PaineWebber, Inc. From January
1989 until July 1992, Mr. Sax was a Vice President of Bear, Stearns & Co. Inc.
Mr. Sax received a Bachelor of Arts degree from Emory University in 1972. Mr.
Sax has been a member of the Board of Directors since December 1994.
Krishan H. Puri has served as Executive Vice President of HomeCom since
February 1996, and was a member of its former Board of Advisors from May 1995
until August 1996. From March 1994 until January 1996, Mr. Puri was a Senior
Management Consultant with Deloitte & Touche Consulting Group in its
telecommunications practice. From March 1992 until March 1994, Mr. Puri served
as a Senior Engineer for International Communications Network Services for
British Telecom and MCI's Concert joint venture in Atlanta, Georgia. From March
1990 until March 1992, Mr. Puri was a network analyst with Sprint Corporation, a
long distance telecommunications company. Mr. Puri received a Bachelor of
Science degree in Electrical Engineering from Georgia Institute of Technology in
1987 and a Master of Business Administration degree from Georgia State
University in 1992. Mr. Puri has been a member of the Board of Directors since
September 1996.
Gia Bokuchava, Ph.D., has served as HomeCom's Chief Technical Officer since
August 1995. Dr. Bokuchava served as a visiting professor at Emory University
from September 1994 until August 1995 and was employed by the National Library
of Medicine, assisting in the development of Internet based applications, from
January 1995 until August 1995. From July 1990 until September 1994, Dr.
Bokuchava was the Director of The Computer Center at the Institute of Mechanical
Engineering at Georgia Technical University, Tblisi, Georgia (formerly a part of
the Soviet Union). Dr. Bokuchava has taught computer science as a visiting
associate professor at the Universities of Moscow and China. Dr. Bokuchava
received
33
<PAGE>
a doctorate in theoretical physics from Georgia Technical University, Tblisi, in
1990. Dr. Bokuchava has been a member of the Board of Directors since September
1996.
Roger J. Nebel has served as Vice President of HomeCom since August 1996.
From May 1991 until July 1996, Mr. Nebel was a Department Manager (May 1991 to
February 1993) and Senior Manager-- Enterprise Assurance (March 1993 to July
1996) for PRC, Inc., a subsidiary of Litton Industries, Inc., which provides
information technology consulting and systems integration services for
governments and businesses. Mr. Nebel received a Bachelor of Science degree in
Engineering from California Coast University in 1990 and a Master of Science
degree in Management from National-Louis University in 1993. Mr. Nebel has been
a member of the Board of Directors since September 1996.
Norman H. Smith has served as Chief Financial Officer of HomeCom since May
1997. Before joining the Company, Mr. Smith was employed by First Image
Management Company, a division of First Data Corporation (NYSE: FDC), from
January 1990 to May 1997. Mr. Smith served in a number of accounting and finance
positions with First Image, most recently as Executive Director of Finance for
the Data Acquisition Division based in Lexington, Kentucky. Prior to that, Mr.
Smith was employed by Deloitte & Touche as a Senior Accountant in its audit
practice. Mr. Smith received a Master of Business Administration from Xavier
University in 1991 and a Bachelor of Business Administration from Eastern
Kentucky University in 1985.
Claude A. Thomas is a principal of Ambassador Capital Corporation, an
investment banking firm specializing in emerging technology companies. In his
present position, Mr. Thomas assists electronic commerce and emerging technology
companies with financing, business strategies, strategic alliances and financial
restructuring. From 1994-1997, he was Executive Vice President, Corporate
Development and Software Solutions for CheckFree Corporation (NASDAQ: CKFR).
Previously, he held positions as CEO of International Banking Technologies and
other subsidiaries of First Financial Management (now FirstData Corporation,
NYSE: FDC). He started his 30-year career with Electronic Data Systems (NYSE:
EDS) in the Wall Street division, and subsequently held positions with Coopers &
Lybrand and Digital Equipment Corporation. Mr. Thomas holds a BE cum laude in
Chemical Engineering from Vanderbilt University and an MBA in Marketing and
Finance with honors from Washington University. Mr. Thomas has been a member of
the Board of Directors since February 1998.
William Walker is President and CEO of the Reassurance Company of Hanover
("RCH"). He has a 40-year career in the insurance industry, beginning with
United Family Life Insurance Company. He also served as Assistant Vice President
with American Pioneer Life, Assistant Secretary with General Reassurance
Company, and Vice President with North American Reassurance. Walker joined RCH
in 1993. Walker is a graduate of Marshall University where he also received his
L.L.B. degree. Mr. Walker has been a director of HomeCom since March, 1999.
Daniel A. Delity founded First Institutional Marketing, Inc. in 1988. Mr.
Delity is President and Director of First Institutional Marketing, Inc., Premier
Financial Services, Inc. and All Things Financial, Inc. Mr. Delity also serves
as Vice President and General Securities Representative for FIMI Securities,
Inc. Mr. Delity received his Bachelors degree in education and political science
from the State University of New York at Geneseo. Mr. Delity earned his Group I
and IV Insurance licenses and Series 7 & 63 securities licenses in 1984, and has
subsequently concentrated his career in the financial services industry. Mr.
Delity has been a director of HomeCom since March, 1999.
James Wm. Ellsworth serves as Executive Vice President of First
Institutional Marketing, Inc., Premier Financial Services, Inc., All Things
Financial and FIMI Securities, Inc. Mr. Ellsworth also serves as the Financial
and Operations Principal of FIMI Securities, Inc. Prior to joining First
Institutional Marketing, Inc. in August of 1997, Mr. Ellsworth served as Vice
President--Finance of QuickQuote Insurance Agency, Inc., an internet direct
insurance agency from October of 1996 until July of1997. Mr. Ellsworth also
served as a partner in the investment firm of LEF&C Partners from September 1986
to December 1993. Mr. Ellsworth served as a Certified Public Accountant with
what is now KPMG Peat
34
<PAGE>
Marwick from September 1983 to July 1986. Mr. Ellsworth graduated in May 1983
from San Francisco State University with a Bachelor of Science degree in
Business Administration, Accounting. Mr. Ellsworth has been a director of
HomeCom since March, 1999.
HomeCom's Board of Directors is divided into three classes. The Class III
directors (Messrs. Sax and Ellsworth) serve until the 2000 Annual Meeting of
Stockholders, the Class I directors (Mr. Thomas, Mr. Walker and Mr. Delity)
serve until the 2001 Annual Meeting of Stockholders, and the Class II directors
(Dr. Bokuchava and Messrs. Puri and Nebel) will serve until the 1999 Annual
Meeting of Stockholders. Upon election, each class serves a three-year term. The
classification of the Board of Directors could have the effect of making it more
difficult for a third party to acquire control of the Company. Officers are
elected at the first Board of Directors meeting following the stockholders
meeting at which directors are elected, and officers serve at the discretion of
the Board of Directors. Each executive officer of the Company was chosen by the
Board of Directors and serves at the pleasure of the Board of Directors until
his or her successor is appointed or until his or her earlier resignation or
removal. There are no family relationships between any of the directors or
executive officers of the Company.
BOARD COMMITTEES
The Board of Directors has three standing committees: a Compensation
Committee, an Audit Committee and an Executive Committee. The Compensation
Committee provides recommendations to the Board of Directors concerning salaries
and incentive compensation for officers and employees of the Company. The Audit
Committee recommends the Company's independent auditors and reviews the results
and scope of audit and other accounting-related services provided by such
auditors. The Executive Committee has day-to-day executive decision-making
authority on behalf of the Company, subject to the overall review and approval
of the Board of Directors. A majority vote of the Executive Committee is
required to act on any such matters. The Executive Committee may be disbanded or
reconstituted at any time by a majority vote of the Board of Directors. All
major corporate decisions continue to be subject to the review and approval of
the Board of Directors.
DIRECTOR COMPENSATION
Previously, directors did not receive any cash compensation for their
services as members of the Board of Directors, but were reimbursed for their
reasonable travel expenses in attending Board of Directors and committee
meetings. Effective July 1999, the Board of Directors unanimously approved
compensation to the two outside directors of $1,000 per month and $1,000 per
Board meeting attended. Directors who are not employees of HomeCom are eligible
to receive automatic grants of stock options under HomeCom's Non-Employee
Directors Stock Option Plan, and may receive additional grants of options under
such plan at the discretion of the Compensation Committee of the Board of
Directors. See "Stock Option Plans-- NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN"
at page 34 of this prospectus.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, compensation of executive officers of HomeCom was determined by
Harvey W. Sax, HomeCom's President and Chief Executive Officer. In September
1996, HomeCom established a Compensation Committee to review the performance of
executive officers, establish overall employee compensation policies and
recommend salaries and incentive compensation for officers and employees of
HomeCom. No member of the Compensation Committee is or will be an executive
officer of HomeCom.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by
HomeCom in 1998 for its Chief Executive Officer and each executive officer of
HomeCom whose total annual salary and bonuses determined at December 31, 1998
exceeded $100,000 (each, a "Named Executive Officer"):
35
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
----------------------------------
ANNUAL COMPENSATION NUMBER OF
---------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- ----------------------------------------------------- ---------- ---------- ------------------- -------------
<S> <C> <C> <C> <C>
Harvey W. Sax........................................ $ 147,192 $ 0 0 $ 0
President, Chief Executive Officer
Krishan Puri......................................... $ 157,508 $ 0 0 $ 0
Executive Vice-President
Roger Nebel.......................................... $ 99,113 $ 0 0 $ 0
Vice-President
Gia Bokuchava, Ph.D.................................. $ 174,651 $ 0 0 $ 0
Chief Technical Officer And Director
Norman H. Smith...................................... $ 99,115 $ 0 0 $ 0
Chief Financial Officer
</TABLE>
As of December 31, 1998, the annual salaries for HomeCom's executive
officers were as follows: Harvey W. Sax, President and Chief Executive Officer
($150,000); Norm Smith, Chief Financial Officer ($100,000); Krishan Puri,
Executive Vice President ($110,100); Gia Bokuchava, Ph.D., Chief Technical
Officer ($100,000); and Roger Nebel, Vice President ($100,000). Pursuant to the
employment agreements with Dr. Bokuchava and Mr. Puri, each is eligible to
receive cash bonuses to repay certain promissory notes issued by them to HomeCom
in connection with their purchase of shares of Common Stock from HomeCom in
August 1996. See "Certain Transactions." Each of HomeCom's executive officers
also is eligible to receive cash bonuses to be awarded at the discretion of the
Compensation Committee of the Board of Directors.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options granted to the
Named Executive Officers during the year ended December 31, 1998:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------------- ANNUAL RATES
NUMBER OF EXERCISE OF STOCK PRICE
SECURITIES PERCENT OF OR BASE APPRECIATION
UNDERLYING TOTAL GRANTED PRICE FOR OPTION
OPTIONS TO EMPLOYEES FOR --------------------
EXECUTIVE OFFICER GRANTED FISCAL YEAR SHARE EXPIRATION DATE 5% 10%
- ------------------------------------ ----------- --------------- ----------- -------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Krishan Puri........................ 10,000 3.24% $ 4.38 December 9, 2008 27,546 69,806
</TABLE>
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth the aggregate dollar value of all options
exercised, and the total number of unexercised options held, on December 31,
1998 by the Named Executive Officer:
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
SHARES OPTIONS AT DECEMBER 31,
ACQUIRED DECEMBER 31, 1998 1998
ON VALUE ------------------------------ ---------------
EXECUTIVE OFFICER EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE
- ------------------------------------------ ------------- ----------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Harvey Sax................................ 0 0 2,500 7,500 $ 0
Krishan Puri.............................. 0 0 6,250 18,750 $ 0
Roger Nebel............................... 0 0 5,000 15,000 $ 0
Gia Bokuchava, Ph.D....................... 0 0 6,250 18,750 $ 0
Norman H. Smith........................... 0 0 6,250 18,750 $ 0
<CAPTION>
EXECUTIVE OFFICER UNEXERCISABLE
- ------------------------------------------ ---------------
<S> <C>
Harvey Sax................................ $ 0
Krishan Puri.............................. $ 0
Roger Nebel............................... $ 0
Gia Bokuchava, Ph.D....................... $ 0
Norman H. Smith........................... $ 0
</TABLE>
36
<PAGE>
EMPLOYMENT AGREEMENTS
HomeCom has entered into an employment agreement with Harvey W. Sax, its
President and Chief Executive Officer, which provides a five year term
commencing on January 1, 1996, subject to automatic extension for an additional
one year on each one-year anniversary of the agreement. This employment
agreement is subject to early termination as provided therein, including
termination by HomeCom "for cause," as defined in the employment agreement. The
employment agreement provides for an annual base salary of $150,000, and for
bonus compensation to be awarded at the discretion of the compensation committee
of the Board of Directors.
STOCK OPTION PLANS
EMPLOYEE STOCK OPTION PLAN. HomeCom's stock option plan was adopted by
HomeCom's stockholders in September 1996. A total of 2,000,000 shares of common
stock have been reserved for issuance under the stock option plan, and the plan
provides that the number of shares authorized for issuance under the plan will
not exceed 20% of the total issued and outstanding shares of HomeCom's common
stock. The purpose of the stock option plan is to provide incentives for
officers and key employees to promote the success of HomeCom, and to enhance
HomeCom's ability to attract and retain the services of such persons. Options
granted under the stock option plan may be either (i) options intended to
qualify as "incentive stock options" under Section 422 of the Code or (ii)
non-qualified stock options. Stock options may be granted under the stock option
plan for all employees of HomeCom, or of any present or future subsidiary or
parent of HomeCom. The stock option plan is administered by the compensation
committee of the Board of Directors. The compensation committee has the
authority to determine exercise prices applicable to the options, the eligible
employees or consultants to whom options may be granted, the number of shares of
common stock subject to each option and the terms upon which options are
exercisable. The compensation committee has the authority to interpret the stock
option plan and to prescribe, amend and rescind the rules and regulations
pertaining to the stock option plan. No option is transferable by the optionee
other than by will or the laws of descent and distribution, and each option is
exercisable during the lifetime of the optionee only by such optionee.
Any incentive stock option that is granted under the stock option plan may
not be granted at a price less than the fair market value of the common stock on
the date of grant (or less than 110% of fair market value in the case of holders
of 10% or more of the total combined voting power of all classes of stock of
HomeCom or a subsidiary or parent of HomeCom). Non-qualified stock options may
be granted at the exercise price established by the compensation committee,
which will not be less than 85% of the fair market value of the common stock on
the date of grant.
Each option granted under the stock option plan is exercisable for a period
not to exceed ten years from the date of grant (or five years in the case of a
holder of 10% or more of the total combined voting power of all classes of stock
of HomeCom or a subsidiary or parent of HomeCom) and shall lapse upon expiration
of such period, or earlier upon termination of the recipient's employment with
HomeCom, or as determined by the compensation committee.
As of June 30, 1999, options to purchase 892,069 shares of common stock were
outstanding under the stock option plan at exercise prices ranging from $1.91 to
$8.06 per share and at a weighted average exercise price of $4.91 per share. All
outstanding options vest 25% per year from their date of grant.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN. HomeCom's non-employee directors
stock option plan was adopted by HomeCom's stockholders in September 1996 and
amended in October 1996. HomeCom has reserved 300,000 shares of common stock for
issuance under the non-employee directors plan.
The non-employee directors plan provides for the automatic granting of
non-qualified stock options to directors who are not officers or employees of
HomeCom. Each non-employee director who is first appointed or elected to the
Board of Directors is granted an option to purchase 10,000 shares of common
37
<PAGE>
stock. Also, each non-employee director automatically receives an option to
purchase 5,000 shares of common stock on the date of each annual meeting of
HomeCom's stockholders. The non-employee directors plan also allows the
compensation committee of the Board to make extraordinary grants of options to
non-employee directors. All options granted under the non-employee directors
plan vest 50% per year of service by the non-employee director on the Board of
Directors. No option is transferable by the optionee other than by will or laws
of descent and distribution, and each option is exercisable, during the lifetime
of the optionee, only by such optionee. The exercise price of all options will
be the fair market value of the shares of common stock on the date of grant, and
the term of each option may not exceed seven years. The non-employee directors
plan will continue in effect for a period of ten years unless sooner terminated
by the Board of Directors.
During February 1998, Mr. Thomas was granted an option under the
non-employee directors plan to purchase 10,000 shares of common stock at an
exercise price of $2.18 per share. In March, 1999 Mr. Thomas was granted an
option to purchase 5,000 shares of common stock at an exercise price of $4.8125.
During March 1999, Mr. Walker was granted an option to purchase 10,000 shares of
common stock at an exercise price of $6.00.
EMPLOYEE STOCK PURCHASE PLAN. HomeCom's employee stock purchase plan became
effective on March 1, 1997. A total of 150,000 shares of common stock have been
reserved for issuance under the stock purchase plan. The stock purchase plan is
intended to qualify under Section 423 of the Internal Revenue Code. The purpose
of the stock purchase plan is to encourage and enable employees of HomeCom to
acquire a proprietary interest in HomeCom through ownership of shares of common
stock. Eligible employees of HomeCom will purchase shares of common stock at 85%
of fair market value and HomeCom will partially subsidize purchases under the
stock purchase plan and will pay the expenses of its administration.
An employee electing to participate in the stock purchase plan must
authorize a stated dollar amount or percentage of the employee's regular pay to
be deducted by HomeCom from the employee's pay during each of four quarterly
payroll deduction periods. Those payroll deduction periods begin on January 1,
April 1, July 1 and October 1 of each calendar year during which the stock
purchase plan is in effect. HomeCom is deemed on the last day of each payroll
deduction period to have granted a purchase right to each participant as of the
first day of the payroll deduction period to purchase as many full and
fractional shares of common stock as can be purchased with the participant's
payroll deductions. On the last day of the payroll deduction period, the
participant will be deemed to have exercised this option, at the option price,
to the extent of the participant's accumulated payroll deductions. In no event,
however, may the participant purchase common stock having a fair market value,
measured on the first business day of the payroll deduction period, of greater
than $25,000 during a calendar year. The option price under the stock purchase
plan is equal to 85% of the fair market value of the common stock on either the
first business day or the last business day of the applicable payroll deduction
period, whichever is lower.
Employees of HomeCom who have completed six full months of service with
HomeCom and whose customary employment is more than 20 hours per week and five
or more months per calendar year are eligible to participate in the stock
purchase plan. An employee may not be granted an option under the stock purchase
plan if after the granting of the option such employee would be deemed to own 5%
or more of the combined voting power of value of all classes of stock of
HomeCom. As of July 31, 1999, approximately 72 employees are eligible to
participate in the stock purchase plan, and as of such date, 10 employees are
participating in the Plan. An employee's rights under the stock purchase plan
may not be assigned, transferred, pledged or otherwise disposed of, except by
will or the laws of descent and distribution. An employee's rights under the
stock purchase plan terminate upon termination of his or her employment for any
reason, including retirement. Upon such termination, HomeCom will refund the
employee's payroll deductions or contributions made during the payroll deduction
period.
38
<PAGE>
An employee may not sell shares of common stock purchased under the stock
purchase plan until the first day of the second payroll deduction period
following the payroll deduction period in which the option for such shares was
granted.
The stock purchase plan is administered by the compensation committee. No
member of the Board of Directors will be eligible to participate in the stock
purchase plan during the period he or she serves as a member of the compensation
committee. The compensation committee may terminate or amend the stock purchase
plan at any time. However, any termination or amendment may not affect or change
purchase rights previously granted under the stock purchase plan without the
consent of the affected participants. Also, any amendment that materially
increases the benefits or number of shares under the stock purchase plan, except
for adjustments due to changes in HomeCom's capital structure, or that
materially modifies the eligibility requirements of the stock purchase plan will
be subject to stockholder approval. If not sooner terminated by the Compensation
Committee, the stock purchase plan will terminate at the time that all
authorized shares of common stock reserved for grant under the stock purchase
plan have been purchased.
401(K) PROFIT SHARING PLAN. HomeCom's Board of Directors has approved the
adoption of a 401(k) profit sharing plan, which is intended to be a
tax-qualified defined contribution plan under Section 401(k) of the Internal
Revenue Code. This plan was implemented in March 1998. In general, all employees
of HomeCom are eligible to participate. The 401(k) plan includes a salary
deferral arrangement pursuant to which participants may contribute amounts not
to exceed limitations imposed by the Code. Subject to certain Code limitations,
HomeCom may make a matching contribution of up to $1,000 of the salary deferral
contributions of participants at a rate of 50% of the participant's
contributions, up to 4% of the participant's salary. HomeCom may also make an
additional contribution to the 401(k) plan each year at the discretion of the
Board of Directors. Separate accounts are maintained for each participant in the
401(k) plan. The portion of a participant's account attributable to his or her
own contributions will be 100% vested. The portion of the account attributable
to HomeCom contributions, including matching contributions, will vest after 5
years of service with HomeCom. Distributions from the 401(k) plan may be made in
the form of a lump-sum cash payment or in installment payments.
AGREEMENTS WITH EMPLOYEES
Principal employees of HomeCom, including executive officers, are required
to sign an agreement with HomeCom restricting the ability of the employee to
compete with HomeCom during his or her employment and for a period of eighteen
months thereafter, restricting solicitation of customers and employees following
employment with HomeCom, and providing for ownership and assignment of
intellectual property rights to HomeCom.
39
<PAGE>
CERTAIN TRANSACTIONS
During the period December 1994 through December 1995, Harvey W. Sax,
HomeCom's President and Chief Executive Officer, loaned a total of approximately
$63,497 to HomeCom pursuant to a promissory note payable by HomeCom on September
12, 2000, which accrues interest at the prime rate plus 1% per annum. HomeCom
used approximately $56,000 of the net proceeds of its initial public offering to
repay the remaining outstanding amounts owed under this promissory note.
In February 1996, in connection with a recapitalization of the common stock,
HomeCom issued 787,844 shares of common stock to Harvey W. Sax, its President
and Chief Executive Officer and then its sole stockholder, for $.001 per share.
In December 1994, HomeCom granted Nat Stricklen, a co-founder and former
director of HomeCom, an option to acquire, for an aggregate exercise price of
$10.00, shares of common stock which, when issued, would represent approximately
10% of the issued and outstanding common stock. Mr. Stricklen exercised this
option in February 1996 and received 93,070 shares of common stock.
In February 1996, HomeCom (i) sold for $.0001 per share 335,052 shares to
Margery Germain; and (ii) issued to Mark Germain for $200,000 an unsecured
promissory note due September 1997 in the principal amount of $200,000 and
bearing interest at the rate of 8% per annum. Pursuant to the terms of the
promissory note with Mr. Germain, in May, 1997 HomeCom issued Mr. Germain 33,333
shares of common stock in repayment of the $200,000 outstanding principal
balance of this note.
Mr. David A. Blech, Mrs. Esther Blech and the Edward A. Blech Trust
(collectively the "Blech Interests") have agreed in writing with the Nasdaq
Stock Market, Inc. that, for a period of three years from the date of their
original purchases of securities from HomeCom, none of them will sell, transfer,
assign, pledge or hypothecate any shares of common stock. Gifts of shares of the
common stock are permitted provided that the recipient of such gift agrees in
writing to be bound by the terms of the agreement. The Blech Interests further
agreed that while the common stock is listed on any Nasdaq market, there will be
no financial relationship between David Blech or any of the foregoing Blech
Interests, on the one hand, and HomeCom, on the other hand; that the direct or
indirect ownership of shares of common stock held by Mr. David A. Blech and/or
the Blech Interests may not exceed 5% of the common stock; and that there may be
no advisory relationship between Mr. David A. Blech and HomeCom. To the best of
HomeCom's knowledge and belief, the Blech Interests beneficially own less than
5% of the common stock.
In August 1996, Harvey W. Sax, HomeCom's President and Chief Executive
Officer, contributed 3,956 shares of common stock to HomeCom.
In August 1996, HomeCom issued and sold to six of its employees an aggregate
of 102,855 shares of common stock for a total of $468,004, payable through the
issuance of promissory notes payable in four equal annual installments, bearing
interest at 8% per annum and secured by the shares of common stock purchased
therewith. Also in August 1996, HomeCom entered into employment agreements with
such persons which provide that for each of the first four years of employment,
HomeCom 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, HomeCom 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,
HomeCom has the right to repurchase that percentage of the shares purchased by
the employee which shall equal the percentage of the promissory note which is
not yet due, payment for such repurchase to be made by canceling the applicable
outstanding amount of the promissory note. Gia Bokuchava, Ph.D., Chief Technical
Officer and a director, and Krishan Puri, Executive Vice President and a
director, purchased 39,559 and 29,669 shares of common stock, respectively, in
this transaction. Mr. Vinod Keni, a former director, purchased 3,955 shares in
this transaction. HomeCom has agreed with Mr. Keni that all 11,865 options to
acquire common stock held by Mr. Keni (at a weighted average exercise price of
$5.16
40
<PAGE>
per share) shall continue to vest as if Mr. Keni were still employed by HomeCom.
HomeCom also agreed to cancel and forgive indebtedness of approximately $18,000
represented by the promissory note given by Mr. Keni to purchase such 3,955
shares and to give Mr. Keni a cash payment to cover Mr. Keni's estimated tax
liability from such cancellation of indebtedness.
In August 1996, Krishan Puri, Executive Vice President and a director,
exercised a warrant to purchase 9,307 shares of common stock for a total
exercise price of $1.00. Mr. Puri was granted the warrant in June 1995 in
connection with his agreeing to serve on HomeCom's former Board of Advisors.
In August 1996, HomeCom acquired all of the outstanding capital stock of
HomeCom Internet Security Services, Inc. (HISS), a Delaware corporation formed
in July 1996 to provide internet and Intranet security system consulting
services. In the transaction, the former holders of HISS's capital stock
received the right to receive their pro rata share of four annual earnout
payments to be paid not later than March 31 of 1998, 1999, 2000 and 2001. Each
annual earnout will be one-fourth of an amount equal to 30% of HISS's gross
revenues for the 12 month period ending December 31, 1997; provided, however,
that (i) the amount of each annual earnout will be limited to the amount of
HISS's net profits for the 12-month period ended December 31 immediately
preceding the payment date, (ii) amounts not paid in a year as a result of the
profit limit will be carried forward to the subsequent year, and (iii) amounts
not paid in the fourth year as a result of the profit limit will be forfeited.
Each annual earnout can be paid in whole or in part in cash or, at HomeCom's
option, in shares of common stock based upon the average trading price of the
common stock for the ten trading days immediately preceding payment of the
annual earnout. An annual earnout will not be paid if the recipient is then in
violation of the non-solicitation and non-competition provisions contained in
the Stock Purchase Agreement to which the former holders of HISS's capital stock
are subject. Roger Nebel, Vice President and a director of HomeCom, owned 48% of
HISS's outstanding capital stock and will be entitled to receive 48% of the
Annual Earnouts. HISS was merged with and into HomeCom on September 11, 1996.
RECENT TRANSACTIONS
THE INSURANCE RESOURCE CENTER
On April 16, 1998, HomeCom acquired all of the outstanding capital stock of
The Insurance Resource Center, Inc. for 351,391 shares of HomeCom's common
stock. Pursuant to an agreement and plan of reorganization, filed a registration
statement for 175,696 of such shares on June 12, 1998. The Insurance Resource
Center will remain a wholly-owned subsidiary of HomeCom. In addition, The
Insurance Resource Center has pursuant to an employment agreement retained the
services of Tim James Higham, one of the former shareholders of The Insurance
Resource Center as Vice President of Insurance Sales.
DIVESTITURE OF HOSTAMERICA DIVISION
On June 9, 1998 HomeCom sold substantially all of the assets of its
HostAmerica internet network outsourcing services division, consisting of web
site and internet application hosting facilities to Sage Acquisition Corp. for
$4,500,000. HomeCom retains, however, certain hosting accounts and retains the
right to perform hosting services for companies engaged in the financial service
industry. During 1996 and 1997, internet outsourcing services generated
approximately 16% and 29%, respectively, of HomeCom's total revenues. Internet
outsourcing revenues generated approximately 42% of HomeCom's total revenues for
the six months ended June 30, 1998.
FIRST INSTITUTIONAL MARKETING, INC.
On November 6, 1998, HomeCom signed a definitive agreement and plan of
merger to acquire, among other things, all of the outstanding shares of the
First Institutional Marketing companies for 1,252,174 shares of common stock. In
addition, HomeCom entered into employment agreements for an initial term of 3
years with the three principals of First Institutional Marketing, calling for
them to continue
41
<PAGE>
in their current roles for the acquired companies. On March 24, 1999, HomeCom
completed this acquisition.
GANYMEDE CORPORATION
On April 23, 1999, HomeCom acquired all the outstanding shares of Ganymede
Corporation for total consideration of 185,342 shares of common stock and
$100,000 cash. Ganymede is a Chicago-based web site developer for financial
institutions. In addition, the Company entered into employment agreements with
the three principals of Ganymede, calling for them to continue in their current
roles for the acquired company.
INTERNET SECURITY SERVICES
In October, 1999, we sold our security consulting and integration services
operations for proceeds of approximately $1.35 million in common stock in the
non-public acquiror and $200,000 in cash, and entered into a joint marketing
program with the acquiror.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table provides information as of September 28, 1999,
concerning beneficial ownership of common stock by (1) each person or entity
known by HomeCom to beneficially own more than 5% of the outstanding Common
Stock, (2) each director and nominee for director of HomeCom, (3) each Named
Executive Officer, (4) all directors and executive officers of HomeCom as a
group and (5) the selling shareholder. The information as to beneficial
ownership has been furnished by the respective stockholders, directors and
executive officers of HomeCom and, unless otherwise indicated, each of the
stockholders has indicated that they have sole voting and investment power with
respect to the shares beneficially owned. The selling shareholder is Jackson
LLC.
For the selling shareholder, the number of shares in the table represents an
estimate of the number of shares of common stock to be offered by the selling
stockholder, if the holder was to fully convert the series C preferred stock and
series D preferred stock as of September 27, 1999, fully exercise the related
warrants, and offer all the resulting shares of common stock for sale. If
converted on September 27, 1999, the series C preferred stock would convert at a
conversion price of $3.15 per share into 1,111,111 shares of common stock. The
warrants issued in connection with the series C preferred stock are exercisable
at an exercise price of $7.34 per share into 59,574 shares of common stock. If
converted on September 27, 1999, the series D preferred stock would convert at a
conversion price of $3.15 per share into 476,190 shares of common stock. The
warrants issued in connection with the series D preferred stock are exercisable
at an exercise price of $7.34 per share into 25,000 shares of common stock. The
actual number of shares of common stock issuable upon conversion of the series C
preferred stock and series D preferred stock and exercise of the warrants is
indeterminate, and could be materially less or more than the amount estimated
due to the conversion and exercise price adjustments explained in the section of
this prospectus entitled "Description of Capital Stock" on page 45, in
particular the subsections entitled "Series C Convertible Preferred Stock" on
page 49 and "Series D Preferred Stock" on page 52. We agreed to register at
least 1,244,444 shares in connection with the issuance of the series C preferred
shares and at least 533,368 shares in connection with the issuance of the series
D preferred shares; the additional shares covered by this prospectus for sale by
the selling stockholders are to accommodate the possibility that the actual
number of shares issuable upon conversion of the preferred stock or exercise of
warrants increases as a result of adjustments in the conversion or exercise
prices. This table, however, assumes no adjustment to the conversion or exercise
prices. We cannot assure you that the selling stockholders will sell any or all
of the shares that they may acquire upon their conversion of series C preferred
stock or series D preferred stock or exercise of warrants. The selling
shareholders' determination whether to hold or convert the series C preferred
stock on the Series D preferred stock, or to exercise the warrants, and sell the
resulting shares, will depend upon many factors, including HomeCom's prospects,
general market conditions and the prevailing price of the common stock.
42
<PAGE>
<TABLE>
<CAPTION>
COMMON
STOCK
BENEFICIALLY PERCENTAGE
NAME OF BENEFICIAL OWNER(1) OWNED(2) OF CLASS
- -------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Harvey W. Sax(3)...................................................................... 806,629 12.1%
Krishan H. Puri(4).................................................................... 52,752 *
Gia Bokuchava, Ph.D.(5)............................................................... 47,559 *
Roger J. Nebel(6)..................................................................... 18,616 *
Claude A. Thomas(7)................................................................... 5,000 *
Norman H. Smith(8).................................................................... 5,000 *
Mark Germain(9)....................................................................... 350,885 5.3
Margery Germain(10)................................................................... 350,885 5.3
Daniel A. Delity(11).................................................................. 737,840 11.1
James Wm. Ellsworth(11)............................................................... 162,917 2.4
David B. Frank(11).................................................................... 351,417 5.3
William Walker(12).................................................................... -- *
CPR (USA), Inc.(13)................................................................... 372,876 5.6
Libertyview Funds, LP(14)............................................................. 297,900 4.5
Libertyview Fund, LLC(14)............................................................. 74,475 1.1
Jackson LLC........................................................................... 1,671,875 24.2
All executive officers and directors as a group (10 persons).......................... 2,187,730 32.9%
</TABLE>
- ------------------------------
* Less than 1%.
(1) Except as otherwise noted, the street address of the named beneficial owner
is Building 14, Suite 100, 3535 Piedmont Road, Atlanta, Georgia 30305.
(2) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
of Common Stock beneficially owned, subject to community property laws where
applicable. Shares of Common Stock subject to options that are currently
exercisable or exercisable within sixty days of December 31, 1998 are deemed
to be outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the percentage ownership of such person
but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.
(3) Includes 2,500 shares of Common Stock issuable upon the exercise of an
option outstanding as of August 12, 1999 at an exercise price of $4.47 per
share. Excludes 57,500 shares of Common Stock issuable upon the exercise of
options outstanding as of August 12, 1999 at a weighted average exercise
price of $5.61 which are not currently exercisable and which become
exercisable more than 60 days following the date of this Prospectus.
(4) Includes 7,500 shares of Common Stock issuable upon the exercise of options
outstanding as of August 12, 1999 at a weighted average exercise price of
$4.71 per share. Excludes 17,500 shares of Common Stock issuable upon the
exercise of options outstanding as of August 12, 1999 at a weighted average
exercise price of $4.33 which are not currently exercisable and which become
exercisable more than 60 days following the date of this Prospectus.
(5) Includes 7,500 shares of Common Stock issuable upon the exercise of options
outstanding as of August 12, 1999 at a weighted average exercise price of
$4.71 per share. Excludes 17,500 shares of Common Stock issuable upon the
exercise of options outstanding as of August 12, 1999 at a weighted average
exercise price of $4.33 which are not currently exercisable and which become
exercisable more than 60 days following the date of this Prospectus.
(6) Includes 7,500 shares of Common Stock issuable upon the exercise of options
outstanding as of August 12, 1999 at a weighted average exercise price of
$5.35 per share and 9,479 shares issued in connection with the Company's
acquisition of HISS. See "Certain Transactions". Excludes 12,500 shares of
Common Stock issuable upon the exercise of options outstanding as of August
12, 1999 at a weighted average exercise price of $4.84 which are not
currently exercisable and which become exercisable more than 60 days
following the date of this Prospectus. Also excludes an indeterminate
additional number of shares of Common Stock that may be issued in connection
with the Company's acquisition of HISS. See "Certain Transactions."
(7) Includes 5,000 shares of Common Stock issuable upon the exercise of an
option outstanding as of August 12, 1999 at an exercise price of $3.22 per
share which is currently exercisable. Excludes 10,000 shares of Common Stock
issuable upon the exercise of options outstanding as of August 12, 1999 at a
weighted average exercise price of $4.24 per share which is not currently
exercisable and which becomes exercisable more than 60 days following the
date of the date of this Prospectus.
(8) Includes 5,000 shares of Common Stock issuable upon the exercise of an
option outstanding as of August 12, 1999 at an exercise price of $6.00 per
share. Excludes 41,250 shares of Common Stock issuable upon the exercise of
options outstanding as of August 12, 1999 at a weighted average exercise
price of $5.02 which are not currently exercisable and which become
exercisable more than 60 days following the date of this Prospectus.
(9) The address of this stockholder is 81 Main Street White Plains, NY 10601.
Includes 335,052 shares of Common Stock owned by Margery Germain, the wife
of Mr. Germain, as to which shares Mr. Germain disclaims beneficial
ownership.
(10) The address of this stockholder is 6 Olmstead Road Scarsdale, NY 10583.
Includes 15,833 shares of Common Stock owned by Mark Germain.
43
<PAGE>
(11) Excludes 100,000 shares of Common Stock issuable upon the exercise of a
warrant outstanding as of August 12, 1999 at an exercise price of $3.74
which are not currently exercisable and which become exercisable more than
60 days following the date of this Prospectus.
(12) Excludes 10,000 shares of Common Stock issuable upon the exercise of an
option outstanding as of August 12, 1999 at an exercise price of $5.06 which
is not currently exercisable and which become exercisable more than 60 days
following the date of this Prospectus.
(13) Consists of shares of Common Stock issuable upon conversion of HomeCom's
series B preferred stock and exercise of related warrants. CPR (USA), Inc.
is a wholly-owned subsidiary of Banque CPR, a French company ("Banque CPR").
The Board of Directors of CPR (USA), Inc. are Richard Meckler, Steven
Rogers, Henri Cukierman, Philippe Delienne, Olivier Mirat and Bernard Crutz.
The principal officers of CPR (USA), Inc. are Messrs. Meckler and Rogers,
and George Hartigan, Alan Mark, Cort Gwon & Neil Weiner.
(14) Consists of shares of Common Stock issuable upon conversion of HomeCom's
series B preferred stock and exercise of related warrants. 100% of the
voting shares of LibertyView Funds, L.P. are owned by Banque CPR. 100% of
the voting shares of LibertyView Fund, LLC are owned by LibertyView Capital
Management Inc., a wholly-owned subsidiary of CPR (USA) Inc.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 15,000,000 shares of common stock,
$.0001 par value, and 1,000,000 shares of Series B preferred stock, $.01 par
value. As of July 23, 1999, we had issued and there were outstanding 6,669,453
shares of common stock held of record by approximately 3,000 record holders and
125 shares of Series B preferred stock held of record by three record holders.
Of the authorized preferred stock, 20,000 shares have been designated Series A
convertible preferred stock, none of which are presently outstanding, and 125
shares have been designated Series B convertible preferred stock.
COMMON STOCK
Holders of shares of common stock are entitled to one vote per share for the
election of directors and all matters to be submitted to a vote of the
stockholders. Subject to the rights of any holders of preferred stock which may
be issued in the future, the holders of shares of common stock are entitled to
share ratably in any dividends as may be declared by the board of directors out
of legally available funds. In the event of dissolution, liquidation or winding
up of HomeCom, holders of shares of common stock are entitled to share ratably
in all assets remaining after payment of all liabilities and the aggregate
liquidation preference of outstanding shares of preferred stock. Holders of
shares of common stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of common stock are, and the shares of
common stock to be issued by Homecom in this offering will be, duly authorized,
validly issued, fully paid and nonassessable.
PREFERRED STOCK
Our restated certificate of incorporation authorizes the issuance of
preferred stock with designations, rights and preferences determined from time
to time by the board of directors. Accordingly, the board of directors is
empowered, without stockholder approval, to issue preferred stock with
dividends, liquidation, conversion, voting and other rights that could adversely
affect the voting power or other rights of the holders of common stock.
SERIES B CONVERTIBLE PREFERRED STOCK
Pursuant to our certificate of incorporation, the board has classified 125
shares of preferred stock as Series B convertible preferred stock with the
rights, preferences, privileges and terms set forth in the certificate of
designations filed with the State of Delaware. Of the 125 shares authorized by
the board, all are currently outstanding. The stated value per share of the
series B preferred stock is $20,000. All shares of common stock are 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.
The rights of the shares of common stock are subject to the preferences and
relative rights of the series B preferred shares. The series B preferred shares
will be of greater rank than any series of common or preferred stock issued by
us in the future. Without the prior express written consent of the holders of at
least a majority of the then outstanding series B preferred shares, we will not
authorize or issue capital stock that is of senior or equal rank to the series B
preferred shares regarding the preferences as to distributions and payments upon
the liquidation, dissolution and winding up of HomeCom. Without the prior
express written consent of the holders of not less than a majority of the then
outstanding series B preferred shares, we will not hereafter authorize or make
any amendment to our certificate of incorporation or bylaws, 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 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 our merger or consolidation with or into another
corporation, the series B preferred shares shall maintain their relative powers,
designations, and preferences, and no merger may result that is inconsistent
with this provision.
45
<PAGE>
Holders of the series B preferred stock are not entitled to receive
dividends. If any series B preferred shares are outstanding, we may not, without
the prior express written consent of the holders of a majority of the then
outstanding series B preferred shares, 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 days prior to the earlier of (a) the record date taken
for or (b) the payment of the dividend or other distribution. We may declare and
pay a dividend in cash with respect to the common stock so long as we pay
simultaneously to each holder of series B preferred shares an amount in cash
equal to the amount the holder would have received had all of the holder's
series B preferred shares been converted to common stock one business day before
the record date for the dividend, and after giving effect to the payment of any
dividend and any other required payments, including required payments to the
holders of the series B preferred shares, we have in cash or cash equivalents an
amount equal to the aggregate of:
- all of our liabilities reflected on our most recently available balance
sheet;
- the amount of any indebtedness incurred by us or any of our subsidiaries
since our most recent balance sheet; and
- 120% of the amount payable to all holders of any shares of any class of
preferred stock assuming a liquidation as the date of our most recently
available balance sheet.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up, the holders of the series B preferred shares will be entitled to
receive in cash out of our assets, whether from capital or from earnings
available for distribution to our stockholders, before any amount shall be paid
to the holders of any of our capital stock 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, an amount per
series B preferred share equal to the sum of (i) $20,000 and (ii) a premium of
5% per year of the stated value from the date of issuance of the series B
preferred stock; provided that, if the 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 that are of equal rank with the
series B preferred shares as to payments of this type, then each holder of
series B preferred shares and other preferred shares will share equally in the
available funds in accordance with their respective liquidation preferences. The
purchase or redemption by us of stock of any class in any manner permitted by
law will not be regarded as a liquidation, dissolution or winding up. Neither
our consolidation or merger with or into any other person, nor the sale or
transfer by us of less than substantially all of its assets will be deemed to be
a liquidation, dissolution or winding up.
The holders of series B preferred shares shall have no voting rights, except
as required by law, including the General Corporation Law of the State of
Delaware.
Each share of series B preferred stock is convertible on or after the date
of this prospectus into the number of shares of our common stock, equal to the
stated value ($20,000) plus a premium of 5% per year of the stated value from
the date of issuance of the series B preferred stock, divided by the conversion
price. The conversion price is equal to the lesser of:
(1) the average closing bid prices of the common stock for any four
consecutive trading days during the twenty-five consecutive trading
day period ending on the day prior to the conversion; or
(2) $5.23.
If all the outstanding shares of series B preferred stock were converted as
of August 13, 1999, based upon the closing bid prices of the shares prior to
that date, under the conversion formula of the series B preferred stock the
conversion price for the shares would be set at a price of $4.81 per share.
After taking into effect a premium of 5% per year from the date of issuance
provided for under the terms of the series B preferred stock, the 125
outstanding shares of series B preferred stock would be convertible into
46
<PAGE>
519,751 shares of common stock, or approximately 7.8% of the outstanding shares.
The following table includes the total number of shares that would be issued
upon conversion of all the series B preferred stock, and the percentage of the
currently issued and outstanding shares that such number of shares would
represent, under the following assumptions, and in each case after taking into
effect the 5% annual premium through August 13, 1999:
(a) assuming the current conversion price of $4.81 per share;
(b) assuming a conversion price 25% below the closing bid price as of
August 13, 1999 of $4.6562 per share, or $3.49 per share;
(c) assuming a conversion price 50% below the closing bid price as of
August 13, 1999 of $4.6562 per share, or $2.33 per share; and
(d) assuming a conversion price 75% below the closing bid price as of
August 13, 1999 of $4.6562 per share, or $1.16 per share.
<TABLE>
<CAPTION>
THE SERIES B PREFERRED
SHARES WOULD CONVERT INTO:
--------------------------------------------
<S> <C> <C>
NUMBER OF SHARES PERCENT OF OUTSTANDING
----------------- -------------------------
At the Current Conversion Price..................... 519,751 7.8%
At 25% below the Current Market Price............... 716,332 10.7%
At 50% below the Current Market Price............... 1,072,961 16.1%
At 75% below the Current Market Price............... 2,155,172 32.3%
</TABLE>
Under the conversion price formula, there is no ceiling on the number of
shares of common stock into which the outstanding shares of series B preferred
stock can be converted. As a result, as the price of the common stock decreases,
the number of shares of common stock underlying the outstanding shares of series
B preferred stock continues to increase.
Under the conversion price formula, the series B preferred stock may, from
time to time, be convertible at a rate at or below the common stock's market
price. The lower the common stock's market price at the time a holder converts
his outstanding shares of series B preferred stock, the more shares of common
stock the holder will get in the conversion. To the extent a holder of shares of
series B preferred stock converts and then sells the shares of common stock, the
common stock's market price may decrease due to the additional shares in the
market, allowing the selling holder to convert other shares of series B
preferred stock into greater amounts of common stock, the sale of which could
further depress the market price for the common stock. The downward pressure on
the market price of the common stock as a holder of the series B preferred stock
converts and sells material amounts of common stock could encourage short sales
by other holders or others, placing further downward pressure on the market
price of the common stock. The conversion of the outstanding shares of series B
preferred stock may result in substantial dilution to the interest of other
common stockholders, since each holder of the outstanding shares of series B
preferred stock may ultimately convert and sell the full amount of common stock
issuable upon conversion.
Prior to this financing, the Board of Directors of HomeCom considered a
variety of financing proposals. The Board determined that the financing proposal
by the selling shareholders represented the most favorable proposal offered to
the Company based upon, among other things, the timing of the transaction, the
quality of the investors, and the terms and limitations of the financing. The
Board also determined that this financing appeared to be on better terms and
conditions than the previous two private placement financings of HomeCom
consummated in December 1997 and January 1998.
The holders of the series B preferred shares are limited with respect to the
number of shares that they can convert at any one time. In particular, as long
as they are subject to laws, rules or regulations which
47
<PAGE>
would prohibit their owning in excess of 4.99% of the outstanding common stock
following conversion, they may not own in excess of that amount.
The series B preferred stock is subject to redemption at our option after
the date of this prospectus at 120% of the principal amount of the stock being
redeemed. If any series B preferred stock remain outstanding on March 24, 2002,
all the shares will automatically be converted into common stock.
The issuance of the series B preferred stock is also subject to the NASDAQ
National Market's Market Place Rule 4460(i). Pursuant to the terms of this rule,
we have agreed with the holders of the series B preferred stock that so long as
we are subject to this rule or any rule substantially similar to this rule, we
will not issue more than 19.99% of the common stock outstanding on the date the
series B preferred stock was issued upon conversion of the series B preferred
stock in the absence of:
- the approval of the issuance by our stockholders; or
- a waiver by NASDAQ of the provisions of that rule.
HomeCom issued series B preferred stock totaling $2,500,000 on March 25,
1999. The series B preferred stock investors were issued 125 shares of preferred
stock, having a stated value of $20,000 per share, and 225,000 warrants to
purchase common stock at $5.70 per share. HomeCom paid offering costs of
$216,250 cash plus 25,000 warrants to purchase common stock at $5.70 per share,
resulting in net proceeds to HomeCom of $2,283,750 for the preferred shares and
warrants.
The series B preferred stock is convertible into common stock at a
conversion price equal to the lower of (a) the average of the closing price for
four consecutive trading days in the twenty-five consecutive trading days ending
one day prior to the conversion date ($4.86 at the Issuance date) and (b) $5.23.
The number of common shares into which the series B preferred stock is
convertible is determined by dividing the stated value of the Series B Preferred
Stock, increased by 5% annually, by the conversion price. As the series B
preferred stock is automatically convertible on March 24, 2002, the most
beneficial conversion ratio was determined to include the additional common
shares attributable to the 5% annual increase for the three year period ending
in 2002. After adjustment for this additional benefit the $4.86 conversion price
is reduced to $4.23, the most beneficial conversion price at the issuance date.
In determining the accounting for the beneficial conversion feature, HomeCom
first allocated the net proceeds of $2,283,750 to the preferred stock and the
warrants based on their relative fair values at the issuance date, resulting in
$1,766,217 assigned to the preferred stock and $517,533 assigned to the warrants
as of March 24, 1999. HomeCom then allocated $899,284 of the series B net
proceeds to additional paid in capital for the beneficial conversion feature.
The beneficial conversion feature will be recognized as a deemed dividend to the
preferred shareholders over the minimum period in which the preferred
shareholders can realize that return. Approximately $792,000 of the beneficial
conversion was amortized in the second quarter of 1999. The balance of the
beneficial conversion feature is being recognized from the issuance date through
March, 2002.
HomeCom has the option to redeem the series B preferred stock after 110 days
for 120% of face value. Additionally, if HomeCom has issued common stock upon
conversion of the series B preferred stock such that 19.99% of the common stock
outstanding is held by the preferred shareholders, HomeCom must obtain approval
of the shareholders before any more preferred shares can be converted. If such
approval is not obtained within 60 days, the preferred shareholders may require
HomeCom to repurchase the remaining series B preferred stock at 120% of face
value. At the issuance date, HomeCom had obtained irrevocable proxies from
shareholders representing approximately 40% of the common shareholders to vote
in favor of increasing the number of shares should such vote be required. The
series B preferred stock is presented outside of permanent equity as the outcome
of the shareholder vote, and possible redemption, is outside of the control of
HomeCom.
48
<PAGE>
SERIES C PREFERRED STOCK
Pursuant to our certificate of incorporation, the Board has classified 175
shares of preferred stock as Series C Convertible Preferred Stock with the
rights, preferences, privileges and terms set forth in the certificate of
designations filed with the State of Delaware. Of the 175 shares authorized by
the Board, all are currently outstanding. The stated value per share of the
series C preferred stock is $20,000. All shares of common stock are to be of
junior rank to all series C preferred shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution, and winding up of
HomeCom. The rights of the shares of common stock are subject to the preferences
and relative rights of the series C preferred shares. Except for the series B
preferred stock, the series C preferred shares shall be of greater rank than any
series of common or preferred stock issued by us in the future. Without the
prior express written consent of the holders of not less than a majority of the
then outstanding series C preferred shares, we shall not hereafter authorize or
issue additional or other capital stock that is of senior or equal rank to the
series C preferred shares in respect of the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of HomeCom. Without
the prior express written consent of the holders of not less than a majority of
the then outstanding series C preferred shares, we shall not hereafter authorize
or make any amendment to the our certificate of incorporation or bylaws, 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 C
preferred shares relative to the holders of the common stock or the holders of
any other class of capital stock. In the event of our merger or consolidation
with or into another corporation, the series C preferred shares shall maintain
their relative powers, designations, and preferences provided for herein, and no
merger may result that is inconsistent with this provision.
Holders of the series C preferred stock are not entitled to receive
dividends. If any series C preferred shares are outstanding, we may not, without
the prior express written consent of the holders of a majority of the then
outstanding series C preferred shares, 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 C preferred
shares at least thirty (30) days prior to the earlier of (a) the record date
taken for or (b) the payment of the dividend or other distribution. We may
declare and pay a dividend in cash with respect to the common stock so long as
we: (i) pay simultaneously to each holder of series C preferred shares an amount
in cash equal to the amount the holder would have received had all of the
holder's series C preferred shares been converted to common stock one business
day prior to the record date for the dividend, and after giving effect to the
payment of any dividend and any other payments required in connection therewith,
including to the holders of the series C preferred shares, we have in cash or
cash equivalents an amount equal to the aggregate of:
- all of its liabilities reflected on its most recently available balance
sheet;
- the amount of any indebtedness incurred by us or any of its subsidiaries
since its most recent balance sheet;
- 120% of the amount payable to all holders of any shares of any class of
preferred stock assuming a liquidation as the date of our most recently
available balance sheet.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up, the holders of the series C preferred shares shall be entitled to
receive in cash out of our assets, whether from capital or from earnings
available for distribution to its stockholders, before any amount shall be paid
to the holders of any of our capital stock of any class junior in rank to the
series C preferred shares in respect of the preferences as to the distributions
and payments on the liquidation, dissolution and winding up, an amount per
series C preferred share equal to the sum of (i) $20,000 and (ii) a premium of
6% per year of the stated value from the date of issuance of the series C
preferred stock; provided that, if the funds are insufficient to pay the full
amount due to the holders of series C preferred shares and holders of shares of
other classes or series of preferred stock that are of equal rank with the
series C preferred shares as to payments of this type, then
49
<PAGE>
each holder of series C preferred shares and other preferred shares shall share
equally in the available funds in accordance with their respective liquidation
preferences. The purchase or redemption by us of stock of any class in any
manner permitted by law shall not be regarded as a liquidation, dissolution or
winding up. Neither our consolidation or merger with or into any other person,
nor the sale or transfer by us of less than substantially all of its assets
shall be deemed to be a liquidation, dissolution or winding up.
The holders of series C 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.
The series C preferred stock has an initial stated value of $20,000 per
share, which increases at the rate of 6% per year. Each series C preferred share
is convertible, beginning 120 days following the date of issuance, at the option
of the holder, into the number of shares of common stock determined by dividing
the stated value by the lower of (a) $5.875, and (b) 82.5% of the average of the
closing bid prices for the five trading days prior to the date of conversion.
Any series C preferred stock outstanding on July 22, 2002 will automatically be
converted into common stock at the conversion price then in effect.
If all the outstanding shares of series C preferred stock were converted as
of September 27, 1999, based upon the closing bid prices of the shares prior to
that date, under the conversion formula of the series C preferred stock the
conversion price for the shares would be set at a price of $3.15 per share.
After taking into effect a premium of 6% per year from the date of issuance
provided for under the terms of the series C preferred stock, the 175
outstanding shares of series C preferred stock would be convertible into
1,111,111 shares of common stock, or approximately 16.7% of the outstanding
shares. The following table includes the total number of shares that would be
issued upon conversion of all the series C preferred stock, and the percentage
of the currently issued and outstanding shares that such number of shares would
represent, under the following assumptions, and in each case after taking into
effect the 6% annual premium through September 27, 1999:
(a) assuming the current conversion price of $3.15 per share;
(b) assuming a conversion price 25% below the closing bid price as of
September 27, 1999 of $3.8125 per share, or $2.36 per share;
(c) assuming a conversion price 50% below the closing bid price as of
September 27, 1999 of $3.8125 per share, or $1.57 per share; and
(d) assuming a conversion price 75% below the closing bid price as of
September 27, 1999 of $3.8125 per share, or $0.79 per share.
<TABLE>
<CAPTION>
THE SERIES C PREFERRED
SHARES WOULD CONVERT INTO:
--------------------------------------------
NUMBER OF SHARES PERCENT OF OUTSTANDING
----------------- -------------------------
<S> <C> <C>
At the Current Conversion Price......................................... 1,111,111 16.7%
At 25% below the Current Market Price................................... 1,483,051 22.2%
At 50% below the Current Market Price................................... 2,229,299 33.4%
At 75% below the Current Market Price................................... 4,430,380 66.4%
</TABLE>
Under the conversion price formula, there is no ceiling on the number of
shares of common stock into which the outstanding shares of series C preferred
stock can be converted. As a result, as the price of the common stock decreases,
the number of shares of common stock underlying the outstanding shares of series
C preferred stock continues to increase.
Under the conversion price formula, the series C preferred stock will be
convertible at a rate at or below the common stock's market price. The lower the
common stock's market price at the time a holder converts his outstanding shares
of series C preferred stock, the more shares of common stock the holder will get
in the conversion. To the extent a holder of shares of series C preferred stock
converts and then sells the shares of common stock, the common stock's market
price may decrease due to the additional
50
<PAGE>
shares in the market, allowing the selling holder to convert other shares of
series C preferred stock into greater amounts of common stock, the sale of which
could further depress the market price for the common stock. The downward
pressure on the market price of the common stock as a holder of the series C
preferred stock converts and sells material amounts of common stock could
encourage short sales by other holders or others, placing further downward
pressure on the market price of the common stock. The conversion of the
outstanding shares of series C preferred stock may result in substantial
dilution to the interest of other common stockholders, since each holder of the
outstanding shares of series C preferred stock may ultimately convert and sell
the full amount of common stock issuable upon conversion.
The holders of the series C preferred shares are limited with respect to the
number of shares that they can convert at any one time. In particular, they may
not beneficially own in excess of 4.9% of the outstanding share of common stock
following any conversion.
After the 90th day following the issuance of the series C preferred stock,
and through July 22, 2001, we have the right, under specified circumstances, to
prohibit holders of the series C preferred stock from exercising any conversion
rights for up to 90 days. If we exercise that right, we are required to
compensate the holders of the series C preferred stock in cash or in shares of
common stock. The right of the holders of the series C preferred stock to
convert their shares is also subject to the following restrictions: (i) during
the period beginning on the issuance date through the following 120 days, each
holder may not convert more than 25% of the series C preferred stock purchased
by such holder, (ii) during the period beginning on the issuance date through
the following 150 days, each holder may not convert more than 50% of the series
C preferred stock purchased by such holder; and (iii) during the period
beginning on the issuance date through the following 180 days, each holder may
not convert more that 75% of the series C preferred stock purchased by such
holder.
At any time after the issuance date, HomeCom has the right, in its sole
discretion, to redeem, from time to time, any or all of the series C preferred
stock provided that specified conditions are met, including that we have cash,
credit or standby underwriting facilities available to fund the redemption. The
redemption price is (i) 105% of the original purchase for the first 30 days
following the issuance date; (ii) 110% of the original purchase price for the
next 90 days thereafter and (iii) 120% of the original purchase price after 120
days from the issuance date.
The issuance of the series C preferred stock is also subject to the NASDAQ
National Market's Market Place Rule 4460 (i). Pursuant to the terms of this
rule, we have agreed with the holders of the series C preferred stock that so
long as we are subject to this rule or any rule substantially similar to this
rule, we will not issue more than 19.99% of the common stock outstanding on the
date the series C preferred stock was issued upon conversion of the series C
preferred stock in the absence of:
- the approval of the issuance by our stockholders; or
- a waiver by NASDAQ of the provisions of that rule.
On July 28, 1999, we completed a private placement of $3,500,000 principal
amount of our series C convertible preferred stock and related warrants to
purchase up to 59,574 shares of common stock. The series C preferred stock and
warrants were sold in reliance on Rule 506 of the Securities Act, which provides
an exemption from registration for sales to accredited investors, as defined by
Rule 501 under Regulation D of the Securities Act.
Pursuant to certain registration rights granted to the investors in the
private placement, we are obligated to file a registration statement under the
Securities Act with respect to a minimum of 1,244,444 shares of common stock
issuable upon conversion of the series C preferred stock and exercise of the
related warrants. We are obligated to pay penalties if the registration
statement is not filed and declared effective within specified time periods.
51
<PAGE>
We entered into, and consummated, the private placement of the series C
preferred stock and the warrants based on a determination by our board of
directors that HomeCom's level of cash and cash equivalents were inadequate to
permit HomeCom to continue in existence for a sustained period. While the board
of directors considered the disadvantages of the potential preferred stock,
including (i) the potential dilution of the voting power per share of common
stock, (ii) the potential dilution of the common stock book value, and (iii) the
potential negative impact on earnings per share of common stock, after
negotiations with investment banking firms and potential investors, and based
upon the pressures of the need for additional cash resources, the board of
directors determined that it was in the best interests of HomeCom and its
shareholders for HomeCom to proceed with the private placement based on the
board's belief that such transactions offered the most favorable terms then
available to HomeCom given the existing market conditions and HomeCom's need for
additional cash resources.
SERIES D PREFERRED STOCK
Pursuant to our certificate of incorporation, the Board has classified 75
shares of preferred stock as Series D Convertible Preferred Stock with the
rights, preferences, privileges and terms set forth in the certificate of
designations filed with the State of Delaware. Of the 75 shares authorized by
the Board, all are currently outstanding. The stated value per share of the
series D preferred stock is $20,000. All shares of common stock are to be of
junior rank to all series D preferred shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution, and winding up of
HomeCom. The rights of the shares of common stock are subject to the preferences
and relative rights of the series D preferred shares. Except for the Series B
preferred stock and the Series C preferred stock, the series D preferred shares
shall be of greater rank than any series of common or preferred stock issued by
us in the future. Without the prior express written consent of the holders of
not less than a majority of the then outstanding series D preferred shares, we
shall not hereafter authorize or issue additional or other capital stock that is
of senior or equal rank to the series D preferred shares in respect of the
preferences as to distributions and payments upon the liquidation, dissolution
and winding up of HomeCom. Without the prior express written consent of the
holders of not less than a majority of the then outstanding series D preferred
shares, we shall not hereafter authorize or make any amendment to the our
certificate of incorporation or bylaws, 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 D preferred shares relative to the holders
of the common stock or the holders of any other class of capital stock. In the
event of our merger or consolidation with or into another corporation, the
series D preferred shares shall maintain their relative powers, designations,
and preferences provided for herein, and no merger may result that is
inconsistent with this provision.
Holders of the series D preferred stock are not entitled to receive
dividends. If any series D preferred shares are outstanding, we may not, without
the prior express written consent of the holders of a majority of the then
outstanding series D preferred shares, 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 D preferred
shares at least thirty (30) days prior to the earlier of (a) the record date
taken for or (b) the payment of the dividend or other distribution. We may
declare and pay a dividend in cash with respect to the common stock so long as
we: (i) pay simultaneously to each holder of series D preferred shares an amount
in cash equal to the amount the holder would have received had all of the
holder's series D preferred shares been converted to common stock one business
day prior to the record date for the dividend, and after giving effect to the
payment of any dividend and any other payments required in connection therewith,
including to the holders of the series D preferred shares, we have in cash or
cash equivalents an amount equal to the aggregate of:
- all of its liabilities reflected on its most recently available balance
sheet;
- the amount of any indebtedness incurred by us or any of its subsidiaries
since its most recent balance sheet;
52
<PAGE>
- 120% of the amount payable to all holders of any shares of any class of
preferred stock assuming a liquidation as the date of our most recently
available balance sheet.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up, the holders of the series D preferred shares shall be entitled to
receive in cash out of our assets, whether from capital or from earnings
available for distribution to its stockholders, before any amount shall be paid
to the holders of any of our capital stock of any class junior in rank to the
series D preferred shares in respect of the preferences as to the distributions
and payments on the liquidation, dissolution and winding up, an amount per
series D preferred share equal to the sum of (i) $20,000 and (ii) a premium of
6% per year of the stated value from the date of issuance of the series D
preferred stock; provided that, if the funds are insufficient to pay the full
amount due to the holders of series D preferred shares and holders of shares of
other classes or series of preferred stock that are of equal rank with the
series D preferred shares as to payments of this type, then each holder of
series D preferred shares and other preferred shares shall share equally in the
available funds in accordance with their respective liquidation preferences. The
purchase or redemption by us of stock of any class in any manner permitted by
law shall not be regarded as a liquidation, dissolution or winding up. Neither
our consolidation or merger with or into any other person, nor the sale or
transfer by us of less than substantially all of its assets shall be deemed to
be a liquidation, dissolution or winding up.
The holders of series D 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.
The series D preferred stock has an initial stated value of $20,000 per
share, which increases at the rate of 6% per year. Each series D preferred share
is convertible, at the option of the holder, into the number of shares of common
stock determined by dividing the stated value by the lower of (a) $5.875, and
(b) 82.5% of the average of the closing bid prices for the five trading days
prior to the date of conversion. Any series D preferred stock outstanding on
September 27, 2002 will automatically be converted into common stock at the
conversion price then in effect.
If all the outstanding shares of series D preferred stock were converted as
of September 27, 1999, based upon the closing bid prices of the shares prior to
that date, under the conversion formula of the series D preferred stock the
conversion price for the shares would be set at a price of $3.15 per share.
After taking into effect a premium of 6% per year from the date of issuance
provided for under the terms of the series D preferred stock, the 75 outstanding
shares of series D preferred stock would be convertible into 476,190 shares of
common stock, or approximately 7.1% of the outstanding shares. The following
table includes the total number of shares that would be issued upon conversion
of all the series D preferred stock, and the percentage of the currently issued
and outstanding shares that such number of shares would represent, under the
following assumptions, and in each case after taking into effect the 6% annual
premium through September 27, 1999:
(a) assuming the current conversion price of $3.15 per share;
(b) assuming a conversion price 25% below the closing bid price as of
September 27, 1999 of $3.8125 per share, or $2.36 per share;
(c) assuming a conversion price 50% below the closing bid price as of
September 27, 1999 of $3.8125 per share, or $1.57 per share; and
(d) assuming a conversion price 75% below the closing bid price as of
September 27, 1999 of $3.8125 per share, or $0.79 per share.
53
<PAGE>
<TABLE>
<CAPTION>
THE SERIES D PREFERRED
SHARES WOULD CONVERT INTO:
--------------------------------------------
NUMBER OF SHARES PERCENT OF OUTSTANDING
----------------- -------------------------
<S> <C> <C>
At the Current Conversion Price......................................... 476,190 7.1%
At 25% below the Current Market Price................................... 635,593 9.5%
At 50% below the Current Market Price................................... 955,414 14.3%
At 75% below the Current Market Price................................... 1,898,734 28.5%
</TABLE>
Under the conversion price formula, there is no ceiling on the number of
shares of common stock into which the outstanding shares of series D preferred
stock can be converted. As a result, as the price of the common stock decreases,
the number of shares of common stock underlying the outstanding shares of series
D preferred stock continues to increase.
Under the conversion price formula, the series D preferred stock will be
convertible at a rate at or below the common stock's market price. The lower the
common stock's market price at the time a holder converts his outstanding shares
of series D preferred stock, the more shares of common stock the holder will get
in the conversion. To the extent a holder of shares of series D preferred stock
converts and then sells the shares of common stock, the common stock's market
price may decrease due to the additional shares in the market, allowing the
selling holder to convert other shares of series D preferred stock into greater
amounts of common stock, the sale of which could further depress the market
price for the common stock. The downward pressure on the market price of the
common stock as a holder of the series D preferred stock converts and sells
material amounts of common stock could encourage short sales by other holders or
others, placing further downward pressure on the market price of the common
stock. The conversion of the outstanding shares of series D preferred stock may
result in substantial dilution to the interest of other common stockholders,
since each holder of the outstanding shares of series D preferred stock may
ultimately convert and sell the full amount of common stock issuable upon
conversion.
The holders of the series D preferred shares are limited with respect to the
number of shares that they can convert at any one time. In particular, they may
not beneficially own in excess of 4.9% of the outstanding shares of common stock
following any conversion.
After the 90th day following the issuance of the series D preferred stock,
and through September 27, 2001, we have the right, under specified
circumstances, to prohibit holders of the series D preferred stock from
exercising any conversion rights for up to 90 days. If we exercise that right,
we are required to compensate the holders of the series D preferred stock in
cash or in shares of common stock. The right of the holders of the series D
preferred stock to convert their shares is also subject to the following
restrictions: (i) during the period beginning on the issuance date through the
following 90 days, each holder may not convert more than 25% of the series D
preferred stock purchased by such holder, (ii) during the period beginning on
the issuance date through the following 120 days, each holder may not convert
more than 50% of the series D preferred stock purchased by such holder; and
(iii) during the period beginning on the issuance date through the following 150
days, each holder may not convert more that 75% of the series D preferred stock
purchased by such holder.
At any time after the issuance date, HomeCom has the right, in its sole
discretion, to redeem, from time to time, any or all of the series D preferred
stock provided that specified conditions are met, including that we have cash,
credit or standby underwriting facilities available to fund the redemption. The
redemption price is (i) 105% of the original purchase for the first 30 days
following the issuance date; (ii) 110% of the original purchase price for the
next 90 days thereafter and (iii) 120% of the original purchase price after 120
days from the issuance date.
The issuance of the series D preferred stock is also subject to the NASDAQ
National Market's Market Place Rule 4460 (i). Pursuant to the terms of this
rule, we have agreed with the holders of the series D preferred stock that so
long as we are subject to this rule or any rule substantially similar to this
54
<PAGE>
rule, we will not issue more than 19.99% of the common stock outstanding on the
date the series D preferred stock was issued upon conversion of the series D
preferred stock in the absence of:
- the approval of the issuance by our stockholders; or
- a waiver by NASDAQ of the provisions of that rule.
On September 28, 1999, we completed a private placement of $1,500,000 principal
amount of our series D convertible preferred stock and related warrants to
purchase up to 25,000 shares of common stock. The series D preferred stock and
warrants were sold in reliance on Rule 506 of the Securities Act, which provides
an exemption from registration for sales to accredited investors, as defined by
Rule 501 under Regulation D of the Securities Act.
Pursuant to certain registration rights granted to the investors in the
private placement, we are obligated to file a registration statement under the
Securities Act with respect to a minimum of 533,368 shares of common stock
issuable upon conversion of the series D preferred stock and exercise of the
related warrants. We are obligated to pay penalties if the registration
statement is not filed and declared effective within specified time periods.
We entered into, and consummated, the private placement of the series D
preferred stock and the warrants based on a determination by our board of
directors that HomeCom's level of cash and cash equivalents were inadequate to
permit HomeCom to continue in existence for a sustained period. While the board
of directors considered the disadvantages of the potential preferred stock,
including (i) the potential dilution of the voting power per share of common
stock, (ii) the potential dilution of the common stock book value, and (iii) the
potential negative impact on earnings per share of common stock, after
negotiations with investment banking firms and potential investors, and based
upon the pressures of the need for additional cash resources, the board of
directors determined that it was in the best interests of HomeCom and its
shareholders for HomeCom to proceed with the private placement based on the
board's belief that such transactions offered the most favorable terms then
available to HomeCom given the existing market conditions and HomeCom's need for
additional cash resources.
55
<PAGE>
WARRANTS
In connection with the completion with the our initial public offering, we
granted to our underwriter, Ladenburg Thalmann & Co. Inc., the underwriter,
warrants to acquire 100,000 shares of the common stock at an exercise price of
$7.20 per share. The exercise price is subject to adjustment under specified
circumstances. The underwriter warrants expire on May 12, 2002, if not earlier
exercised.
In connection with the completion of a sale of debentures in December of
1998, we issued to First Granite Securities, Inc., an entity designated by the
holder of the debentures, warrants to acquire an aggregate 400,000 shares of
common stock. Of these warrants, warrants to acquire an aggregate of 200,000
shares are exercisable at a price of $4.00 per share and warrants to acquire an
aggregate 200,000 shares are exercisable at a price of $6.00 per share. The
exercise price of these debenture warrants is subject to adjustment under
specified circumstances. If not earlier exercised, the debenture warrants expire
on October 27, 2000. Pursuant to an agreement dated April 8, 1998, in the event
that we agree to adjust the exercise price of the series B preferred stock
warrants to an exercise price below $5.00, we have also agreed to amend the
exercise price of any unexercised debenture warrants to the reduced exercise
price.
In connection with the completion of the sale of our series A preferred
stock, we issued the series A preferred stock warrants. These warrants represent
the right to acquire an aggregate of 125,000 shares of common stock, with
warrants to purchase 62,500 shares of common stock having an exercise price per
share equal to $14.50 per share and warrants to purchase the remaining 62,500
shares having an exercise price equal to $15.825. The exercise price of these
warrants is subject to adjustment under specified circumstances. The series A
preferred stock warrants will expire on December 31, 2000, and are eligible to
be exercised at any time on or after June 23, 1998.
In connection with the completion of the sale of series B convertible
preferred stock, we issued series B convertible preferred stock warrants. These
warrants represent the right to acquire an aggregate of 250,000 shares of common
stock, each with an exercise price per share equal to $5.70 per share. The
exercise price of these warrants is subject to adjustment under specified
circumstances. The series B convertible preferred stock warrants will expire on
March 24, 2004, if not earlier exercised.
In connection with the sale of the series C convertible preferred stock, we
issued series C preferred stock warrants. These warrants represent the right to
acquire an aggregate of up to 59,574 shares of common stock. The warrants expire
on July 27, 2004 and have an exercise price of $7.34 per share, subject to
adjustment.
In connection with the sale of the series D convertible preferred stock, we
issued series D preferred stock warrants. These warrants represent the right to
acquire an aggregate of up to 25,000 shares of common stock. The warrants expire
on September 27, 2004 and have an exercise price of $7.34 per share, subject to
adjustment.
LIMITATIONS ON LIABILITY OF DIRECTORS
HomeCom's restated certificate of incorporation contains provisions which
eliminate the personal liability of its directors for monetary damages resulting
from breaches of their fiduciary duty, other than liability for a breach of the
duty of loyalty, acts or omissions not in good faith that constitute a breach of
the director's duty to HomeCom, acts that involve intentional misconduct or a
knowing violation of the law, transactions in which the director receives an
improper benefit and acts or omissions for which liability is expressly provided
by an applicable statute. While the restated certificate of incorporation
provides directors with protection from awards for monetary damages for breach
of duties to HomeCom, it does not eliminate those duties. Accordingly, the
restated certificate of incorporation should not affect the availability of
equitable remedies, such as injunction or rescission, based on a director's
breach of the duty of care. However, equitable remedies may not provide
stockholders adequate monetary compensation for damages caused by breach of
duties to HomeCom. HomeCom's restated bylaws contain provisions requiring the
56
<PAGE>
indemnification of HomeCom's directors and officers, and persons serving at the
request of HomeCom as a director or officer of another corporation, to the
fullest extent permitted under the Delaware General Corporation Law. These
provisions do not apply to liabilities under federal securities laws. HomeCom
believes that these restated certificate of incorporation and bylaws provisions
are necessary to attract and retain qualified persons as directors and officers
of HomeCom.
STATUTORY BUSINESS COMBINATION PROVISION
HomeCom is subject to the provisions of Section 203 of the Delaware General
Corporation Law. Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person, or affiliate or associate of such person, who is an interested
stockholder for a period of three years from the date that such person became an
interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved by
the board of directors of the corporation before the person becomes an
interested stockholder, (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation and shares held by certain
employee stock ownership plans) or (iii) on or after the date the person becomes
an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
interested stockholder is defined (with certain limited exceptions) as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation that was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the date on which it
is sought to be determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws by action of
its stockholders to exempt itself from coverage, provided that such charter or
bylaw amendment shall not become effective until twelve months after the date it
is adopted. Neither the restated certificate of incorporation nor the restated
bylaws of HomeCom contains any such exclusion, although the Board of Directors
has excluded certain stockholders of HomeCom from the coverage of Section 203.
ADDITIONAL INFORMATION REGARDING BENEFICIAL
OWNERSHIP OF SHARES BY THE SELLING STOCKHOLDERS
The terms of the series C preferred stock and the warrants provide that the
preferred stock is convertible and the warrants are exercisable by any holder
only to the extent that the number of shares of common stock issuable at that
time, together with the number of shares of common stock beneficially owned by
that holder and its affiliates as determined in accordance with Section 13(d) of
the Securities Exchange Act, would not exceed 4.9% of our then outstanding
common stock.
The terms of the series D preferred stock and the warrants provide that the
preferred stock is convertible and the warrants are exercisable by any holder
only to the extent that the number of shares of common stock issuable at that
time, together with the number of shares of common stock beneficially owned by
that holder and its affiliates as determined in accordance with Section 13(d) of
the Securities Exchange Act, would not exceed 4.9% of our then outstanding
common stock.
ADDITIONAL INFORMATION REGARDING SOME OF
THE SHARES HELD BY THE SELLING SHAREHOLDERS
As a result of limitations imposed by Nasdaq and the terms of the series C
preferred stock, we may not issue shares representing more than 19.99% of our
common stock outstanding of the time of issuance
57
<PAGE>
of the Series C preferred stock unless we obtain stockholder approval or a
waiver of the limitations by Nasdaq. Similarly, as a result of limitations
imposed by Nasdaq and the terms of the series D preferred stock, we may not
issue shares representing more than 19.99% of our common stock outstanding at
the time of issuance of the Series D preferred stock unless we obtain
stockholder approval or a waiver of the limitations by Nasdaq.
PLAN OF DISTRIBUTION
Shares covered by this prospectus may be offered and sold from time to time
by the selling shareholders. The selling shareholders will act independently of
HomeCom in making decisions with respect to the timing, manner and size of each
sale. The selling shareholders may sell the shares:
- on the Nasdaq SmallCap Market-TM-;
- at prices and at terms then prevailing or at prices related to the then
current market price; or
- in private sales at negotiated prices directly or through brokers.
The selling shareholders and any underwriter, dealer or agent who
participates in the distribution of the shares may be deemed to be underwriters
under the Securities Act, and any discount, commission or concession received by
these persons might be deemed to be an underwriting discount or commission under
the Securities Act. We have agreed to indemnify the selling shareholders against
some liabilities arising under the Securities Act.
Any broker-dealer participating in transactions as agent may receive
commissions from the selling shareholders, and, if acting as agent for the
purchaser of the shares, from the purchaser). Usual and customary brokerage fees
will be paid by the selling shareholders. Broker-dealers may agree with the
selling shareholders to sell a specified number of shares at a stipulated price
per share, and, to the extent the broker-dealer is unable to do so acting as
agent for the selling shareholders, to purchase as principal any unsold shares
at the price required to fulfill the broker-dealer commitment to the selling
shareholders. Broker-dealers who acquire shares as principal may then resell the
shares from time to time in transactions in the over-the-counter market, in
negotiated transactions or by a combination of these methods of sale, at market
prices prevailing at the time of sale or at negotiated prices, and in connection
with resales may pay to or receive from the purchasers of the shares commissions
as described above.
We have advised the selling shareholders that the anti-manipulation rules
under the Exchange Act may apply to sales of shares in the market and to the
activities of the selling shareholders and their affiliates. The selling
shareholders have advised HomeCom that during the time as the selling
shareholders may be engaged in the attempt to sell shares registered under this
prospectus, they will:
- not engage in any stabilization activity in connection with any of the
shares;
- not bid for or purchase any of the shares or any rights to acquire the
shares, or attempt to induce any person to purchase any of the shares or
rights to acquire the shares other than as permitted under the Securities
Exchange Act;
- not effect any sale or distribution of the shares until after the
prospectus shall have been appropriately amended or supplemented, if
required, to describe the terms of the sale or distribution; and
- effect all sales of shares in broker's transactions through broker-dealers
acting as agents, in transactions directly with market makers, or in
privately negotiated transactions where no broker or other third party,
other than the purchaser, is involved.
The selling shareholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against some liabilities,
including liabilities arising under the Securities Act. Any commissions paid or
any discounts or concessions allowed to any broker-dealers, and any profits
received
58
<PAGE>
on the resale of shares, may be deemed to be underwriting discounts and
commissions under the Securities Act if the broker-dealers purchase shares as
principal.
In order to comply with the securities laws of some states, if applicable,
the shares will be sold in some jurisdictions only through registered or
licensed brokers or dealers. In some states, the shares may not be sold unless
the shares have been registered or qualified for sale in the applicable state or
an exemption from the registration or qualification requirement is available and
is complied with.
HomeCom has agreed to use its best efforts to maintain the effectiveness of
this registration statement with respect to the shares until the earlier of the
sale of the shares or two years from the date of this prospectus. No sales may
be made under this prospectus after that date unless we amend or supplement this
prospectus to indicate that we have agreed to extend the period of
effectiveness. There can be no assurance that the selling shareholders will sell
all or any of the shares offered under this prospectus.
LEGAL MATTERS
The validity of the common stock being offered hereby will be passed upon
for HomeCom by Sims Moss Kline & Davis, a Limited Liability Partnership,
Atlanta, Georgia. That law firm has received warrants to purchase shares of
common stock of the Company as part of its compensation for legal services. The
amount of compensation that the firm has received (or expects to receive for
services rendered but presently unbilled) in the form of warrants is
approximately $53,000.
EXPERTS
The financial statements of HomeCom Communications, Inc. as of December 31,
1997 and 1998 and for each of the three years in the period ended December 31,
1998, included in this Registration Statement, have been so included in reliance
on the report (which contains an explanatory paragraph relating to the Company's
ability to continue as a going concern as described in Note 12 to the financial
statements) of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing. The financial
statements of Premier Financial Services, Inc., First Institutional Marketing,
Inc., All Things Financial, Inc., and FIMI Securities, Inc. as of December 31,
1998 and 1997, and for each of the two years in the period ended December 31,
1998, included in this Registration Statement, have been so included in reliance
on the report of Andrew Shebay & Company, PLLC, independent auditors, given on
the authority of said firm as experts in accounting and auditing. The financial
statements of Ganymede Corporation as of December 31, 1998, and for the year
then ended, included in this Registration Statement, have been so included in
reliance on the report of Ostrow, Reisin Berk & Abrams, Ltd., independent
auditors, given on the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
HomeCom is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy and information statements, and other information with the Securities and
Exchange Commission. Such reports, proxy and information statements, and other
information filed by HomeCom can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the regional offices of the Commission
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such reports, proxy statements and other information can also
be inspected at the offices of the National Association of Securities Dealers,
Inc. at 1735 K Street, N.W., Washington, D.C. 20006. The Commission maintains a
world wide web site that contains reports, proxy and information statements, and
other information that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System. This web site can be accessed at
http://www.sec.gov.
59
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
HOMECOM COMMUNICATIONS, INC.:
- -----------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Report of Independent Accountants........................................................................ F-2
Balance Sheets as of December 31, 1997and 1998........................................................... F-3
Statements of Operations for Each of the Three Years in the
Period Ended December 31, 1998......................................................................... F-4
Statements of Stockholders' Equity (Deficit) for Each of the
Three Years in the Period Ended December 31, 1998...................................................... F-5
Statements of Cash Flows for Each of the Three Years in the
Period Ended December 31, 1998......................................................................... F-6
Notes to Financial Statements............................................................................ F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS:
Balance Sheets as of June 30, 1999 and December 31, 1998................................................. F-19
Statements of Operations for the Three and Six Month Periods
Ended June 30, 1999 and 1998........................................................................... F-20
Statements of Cash Flows for the Six Month Periods
Ended June 30, 1999 and 1998........................................................................... F-21
Notes to Financial Statements............................................................................ F-22
PREMIER FINANCIAL SERVICES, INC., FIRST INSTITUTIONAL MARKETING, INC., AND
ALL THINGS FINANCIAL, INC.
Independent Auditors' Report............................................................................. F-27
Combined Balance Sheets.................................................................................. F-28
Combined Statement of Income and Retained Earnings....................................................... F-30
Combined Statement of Cash Flows......................................................................... F-31
Notes to the Combined Financial Statements............................................................... F-32
FIMI SECURITIES, INC.:
- -----------------------------------------------------------------------------------------------------------
Independent Auditors' Report............................................................................. F-35
Statements of Financial Condition........................................................................ F-36
Statements of Income..................................................................................... F-37
Statements of Changes in Stockholder's Equity............................................................ F-38
Statements of Cash Flows................................................................................. F-39
Notes to the Financial Statements........................................................................ F-40
Schedule I............................................................................................... F-41
Schedule II.............................................................................................. F-42
Schedule III............................................................................................. F-43
PREMIER FINANCIAL SERVICES, INC., FIRST INSTITUTIONAL MARKETING, INC., ALL THINGS FINANCIAL, INC. AND FIMI
SECURITIES, INC.:
UNAUDITED INTERIM FINANCIAL STATEMENTS:
Combined Statement of Income (Loss) and Retained Earnings................................................ F-44
GANYMEDE CORPORATION:
- -----------------------------------------------------------------------------------------------------------
Independent Auditors' Report............................................................................. F-45
Balance Sheet............................................................................................ F-46
Statement of Loss and Deficit............................................................................ F-47
Statement of Cash Flows.................................................................................. F-48
Notes to Financial Statements............................................................................ F-49
</TABLE>
F-1
<PAGE>
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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has experienced recurring losses and negative
cash flows since its inception and has an accumulated deficit. The Company is
dependent on continued financing from investors to sustain its activities and
there is no assurance that such financing will be available. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 12. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 29, 1999, except as to Note 12,
which is as of September 7, 1999
F-2
<PAGE>
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.
F-3
<PAGE>
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.
F-4
<PAGE>
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
STOCKHOLDERS'
SUBSCRIPTIONS ACCUMULATED EQUITY
RECEIVABLE DEFICIT (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
F-5
<PAGE>
HOMECOM COMMUNICATIONS, INC.
STATEMENTS 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
--------- ---------- ----------
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.
F-6
<PAGE>
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.
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.
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,
F-7
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
F-8
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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,
----------------------
<S> <C> <C>
1997 1998
---------- ----------
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>
F-9
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. NOTES PAYABLE
Notes payable are comprised of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1998
------------ ------------
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
FAST HOSTAMERICA HISS PRODUCTS INSURERATE ITEMS
--------- --------------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues.................................. $ 1,950 $ 531 $ 782 $ 29 $ 0 $ 0
Net Income (Loss)......................... $ (363) $ 256 $ (67) $ (443) $ (357) $ (230)
<CAPTION>
CONSOLIDATED
TOTALS
------------
<S> <C>
Revenues.................................. $ 3,292
Net Income (Loss)......................... $ (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>
F-10
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SEGMENT INFORMATION (CONTINUED)
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.
Revenues for the years ended December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
SOFTWARE
FAST HOSTAMERICA HISS PRODUCTS INSURERATE
--------- --------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues--1997........................................ $ 1,792 $ 692 $ 375 $ 20 $ --
Revenues--1996........................................ $ 1,845 $ 304 $ 70 $ 80 $ --
<CAPTION>
CONSOLIDATED
TOTALS
------------
<S> <C>
Revenues--1997........................................ $ 2,879
Revenues--1996........................................ $ 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.
F-11
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 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
F-12
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. EQUITY AND CONVERTIBLE DEBT TRANSACTIONS (CONTINUED)
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, 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
F-13
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. EQUITY AND CONVERTIBLE DEBT TRANSACTIONS (CONTINUED)
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.
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
F-14
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTION PLANS (CONTINUED)
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 1998 1997
--------- --------- ---------
<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>
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 1998 1997
--------- ---------- ----------
<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>
F-15
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTION PLANS (CONTINUED)
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
EXERCISE PRICES SHARES CONTRACTUAL 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 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
F-16
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITIONS AND DIVESTITURES (CONTINUED)
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 primarily to insurance agencies affiliated with commercial banks and
broker/dealers. The Company will account for this acquisition as a purchase
transaction.
F-17
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS (CONTINUED)
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.
12. BASIS OF PRESENTATION--GOING CONCERN (UNAUDITED INFORMATION AS OF JUNE 30,
1999)
The accompanying financial statements have been prepared in accordance with
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 continues to incur significant losses
resulting in an accumulated deficit of approximately $6.7 million and $11.3
million at December 31, 1998 and June 30, 1999, respectively. The Company has
experienced negative cash flows from operations totaling approximately $4.4
million during the year ended December 31, 1998 and approximately $3.5 million
during the six month period ended June 30, 1999. The Company is dependent on
continued financing from investors to sustain its activities and there is no
assurance that such financing will be available. These factors raise substantial
doubt about the Company's ability to continue as a going concern. On September
7, 1999, the Company announced a reduction of its workforce and the planned sale
of its security division in order to reduce its expenses. The Company's
continued existence as a going concern is dependant upon adequate future debt or
equity funding and successful commercialization of its products and services.
F-18
<PAGE>
HOMECOM COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 813,735 $ 2,291,932
Restricted cash.............................................................. -- 250,000
Accounts receivable, net of allowance for uncollectible accounts of $232,750
and $95,384 as of June 30, 1999 and December 31, 1998, respectively........ 1,250,644 680,790
Loans to shareholders........................................................ 370,000 --
Other current assets......................................................... 567,178 4,796
-------------- -----------------
Total current assets..................................................... 3,001,557 3,227,518
FURNITURE, FIXTURES AND EQUIPMENT, NET......................................... 1,110,434 797,263
DEPOSITS....................................................................... 112,847 80,231
DEFERRED DEBT ISSUE COSTS...................................................... -- 109,158
INTANGIBLE ASSETS, NET......................................................... 6,086,378 351,320
Other........................................................................ 235,934 --
-------------- -----------------
Total assets............................................................. $ 10,547,150 $ 4,565,490
-------------- -----------------
-------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses........................................ $ 1,807,777 $ 424,094
Accrued payroll liabilities.................................................. 438,271 300,927
Unearned revenue............................................................. 52,026 128,345
Current portion of obligations under capital leases.......................... 119,220 108,427
-------------- -----------------
Total current liabilities................................................ 2,417,294 961,793
OTHER LIABILITIES.............................................................. 61,250 67,006
OBLIGATIONS UNDER CAPITAL LEASES............................................... 162,256 88,242
-------------- -----------------
2,640,800 1,117,041
-------------- -----------------
REDEEMABLE PREFERRED STOCK--Series B, $.0001 par value, 1,000,000 shares
authorized, 125 and 0 shares issued and outstanding at June 30, 1999 and
December 31, 1998, respectively; participating; liquidation value of $20,268
per share at June 30, 1999................................................... 1,659,323 --
-------------- -----------------
COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 15,000,000 shares authorized, 6,654,140 and
5,072,397 shares issued and outstanding at June 30, 1999 and December 31,
1998, respectively......................................................... 665 507
Additional paid-in capital................................................... 17,705,160 10,355,724
Subscriptions receivable..................................................... (196,878) (196,878)
Accumulated deficit.......................................................... (11,261,920) (6,710,904)
-------------- -----------------
Total common stock and other stockholders' equity........................ 6,247,027 3,448,449
-------------- -----------------
Total liabilities and stockholders' equity............................... $ 10,547,150 $ 4,565,490
-------------- -----------------
-------------- -----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
------------- ------------- ------------- ------------
NET SALES:
Service sales..................................... $ 1,972,734 $ 856,283 $ 2,952,930 $ 1,619,029
Equipment sales................................... 32,322 40,870 94,463 160,551
------------- ------------- ------------- ------------
Total net sales................................. 2,005,056 897,153 3,047,393 1,779,580
------------- ------------- ------------- ------------
COST OF SALES:
Cost of services.................................. 1,193,309 612,135 1,903,090 1,042,298
Cost of equipment sold............................ 15,990 16,830 65,165 99,392
------------- ------------- ------------- ------------
Total cost of sales............................. 1,209,299 628,965 1,968,255 1,141,690
------------- ------------- ------------- ------------
GROSS PROFIT........................................ 795,757 268,188 1,079,138 637,890
------------- ------------- ------------- ------------
OPERATING EXPENSES:
Sales and marketing............................... 1,115,444 275,708 1,637,397 595,237
Product development............................... 165,280 130,758 350,579 220,421
General and administrative........................ 1,460,907 1,131,331 2,264,722 1,914,920
Depreciation and amortization..................... 457,104 138,764 608,823 217,157
------------- ------------- ------------- ------------
Total operating expenses........................ 3,198,735 1,676,561 4,861,521 2,947,735
------------- ------------- ------------- ------------
OPERATING (LOSS).................................... (2,402,978) (1,408,373) (3,782,383) (2,309,845)
OTHER EXPENSES (INCOME)
Gain on sale of division.......................... -- (4,402,076) -- (4,402,076)
Interest expense.................................. 11,444 172,500 16,153 438,529
Other expense (income), net....................... (27,383) (28,109) (39,910) (67,156)
------------- ------------- ------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES................... (2,387,039) 2,849,312 (3,758,626) 1,720,858
INCOME TAX PROVISION (BENEFIT)...................... -- -- -- --
------------- ------------- ------------- ------------
NET INCOME (LOSS)................................... (2,387,039) 2,849,312 (3,758,626) 1,720,858
PREFERRED STOCK DIVIDEND............................ (792,390) (225,491) (792,390) (666,667)
------------- ------------- ------------- ------------
NET INCOME (LOSS) APPLICABLE TO COMMON
SHAREHOLDERS...................................... $ (3,179,429) $ 2,623,821 $ (4,551,016) $ 1,054,191
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
BASIC EARNINGS (LOSS) PER SHARE..................... $ (.48) $ .63 $ (.77) $ .29
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
DILUTED EARNINGS (LOSS) PER SHARE................... $ (.48) $ .54 $ (.77) $ .25
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING--BASIC... 6,585,603 4,190,088 5,912,072 3,637,803
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING--DILUTED.............................. 6,585,603 4,895,185 5,912,072 4,782,516
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
<S> <C> <C>
1999 1998
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................. $(3,758,626) $1,720,858
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation and amortization................................................. 608,823 217,157
Amortization of debt discount................................................. -- 122,778
Amortization of debt issue costs.............................................. -- 283,754
Gain on sale of division...................................................... -- (4,402,076)
Provision for bad debts....................................................... 133,500 45,000
Deferred rent expense......................................................... (21,571) (47,743)
Change in operating assets and liabilities:
Accounts receivable......................................................... (406,158) (328,211)
Prepaid expenses............................................................ (562,382)
Accounts payable and accrued expenses....................................... 779,516 (122,478)
Accrued payroll liabilities................................................. 102,157 (3,508)
Unearned revenue............................................................ (76,319) (176,871)
Other....................................................................... (270,718) (12,804)
---------- ---------
Net cash used in operating activities........................................... (3,471,778) (2,704,144)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment..................................... (252,793) (240,831)
Proceeds from sale of division.................................................... -- 4,500,000
Cash from acquisition............................................................. 136,938 --
Loans to shareholders............................................................. (370,000)
Payment of acquisition costs...................................................... (356,285) --
Other............................................................................. -- (46,540)
---------- ---------
Net cash (used in) provided by investing activities............................. (842,140) 4,212,629
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of deferred offering costs................................................ -- (28,937)
Payment of deferred debt issue costs.............................................. -- (35,395)
Proceeds from issuance of preferred shares and warrants, net of offering costs.... 2,283,750 --
Repayment of capital lease obligations............................................ (146,516) (32,020)
Proceeds from issuance of common shares and exercise of warrants.................. 448,487 --
---------- ---------
Net cash provided by (used in) financing activities............................. 2,585,721 (96,352)
---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ (1,728,197) 1,412,133
CASH AND CASH EQUIVALENTS at beginning of period.................................... 2,541,932 3,187,948
---------- ---------
CASH AND CASH EQUIVALENTS at end of period.......................................... $ 813,735 $4,600,081
---------- ---------
---------- ---------
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON CASH INVESTING AND
FINANCING ACTIVITIES:
During the six-month periods ended June 30, 1999 and 1998, capital lease
obligations of $93,242 and $159,391, respectively, were incurred when the
Company entered into leases on computer equipment.
During the six months ended June 30, 1999, the Company issued 1,252,174 shares
of common stock for the net assets of First Institutional Marketing, Inc. and
certain of its affiliates.
During the six months ended June 30, 1999, the Company issued 185,342 shares of
common stock for the net assets of Ganymede Corporation.
During the six months ended June 30, 1998, $1,700,000 of convertible debentures
were converted into 961,460 shares of common stock.
During the six months ended June 30, 1998, 12,500 shares of preferred stock were
converted into 366,630 shares of common stock.
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to Article 10 of Regulation S-X of the
Securities and Exchange Commission. The accompanying unaudited financial
statements reflect, in the opinion of management, all adjustments necessary to
achieve a fair statement of the financial position and results of operations of
HomeCom Communications, Inc. (the "Company") for the interim periods presented.
All such adjustments are of a normal and recurring nature. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K.
2. ACQUISITION OF FIRST INSTITUTIONAL MARKETING, INC. ("FIMI")
On March 24, 1999, the Company acquired First Institutional Marketing, Inc.,
and certain of its affiliates ("FIMI") of Houston, Texas for total consideration
of $4,236,104, consisting of 1,252,174 shares of common stock. The acquisition
has been accounted for as purchase transaction. The value of the shares was
determined by using the average closing stock price of the two days before and
after the definitive agreement was publicly announced. The Company will engage
an independent firm to assess the fair value of the assets purchased and
liabilities assumed. The resulting intangible assets will be amortized over a
period of approximately 3 years. Results of operations for FIMI are included
with those of the Company subsequent to the date of acquisition.
Prior to the closing of the acquisition, the Company loaned the shareholders
of FIMI $370,000. The note is due January 29, 2000 and bears interest of 9%. The
loan may be repaid in cash or common stock.
In connection with the acquisition, the principal shareholders of FIMI were
granted 300,000 warrants to acquire HomeCom common stock at an exercise price of
$3.74 per share. Vesting of the warrants is contingent upon FIMI meeting certain
operating goals as defined in the agreement. If the operating results are
obtained, the warrants vest ratably over a three-year period on the anniversary
date of the acquisition.
3. ACQUISITION OF GANYMEDE CORPORATION
On April 23, 1999, the Company acquired all of the outstanding shares of
Ganymede Corporation ("Ganymede") for total consideration of $1,132,339,
consisting of 185,342 shares of common stock and $100,000 cash. The number of
shares was determined by dividing the total non-cash consideration by the
average closing price of the Company's stock for the 20 trading days prior to
April 9, 1999. The value of the shares was determined by using the average
closing stock price of the two days before and after the definitive agreement
was publicly announced. In addition, the Company entered into employment
agreements with the three principals of Ganymede, calling for them to continue
in their current roles for the acquired company.
The acquisition has been accounted for as a purchase. The purchase price
will be allocated to assets acquired and liabilities assumed based on their
estimated fair values. The resulting intangible assets will be amortized over a
period of approximately 3 years. Results of operations for Ganymede have been
included with those of the Company for periods subsequent to the date of
acquisition.
4. ISSUANCE OF SERIES B PREFERRED STOCK
The Company issued Series B Preferred Stock totaling $2,500,000 on March 25,
1999 (the "Issuance Date"). The Series B Preferred Stock investors were issued
125 shares of preferred stock, having a stated value of $20,000 per share, and
225,000 warrants to purchase common stock at $5.70 per share. The
F-22
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. ISSUANCE OF SERIES B PREFERRED STOCK (CONTINUED)
Company paid offering costs of $216,250 cash plus 25,000 warrants to purchase
common stock at $5.70 per share, resulting in net proceeds to the Company of
$2,283,750 for the preferred shares and warrants.
The Series B Preferred Stock bears no dividends and is convertible at the
option of the holder at the earlier of 90 days after issuance or the effective
date of a registration statement covering the shares. The warrants are
exercisable at any time and expire five years from the date of issuance.
The Series B Preferred Stock is convertible into common stock at a
conversion price equal to the lower of (a) the average of the closing price for
four consecutive trading days in the twenty-five consecutive trading days ending
one day prior to the conversion date ($4.86 at the Issuance date) and (b) $5.23.
The number of common shares into which the Series B Preferred Stock is
convertible is determined by dividing the stated value of the Series B Preferred
Stock, increased by 5% annually, by the conversion price. As the Series B
Preferred Stock is automatically convertible on March 24, 2002, the most
beneficial conversion ratio was determined to include the additional common
shares attributable to the 5% annual increase for the three year period ending
in 2002. After adjustment for this additional benefit the $4.86 conversion price
is reduced to $4.23, the most beneficial conversion price at the Issuance Date.
In determining the accounting for the beneficial conversion feature, the
Company first allocated the net proceeds of $2,283,750 to the preferred stock
and the warrants based on their relative fair values at the Issuance Date,
resulting in $1,766,217 assigned to the preferred stock and $517,533 assigned to
the warrants as of March 24, 1999. The Company then allocated $899,284 of the
Series B net proceeds to additional paid in capital for the beneficial
conversion feature. The beneficial conversion feature will be recognized as a
deemed dividend to the preferred shareholders over the minimum period in which
the preferred shareholders can realize that return. Approximately $792,000 of
the beneficial conversion was amortized in the second quarter of 1999. The
balance of the beneficial conversion feature is being recognized from the
Issuance Date through March, 2002.
The Company has the option to redeem the Series B Preferred Stock after 110
days for 120% of face value. Additionally, if the Company has issued common
stock upon conversion of the Series B Preferred Stock such that 19.99% of the
common stock outstanding is held by the preferred shareholders, the Company must
obtain approval of the shareholders before any more preferred shares can be
converted. If such approval is not obtained within 60 days shares of notice, the
preferred shareholders may require the Company to repurchase the remaining
Series B Preferred Stock at 120% of face value. At the Issuance Date, the
Company had obtained irrevocable proxies from shareholders representing
approximately 40% of the common shareholders to vote in favor of increasing the
number of shares should such vote be required. The Series B Preferred Stock is
presented outside of permanent equity as the outcome of the shareholder vote,
and possible redemption, is outside of the control of the Company.
5. ISSUANCE OF SERIES C AND D PREFERRED STOCK
On July 28, 1999, the Company completed a private placement of $3,500,000
principal amount of the Company's Series C Convertible Preferred Stock, par
value $.01 per share (the "Series C Preferred Stock") and warrants to acquire up
to 59,574 shares of Common Stock (the "Series C Preferred Warrants"). The Series
C Preferred Stock has an initial stated value of $20,000 per share, which stated
value increases at the rate of 6% per year (such stated value, as increased from
time to time, is referred to as the "Series C Stated Value"). Each Series C
Preferred Share is convertible, from and after 120 days following the date of
issuance, at the option of the holder, into such number of shares of Common
Stock as is determined by dividing the Series C Stated Value by the lesser of
(a) $5.875, and (b) 82.5% of the average of the closing
F-23
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. ISSUANCE OF SERIES C AND D PREFERRED STOCK (CONTINUED)
bid prices for the five trading days preceding the date of conversion. Any
Series C Preferred Stock issued and outstanding on July 22, 2002 will
automatically be converted into Common Stock at the conversion price then in
effect.
Pursuant to certain registration rights granted to the investors in the
private placement, we are obligated to file a registration statement (the
"Registration Statement") under the Securities Act of 1933 (the "1933 Act") with
respect to a minimum of 1,244,444 shares of Common Stock issuable upon
conversion of the Series C Preferred Stock and exercise of the Series C
Preferred Warrants. We are obligated to pay penalties if the Registration
Statement is not filed and/or declared effective within the specified time
periods. We may, at our option at any time after the 90th day following the
issuance of the Series C Preferred Stock through July 22, 2001, prohibit holders
of the Series C Preferred Stock from exercising any conversion rights for up to
90 days, provided that certain conditions are met. If we exercise that right, we
are required to compensate the holders of the Series C Preferred Stock in cash
in an amount equal to 3% of the principal amount of the Series C Preferred Stock
held by each holder for each thirty days that prohibition is in effect (pro
rated for partial months) or, at our option, deliver Common Stock in payment of
such amount (based on the average closing bid prices for the Common Stock for
the twenty trading days preceding the end of each calendar month during the
period conversion is so prohibited).
The right of the holders of the Series C Preferred Stock to convert their
shares is also subject to the following restrictions: (i) during the period
beginning on the issuance date through the following 90 days, each holder may
not convert more than 25% of the Series C Preferred Stock purchased by such
holder; (ii) during the period beginning on the issuance date through the
following 120 days, each holder may not convert more than 50% of the Series C
Preferred Stock purchased by such holder; and (iii) during the period beginning
on the issuance date through the following 150 days, each holder may not convert
more than 75% of the Series C Preferred Stock purchased by such holder. At any
time after the issuance date, the Company shall have the right, in its sole
discretion, to redeem, from time to time, any or all of the Series C Preferred
Stock; provided that certain conditions are met, including the availability of
cash, credit or standby underwriting facilities available to fund the
redemption. The redemption price will be calculated as (i) 105% of the original
purchase price for the first 30 days following the issuance date; (ii) 110% of
the original purchase price for the next 90 days thereafter and (iii) 120% of
the original purchase price after 120 days from the issuance date.
The Series C Preferred Warrants expire on July 27, 2004 and have an exercise
price of $7.34 per share, subject to adjustment under certain circumstances.
On September 27, 1999, the Company completed a private placement of
$1,500,000 principal amount of the Company's Series D Convertible Preferred
Stock, par value $.01 per share (the "Series D Preferred Stock") and warrants to
acquire up to 25,000 shares of Common Stock (the "Series D Preferred Warrants").
The Series D Preferred Stock has an initial stated value of $20,000 per share,
which stated value increases at the rate of 6% per year (such stated value, as
increased from time to time, is referred to as the "Series D Stated Value").
Each Series D Preferred Share is convertible, from and after 120 days following
the date of issuance, at the option of the holder, into such number of shares of
Common Stock as is determined by dividing the Series D Stated Value by the
lesser of (a) $5.875, and (b) 82.5% of the average of the closing bid prices for
the five trading days preceding the date of conversion. Any Series D Preferred
Stock issued and outstanding on September 27, 2002 will automatically be
converted into Common Stock at the conversion price then in effect.
F-24
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. BASIC AND DILUTED INCOME (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share", effective December 31, 1997. Earnings (loss) per
common share was computed by dividing net income (loss) available to common
shareholders by the weighted average number of shares of common stock
outstanding for the period then ended. The effect of the Company's stock options
and convertible securities was excluded from the computations for the three and
six months ended June 30, 1999, as they are antidilutive.
The following table sets forth the computation of basic and diluted earnings
(loss) per share for the three and six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
----------- ---------- ----------- ----------
Numerator:
Net income (loss) available to common shareholders......... (3,179,429) 2,623,821 (4,551,016) 1,054,191
Numerator for basic earnings (loss) per share.............. (3,179,429) 2,623,821 (4,551,016) 1,054,191
Interest on convertible debentures......................... -- -- -- 122,778
Numerator for diluted earnings (loss) per share............ (3,179,429) 2,623,821 (4,551,016) 1,176,969
Denominator:
Weighted average common shares outstanding................. 6,585,603 4,190,088 5,912,072 3,637,803
Denominator for basic earnings (loss) per share............ 6,585,603 4,190,088 5,912,072 3,637,803
Dilutive options, warrants, convertible debentures, and
convertible preferred stock.............................. -- 705,097 -- 1,144,713
Denominator for diluted earnings (loss) per share.......... 6,585,603 4,895,185 5,912,072 4,782,516
Basic earnings (loss) per share............................ $ (0.48) $ 0.63 $ (0.77) $ 0.29
Diluted earnings (loss) per share.......................... $ (0.48) $ 0.54 $ (0.77) $ 0.25
</TABLE>
7. 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/FIMI. On June 9, 1998, the Company
sold substantially all of the assets of its HostAmerica Internet outsourcing
services business unit to Sage Acquisition Corp.
F-25
<PAGE>
HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. SEGMENT INFORMATION (CONTINUED)
The table below presents information about the reported business unit income
for HomeCom Communications, Inc. for the three and six months ended June 30,
1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
--------- --------- --------- ---------
Revenues:
FAST..................................................................... $ 1,071 $ 481 $ 1,846 $ 873
HostAmerica.............................................................. -- 215 -- 533
InsureRate/FIMI.......................................................... 826 -- 893 --
Software Products........................................................ 15 -- 80 --
HISS..................................................................... 93 201 228 374
--------- --------- --------- ---------
Totals................................................................... $ 2,005 $ 897 $ 3,047 $ 1,780
--------- --------- --------- ---------
--------- --------- --------- ---------
Business Unit Net Income (Loss):
FAST..................................................................... $ 153 $ (22) $ 267 $ (51)
HostAmerica.............................................................. -- 85 -- 261
InsureRate/FIMI.......................................................... (820) (106) (959) (105)
Software Products........................................................ (109) (170) (249) (172)
HISS..................................................................... (143) 14 (251) 16
--------- --------- --------- ---------
Business Unit Net Income (Loss).......................................... $ (919) $ (199) $ (1,192) $ (51)
Adjustments to reconcile business unit net income (loss) with
consolidated net income (loss):
General & Administrative Expenses........................................ (1,461) (1,131) (2,265) (1,915)
Gain on Sale of Division................................................. -- 4,402 -- 4,402
Interest Expense......................................................... (11) (173) (16) (439)
Net Other................................................................ 4 (50) (286) (276)
--------- --------- --------- ---------
Consolidated Net Income (Loss)........................................... $ (2,387) $ 2,849 $ (3,759) $ 1,721
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
8. INCOME TAXES
There was no provision for or cash payment of income taxes for the three and
six months ended June 30, 1999 and 1998, respectively, as the Company
anticipates a net taxable loss for the year ended December 31, 1999.
9. OTHER MATTERS
Certain prior period amounts have been reclassified to conform to current
period presentation
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
Premier Financial Services, Inc.
First Institutional Marketing, Inc.
All Things Financial, Inc.
Houston, Texas
We have audited the accompanying statements of financial condition of
Premier Financial Services, Inc., First Institutional Marketing, Inc., All
Things Financial, Inc., as of December 31, 1998 and 1997, and the related
statements of income, and changes in financial condition for the period then
ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Premier Financial Services,
Inc., First Institutional Marketing, Inc., All Things Financial, Inc., as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the period then ended in conformity with generally accepted accounting
principles.
Andrew Shebay & Company, PLLC
Houston, Texas
June 4, 1999
F-27
<PAGE>
PREMIER FINANCIAL SERVICES, INC.
FIRST INSTITUTIONAL MARKETING, INC.
ALL THINGS FINANCIAL, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents............................................................... $ 17,447 $ 55,912
Certificates of Deposit................................................................. 52,901 50,325
Accounts Receivable..................................................................... 164,173 265,465
---------- ----------
Total current assets................................................................ 234,521 371,702
---------- ----------
PROPERTY AND EQUIPMENT:
Computer Equipment...................................................................... 281,621 207,448
Office Equipment and Fixtures........................................................... 120,734 120,660
Automobiles............................................................................. 30,853 30,853
---------- ----------
433,208 358,961
Less: Accumulated Depreciation.......................................................... 313,558 290,326
---------- ----------
Net Property and Equipment.......................................................... 119,650 68,635
OTHER ASSETS:............................................................................. 1,879 1,879
---------- ----------
TOTAL ASSETS.............................................................................. $ 356,050 $ 442,216
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
PREMIER FINANCIAL SERVICES, INC.
FIRST INSTITUTIONAL MARKETING, INC.
ALL THINGS FINANCIAL, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable..................................................................... $ 279,520 $ 217,646
Bank Overdraft....................................................................... 25,007 --
Commissions Payable.................................................................. 71,037 73,547
Payroll Taxes Payable................................................................ 6,135 7,561
Other Accrued Liabilities............................................................ 13,166 2,738
Current Portion of Capital Leases.................................................... 13,242 1,925
Note Payable......................................................................... 15,815 15,815
----------- ----------
Total Current Liabilities........................................................ 423,922 319,232
LONG-TERM LEASE OBLIGATION-NET........................................................... 68,933 --
STOCKHOLDERS' EQUITY:
Premier Financial Services, Inc. -Common stock authorized 100,000 shares of $1 par
value, 930 shares issued........................................................... 930 930
First Institutional Marketing, Inc.--Common stock authorized 10,000 shares of $1 par
value, 930 shares issued 930 930
All Things Financial, Inc.,--Common stock authorized 10,000 shares of $1 par value,
930 shares issued.................................................................. 895 895
Paid in Capital--Premier Financial Services, Inc......................................... 100 100
Retained earnings........................................................................ (139,660) 120,129
----------- ----------
Total stockholders' equity....................................................... (136,805) 122,984
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................. $ 356,050 $ 442,216
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
PREMIER FINANCIAL SERVICES, INC.
FIRST INSTITUTIONAL MARKETING, INC.
ALL THINGS FINANCIAL, INC.
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDING DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
REVENUE............................................................................... $ 3,944,618 $ 4,277,324
COST OF REVENUES...................................................................... 3,155,312 3,211,206
------------ ------------
GROSS PROFIT.......................................................................... 789,306 1,066,118
OPERATING EXPENSES.................................................................... 883,180 986,771
------------ ------------
NET OPERATING INCOME.................................................................. (93,874) 79,347
OTHER INCOME (EXPENSE)
Interest Income................................................................... 3,854 2,495
Interest Expense.................................................................. (2,788) (815)
------------ ------------
Total Other Income............................................................ 1,066 1,680
------------ ------------
COMBINED NET INCOME................................................................... (92,808) 81,027
Retained Earnings--beginning of year.............................................. 120,129 151,298
Stockholder Distributions......................................................... (166,981) (112,196)
------------ ------------
RETAINED EARNINGS--END OF YEAR........................................................ $ (139,660) $ 120,129
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
PREMIER FINANCIAL SERVICES, INC.
FIRST INSTITUTIONAL MARKETING, INC.
ALL THINGS FINANCIAL, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDING DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................................................... $ (92,808) $ 81,027
Adjustments to Reconcile Combined Net Income to Net Cash Provided by Operating
Activities: Depreciation............................................................ 39,761 23,895
Decrease (Increase) In:
Accounts Receivable................................................................. 101,292 231,537
Employee Advances................................................................... -- 16,433
Due from Affiliate.................................................................. -- 2,437
(Decrease) Increase In:
Accounts Payable.................................................................... 59,365 (111,578)
Bank Overdraft...................................................................... 25,007 --
Commission Payable.................................................................. -- (52,709)
Payroll Taxes Payable............................................................... 9,002 2,824
Other Accrued Liabilities........................................................... -- (15,340)
---------- ----------
Net cash provided by operating activities............................................. 141,619 178,526
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in CD........................................................................ (2,579)
Purchase of Equipment................................................................. (94,022) (10,176)
---------- ----------
Net Cash (used) in Investing Activities............................................. (96,601) (10,176)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to Shareholders......................................................... (163,733) --
Proceeds from New Notes and Leases.................................................... 80,250 15,000
Repayments of Capital Lease Obligations............................................... (23,521)
---------- ----------
Net Cash (used) in Financing Activities............................................. (83,483) (8,521)
---------- ----------
NET INCREASE IN CASH...................................................................... (38,465) 159,829
Cash Balance--beginning of year....................................................... 55,912 (103,917)
---------- ----------
CASH BALANCE--END OF YEAR................................................................. $ 17,447 $ 55,912
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
PREMIER FINANCIAL SERVICES, INC.
FIRST INSTITUTIONAL MARKETING, INC.
ALL THINGS FINANCIAL, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business--Premier Financial Services, Inc., First
Institutional Marketing, Inc., All Things Financial, Inc., (the Companies) began
operations in 1989. The Companies are marketing organizations dedicated to
providing fixed and variable annuities, insurance products and full service
brokerage to banks, savings and loan and credit unions. Associated brokerage
services are provided by FIMI Securities, Inc., an uncombined company related
through common ownership. First Institutional Marketing, Inc., (FIMI), Premier
Financial Services, Inc., (PFS), and All Things Financial, Inc., (ATF) operated
exclusively in the United States.
Principles of Combination--The combined financial statements include the
combined accounts of the Companies, which are related through common ownership.
All material intercompany transactions have been eliminated.
Cash and Cash Equivalents--The Companies define cash equivalents as
short-term, highly liquid investments that are readily convertible to cash with
a maturity of less than three months.
Property and Equipment--Property and equipment are stated at cost less
accumulated depreciation. Depreciation expense is provided using accelerated and
straight-line methods for financial reporting purposes. Major classifications
and estimated useful lives are as follows:
<TABLE>
<S> <C>
Computer equipment................................................ 5-7 years
Office equipment and fixtures..................................... 7 years
Automobiles....................................................... 5 years
</TABLE>
Cost of assets includes capital expenditures, which improve the efficiency
of the assets or lengthen their useful lives. Normal or recurring expenditures
for repair and maintenance and capital expenditures of insignificant amounts are
expensed, when incurred. Cost and related accumulated depreciation of assets
sold or retired are eliminated from the accounts, and gains or losses on
disposal are reflected in income. Depreciation expense totaled $39,761 and
$23,895 in 1998 and 1997, respectively, and includes amortization of capital
leases.
Advertising costs--Advertising costs are charged to operations when the
advertising first takes place. No direct-response advertising is used by the
Companies. Total advertising expense for the years ending December 31, 1998 and
1997 was $43,038 and $59,468, respectively.
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 revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
2. LEASES
Operating lease--The Companies currently lease office space in a Houston,
Texas facility under a five year operating lease. The lease continues through
July 14, 2002, and provides for minimum monthly rental
F-32
<PAGE>
PREMIER FINANCIAL SERVICES, INC.
FIRST INSTITUTIONAL MARKETING, INC.
ALL THINGS FINANCIAL, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
2. LEASES (CONTINUED)
payments of $2,998, plus an annual increase based on the increase in building
operating costs. Rental expense for the year ending December 31, 1998 and 1997
was $85,825 and $83,792.
Capital leases--The Companies lease computer equipment under capital leases
expiring 1998 through 2004. At December 31, 1998 and 1997 the lease obligations
were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Capital lease for equipment payable to Bevenco, dated June 1995, interest at 10%, payable in
36 monthly installments of $330............................................................ $ -- $ 1,925
Capital lease for equipment payable to Bevenco, dated May 1998, interest at 15%, payable in
60 monthly installments of $657............................................................ 25,357 --
Capital lease for equipment payable to Bevenco, dated May 1998, interest at 15%, payable in
60 monthly installments of $1,417.......................................................... 56,818 --
--------- ---------
Total Lease Obligation................................................................. 82,175
Less amount shown as current................................................................. 13,242 1,925
--------- ---------
Long-term obligation......................................................................... $ 68,933 $ --
--------- ---------
--------- ---------
</TABLE>
Future minimum commitments, by year and in the aggregate related to capital
and non-cancelable operating leases at December 31, 1998, is as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
--------- ----------
<S> <C> <C>
Year ending December 31,
1999................................................................... $ 13,921 $ 35,976
2000................................................................... 15,433 35,976
2001................................................................... 17,987 35,976
2002................................................................... 20,963 17,988
2003................................................................... 13,871
--------- ----------
Total minimum lease payments........................................... $ 82,175 $ 161,892
--------- ----------
--------- ----------
</TABLE>
3. LONG-TERM DEBT
The note payable represents an agreement between First Institutional
Marketing, Inc. and one of its insurance carriers. The unsecured note is dated
April 14, 1997, and is payable in monthly installments of $1,356, beginning May,
1998. As of the date of this report no payments have been made on the note
because of a dispute with the insurance carrier. The note is reflected as a
current liability on the combined balance sheet.
4. INCOME TAXES
The Companies have elected to be taxed under the provisions of Subchapter S
of the Internal Revenue Code. Under those provisions, the Companies do not pay
Federal Corporate income taxes on its
F-33
<PAGE>
PREMIER FINANCIAL SERVICES, INC.
FIRST INSTITUTIONAL MARKETING, INC.
ALL THINGS FINANCIAL, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
4. INCOME TAXES (CONTINUED)
taxable income. Instead, the stockholders are liable for individual federal
income taxes on their respective shares of income.
5. TREASURY STOCK
During the year the Companies canceled all common stock held in treasury,
resulting in a reduction to the capital stock accounts and additional paid in
capital. Shares in treasury consisted of 405 shares of Premium Financial
Services, Inc.; 320 shares of First Institutional Marketing, Inc.; and 255
shares of All Things Financial, Inc.
6. RELATED PARTY TRANSACTIONS
Pursuant to informal agreements, Premier Financial Services, Inc. processes
payroll, contract labor charges, and various other general and administrative
expenses for affiliated companies. Premier Financial Services, Inc, is
reimbursed for this expense on a regular basis. Amounts paid by First
Institutional Marketing and All Things Financial, Inc. have been eliminated in
the combination. Additional reimbursements of $607,000 and $922,879 for the
years ending December 31, 1998 and 1997, are recorded in revenues.
7 EMPLOYEE BENEFITS
The Companies maintain a 401(k)-retirement plan that covers all eligible
employees. This defined contribution plan provides matching Company
contributions equal to 50% of the employee contribution to a maximum Company
contribution of 3%. Additionally, the Companies may make discretionary
contributions. Contributions by the Companies totaled $3,005 and $25,143, for
1998 and 1997 and are included in employee benefits.
8. NON-CASH TRANSACTIONS
During 1997, the Companies reclassified various shareholder loans and
advances to stockholder distributions. These reclassifications totaled $112,196
in 1997.
9. PROPOSED SALE OF THE COMPANY
On June 15, 1998 the shareholders of the Company signed a letter of intent,
along with the shareholders of other affiliated Companies, to exchange all of
the their common stock for common stock in HomeCom Communications, Inc. HomeCom
is a Company whose stock is listed on the NASDAQ. In November 1998 a merger
agreement was executed. On March 1, 1999, HomeCom filed a registration statement
with the Securities and Exchange Commission to cover one-half of the stock to be
issued in the merger. The merger was closed and became effective on March 24,
1999.
F-34
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
FIMI Securities, Inc.
Houston, Texas
We have audited the accompanying statements of financial condition of FIMI
Securities, Inc. (an S corporation), as of December 31, 1998 and 1997, and the
related statements of income, changes in stockholders' equity, and changes in
financial condition for the period then ended. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FIMI Securities, Inc., as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the period then ended in conformity with generally accepted accounting
principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information contained in
Schedules I, II, and III is presented for purposes of additional analysis and is
not a required part of the basic financial statements, but is supplementary
information required by rule 17a-5 of the Securities and Exchange Commission.
Such information has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, is fairly stated in
all material respects in relation to the basic financial statements taken as a
whole.
<TABLE>
<S> <C> <C>
/s/ Andrew Shebay & Company, PLLC
</TABLE>
March 2, 1999
F-35
<PAGE>
FIMI SECURITIES, INC.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current Assets:
Cash.................................................................................... $ 44,339 $ 29,621
Prepaid expense......................................................................... --
--------- ---------
Total current assets.................................................................. 44,339 29,621
Other Assets:
Organizational Cost..................................................................... 15,268 15,269
--------- ---------
$ 59,607 $ 44,890
--------- ---------
--------- ---------
Common stock--authorized 10,000 shares
of $1 par value, 1,000 shares issued and outstanding...................................... $ 1,000 $ 1,000
Contributed capital......................................................................... 19,000 19,000
Retained earnings........................................................................... 39,607 24,890
--------- ---------
Total stockholders' equity............................................................ $ 59,607 $ 44,890
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
FIMI SECURITIES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDING DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
REVENUE
Commissions........................................................................... $ 634,336 $ 868,823
Interest and other income............................................................. 95 4,001
---------- ----------
TOTAL REVENUE....................................................................... 634,431 872,824
---------- ----------
EXPENSES
Management fee........................................................................ 607,000 947,000
Broker fees........................................................................... 0 1,448
Accounting............................................................................ 3,800 3,000
Licenses & permits.................................................................... 8,115 1,220
Office supplies & expense............................................................. 248 214
Taxes................................................................................. 101 331
Professional fees..................................................................... 450 500
---------- ----------
TOTAL EXPENSES...................................................................... 619,714 953,713
---------- ----------
NET INCOME................................................................................ $ 14,717 $ (80,889)
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
FIMI SECURITIES, INC
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDING DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996........................................ $ 1,000 $ 19,000 $ 105,779 $ 125,779
Net income (loss)............................................. (80,889) (80,889)
---------- ----------- ---------- ----------
BALANCE, December 31, 1997........................................ 1,000 19,000 24,890 44,890
Net income (loss)............................................. 14,717 14,717
---------- ----------- ---------- ----------
BALANCE, December 31, 1998........................................ $ 1,000 $ 19,000 $ 39,607 $ 59,607
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
FIMI SECURITIES, INC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDING DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)...................................................................... $ 14,717 $ (80,889)
Change in prepaid expenses............................................................. -- 3,000
--------- ----------
Net cash provided (used) by operating activities....................................... 14,717 (77,889)
--------- ----------
CASH
Net increase (decrease) in cash........................................................ 14,717 (77,889)
Balance--beginning of year............................................................. 29,622 107,511
--------- ----------
Balance--end of year................................................................... $ 44,339 $ 29,622
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
FIMI SECURITIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the business--The Company was formed in 1994 primarily for the
purpose of qualifying and operating as a broker-dealer. The Company is a member
of the National Association of Security Dealers and is registered with the
Securities and Exchange Commission and with various states' securities
commissions. The Company's primary business is in the wholesale brokerage of
variable annuities.
Income taxes--The Company has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under those provisions, the Company
does not pay federal corporate income taxes on its taxable income. Instead, the
stockholders are liable for individual federal income taxes on their respective
shares of income.
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 revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
2. NET CAPITAL REQUIREMENTS
Pursuant to the net capital provisions of Rule 15c3-1 of the Securities
Exchange Act of 1934, the Company is required to maintain a minimum net capital,
as defined under such provisions. Net capital and the related net capital ratio
may fluctuate on a daily basis. At December 31, 1997, the Company had net
capital and net capital requirements of approximately $29,621 and $5,000
respectively. At December 31, 1998, the Company had net capital and net capital
requirements of approximately $44,338 and $5,000 respectively. The net capital
rules may effectively restrict the payment of cash dividends.
3. TRANSACTIONS WITH AFFILIATES
The management fee reported on the Statements of Income represents billings
from various affiliated companies for the fair market value of management and
administrative services rendered.
4. SIGNIFICANT CUSTOMER
A significant portion of the commission income is derived from transactions
with one company. Approximately 79% in 1998 and 20% in 1997 of commission income
is attributable to one unrelated Brokerage Company.
5. LITIGATION
During 1998 the Company was named in a lawsuit with certain affiliated
companies arising from a breach of contract dispute. At this time no estimate of
the potential outcome can be made by the Company's legal counsel. The Company
intends to vigorously defend its position.
6. PROPOSED SALE OF THE COMPANY
On June 15, 1998 the shareholders of the Company signed a letter of intent,
along with the shareholders of other affiliated Companies, to exchange all of
the their common stock for common stock in HomeCom Communications, Inc. HomeCom
is a Company whose stock is listed on the NASDAQ. In November 1998 a merger
agreement was executed. In March 1999, HomeCom filed a registration statement
with the Securities and Exchange Commission to cover the stock to be issued in
the merger. The merger is expected to be closed in early 1999.
F-40
<PAGE>
FIMI SECURITIES, INC.
COMPUTATION OF NET CAPITAL UNDER RULE 15C3-1
OF THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEARS ENDING DECEMBER 31, 1998 AND 1997
SCHEDULE I
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net capital:
Stockholders' Equity...................................................................... $ 59,607 $ 44,890
Less non-allowable assets:................................................................ 15,268 15,269
--------- ---------
Net capital before haircuts on securities position...................................... 44,339 29,621
--------- ---------
Haircuts on securities:..................................................................... -0- -0-
--------- ---------
Net capital............................................................................. $ 44,339 $ 29,621
--------- ---------
--------- ---------
Net capital requirement..................................................................... $ 5,000 $ 5,000
Net capital in excess of required amount.................................................... 39,339 24,621
--------- ---------
Net capital............................................................................. $ 44,339 $ 29,621
--------- ---------
--------- ---------
Aggregate indebtedness...................................................................... -0- -0-
--------- ---------
--------- ---------
Ratio of aggregate indebtedness to net capital.............................................. 0 to 1 0 to 1
--------- ---------
--------- ---------
</TABLE>
Note--This computation does not differ from the computation of net capital
under Rule 15c3-1 as of December 31, 1998 filed by FIMI Securities, Inc. with
the National Association of Securities Dealers on part II of Form X-17A-5.
F-41
<PAGE>
FIMI SECURITIES, INC.
COMPUTATION FOR DETERMINATION OF
RESERVE REQUIREMENT UNDER RULE 15C3-3
OF THE SECURITIES AND EXCHANGE COMMISSION
AS OF DECEMBER 31, 1998 AND 1997
SCHEDULE II
The Company is in compliance with the exemptive provisions of SEC Rule
15c3-3(k)(2)(i) in that it carried no margin accounts, handled no customers'
funds or securities, and held no funds or securities for or owed no money or
securities to its customers.
F-42
<PAGE>
FIMI SECURITIES, INC.
COMPUTATION FOR DETERMINATION OF
RESERVE REQUIREMENT UNDER RULE 15C3-3
OF THE SECURITIES AND EXCHANGE COMMISSION
AS OF DECEMBER 31, 1998 AND 1997
SCHEDULE III
NONE
F-43
<PAGE>
FIMI SECURITIES, INC.
PREMIER FINANCIAL SERVICES, INC.
FIRST INSTITUTIONAL MARKETING, INC.
ALL THINGS FINANCIAL, INC.
COMBINED STATEMENT OF INCOME (LOSS) AND RETAINED EARNINGS
FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH MARCH 23, 1999 (DATE OF ACQUISITION)
AND THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
JANUARY 1,
1999 SIX MONTHS
THROUGH ENDED
MARCH 23, 1999 JUNE 30, 1998
-------------- -------------
<S> <C> <C>
REVENUE............................................................................ $ 682,933 $ 2,044,491
COST OF REVENUES................................................................... 498,350 904,170
-------------- -------------
GROSS PROFIT....................................................................... 184,583 1,140,321
OPERATING EXPENSES................................................................. 332,329 1,100,252
-------------- -------------
NET OPERATING INCOME (LOSS)........................................................ (147,746) 40,069
OTHER INCOME (EXPENSE)
Interest Income................................................................ -- --
Interest Expense............................................................... -- --
-------------- -------------
Total Other Income......................................................... -- --
COMBINED NET INCOME (LOSS)......................................................... (147,746) 40,069
(Accumulated Deficit) Retained Earnings--beginning of year..................... (100,053) 165,019
Stockholder Distributions...................................................... -- --
-------------- -------------
(ACCUMULATED DEFICIT) RETAINED EARNINGS--END OF YEAR............................... $ (247,799) $ 205,088
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ganymede Corporation
Chicago, Illinois
We have audited the accompanying balance sheet of Ganymede Corporation as of
December 31, 1998, and the related statements of income and deficit and cash
flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ganymede Corporation as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Ostrow Reisin Berk & Abrams, Ltd
February 8, 1999
F-45
<PAGE>
GANYMEDE CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
ASSETS (NOTE 4)
Current assets:
Cash and equivalents (Notes 1 and 2).............................................................. $ 46,108
Accounts receivable, trade, less allowance for doubtful accounts of $2,500........................ 111,123
------------
Total current assets............................................................................ 157,231
------------
Property and equipment:
Computer equipment and furniture.................................................................. 72,885
Less accumulated depreciation..................................................................... 34,595
------------
Property and equipment, net..................................................................... 38,290
------------
Other asset:
Security deposits................................................................................. 1,820
------------
Total assets........................................................................................ $ 197,341
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIENCY
Current liabilities:
Accounts payable, trade........................................................................... $ 55,509
Accrued compensation.............................................................................. 142,845
Note payable, bank (Note 2)....................................................................... 43,554
Notes payable, stockholders (Note 3).............................................................. 134,300
------------
Total current liabilities....................................................................... 376,208
------------
Shareholders' equity deficiency:
Common stock, no par value; authorized 10,000,000 shares, issued and outstanding 980,000 shares
(Notes 4 and 8)................................................................................. 200,000
Additional paid-in capital........................................................................ 4,175
Deficit........................................................................................... (383,042)
------------
Total shareholders' equity deficiency........................................................... (178,867)
------------
Total liabilities and shareholders' equity deficiency............................................... $ 197,341
------------
------------
</TABLE>
See notes to financial statements.
F-46
<PAGE>
GANYMEDE CORPORATION
STATEMENT OF LOSS AND DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
----------------- JANUARY 1, SIX MONTHS ENDED
1999 JUNE 30, 1998
THROUGH -----------------
APRIL 23, 1999
-------------- (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C>
Service revenue............................................ $ 665,359 $ 275,619 $ 368,256
Operating expenses......................................... 716,458 341,508 (374,067)
----------------- -------------- -----------------
Loss from operations....................................... (51,099) (65,889) (5,811)
----------------- -------------- -----------------
Other income (expense):
Interest expense......................................... (20,915) (7,729) --
Interest income.......................................... 2,765 -- --
----------------- -------------- -----------------
Total other expense, net............................... (18,150) (7,729) --
----------------- -------------- -----------------
Net loss................................................... (69,249) (73,618) (5,811)
Deficit, beginning of year................................. (313,793) (383,042) (313,793)
----------------- -------------- -----------------
Deficit, end of year....................................... $ (383,042) $ (456,660) $ (319,604)
----------------- -------------- -----------------
----------------- -------------- -----------------
</TABLE>
See notes to financial statements.
F-47
<PAGE>
GANYMEDE CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Operating activities:
Net loss..................................................................................... $ (69,249)
Adjustments to reconcile above to cash used in operating activities:
Depreciation............................................................................... 15,963
(Increase) decrease in operating assets:
Accounts receivable, trade............................................................... (43,380)
Security deposits........................................................................ 1,539
Increase (decrease) in operating liabilities:
Accounts payable, trade.................................................................. 23,869
Accrued expenses......................................................................... 9,342
--------
Cash used in operating activities...................................................... (61,916)
--------
Investing activities:
Purchase of property and equipment........................................................... (10,309)
--------
Cash used in investing activities...................................................... (10,309)
--------
Financing activities:
Proceeds from notes payable, stockholders.................................................... 66,280
Proceeds from notes payable, bank, net....................................................... 2,239
--------
Cash provided by financing activities.................................................. 68,519
--------
Decrease in cash and equivalents............................................................... (3,706)
Cash and equivalents:
Beginning of year.............................................................................. 49,814
--------
End of year.................................................................................... $ 46,108
--------
--------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest....................................................... $ 20,915
--------
--------
</TABLE>
See notes to financial statements.
F-48
<PAGE>
GANYMEDE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION:
The Company is engaged in the development and maintenance of Internet web
sites and related consulting services. The Company also provides for host site
development and Internet connection. The Company's customers are in the greater
Chicagoland area.
CASH AND EQUIVALENTS:
Cash and equivalents consist of checking accounts and certificates of
deposit with maturities of three months or less.
PROPERTY, PLANT, EQUIPMENT AND RELATED DEPRECIATION AND AMORTIZATION:
Property and equipment are stated at cost. The Company provides for
depreciation and amortization of the various classes of assets over their
estimated useful lives, using primarily accelerated methods.
REVENUE RECOGNITION:
The Company recognizes revenue at the time services are performed.
ADVERTISING AND PROMOTION COSTS:
Advertising and promotion costs are charged to operations during the period
in which they are incurred. For the year ended December 31, 1998, such costs
were nominal.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
2. NOTE PAYABLE, BANK
A bank line of credit agreement provides for a $54,107 revolving line of
credit, with interest due monthly at 8.44% per annum. The note is secured by a
certificate of deposit at the bank in the amount of $54,107. The line of credit
matures March 1, 1999.
3. NOTES PAYABLE, STOCKHOLDERS
At December 31, 1998, the Company has unsecured notes payable to two
stockholders. The notes are due on demand and bear interest at the rate of 15%.
4. COMMITMENTS AND CONTINGENCIES
In October 1998, the Company entered into an Accounts Receivable Purchase
Agreement with Silicon Valley Financial Services. The agreement allows for the
Company to sell its receivables. No receivables have been sold as of December
31, 1998. In conjunction with the agreement, the Company has pledged its assets
and issued stock warrants for 3,750 shares of common stock to Silicon Valley
Financial Services. The warrants have an initial exercise price of $2.00 per
share, were all outstanding and exercisable at December 31, 1998 and expire in
November 2003.
F-49
<PAGE>
GANYMEDE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
The Company elected S Corporation status for income tax purposes. Under this
election, the shareholders report corporate income, if any, on their personal
income tax return. Accordingly, at December 31, 1998, no provision was made for
federal or state income taxes.
6. EMPLOYEES' SALARY DEFERRAL PLAN
The Company maintains an employee salary deferral plan. Participation is
voluntary, and all employees who meet prescribed service requirements are
eligible to participate up to 15% of their salaries. The Company did not
contribute to the plan during the year ended December 31, 1998.
7. OPERATING LEASE OBLIGATIONS
The Company leases its premises in Chicago for monthly rent of $2,970 plus
maintenance costs. The lease expires on July 31, 2000. Total rental expense for
all operating leases covering real estate was $34,660.
The Company leases computer equipment from a company controlled by a
stockholder on a month-to-month basis. Total rent paid to the related party was
$9,897 for the year ending December 31, 1998. The Company also leases computer
equipment under various terms from unrelated parties. Total rent paid to
unrelated parties was $9,223 for the year ended December 31, 1998. The leases
are secured by the leased equipment.
Future minimum rental payments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1999............................................................................... $ 46,078
2000............................................................................... 27,147
---------
Total.............................................................................. $ 73,225
---------
---------
</TABLE>
8. STOCK OPTIONS
The Company has a stock option plan which was adopted in 1997. Under the
plan, the Company may grant options to its employees for up to 50,000 shares of
common stock. The original exercise price for options granted under the plan was
$2.00, and the options are exercisable immediately without restrictions. The
options expire 10 years after the date of grant for shareholders owning less
then 10% and expire 5 years after the date of grant for shareholder owning 10%
or more. The fair value of the options is determined by the board of directors.
In October 1998, the board of directors granted 1,000 options to two employees.
The Company applies Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," which establishes financial
accounting and reporting standards for stock-based employee compensation plans.
The Company elected to continue to account for employee stock-based compensation
as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
and to provide pro forma disclosures in the Notes to Financial Statements of the
effects of SFAS No. 123 on net income. There was no material effect on the
results of operations as a result of adopting SFAS No. 123. Compensation costs
are recognized as the difference between the exercise price of each option and
the market price of the Company's stock, and no compensation costs were charged
to expense in 1998.
F-50
<PAGE>
GANYMEDE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS (CONTINUED)
The following table summarizes information about stock options outstanding
and exercisable under the plan at December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------
<S> <C> <C> <C> <C> <C>
SHARES SHARES
OUTSTANDING OPTION EXERCISED, OUTSTANDING REMAINING
DECEMBER 31, OPTIONS FORFEITED DECEMBER 31, CONTRACTUAL EXERCISE
1997 GRANTED OR EXPIRED 1998 LIFE PRICE
- ------------- ----------- ----------------- ------------- --------------- -----------
21,500 21,500 4 $ 2.00
10,500 10,500 9 $ 2.00
1,000 1,000 10 $ 2.00
------ ----------- ------
32,000 1,000 33,000
------ ----------- ------
------ ----------- ------
</TABLE>
The Company granted options for an additional 10,000 shares in January 1999.
The options have an exercise price of $2.00 per share and expire in 2009.
9. SUBSEQUENT EVENT
As shown in the accompanying financial statements, the Company incurred a
net loss of $69,249 during the year ended December 31, 1998 and, as of that
date, the Company's current liabilities exceeded its current assets by $218,977
and its total liabilities exceeded its total assets by $178,867. Those factors
create an uncertainty about the Company's ability to continue as a going
concern. Management of the Company has received a letter of intent to purchase
all of the outstanding stock of the Company which, if the transaction is carried
out, will provide the Company additional financing. The purchase price is based
on a multiple of one and a half times total revenues, and the transaction is
expected to close in April, 1999. The financial statements do not include any
adjustments that might be necessary if the Company does not consummate the
transaction and become unable to continue as a going concern.
10. RELATED PARTY TRANSACTION, ACCRUED SHAREHOLDERS' COMPENSATION
As of December 31, 1998, the Company has accrued $125,000 to certain
shareholders as compensation for past services rendered. Total compensation
expense to shareholder-officers was $218,000 for the year ended December 31,
1998.
The following unaudited pro forma financial statements give effect to the
acquisition by the Company of Ganymede in a transaction accounted for as a
purchase. The unaudited pro forma balance sheet is based on the individual
balance sheets of the Company appearing in the Company's Annual Report on Form
10-K, and of Ganymede, appearing elsewhere in this Current Report on Form 8-K,
and has been prepared to reflect the acquisition by the Company of Ganymede as
of December 31, 1998. The unaudited pro forma statements of income are based on
the individual statements of income of the Company appearing in the Company's
Annual Report on Form 10-K and of Ganymede, appearing elsewhere in this Current
Report on Form 8-K, and combines the results of operations of the Company and of
Ganymede (acquired by the Company as of April 23, 1999) for the year ended
December 31, 1998 and for the three months ended March 31, 1999, as if the
acquisition occurred on January 1, 1998. These unaudited pro forma financial
statements should be read in conjunction with the historical financial
statements and notes thereto of the Company appearing in the Company's Annual
Report on Form 10-K, and of Ganymede, appearing elsewhere in this Current Report
on Form 8-K.
F-51
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN SO AUTHORIZED BY
HOMECOM. THIS PROSPECTUS DOES NOT CONSTITUTE ANY OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF HOMECOM SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Forwarding-Looking Statements................... 4
Risk Factors.................................... 4
Issuance of Shares to Selling Shareholders...... 13
Use of Proceeds................................. 13
Price Range of Common Stock..................... 13
Dividend Policy................................. 14
Selected Financial Data......................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 17
Business........................................ 23
Management...................................... 30
Certain Transactions............................ 37
Recent Transactions............................. 38
Principal and Selling Stockholders.............. 41
Description of Capital Stock.................... 43
Warrants........................................ 50
Plan of Distribution............................ 51
Legal Matters................................... 53
Experts......................................... 53
Available Information........................... 53
Index to Financial Statements................... F-1
</TABLE>
HOMECOM
COMMUNICATIONS, INC.
SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF SHARES
OF HOMECOM'S SERIES C CONVERTIBLE
PREFERRED STOCK, SERIES D CONVERTIBLE
PREFERRED STOCK AND
UPON THE EXERCISE OF WARRANTS
---------------------
PROSPECTUS
---------------------
October 5, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................. $1,919.15
Nasdaq SmallCap Market additional listing fee................................... 7,500.00
Accountants' fees and expenses.................................................. 15,000.00
Legal fees and expenses......................................................... 45,000.00
Blue Sky fees and expenses...................................................... 5,000.00
Transfer Agent's fees and expenses.............................................. 500.00
Printing and engraving expenses................................................. 2,500.00
Miscellaneous................................................................... 2,580.85
---------
Total expenses.................................................................. $80,000.00
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law (the "DGCL") permits a corporation to
eliminate or limit the personal liability of a director to the corporation or
its stockholders for monetary damages for breach of duty of care or other duty
as a director, provided that no provision shall eliminate or limit the liability
of a director: (A) for an appropriation, in violation of his duties, of any
business opportunity of the corporation; (B) for acts or omissions which involve
intentional misconduct or a knowing violation of law; (C) for unlawful corporate
distributions; or (D) for any transaction from which the director received an
improper personal benefit. This provision pertains only to breaches of duty by
directors in their capacity as directors (and not in any other corporate
capacity, such as officers) and limits liability only for breaches of fiduciary
duties under Delaware corporate law (and not for violation of other laws, such
as the federal securities laws). HomeCom's Restated Certificate of Incorporation
(the "Restated Certificate") exonerates HomeCom's directors from monetary
liability to the extent permitted by this statutory provision.
HomeCom's Restated Certificate of Incorporation and Restated Bylaws (the
"Restated Bylaws") also provide that HomeCom shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including any action by or in the right of HomeCom), by reason of
the fact that such person is or was a director or officer of HomeCom, or is or
was serving at the request of HomeCom as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including reasonable attorneys' fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding, if such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of HomeCom (and with respect to any criminal action or proceeding, if
such person had no reasonable cause to believe such person's conduct was
unlawful), to the maximum extent permitted by, and in the manner provided by,
the DGCL.
Notwithstanding any provisions of HomeCom's Restated Certificate of
Incorporation and Restated Bylaws to the contrary, the DGCL provides that
HomeCom shall not indemnify a director or officer for any liability incurred in
a proceeding in which the director is adjudged liable to HomeCom or is subjected
to injunctive relief in favor of HomeCom: (1) for any appropriation, in
violation of his duties, of any business opportunity of HomeCom; (2) for acts or
omissions which involve intentional misconduct or a knowing violation of law;
(3) for unlawful corporate distributions; or (4) for any transaction from which
the director or officer received an improper personal benefit.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following list describes sales by the Registrant of securities in the
past three years which were not registered under the Securities Act.
During the period from its formation in December 1994 through August 1996,
the Registrant has issued the securities set forth below which were not
registered under the Securities Act of 1933, as amended (the "Securities Act").
All share amounts have been adjusted to reflect the Registrant's September 1996
recapitalization and 93.07 for 1 stock split.
1. In December 1994, in connection with the incorporation of the
Registrant, the Registrant issued and sold to its sole stockholder 93,070
shares of Common Stock for $27,706.
2. In February 1996, in connection with the recapitalization of the
Registrant, the Registrant issued and sold 707,332 shares of Common Stock to
its President, Chief Executive Officer and sole stockholder for a total
purchase price of $760.
3. In February 1996, the Registrant issued and sold 93,070 shares of
Common Stock to its Senior Vice President for a total purchase price of $10
upon the exercise of stock options granted in connection with the founding
of the Registrant.
4. Pursuant to a privately negotiated transaction with five investors,
the Registrant issued and sold to four of the investors in February 1996 an
aggregate of 893,472 shares of Common Stock for a total purchase price of
$96, and issued and sold to three of the investors in February, March and
May 1996 promissory notes in the aggregate principal amount of $499,904. In
May 1997, pursuant to the terms of such promissory notes, the Registrant
issued a total of 33,333 shares of Common Stock to the holders of such notes
in partial repayment of the principal amounts owed thereunder.
5. In August 1996, the Registrant issued an aggregate of 37,228 shares
of Common Stock to four members of its former Board of Advisors upon
exercise of warrants, for a total purchase price of $4.00.
6. In August 1996, the Registrant issued and sold an aggregate of
102,855 shares of Common Stock to six of its employees for a total purchase
price of $468,004.22, paid through delivery of 8% promissory notes, payable
25% per year, secured by the shares purchased thereby.
7. In August 1996, in connection with the Registrant's acquisition of
all of the stock of HomeCom internet Security Services, Inc., a Delaware
corporation ("HISS"), the Registrant and the stockholders of HISS entered
into a Stock Purchase Agreement which provides that the Registrant may, at
its option, issue shares of its Common Stock as all or part of the earnout
payments to be paid to such former stockholders pursuant to the Stock
Purchase Agreement.
8. In September 1996, the Registrant granted stock options (i) to three
directors under its Non-Employee Directors Stock Option Plan to purchase an
aggregate of up to 30,000 shares of Common Stock and (ii) to 24 employees
under its Stock Option Plan to purchase an aggregate of up to 79,167 shares
of Common Stock.
9. In September 1997, the Registrant issued and sold 5% convertible
debentures (the "Debentures") to four private investors for an aggregate
purchase price of $1,700,000. The Debentures were issued pursuant to the
terms of a 5% Convertible Debenture Purchase Agreement dated effective as of
September 19, 1997 (the "Debenture Agreement"). Outstanding principal and
interest on the Debentures is payable on September 22, 2000. The Debentures
are convertible at the option of the holders. As of May 15, 1998, all of the
5% Convertible Debentures had been converted into an aggregate 961,460
shares of HomeCom's Common Stock. In connection with the issuance of the
Debentures, the Registrant granted to an entity designated by the investors
aggregate warrants to acquire 400,000 shares of Common Stock, with warrants
to acquire 200,000 of such shares exercisable
II-2
<PAGE>
at a price of $4.00 per share and warrants to acquire the remaining 200,000
of such shares exercisable at a price of $6.00 per share. If not earlier
exercised, these warrants expire on October 27, 2000.
10. In December 1997, the Registrant issued 20,000 shares of its Series
A Convertible preferred stock (the "Series A preferred stock") to private
investors (the "Series A Preferred Holders") for an aggregate purchase price
of $2,000,000. Net proceeds to the Registrant were approximately $1.8
million. As of August 15, 1998, all of the Series A preferred stock had been
converted into an aggregate 711,456 shares of HomeCom's Common Stock.
In connection with the issuance and sale of the Series A preferred
stock, the Registrant granted warrants to the Series A Preferred Holders to
acquire an aggregate of 75,000 shares of Common Stock, with warrants to
purchase 62,500 shares of Common Stock having an exercise price per share
equal to $14.50625 and warrants to purchase 12,500 shares of Common Stock
having an exercise price per share equal to $15.825. The Registrant also
granted 50,000 warrants to a placement agent at an exercise price of $15.825
per share. These warrants to purchase an aggregate 125,000 shares of Common
Stock (the "Series A preferred stock Warrants") will expire on December 31,
2000 and are eligible to be exercised at any time on or after June 23, 1998.
11. On April 16, 1998, HomeCom acquired all of the outstanding capital
stock of The Insurance Resource Center, Inc. ("IRC") for 351,391 shares of
HomeCom's Common Stock. Pursuant to the Agreement and Plan of
Reorganization, HomeCom filed a registration statement for 175,696 of such
shares on June 12, 1998. IRC shall remain a wholly-owned subsidiary of
HomeCom.
12. In March 1999, the Registrant issued 125 shares of its Series B
convertible preferred stock (the "Series B Preferred Stock") to private
investors (the "Series B Preferred Holders") for an aggregate purchase price
of $2,500,000. Net proceeds to the Registrant were approximately $2.3
million. In connection with the issuance and sale of the Series B Preferred
Stock, the Registrant granted warrants to the Series B Preferred Holders to
acquire an aggregate of 225,000 shares of Common Stock having an exercise
price per share equal to $5.70. The Registrant also granted 25,000 warrants
to a placement agent at an exercise price of $5.70 per share. These warrants
to purchase an aggregate of 250,000 shares of Common Stock will expire on
March 24, 2004.
The sales and issuance of shares listed above were exempt from registration
under the Securities Act by virtue of Sections 4(2) and 3(b) thereof and in
reliance on Rule 701 and Regulation D promulgated thereunder. The recipients of
the above-described securities represented their intention to acquire the
securities for investment only and not with a view to distribution thereof.
Appropriate restrictive legends were affixed to stock certificates and warrants
issued in such transactions.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Restated Certificate of Incorporation of the Registrant.*
3.2 -- Restated Bylaws of the Registrant.*
3.3 -- Certificate of Designation of Series A Convertible preferred stock.***
3.4 -- Certificate of Designation of Series B Convertible Preferred Stock.**
3.5 -- Certificate of Designation of Series C Convertible Preferred Stock.
3.6 -- Certificate of Designation of Series D Convertible Preferred Stock.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Restated Certificate of Incorporation and Bylaws of
the Registrant defining rights of the holders of Common Stock of the Registrant.*
4.2 -- Specimen Stock Certificate.*
4.3 -- Form of Warrant.*
5.1 -- Opinion of Sims Moss Kline & Davis LLP, Counsel to the Registrant, as to the legality of the shares
being registered.
10.1 -- HomeCom Communications, Inc. Stock Option Plan and form of Stock Option Certificate.*
10.2 -- HomeCom Communications, Inc. Non-Employee Directors Stock Option Plan and form of Stock Option
Certificate.*
10.3 -- Employment Agreement between the Registrant and Harvey W. Sax, dated January 1, 1996.*
10.4 -- Form of Employment Agreement entered into between the Registrant and each of its executive officers
except Harvey W. Sax.*
10.5 -- Lease Agreement between Property Georgia OBJLW One Corporation and the Registrant dated January 22,
1996.*
10.6 -- Lease and Services Agreement between Alliance Greensboro, L.P. and the Registrant, dated June 25,
1996.*
10.7 -- Business Alliance Program Agreement between Oracle Corporation and the Registrant, dated May 30,
1996, together with the Sublicense Addendum, Application Specific Sublicense Addendum, Full Use and
Deployment Sublicense Addendum and License Transfer Policy, each dated May 30, 1996.*
10.8 -- Network Enrollment Agreement between Apple Computer, Inc. and the Registrant, effective May 1996.*
10.9 -- Member Level Agreement between Microsoft Corporation and the Registrant, effective May 1996.*
10.10 Master Agreement for internet Services and Products between BBN Planet Corporation and the
Registrant, dated February 1, 1996.*
10.11 -- Authorized Business Partners Agreement between BBN Planet Corporation and the Registrant, dated May
14, 1996.*
10.12 -- Stock Purchase Agreement between the Registrant and the stockholders of HomeCom internet Security
Services, Inc., dated August 31, 1996.*
10.13 -- Form of Promissory Notes issued by the Registrant and held by Mark Germain.*
10.14 -- Form of Promissory Notes issued by the Registrant and held by Esther Blech and the Edward A. Blech
Trust.*
10.15 -- Marketing Associate Solution Alliance Agreement dated February 6, 1997 between the Registrant and
Unisys Corporation.*
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.*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
10.19 -- 5% Convertible Debenture Purchase Agreement dated effective September 19, 1997 between the
Registrant, Euro Factors International, Inc., Beauchamp Finance, FTS Worldwide Corporation and
COLBO.***
10.20 -- Form of 5% Convertible Debenture issued by the Registrant and held by Euro Factors International,
Inc., Beauchamp Finance, FTS Worldwide Corporation and COLBO.***
10.21 -- Registration Rights Agreement dated effective September 19, 1997 between the Registrant, Euro Factors
International, Inc., Beauchamp Finance, FTS Worldwide Corporation and COLBO.***
10.22 -- Letter agreement dated September 23, 1997 between the Registrant, Euro Factors International, Inc.,
Beauchamp Finance, FTS Worldwide Corporation and COLBO.***
10.23 -- Letter agreement dated 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 HomeCom.***
10.31 -- Escrow Agreement dated as of January 23, 1998 by and among InsureRate, Inc., Hamilton Dorsey Alston
HomeCom, the Registrant, Jerome R. Corsi and SunTrust Bank, Atlanta.***
10.32 -- Shareholders Agreement dated January 23, 1998 by and among Hamilton Dorsey Alston HomeCom, 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 HomeCom.***
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 HomeCom.***
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 HomeCom, Eurofactors International Inc., Blauchamp
France, FTS Worldwide Corporation and COLBO.****
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
10.39 -- Letter Agreement, dated April 8, 1998 by and between First Granite Securities, Inc. and HomeCom.****
10.40 -- Letter Agreement, dated April 17, 1998 by and among Sovereign Partners, L.P., Dominion Capital Fund
and HomeCom.****
10.41 -- Agreement and Plan of Reorganization by and among The Insurance Resource Center, Inc., Tim Strong,
James Higham, Cameron M. Harris & HomeCom and HomeCom, dated as of April 15, 1998.***
10.42 -- Employment Agreement by and between HomeCom and Tim Higham, dated as of April 16, 1998.***
10.44 -- Asset Purchase Agreement by and between HomeCom and Sage Networks Acquisition Corp. dated as of June
10, 1998.+
10.45 -- Escrow Agreement by and between HomeCom and Sage Networks Acquisition Corp. dated as of June 10,
1998.+
10.46 -- Transitional Services Agreement by and between HomeCom and Sage Networks Acquisition Corp. dated as
of June 10, 1998.+
10.47 -- Co-Location Agreement by and between HomeCom 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 Acquisitions
Corp., Inc., ATF Acquisition Corp., Inc. and Daniel A. Delity, James Wm. Ellsworth, and David B.
Frank dated as of November 6, 1998, together with exhibits.++
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.++
10.55 -- Stock Purchase Agreement by and among HomeCom Communications, Inc. and Richard L. Chu, Joseph G.
Rickard, John R. Winans, Mario D'Agostino, Karen Moore, and John Kokinis, dated as of April 23,
1999.+++
10.56 -- Employment Agreement Between Ganymede Corporation and Richard L. Chu, dated as of April 23, 1999.+++
10.57 -- Employment Agreement between Ganymede Corporation and John Winans, dated as of April 23, 1999.+++
10.58 -- Employment Agreement between Ganymede Corporation and Joseph G. Rickard, dated as of April 23,
1999.+++
10.59 -- Escrow Agreement by and among HomeCom Communications, Inc. and Richard L. Chu, Joseph G. Rickard,
John R. Winans, Mario D'Agostino, Karen Moore, and John Kokinis, dated as of April 23, 1999.+++
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
10.60 -- Pledge and Security Agreement by and between HomeCom Communications, Inc. and Richard L. Chu, Joseph
G. Rickard, John R. Winans, Mario D'Agostino, Karen Moore, and John Kokinis, dated as of April 23,
1999.+++
10.61 -- Warrant Agreement, dated as of March 25, 1999, by and among CPR (USA), Inc. and HomeCom
Communications, Inc.++++
10.62 -- Warrant Agreement, dated as of March 25, 1999, by and among Liberty View Fund, L.L.C. and HomeCom
Communications, Inc.++++
10.63 -- Warrant Agreement, dated as of March 25, 1999, by and among Liberty View, Funds, L.P. and HomeCom
Communications, Inc.++++
10.64 -- Warrant Agreement, dated as of March 25, 1999, by and among J.P. Turner & Company, L.L.C and HomeCom
Communications, Inc.++++
10.65 -- Securities Purchase Agreement dated as of July 23, 1999 by and among HomeCom Communications, Inc. and
Jackson LLC.
10.66 -- Registration Rights Agreement dated as of July 23, 1999 by and among HomeCom Communications, Inc. and
Jackson LLC.
10.67 -- Transfer Agent Instructions dated as of September 28, 1999.
10.68 -- Transfer Agent Legal Opinion dated as of July 23, 1999.
10.69 -- Placement Agency Agreement dated as of July 23, 1999 by and between HomeCom Communications, Inc. and
Greenfield Capital Partners.
10.70 -- Warrant Agreement, dated as of July 23, 1999, by and between HomeCom Communications, Inc. and Jackson
LLC.
10.71 -- Securities Purchase Agreement dated as of September 27, 1999 by and among HomeCom Communications,
Inc. and Jackson LLC.
10.72 -- Registration Rights Agreement dated as of September 27, 1999 by and among HomeCom Communications,
Inc. and Jackson LLC.
10.73 -- Transfer Agent Instructions dated as of September 28, 1999.
10.74 -- Transfer Agent Legal Opinion dated as of September 28, 1999.
10.75 -- Placement Agency Agreement dated as of September 27, 1999 by and between HomeCom Communications, Inc.
and Greenfield Capital Partners.
10.76 -- Warrant Agreement, dated as of September 27, 1999, by and between HomeCom Communications, Inc. and
Jackson LLC.
21.1 -- List of Subsidiaries.***
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of Andrew Shebay & Company, PLLC
23.3 -- Consent of Andrew Shebay & Company, PLLC
23.4 -- Consent of Ostrow Reisin Berk & Abrams, Ltd.
23.5 -- Consent of Sims Moss Kline & Davis LLP (included in Exhibit 5.1).
24.1 -- Powers of Attorney (included on signature page).
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
27.1 -- Financial Data Schedule (for SEC use only).+++
</TABLE>
- ------------------------
<TABLE>
<C> <S>
* 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-K of
the Registrant filed with the Commission on March 31, 1998.
*** 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 Form 8-K of the
Registrant filed with the Commission on April 28, 1998.
+ 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.
+++ Incorporated herein by reference to exhibit of the same number in Form 10-Q of the
Registrant filed with the Commission on November 13, 1998.
+ Incorporated herein by reference to exhibit of the same number in Form S-1
Registration Statement of the Registrant (Registration No. 333-45383).
++ Incorporated herein by reference to exhibit of the same number in Form 10-K of the
Registrant filed with the Commission on March 31, 1999.
+++ Incorporated herein by reference to exhibit of the same number in Form 8-K of the
Registrant filed with the Commission on May 10, 1999.
++++ Incorporated herein by reference number in Registration Statement on Form S-3 of
the Registrant (Registration No. 333-79761)
</TABLE>
II-8
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1993 Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
(c) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the 1933 Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the 1933 Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on the 28th day of September, 1999.
<TABLE>
<S> <C> <C>
HOMECOM COMMUNICATIONS,INC.
By: /s/ HARVEY W. SAX
-----------------------------------------
Harvey W. Sax
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harvey W. Sax and Norman H. Smith, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each of said attorney-in-fact
or his substitute or substitutes, January lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President and Chief
/s/ HARVEY W. SAX Executive Officer
- ------------------------------ (Principal Executive September 28, 1999
Harvey W. Sax Officer)
/s/ KRISHAN PURI Executive Vice President
- ------------------------------ and September 28, 1999
Krishan Puri Director
/s/ GIA BOKUCHAVA Chief Technical Officer
- ------------------------------ and September 28, 1999
Gia Bokuchava, Ph.D. Director
/s/ ROGER NEBEL
- ------------------------------ Vice President and September 28, 1999
Roger Nebel Director
/s/ NORMAN H. SMITH
- ------------------------------ Chief Financial Officer September 28, 1999
Norman H. Smith
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ DANIEL A. DELITY
- ------------------------------ Director September 28, 1999
Daniel A. Delity
<C> <S> <C>
/s/ JAMES WM. ELLSWORTH
- ------------------------------ Director September 28, 1999
James Wm. Ellsworth
</TABLE>
II-11
<PAGE>
EXHIBIT 3.5
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS
OF
SERIES C 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, $.0001 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 175 shares of Series C Convertible
Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 175 shares of
Series C Convertible Preferred Stock (the "SERIES C PREFERRED SHARES"),
$.0001 par value per share, which shall have the following powers,
designations, preferences and other special rights:
(1) DIVIDENDS. The Series C Preferred Shares shall not bear any
dividends.
(2) HOLDER'S CONVERSION OF SERIES C PREFERRED SHARES. A holder
of Series C Preferred Shares shall have the right, at such holder's
option, to convert the Series C Preferred Shares into shares of the
Company's common stock, $. 0001 par value per share (the "COMMON STOCK"),
on the following terms and conditions:
(a) CONVERSION RIGHT. Subject to the provisions of
Sections 2(j) and 3(a) below, at any time or times on or after 120
days after the Issuance Date (as defined herein), any holder of
Series C Preferred Shares shall be entitled to convert any Series
C Preferred Shares into fully paid and nonassessable shares
(rounded to the nearest whole
<PAGE>
share in accordance with Section 2(h) below) of Common Stock, at
the Conversion Rate (as defined below); PROVIDED, HOWEVER, that in
no event other than upon a Mandatory Conversion pursuant to
Section 2(f) hereof, shall any holder be entitled to convert
Series C Preferred Shares in excess of that number of Series C
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 4.9%
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 C 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 conversion of the remaining, nonconverted
Series C Preferred Shares 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 C Preferred
Shares pursuant to Section (2)(a) shall be determined according to
the following formula (the "CONVERSION RATE");
(.06)(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 Floating Conversion
Price, as in effect as of such date 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 $5.875,
subject to adjustment, as provided herein.
(iii) "FLOATING CONVERSION PRICE" means, as of any
date of determination, the amount obtained by multiplying
the Conversion Percentage in effect as of such date by the
Average Market Price for the Common Stock for the five (5)
Trading Days immediately preceding such date;
(iv) "CONVERSION PERCENTAGE" means 82.5%;
-2-
<PAGE>
(v) "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;
(vi) "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
(vii) "N" means the number of days from, but
excluding, the Issuance Date through and including the
Conversion Date for the Series C Preferred Shares for which
conversion is being elected.
(viii) "ISSUANCE DATE" means the date of issuance of
the Series C Preferred Shares.
(ix) "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,
-3-
<PAGE>
reverse stock split or otherwise) one or more classes of
its outstanding shares of Common Stock into a smaller
number of 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 a 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 assets
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 to insure that each of the holders of the Series
C 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 C 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 C
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 C Preferred Shares then
outstanding) with respect to such holders' rights and
interests to insure that the provisions of this Section
2(c) will thereafter be applicable to the Series C
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 C Preferred Shares then
outstanding), the obligation to deliver to each holder of
Series C 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.
(iii) NOTICES.
(A) Immediately upon any adjustment of the
Conversion Price, the Company will give written
notice thereof to each holder of Series C
-4-
<PAGE>
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 C 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 C Preferred Shares at least
twenty (20) days prior to the date on which any
Organic Change (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 5 below:
(i) HOLDER'S DELIVERY REQUIREMENTS. To convert
Series C 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 C 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 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
-5-
<PAGE>
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 C 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 LISTING. 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 C 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 C Preferred Stock for purposes of such rule) equals 19.99%
of the "Outstanding Common Amount" (as hereinafter defined), the
Series C Preferred Stock shall, from that time forward, cease to
be convertible into Common Stock in accordance with the terms
hereof, unless the
-6-
<PAGE>
Corporation (i) has obtained approval of the issuance of the
Common Stock upon conversion of the Series C 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 C Preferred Stock that were issued upon
conversion of Series C Preferred Stock (the "STOCKHOLDER
APPROVAL"), or (ii) 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 C 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 C
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, or by
reason of the inapplicability of the rules of Nasdaq or otherwise,
the Corporation 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 and 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 C 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 C 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 C Preferred Stock plus (y) the aggregate
number of shares of Common Stock that remain issuable upon
conversion of Series C Preferred Stock and based on the Conversion
Price then in effect), represents at least one hundred percent
(100%) of the Maximum Share Amount, the Corporation will use its
best reasonable efforts to seek and obtain Stockholder Approval
(or obtain such other relief as will allow conversions hereunder
in excess of the Maximum Share Amount) as soon as practicable
following the Triggering Event and before the Mandatory Redemption
Date.
-7-
<PAGE>
(f) MANDATORY CONVERSION. If any Series C Preferred
Shares remain outstanding on July 22, 2002, then all such Series C
Preferred Shares shall be converted as of such date in accordance
with this Section 2 as if the holders of such Series C Preferred
Shares had given the Conversion Notice on July 22, 2002, and the
Conversion Date had been fixed as of July 22, 2002, (the
"MANDATORY CONVERSION DATE") for all purposes of this Section 2,
and all holders of Series C Preferred Shares shall thereupon and
within 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 C 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 C 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 a 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 C Preferred
Shares.
(i) LOCK-UP. If the Lock-Up Conditions (as defined
below) are satisfied, but only for that period of time that the
Lock-Up Conditions are satisfied, the Company may at its option at
any time after the 90th day following the Issuance Date through
July 22, 2001 (the "LOCK-UP EXERCISE PERIOD"), prohibit holders of
the Series C Preferred Shares from exercising any conversion
rights granted pursuant to Section (2) (a) (the "LOCK-UP") for a
period (the "LOCK-UP PERIOD") beginning on the Lock-Up Notice
Delivery Date (as defined below) until the earlier of (Y) ninety
(90) days after the Lock-Up Notice Delivery Date and (Z) such time
as the Lock-Up Conditions (as defined below) are no longer
satisfied; PROVIDED, HOWEVER, that if the Lock-Up Notice Delivery
Date is on or after the 646st day following the Issuance Date, the
Lock-Up Period shall terminate on the 725th day following the
Issuance Date.
(i) LOCK-UP CONDITIONS. The "LOCK-UP CONDITIONS"
shall be deemed satisfied only for such period of time as
the Board of Directors of the Company is in possession of
material, non-public information relating to a business
transaction involving the Company which would be required
to be disclosed to the public before any member of the
Board of Directors would be able to sell any
-8-
<PAGE>
equity securities of the Company in compliance with the
anti-fraud provisions of the Securities Act of 1933. The
Company shall give prompt notice to each of the holders of
the Series C Preferred Shares if at any time during the
Lock-Up period such condition is not properly satisfied.
(ii) CONSIDERATION FOR LOCK-UP. In consideration
for the Company's exercise of the Lock-Up, the Company
shall within five (5) Trading Days of the end of each
calendar month during the Lock-Up Period deliver to the
holder of Series C Preferred Shares at the Company's
election (i) a cash payment equal to 3% of the principal
amount of the Series C Preferred Shares then held by each
such holder for each thirty (30) days of the Lock-Up Period
(the "LOCK-UP PERIOD PRINCIPAL") (pro rated for partial
months) or (ii) deliver Common Stock to such holder of
Series C Preferred Shares in an amount equal to the Lock-Up
Period Principal divided by the Average Market Price for
the Common Stock for the twenty Trading Days immediately
preceding the end of each calendar month during the Lock-Up
Period.
(ii) MECHANICS OF LOCK-UP. To effect the Lock-Up,
the Company shall (x) deliver or transmit by facsimile, for
receipt on or prior to 11:59 p.m., Eastern Standard Time on
any date (the "LOCK-UP NOTICE DELIVERY DATE") during the
Lock-Up Exercise Period, to each holder of Series C
Preferred Shares (I) a copy of a fully executed notice in
the form of Exhibit II hereto (the "LOCK-UP NOTICE") and
(II) executed agreements ("LOCK-UP AGREEMENTS"), in the
form attached hereto as Exhibit III, from each officer or
director of the Company or any subsidiary of the Company
who beneficially owns, or has any disposition power with
respect to 5% or more of the total outstanding shares of
Common Stock as of the Lock-Up Notice Delivery Date which,
for the benefit of the holders of the Series C Preferred
Shares, obligates such persons not to sell or otherwise
dispose of any shares of Common Stock until one day after
each of the holders of the Series C Preferred Shares has
received written notice form the Company that the Lock-Up
Period has ended, and (y) surrender to a common carrier for
delivery to each Series C Preferred Share holder as soon as
practicable following such date, an originally executed
Lock-Up Notice, originally executed Lock-Up Agreements;
PROVIDED, HOWEVER, that such Lock-Up Notice shall not be
effective with respect to the conversion of any shares of
Series C Preferred Shares for which a holder of such shares
has, prior to receipt of the Lock-Up Notice, properly
delivered a Conversion Notice pursuant to Section
(2)(d)(i).
(j) CONVERSION RESTRICTION. The right of a holder of
Series C Preferred Shares to convert Series C Preferred Shares
pursuant to this Section 2 shall be subject to the following
limitations (which shall be applied independently):
-9-
<PAGE>
(i) During the period beginning on the Issuance
Date and ending on the 90th day following the Issuance
Date, each Buyer and all of their respective successors
shall be entitled to convert no more than 25% of the number
of Series C Preferred Shares purchased by such Buyer;
(ii) During the period beginning on the Issuance
Date and ending on the 120th day following the Issuance
Date, each Buyer and all of their respective successors
shall be entitled to convert no more than 50 % of the
number of Series C Preferred Shares purchased by such
Buyer; and
(iii) During the period beginning on the Issuance
Date and ending on the 150th day following the Issuance
Date, each Buyer and all of their respective successors
shall be entitled to convert no more than 75% of the
number of Series C Preferred Shares purchased by such
Buyer.
Each holder of the Series C Preferred Shares shall provide the
Company a weekly record of its trading activity.
(3) COMPANY'S RIGHT TO REDEEM AT ITS ELECTION.
(a) At any time after the Issuance Date, the Company
shall have the right, in its sole discretion, to redeem
("REDEMPTION AT COMPANY'S ELECTION"), from time to time, any or
all of the Series C 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 C 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 C Preferred Stock, the Company shall redeem a
pro-rata amount from each holder of the Series C Preferred Stock.
(i) REDEMPTION PRICE AT COMPANY'S ELECTION. The
"REDEMPTION PRICE AT COMPANY'S ELECTION" shall be
calculated as (1) 105% of the Stated Value for the first 30
days following the Issuance Date, as defined below; (2)
110% of the Stated Value for the next 90 days thereafter
and (3) 120% of Stated Value following 120 days from the
Isssuance Date of the Series C Preferred Stock. For
purposes hereof, "STATED VALUE" shall mean the original
purchase price 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
-10-
<PAGE>
notice ("NOTICE OF REDEMPTION AT COMPANY'S ELECTION") to
(A) the holders of the Series C Preferred Shares selected
for redemption at the address and facsimile number of such
holder appearing in the Company's Series C 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 C
Preferred Shares 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, the holder may convert into Common Stock, prior to
the close of business on the Date of Redemption at
Company's Election, any Series C Preferred Shares which it
is otherwise entitled to convert, including Series C
Preferred Shares that has been selected for redemption at
Company's election pursuant to this subsection 3(a).
(b) COMPANY MUST HAVE IMMEDIATELY AVAILABLE FUNDS OR
CREDIT FACILITIES. The Company shall not be entitled to send any
Redemption Notice and begin the redemption procedure under Section
3(a) unless it has:
(i) the full amount of the redemption price to
cash, available in a demand or other immediately available
account in a bank or similar financial institution; or
(ii) immediately available credit facilities, in
the full amount of the redemption price with a bank or
similar financial institution, or
(iii) an agreement with a standby underwriter
willing to purchase from the Company a sufficient number of
shares of stock to provide proceeds necessary to redeem any
stock that is not converted prior to redemptions; or
(iv) a combination of the items set forth in (i),
(ii), and (iii) above, aggregating the full amount of the
redemption price.
(c) PAYMENT OF REDEMPTION PRICE. Each holder submitting
Series C Preferred Shares being redeemed under this Section 3
shall send their 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.
-11-
<PAGE>
(4) REISSUANCE OF CERTIFICATES. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all
of the Series C 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 C Preferred Shares a Preferred
Stock Certificate representing the remaining Series C Preferred Shares
which have not been so converted or redeemed.
(5) RESERVATION OF SHARES. The Company shall, so long as any of
the Series C 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 C 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 C 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 C Preferred Shares are at any time
convertible,
(6) VOTING RIGHTS. Holders of Series C 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.
(7) 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 C 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 C 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 C Preferred Share equal to the sum
of (i) $20,000 and (ii) an amount equal to the product of (.06) (N/365)
($20,000) (where "N" has the meaning specified in Section 2(b)(viii);
(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 C 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 C Preferred Shares as to payments of Preferred Funds
(the "PARI PASSU SHARES"), then each holder of Series C 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 of the full
amount of Preferred Funds payable to all holders of Series C 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
-12-
<PAGE>
up of the Company. No holder of Series C 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.
(8) PREFERRED RATE. All shares of Common Stock shall be of
junior rank to all Series C 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 Convertible Preferred Stock and Series C Preferred Shares.
Except for the Series B Convertible Preferred Stock, the Series C
Preferred Shares shall be of greater 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 C 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 C 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 C Preferred Shares, the Company shall not hereafter
authorize or make any amendment to the Company's Certificate of
Incorporation or bylaws, 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 C 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 C Preferred
Shares shall maintain their relative powers, designations, and
preferences provided for herein and no merger shall result inconsistent
therewith.
(9) RESTRICTION ON DIVIDENDS. If any Series C Preferred Shares
are outstanding, without the prior express written consent of the holders
of not less than a majority of the then outstanding Series C 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 C
Preferred Shares at least 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 9 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 C Preferred Shares an amount in
cash equal to the amount such holder would have received had all of such
holder's Series C 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 C Preferred Shares, 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
-13-
<PAGE>
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.
(10) VOTE TO CHANGE THE TERMS OF SERIES C 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 C 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 C Preferred Shares.
(11) 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 C
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 certificates if the
holder contemporaneously requests the Company to convert such Series C
Preferred Shares into Common Stock.
(12) 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 C
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 C Preferred
Share on the holder of such Series C 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 C 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 C Preferred Share on the holder of
such Series C 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 C Preferred Share on the holder of such Series C
Preferred Shares executing and delivering to the Company, at the election
of the holder, either: (i) if applicable, a properly 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
-14-
<PAGE>
Revenue Service as a result of the Company's failure to withhold in
connection with such distribution to such holder.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
-15-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Harvey Sax, its Chief Executive Officer, as of the
23rd day of July, 1999.
HOMECOM COMMUNICATIONS, INC.
By:____________________________________
Harvey Sax
Chief Executive Officer
-16-
<PAGE>
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 C Convertible Preferred
Stock, $.0001 par value per share (the "SERIES C PREFERRED SHARES"), of HomeCom
Communications, Inc., a Delaware corporation (the "COMPANY"), indicated below
into shares of Common Stock, $.0001 par value per share (the "COMMON STOCK"), of
the Company, by tendering the stock certificate(s) representing the share(s) of
Series C 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 C 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 C
Preferred Shares to be converted
---------------------------------------------
Stock certificate no(s). of Series C
Preferred Shares to be converted:
---------------------------------------------
Please confirm the following information:
Conversion Price:
---------------------------------------------
Five Days Comprising Pricing Period and Prices:
---------------------------------------------
Number of shares of Common
Stock to be issued:
---------------------------------------------
<PAGE>
please issue the Common Stock into which the Series C 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 C Preferred Shares,
any applicable transfer tax must be paid by the undersigned.
<PAGE>
EXHIBIT II
HOMECOM COMMUNICATIONS, INC.
LOCK-UP NOTICE
Reference is made to the Certificate of Designations, Preferences and
Rights (the "CERTIFICATE OF DESIGNATIONS") of HomeCom Communications, Inc. (the
"COMPANY"). In accordance with and pursuant to Section (2)(i) of the Certificate
of Designations, the Company hereby elects to exercise its Lock-Up rights (as
set forth in the Certificate of Designations), effective as of the date hereof.
Consequently, the Company shall not be required to convert any Series C
Preferred Shares which have a Conversion Date (as defined in the Certificate of
Designations) during the period beginning on the date hereof and ending on the
earlier of (i) that date which is ninety (90) days from the date hereof and (ii)
the 725th day following the Issuance Date (as defined in the Certificate of
Designations).
Authorization: ___________________________________________
By:____________________________________________
Title:_________________________________________
Dated: ________________________________________
<PAGE>
EXHIBIT III
HOMECOM COMMUNICATIONS, INC.
FORM OF LOCK-UP AGREEMENT
Reference is made to the Certificate of Designations, Preferences and
Rights (the "CERTIFICATE OF DESIGNATIONS") of HomeCom Communications, Inc. (the
"COMPANY"). The undersigned has been advised that in accordance with and
pursuant to Section (2)(i) of the Certificate of Designations, effective as of
____________________________ (the "LOCK-UP COMMENCEMENT DATE"), the Company has
elected to exercise its Lock-Up rights (as set forth in the Certificate of
Designations) with respect to shares of Series C Convertible Preferred Stock
(the "SERIES C PREFERRED SHARES"), $.0001 par value per share. Consequently, the
Company shall not be required to convert any Series C Preferred Shares which
have a Conversion Date (as defined in the Certificate of Designations) during
the period (the "LOCK-UP PERIOD") beginning on the Lock-Up Commencement Date and
ending on the earlier of (i) that date which is ninety (90) days from the
Lock-Up Commencement Date and (ii) the 725th day following the Issuance Date (as
defined in the Certificate of Designations).
In consideration of the agreement by the holders of the Series C
Preferred Shares not to convert any Series C Preferred Share pursuant to the
Lock-Up rights, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that, until one day after each of the holders of the
Series C Preferred Shares has received written notice form the Company that the
Lock-Up Period has ended, the undersigned will not, directly or indirectly,
without the prior written consent of the holders representing a majority of the
outstanding Series C Preferred Shares, sell, contact to sell, pledge, grant any
option for the sale of or otherwise dispose or cause the disposition of any
shares of the Company's common stock, $.0001 par value per share (the "COMMON
STOCK"), or an securities convertible into or exchangeable or exercisable for
any shares of Common Stock owned by the undersigned. Notwithstanding the
foregoing, the undersigned shall not need to obtain such written consent with
respect to (1) a transfer (not involving a sale in the public market) of shares
of Common Stock by the undersigned in a bona fide charitable or other donative
transaction or in any estate planning transaction so long as in each case the
transferee of such agreement to holders of the Series C Preferred Shares prior
to effecting any such transfer and (2) a transfer (not involving a sale in the
public market) of shares of Common Stock, if the undersigned is a natural
person, due to the death or disability of the undersigned so long as the
transferee of such shares agrees in writing to be bound by the terms of this
agreement and furnishes a copy of such agreement to holders of the Series C
Preferred Shares prior to effecting any such transfer.
In furtherance of the foregoing, the Company and the Company's transfer
agent and registrar are hereby authorized to decline to make any transfer or
securities if such transfer would constitute a violation or breach of this
agreement.
Very truly yours,
---------------------------------------
Signature
---------------------------------------
Print Name
<PAGE>
EXHIBIT 3.6
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS
OF
SERIES D 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 75 shares of Series D Convertible
Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 75 shares of
Series D Convertible Preferred Stock (the "SERIES D PREFERRED SHARES"),
$.01 par value per share, which shall have the following powers,
designations, preferences and other special rights:
(1) DIVIDENDS. The Series D Preferred Shares shall not bear any
dividends.
(2) HOLDER'S CONVERSION OF SERIES D PREFERRED SHARES. A holder
of Series D Preferred Shares shall have the right, at such holder's
option, to convert the Series D Preferred Shares into shares of the
Company's common stock, $. 0001 par value per share (the "COMMON STOCK"),
on the following terms and conditions:
(a) CONVERSION RIGHT. Subject to the provisions of
Sections 2(j) and 3(a) below, at any time or times on or after 120
days after the Issuance Date (as defined herein) or the Effective
Date (as defined in the Registration Rights Agreement of even date
hereof), any holder of Series D Preferred Shares shall be entitled
to convert any Series D 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 in no
event other than upon a Mandatory
<PAGE>
Conversion pursuant to Section 2(f) hereof, shall any holder be
entitled to convert Series D Preferred Shares in excess of that
number of Series D 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 4.9% 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 D
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 conversion of the
remaining, nonconverted Series D Preferred Shares 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 D Preferred
Shares pursuant to Section (2)(a) shall be determined according to
the following formula (the "CONVERSION RATE");
(.06)(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 Floating Conversion
Price, as in effect as of such date 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 $5.875,
subject to adjustment, as provided herein.
(iii) "FLOATING CONVERSION PRICE" means, as of any
date of determination, the amount obtained by multiplying
the Conversion Percentage in effect as of such date by the
Average Market Price for the Common Stock for the five (5)
Trading Days immediately preceding such date;
(iv) "CONVERSION PERCENTAGE" means 82.5%;
(v) "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;
-22-
<PAGE>
(vi) "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
(vii) "N" means the number of days from, but
excluding, the Issuance Date through and including the
Conversion Date for the Series D Preferred Shares for which
conversion is being elected.
(viii) "ISSUANCE DATE" means the date of issuance of
the Series D Preferred Shares.
(ix) "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 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 a 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
-23-
<PAGE>
Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets
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 to insure that each of the
holders of the Series D 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 D 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 D 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 D Preferred Shares then
outstanding) with respect to such holders' rights and
interests to insure that the provisions of this Section
2(c) will thereafter be applicable to the Series D
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 D Preferred Shares
then outstanding), the obligation to deliver to each
holder of Series D 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.
(iii) NOTICES.
(A) Immediately upon any adjustment of the
Conversion Price, the Company will give written
notice thereof to each holder of Series D 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 D 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.
-24-
<PAGE>
(C) The Company will also give written notice
to each holder of Series D Preferred Shares at least
twenty (20) days prior to the date on which any
Organic Change (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 5 below:
(i) HOLDER'S DELIVERY REQUIREMENTS. To convert
Series D 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 D 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 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
-25-
<PAGE>
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 D 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 LISTING. 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 D 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 D Preferred Stock for purposes of such rule) equals 19.99%
of the "Outstanding Common Amount" (as hereinafter defined), the
Series D Preferred Stock shall, from that time forward, cease to
be convertible into Common Stock in accordance with the terms
hereof, unless the Corporation (i) has obtained approval of the
issuance of the Common Stock upon conversion of the Series D
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 D Preferred
Stock that were issued upon conversion of Series D Preferred Stock
(the "STOCKHOLDER APPROVAL"), or (ii) 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 D 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 D Preferred Stock, the Maximum Share Amount shall refer to
such holder's pro
-26-
<PAGE>
rata share thereof. In the event that Corporation obtains
Stockholder Approval or the approval of Nasdaq, or by reason of
the inapplicability of the rules of Nasdaq or otherwise, the
Corporation 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 and 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 D 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 D
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 D
Preferred Stock plus (y) the aggregate number of shares of Common
Stock that remain issuable upon conversion of Series D Preferred
Stock and based on the Conversion Price then in effect),
represents at least one hundred percent (100%) of the Maximum
Share Amount, the Corporation will use its best reasonable efforts
to seek and obtain Stockholder Approval (or obtain such other
relief as will allow conversions hereunder in excess of the
Maximum Share Amount) as soon as practicable following the
Triggering Event and before the Mandatory Redemption Date.
(f) MANDATORY CONVERSION. If any Series D Preferred
Shares remain outstanding on September 26, 2002, then all such
Series D Preferred Shares shall be converted as of such date in
accordance with this Section 2 as if the holders of such Series D
Preferred Shares had given the Conversion Notice on September 26,
2002, and the Conversion Date had been fixed as of September 26,
2002, (the "MANDATORY CONVERSION DATE") for all purposes of this
Section 2, and all holders of Series D Preferred Shares shall
thereupon and within 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 D 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 D 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 a
-27-
<PAGE>
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 D Preferred
Shares.
(i) LOCK-UP. If the Lock-Up Conditions (as defined
below) are satisfied, but only for that period of time that the
Lock-Up Conditions are satisfied, the Company may at its option at
any time after the 90th day following the Issuance Date through
September 26, 2001 (the "LOCK-UP EXERCISE PERIOD"), prohibit
holders of the Series D Preferred Shares from exercising any
conversion rights granted pursuant to Section (2) (a) (the
"LOCK-UP") for a period (the "LOCK-UP PERIOD") beginning on the
Lock-Up Notice Delivery Date (as defined below) until the earlier
of (Y) ninety (90) days after the Lock-Up Notice Delivery Date and
(Z) such time as the Lock-Up Conditions (as defined below) are no
longer satisfied; PROVIDED, HOWEVER, that if the Lock-Up Notice
Delivery Date is on or after the 646st day following the Issuance
Date, the Lock-Up Period shall terminate on the 725th day
following the Issuance Date.
(i) LOCK-UP CONDITIONS. The "LOCK-UP CONDITIONS"
shall be deemed satisfied only for such period of time as
the Board of Directors of the Company is in possession of
material, non-public information relating to a business
transaction involving the Company which would be required
to be disclosed to the public before any member of the
Board of Directors would be able to sell any equity
securities of the Company in compliance with the anti-fraud
provisions of the Securities Act of 1933. The Company shall
give prompt notice to each of the holders of the Series D
Preferred Shares if at any time during the Lock-Up period
such condition is not properly satisfied.
(ii) CONSIDERATION FOR LOCK-UP. In consideration
for the Company's exercise of the Lock-Up, the Company
shall within five (5) Trading Days of the end of each
calendar month during the Lock-Up Period deliver to the
holder of Series D Preferred Shares at the Company's
election (i) a cash payment equal to 3% of the principal
amount of the Series D Preferred Shares then held by each
such holder for each thirty (30) days of the Lock-Up Period
(the "LOCK-UP PERIOD PRINCIPAL") (pro rated for partial
months) or (ii) deliver Common Stock to such holder of
Series D Preferred Shares in an amount equal to the Lock-Up
Period Principal divided by the Average Market Price for
the Common Stock for the twenty Trading Days immediately
preceding the end of each calendar month during the Lock-Up
Period.
(ii) MECHANICS OF LOCK-UP. To effect the Lock-Up,
the Company shall (x) deliver or transmit by facsimile, for
receipt on or prior to 11:59 p.m., Eastern Standard Time on
any date (the "LOCK-UP NOTICE DELIVERY DATE")
-28-
<PAGE>
during the Lock-Up Exercise Period, to each holder of
Series D Preferred Shares (I) a copy of a fully executed
notice in the form of Exhibit II hereto (the "LOCK-UP
NOTICE") and (II) executed agreements ("LOCK-UP
AGREEMENTS"), in the form attached hereto as Exhibit III,
from each officer or director of the Company or any
subsidiary of the Company who beneficially owns, or has any
disposition power with respect to 5% or more of the total
outstanding shares of Common Stock as of the Lock-Up Notice
Delivery Date which, for the benefit of the holders of the
Series D Preferred Shares, obligates such persons not to
sell or otherwise dispose of any shares of Common Stock
until one day after each of the holders of the Series D
Preferred Shares has received written notice form the
Company that the Lock-Up Period has ended, and (y)
surrender to a common carrier for delivery to each Series D
Preferred Share holder as soon as practicable following
such date, an originally executed Lock-Up Notice,
originally executed Lock-Up Agreements; PROVIDED, HOWEVER,
that such Lock-Up Notice shall not be effective with
respect to the conversion of any shares of Series D
Preferred Shares for which a holder of such shares has,
prior to receipt of the Lock-Up Notice, properly delivered
a Conversion Notice pursuant to Section (2)(d)(i).
(j) CONVERSION RESTRICTION. The right of a holder of
Series D Preferred Shares to convert Series D Preferred Shares
pursuant to this Section 2 shall be subject to the following
limitations (which shall be applied independently):
(i) During the period beginning on the
Issuance Date and ending on the 90th day following
the Issuance Date, each Buyer and all of their
respective successors shall be entitled to convert no
more than 25% of the number of Series D Preferred
Shares purchased by such Buyer;
(ii) During the period beginning on the
Issuance Date and ending on the 120th day following
the Issuance Date, each Buyer and all of their
respective successors shall be entitled to convert no
more than 50 % of the number of Series D Preferred
Shares purchased by such Buyer; and
(iii) During the period beginning on the
Issuance Date and ending on the 150th day following
the Issuance Date, each Buyer and all of their
respective successors shall be entitled to convert no
more than 75 % of the number of Series D Preferred
Shares purchased by such Buyer.
Each holder of the Series D Preferred Shares shall provide the
Company a weekly record of its trading activity.
(3) COMPANY'S RIGHT TO REDEEM AT ITS ELECTION.
-29-
<PAGE>
(a) At any time after the Issuance Date, the Company
shall have the right, in its sole discretion, to redeem
("REDEMPTION AT COMPANY'S ELECTION"), from time to time, any or
all of the Series D 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 D 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 D Preferred Stock, the Company shall redeem a
pro-rata amount from each holder of the Series D Preferred Stock.
(i) REDEMPTION PRICE AT COMPANY'S ELECTION. The
"REDEMPTION PRICE AT COMPANY'S ELECTION" shall be
calculated as (1) 105% of the Stated Value for the first 30
days following the Issuance Date, as defined below; (2)
110% of the Stated Value for the next 90 days thereafter
and (3) 120% of Stated Value following 120 days from the
Isssuance Date of the Series D Preferred Stock. For
purposes hereof, "STATED VALUE" shall mean the original
purchase price 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 D Preferred Shares selected for redemption at
the address and facsimile number of such holder appearing
in the Company's Series D 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 D Preferred Shares 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, the holder may
convert into Common Stock, prior to the close of business
on the Date of Redemption at Company's Election, any Series
D Preferred Shares which it is otherwise entitled to
convert, including Series D Preferred Shares that has been
selected for redemption at Company's election pursuant to
this subsection 3(a).
(b) COMPANY MUST HAVE IMMEDIATELY AVAILABLE FUNDS OR
CREDIT FACILITIES. The Company shall not be entitled to send any
Redemption Notice and begin the redemption procedure under Section
3(a) unless it has:
(i) the full amount of the redemption price to
cash, available in a demand or other immediately available
account in a bank or similar financial institution; or
-30-
<PAGE>
(ii) immediately available credit facilities, in
the full amount of the redemption price with a bank or
similar financial institution, or
(iii) an agreement with a standby underwriter
willing to purchase from the Company a sufficient number of
shares of stock to provide proceeds necessary to redeem any
stock that is not converted prior to redemptions; or
(iv) a combination of the items set forth in (i),
(ii), and (iii) above, aggregating the full amount of the
redemption price.
(c) PAYMENT OF REDEMPTION PRICE. Each holder submitting
Series D Preferred Shares being redeemed under this Section 3
shall send their 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) REISSUANCE OF CERTIFICATES. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all
of the Series D 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 D Preferred Shares a Preferred
Stock Certificate representing the remaining Series D Preferred Shares
which have not been so converted or redeemed.
(5) RESERVATION OF SHARES. The Company shall, so long as any of
the Series D 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 D 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 D 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 D Preferred Shares are at any time
convertible,
(6) VOTING RIGHTS. Holders of Series D 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.
(7) 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 D 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 D 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 D Preferred Share equal to the sum
of (i) $20,000 and (ii) an amount equal to the product of (.06) (N/365)
($20,000) (where "N" has the meaning specified in Section 2(b)(viii);
(such sum being
-31-
<PAGE>
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 D 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 D Preferred Shares as to payments of Preferred Funds (the "PARI
PASSU SHARES"), then each holder of Series D 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 of the full
amount of Preferred Funds payable to all holders of Series D 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 D 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.
(8) PREFERRED RATE. All shares of Common Stock shall be of
junior rank to all Series D 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 Convertible Preferred Stock and Series D Preferred Shares.
Except for the Series B Convertible Preferred Stock, the Series D
Preferred Shares shall be of greater 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 D 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 D 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 D Preferred Shares, the Company shall not hereafter
authorize or make any amendment to the Company's Certificate of
Incorporation or bylaws, 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 D 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 D Preferred
Shares shall maintain their relative powers, designations, and
preferences provided for herein and no merger shall result inconsistent
therewith.
(9) RESTRICTION ON DIVIDENDS. If any Series D Preferred Shares
are outstanding, without the prior express written consent of the holders
of not less than a majority of the then outstanding Series D 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 D
Preferred Shares at least 30 days prior to the earlier of (a) the record
date taken for or (b) the payment of any such dividend or other
-32-
<PAGE>
distribution. Notwithstanding the foregoing, this Section 9 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 D Preferred Shares an amount in
cash equal to the amount such holder would have received had all of such
holder's Series D 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 D Preferred Shares, 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.
(10) VOTE TO CHANGE THE TERMS OF SERIES D 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 D 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 D Preferred Shares.
(11) 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 D
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 certificates if the
holder contemporaneously requests the Company to convert such Series D
Preferred Shares into Common Stock.
(12) 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 D
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 D Preferred
Share on the holder of such Series D 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 D 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 D Preferred Share on the holder of
such Series D Preferred Shares depositing with the Company any
-33-
<PAGE>
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 D Preferred Share on the holder of such Series D
Preferred Shares executing and delivering to the Company, at the election
of the holder, either: (i) if applicable, a properly 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.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
-34-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Harvey Sax, its Chief Executive Officer, as of the
27th day of September, 1999.
HOMECOM COMMUNICATIONS, INC.
By:____________________________________
Harvey Sax
Chief Executive Officer
-35-
<PAGE>
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 D Convertible Preferred
Stock, $.01 par value per share (the "SERIES D PREFERRED SHARES"), of HomeCom
Communications, Inc., a Delaware corporation (the "COMPANY"), indicated below
into shares of Common Stock, $.0001 par value per share (the "COMMON STOCK"), of
the Company, by tendering the stock certificate(s) representing the share(s) of
Series D 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 D 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 D
Preferred Shares to be converted
---------------------------------------------
Stock certificate no(s). of Series D
Preferred Shares to be converted:
---------------------------------------------
Please confirm the following information:
Conversion Price:
---------------------------------------------
Five Days Comprising Pricing Period and Prices:
---------------------------------------------
Number of shares of Common
Stock to be issued:
---------------------------------------------
<PAGE>
please issue the Common Stock into which the Series D Preferred Shares are being
converted in the following name and to the following address:
Issue to:(2)
---------------------------------------------
---------------------------------------------
Facsimile Number:
---------------------------------------------
Authorization:
---------------------------------------------
By:
------------------------------------------
Title:
---------------------------------------
Dated:
---------------------------------------
ACKNOWLEDGED AND AGREED:
HOMECOM COMMUNICATIONS, INC.
By:
------------------------
Name:
----------------------
Title:
---------------------
Date:
----------------------
- --------
(2)If other than to the record holder of the Series D Preferred Shares,
any applicable transfer tax must be paid by the undersigned.
<PAGE>
EXHIBIT II
HOMECOM COMMUNICATIONS, INC.
LOCK-UP NOTICE
Reference is made to the Certificate of Designations, Preferences and
Rights (the "CERTIFICATE OF DESIGNATIONS") of HomeCom Communications, Inc. (the
"COMPANY"). In accordance with and pursuant to Section (2)(i) of the Certificate
of Designations, the Company hereby elects to exercise its Lock-Up rights (as
set forth in the Certificate of Designations), effective as of the date hereof.
Consequently, the Company shall not be required to convert any Series D
Preferred Shares which have a Conversion Date (as defined in the Certificate of
Designations) during the period beginning on the date hereof and ending on the
earlier of (i) that date which is ninety (90) days from the date hereof and (ii)
the 725th day following the Issuance Date (as defined in the Certificate of
Designations).
Authorization: ___________________________________________
By:____________________________________________
Title:_________________________________________
Dated: ________________________________________
<PAGE>
EXHIBIT III
HOMECOM COMMUNICATIONS, INC.
FORM OF LOCK-UP AGREEMENT
Reference is made to the Certificate of Designations, Preferences and
Rights (the "CERTIFICATE OF DESIGNATIONS") of HomeCom Communications, Inc. (the
"COMPANY"). The undersigned has been advised that in accordance with and
pursuant to Section (2)(i) of the Certificate of Designations, effective as of
____________________________ (the "LOCK-UP COMMENCEMENT DATE"), the Company has
elected to exercise its Lock-Up rights (as set forth in the Certificate of
Designations) with respect to shares of Series D Convertible Preferred Stock
(the "SERIES D PREFERRED SHARES"), $.01 par value per share. Consequently, the
Company shall not be required to convert any Series D Preferred Shares which
have a Conversion Date (as defined in the Certificate of Designations) during
the period (the "LOCK-UP PERIOD") beginning on the Lock-Up Commencement Date and
ending on the earlier of (i) that date which is ninety (90) days from the
Lock-Up Commencement Date and (ii) the 725th day following the Issuance Date (as
defined in the Certificate of Designations).
In consideration of the agreement by the holders of the Series D
Preferred Shares not to convert any Series D Preferred Share pursuant to the
Lock-Up rights, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that, until one day after each of the holders of the
Series D Preferred Shares has received written notice form the Company that the
Lock-Up Period has ended, the undersigned will not, directly or indirectly,
without the prior written consent of the holders representing a majority of the
outstanding Series D Preferred Shares, sell, contact to sell, pledge, grant any
option for the sale of or otherwise dispose or cause the disposition of any
shares of the Company's common stock, $.0001 par value per share (the "COMMON
STOCK"), or an securities convertible into or exchangeable or exercisable for
any shares of Common Stock owned by the undersigned. Notwithstanding the
foregoing, the undersigned shall not need to obtain such written consent with
respect to (1) a transfer (not involving a sale in the public market) of shares
of Common Stock by the undersigned in a bona fide charitable or other donative
transaction or in any estate planning transaction so long as in each case the
transferee of such agreement to holders of the Series D Preferred Shares prior
to effecting any such transfer and (2) a transfer (not involving a sale in the
public market) of shares of Common Stock, if the undersigned is a natural
person, due to the death or disability of the undersigned so long as the
transferee of such shares agrees in writing to be bound by the terms of this
agreement and furnishes a copy of such agreement to holders of the Series D
Preferred Shares prior to effecting any such transfer.
In furtherance of the foregoing, the Company and the Company's transfer
agent and registrar are hereby authorized to decline to make any transfer or
securities if such transfer would constitute a violation or breach of this
agreement.
Very truly yours,
---------------------------------------
Signature
---------------------------------------
Print Name
<PAGE>
EXHIBIT 5.1
OPINION OF COUNSEL
SEPTEMBER 28, 1999
HOMECOM COMMUNICATIONS, INC.
FOURTEEN PIEDMONT CENTER, SUITE 100
3535 PIEDMONT ROAD
ATLANTA, GEORGIA 30305
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 to be filed by you
with the Securities and Exchange Commission on or about September 28, 1999 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933 of shares of your common stock (the "Shares"), to be sold
by certain shareholders listed in the Registration Statement (the "Selling
Shareholders"). As your legal counsel in connection with this transaction, we
have examined the proceedings taken and are familiar with the proceedings
proposed to be taken by you in connection with the sale of the Shares.
As counsel to you, we have examined such corporate records, documents,
instruments, certificates of public officials and of the Company and such
questions of law as we have deemed necessary for the purpose of rendering the
opinions set forth herein.
It is our opinion that the Shares, when sold by the selling shareholders in
the manner described in the Registration Statement, will be legally and validly
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever it appears in the
Registration Statement and in any amendment to it.
<TABLE>
<S> <C>
Sincerely,
SIMS MOSS KLINE & DAVIS LLP
/s/ SIMS MOSS KLINE & DAVIS LLP
</TABLE>
<PAGE>
EXHIBIT 10.65
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of July 23, 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 (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");
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
C Convertible Preferred Stock (the "SERIES C 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's Certificate of Designations,
Preferences, and Rights of the Series C Convertible Preferred Stock,
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 of 175 shares of Series C Preferred Shares 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. As set forth in Section 4(i) hereof and Section 2(i) of the Certificate
of Designations, the holders of Series C Preferred Shares shall receive stock
purchase warrants to acquire shares of Common Stock substantially in the form
attached as Exhibit "C."
2
<PAGE>
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1 . PURCHASE AND SALE OF SERIES C PREFERRED STOCK.
a. PURCHASE OF SERIES C 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 of 175 shares of Series C Preferred Stock, 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 C 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 C Preferred Shares 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 C
Preferred Shares, (ii) upon conversion of the Series C Preferred Shares,
will acquire the Conversion Shares then issuable, (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 C Preferred Shares, Conversion
Shares, Warrants, or Warrant Shares for any minimum or other specific term
and reserves the right to dispose of Series C 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.
3
<PAGE>
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 C
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 C 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 C 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 C
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 C Preferred Shares, the Conversion Shares, the Warrants, and the
Warrant Shares or the fairness or suitability of the investment in the
Series C Preferred Shares, the Conversion Shares, the Warrants, or the
Warrant Shares nor have such authorities passed upon or endorsed the merits
of the offering of the Series C Preferred Shares, the Conversion Shares,
the Warrants, or the Warrant Shares.
f. TRANSFER OR RESALE. Such Buyer understands that except as provided
in the Registration Rights Agreement: (i) the Series C Preferred Shares,
the Conversion Shares, the Warrants, and the Warrant 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
4
<PAGE>
assurance that such securities can be sold, assigned or transferred
pursuant to Rule 144 promulgated under the 1933 Act, (ii) any sale of such
securities made in reliance on Rule 144 (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 C Preferred Shares, the Warrants and,
until such time as the sale of the Conversion Shares 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 stop transfer 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 GENERALLY
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 C
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 a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Series C 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 C Preferred
5
<PAGE>
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.
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 C 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 C 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
C Preferred Shares and the Warrants and the reservation for issuance and
the issuance of the Conversion Shares and the Warrant Shares issuable upon
6
<PAGE>
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 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 100,000,000 shares of Common Stock, of which as
of the date hereof ______________________ shares were issued and
outstanding, and 10,000,000 shares of Preferred Stock of which 125 shares
of Series B Convertible Preferred Stock 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 C 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 Bylaws,
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.
7
<PAGE>
d. ISSUANCE OF SECURITIES. The Series C 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 C Preferred Shares. The
Conversion Shares issuable upon conversion of the Series C Preferred Shares
have been duly authorized and reserved for issuance. Upon conversion or
exercise in accordance with the Series C 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 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, or
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
8
<PAGE>
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,
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 C 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.
9
<PAGE>
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 C Preferred Shares, the Conversion Shares, the Warrants, or the
Warrant Shares.
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 C Preferred Shares, the Conversion Shares, the
Warrants, and the Warrant Shares under the 1933 Act or cause this offering
of Series C 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.
10
<PAGE>
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(p) 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(u), 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 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.
11
<PAGE>
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 C 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.
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
Sections 6 and 7 of this Agreement.
b. FORM D. The Company agrees to file a Form D with respect to the
Series C 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 C Preferred Shares and the Conversion Shares for, or obtain
exemption for the Series C 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 C 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 C 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
12
<PAGE>
given to the stockholders of the Company generally, contemporaneously with
the giving thereof to the stockholders.
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. Each of the Company and the Buyer shall pay all costs and
expenses incurred by such party in connection with the negotiation,
investigation, preparation, execution and delivery of this Agreement and
the Registration Rights Agreement.
i. WARRANT ISSUANCES. At Closing, the Company shall issue to each
Buyer warrants to acquire [16,667] shares of Common Stock for each one
million dollars ($1,000,000) invested in the form as attached as Exhibit
"C" hereto. The Company shall, in addition to the Warrants otherwise
issuable hereunder, issue to each Buyer such Warrants (the "LOCK-UP
WARRANTS") as may be issuable to a Buyer pursuant to Section 2(i) of the
Certificate of Designations. Each Warrant issued hereunder (including
pursuant to Section 2(i) of the Certificate of Designations) shall be
immediately exercisable and shall expire (to the extent not exercised) on
the fifth (5th) anniversary of its issuance date.
j. NO SHORT SALES OF THE COMMON STOCK. So long as (i) a Buyer or any
of its affiliates beneficially owns any of Series C 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 C
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).
13
<PAGE>
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 C Preferred Shares or exercise of the Warrants (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"). 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(g)
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 C 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 C 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 C 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 C
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 C 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>
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 C 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 C 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.
15
<PAGE>
e. The Company shall have executed and delivered to the Buyer the
Certificates (in such denominations as the Buyer shall request) for the
Series C Preferred Shares being purchased by the Buyer at the Closing.
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 C 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 C Preferred Shares, 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.
8. INDEMNIFICATION.
In consideration of the Buyer's execution and delivery of this Agreement
and acquiring the Series C 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 and hold harmless the Buyer and each other holder of the
Series C 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 C 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 whole or in part, directly or indirectly, with the
proceeds of the issuance of the Series C
16
<PAGE>
Preferred Shares or the status of the Buyer or holder of the Series C Preferred
Shares, the Warrants, or the Conversion Shares or the Warrant Shares, as an
investor in the Company, except for any 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. The parties further agree that any
arbitration action between them shall be heard in Atlanta, Georgia, and
expressly consent to the jurisdiction and venue of the Superior Court of
Fulton County, Georgia, and the United States District Court for the
Northern District of Georgia, Atlanta Division for the adjudication of any
civil action asserted pursuant to this Paragraph.
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
17
<PAGE>
the remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other
jurisdiction.
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:
18
<PAGE>
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
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
19
<PAGE>
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, the agreements and covenants set forth
in Sections 4, 5 and 9, and the indemnification provisions set forth in
Section 8 shall survive for a period of one year following 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 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
Greenfield Capital Partners LLC, as a placement agent in connection with
the sale of the Series C Preferred Shares. The Company shall be responsible
for the payment of any finder's fees (which includes cash and warrants to
purchase Common Stock) relating to or arising out of the transactions
contemplated hereby.
20
<PAGE>
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. INDEPENDENT COUNSEL. The parties to this Agreement acknowledge that
the Company has received independent counsel form the law firm of Sims Moss
Kline & Davis LLP which is acting as its counsel. Buyers have been advised
by Sims Moss Kline & Davis LLP to seek independent advice with respect to
the terms and conditions of this Agreement and any related agreements
before signing them.
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.
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>
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
22
<PAGE>
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 Sax
Its: Chairman of the Board and
Chief Executive Officer
"BUYER"
----------------------------------------
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
23
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Number of Series C
Buyer's Name Address/Facsimile Number of Buyer Preferred Shares
- ------------ --------------------------------- ------------------
<S> <C> <C>
</TABLE>
<PAGE>
SCHEDULE 3(c)
CAPITALIZATION
<TABLE>
<S> <C> <C> <C>
OUTSTANDING WARRANTS:
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
CPR (USA), Inc. 112,500 $ 5.70 March 24, 2004
LibertyView Funds, L.P. 90,000 $ 5.70 March 24, 2004
LibertyView Fund, L.L.C. 22,500 $ 5.70 March 24, 2004
John Clarke 18,750 $ 5.70 March 24, 2004
J.P. Turner & Company, L.L.C. 6,250 $ 5.70 March 24, 2004
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>
SCHEDULE 3(e)
CONFLICTS
The holders of the Series B Preferred Shares have a right of first refusal
to purchase Series C Preferred Shares pursuant to the terms Series B Preferred
Shares private placement.
<PAGE>
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>
SCHEDULE 3(h)
LITIGATION
None.
<PAGE>
SCHEDULE 3(n)
INTELLECTUAL PROPERTY
None.
<PAGE>
SCHEDULE 3(p)
LIENS
None.
<PAGE>
SCHEDULE 3(u)
TAX STATUS
None.
<PAGE>
SCHEDULE 3(v)
CERTAIN TRANSACTIONS
None.
<PAGE>
SCHEDULE 4(d)
USE OF PROCEEDS
Working capital.
<PAGE>
EXHIBIT 10.66
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of July 28,
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 175 shares of
the Company's Series C Convertible 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 C Convertible Preferred Shares (the
"CERTIFICATE OF DESIGNATIONS") and (ii) as set forth in the Securities Purchase
Agreement and the Certificate of Designations, 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.
<PAGE>
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 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 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 for-the in the Securities Purchase Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, on
or prior to September 28, 1999 file (the "FILING DEADLINE") with the
SEC a Registration Statement or Registration Statements (as is
necessary) on Form S-1 (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
as may become issuable upon conversion of the Preferred Stock to
prevent dilution resulting from stock splits, stock dividends or
similar transactions. Such Registration Statement shall initially
register for resale at least 1,244,444 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 one hundred and twenty
(120) 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. If the Registration Statement has not been
filed by the Filing Deadline and/or the Registration Statement has not
been declared effective by the Registration Deadline, then the Company
will be liable for liquidated damages enforceable by the Investor. The
liquidated
-2-
<PAGE>
damages will be in the amount of 2% of the purchase price of the
outstanding Registrable Securities for the first full thirty (30) days
beyond such deadlines that the Registration has not been filed and/or
declared effective and 2% for every full 30 day period thereafter until
the Registration Statement has been filed and/or declared effective.
The liquidated damages will be payable in cash by the Company upon
demand by the Investor.
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 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
-3-
<PAGE>
registered by the Investors and other holders of securities entitled to
participate in the registration, drawn from them pro rata based on the
number each has requested to be included in such registration.
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 is outstanding the period ending on such earlier date being
referred to herein as (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 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
-4-
<PAGE>
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 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).
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 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.
-5-
<PAGE>
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.
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
-6-
<PAGE>
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 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.
-7-
<PAGE>
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.
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
-8-
<PAGE>
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.
-9-
<PAGE>
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 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
-10-
<PAGE>
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, 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,
-11-
<PAGE>
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 (i) 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 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
-12-
<PAGE>
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 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
-13-
<PAGE>
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.
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.
-14-
<PAGE>
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)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the 1933 Act
and applicable state securities laws; (iv) at or 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; (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement; (vi) such transferee shall be an "ACCREDITED INVESTOR" as that term
is defined in Rule 501 of Regulation D promulgated under the 1933 Act; and (vii)
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. Any amendment
or waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or entities
with respect to the same Registrable Securities, the Company shall act
upon the basis of instructions, notice or election received from the
registered owner of such Registrable Securities.
b. 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:
-15-
<PAGE>
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.
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
-16-
<PAGE>
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.
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYER:
HOMECOM COMMUNICATIONS, ---------------------------------
INC.
By: By:
------------------------------ ------------------------------
Name: Harvey W. Sax Name:
Its: Chairman of the Board and ----------------------------
Chief Executive Officer Its:
-17-
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Series
C Convertible
Buyer's Name Address/Facsimile Number of Buyer Preferred Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.67
RAYMOND L. MOSS
Direct Dial: (770) 481-7201
E-mail: [email protected]
September 28, 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 July 23, 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 C Convertible Preferred Stock (the "SERIES C SHARES").
In so acting, we have examined the Agreement, the Certificate of
Designations, Preferences and Rights With respect to the Series C 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 C 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.
<PAGE>
American Stock Transfer
July 23, 1999
Page 3
(3) The certificates for the Conversion Shares should 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 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>
American Stock Transfer
July 23, 1999
Page 4
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>
EXHIBIT "A"
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Series C
BUYER'S NAME Address/Facsimile Number of Buyer Preferred Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.68
RAYMOND L. MOSS
Direct Dial: (770) 481-7201
E-mail: [email protected]
July ______, 1999
To: The Holders
Greenfield Capital Partners, LLC
RE: HOMECOM COMMUNICATIONS, INC.
Ladies and Gentlemen:
We have acted as counsel to HomeCom Communications, Inc., a Delaware
corporation (the "Company"), in connection with the Securities Purchase
Agreement, dated as of July 23, 1999, between you and the Company (the "PURCHASE
AGREEMENT") and the transactions contemplated thereby. This opinion is furnished
to you pursuant to Section 7(d) of the Purchase Agreement. Capitalized terms
used herein and not otherwise defined herein shall have the respective meanings
assigned to such terms in the Purchase Agreement.
In connection with the opinion expressed below, we have examined the
following documents:
(i) The Certificate of Incorporation and Bylaws of the Company, each as
currently in effect;
(ii) The Certificate of Designations as filed with the Secretary of State
of the State of Delaware;
(iii) Certain resolutions of the Board of Directors of the Company;
(iv) The Purchase Agreement;
(v) The Registration Rights Agreement;
(vi) The form of Warrant;
(vii) The Irrevocable Transfer Agent Instructions;
<PAGE>
The Holders
Greenfield Capital Partners, LLC
July ______, 1999
Page 3
(viii) The Certificate of Good Standing dated March 1999, with respect to
the Company as issued by the Secretary of State of the State of
Delaware (the "DELAWARE CERTIFICATE OF GOOD STANDING");
(ix) The Minute Books of the Company (the "COMPANY MINUTE BOOKS");
(x) The disbursement instructions issued to you and the Company with
respect to the consideration to be paid for the Series C Shares and
the other documents delivered at closing; and
(xi) The Placement Agency Agreement between Greenfield Capital Partners,
LLC and the Company.
The Purchase Agreement, the Certificate of Designations, the Registration Rights
Agreement, the form of Warrant and the Irrevocable Transfer Agent Instructions
are herein referred to collectively as the "TRANSACTION AGREEMENTS." We have
also examined and considered such corporate records, certificates and other
statements of corporate officers of the Company and matters of law as we have
deemed appropriate as a basis for our opinions set forth below.
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) In examining agreements (including the Transaction Agreements) executed
by parties other than the Company (the "OTHER PARTIES"), we have assumed that
each Other Party has the legal right, capacity and power to enter into, enforce
and perform all of its obligations under such agreements. Furthermore, we have
assumed the due authorization by each of the Other Parties of all requisite
action and the due execution and delivery of such agreements by each of the
Other Parties, and that such agreements are valid and binding upon each of the
Other Parties and are enforceable against each Other Party in accordance with
their terms.
<PAGE>
The Holders
Greenfield Capital Partners, LLC
July ______, 1999
Page 4
(c) We express no opinion as to the enforceability of the indemnification
and contribution provisions contained in Transaction Agreements or any
provisions contained in the Transaction Agreements requiring the payments of
penalties including penalty interest, in each case to the extent
<PAGE>
The Holders
Greenfield Capital Partners, LLC
July ______, 1999
Page 5
any such provisions may be subject to limitations of public policy and
applicable statutes and judicial decisions, including without limitation,
federal and state securities laws;
(d) We express no opinion as to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
federal or state laws affecting the rights of creditors generally.
(e) We express no opinion as to the enforceability of the choice of law
provisions in any of the Transaction Agreements.
(f) We express no opinion as to the effect or availability of rules of law
governing specific performance, injunctive relief or other equitable remedies
(regardless of whether any such remedies are considered in a proceeding at law
or in equity) or as to the effect of general equitable principles.
(g) As to our opinion regarding the valid existence and good standing of
the Company, we have relied solely upon the Delaware Certificate of Good
Standing.
Furthermore, the following opinions are qualified to the extent that the
validity or enforceability of any provision of any of the Transaction Agreements
is subject to or affected by:
(i) limitations based on statutes and public policy regarding the
enforceability of express or implied waivers including, without limitation,
waivers of rights, claims or defenses;
(ii) limitations on the enforceability of a requirement that provisions of
the Transaction Agreements may only be amended or waived in writing, to the
extent that an oral agreement modifying provisions of the Transaction Agreements
has been performed;
(iii) limitations on the effectiveness of "severability" provisions
depending on the materiality of the unenforceable provision to the Transaction
Agreements as a whole and to the undertakings of the parties thereunder; and
(iv) limitations imposed by state blue sky laws.
For purposes of factual matters relevant to the opinions expressed herein,
we have relied on (a) the representations and warranties of the Company
contained in the Transaction Agreements and (b) certificates of public officials
and the Company's transfer agent and statements and certificates of the
<PAGE>
The Holders
Greenfield Capital Partners, LLC
July ______, 1999
Page 6
officers of the Company. Wherever any statement herein with respect to the
existence or absence of facts is qualified by the phrase "to our knowledge" or
similar phrase, it is intended to indicate that after a review of (i) the
representations and warranties of the Company contained in the Transaction
Agreements and (ii) certificates of public officials and the Company's transfer
agent and statements and certificates of the officers of the Company, (iii) the
Company Minute Books and during the course of our representation of the Company
through the date hereof, no information that would give us current actual
knowledge of the inaccuracy of such statement has come to the attention of those
attorneys in this firm who have represented the Company in connection with the
Transaction Agreements and the transaction contemplated thereby. Except to the
extent expressly set forth herein, we have not undertaken any independent
investigation to determine the existence or absence of any fact, and no
inference as to our knowledge of the existence or absence of any fact should be
drawn from our representation of the Company or our rendering of the opinion 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. The Company is a corporation validly existing and in good standing under
the laws of the State of Delaware.
2. (a) The Company has the requisite corporate power and authority to
execute, deliver and perform the Transaction Agreements, (b) the filing of the
Certificate of Designations and the execution and delivery of the Transaction
Agreements by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board of
Directors, or its stockholders is required under Delaware General Corporate Law,
the Company's Certificate of Incorporation or Bylaws, (c) the Transaction
Agreements have been duly executed and delivered by the Company and the
Certificate of Designations has been duly executed and properly filed by the
Company with the Secretary of State of the State of Delaware in accordance with
the requirements of the Delaware General Corporate Law (the "DELAWARE CORPORATE
LAW") and has become effective under the Delaware Corporate Law, and (d) the
Transaction Agreements constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms.
3. The issuance and sale of Preferred Shares to be purchased by you has
been duly authorized, and are validly issued, fully paid and non-assessable and
not subject
<PAGE>
The Holders
Greenfield Capital Partners, LLC
July ______, 1999
Page 7
to preemptive rights. The issuance of the Warrants to be issued to you have been
duly authorized and, upon issuance in accordance with the terms of the
Transaction Agreements, will be validly issued, fully paid and non-assessable
and not subject to preemptive rights or rights of first refusal.
4. As of the date hereof the authorized capital stock of the Company
consists of (i) 15,000,000 shares of Common Stock, par value $.0001 per share,
of which ___________________ shares are issued and outstanding and (ii)
1,000,000 shares of preferred stock, par value $.0001 per share, of which, to
our knowledge, (A) 125 shares have been designated as Series A Preferred Stock,
none of which are issued and outstanding, and (B) 125 shares have been
designated Series B Convertible Preferred Stock, all of which were issued and
outstanding. Except as set forth on Schedule 3(c) to the Purchase Agreement,
there are no outstanding shares of capital stock or other securities convertible
into or exchangeable or excisable for shares of the capital stock of the
Company.
5. Assuming your representations, warranties and covenants set forth in the
Transaction Agreements are true and correct, the Series C Preferred Shares, the
Warrants, the Conversion Shares and the Warrant Shares may be issued to you
without registration under the 1933 Act, the securities laws of any state or the
Trust Indenture Act.
6. No authorization approval or consent of or filing with any court,
governmental body, regulatory agency, self-regulatory organization or stock
exchange or market, or the stockholders of the Company, or, to our knowledge,
any third party is required to be obtained by the Company to enter into and
perform its obligations under the Transaction Agreements or for the issuance and
sale of the Preferred Shares, the Warrants, the Conversion Shares and the
Warrant Shares as contemplated by the Transaction Agreements.
7. The execution, delivery and performance by the Company of the
Transaction Agreements, the consummation by the Company of the transactions
contemplated thereby and compliance by the Company with the terms thereof does
not (a) violate, conflict with or constitute a default (or an event that with
notice or lapse of time or both would become a default) under the Certificate of
Incorporation or Bylaws of the Company or (b) result in any material violation
of any material law, applicable to the Company that in our experience normally
is applicable to transactions of the type contemplated by the Transaction
Agreements or any judgments, orders and decrees of which we are aware.
8. To our knowledge, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body or any governmental
agency or self-regulatory organization pending or threatened against or
affecting the Company or its subsidiary.
9. The Company is not an "investment company" or an entity controlled by an
"investment
<PAGE>
The Holders
Greenfield Capital Partners, LLC
July ______, 1999
Page 8
company," as such terms are defined in the Investment Company Act of
1940, as amended.
<PAGE>
The Holders
Greenfield Capital Partners, LLC
July ______, 1999
Page 9
We are members of the Bar of the Sate of Georgia and we do not express any
opinion concerning any law other than the laws of the State of Georgia, the
General Corporation Law of the State of Delaware and the federal laws of the
United States. To the extent that the governing law with respect to any matters
covered by this opinion is the law of a jurisdiction other than Georgia or
federal law, we have assumed that the law of such other jurisdiction is
identical to Georgia law.
This opinion is furnished as of the date hereof and we assume no obligation
to update this Opinion or to advise you of any events, circumstances or
developments that occur or are otherwise brought to our attention subsequent to
the date hereof. This opinion is furnished to you solely for your benefit in
connection with the transactions contemplated by the Transaction Agreements and
may not be used, circulated, quoted or otherwise referred to or relied upon by
any other person (other than the Affiliates (as defined below) of the addressee
of this opinion who shall upon a transfer of the Series C Shares to such
affiliate be entitled to rely on this opinion as if they were the addressee
hereof) or for any other purpose without our express prior written consent. This
opinion is expressly limited to the matters set forth above and we render no
opinion, whether by implication or otherwise, as to any other matters. As used
in this opinion, the term "Affiliate" means with respect to any person or any
entity which controls, is controlled by or is under common control with such
person and the term "control" means the power, directly or indirectly, including
through contract, to direct investment decisions including the acquisition,
disposition and voting of securities. For the avoidance of doubt, the term
"Affiliate" means Greenfield Capital Partners, LLC.
Very truly yours,
SIMS MOSS KLINE & DAVIS LLP
<PAGE>
EXHIBIT 10.69
PLACEMENT AGENCY AGREEMENT
THIS AGREEMENT ("AGREEMENT"), made as of the 23rd day of July, 1999, by
and between HomeCom Communications, Inc., a Delaware corporation ("COMPANY"),
and Greenfield Capital Partners, LLC, a Georgia limited liability corporation
(the "AGENT").
WITNESSETH:
WHEREAS, the Company proposes to issue and sell to certain investors
(the "INVESTORS") 175 shares of its Series C Convertible Preferred Stock
("SERIES C PREFERRED STOCK") resulting in gross proceeds up to $3,500,000 (the
Series C 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 $3,500,000 stated value of
securities (the "MAXIMUM SECURITIES") on a "best efforts basis," resulting in
gross proceeds to the Company of up to $3,500,000. 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
C 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
<PAGE>
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 C 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 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
-2-
<PAGE>
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 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.
-3-
<PAGE>
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 non assessable and conform in all material respects to
the statements with regard thereto contained in the Offering Documents.
-4-
<PAGE>
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.
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).
-5-
<PAGE>
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 commission
of eight percent (5.0%) of the gross subscription proceeds (the "GROSS
PROCEEDS") to be paid upon the Closing on the Closing Date.
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 (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.
-6-
<PAGE>
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.
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
-7-
<PAGE>
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 the Securities under the Blue Sky or securities laws thereof, or any
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
-8-
<PAGE>
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:
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
-9-
<PAGE>
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
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:
-10-
<PAGE>
If to the Agent: Greenfield Capital Partners, LLC
1826 W. Wellington Avenue
Chicago, IL 60057
Attn: Caryn H. Kahn
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.
-11-
<PAGE>
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.
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"
GREENFIELD CAPITAL PARTNERS, LLC
-12-
<PAGE>
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
-13-
<PAGE>
EXHIBIT 10.70
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of July 23, 1999, between HomeCom
Communications, Inc., a Delaware corporation (the "COMPANY"), and
______________________, a ________________________________________ (hereinafter
referred to as "INVESTOR").
W I T N E S S E T H:
WHEREAS, Investor has participated as an Investor in connection with
the Company's offering (the "OFFERING") of up to $3,500,000 in principal amount
of Series B Preferred Stock (the "PREFERRED STOCK") for an aggregate purchase
price $3,500,000; and
WHEREAS, the Warrants issued pursuant to this Agreement are being
issued by the Company to Investor and/or its designees, in consideration for,
and as part of the investment by Investor in connection with the Offering;
NOW, THEREFORE, in consideration of the premises, the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. GRANT.
Investor and/or its designees are hereby granted the right to purchase,
at any time from the date of issuance of the aforementioned Preferred Stock
until 5:00 P.M., Eastern Standard Time, on July 22, 2004 (the "WARRANT EXERCISE
TERM"), _________________________ Shares at an exercise price (subject to
adjustment as provided in Article 7 hereof) of $____________ per share (the
"INITIAL EXERCISE PRICE").
2. WARRANT CERTIFICATES.
The warrant certificates (the "WARRANT CERTIFICATES") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth as
EXHIBIT A, attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. EXERCISE OF WARRANTS.
3.1 CASH EXERCISE. The Exercise Price may be paid in cash or
by check to the order of the Company, or any combination of cash or check,
subject to adjustment as provided in Article 7 hereof. Upon surrender of the
Warrant Certificate with the annexed Form of Election to Purchase duly
<PAGE>
executed, together with payment of the Exercise Price (as hereinafter defined)
for the Shares purchased, at the Company's executive offices currently located
at Fourteen Piedmont Center, Suite 100, 3535 Piedmont Road, Atlanta, Georgia
30305, the registered holder of a Warrant Certificate ("HOLDER" or "HOLDERS")
shall be entitled to receive a certificate or certificates for the Shares so
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder hereof, in whole or in part (but not as
to fractional shares of the Common Stock). In the case of the purchase of less
than all the Shares purchasable under any Warrant Certificate, the Company shall
cancel said Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the Shares
purchasable thereunder.
3.2 CASHLESS EXERCISE. At any time during the Warrant Exercise
Term, the Holder may, at its option, exchange this Warrant, in whole or in part
(a "WARRANT EXCHANGE"), into the number of Shares determined in accordance with
this Section 3.2, by surrendering this Warrant at the principal office of the
company or at the office of its transfer agent, accompanied by a notice stating
such Holder's intent to effect such exchange, the number of Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "NOTICE OF EXCHANGE"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "EXCHANGE DATE"). Certificates for the
Shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the Shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) business days following the Exchange Date. In connection with
any Warrant Exchange, this Warrant shall represent the right to subscribe for
and acquire the number of Shares (rounded to the next highest integer) equal to
(i) the number of Shares specified by the Holder in its Notice of Exchange (the
"TOTAL NUMBER") less (ii) the number of Shares equal to the quotient obtained by
dividing (A) the product of the Total Number and the then existing Exercise
Price by (B) the current market value of a share of Common Stock.
4. ISSUANCE OF CERTIFICATES.
Upon the exercise of the Warrants, the issuance of certificates for the
Shares shall be made forthwith (and in any event within five business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future Chairman or Vice Chairman of the Board of
Directors, Chief Executive officer or President or Vice President of the Company
-2-
<PAGE>
under its corporate seal reproduced thereon, attested to by the manual or
facsimile signature of the present or any future Secretary or Assistant
Secretary of the Company. Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange, substitution
or transfer.
The Warrant Certificates and, upon exercise of the Warrants, in part or
in whole, certificates representing the Shares shall bear a legend substantially
similar to the following:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "ACT"), and may not
be offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii) to the extent applicable, pursuant to
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably satisfactory
to counsel to the issuer, stating that an exemption from registration
under such Act is available.
5. PRICE.
5.1 ADJUSTED EXERCISE PRICE. The adjusted Exercise Price shall
be the price which shall result from time to time from any and all adjustments
of the Initial Exercise Price in accordance with the provisions of Article 7
hereof.
5.2 EXERCISE PRICE. The term "EXERCISE PRICE" herein shall
mean the Initial Exercise Price or the adjusted Exercise Price, depending upon
the context.
6. REGISTRATION RIGHTS.
6.1 REGISTRATION UNDER THE SECURITIES ACT OF 1993.
The Warrants and the Shares have not been registered for purposes of public
distribution under the Securities Act of 1933, as amended ("THE ACT").
6.2 REGISTRABLE SECURITIES. As used herein the term
"REGISTRABLE SECURITY" means each of the Warrants, the Shares and any shares of
Common Stock issued upon any stock split or stock dividend in respect of such
Shares; provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered under the
Securities Act and disposed of pursuant thereto, (ii) registration under the
Securities Act is no longer required for the immediate public distribution of
such security or (iii) it has ceased to be outstanding. The term "REGISTRABLE
SECURITIES" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such
-3-
<PAGE>
adjustment shall be made in the definition of "Registrable Security" as is
appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Article 6.
6.3 PIGGYBACK REGISTRATION. If, at any time during the five
years following the date of this Agreement, the Company proposes to prepare and
file any registration statement or post-effective amendments thereto covering
equity or debt securities of the Company, or any such securities of the Company
held by its shareholders (in any such case, other than in connection with a
merger, acquisition or pursuant to Form S-8 or successor form), (for purposes of
this Article 6, collectively, a "REGISTRATION STATEMENT"), it will give written
notice of its intention to do so by registered mail ("NOTICE"), at ten (10)
business days prior to the filing of each such Registration Statement, to all
holders of the Registrable Securities. Upon the written request of such a holder
(a "REQUESTING HOLDER"), made within ten (10) business days after receipt of the
Notice, that the Company include any of the Requesting Holder's Registrable
Securities in the proposed Registration Statement, the Company shall, as to each
such Requesting Holder, use its best efforts to effect the registration under
the Securities Act of the Registrable Securities which it has been so requested
to register ("PIGGYBACK REGISTRATION"), at the Company's sole cost and expense
and at no cost or expense to the Requesting Holders. Notwithstanding the
provisions of this Section 6.3, the Company shall have the right at any time
after it shall have given written notice pursuant to this Section 6.3
(irrespective of whether any written request for inclusion of such securities
shall have already been made) to elect not to file any such proposed
Registration Statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES.
7.1 SUBDIVISION AND COMBINATION. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
7.2 ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Article 7, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Shares issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
7.3 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall
-4-
<PAGE>
thereafter have the right to purchase the kind and number of shares of stock
and other securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance as if the Holders were the
owners of the shares of Common Stock underlying the Warrants immediately
prior to any such events at a price equal to the product of (x) the number of
shares issuable upon exercise of the Warrants and (y) the Exercise Price in
effect immediately prior to the record date for such reclassification,
change, consolidation, merger, sale or conveyance as if such Holders had
exercised the Warrants.
-5-
<PAGE>
7.4 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of shares of Common
Stock upon the exercise of the Warrants; or
(b) Upon (i) the issuance of options pursuant to the
Company's employee stock option plan in effect on the date
hereof or the issuance or sale by the Company of any shares of
Common Stock pursuant to the exercise of any such options, or
(ii) the issuance or sale by the Company of any shares of
Common Stock pursuant to the exercise of any options or
warrants previously issued and outstanding on the date hereof;
or
(c) Upon the issuance of shares of Common Stock
pursuant to contractual obligations existing on the date
hereof; or
(d) If the amount of said adjustment shall be less
than 2 cents (2 cents) per Share, provided, however, that in
such case any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall
amount to at least 2 cents (2 cents) per Share.
7.5 DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO
OUTSTANDING SECURITIES. In the event that the Company shall at any time prior to
the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or distribution
payable out of current or retained earnings) or otherwise distribute to its
shareholders any monies, assets, property, rights, evidences of indebtedness,
securities (other than shares of Common Stock), whether issued by the Company or
by another person or entity, or any other thing of value, the Holder or Holders
of the unexercised Warrants shall thereafter be entitled, in addition to the
shares of Common Stock or other securities receivable upon the exercise thereof,
to receive, upon the exercise of such Warrants, the same monies, property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
or distribution. At the time of any such dividend or distribution, the Company
shall make appropriate reserves to ensure the timely performance of the
provisions of this Subsection 7.5.
8. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
Each Warrant Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Shares in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
-6-
<PAGE>
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
9. ELIMINATION OF FRACTIONAL INTERESTS.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock and shall not be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock.
10. RESERVATION AND LISTING OF SECURITIES.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid, non assessable and not subject to the preemptive rights of any
shareholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants to be listed on or quoted on the electronic bulletin board, by
NASDAQ or listed on such national securities exchanges.
11. NOTICES TO WARRANT HOLDERS.
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive notice
as a shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
-7-
<PAGE>
(b) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or any proposed dissolution,
liquidation, winding up or sale.
12. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Warrants, to the address
of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
of this Agreement or to such other address as the Company may designate
by notice to the Holders.
13. SUPPLEMENTS AND AMENDMENTS.
The Company and the Placement Agent may from time to time supplement or
amend this Agreement without the approval of any Holders of Warrant Certificates
in order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Placement Agent may deem necessary or desirable and
which the Company and the Placement Agent deem not to adversely affect the
interests of the Holders of Warrant Certificates.
14. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
-8-
<PAGE>
15. TERMINATION.
This Agreement shall terminate at the close of business on July 22,
2004. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Warrants have been exercised and all the Shares issuable
upon exercise of the Warrants have been resold to the public; provided, however,
that the provisions of Article 6 shall survive such termination until the close
of business on July 22, 2004.
-9-
<PAGE>
16. GOVERNING LAW.
This Agreement and each Warrant Certificate hereunder 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. The parties further
agree that any arbitration action between them shall be heard in Atlanta,
Georgia, and expressly consent to the jurisdiction and venue of the Superior
Court of Fulton County, Georgia, and the United States District Court for the
Northern District of Georgia, Atlanta Division for the adjudication of any civil
action asserted pursuant to this Paragraph.
17. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Investor and any other registered
holder or holders of the Warrant Certificates, Warrants or the Shares any legal
or equitable right, remedy or claim under this Agreement; and this Agreement
shall be for the sole and exclusive benefit of the Company and the Investor and
any other holder or holders of the Warrant Certificates, Warrants or the Shares.
18. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
HOMECOM COMMUNICATIONS, INC.
By:
------------------------------------------
Name: Harvey W. Sax
Title: Chairman of the Board and Chief
Executive Officer
Attest:
--------------------------
-10-
<PAGE>
Name:
----------------------------
Title:
---------------------------
INVESTOR
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Attest:
--------------------------
Name:
----------------------------
Title:
---------------------------
-11-
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., EASTERN STANDARD TIME, JULY 22, 2004
No. ___________ __________________ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that _________________________
("INVESTOR") or registered assigns, is the registered holder of
_______________ Warrants to purchase, at any time from July 23, 1999, until
5:00 P.M. Eastern Standard Time on July 22, 2004 ("EXPIRATION DATE"), up to
____________ shares ("SHARES") of fully-paid and non-assessable common stock,
no par value ("COMMON STOCK"), of HomeCom Communications, Inc., a Delaware
corporation (the "COMPANY"), at the Initial Exercise Price, subject to
adjustment in certain events (the "EXERCISE PRICE"), of $_______ per Share
upon surrender of this Warrant Certificate and payment of the Exercise Price
at an office or agency of the Company, but subject to the conditions set
forth herein and in the warrant agreement dated as of July 23, 1999, between
the Company and Investor (the "WARRANT AGREEMENT"). Payment of the Exercise
Price may be made in cash, or by certified or official bank check in New York
Clearing House funds payable to the order of the Company, or any combination
of cash or check.
No Warrant may be exercised after 5:00 P.M., Eastern Standard Time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorpo rated by reference in and made a part of
this instrument and is hereby referred to in a description of the rights,
limitation of
<PAGE>
rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "HOLDERS" or "HOLDER" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event, the
Company will, at the, request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Exercise Price and the number and/or type of
securities issuable upon the exercise of the Warrants; provided, however, that
the failure of the Company to issue such new Warrant Certificates shall not in
any way change, alter, or otherwise impair, the rights of the holder as set
forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: July 23, 1999 HOMECOM COMMUNICATIONS, INC.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Attest:
--------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of
_____________________ in the amount of $_______________, all in accordance with
the terms hereof. The undersigned requests that a certificate for such Shares be
registered in the name of ________________________whose address
is__________________________________________________, and that such Certificate
be delivered to ___________________________________________, whose address is
_____________________________________.
Dated: Signature:
-----------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
- ------------------------------------
- ------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________________________________ hereby
sells, assigns and transfers unto
______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
___________________________________, Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated: Signature:
-----------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate)
- -------------------------------------
- -------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
EXHIBIT 10.71
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of September 27,
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 (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");
B. The Company has authorized the following new series of its Preferred
Stock, $.01 par value per share (the "PREFERRED STOCK"): the Company's Series D
Convertible Preferred Stock (the "SERIES D 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's Certificate of Designations,
Preferences, and Rights of the Series D Convertible Preferred Stock,
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 of 75 shares of Series D Preferred Shares 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. As set forth in Section 4(i) hereof and Section 2(i) of the Certificate
of Designations, the holders of Series D Preferred Shares shall receive stock
purchase warrants to acquire shares of Common Stock substantially in the form
attached as Exhibit "C."
<PAGE>
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1 . PURCHASE AND SALE OF SERIES D PREFERRED STOCK.
a. PURCHASE OF SERIES D 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 of 75 shares of Series D Preferred Stock, 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 D 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 D Preferred Shares 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 D
Preferred Shares, (ii) upon conversion of the Series D Preferred Shares,
will acquire the Conversion Shares then issuable, (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 D Preferred Shares, Conversion
Shares, Warrants, or Warrant Shares for any minimum or other specific term
and reserves the right to dispose of Series D 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.
2
<PAGE>
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 D
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 D 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 D 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 D
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 D Preferred Shares, the Conversion Shares, the Warrants, and the
Warrant Shares or the fairness or suitability of the investment in the
Series D Preferred Shares, the Conversion Shares, the Warrants, or the
Warrant Shares nor have such authorities passed upon or endorsed the merits
of the offering of the Series D Preferred Shares, the Conversion Shares,
the Warrants, or the Warrant Shares.
f. TRANSFER OR RESALE. Such Buyer understands that except as provided
in the Registration Rights Agreement: (i) the Series D Preferred Shares,
the Conversion Shares, the Warrants, and the Warrant 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
3
<PAGE>
securities can be sold, assigned or transferred pursuant to Rule 144
promulgated under the 1933 Act, (ii) any sale of such securities made in
reliance on Rule 144 (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 D Preferred Shares, the Warrants and,
until such time as the sale of the Conversion Shares 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 stop transfer 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 GENERALLY
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 D
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 a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Series D 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 D 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.
4
<PAGE>
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 D 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 D 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
D 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 the
5
<PAGE>
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 100,000,000 shares of Common Stock, of which as
of the date hereof ______________________ shares were issued and
outstanding, and 10,000,000 shares of Preferred Stock of which 125 shares
of Series B Convertible Preferred Stock and 175 shares of Series C
Convertible Preferred Stock 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 D 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 D 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 D Preferred Shares. The
Conversion Shares issuable upon conversion of the Series D Preferred Shares
have been duly authorized and reserved for issuance. Upon conversion or
exercise in accordance with the Series D Preferred Shares or the Warrants,
the Conversion Shares and the Warrant Shares will be validly issued, fully
6
<PAGE>
paid and nonassessable and free from all taxes, liens and charges 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, or
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
7
<PAGE>
principles, 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 D 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 D Preferred Shares, the Conversion Shares, the Warrants, or the
Warrant Shares.
8
<PAGE>
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 D Preferred Shares, the Conversion Shares, the
Warrants, and the Warrant Shares under the 1933 Act or cause this offering
of Series D 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(p) 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(u), 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 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.
9
<PAGE>
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 D 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.
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
Sections 6 and 7 of this Agreement.
b. FORM D. The Company agrees to file a Form D with respect to the
Series D 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 D Preferred Shares and the Conversion Shares for, or obtain
exemption for the Series D 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 D 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 D 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)
10
<PAGE>
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.
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. Each of the Company and the Buyer shall pay all costs and
expenses incurred by such party in connection with the negotiation,
investigation, preparation, execution and delivery of this Agreement and
the Registration Rights Agreement.
i. WARRANT ISSUANCES. At Closing, the Company shall issue to each
Buyer warrants to acquire 16,667 shares of Common Stock for each one
million dollars ($1,000,000) invested in the form as attached as Exhibit
"C" hereto. The Company shall, in addition to the Warrants otherwise
issuable hereunder, issue to each Buyer such Warrants (the "LOCK-UP
WARRANTS") as may be issuable to a Buyer pursuant to Section 2(i) of the
Certificate of Designations. Each Warrant issued hereunder (including
pursuant to Section 2(i) of the Certificate of Designations) shall be
immediately exercisable and shall expire (to the extent not exercised) on
the fifth (5th) anniversary of its issuance date.
j. NO SHORT SALES OF THE COMMON STOCK. So long as (i) a Buyer or any
of its affiliates beneficially owns any of Series D 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 D
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).
11
<PAGE>
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 D Preferred Shares or exercise of the Warrants (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"). 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(g)
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 D 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 D 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 D 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 D
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 D 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.
12
<PAGE>
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 D 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 D 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.
13
<PAGE>
e. The Company shall have executed and delivered to the Buyer the
Certificates (in such denominations as the Buyer shall request) for the
Series D Preferred Shares being purchased by the Buyer at the Closing.
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 D 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 D Preferred Shares, 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.
8. INDEMNIFICATION.
In consideration of the Buyer's execution and delivery of this Agreement
and acquiring the Series D 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 and hold harmless the Buyer and each other holder of the
Series D 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 D 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 whole or in part, directly or indirectly, with the
proceeds of the issuance of the Series D Preferred Shares or the status of the
Buyer or holder of the Series
14
<PAGE>
D Preferred Shares, the Warrants, or the Conversion Shares or the Warrant
Shares, as an investor in the Company, except for any 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. The parties further agree that any
arbitration action between them shall be heard in Atlanta, Georgia, and
expressly consent to the jurisdiction and venue of the Superior Court of
Fulton County, Georgia, and the United States District Court for the
Northern District of Georgia, Atlanta Division for the adjudication of any
civil action asserted pursuant to this Paragraph.
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
15
<PAGE>
the remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other
jurisdiction.
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
16
<PAGE>
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, the agreements and covenants set forth
in Sections 4, 5 and 9, and the indemnification provisions set forth in
Section 8 shall survive for a period of one year following 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).
17
<PAGE>
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 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
Greenfield Capital Partners LLC, as a placement agent in connection with
the sale of the Series D Preferred Shares. The Company shall be responsible
for the payment of any finder's fees (which includes cash and warrants to
purchase Common Stock) relating to or arising out of the transactions
contemplated hereby.
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. INDEPENDENT COUNSEL. The parties to this Agreement acknowledge that
the Company has received independent counsel form the law firm of Sims Moss
Kline & Davis LLP which is acting as its counsel. Buyers have been advised
by Sims Moss Kline & Davis LLP to seek independent advice with respect to
the terms and conditions of this Agreement and any related agreements
before signing them.
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
18
<PAGE>
may disclose or deliver such information or other after giving written
notice to the Company of such requirements.
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.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
19
<PAGE>
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 Sax
Its: Chairman of the Board and
Chief Executive Officer
"BUYER"
-----------------------------------------
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
20
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Number of Series D
Buyer's Name Address/Facsimile Number of Buyer Preferred Shares
- ------------ --------------------------------- ------------------
<S> <C> <C>
</TABLE>
<PAGE>
SCHEDULE 3(c)
CAPITALIZATION
<TABLE>
<S> <C> <C> <C>
OUTSTANDING WARRANTS:
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
CPR (USA), Inc. 112,000 $ 5.70 March 24, 2004
LibertyView Funds, L.P. 90,000 $ 5.70 March 24, 2004
LibertyView Fund, L.L.C. 22,500 $ 5.70 March 24, 2004
John Clarke 18,750 $ 5.70 March 24, 2004
J.P. Turner & Company, L.L.C. 6,250 $ 5.70 March 24, 2004
FIMI principals 300,000 $ 3.7375 March 9, 2004
Macnab, LLC 25,000 $ 5.875 July 27, 2004
EMPLOYEE STOCK OPTIONS approximately approximately
750,000 $ 4.50
OBLIGATIONS TO REGISTER SECURITIES:
FIMI principals 626,087
Ganymede principals __________
</TABLE>
<PAGE>
SCHEDULE 3(e)
CONFLICTS
The holders of the Series B Preferred Shares have a right of first refusal
to purchase Series D Preferred Shares pursuant to the terms Series B Preferred
Shares private placement.
<PAGE>
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>
SCHEDULE 3(h)
LITIGATION
None.
<PAGE>
SCHEDULE 3(n)
INTELLECTUAL PROPERTY
None.
<PAGE>
SCHEDULE 3(p)
LIENS
None.
<PAGE>
SCHEDULE 3(u)
TAX STATUS
None.
<PAGE>
SCHEDULE 3(v)
CERTAIN TRANSACTIONS
None.
<PAGE>
SCHEDULE 4(d)
USE OF PROCEEDS
Working capital.
<PAGE>
EXHIBIT "A"
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS OF SERIES D CONVERTIBLE PREFERRED STOCK OF HOMECOM COMMUNICATIONS, INC.
See tab 2 for executed document.
<PAGE>
EXHIBIT "B"
REGISTRATION RIGHTS AGREEMENT
See tab 3 for executed document.
<PAGE>
EXHIBIT "C"
INVESTOR WARRANT AGREEMENT
See tab __________ for executed document.
<PAGE>
EXHIBIT "D"
COMPANY COUNSEL'S OPINION
See tab ___________ for executed document.
<PAGE>
EXHIBIT "E"
BOARD RESOLUTIONS
Attached hereto.
<PAGE>
EXHIBIT 10.72
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of September
27, 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 75 shares of
the Company's Series D Convertible 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 D Convertible Preferred Shares (the
"CERTIFICATE OF DESIGNATIONS") and (ii) as set forth in the Securities Purchase
Agreement and the Certificate of Designations, 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.
<PAGE>
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 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 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 for-the in the Securities Purchase Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, on
or prior to September 28, 1999 file (the "FILING DEADLINE") with the
SEC a Registration Statement or Registration Statements (as is
necessary) on Form S-1 (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 and Series C
Convertible Preferred Stock issued in July 1998, 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 as may become
issuable upon conversion of the Preferred Stock to prevent dilution
resulting from stock splits, stock dividends or similar transactions.
Such Registration Statement shall initially register for resale at
least _____________________ 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 one hundred and twenty
(120) 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. If the Registration Statement has not been
filed by the Filing Deadline and/or the Registration Statement has not
been declared effective by the Registration Deadline, then the
-2-
<PAGE>
Company will be liable for liquidated damages enforceable by the
Investor. The liquidated damages will be in the amount of 2% of the
purchase price of the outstanding Registrable Securities for the first
full thirty (30) days beyond such deadlines that the Registration has
not been filed and/or declared effective and 2% for every full 30 day
period thereafter until the Registration Statement has been filed
and/or declared effective. The liquidated damages will be payable in
cash by the Company upon demand by the Investor.
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 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
-3-
<PAGE>
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,
drawn from them pro rata based on the number each has requested to be
included in such registration.
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 is outstanding the period ending on such earlier date being
referred to herein as (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 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
-4-
<PAGE>
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 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).
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 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
-5-
<PAGE>
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.
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.
-6-
<PAGE>
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 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
-7-
<PAGE>
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.
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
-8-
<PAGE>
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 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).
-9-
<PAGE>
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, 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
-10-
<PAGE>
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 (i) 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 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.
-11-
<PAGE>
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 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
-12-
<PAGE>
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.
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:
-13-
<PAGE>
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)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the 1933 Act
and applicable state securities laws; (iv) at or 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; (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement; (vi) such transferee shall be an "ACCREDITED INVESTOR" as that term
is defined in Rule 501 of Regulation D promulgated under the 1933 Act; and (vii)
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. Any amendment
or waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. MISCELLANEOUS.
-14-
<PAGE>
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.
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
-15-
<PAGE>
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.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
-16-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYER:
HOMECOM COMMUNICATIONS, ---------------------------------
INC.
By: By:
------------------------------- ------------------------------
Name: Harvey W. Sax Name:
Its: Chairman of the Board and ----------------------------
Chief Executive Officer Its:
-17-
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Series
D Convertible
BUYER'S NAME Address/Facsimile Number of Buyer Preferred Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.73
TRANSFER AGENT INSTRUCTIONS
HOMECOM COMMUNICATIONS, INC.
September 27, 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 75 shares of Series D Preferred Stock,
$.01 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,
<PAGE>
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."
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>
EXHIBIT "A"
SCHEDULE OF BUYERS
Number of Series D
BUYER'S NAME Address/Facsimile Number of Buyer Preferred Shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 D Convertible Preferred Stock,
$.01 par value per share (the "SERIES D PREFERRED SHARES"), of HomeCom
Communications, Inc., a Delaware corporation (the "COMPANY"), indicated below
into shares of Common Stock, $.0001 par value per share (the "COMMON STOCK"), of
the Company, by tendering the stock certificate(s) representing the share(s) of
Series D 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 D 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 D
Preferred Shares to be converted
---------------------------------------------
Stock certificate no(s). of Series D
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>
please issue the Common Stock into which the Series D 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 D Preferred Shares,
any applicable transfer tax must be paid by the undersigned.
<PAGE>
EXHIBIT II
HOMECOM COMMUNICATIONS, INC.
Attached hereto.
<PAGE>
EXHIBIT 10.74
RAYMOND L. MOSS September 29, 1999
DIRECT DIAL: (770) 481-7201
E-MAIL: [email protected]
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 September 27, 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 D Convertible Preferred Stock (the "SERIES D SHARES").
In so acting, we have examined the Agreement, the Certificate of
Designations, Preferences and Rights With respect to the Series D 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 D 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.
<PAGE>
American Stock Transfer
September 27, 1999
Page 3
(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:
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
<PAGE>
American Stock Transfer
September 27, 1999
Page 4
opinion of the laws of any other jurisdiction.
<PAGE>
American Stock Transfer
September 27, 1999
Page 5
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>
EXHIBIT "A"
SCHEDULE OF BUYERS
- --------------------------------------------------------------------------------
Number of Series D
BUYER'S NAME Address/Facsimile Number of Buyer Preferred Shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.75
PLACEMENT AGENCY AGREEMENT
THIS AGREEMENT ("AGREEMENT"), made as of the 27th day of September,
1999, by and between HomeCom Communications, Inc., a Delaware corporation
("COMPANY"), and Greenfield Capital Partners, LLC, a Georgia limited liability
corporation (the "AGENT").
WITNESSETH:
WHEREAS, the Company proposes to issue and sell to certain investors
(the "INVESTORS") 75 shares of its Series D Convertible Preferred Stock ("SERIES
D PREFERRED STOCK") resulting in gross proceeds up to $1,500,000 (the Series D
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 $1,500,000 stated value of
securities (the "MAXIMUM SECURITIES") on a "best efforts basis," resulting in
gross proceeds to the Company of up to $1,500,000. The Offering shall be made in
one tranche (the "TRANCHE"). 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
D 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
<PAGE>
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 D 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 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
-2-
<PAGE>
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 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.
-3-
<PAGE>
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 non assessable 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.
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
-4-
<PAGE>
("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 commission
of five percent (5.0%) of the gross subscription proceeds (the "GROSS PROCEEDS")
to be paid upon the Closing on the Closing Date.
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 (the "CLIENTS"). For a period of one year
from the Closing, the Company will not solicit or enter into any financing
-5-
<PAGE>
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.
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
-6-
<PAGE>
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 the Securities under the Blue Sky or securities laws thereof, or any
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
-7-
<PAGE>
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:
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.
-8-
<PAGE>
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
-9-
<PAGE>
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: Greenfield Capital Partners, LLC
1826 W. Wellington Avenue
Chicago, IL 60057
Attn: Caryn H. Kahn
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.
-10-
<PAGE>
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.
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.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
-11-
<PAGE>
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"
GREENFIELD CAPITAL PARTNERS, LLC
By:
------------------------------------------
Name: Caryn H. Kahn
Title:
----------------------------------------
-12-
<PAGE>
EXHIBIT 10.76
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of September 27, 1999, between HomeCom
Communications, Inc., a Delaware corporation (the "COMPANY"), and
______________________, a ________________________________________ (hereinafter
referred to as "INVESTOR").
W I T N E S S E T H:
WHEREAS, Investor has participated as an Investor in connection with
the Company's offering (the "OFFERING") of up to $1,500,000 in principal amount
of Series D Preferred Stock (the "PREFERRED STOCK") for an aggregate purchase
price $1,500,000; and
WHEREAS, the Warrants issued pursuant to this Agreement are being
issued by the Company to Investor and/or its designees, in consideration for,
and as part of the investment by Investor in connection with the Offering;
NOW, THEREFORE, in consideration of the premises, the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. GRANT.
Investor and/or its designees are hereby granted the right to purchase,
at any time from the date of issuance of the aforementioned Preferred Stock
until 5:00 P.M., Eastern Standard Time, on September 26, 2004 (the "WARRANT
EXERCISE TERM"), 25,000 Shares at an exercise price (subject to adjustment as
provided in Article 7 hereof) of $____________ per share (the "INITIAL EXERCISE
PRICE").
2. WARRANT CERTIFICATES.
The warrant certificates (the "WARRANT CERTIFICATES") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth as
EXHIBIT A, attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. EXERCISE OF WARRANTS.
3.1 CASH EXERCISE. The Exercise Price may be paid in cash or
by check to the order of the Company, or any combination of cash or check,
subject to adjustment as provided in Article 7 hereof. Upon surrender of the
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
Shares purchased, at the Company's executive offices currently located at
Fourteen Piedmont Center, Suite 100, 3535
<PAGE>
Piedmont Road, Atlanta, Georgia 30305, the registered holder of a Warrant
Certificate ("HOLDER" or "HOLDERS") shall be entitled to receive a certificate
or certificates for the Shares so purchased. The purchase rights represented by
each Warrant Certificate are exercisable at the option of the Holder hereof, in
whole or in part (but not as to fractional shares of the Common Stock). In the
case of the purchase of less than all the Shares purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Shares purchasable thereunder.
3.2 CASHLESS EXERCISE. At any time during the Warrant Exercise
Term, the Holder may, at its option, exchange this Warrant, in whole or in part
(a "WARRANT EXCHANGE"), into the number of Shares determined in accordance with
this Section 3.2, by surrendering this Warrant at the principal office of the
company or at the office of its transfer agent, accompanied by a notice stating
such Holder's intent to effect such exchange, the number of Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "NOTICE OF EXCHANGE"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "EXCHANGE DATE"). Certificates for the
Shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the Shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) business days following the Exchange Date. In connection with
any Warrant Exchange, this Warrant shall represent the right to subscribe for
and acquire the number of Shares (rounded to the next highest integer) equal to
(i) the number of Shares specified by the Holder in its Notice of Exchange (the
"TOTAL NUMBER") less (ii) the number of Shares equal to the quotient obtained by
dividing (A) the product of the Total Number and the then existing Exercise
Price by (B) the current market value of a share of Common Stock.
4. ISSUANCE OF CERTIFICATES.
Upon the exercise of the Warrants, the issuance of certificates for the
Shares shall be made forthwith (and in any event within five business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future Chairman or Vice Chairman of the Board of
Directors, Chief Executive officer or President or Vice President of the Company
under its corporate seal reproduced thereon, attested to by the manual or
facsimile signature of the present
-2-
<PAGE>
or any future Secretary or Assistant Secretary of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
The Warrant Certificates and, upon exercise of the Warrants, in part or
in whole, certificates representing the Shares shall bear a legend substantially
similar to the following:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "ACT"), and may not
be offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii) to the extent applicable, pursuant to
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably satisfactory
to counsel to the issuer, stating that an exemption from registration
under such Act is available.
5. PRICE.
5.1 ADJUSTED EXERCISE PRICE. The adjusted Exercise Price shall
be the price which shall result from time to time from any and all adjustments
of the Initial Exercise Price in accordance with the provisions of Article 7
hereof.
5.2 EXERCISE PRICE. The term "EXERCISE PRICE" herein shall
mean the Initial Exercise Price or the adjusted Exercise Price, depending upon
the context.
6. REGISTRATION RIGHTS.
6.1 REGISTRATION UNDER THE SECURITIES ACT OF 1993.
The Warrants and the Shares have not been registered for purposes of public
distribution under the Securities Act of 1933, as amended ("THE ACT").
6.2 REGISTRABLE SECURITIES. As used herein the term
"REGISTRABLE SECURITY" means each of the Warrants, the Shares and any shares of
Common Stock issued upon any stock split or stock dividend in respect of such
Shares; provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered under the
Securities Act and disposed of pursuant thereto, (ii) registration under the
Securities Act is no longer required for the immediate public distribution of
such security or (iii) it has ceased to be outstanding. The term "REGISTRABLE
SECURITIES" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of "Registrable Security" as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Article 6.
-3-
<PAGE>
6.3 PIGGYBACK REGISTRATION. If, at any time during the five
years following the date of this Agreement, the Company proposes to prepare and
file any registration statement or post-effective amendments thereto covering
equity or debt securities of the Company, or any such securities of the Company
held by its shareholders (in any such case, other than in connection with a
merger, acquisition or pursuant to Form S-8 or successor form), (for purposes of
this Article 6, collectively, a "REGISTRATION STATEMENT"), it will give written
notice of its intention to do so by registered mail ("NOTICE"), at ten (10)
business days prior to the filing of each such Registration Statement, to all
holders of the Registrable Securities. Upon the written request of such a holder
(a "REQUESTING HOLDER"), made within ten (10) business days after receipt of the
Notice, that the Company include any of the Requesting Holder's Registrable
Securities in the proposed Registration Statement, the Company shall, as to each
such Requesting Holder, use its best efforts to effect the registration under
the Securities Act of the Registrable Securities which it has been so requested
to register ("PIGGYBACK REGISTRATION"), at the Company's sole cost and expense
and at no cost or expense to the Requesting Holders. Notwithstanding the
provisions of this Section 6.3, the Company shall have the right at any time
after it shall have given written notice pursuant to this Section 6.3
(irrespective of whether any written request for inclusion of such securities
shall have already been made) to elect not to file any such proposed
Registration Statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES.
7.1 SUBDIVISION AND COMBINATION. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
7.2 ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Article 7, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Shares issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
7.3 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holders were the owners of the shares of
Common Stock underlying the Warrants immediately prior to
-4-
<PAGE>
any such events at a price equal to the product of (x) the number of shares
issuable upon exercise of the Warrants and (y) the Exercise Price in effect
immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance as if such Holders had exercised the
Warrants.
7.4 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES.
No adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of shares of
Common Stock upon the exercise of the Warrants; or
(b) Upon (i) the issuance of options pursuant to the
Company's employee stock option plan in effect on the date
hereof or the issuance or sale by the Company of any shares of
Common Stock pursuant to the exercise of any such options, or
(ii) the issuance or sale by the Company of any shares of
Common Stock pursuant to the exercise of any options or
warrants previously issued and outstanding on the date hereof;
or
(c) Upon the issuance of shares of Common Stock
pursuant to contractual obligations existing on the date
hereof; or
(d) If the amount of said adjustment shall be less
than 2 cents (2 cents) per Share, provided, however, that in
such case any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall
amount to at least 2 cents (2 cents) per Share.
7.5 DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO
OUTSTANDING SECURITIES. In the event that the Company shall at any time prior to
the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or distribution
payable out of current or retained earnings) or otherwise distribute to its
shareholders any monies, assets, property, rights, evidences of indebtedness,
securities (other than shares of Common Stock), whether issued by the Company or
by another person or entity, or any other thing of value, the Holder or Holders
of the unexercised Warrants shall thereafter be entitled, in addition to the
shares of Common Stock or other securities receivable upon the exercise thereof,
to receive, upon the exercise of such Warrants, the same monies, property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
or distribution. At the time of any such dividend or distribution, the Company
shall make appropriate reserves to ensure the timely performance of the
provisions of this Subsection 7.5.
-5-
<PAGE>
8. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
Each Warrant Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Shares in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
9. ELIMINATION OF FRACTIONAL INTERESTS.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock and shall not be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock.
10. RESERVATION AND LISTING OF SECURITIES.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid, non assessable and not subject to the preemptive rights of any
shareholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants to be listed on or quoted on the electronic bulletin board, by
NASDAQ or listed on such national securities exchanges.
11. NOTICES TO WARRANT HOLDERS.
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive notice
as a shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
-6-
<PAGE>
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or any proposed dissolution,
liquidation, winding up or sale.
12. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
of this Agreement or to such other address as the Company may designate
by notice to the Holders.
13. SUPPLEMENTS AND AMENDMENTS.
The Company and the Placement Agent may from time to time supplement or
amend this Agreement without the approval of any Holders of Warrant Certificates
in order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Placement Agent may deem necessary or desirable and
which the Company and the Placement Agent deem not to adversely affect the
interests of the Holders of Warrant Certificates.
14. SUCCESSORS.
-7-
<PAGE>
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
15. TERMINATION.
This Agreement shall terminate at the close of business on September
26, 2004. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Warrants have been exercised and all the Shares issuable
upon exercise of the Warrants have been resold to the public; provided, however,
that the provisions of Article 6 shall survive such termination until the close
of business on September 26, 2004.
16. GOVERNING LAW.
This Agreement and each Warrant Certificate hereunder 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. The parties further
agree that any arbitration action between them shall be heard in Atlanta,
Georgia, and expressly consent to the jurisdiction and venue of the Superior
Court of Fulton County, Georgia, and the United States District Court for the
Northern District of Georgia, Atlanta Division for the adjudication of any civil
action asserted pursuant to this Paragraph.
17. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Investor and any other registered
holder or holders of the Warrant Certificates, Warrants or the Shares any legal
or equitable right, remedy or claim under this Agreement; and this Agreement
shall be for the sole and exclusive benefit of the Company and the Investor and
any other holder or holders of the Warrant Certificates, Warrants or the Shares.
18. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
-8-
<PAGE>
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
HOMECOM COMMUNICATIONS, INC.
By:
--------------------------------
Name: Harvey W. Sax
Title: Chairman of the Board and
Chief Executive Officer
Attest:
----------------------------
Name:
------------------------------
Title:
-----------------------------
INVESTOR
By:
--------------------------------
Name:
Title:
Attest:
----------------------------
Name:
------------------------------
Title:
-----------------------------
-10-
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., EASTERN STANDARD TIME, SEPTEMBER 26, 2004
No. 25,000 Warrants
----------------
WARRANT CERTIFICATE
This Warrant Certificate certifies that ______________________________
("INVESTOR") or registered assigns, is the registered holder of 25,000 Warrants
to purchase, at any time from September 27, 1999, until 5:00 P.M. Eastern
Standard Time on September 26, 2004 ("EXPIRATION DATE"), up to ____________
shares ("SHARES") of fully-paid and non-assessable common stock, no par value
("COMMON STOCK"), of HomeCom Communications, Inc., a Delaware corporation (the
"COMPANY"), at the Initial Exercise Price, subject to adjustment in certain
events (the "EXERCISE PRICE"), of $_______ per Share upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of September 27, 1999, between the Company and Investor (the
"WARRANT AGREEMENT"). Payment of the Exercise Price may be made in cash, or by
certified or official bank check in New York Clearing House funds payable to the
order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., Eastern Standard Time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of
<PAGE>
rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "HOLDERS" or "HOLDER" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event, the
Company will, at the, request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Exercise Price and the number and/or type of
securities issuable upon the exercise of the Warrants; provided, however, that
the failure of the Company to issue such new Warrant Certificates shall not in
any way change, alter, or otherwise impair, the rights of the holder as set
forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: September 27, 1999 HOMECOM COMMUNICATIONS, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
----------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of
_____________________ in the amount of $_______________, all in accordance with
the terms hereof. The undersigned requests that a certificate for such Shares be
registered in the name of ________________________whose address
is__________________________________________________, and that such Certificate
be delivered to ___________________________________________, whose address is
_______________________________________________________________.
Dated: Signature:
---------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
- ------------------------------------
- ------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________________________________ hereby
sells, assigns and transfers unto
- -----------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
___________________________________, Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated: Signature:
---------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate)
- -------------------------------------
- -------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
HomeCom Communications, Inc. of our report, which includes an explanatory
paragraph relating to the Company's ability to continue as a going concern,
dated March 29, 1999, except as to Note 12, which is as of September 7, 1999,
relating to the financial statements of HomeCom Communications, Inc., which
appears in such Registration Statement. We also consent to the reference to us
under the caption "Experts" in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
October 4, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
HomeCom Communications, Inc. of our report, dated March 2, 1999, on our audits
of the financial statements of FIMI Securities, Inc. We also consent to the
reference to our firm under the caption "Experts."
Andrew Shebay & Company, PLLC
Houston, Texas
September 9, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
HomeCom Communications, Inc. of our report, dated June 4, 1999, on our audits of
the financial statements of Premier Financial Services, Inc., First
Institutional Marketing, Inc., and All Things Financial, Inc. We also consent to
the reference to our firm under the caption "Experts."
Andrew Shebay & Company, PLLC
Houston, Texas
September 9, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
HomeCom Communications, Inc. of our report, dated February 8, 1999, on our
audits of the financial statements of Ganymede Corporation. We also consent to
the reference to our firm under the caption "Experts."
Ostrow, Reisin Berk & Abrams, Ltd.
Chicago, Illinois
September 9, 1999
