<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HOMECOM COMMUNICATIONS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
HOMECOM COMMUNICATIONS, INC.
BUILDING 14, SUITE 100
3535 PIEDMONT ROAD, SUITE 100
ATLANTA, GEORGIA 30305
May , 2000
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of HomeCom Communications, Inc. (the "Company"), to be held on June 8, 2000 at
9:00 a.m. Eastern Standard Time at the Conference Center, 3rd Floor, 400
Northpark Town Center, 1000 Abernathy Road, N.E., Atlanta, Georgia.
At this meeting, you will be asked to vote, in person or by proxy, on the
following matters: (i) the election of two directors to serve on the Board of
Directors of the Company for three-year terms; (ii) to approve an amendment to
the Company's Amended and Restated Certificate of Incorporation to increase the
number of authorized shares of the Company's Common Stock; (iii) to ratify, as
separate matters, the issuance of shares of four series of the Company's
Convertible Preferred Stock and certain related warrants to purchase shares of
Common Stock, and to approve the issuance of shares of Common Stock of the
Company in excess of 19.99 percent of the outstanding shares, if required in
connection with the conversion of each series of the preferred stock and the
exercise of such warrants; (iv) to ratify the appointment of
PricewaterhouseCoopers, LLC as the Company's independent accountants; (v) to
approve an amendment to the Company's Employee Stock Purchase Plan to increase
the number of shares of the Company's Common Stock that may be issued
thereunder; and (vi) any other business as may properly come before the meeting
or any adjournments thereof. The official Notice of Meeting, Proxy Statement and
form of proxy are included with this letter. The matters listed in the Notice of
Meeting are described in detail in the accompanying Proxy Statement.
Regardless of your plans for attending in person, it is important that your
shares be represented and voted at the Annual Meeting. Accordingly, you are
urged to complete, sign and mail the enclosed proxy card as soon as possible.
Sincerely,
/s/ HARVEY W. SAX
--------------------------------------
Harvey W. Sax
Chairman and Chief Executive Officer
<PAGE>
HOMECOM COMMUNICATIONS, INC.
BUILDING 14, SUITE 100
3535 PIEDMONT ROAD
ATLANTA, GEORGIA 30305
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 8, 2000
To the Stockholders of HomeCom Communications, Inc.:
Notice is hereby given that the 1999 Annual Meeting of Stockholders of
HomeCom Communications, Inc. (the "Company") will be held at the Conference
Center, 3rd Floor, 400 Northpark Town Center, 1000 Abernathy Road, N.E.,
Atlanta, Georgia on June 8, 2000, at 9:00 a.m., Atlanta time, for the following
purposes:
1. To elect two directors to serve on the Board of Directors for a
three-year term and until their successors are duly elected and
qualified;
2. To consider and to act upon a proposal to amend Article IV of the
Company's Amended and Restated Certificate of Incorporation to increase
the number of authorized shares of the Company's Common Stock, par value
$0.0001 per share (the "Common Stock"), from 15,000,000 to 50,000,000;
3. To ratify the issuance of shares of the Company's Series B Convertible
Preferred Stock and certain related warrants to purchase shares of
Common Stock, and to approve the issuance of shares of Common Stock of
the Company in excess of 19.99 percent of the outstanding shares, if
required in connection with the conversion of the Series B Convertible
Preferred Stock and the exercise of such warrants;
4. To ratify the issuance of shares of the Company's Series C Convertible
Preferred Stock and certain related warrants to purchase shares of
Common Stock, and to approve the issuance of shares of Common Stock of
the Company in excess of 19.99 percent of the outstanding shares, if
required in connection with the conversion of the Series C Convertible
Preferred Stock and the exercise of such warrants;
5. To ratify the issuance of shares of the Company's Series D Convertible
Preferred Stock and certain related warrants to purchase shares of
Common Stock, and to approve the issuance of shares of Common Stock of
the Company in excess of 19.99 percent of the outstanding shares, if
required in connection with the conversion of the Series D Convertible
Preferred Stock and the exercise of such warrants;
6. To ratify the issuance of shares of the Company's Series E Convertible
Preferred Stock and certain related warrants to purchase shares of
Common Stock, and to approve the issuance of shares of Common Stock of
the Company in excess of 19.99 percent of the outstanding shares, if
required in connection with the conversion of the Series E Convertible
Preferred Stock and the exercise of such warrants;
7. To ratify the appointment of PricewaterhouseCoopers, LLC as the
Company's independent accountants for the fiscal year ending
December 31, 1999;
8. To consider and vote upon an amendment to the Company's Employee Stock
Purchase Plan to increase the number of shares of Common Stock
authorized for issuance thereunder from 150,000 shares to 300,000
shares; and
9. To transact such other business as may properly come before the meeting
and any adjournment thereof.
<PAGE>
The Board of Directors has fixed the close of business on April 13, 2000 as
the record date for determining the stockholders entitled to notice of and to
vote at the meeting or any adjournment thereof. A list of such stockholders will
be open to examination of any stockholder at the Company's offices at Building
14, Suite 100, 3535 Piedmont Road, Atlanta, Georgia 30305, during ordinary
business hours, for a period of at least ten days prior to the meeting. All
stockholders are cordially invited to attend the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ JAMES WM. ELLSWORTH
--------------------------------------
James Wm. Ellsworth
Chief Financial Officer
Atlanta, Georgia
May , 2000
IMPORTANT
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE MARK, SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE.
NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE
MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY.
<PAGE>
HOMECOM COMMUNICATIONS, INC.
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
INCORPORATION OF DOCUMENTS BY REFERENCE. 3
<S> <C>
PROPOSAL ONE--ELECTION OF DIRECTORS......................... 4
MANAGEMENT.................................................. 5
Directors and Executive Officers.......................... 5
Board Committees.......................................... 7
Meetings and Attendance................................... 7
Director Compensation..................................... 7
Compensation Committee Interlocks and Insider
Participation........................................... 7
Executive Compensation.................................... 8
Option Grants in Last Fiscal Year......................... 8
Option Exercises in Last Fiscal Year and Year-End Option
Values.................................................. 9
Employment Agreements..................................... 9
Stock Option Plans........................................ 9
Agreements with Employees................................. 12
PERFORMANCE GRAPH........................................... 13
CERTAIN TRANSACTIONS........................................ 13
Section 16(a) Beneficial Ownership Reporting Compliance... 15
PROPOSAL TWO--APPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK............................................ 15
PROPOSAL THREE--TO RATIFY THE ISSUANCE OF SHARES OF THE
COMPANY'S SERIES B CONVERTIBLE PREFERRED STOCK AND CERTAIN
RELATED WARRANTS, AND TO APPROVE THE ISSUANCE OF COMMON
STOCK IN EXCESS OF 19.99 PERCENT OF THE OUTSTANDING
SHARES..................................................... 15
PROPOSAL FOUR--TO RATIFY THE ISSUANCE OF SHARES OF THE
COMPANY'S SERIES C CONVERTIBLE PREFERRED STOCK AND CERTAIN
RELATED WARRANTS, AND TO APPROVE THE ISSUANCE OF COMMON
STOCK IN EXCESS OF 19.99 PERCENT OF THE OUTSTANDING
SHARES..................................................... 17
PROPOSAL FIVE--TO RATIFY THE ISSUANCE OF SHARES OF THE
COMPANY'S SERIES D CONVERTIBLE PREFERRED STOCK AND CERTAIN
RELATED WARRANTS, AND TO APPROVE THE ISSUANCE OF COMMON
STOCK IN EXCESS OF 19.99 PERCENT OF THE OUTSTANDING
SHARES.....................................................
PROPOSAL SIX--TO RATIFY THE ISSUANCE OF SHARES OF THE
COMPANY'S SERIES E CONVERTIBLE PREFERRED STOCK AND CERTAIN
RELATED WARRANTS, AND TO APPROVE THE ISSUANCE OF COMMON
STOCK IN EXCESS OF 19.99 PERCENT OF THE OUTSTANDING
SHARES.....................................................
PROPOSAL SEVEN--RATIFICATION OF APPOINTMENT OF INDEPENDENT
ACCOUNTANTS................................................ 19
PROPOSAL EIGHT--APPROVAL OF AN AMENDMENT TO THE EMPLOYEE
STOCK PURCHASE PLAN TO INCREASE THE NUMBER OF SHARES OF
COMMON STOCK THAT MAY BE ISSUED THEREUNDER................. 21
BENEFICIAL OWNERSHIP OF COMMON STOCK........................ 23
OTHER BUSINESS TO BE TRANSACTED............................. 25
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EXHIBITS
- ------------------------------------------------------------
Appendix "A"--Proposed Amendment to Article IV to the
Company's Articles of Incorporation....................... A-1
Appendix "B"--Certificate of Designations, Preferences and
Rights of Series B Convertible Preferred Stock............ B-1
Appendix "C"--Form of Series B Warrant Agreement............ C-1
Appendix "D"--Certificate of Designations, Preferences and
Rights of Series C Convertible Preferred Stock............ D-1
Appendix "E"--Form of Series C Warrant Agreement............ E-1
Appendix "F"--Certificate of Designations, Preferences and
Rights of Series D Convertible Preferred Stock............ F-1
Appendix "G"--Form of Series D Warrant Agreement............ G-1
Appendix "H"--Certificate of Designations, Preferences and
Rights of Series E Convertible Preferred Stock............ H-1
Appendix "I"--Form of Series E Warrant Agreement............ I-1
Appendix "J"--Employee Stock Purchase Plan.................. J-1
</TABLE>
ii
<PAGE>
HOMECOM COMMUNICATIONS, INC.
BUILDING 14, SUITE 100
3535 PIEDMONT ROAD
ATLANTA, GEORGIA 30305
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 8, 2000
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
This Proxy Statement and the accompanying Notice of Annual Meeting and Proxy
Card are being furnished, on or about May , 2000, to the stockholders of
HomeCom Communications, Inc. (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company to be used at
the 1999 Annual Meeting of Stockholders of the Company (the "Annual Meeting") to
be held on June 8, 2000 at 9:00 a.m. Eastern Standard Time at the Conference
Center, 3rd Floor, 400 Northpark Town Center, 1000 Abernathy Road, N.E.,
Atlanta, Georgia, and any adjournment thereof.
If the enclosed form of proxy is properly executed and returned to the
Company in time to be voted at the Annual Meeting, the shares represented
thereby will be voted in accordance with the instructions thereon. EXECUTED BUT
UNMARKED PROXIES WILL BE VOTED: (i) "FOR" PROPOSAL ONE TO ELECT TWO NOMINEES TO
SERVE ON THE BOARD OF DIRECTORS FOR A THREE-YEAR TERM AND UNTIL THEIR SUCCESSORS
ARE DULY ELECTED AND QUALIFIED; (ii) "FOR" PROPOSAL TWO TO AMEND ARTICLE IV OF
THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK, PAR VALUE $0.0001 PER
SHARE, FROM 15,000,000 TO 50,000,000; (iii) "FOR" PROPOSAL THREE TO RATIFY THE
ISSUANCE OF SHARES OF THE COMPANY'S SERIES B CONVERTIBLE PREFERRED STOCK AND
CERTAIN RELATED WARRANTS TO PURCHASE SHARES OF COMMON STOCK, AND TO APPROVE THE
ISSUANCE OF SHARES OF COMMON STOCK OF THE COMPANY IN EXCESS OF 19.99 PERCENT OF
THE OUTSTANDING SHARES, IF REQUIRED IN CONNECTION WITH THE CONVERSION OF SUCH
SERIES B CONVERTIBLE PREFERRED STOCK AND THE EXERCISE OF SUCH WARRANTS;
(iv) "FOR" PROPOSAL FOUR TO RATIFY THE ISSUANCE OF SHARES OF THE COMPANY'S
SERIES C CONVERTIBLE PREFERRED STOCK AND CERTAIN RELATED WARRANTS TO PURCHASE
SHARES OF COMMON STOCK, AND TO APPROVE THE ISSUANCE OF SHARES OF COMMON STOCK OF
THE COMPANY IN EXCESS OF 19.99 PERCENT OF THE OUTSTANDING SHARES, IF REQUIRED IN
CONNECTION WITH THE CONVERSION OF SUCH SERIES C CONVERTIBLE PREFERRED STOCK AND
THE EXERCISE OF SUCH WARRANTS; (v) FOR "PROPOSAL FIVE TO RATIFY THE ISSUANCE OF
SHARES OF THE COMPANY'S SERIES D CONVERTIBLE PREFERRED STOCK AND CERTAIN RELATED
WARRANTS TO PURCHASE SHARES OF COMMON STOCK, AND TO APPROVE THE ISSUANCE OF
SHARES OF COMMON STOCK OF THE COMPANY IN EXCESS OF 19.99 PERCENT OF THE
OUTSTANDING SHARES, IF REQUIRED IN CONNECTION WITH THE CONVERSION OF SUCH
SERIES D CONVERTIBLE PREFERRED STOCK AND THE EXERCISE OF SUCH WARRANTS;
(vi) FOR "PROPOSAL SIX TO RATIFY THE ISSUANCE OF SHARES OF THE COMPANY'S
SERIES E CONVERTIBLE PREFERRED STOCK AND CERTAIN RELATED WARRANTS TO PURCHASE
SHARES OF COMMON STOCK, AND TO APPROVE THE ISSUANCE OF SHARES OF COMMON STOCK OF
THE COMPANY IN EXCESS OF 19.99 PERCENT OF THE OUTSTANDING SHARES, IF REQUIRED IN
CONNECTION WITH THE CONVERSION OF SUCH SERIES E CONVERTIBLE PREFERRED STOCK AND
THE EXERCISE OF SUCH WARRANTS; (vii) "FOR" PROPOSAL SEVEN TO RATIFY THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS, LLC AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999; AND (viii) "FOR"
PROPOSAL EIGHT TO AMEND THE COMPANY'S EMPLOYEE STOCK PURCHASE
<PAGE>
PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE
THEREUNDER FROM 150,000 SHARES TO 300,000 SHARES. If any other matters are
properly brought before the Annual Meeting, proxies will be voted in the
discretion of the proxy holders. The Company is not aware of any such matters
that are proposed to be presented at the Annual Meeting.
The cost of soliciting proxies in the form enclosed herewith will be borne
entirely by the Company. In addition to the solicitation of proxies by mail,
proxies may be solicited by directors, officers and regular employees of the
Company, without extra remuneration, by personal interviews, telephone, fax,
email or otherwise. The Company will request persons, firms and corporations
holding shares in their name or in the names of their nominees, which are
beneficially owned by others, to send proxy materials to and obtain proxies from
the beneficial owners and will reimburse the holders for their reasonable
expenses in doing so.
The securities that may be voted at the Annual Meeting consist of shares of
Common Stock, par value $.0001 per share ("Common Stock"), of the Company. Each
outstanding share of Common Stock entitles its owner to one vote on each matter
as to which a vote is taken at the Annual Meeting. The close of business on
April 13, 2000, has been fixed by the Board of Directors as the record date (the
"Record Date") for determination of stockholders entitled to vote at the Annual
Meeting. On the Record Date, shares of Common Stock were outstanding and
entitled to vote. The presence, in person or by proxy, of at least a majority of
the shares of Common Stock issued and outstanding and entitled to vote on the
Record Date is necessary to constitute a quorum at the Annual Meeting.
Assuming the presence of a quorum at the Annual Meeting: (a) a plurality of
the votes present in person or represented by proxy and entitled to vote is
required for approval of Proposal One, to elect two directors; (b) the
affirmative vote of a majority of the outstanding shares of Common Stock is
required to approve Proposal Two, to amend the Company's Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation"), (c) a
majority of the total votes cast on the proposal is required for approval of
Proposals Three, Four, Five and Six, to ratify the issuance of shares of the
Company's Series B Convertible Preferred Stock and related warrants to purchase
shares of Common Stock, and to approve the issuance of shares of Common Stock in
excess of 19.99 percent of the outstanding shares in connection therewith; to
ratify the issuance of shares of the Company's Series C Convertible Preferred
Stock and related warrants to purchase shares of Common Stock, and to approve
the issuance of shares of Common Stock in excess of 19.99 percent of the
outstanding shares in connection therewith; to ratify the issuance of shares of
the Company's Series D Convertible Preferred Stock and related warrants to
purchase shares of Common Stock, and to approve the issuance of shares of Common
Stock in excess of 19.99 percent of the outstanding shares in connection
therewith; and to ratify the issuance of shares of the Company's Series E
Convertible Preferred Stock and related warrants to purchase shares of Common
Stock, and to approve the issuance of shares of Common Stock in excess of 19.99
percent of the outstanding shares in connection therewith; and (d) a majority of
the votes present in person or represented by proxy and entitled to vote is
required to approve Proposals Seven and Eight, to ratify appointment of the
Company's independent accountants and to amend the Company's Employee Stock
Purchase Plan. Unless otherwise required by law or the Company's Certificate of
Incorporation or the Company's Amended and Restated Bylaws (the "Bylaws"), any
other matter put to a stockholder vote will be decided by the affirmative vote
of a majority of the votes present in person or represented by proxy at the
Annual Meeting and entitled to vote on the matter.
Abstentions and broker non-votes will be treated as shares that are present,
in person or by proxy, and entitled to vote for purposes of determining the
presence of a quorum at the Annual Meeting. Because abstentions and broker
non-votes will be counted for purposes of determining the shares present or
represented at the Annual Meeting and entitled to vote, abstentions will have
the same effect as a vote "against" Proposals Two, Seven, Eight and Nine.
Abstentions and Broker non-votes on Proposals One, Three, Four, Five and Six
will not have any effect on the approval of those Proposals. The shareholders of
2
<PAGE>
the Company will not have dissenters' rights of appraisal with respect to any of
the actions to be taken at the meeting.
The presence of a stockholder at the Annual Meeting will not automatically
revoke such stockholder's proxy. Stockholders may, however, revoke a proxy at
any time prior to its exercise by filing with the Secretary of the Company a
written notice of revocation, by delivering to the Company a duly executed proxy
bearing a later date or by attending the Annual Meeting and voting in person.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
PROPOSALS SET FORTH IN THIS PROXY STATEMENT.
3
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
A copy of the Company's most recent Annual Report to Security Holders for
the 1999 fiscal year accompanies this Proxy Statement.
The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 filed by the Company with the Securities & Exchange Commission
(the "Commission") pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act") is hereby incorporated by reference in this Proxy
Statement.
You may read and copy any reports, statements, or other information that the
Company files at the Commission's public reference rooms in Washington, D.C.;
New York, New York; and Chicago, Illinois. Please call the Commission at
1-800-SEC-0330 for further information on the public reference rooms. The
Company's public filings are also available to the public from commercial
document retrieval services and at the commission at "http://www.sec.gov." The
Company's latest annual report and quarterly reports can be accessed through the
Company's Internet World Wide Web site at "http://www.homecom.com."
All documents filed by the Company pursuant to Section 13(a), 13(c), 14, or
15(d) of the Exchange Act subsequent to the date of this Proxy Statement and
prior to the date of the Annual Meeting to which this Proxy Statement relates
shall be deemed to be incorporated by reference in this Proxy Statement and to
be a part hereof from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part of this Proxy Statement except as so modified or superseded.
THIS PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL PROVIDE WITHOUT CHARGE
TO ANY PERSON TO WHOM THIS PROXY STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS
INCORPORATED HEREIN BY REFERENCE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS THAT ARE
NOT SPECIFICALLY INCORPORATED HEREIN BY REFERENCE). WRITTEN REQUESTS FOR SUCH
DOCUMENTS RELATING TO THE COMPANY SHOULD BE DIRECTED TO CORPORATE COMMUNICATIONS
AND INVESTOR RELATIONS, HOMECOM COMMUNICATIONS, INC., BUILDING 14, SUITE 100,
3535 PIEDMONT ROAD, ATLANTA, GEORGIA 30305; AND TELEPHONE REQUESTS MAY BE
DIRECTED TO CORPORATE COMMUNICATIONS AND INVESTOR RELATIONS AT (404) 237-4646.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD BE MADE
BY , 2000.
4
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
The Certificate of Incorporation provides that the Board of Directors shall
consist of not fewer than three directors nor more than nine, with the exact
number determined by resolution of a majority of the Board of Directors or by
the affirmative vote of the holders of at least 75% of all outstanding shares
entitled to vote as a single class. The Board of Directors currently consists of
seven directors, divided into three classes of directors serving staggered
three-year terms. At the Meeting, two directors will be elected to Class II,
each for a three-year term. As described below, the Board of Directors' nominees
for Class II are Gia Bokuchava, Ph.D., and Roger J. Nebel.
Unless otherwise instructed on the proxy, properly executed proxies will be
voted for the election of Dr. Bokuchava and Mr. Nebel as directors. The Board of
Directors believes that such nominees will stand for reelection and will serve
if elected. However, if either Dr. Bokuchava or Mr. Nebel fails to stand for
reelection or is unable to accept election, proxies will be voted by the proxy
holders for the election of such other person as the Board of Directors may
recommend. Nominees for election as directors are nominated by a majority of the
Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ITS NOMINEES FOR
DIRECTOR.
INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS
The following table sets forth certain information regarding the Board of
Director's nominees for election as director and those directors who will
continue to serve as such after the Annual Meeting.
<TABLE>
<CAPTION>
AGE AT
NAME MARCH 31, 2000 PRESENT POSITION WITH COMPANY
- ---- -------------- --------------------------------------
<S> <C> <C>
NOMINEES
Dr. Gia Bokuchava, Ph.D............... 36 Chief Technical Officer and Director
Roger J. Nebel........................ 47 Director
CONTINUING DIRECTORS
Harvey W. Sax (2)(5).................. 48 President, Chief Executive Officer and
Director
William Walker (1)(4)................. 58 Director
Claude A. Thomas (1)(2)(3)(4)......... 57 Director
Daniel A. Delity (3)(4)............... 39 Director
James Wm. Ellsworth (2)(5)............ 44 Chief Financial Officer and Director
</TABLE>
- ------------------------
(1) Member of Audit and Compensation Committees.
(2) Member of Executive Committee.
(3) Member of Strategic Planning Committee.
(4) Class I Director who shall serve until the 2001 Annual Meeting.
(5) Class III Director who shall serve until the 2000 Annual Meeting.
5
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names of the directors and executive officers of the Company, their ages
as of March 31, 2000 and certain information about them are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
Harvey W. Sax............................. 48 President, Chief Executive Officer and
Director
Gia Bokuchava, Ph.D....................... 36 Chief Technical Officer and Director
Roger J. Nebel............................ 47 Director
William Walker............................ 58 Director
Claude A. Thomas.......................... 57 Director
Daniel A. Delity.......................... 39 Director
James Wm. Ellsworth....................... 44 Chief Financial Officer and Director
</TABLE>
The principal occupations for the past five years or more of the nominees
for director and the five directors whose term of office will continue after the
Annual Meeting are set forth below.
Harvey W. Sax is a founder of the Company and has served as President and
Chief Executive Officer of the Company since January 1995 and as Chairman of the
Board of Directors since September 1997. He was Secretary of the Company from
December 1994 until January 1995. From October 1994 until December 1995, when he
began working as a full-time employee of the Company, Mr. Sax served as a Vice
President of Oppenheimer & Co., Inc. From February 1993 until September 1994,
Mr. Sax served as a Senior Vice President of D. Blech & Co. From July 1992 until
February 1993, Mr. Sax was a Vice President of PaineWebber, Inc. From
January 1989 until July 1992, Mr. Sax was a Vice President of Bear, Stearns &
Co. Inc. Mr. Sax received a Bachelor of Arts degree from Emory University in
1972. Mr. Sax has been a member of the Board of Directors since December 1994.
Gia Bokuchava, Ph.D., has served as the Company's Chief Technical Officer
since August 1995. Dr. Bokuchava served as a visiting professor at Emory
University from September 1994 until August 1995 and was employed by the
National Library of Medicine, assisting in the development of Internet based
applications, from January 1995 until August 1995. From July 1990 until
September 1994, Dr. Bokuchava was the Director of The Computer Center at the
Institute of Mechanical Engineering at Georgia Technical University, Tblisi,
Georgia (formerly a part of the Soviet Union). Dr. Bokuchava has taught computer
science as a visiting associate professor at the Universities of Moscow and
China. Dr. Bokuchava received a doctorate in theoretical physics from Georgia
Technical University, Tblisi, in 1990. Dr. Bokuchava has been a member of the
Board of Directors since September 1996.
Roger J. Nebel served as Vice President of the Company from August 1996
until October 1, 1999. 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.
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 member of the Board of Directors since
March 1999.
6
<PAGE>
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 executive 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.
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 member of the Board of Directors since
March 1999.
James Wm. Ellsworth has served as Chief Financial Officer since October,
1999. He also serves as Executive Vice President of First Institutional
Marketing, Inc., Premier Financial Services, Inc., All Things Financial and FIMI
Securities, Inc, and 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 of 1997. 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 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 member of the Board of Directors since March
1999.
The Company'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 (for which the Board of Directors has nominated
Dr. Bokuchava and Mr. Nebel) will serve until the 2002 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 four standing committees: a Compensation
Committee, an Audit Committee, a Strategic Planning 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 Strategic Committee
has been authorized to work with the Company's investment bankers to identify
and evaluate strategic alternatives for the Company. The Executive Committee has
day-to-day
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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.
MEETINGS AND ATTENDANCE
The full Board of Directors met times, and the Compensation, Audit,
Strategic and Executive Committees met times, respectively, during 1999.
[All of the directors attended at least 75% of the meetings of the Board of
Directors, and the committees of which they were members during 1999.]
DIRECTOR COMPENSATION
Previously to June 1999, 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 Board meeting attended.
Directors who are not employees of the Company are eligible to receive automatic
grants of stock options under the Company's Non-Employee Directors Stock Option
Plan, and may receive additional grants of options under such plan at the
discretion of the Compensation Committee of the Board of Directors. See "Stock
Option Plans--Non-Employee Directors Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, compensation of executive officers of the Company was
determined by Harvey W. Sax, the Company's President and Chief Executive
Officer. In September 1996, the Company established a Compensation Committee to
review the performance of executive officers, establish overall employee
compensation policies and recommend salaries and incentive compensation for
officers and employees of the Company. No member of the Compensation Committee
is or will be an executive officer of the Company.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by the
Company in 1999 for its Chief Executive Officer and each executive officer of
the Company whose total annual salary and bonuses determined at December 31,
1999 exceeded $100,000 (each, a "Named Executive Officer"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION -----------------------------------
------------------- NUMBER OF SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- --------------------------- -------- -------- -------------------- ------------
<S> <C> <C> <C> <C>
Harvey W. Sax................................ $137,420 $0 60,000 $0
President, Chief Executive Officer
Krishan Puri................................. $145,540 $0 200 $0
Executive Vice-President
Gia Bokuchava, Ph.D.......................... $175,585 $0 25,000 $0
Chief Technical Officer And Director
</TABLE>
As of December 31, 1999, the annual salaries for the Company's executive
officers were as follows: Harvey W. Sax, President and Chief Executive Officer
($150,000); James Wm. Ellsworth, Chief Financial
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Officer ($120,000); Gia Bokuchava, Ph.D., Chief Technical Officer ($105,000);
James B. Alvilhiera, Vice President ($100,000). Pursuant to the employment
agreement with Dr. Bokuchava, he is eligible to receive cash bonuses to repay
certain promissory notes issued by him to the Company in connection with his
purchase of shares of Common Stock from the Company in August 1996. See "Certain
Transactions." Each of the Company's executive officers also is eligible to
receive cash bonuses to be awarded at the discretion of the Compensation
Committee of the Board of Directors.
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, 1999:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
INDIVIDUAL GRANTS STOCK PRICE
------------------------------------------------------------------ APPRECIATION
PERCENT OF FOR OPTION
NUMBER OF TOTAL UNDERLYING EXERCISE OR FISCAL YEAR
OPTIONS SECURITIES GRANTED BASE PRICE ---------------------
EXECUTIVE OFFICER GRANTED TO EMPLOYEES FOR SHARE EXPIRATION DATE 5% 10%
- ----------------- --------- ------------------ -------------- ---------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
February 26,
Harvey Sax........... 50,000 .067% 5.78 2000 181,751 460,592
Krishan Puri......... 200 .001% $3.94 January 7, 2000 496 1,256
</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,
1999 by the Named Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
SHARES ACQUIRED VALUE --------------------------- ---------------------------
EXECUTIVE OFFICER ON EXERCISE REALIZED UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
- ----------------- --------------- -------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Harvey Sax...................... 0 0 55,000 5,000 $0 $0
Krishan Puri.................... 0 0 0 0 $0 $0
Gia Bokuchava, Ph.D............. 0 0 12,500 12,500 $0 $0
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Harvey W. Sax, its
President and Chief Executive Officer, which provides a five year term
commencing on January 1, 1996, subject to automatic extension for an additional
one year on each one-year anniversary of the agreement. This employment
agreement is subject to early termination as provided therein, including
termination by the Company "for cause" (as defined in the employment agreement).
The employment agreement provides for an annual base salary of $150,000, and for
bonus compensation to be awarded at the discretion of the Compensation Committee
of the Board of Directors.
HomeCom has entered into an employment agreement with James Wm. Ellsworth,
its Chief Financial Officer, which provides a three year term commencing on
March 24, 1999, 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 not less than $120,000 and for annual
bonus compensation and annual salary raises to be awarded at the discretion of
the Compensation Committee of the Board of Directors. The employment agreement
further provides for payout of the remaining amounts due under the employment
agreement if termination occurs for any reason other than for cause and if it
occurs prior to the conclusion of the term of the employment
9
<PAGE>
agreement, with a minimum payout due being one year's salary. Further, the
employment agreement provides that any diminution of title, role or
compensation, as defined in the employment agreement, shall also result in the
payout of the remaining amounts due under the employment agreement, with the
minimum payment due being one year's salary.
STOCK OPTION PLANS
EMPLOYEE STOCK OPTION PLAN. The Company's Stock Option Plan (the "Stock
Option Plan") was adopted by the Company's stockholders in September 1996. A
total of 2,000,000 shares have been reserved for issuance under the Stock Option
Plan, and the Stock Option Plan provides that the number of shares authorized
for issuance under the Plan shall not exceed 20% of the total issued and
outstanding shares of the Company's Common Stock. The purpose of the Stock
Option Plan is to provide incentives for officers and key employees to promote
the success of the Company, and to enhance the Company's ability to attract and
retain the services of such persons. Options granted under the Stock Option Plan
may be either (i) options intended to qualify as "incentive stock options" under
Section 422 of the Code or (ii) non-qualified stock options. Stock options may
be granted under the Stock Option Plan for all employees of the Company, or of
any present or future subsidiary or parent of the Company. The Stock Option Plan
is administered by the Compensation Committee of the Board of Directors. The
Compensation Committee has the authority to determine exercise prices applicable
to the options, the eligible employees or consultants to whom options may be
granted, the number of shares of Common Stock subject to each option and the
terms upon which options are exercisable. The Compensation Committee has the
authority to interpret the Stock Option Plan and to prescribe, amend and rescind
the rules and regulations pertaining to the Stock Option Plan. No option is
transferable by the optionee other than by will or the laws of descent and
distribution, and each option is exercisable during the lifetime of the optionee
only by such optionee.
Any incentive stock option that is granted under the Stock Option Plan may
not be granted at a price less than the fair market value of the Common Stock on
the date of grant (or less than 110% of fair market value in the case of holders
of 10% or more of the total combined voting power of all classes of stock of the
Company or a subsidiary or parent of the Company). Non-qualified stock options
may be granted at the exercise price established by the Compensation Committee,
which will not be less than 85% of the fair market value of the Common Stock on
the date of grant.
Each option granted under the Stock Option Plan is exercisable for a period
not to exceed ten years from the date of grant (or five years in the case of a
holder of 10% or more of the total combined voting power of all classes of stock
of the Company or a subsidiary or parent of the Company) and shall lapse upon
expiration of such period, or earlier upon termination of the recipient's
employment with the Company, or as determined by the Compensation Committee.
As of December 31, 1999, options to purchase 1,155,259 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 $4.44
per share. All outstanding options vest 25% per year from their date of grant.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN. The Company's Non-Employee
Directors Stock Option Plan (the "Non-Employee Directors Plan") was adopted by
the Company's stockholders in September 1996 and amended in October 1996. The
Company has reserved 300,000 shares of Common Stock for issuance under the
Non-Employee Directors Plan.
The Non-Employee Directors Plan provides for the automatic granting of
non-qualified stock options to directors who are not officers or employees of
the Company ("Non-Employee Directors"). Each Non-Employee Director who is first
appointed or elected to the Board of Directors is granted an option to purchase
10,000 shares of Common Stock. Also, each Non-Employee Director automatically
receives an option to purchase 5,000 shares of Common Stock on the date of each
annual meeting of the Company's
10
<PAGE>
stockholders. The Non-Employee Directors Plan also allows the Compensation
Committee to make extraordinary grants of options to Non-Employee Directors. All
options granted under the Non-Employee Directors Plan vest 50% per year of
service by the Non-Employee Director on the Board of Directors. No option is
transferable by the optionee other than by will or laws of descent and
distribution, and each option is exercisable, during the lifetime of the
optionee, only by such optionee. The exercise price of all options will be the
fair market value of the shares of Common Stock on the date of grant, and the
term of each option may not exceed seven years. The Non-Employee Directors Plan
will continue in effect for a period of ten years unless sooner terminated by
the Board of Directors.
During 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. The Company's Employee Stock Purchase Plan
(the "Stock Purchase Plan") became effective on March 1, 1997. A total of
150,000 shares of Common Stock have been reserved for issuance under the Stock
Purchase Plan. The Stock Purchase Plan is intended to qualify under Section 423
of the Code. The purpose of the Stock Purchase Plan is to encourage and enable
employees of the Company to acquire a proprietary interest in the Company
through ownership of shares of Common Stock. Eligible employees of the Company
will purchase shares of Common Stock at 85% of fair market value and the Company
will partially subsidize purchases under the Stock Purchase Plan and will pay
the expenses of its administration.
An employee electing to participate in the Stock Purchase Plan must
authorize a stated dollar amount or percentage of the employee's regular pay to
be deducted by the Company from the employee's pay during each of four quarterly
payroll deduction periods (each a "Purchase Period"). Purchase Periods begin on
January 1, April 1, July 1 and October 1 of each calendar year during which the
Stock Purchase Plan is in effect. The Company is deemed on the last day of each
Purchase Period to have granted a purchase right to each participant as of the
first day of the Purchase Period to purchase as many full shares of Common Stock
as can be purchased with the participant's payroll deductions. On the last day
of the Purchase Period, the participant will be deemed to have exercised this
option, at the option price, to the extent of such participant's accumulated
payroll deductions. In no event, however, may the participant purchase Common
Stock having a fair market value (measured on the first business day of the
Purchase Period) of greater than $25,000 during a calendar year. The option
price under the Stock Purchase Plan is equal to 85% of the fair market value of
the Common Stock on either the first business day or the last business day of
the applicable Purchase Period, whichever is lower.
Employees of the Company who have completed six full months of service with
the Company and whose customary employment is more than 20 hours per week and
five or more months per calendar year are eligible to participate in the Stock
Purchase Plan. An employee may not be granted an option under the Stock Purchase
Plan if after the granting of the option such employee would be deemed to own 5%
or more of the combined voting power or value of all classes of stock of the
Company. As of December 31, 1999, approximately 71 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, the Company will refund the
employee's payroll deductions or contributions made during the Purchase Period.
An employee may not sell shares of Common Stock purchased under the Stock
Purchase Plan until the first day of the second Purchase Period following the
Purchase Period in which the option for such shares was granted.
11
<PAGE>
The Stock Purchase Plan is administered by the Compensation Committee. No
member of the Board of Directors will be eligible to participate in the Stock
Purchase Plan during the period he or she serves as a member of the Compensation
Committee. The Compensation Committee may terminate or amend the Stock Purchase
Plan at any time. However, any termination or amendment may not affect or change
purchase rights previously granted under the Stock Purchase Plan without the
consent of the affected participants. Also, any amendment that materially
increases the benefits or number of shares under the Stock Purchase Plan (except
for adjustments due to changes in the Company's capital structure) or that
materially modifies the eligibility requirements of the Stock Purchase Plan will
be subject to stockholder approval. If not sooner terminated by the Compensation
Committee, the Stock Purchase Plan will terminate at the time that all
authorized shares of Common Stock reserved for grant under the Stock Purchase
Plan have been purchased.
401(K) PROFIT SHARING PLAN. The Company's Board of Directors has approved
the adoption of a 401(k) Profit Sharing Plan (the "401(k) Plan") which is
intended to be a tax-qualified defined contribution plan under Section 401(k) of
the Code. This plan was implemented in March 1998. In general, all employees of
the Company will be 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,
the Company may make a matching contribution of up to $1,000 of the salary
deferral contributions of participants at a rate of 50% of the participant's
contributions, up to 4% of the participant's salary. The Company may also make
an additional contribution to the 401(k) Plan each year at the discretion of the
Board of Directors. 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 Company contributions (including matching contributions) will vest after
5 years of service with the Company. Distributions from the 401(k) Plan may be
made in the form of a lump-sum cash payment or in installment payments.
AGREEMENTS WITH EMPLOYEES
Principal employees of the Company, including executive officers, are
required to sign an agreement with the Company (i) restricting the ability of
the employee to compete with the Company during his or her employment and for a
period of eighteen months thereafter, (ii) restricting solicitation of customers
and employees following employment with the Company, and (iii) providing for
ownership and assignment of intellectual property rights to the Company.
12
<PAGE>
PERFORMANCE GRAPH [UPDATE]
The graph set forth below compares the change in the Company's cumulative
total stockholder return on its Common Stock (as measured by dividing (i) the
sum of (A) the cumulative amount of dividends for the period indicated, assuming
dividend reinvestment, and (B) the difference between the Company's share price
at the end of the period and May 8, 1997, the date of the Company's initial
public offering; by (ii) the share price at May 8, 1997) with the cumulative
total return of The NASDAQ Computer Stocks Index (IXCO) (assuming the investment
of $100 in the Company's Common Stock and the NASDAQ Computer Stocks Index on
May 8, 1997, and reinvestment of all dividends). The Company has paid no
dividends to date.
[GRAPHIC TO COME]
CERTAIN TRANSACTIONS
During the period December 1994 through December 1995, Harvey W. Sax, the
Company's President and Chief Executive Officer, loaned a total of approximately
$63,497 to the Company pursuant to a promissory note payable by the Company on
September 12, 2000, which accrues interest at the prime rate plus 1% per annum.
The Company used approximately $56,000 of the net proceeds of its initial public
offering to repay the remaining outstanding amounts owed under this promissory
note in May 1997.
In February 1996, in connection with a recapitalization of the Common Stock,
the Company issued 787,844 shares of Common Stock to Harvey W. Sax, its
President and Chief Executive Officer and then its sole stockholder, for $.001
per share. In December 1994, the Company granted Nat Stricklen, a co-founder and
former director of the Company, an option to acquire, for an aggregate exercise
price of $10.00, shares of Common Stock which, when issued, would represent
approximately 10% of the issued and outstanding Common Stock. Mr. Stricklen
exercised this option in February 1996 and received 93,070 shares of Common
Stock.
In February 1996, the Company (i) sold for $.0001 per share 335,052 shares
to Margery Germain; and (ii) issued to Mark Germain for $200,000 an unsecured
promissory note due September 1997 in the
13
<PAGE>
principal amount of $200,000 and bearing interest at the rate of 8% per annum.
Pursuant to the terms of the promissory note with Mr. Germain, in May, 1997 the
Company issued Mr. Germain 33,333 shares of Common Stock in repayment of the
$200,000 outstanding principal balance of this note.
Mr. David A. Blech, Mrs. Esther Blech and the Edward A. Blech Trust
(collectively the "Blech Interests") have agreed in writing with the Nasdaq
Stock Market, Inc. that, for a period of three years from the date of their
original purchases of securities from the Company, none of them will sell,
transfer, assign, pledge or hypothecate any shares of Common Stock. Gifts of
shares of the Common Stock are permitted provided that the recipient of such
gift agrees in writing to be bound by the terms of the agreement. The Blech
Interests further agreed that while the Common Stock is listed on any Nasdaq
market, there will be no financial relationship between David Blech or any of
the foregoing Blech Interests, on the one hand, and the Company, on the other
hand; that the direct or indirect ownership of shares of Common Stock held by
Mr. David A. Blech and/or the Blech Interests may not exceed 5% of the Common
Stock; and that there may be no advisory relationship between Mr. David A. Blech
and the Company. To the best of the Company's knowledge and belief, the Blech
Interests beneficially own less than 5% of the Common Stock.
In August 1996, Harvey W. Sax, the Company's President and Chief Executive
Officer, contributed 3,956 shares of Common Stock to the Company.
In August 1996, the Company issued and sold to six of its employees an
aggregate of 102,855 shares of Common Stock for a total of $468,004, payable
through the issuance of promissory notes payable in four equal annual
installments, bearing interest at 8% per annum and secured by the shares of
Common Stock purchased therewith. Also in August 1996, the Company entered into
employment agreements with such persons which provide that for each of the first
four years of employment, the Company will issue a bonus to the employee in the
amount necessary to repay the annual amount due under such promissory note (plus
the taxes due by the employee as a consequence of receiving such bonus).
Pursuant to the terms of the employment agreements, the Company will continue to
make these annual payments if the employee is terminated other than "for cause,"
as defined in the employment agreements. Pursuant to the terms of the
subscription agreements for such shares, if the employee's employment is
terminated within such four-year period, the Company has the right to repurchase
that percentage of the shares purchased by the employee which shall equal the
percentage of the promissory note which is not yet due, payment for such
repurchase to be made by canceling the applicable outstanding amount of the
promissory note. Gia Bokuchava, Ph.D., Chief Technical Officer and a director,
and Krishan Puri, a former Executive Vice President and a former director,
purchased 39,559 and 29,669 shares of Common Stock, respectively, in this
transaction. Mr. Vinod Keni, a former director, purchased 3,955 shares in this
transaction. The Company has agreed with Mr. Keni that all 11,865 options to
acquire Common Stock held by Mr. Keni (at a weighted average exercise price of
$5.16 per share) shall continue to vest as if Mr. Keni were still employed by
the Company. The Company also agreed to cancel and forgive indebtedness of
approximately $18,000 represented by the promissory note given by Mr. Keni to
purchase such 3,955 shares 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, former Executive Vice President and a former
director, exercised a warrant to purchase 9,307 shares of Common Stock for a
total exercise price of $1.00. Mr. Puri was granted the warrant in June 1995 in
connection with his agreeing to serve on the Company's former Board of Advisors.
In August 1996, HomeCom acquired all of the outstanding capital stock of
HomeCom Internet Security Services, Inc. ("HISS"), a Delaware corporation formed
in July 1996 to provide Internet and Intranet security system consulting
services. In the transaction, the former holders of HISS's capital stock
received the right to receive their pro rata share of four annual earnout
payments to be paid not later than March 31 of 1998, 1999, 2000 and 2001 (each,
an "Annual Earnout"). Roger Nebel, a director of HomeCom, owned 48% of HISS's
outstanding capital stock and was entitled to receive 48% of the annual
earnouts. HISS was merged with and into HomeCom on September 11, 1996. On
October 1, 1999,
14
<PAGE>
HomeCom sold substantially all of the assets of its HomeCom Internet Security
Services division to Infrastructure Defense, Inc. for $200,000 cash, certain
security audit rights and shares of a non-public entity valued at approximately
$823,000. In connection with the sale, the total number of additional shares
issuable to Mr. Nebel under the earnout provisions was fixed at 37,918 shares,
of which Mr. Nebel has received 18,958 shares. Mr. Nebel's entitlement to the
remaining 18,960 shares is contingent upon the shares of Infrastructure
Defense, Inc., received by HomeCom having a value of at least $5 million and
being freely tradeable by HomeCom on or before December 31, 2001.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equities securities, to file reports of ownership and changes
in ownership with the SEC and the NASD. Officers, directors and greater than 10%
stockholders are also required by SEC regulations to furnish the company with
copies of all Section 16(a) forms they file.
Based solely on its review of copies of such forms received by it, the
Company believes that, during the period January 1, 1999, to December 31, 1999
all filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.
APPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
(PROPOSAL TWO)
The Board of Directors has adopted an amendment to Article IV of the
Articles of Incorporation, subject to stockholder approval, to increase the
number of authorized shares of Common Stock to 50,000,000 shares from 15,000,000
shares, substantially in the form included in Appendix "A" hereto. The Board of
Directors recommends that the stockholders of the Company adopt Proposal Two. If
Proposal Two is approved by the stockholders at the Annual Meeting, the proposed
amendment to the Certificate of Incorporation will become effective upon the
filing of the Certificate of Amendment of Certificate of Incorporation with the
Secretary of State of the State of Delaware, which is expected to occur promptly
after the Annual Meeting. Unless otherwise instructed on the proxy, properly
executed proxies will be voted in favor of approving the proposed amendment to
Article IV of the Certificate of Incorporation to increase the number of
authorized shares of Common Stock to 50,000,000. The affirmative vote of a
majority of the shares of Common Stock outstanding as of the Record Date is
required to approve Proposal Two.
The Certificate of Incorporation currently authorizes 16,000,000 shares of
capital stock, divided into two classes as follows: (i) 15,000,000 shares of
Common Stock; and (ii) 1,000,000 shares of serial preferred stock, par value
$.01 per share (the "Preferred Stock"), of which shares of Common Stock,
shares of Series B Preferred Stock shares of Series C Preferred
Stock, shares of Series D Preferred Stock and shares of
Series E Preferred Stock were issued and outstanding on the Record Date. As of
the Record Date, shares of Common Stock were subject to issuance upon
exercise of outstanding options and warrants previously issued by the Company.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED INCREASE IN THE AUTHORIZED
SHARES OF COMMON STOCK IS ESSENTIAL FOR THE LONG-TERM VIABILITY OF THE COMPANY.
The Company has in the past financed its operating and capital needs through the
issuance of several series of convertible preferred stock, including the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock. Unless the proposed increase is
approved, the Company may in the future (depending upon the then-current market
price of the Common Stock) be unable to fully comply with its obligations to
reserve shares of Common Stock for issuance upon conversion of the convertible
preferred stock. More
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significantly, however, for the near future, the Company will likely require
additional cash infusions to continue its operations as presently constituted,
and issuance of additional series of convertible preferred stock may be the only
acceptable manner in which to secure additional financing. IF THE PROPOSED
INCREASE IN THE AUTHORIZED SHARES OF COMMON STOCK IS NOT APPROVED, THE COMPANY
MAY BE UNABLE TO SECURE ADDITIONAL FINANCING ON ACCEPTABLE TERMS. In such event,
the Company would be required to reduce its operating costs and other
expenditures, which could include reductions of personnel, suspension of capital
expenditures, or the sale of some or all of the Company's business lines. If the
Company is not able to secure additional financing, and subsequent cost
reduction measures are not sufficient to allow the Company to achieve positive
cash flows, the Company would be forced to seek protection from its creditors.
The proposed increase in the authorized shares of Common Stock is also
desirable to enhance the Company's flexibility in connection with possible
future actions, such as stock splits, stock dividends, acquisitions, financing
transactions, employee benefit plan issuances, and such other corporate purposes
as may arise. Having authorized Common Stock available for issuance in the
future will give the Company greater flexibility and will allow additional
shares of Common Stock to be issued without the expense and delay of a
stockholders' meeting. Such a delay might deny the Company the flexibility the
Board views as important in facilitating the effective use of the Company's
securities.
The rules of the National Association of Securities Dealers, Inc. ("NASD")
currently require stockholder approval by issuers of securities quoted on the
Nasdaq SmallCap Market, on which the Common Stock is currently quoted, as to the
issuance of shares of common stock or securities convertible into common stock
in several instances, including actions resulting in a change of control of the
company, acquisition transactions involving directors, officers or substantial
security holders where the present or potential issuance of such securities
could result in an increase in outstanding common shares or voting power of 5%
or more, acquisition transactions generally where the present or potential
issuance of such securities could result in an increase in the voting power or
outstanding common shares of 20% or more, and certain other sales or issuances
of common stock (or securities convertible into or exercisable for common stock)
in a non-public offering equal to 20% or more of the voting power outstanding
before the issuance for less than the greater of book or market value of the
stock. Exceptions to these rules may be made upon application to the NASD. In
other instances, the issuance of additional shares of Common Stock remains
within the discretion of the Board of Directors, without the requirement of
further action by stockholders except as otherwise required by applicable law or
any stock exchange on which the Company's securities may then be listed. The
Company is not currently engaged in any negotiations with respect to the use of
any shares of the additional authorized Common Stock, nor are there currently
any commitments, arrangements, understandings or plans with respect to the
issuance of such shares.
If the proposal to increase the authorized shares of Common Stock is
approved, the additional authorized shares will be part of the existing class of
such Common Stock and will increase the number of shares of Common Stock
available for issuance by the Company, but will have no effect upon the terms of
the Common Stock or the rights of the holders of such shares. If and when
issued, the proposed additional authorized shares of Common Stock will have the
same rights and privileges as the shares of Common Stock currently outstanding.
Holders of Common Stock will not have preemptive rights to purchase additional
shares of Common Stock.
The future issuance of additional shares of Common Stock on other than a pro
rata basis may dilute the ownership of current stockholders. Such additional
shares also could be used to block an unsolicited acquisition through the
issuance of large blocks of stock to persons or entities considered by the
Company's officers and directors to be opposed to such acquisition, which might
be deemed to have an anti-takeover effect (i.e., might impede the completion of
a merger, tender offer or other takeover attempt). In fact, the mere existence
of such a block of authorized but unissued shares, and the Board's ability to
issue such shares without stockholder approval, might deter a bidder from
seeking to acquire shares of the Company on an unfriendly basis. While the
authorization of additional shares of Common
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Stock might have such effects, the Board of Directors of the Company does not
intend or view the proposed increase in authorized Common Stock as an
anti-takeover measure, nor is the Company aware of any proposed transactions of
this type.
A proposed amendment to increase the authorized shares of Common Stock to
100,000,000 shares was submitted to the stockholders in the Special Meeting of
Stockholders held February 26, 1999, but such proposal did not receive the
required vote for approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL TWO.
APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK OF THE COMPANY
IN EXCESS OF 19.99 PERCENT OF THE OUTSTANDING SHARES, IF REQUIRED IN
CONNECTION WITH THE CONVERSION OF THE COMPANY'S SERIES B CONVERTIBLE
PREFERRED STOCK AND THE EXERCISE OF CERTAIN
RELATED WARRANTS TO PURCHASE SHARES OF COMMON STOCK
(PROPOSAL THREE)
On March 25, 1999, the Company completed a private placement for cash of
$2,500,000 principal amount of Series B Convertible Preferred Stock (the
"Series B Preferred Stock") and warrants to purchase Common Stock (the
"Series B Preferred Warrants"). The Series B Preferred Stock and Series B
Preferred Warrants were sold in reliance on Rule 506 of the Securities Act of
1933 (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. Under the terms of the private placement agreements, the Company
filed a registration statement with the Commission to register for resale up to
1,339,559 shares of Common Stock issuable upon conversion of the Series B
Preferred Stock and exercise of the Series B Preferred Warrants. The Series B
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 herein as the "Series B Stated Value").
The Series B Preferred Stock is convertible into Common Stock, until
March 24, 2002, at the option of the holder, into such number of Shares of
Common Stock as is determined by dividing the Series B Stated Value by a
conversion price equal to the "market conversion price," but the conversion
price will not exceed $5.23. The market conversion price is defined to mean the
average of the closing bid prices of the Common Stock during any four
consecutive trading days as determined by the holder during the twenty-five
consecutive trading day period ending one trading day prior to the date that a
notice of conversion is sent to the Company by the holder, subject to certain
adjustments. The Series B Preferred Stock is redeemable at the Company's option
at a price of 120% of its principal amount. The Series B Preferred Warrants are
exercisable for an aggregate of 250,000 shares of Common Stock at the option of
the holder until March 24, 2004, at an exercise price of $5.70 per share,
subject to adjustment under certain circumstances. The Certificate of
Designations, Preferences and Rights of the Series B Preferred Stock appears in
this Proxy Statement as Appendix "B", and the form of Warrant Agreement pursuant
to which the Series B Preferred Warrants were issued appears as Appendix "C".
Rule 4460(i) of the National Association of Securities Dealers, Inc. (the
"NASD Rule") requires, among other things, stockholder approval in connection
with the issuance of common stock (or securities convertible into or exercisable
for common stock) equal to 20% or more of the common stock or 20% or more of the
voting power outstanding before the issuance. Where stockholder approval is
required, the minimum vote which will constitute stockholder approval is a
majority of the total votes cast on the proposal in person or by proxy. Under
the terms of the Series B Preferred Stock, the shares of Series B Preferred
Stock are not convertible into common stock to the extent the number of shares
of common stock issuable upon such conversion would exceed 19.99% of the shares
outstanding as of the time of issuance of the Series B Preferred Stock, as
adjusted for stock splits, stock dividends or similar events (the
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<PAGE>
"Series B Preferred Maximum Share Amount"), unless the Company obtains
stockholder approval or a waiver of the limitation by Nasdaq, or the NASD Rule
(or any similar rule) is no longer applicable to the Common Stock. Under the
terms of the agreements governing the issuance of the Series B Preferred Stock
and the Series B Preferred Warrants, the Company agreed to submit for
stockholder approval a proposal to ratify the issuance of the Series B Preferred
Stock and the shares of Common Stock issuable upon conversion of the Series B
Preferred Stock.
As of the date of this proxy statement, the holders of the Series B
Preferred Stock had converted $1,500,000 principal amount of the Series B
Preferred Stock into an aggregate of shares of Common Stock.
If all the remaining outstanding shares of Series B Preferred Stock had been
converted, and all the Series B Preferred Warrants had been exercised, as of
March 31, 2000, the Company would have been required to issue approximately
534,000 shares of Common Stock, or approximately 6.6% of the number of shares of
Common Stock outstanding as of March 31, 2000. The aggregate number of shares of
Common Stock issuable upon such conversion and exercise will vary, based upon
the closing bid prices of the Company's Common Stock. If Proposal Three is not
approved, the Series B Preferred Stock will remain outstanding, but the holders
of the Series B Preferred Stock will not be able to convert the Series B
Preferred Stock into a number of shares representing more than the Series B
Preferred Maximum Share Amount unless (i) the stockholders of the Company
hereinafter approve such issuance; (ii) Nasdaq waives the requirements of the
NASD Rule, or (iii) the NASD Rule (or any similar rule) is no longer applicable
to the Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL THREE.
APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK OF THE COMPANY
IN EXCESS OF 19.99 PERCENT OF THE OUTSTANDING SHARES, IF REQUIRED
IN CONNECTION WITH THE CONVERSION OF THE COMPANY'S SERIES C
CONVERTIBLE PREFERRED STOCK AND THE EXERCISE OF CERTAIN
RELATED WARRANTS TO PURCHASE SHARES OF COMMON STOCK
(PROPOSAL FOUR)
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 (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
and Series C Preferred 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. 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 herein as the
"Series C Stated Value").
Each Series C Preferred Share is convertible, 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 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. Under the terms of the Series C Preferred Stock, the shares of
Series C Preferred Stock are not convertible into common stock to the extent the
number of shares of common stock issuable upon such conversion would exceed
19.99% of the shares outstanding as of the time of issuance of the Series C
Preferred Stock, as adjusted for stock splits, stock dividends or similar events
(the "Series C Preferred Maximum Share Amount"), unless the Company obtains
stockholder approval or a waiver of the limitation from Nasdaq, or the NASD Rule
(or any similar rule) is no longer applicable to the Common Stock. Under the
terms of the agreements governing the
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<PAGE>
issuance of the Series C Preferred Stock and the Series C Preferred Warrants,
the Company agreed to submit for stockholder approval a proposal to ratify the
issuance of the Series C Preferred Stock and the shares of Common Stock issuable
upon conversion of the Series C Preferred Stock. In addition, no Series C
Preferred Stock may be converted if, following such conversion, the holder of
such shares would beneficially own in excess of 4.9% of the outstanding Common
Stock. The Certificate of Designations, Preferences and Rights of the Series C
Preferred Stock appears in this Proxy Statement as Appendix "D", and the form of
Warrant Agreement pursuant to which the Series C Preferred Warrants were issued
appears as Appendix "E."
Pursuant to certain registration rights granted to the investors in the
private placement, the Company filed a registration statement under the
Securities Act with respect to 1,244,444 shares of Common Stock issuable upon
conversion of the Series C Preferred Stock and exercise of the Series C
Preferred Warrants.
The Company may, at its 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 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 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 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, the Company has 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 that we have cash, credit or standby
underwriting facilities available to fund the redemption. The redemption price
will be calculated as 120% of the original purchase price.
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.
We entered into, and consummated, the private placement of the Series C
Preferred Stock and the Series C Preferred Warrants based on a determination by
our Board of Directors that the Company's level of cash and cash equivalents
were inadequate to permit the Company to continue in existence for a sustained
period. While the Board of Directors considered the disadvantages of the
potential issuance of a significant number of shares of Common Stock upon
conversion of the Series C 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 the Company and its shareholders for the Company to proceed with
the private placement based on the Board's belief that such transactions offered
the most favorable terms then available to the Company given the existing market
conditions and the Company's need for additional cash resources.
As of the date of this proxy statement, the holders of the Series C
Preferred Stock had converted approximately $1,000,000 principal amount of the
Series C Preferred Stock into an aggregate of shares of Common Stock.
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If all the remaining shares of Series C Preferred Stock had been converted,
and all the Series C Preferred Warrants had been exercised, as of March 31,
2000, the Company would have been required to issue approximately 928,000 shares
of Common Stock, or approximately 11.4% of the number of shares of Common Stock
outstanding as of March 31, 2000. The aggregate number of shares of Common Stock
issuable upon such conversion and exercise will vary, based upon the closing bid
prices of the Company's Common Stock. If Proposal Four is not approved, the
Series C Preferred Stock will remain outstanding, but the holders of the
Series C Preferred Stock will not be able to convert the Series C Preferred
Stock into a number of shares representing more than the Series C Preferred
Maximum Share Amount unless (i) the stockholders of the Company hereinafter
approve such issuance; (ii) Nasdaq waives the requirements of the NASD Rule, or
(iii) the NASD Rule (or any similar rule) is no longer applicable to the Common
Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL FOUR.
APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK OF THE COMPANY
IN EXCESS OF 19.99 PERCENT OF THE OUTSTANDING SHARES, IF REQUIRED
IN CONNECTION WITH THE CONVERSION OF THE COMPANY'S SERIES D
CONVERTIBLE PREFERRED STOCK AND THE EXERCISE OF CERTAIN
RELATED WARRANTS TO PURCHASE SHARES OF COMMON STOCK
(PROPOSAL FIVE)
On September 28, 1999, the Company completed a private placement of
$1,500,000 principal amount of the Company's Series D Convertible Preferred
Stock (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 and Series D Preferred 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. 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 herein as the
"Series D Stated Value").
Each Series D Preferred Share is convertible, 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 26, 2002 will automatically be converted into Common Stock at the
conversion price then in effect. Under the terms of the Series D Preferred
Stock, the shares of Series D Preferred Stock are not convertible into common
stock to the extent the number of shares of common stock issuable upon such
conversion would exceed 19.99% of the shares outstanding as of the time of
issuance of the Series D Preferred Stock, as adjusted for stock splits, stock
dividends or similar events (the "Series D Preferred Maximum Share Amount"),
unless the Company obtains stockholder approval or a waiver of the limitation
from Nasdaq, or the NASD Rule (or any similar rule) is no longer applicable to
the Common Stock. Under the terms of the agreements governing the issuance of
the Series D Preferred Stock and the Series D Preferred Warrants, the Company
agreed to submit for stockholder approval a proposal to ratify the issuance of
the Series D Preferred Stock and the shares of Common Stock issuable upon
conversion of the Series D Preferred Stock. In addition, no Series D Preferred
Stock may be converted if, following such conversion, the holder of such shares
would beneficially own in excess of 4.9% of the outstanding Common Stock. The
Certificate of Designations, Preferences and Rights of the Series D Preferred
Stock appears in this Proxy Statement as Appendix "F", and the form of Warrant
Agreement pursuant to which the Series D Preferred Warrants were issued appears
as Appendix "G."
Pursuant to certain registration rights granted to the investors in the
private placement, the Company filed a registration statement under the
Securities Act with respect to 533,368 shares of Common Stock issuable upon
conversion of the Series D Preferred Stock and exercise of the Series D
Preferred Warrants.
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The Company may, at its option at any time after the 90th day following the
issuance of the Series D Preferred Stock through July 22, 2001, prohibit holders
of the Series D 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 D Preferred Stock in cash
in an amount equal to equal to 3% of the principal amount of the Series D
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 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, the Company has the right, in its sole
discretion, to redeem, from time to time, any or all of the Series D Preferred
Stock; provided that certain conditions are met, including that we have 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 D Preferred
Warrants expire on September 27, 2004 and have an exercise price of $7.34 per
share, subject to adjustment under certain circumstances.
We entered into, and consummated, the private placement of the Series D
Preferred Stock and the Series D Preferred Warrants based on a determination by
our Board of Directors that the Company's level of cash and cash equivalents
were inadequate to permit the Company to continue in existence for a sustained
period. While the Board of Directors considered the disadvantages of the
potential issuance of a significant number of shares of Common Stock upon
conversion of the Series D 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 the Company and its shareholders for the Company to proceed with
the private placement based on the Board's belief that such transactions offered
the most favorable terms then available to the Company given the existing market
conditions and the Company's need for additional cash resources.
As of the date of this proxy statement, the holders of the Series D
Preferred Stock had converted approximately $1,140,000 principal amount of the
Series D Preferred Stock into an aggregate of shares of Common Stock.
If all the shares of Series D Preferred Stock had been converted, and all
the Series D Preferred Warrants had been exercised, as of March 31, 2000, the
Company would have been required to issue approximately 149,000 shares of Common
Stock, or approximately 1.8% of the number of shares of Common Stock outstanding
as of March 31, 2000. The aggregate number of shares of Common Stock issuable
upon such conversion and exercise will vary, based upon the closing bid prices
of the Company's Common Stock. If Proposal Five is not approved, the Series D
Preferred Stock will remain outstanding, but the holders of the Series D
Preferred Stock will not be able to convert the Series D Preferred Stock into a
number of shares representing more than the Series D Preferred Maximum Share
Amount unless (i) the stockholders of the Company hereinafter approve such
issuance; (ii) Nasdaq waives the requirements of the NASD Rule, or (iii) the
NASD Rule (or any similar rule) is no longer applicable to the Common Stock.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL FIVE.
APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK OF THE COMPANY
IN EXCESS OF 19.99 PERCENT OF THE OUTSTANDING SHARES, IF REQUIRED
IN CONNECTION WITH THE CONVERSION OF THE COMPANY'S SERIES E
CONVERTIBLE PREFERRED STOCK AND THE EXERCISE OF CERTAIN
RELATED WARRANTS TO PURCHASE SHARES OF COMMON STOCK
(PROPOSAL SIX)
On April , 2000, the Company completed a private placement of $2,000,000
principal amount of the Company's Series E Convertible Preferred Stock (the
"Series E Preferred Stock") and warrants to acquire up to 33,334 shares of
Common Stock (the "Series E Preferred Warrants"). The Series E Preferred Stock
and Series E Preferred 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 E of the
Securities Act. The Series E Preferred Stock has an initial stated value of
$20,000 per share, which stated value increases at the rate of 8% per year (such
stated value, as increased from time to time, is referred to herein as the
"Series E Stated Value").
Each Series E Preferred Share is convertible, at the option of the holder,
into such number of shares of Common Stock as is determined by dividing the
Series E Stated Value by the lesser of (a) $3.53, and (b) 82.5% of the average
of the closing bid prices for the five trading days preceding the date of
conversion. Any Series E Preferred Stock issued and outstanding on April 14,
2003 will automatically be converted into Common Stock at the conversion price
then in effect. Under the terms of the Series E Preferred Stock, the shares of
Series E Preferred Stock are not convertible into common stock to the extent the
number of shares of common stock issuable upon such conversion would exceed
19.99% of the shares outstanding as of the time of issuance of the Series E
Preferred Stock, as adjusted for stock splits, stock dividends or similar events
(the "Series E Preferred Maximum Share Amount"), unless the Company obtains
stockholder approval or a waiver of the limitation from Nasdaq, or the NASD Rule
(or any similar rule) is no longer applicable to the Common Stock. Under the
terms of the agreements governing the issuance of the Series E Preferred Stock
and the Series E Preferred Warrants, the Company agreed to submit for
stockholder approval a proposal to ratify the issuance of the Series E Preferred
Stock and the shares of Common Stock issuable upon conversion of the Series E
Preferred Stock. In addition, no Series E Preferred Stock may be converted if,
following such conversion, the holder of such shares would beneficially own in
excess of 4.9% of the outstanding Common Stock. The Certificate of Designations,
Preferences and Rights of the Series E Preferred Stock appears in this Proxy
Statement as Appendix "H", and the form of Warrant Agreement pursuant to which
the Series E Preferred Warrants were issued appears as Appendix "I."
Pursuant to certain registration rights granted to the investors in the
private placement, the Company has agreed to file a registration statement under
the Securities Act with respect to a minimum of shares of Common Stock
issuable upon conversion of the Series E Preferred Stock and exercise of the
Series E Preferred Warrants. The Company may, at its option at any time after
the 90th day following the issuance of the Series E Preferred Stock through
April 14, 2002, prohibit holders of the Series E 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 E Preferred Stock in cash in an amount equal to equal to 3% of the
principal amount of the Series E 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).
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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 E
Preferred Stock; provided that certain conditions are met, including that we
have 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 E
Preferred Warrants expire on April, 2005 and have an exercise price of $3.35 per
share, subject to adjustment under certain circumstances.
We entered into, and consummated, the private placement of the Series E
Preferred Stock and the Series E Preferred Warrants based on a determination by
our Board of Directors that the Company's level of cash and cash equivalents
were inadequate to permit the Company to continue in existence for a sustained
period. While the Board of Directors considered the disadvantages of the
potential issuance of a significant number of shares of Common Stock upon
conversion of the Series E 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 the Company and its shareholders for the Company to proceed with
the private placement based on the Board's belief that such transactions offered
the most favorable terms then available to the Company given the existing market
conditions and the Company's need for additional cash resources. If all the
shares of Series E Preferred Stock were converted, and all the Series E
Preferred Warrants exercised, as of , 2000, the Company would be required
to issue approximately shares of Common Stock, or approximately % of the
number of shares of Common Stock outstanding as of . The aggregate number
of shares of Common Stock issuable upon such conversion and exercise will vary,
based upon the closing bid prices of the Company's Common Stock. If Proposal
Five is not approved, the Series E Preferred Stock will remain outstanding, but
the holders of the Series E Preferred Stock will not be able to convert the
Series E Preferred Stock into a number of shares representing more than the
Series E Preferred Maximum Share Amount unless (i) the stockholders of the
Company hereinafter approve such issuance; (ii) Nasdaq waives the requirements
of the NASD Rule, or (iii) the NASD Rule (or any similar rule) is no longer
applicable to the Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL SIX.
PROPOSAL SEVEN
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed PricewaterhouseCoopers, LLC as
independent accountants to audit the consolidated financial statements of the
Company for 1999. Stockholders are being asked to ratify this appointment.
Representatives of PricewaterhouseCoopers, LLC are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they desire to
do so, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL SEVEN.
23
<PAGE>
APPROVAL OF AN AMENDMENT TO THE
EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK
THAT MAY BE ISSUED THEREUNDER
(PROPOSAL EIGHT)
On , 1999, the Board of Directors adopted an amendment to the
Company's Employee Stock Purchase Plan, subject to stockholder approval, to
increase the number of shares of Common Stock that may be issued thereunder to
300,000 shares from 150,000 shares. The amendment appears in this proxy
statement as Appendix "J" hereto. At the Annual Meeting, the stockholders of the
Company will be asked to consider and vote on the proposed amendment to the
Employee Stock Purchase Plan. Unless otherwise instructed on the proxy, properly
executed proxies will be voted in favor of approving the proposed amendment to
the Employee Stock Purchase Plan. The affirmative vote of a majority of the
votes present in person or represented by proxy at the Annual Meeting is
required to approve Proposal Eight.
The purpose of the Employee Stock Purchase Plan is to advance the interests
of the Company by providing eligible individuals an opportunity to acquire or
increase a proprietary interest in the Company, which thereby will create a
stronger incentive to expend maximum effort for the growth and success of the
Company and will encourage such eligible individuals to remain in the employ of
the Company.
The Board of Directors believes that stock ownership is important to attract
and to encourage the continued employment and service of officers and other key
employees by facilitating their purchase of a stock interest in the Company and
that increasing the aggregate number of shares available under the Employee
Stock Purchase Plan will afford the Company additional flexibility in making
such purchases available in the future. The only change proposed by the
amendment is an increase in the number of shares that may be issued under the
Employee Stock Purchase Plan.
A summary description of the Employee Stock Purchase Plan appears in this
Proxy Statement under "Stock Option Plans--Employee Stock Purchase Plan."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL EIGHT.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table provides information as of December 31, 1999, concerning
beneficial ownership of Common Stock by (1) each person or entity known by the
Company to beneficially own more than 5% of the outstanding Common Stock,
(2) each director and nominee for director of the Company, (3) each Named
Executive Officer, and (4) all directors and executive officers of the Company
as a group. The information as to beneficial ownership has been furnished by the
respective stockholders, directors and executive officers of the Company 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.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table provides information as of , 2000, concerning
beneficial ownership of Common Stock by (1) each person or entity known by the
Company to beneficially own more than 5% of the outstanding Common Stock,
(2) each director and nominee for director of the Company, (3) each Named
Executive Officer, and (4) all directors and executive officers of the Company
as a group. The information as to beneficial ownership has been furnished by the
respective stockholders, directors and
24
<PAGE>
executive officers of the Company 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.
<TABLE>
<CAPTION>
COMMON
STOCK PERCENTAGE
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER(1) OWNED(2) CLASS
- --------------------------- ------------ ----------
<S> <C> <C>
Harvey W. Sax(3)............................................ 802,244 xx.x%
Gia Bokuchava, Ph.D.(4)..................................... 47,559 *
Roger J. Nebel(5)........................................... 40,698 *
Claude A. Thomas(6)......................................... 5,000 *
Mark Germain(7)............................................. 350,885 x.x
Margery Germain(8).......................................... 350,885 x.x
Daniel A. Delity(9)......................................... 690,590 xx.x
James Wm. Ellsworth(9)...................................... 141,467 x.x
David B. Frank(9)........................................... 305,000 x.x
William Walker(10).......................................... -- *
CPR (USA), Inc.(11)......................................... 372,876 x.x
LibertyView Funds, LP(12)................................... 297,900 x.x
LibertyView Fund, LLC(12)................................... 74,475 x.x
MacNab LLC(13).............................................. 1,316,050 xx.x
Jackson LLC(14)............................................. 558,099 x.x
All executive officers and directors as a group (7
persons).................................................. 1,717,703 xx.x%
</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 May , 2000 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 March , 2000 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 May , 2000 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 Proxy Statement. Excludes
5,000 common shares owned by a family member, to which Mr. Sax disclaims
beneficial ownership.
(4) Includes 7,500 shares of Common Stock issuable upon the exercise of options
outstanding as of March , 2000 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 May , 2000 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 Proxy Statement.
(5) Includes 7,500 shares of Common Stock issuable upon the exercise of options
outstanding as of November 15, 1999 at a weighted average exercise price of
$5.35 per share and 18,958 shares issued in connection with HomeCom's
acquisition of HISS. See "Certain Transactions". Excludes an additional
25
<PAGE>
18,960 shares of Common Stock that may be issued in connection with
HomeCom's acquisition of HISS. See "Certain Transactions."
(6) Includes 5,000 shares of Common Stock issuable upon the exercise of an
option outstanding as of April , 2000 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 May , 2000 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 Proxy Statement.
(7) 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.
(8) The address of this stockholder is 6 Olmstead Road Scarsdale, NY 10583.
Includes 15,833 shares of Common Stock owned by Mark Germain.
(9) Excludes 100,000 shares of Common Stock issuable upon the exercise of a
warrant outstanding as of May , 2000 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 Proxy Statement.
(10) Excludes 10,000 shares of Common Stock issuable upon the exercise of an
option outstanding as of May , 2000 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 Proxy Statement.
(11) Consists of shares of Common Stock issuable upon conversion of HomeCom's
series B preferred stock and exercise of related warrants on December 16,
1999, CPR (USA), Inc. converted 5 shares of series B preferred stock into
31,658 shares of common stock. 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.
(12) Consists of shares of Common Stock issuable upon conversion of HomeCom's
series B preferred stock and exercise of related warrants on December 16,
1999, LibertyView Funds, LP converted 4 shares of Series B preferred stock
into 25,327 shares of common stock, and LibertyView Fund, LLC converted 1
share of series B preferred stock into 6,332 shares of common stock. 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.
(13) The address of this stockholder is c/o Citco Trustees (Cayman) Ltd.,
Corporate Centre, Windwood One, West Bay Road, Grand Cayman, Cayman Islands.
The director of MacNab LLC is Navigator Management, Ltd., Harbour House, 2nd
floor, Waterfront Drive, P.O. Box 972, Road Town, Tortola, British Virgin
Islands, and the President of Navigator Management Ltd. is David Sims.
Consists of shares of common stock issuable upon conversion of HomeCom's
series C preferred stock and exercise of related warrants, based upon
conversion prices as in effect on March, 2000. On December 6, 1999, MacNab
LLC converted 37.5 shares of Series C preferred stock into 281,460 shares of
common stock. On March 7, 2000, MacNab LLC converted 11.4 shares of
Series C preferred stock into 75,017 shares of common stock. MacNab LLC may
not convert series C preferred shares that would result in it owning in
excess of 4.99% of the outstanding common stock following conversion.
(14) The address of this stockholder is c/o Citco Trustees (Cayman) Ltd.,
Corporate Centre, Windwood One, West Bay Road, Grand Cayman, Cayman Islands.
The director of Jackson LLC is Navigator Management Ltd., Harbour House, 2nd
Floor, Waterfront Drive, P.O. Box 972, Road Town, Tortola, British Virgin
Islands, and the President of Navigator Management Ltd. is David Sims.
Consists of
26
<PAGE>
shares of Common Stock issuable upon conversion of Homecom's series D
preferred stock and exercise of related warrants, based on conversion prices
as in effect on March, 2000. Jackson LLC may not convert series D preferred
shares that would result in it owning in excess of 4.99% of the outstanding
common stock following conversion.
OTHER BUSINESS TO BE TRANSACTED
AS OF THE DATE OF THIS PROXY STATEMENT, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS THAT MAY COME BEFORE THE ANNUAL MEETING. IF ANY OTHER BUSINESS IS
PROPERLY BROUGHT BEFORE THE ANNUAL MEETING, IT IS THE INTENTION OF THE PROXY
HOLDERS TO VOTE OR ACT IN ACCORDANCE WITH THEIR BEST JUDGMENT WITH RESPECT TO
SUCH MATTERS.
By Order of the Board of Directors
Secretary
Atlanta, Georgia
May , 2000
27
<PAGE>
APPENDIX A
HOMECOM COMMUNICATIONS, INC.
PROPOSED AMENDED ARTICLE IV TO
ARTICLES OF INCORPORATION
The total number of shares of capital stock which the Corporation is
authorized to issue is fifty-one million (51,000,000) divided into two classes
as follows:
(1) Fifty million (50,000,000) shares of common stock, $.0001 par value
per share ("Common Stock"); and
(2) One million (1,000,000) shares of preferred stock, $.01 par value
per share ("Preferred Stock").
The holders of Common Stock shall be entitled to one vote for each share on
all matters required or permitted to be voted on by stockholders of the
Corporation.
The Board of Directors is authorized, subject to limitations prescribed by
law and the provisions of this Certificate of Incorporation, to provide for the
issuance of shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restriction thereof.
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, determination of the
following:
(1) The number of shares constituting that series and the distinctive
designation of that series;
(2) The divided rate on the shares of that series, whether dividends
shall be cumulative and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
(3) Whether that series shall have voting rights, in addition to the
voting rights provided by law and, if so, the terms of such voting rights;
(4) Whether that series shall have conversion privileges and, if so, the
terms and conditions of such conversions, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall
determine;
(5) Whether or not the shares of that series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(6) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series and, if so, the terms and amounts of such
sinking fund;
(7) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that
series; and
(8) Any other relative rights, preferences and limitation of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or declared
and set apart for payment before any dividends shall be paid or declared and set
apart for payment on the common shares with respect to the same dividend period.
A-1
<PAGE>
If upon any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, the assets available for distribution to holders of shares
of Preferred Stock of all series shall be insufficient to pay such holders the
full preferential amount to which they are entitled, then such assets shall be
distributed ratably among the shares of all series of Preferred Stock in
accordance with the respective preferential amounts (including unpaid cumulative
dividends, if any) payable with respect thereto.
A-2
<PAGE>
APPENDIX "B"
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
HOMECOM COMMUNICATIONS, INC.
HomeCom Communications, Inc. (the "COMPANY"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation of the Company, and pursuant to
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Company at a meeting duly held, adopted resolutions
(i) authorizing a series of the Company's authorized preferred stock, $.01 par
value per share, and (ii) providing for the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of 125 shares of Series B Convertible
Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 125 shares of
Series B Convertible Preferred Stock (the "SERIES B PREFERRED SHARES"), $.01
par value per share, which shall have the following powers, designations,
preferences and other special rights:
(1) Dividends. The Series B Preferred Shares shall not bear any
dividends.
(2) Holder's Conversion of Series B Preferred Shares. A holder's option,
to convert the Series B Preferred Shares into shares of the Company's common
stock, $.01 par value per share (the "COMMON STOCK"), on the following terms
and conditions:
(a) Conversion Right. Subject to the provisions of Sections 2(g) and
3(a) below, at any time or times on or after the earlier of (i) 90 days
after the Issuance Date (as defined herein), (ii) 5 days after receiving
a "no-review" status from the U.S. Securities and Exchange Commission in
connection with a registration statement ("REGISTRATION STATEMENT")
covering the resale of Common Stock issued upon conversion of the
Series B Preferred Shares and required to be filed by the Company
pursuant to the Registration Rights Agreement between the Company and its
initial holders of Series B Preferred Shares (the "REGISTRATION RIGHTS
AGREEMENT"), (iii) the date that the Registration Statement is declared
effective by the U.S. Securities and Exchange Commission (the "SEC") any
holder of Series B Preferred Shares shall be entitled to convert any
Series B Preferred Shares into fully paid and nonassessable shares
(rounded to the nearest whole share in accordance with Section 2(h)
below) of Common Stock, at the Conversion Rate (as defined below);
provided, however, that, as long as any Holder is subject to laws, rules,
or regulations which would prohibit such owner from owning in excess of
4.99%, in no event shall any holder be entitled to convert Series B
Preferred Shares in excess of that number of Series B Preferred Shares
which, upon giving effect to such conversion, would cause the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such conversion. For purposes of the foregoing proviso, the
aggregate number of shares of Common Stock beneficially owned by the
holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of the Series B Preferred Shares with
respect to which the determination of such proviso is being made, but
shall exclude the number of shares of Common Stock which would be
issuable upon (i) conversion of the remaining, nonconverted Series B
Preferred Shares beneficially owned by the holder and its affiliates
beneficially owned by the holder and its affiliates. Except as set forth
in the preceding sentence, for purposes of this
B-1
<PAGE>
paragraph, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended.
(b) Conversion Rate. The number of shares of Common Stock issuable
upon conversion of each of the Series B Preferred Shares pursuant to
Section (2)(a) shall be determined according to the following formula
(the "CONVERSION RATE");
(.05)(N/365)(20,000)_+_20,000
CONVERSION PRICE
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "CONVERSION PRICE" means as, of any Conversion Date (as
defined below), the Market Conversion Price, each in effect as of
such date, if applicable, and subject to adjustment as provided
herein, but in no event shall the Conversion Price exceed the Fixed
Conversion Price;
(ii) "FIXED CONVERSION PRICE" means $5.23, subject to adjustment,
as provided herein.
(iii) "MARKET CONVERSION PRICE" means, the Average Market Price
during any four (4) consecutive trading days (the "Market Price
Days") as determined by the Holder during the twenty-five (25)
consecutive trading day period ending one (1) Trading Day prior to
the date that the Notice of Conversion (as defined herein) is sent to
the Company as provided herein;
(iv) "AVERAGE MARKET PRICE" means, with respect to any security
for any period, that price which shall be computed as the arithmetic
average of the Closing Bid Prices (as defined below) for such
security for each trading day in such period;
(v) "CLOSING BID PRICE" means, for any security as of any date,
the last closing bid price on the Nasdaq SmallCap Market(TM) (tHE
"NASDAQ-SM") as reported by Bloomberg Financial Markets
("BLOOMBERG"), or, if the Nasdaq-SM is not the principal trading
market for such security, the last closing bid price of such security
on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg (the "Trading
Market"), or if the foregoing do not apply, the last closing bid
price of such security in the over-the-counter market on the pink
sheets or bulletin board for such security as reported by Bloomberg,
or, if no closing bid price is reported for such security by
Bloomberg, the last closing trade price of such security as reported
by Bloomberg. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid
Price of such security on such date shall be the fair market value as
reasonably determined in good faith by the Board of Directors of the
Company (all as appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period); and
(vi) "N" means the number of days from, but excluding, the
Issuance Date through and including the Conversion Date for the
Series B Preferred Shares for which conversion is being elected.
(vii) "ISSUANCE DATE" means the date of issuance of the Series B
Preferred Shares.
(viii) "TRADING DAY" means any day on which the Company's Common
Stock is traded on the Principal Trading Market.
B-2
<PAGE>
(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 all or substantially all of the
Company's assets to another Person (as defined below) or other
similar transaction which is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assess with respect to
or in exchange for Common Stock is referred to herein as in "Organic
Change." Prior to the consummation of any Organic Change, the Company
will make appropriate provision (in form and substance satisfactory
to the holders of a majority of the Series B Preferred Shares then
outstanding) to insure that each of the holders of the Series B
Preferred Shares will thereafter have the right to acquire and
receive in lieu of or in addition to (as the case may be) the shares
of Common Stock immediately theretofore acquirable and receivable
upon the conversion of such holder's Series B Preferred Shares, such
shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of shares of Common
Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Series B Preferred Shares had such
Organic Change not taken place. In any such case, the Company will
make appropriate provision (in form and substance satisfactory to the
holders of a majority of the Series B Preferred Shares then
outstanding) with respect to such holders' rights and interests to
insure that the provisions of this Section 2(c) and Section 2(a)
below will thereafter be applicable to the Series B Preferred Shares.
The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor entity (if
other than the Company) resulting from consolidation or merger or the
entity purchasing such assets assumes, by written instrument (in form
and substance satisfactory to the holders of a majority of the
Series B Preferred Shares then outstanding), the obligation to
deliver to each holder of Series B Preferred Shares such shares of
stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire. For purposes of
this Agreement, "PERSON" shall mean an individual, a limited
liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any
department or agency thereof.
(iii) Notices.
(A) Immediately upon any adjustment of the Conversion Price,
the Company will give written notice thereof to each holder of
Series B Preferred Shares, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(B) The Company will give written notice to each holder of
Series B Preferred Shares at least twenty (20) days prior to the
date on which the Company closes its books or takes a record
(I) with respect to any dividend or distribution upon the Common
Stock, (II) with respect to any pro rata subscription offer to
holders of Common Stock
B-3
<PAGE>
or (III) for determining rights to vote with respect to any
Organic Change, dissolution or liquidation.
(C) The Company will also give written notice to each holder
of Series B Preferred Shares at least twenty (20) days prior to
the date on which any Organic Change, Major Transaction (as
defined below), dissolution or liquidation will take place.
(d) Mechanics of Conversion. Subject to the Company's inability to
fully satisfy its obligations under a Conversion Notice (as defined
below) as provided for in Section 2(c) below:
(i) Holder's Delivery Requirements. To convert Series B Preferred
Shares into full shares of Common Stock on any date (the "CONVERSION
DATE"), the holder thereof shall (A) deliver or transmit by
facsimile, for receipt on or prior to 11:59 p.m., Eastern Standard
Time, on such date, a copy of a fully executed notice of conversion
in the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to
the Company or its designated transfer agent (the "TRANSFER AGENT"),
and (B) surrender to a common carrier for delivery to the Company or
the Transfer Agent as soon as practicable following such date, the
original certificates representing the Series B Preferred Shares
being converted (or an indemnification undertaking with respect to
such shares in the case of their loss, theft or destruction) (the
"PREFERRED STOCK CERTIFICATES") and the originally executed
Conversion Notice.
(ii) Company's Response. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall immediately
send, via Facsimile, a confirmation of receipt of such Conversion
Notice to such holder. Upon receipt by the Company or the Transfer
Agent of the Preferred Stock Certificates to be converted pursuant to
a Conversion Notice, together with the originally executed Conversion
Notice, the Company or the Transfer Agent (as applicable) shall,
within five (5) business days following the date of receipt,
(A) issue and surrender to a common carrier for overnight delivery to
the address as specified in the Conversion Notice, a certificate,
registered in the name of the holder or its designee, for the number
of shares of Common Stock to which the holder shall be entitled or
(B) credit the aggregate number of shares of Common Stock to which
the holder shall be entitled to the holder's or its designee's
balance account at The Depository Trust Company.
(iii) Dispute Resolution. In the case of a dispute as to the
determination of the Average Market Price or the arithmetic
calculation of the Conversion Rate, the Company shall promptly issue
to the holder the number of shares of Common Stock that is not
disputed and shall submit the disputed determinations or arithmetic
calculations to the holder via facsimile within three (3) business
days of receipt of such holder's Conversion Notice. If such holder
and the Company are unable to agree upon the determination of the
Average Market Price or arithmetic calculation of the Conversion Rate
within three (3) business days of such disputed determination or
arithmetic calculation being submitted to the holder, then the
Company shall within one (1) business day submit via facsimile (A)
the disputed determination of the Average Market Price to an
independent, reputable investment bank or (B) the disputed arithmetic
calculation of the Conversion Rate to its independent, outside
accountant. The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the holder of the results no
later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall
be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to receive the
shares of Common Stock issuable upon a conversion of Series B
Preferred Shares shall be treated for all
B-4
<PAGE>
purposes as the record holder or holders of such shares of Common
Stock on the Conversion Date.
(e) Nasdaq Compliance. So long as the Common Stock is listed for
trading on Nasdaq-SM or an exchange or quotation system with a rule
substantially similar to Rule 4460(i) then, notwithstanding anything to
the contrary contained herein if, at any time, the aggregate number of
shares of Common Stock then issued upon conversion of the Series B
Preferred Shares (including any shares of capital stock or rights to
acquire shares of capital stock issued by the Corporation which are
aggregated or integrated with the Common Stock issued or issuable upon
conversion of the Series B Preferred Stock for purposes of such rule)
equals 19.99% of the "Outstanding Common Amount" (as hereinafter
defined), the Series B Preferred Stock shall, from that time forward,
cease to be convertible into Common Stock in accordance with the terms
hereof, unless the Corporation has obtained approval of the (i) issuance
of the Common Stock upon conversion of the Series B Preferred Stock by a
majority of the total votes cast on such proposal, in person or by proxy,
by the holders of the then-outstanding Common Stock (not including any
shares of Common Stock held by present or former holders of Series B
Preferred Stock that were issued upon conversion of Series B Preferred
Stock that were issued upon conversion of Series B Preferred Stock) (the
"STOCKHOLDER APPROVAL"), or (ii) conversion of Series B Preferred Stock,
or (iii) shall have otherwise obtained permission to allow such issuances
from Nasdaq in accordance with Nasdaq Rule 4460(i). If the Corporation's
Common Stock is not then listed on Nasdaq or an exchange or quotation
system that has a rule substantially similar to Rule 4460(i) then the
limitations set forth herein shall be inapplicable and of no force and
effect. For purposes of this paragraph, "OUTSTANDING COMMON AMOUNT" means
(i) the number of shares of the Common Stock outstanding on the date of
issuance of the Series B Preferred Stock pursuant to the Purchase
Agreement plus (ii) any additional shares of Common Stock issued
thereafter in respect of such shares pursuant to a stock dividend, stock
split or similar event. The maximum number of shares of Common Stock
issuable as a result of the 19.99% limitation set forth herein is
hereinafter referred to as the "MAXIMUM SHARE AMOUNT." With respect to
each holder of Series B Preferred Stock, the Maximum Share Amount shall
refer to such holder's pro rata share thereof. In the event that
Corporation obtains Stockholder Approval or the approval of Nasdaq, by
reason of the inapplicability of the rules of Nasdaq or otherwise and
concludes that it is able to increase the number of shares to be issued
above the Maximum Share Amount (such increased number being the "NEW
MAXIMUM SHARE AMOUNT"), the references to Maximum Share Amount, above,
shall be deemed to be, instead, references to the greater New Maximum
Share Amount. In the event that Stockholder Approval is obtained, there
are insufficient reserved or authorized shares or a registration
statement covering the additional shares of Common Stock which constitute
the New Maximum Share Amount is not effective prior to the Maximum Share
Amount being issued (if such registration statement is necessary to allow
for the public resale of such securities), the Maximum Share Amount shall
remain unchanged; provided, however, that the holders of Series B
Preferred Stock may grant an extension to obtain a sufficient reserved or
authorized amount of shares or of the effective date of such registration
statement. In the event that (a) the aggregate number of shares of Common
Stock actually issued upon conversion of the outstanding Series B
Preferred Stock represents at least twenty percent (20%) of the Maximum
Share Amount and (b) the sum of (x) the aggregate number of shares of
Common Stock issued upon conversion of Series B Preferred Stock plus
(y) the aggregate number of shares of Common Stock that remain issuable
upon conversion of Series B Preferred Stock and based on the Conversion
Price then in effect), represents at least one hundred percent (100%) of
the Maximum Share Amount (the "TRIGGERING EVENT"), the Corporation will
use its best reasonable efforts to seek and obtain Stockholder Approval
(or obtain such other relief as will allow conversions hereunder in
excess of the Maximum Share Amount) within sixty (60) days of such
Triggering
B-5
<PAGE>
Event and before the Mandatory Redemption Date (the "STOCKHOLDER APPROVAL
DEADLINE").
(f) Mandatory Conversion. If any Series B Preferred Shares remain
outstanding on March 24, 2002, then, notwithstanding the limitations on
conversions provided in Section 2(a), all such Series B Preferred Shares
shall be converted as of such date in accordance with this Section 2 as
if the holders of such Series B Preferred Shares had given the Conversion
Notice on March 24, 2002, and the Conversion Date had been fixed as of
March 24, 2002, (the "MANDATORY CONVERSION DATE") for all purposes of
this Section 2, and all holders of Series B Preferred Shares shall
thereupon and with two (2) business days thereafter surrender all
Preferred Stock Certificates, duly endorsed for cancellation, to the
Company or the Transfer Agent. No person shall thereafter have any rights
in respect of Series B Preferred Shares, except the right to receive
shares of Common Stock on conversion thereof as provided in this
Section 2.
(g) Fractional Shares. The Company shall not issue any fraction of a
share of Common Stock upon any conversion. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one
share of the Series B Preferred Shares by a holder thereof shall be
aggregated for purposes of determining whether the conversion would
result in the issuance of a fraction of a share of Common Stock. lf,
after the aforementioned aggregation, the issuance would result in the
issuance of a fraction of it share of Common Stock, the Company shall
round such fraction of a share of Common Stock up or down to the nearest
whole share.
(h) Taxes. The Company shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of Common Stock
upon the conversion of the Series B Preferred Shares.
(3) Company's Right to Redeem at its Election.
(a) At any time, commencing upon the earlier to occur of
(i) 110 days after the Issuance Date, or (ii) the date that the
Registration Statement becomes effective with the SEC, the Company shall
have the right, in it sole discretion, to redeem ("REDEMPTION AT
COMPANY'S ELECTION"), from time to time, any or all of the Series B
Preferred Stock; provided, (i) Company shall first provide ten (10) days
advance written notice as provided in subparagraph 3(a)(ii) below, and
(ii) that the Company shall only be entitled to redeem Series B Preferred
Stock having an aggregate Stated Value (as defined below) of at least
Five Hundred Thousand Dollars ($500,000). If the Company elects to redeem
some, but not all, of the Series B Preferred Stock, the Company shall
redeem a pro-rata amount from each Holder of the Series B Preferred
Stock.
(i) Redemption Price At Company's Election. The "REDEMPTION PRICE
AT COMPANY'S ELECTION" shall be calculated as 120% of Stated Value,
as that term is defined below, of the Series B Preferred Stock. For
purposes hereof, "STATED VALUE" shall mean the original principal
amount of Preferred Stock being redeemed.
(ii) Mechanics of Redemption at Company's Election. The Company
shall effect each such redemption by giving at least ten (10) days
prior written notice ("NOTICE OF REDEMPTION AT COMPANY'S ELECTION")
to (A) the Holders of the Series B Preferred Stock selected for
redemption at the address and facsimile number of such Holder
appearing in the Company's Series B Preferred Stock register and
(B) the Transfer Agent, which Notice of Redemption At Company's
Election shall be deemed to have been delivered three (3) business
days after the Company's mailing (by overnight or two (2) day
courier, with a copy by facsimile) of such Notice of Redemption at
Company's Election. Such Notice of Redemption At Company's Election
shall indicate (i) the number of shares of Series B Preferred Stock
that have been selected for redemption, (ii) the date which such
redemption
B-6
<PAGE>
is to become effective (the "DATE OF REDEMPTION AT COMPANY'S
ELECTION") and (iii) the applicable Redemption Price At Company's
Election, as defined in subsection (a)(i) above. Notwithstanding the
above, Holder may convert into Common Stock, prior to the close of
business on the Date of Redemption at Company's Election, any Series
B Preferred Stock which it is otherwise entitled to convert,
including Series B Preferred Stock that has been selected for
redemption at Company's election pursuant to this subsection 3(a).
(b) Company Must Have Immediately Available Funds. The Company shall
not be entitled to send any Redemption Notice and begin the redemption
procedure under Sections 3(a) unless it has the full amount of the
redemption price in cash, available in an immediately available escrow
account in a bank or similar financial institution.
(c) Payment of Redemption Price. Each Holder submitting Preferred
Stock being redeemed under this Section 3 shall send their Series B
Preferred Stock Certificates to redeemed to the Company or its Transfer
Agent, and the Company shall pay the applicable redemption price to that
Holder within five (5) business days of the Date of Redemption at
Company's Election.
(4) Holder's Right to Redeem at its Election.
(a) In the event that the Company has issued to the Holders the
Maximum Share Amount and has failed to obtain Stockholder Approval within
the Stockholder Approval Deadline, the Holder shall have the one time
right, in it sole discretion, for so long as the Company has failed to
obtain Stockholder Approval beyond the Stockholder Approval Deadline to
cause the Company to redeem ("REDEMPTION AT HOLDER'S ELECTION"), all of
the Series B Preferred Stock; provided, Holder shall first provide
fifteen (15) days advance written notice as provided in subparagraph
4(a)(ii) below.
(i) Redemption Price At Holder's Election. The "REDEMPTION PRICE
AT HOLDER'S ELECTION" shall be calculated as 120% of Stated Value.
(ii) Mechanics of Redemption at Holder's Election. The Buyer
shall effect each such redemption by giving at least fifteen
(15) days prior written notice ("NOTICE OF REDEMPTION AT COMPANY'S
ELECTION") to (A) the Company and (B) the Transfer Agent, which
Notice of Redemption At Holder's Election shall be deemed to have
been delivered three (3) business days after the Buyer's mailing (by
overnight or two (2) day courier, with a copy by facsimile) of such
Notice of Redemption at Buyer's Election. Such Notice of Redemption
At Buyer's Election shall indicate (i) the number of shares of
Series B Preferred Stock that have been selected for redemption,
(ii) the date which such redemption is to become effective (the "DATE
OF REDEMPTION AT BUYER'S ELECTION") and (iii) the applicable
Redemption Price At Buyer's Election, as defined in subsection
(a)(i) above.
(b) Payment of Redemption Price. Each Holder submitting Preferred
Stock being redeemed under this Section 4 shall send their Series B
Preferred Stock Certificates to redeemed to the Company or its Transfer
Agent, and the Company shall pay the applicable redemption price to that
Holder within five (5) business days of the Date of Redemption at
Holder's Election.
(5) Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of
the Series B Preferred Shares represented by a particular Preferred Stock
Certificate, the Company shall promptly cause to be issued and delivered to
the holder of such Series B Preferred Shares a Preferred stock certificate
representing the remaining Series B Preferred Shares which have not been so
converted or redeemed.
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<PAGE>
(6) Reservation of Shares. The Company shall, so long as any of the
Series B Preferred Shares are outstanding reserve and keep available out of
its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Series B Preferred Shares, such number of
shares of Common Stock as shall from time to time be sufficient to affect
the conversion of all of the Series B Preferred Shares then outstanding;
provided that the number of shares of Common Stock so reserved shall at no
time be less than 100% of the number of shares of Common Stock for which the
Series B Preferred Shares are at any time convertible,
(7) Voting Rights. Holders of Series B Preferred Shares shall have no
voting rights, except as required by law, including but not limited to the
General Corporation Law of the State of Delaware and as expressly provided
in this Certificate of Designations.
(8) Liquidation, Dissolution, Winding-Up. In the event of any voluntary
or involuntary liquidation, dissolution, or winding up of the Company, the
holders of the Series B Preferred Shares shall be entitled to receive in
cash out of the assets of the Company, whether from capital or from earnings
available for distribution to its stockholders (the "PREFERRED FUNDS"),
before any amount shall be paid to the holders of any of the capital stock
of the Company of any class junior in rank to the Series B Preferred Shares
in respect of the preferences as to the distributions and payments on the
liquidation, dissolution and winding up of the Company, an amount per
Series B Preferred Share equal to the sum of (i) $20,000 and (ii) an amount
equal to the product of (.05) (N/365) ($20,000) (such sum being referred to
as the "LIQUIDATION VALUE"); provided that, if the Preferred Funds are
insufficient to pay the full amount due to the holders of Series B Preferred
Shares and holders of shares of other classes or series of preferred stock
of the Company that are of equal rank with the Series B Preferred Shares as
to payments of Preferred Funds (the "PARI PASSU SHARES"), then each holder
of Series B Preferred Shares and Pari Passu Shares shall receive a
percentage of the Preferred Funds equal to the full amount of Preferred
Funds payable to such holder as a liquidation preference, in accordance with
their respective Certificate of Designations, Preferences and Rights as a
percentage or the full amount of Preferred Funds payable to all holders of
Series B Preferred Shares and Pari Passu Shares. The purchase or redemption
by the Company of stock of any class in any manner permitted by law, shall
not for the purposes hereof, be regarded as a liquidation, dissolution or
winding up of the Company. Neither the consolidation or merger of the
Company with or into any other Person, nor the sale or transfer by the
Company of less than substantially all of its assets, shall, for the
purposes hereof, be deemed to be a liquidation, dissolution or winding up of
the Company. No holder of Series B Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation, dissolution
or winding up of the Company other than the amounts provided for herein.
(9) Preferred Rate. All shares of Common Stock shall be of junior rank
to all Series B Preferred Shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution, and winding up
of the Company. The rights of the shares of Common Stock shall be subject to
the Preferences and relative rights of the Series B Preferred Shares. The
Series B Preferred Shares shall be of greater rank than any Series of Common
or Preferred Stock hereinafter issued by the Company. Without the prior
express written consent of the holders of not less than a majority of the
then outstanding Series B Preferred Shares, the Company shall not hereafter
authorize or issue additional or other capital stock that is of senior or
equal rank to the Series B Preferred Shares in respect of the preferences as
to distributions and payments upon the liquidation, dissolution and winding
up of the Company. Without the prior express written consent of the holders
of not less than a majority of the then outstanding Series B Preferred
Shares, the Company shall not hereafter authorize or make any amendment to
the Company's Certificate of Incorporation or bylaws, or make any resolution
of the board of directors with the Delaware Secretary of State containing
any provisions, which would materially and adversely affect or otherwise
impair the rights or relative priority of the holders of the Series B
Preferred Shares relative to the holders of the Common Stock or the holders
of any other
B-8
<PAGE>
class of capital stock. In the event of the merger or consolidation of the
Company with or into another corporation, the Series B Preferred Shares
shall maintain their relative powers, designations, and preferences provided
for herein and no merger shall result inconsistent therewith.
(10) Restriction on Dividends. If any Series B Preferred Shares are
outstanding, without the prior express written consent of the holders of not
less than a majority of the then outstanding Series B Preferred Shares, the
Company shall not directly or indirectly declare, pay or make any dividends
or other distributions upon any of the Common Stock so long as written
notice thereof has been given to holders of the Series B Preferred Shares at
least thirty (30) days prior to the earlier of (a) the record date taken for
or (b) the payment of any such dividend or other distribution.
Notwithstanding the foregoing, this Section 10 shall not prohibit the
Company from declaring and paying a dividend in cash with respect to the
Common Stock so long as the Company: (i) pays simultaneously to each holder
of Series B Preferred Shares an amount in cash equal to the amount such
holder would have received had all of such holder's Series B Preferred
Shares been converted to Common Stock pursuant to Section 2 hereof one
business day prior to the record date for any such dividend, and (ii) after
giving effect to the payment of any dividend and any other payments required
in connection therewith including to the holders of the Series B Preferred
Shares under clause 10(i) hereof, the Company has in cash or cash
equivalents an amount equal to the aggregate of:(A) all of its liabilities
reflected on its most recently available balance sheet, (B) the amount of
any indebtedness incurred by the Company or any of its subsidiaries since
its most recent balance sheet and (C) 120% of the amount payable to all
holders of any shares of any class of preferred stock of the Company
assuming a liquidation of the Company as the date of its most recently
available balance sheet.
(11) Vote to Change the Terms of Series B Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than a majority of the
then outstanding Series B Preferred Shares, shall be required for any change
to this Certificate of Designations or the Company's Certificate of
Incorporation which would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Series B Preferred Shares.
(12) Lost or Stolen Certificates. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Series B
Preferred Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Company and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall
not be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Series B Preferred
Shares into Common Stock.
(13) Withholding Tax Obligations. Notwithstanding anything herein to the
contrary, to the extent that the Company receives advice in writing from its
counsel that there is a reasonable basis to believe that the Company is
required by applicable federal laws or regulations and delivers a copy of
such written advice to the holders of the Series B Preferred Shares so
effected, the Company may reasonably condition the making of any
distribution (as such term is defined under applicable federal tax law and
regulations) in respect of any Series B Preferred Share on the holder of
such Series B Preferred Shares depositing with the Company an amount of cash
sufficient to enable the Company to satisfy its withholding tax obligations
(the "WITHHOLDING TAX") with respect to such distribution. Notwithstanding
the foregoing or anything to the contrary, if any holder of the Series B
Preferred Shares so effected receives advice in writing from its counsel
that there is a reasonable basis to believe that the Company is not so
required by applicable federal laws or regulations and delivers a copy of
such written advice to the Company, the Company shall not be permitted to
condition the making of any such distribution in respect of any Series B
Preferred Share on the holder of such Series B Preferred Shares depositing
with the Company any Withholding Tax with respect to such distribution,
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<PAGE>
provided, however, the Company may reasonably condition the making of any
such distribution in respect of any Series B Preferred Share on the holder
of such Series B Preferred Shares executing and delivering to the Company,
at the election of the holder, either: (i) if applicable, a property
completed Internal Revenue Service Form 4224, or (a) an indemnification
agreement in reasonably acceptable form, with respect to any federal tax
liability, penalties and interest that may be imposed upon the Company by
the Internal Revenue Service as a result of the Company's failure to
withhold in connection with such distribution to such holder.
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations
to be signed by Harvey W. Sax, its Chief Executive Officer, as of the 24th day
of March, 1999.
HOMECOM COMMUNICATIONS, INC.
By:
Harvey W. Sax
Chief Executive Officer
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<PAGE>
EXHIBIT I
HOMECOM COMMUNICATIONS, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights
of HomeCom Communications, Inc. (the "CERTIFICATE OF DESIGNATIONS"). In
accordance with and pursuant to the Certificate of Designations, the undersigned
hereby elects to convert the number of shares of Series B Convertible Preferred
Stock, $.01 par value per share (the "SERIES B PREFERRED SHARES"), of HomeCom
Communications, Inc., a Delaware corporation (the "COMPANY"), indicated below
into shares of Common Stock, $.01 par value per share (the "COMMON STOCK"), of
the Company, by tendering the stock certificate(s) representing the share(s) of
Series B Preferred Shares specified below as of the date specified below.
The undersigned acknowledges that any sales by the undersigned of the
securities issuable to the undersigned upon conversion of the Series B Preferred
Shares shall be made only pursuant to (i) a registration statement effective
under the Securities Act of 1933, as amended (the "ACT"), or (ii) advice of
counsel that such sale is exempt from registration required by Section 5 of the
Act.
<TABLE>
<S> <C>
Date of Conversion:
Number of Series B Preferred
Shares to be converted
Stock certificate no(s). of
Series B Preferred Shares to be
converted:
Please confirm the following
information:
Conversion Price:
Four Consecutive Days Comprising
Pricing Period and Prices:
Number of shares of Common Stock
to be issued:
</TABLE>
<PAGE>
<TABLE>
<S> <C>
please issue the Common Stock into which the Series B Preferred
Shares are being converted in the following name and to the
following address:
Issue to:(1)
Facsimile Number:
Authorization:
By:
Title:
Dated:
ACKNOWLEDGED AND AGREED:
HOMECOM
COMMUNICATIONS, INC.
By:
Name:
Title:
Date:
</TABLE>
(1) If other than to the record holder of the Series B Preferred Shares, any
applicable transfer tax must be paid by the undersigned.
<PAGE>
APPENDIX "C"
FORM OF SERIES B PREFERRED WARRANT AGREEMENT
WARRANT AGREEMENT dated as of March 25, 1999, between HomeCom
Communications, Inc., a Delaware corporation (the "COMPANY"), and
(hereinafter referred to as "INVESTOR").
WITNESSETH:
WHEREAS, Investor has participated as an Investor in connection with the
Company's offering (the "OFFERING") of up to $2,500,000 in principal amount of
Series B Preferred Stock (the "PREFERRED STOCK") for an aggregate purchase price
$2,500,000; 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 March 24, 2004 (the "WARRANT EXERCISE
TERM"), one hundred twelve thousand five hundred Shares at an exercise price
(subject to adjustment as provided in Article 7 hereof) of $5.70 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 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
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<PAGE>
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 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.
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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.
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
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<PAGE>
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 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(cent)) 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(cent)) 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.
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
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<PAGE>
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, nonassessable 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
(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
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<PAGE>
(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.
15. Termination.
This Agreement shall terminate at the close of business on March 24, 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 March 24, 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.
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<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.
<TABLE>
<S> <C> <C> <C>
By: /s/ HARVEY W. SAX
-------------------------------------
Name: Harvey W. Sax
Title: Chairman of the Board and Chief
Executive Officer
Attest: /s/ Norm H. Smith
------------------------------------
Name: Norm H. Smith
Title: CFO, Secretary & Treasurer
INVESTOR
By:
-------------------------------------
Name:
Title:
Attest:
------------------------------------
Name:
Title:
</TABLE>
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<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, MARCH 24, 2004
No. Shares
WARRANT CERTIFICATE
This Warrant Certificate certifies that ("INVESTOR") or
registered assigns, is the registered holder of one Warrant to purchase, at any
time from March 25, 1999, until 5:00 P.M. Eastern Standard Time on March 24,
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 $5.70 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 March 25,
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 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.
<PAGE>
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: March 25, 1999
<TABLE>
<S> <C> <C>
HOMECOM COMMUNICATIONS, INC.
By: /s/ HARVEY SAX
-----------------------------------------
Name: Harvey Sax
Title: President
</TABLE>
<TABLE>
<S> <C> <C>
/s/ NORM H. SMITH
-----------------------------------------
Name: Norm H. Smith
Attest: Title: CFO, Secretary & Treasurer
</TABLE>
<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 .
<TABLE>
<CAPTION>
<S> <C>
Dated: Signature:
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
</TABLE>
(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>
APPENDIX "D"
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, $.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 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"), $.01
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 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");
D-1
<PAGE>
(.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;
(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
D-2
<PAGE>
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 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 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-3
<PAGE>
(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 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
D-4
<PAGE>
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 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.
(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
D-5
<PAGE>
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 90(th) 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
646(st) day following the Issuance Date, the Lock-Up Period shall
terminate on the 725(th) 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 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.
(iii) 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
D-6
<PAGE>
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):
(i) During the period beginning on the Issuance Date and
ending on the 120(th) 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 150(th) 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 180(th) 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
D-7
<PAGE>
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 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.
(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
D-8
<PAGE>
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 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
D-9
<PAGE>
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 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
D-10
<PAGE>
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 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]
D-11
<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 23(rd)day of
July, 1999.
<TABLE>
<S> <C> <C>
HOMECOM COMMUNICATIONS, INC.
By: /s/ HARVEY SAX
-----------------------------------------
Harvey Sax
Chief Executive Officer
</TABLE>
D-12
<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, $.01 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, $.01 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:
<TABLE>
<S> <C>
Issue to:(1)
________________________________________
________________________________________
Facsimile Number:
________________________________________
Authorization:
________________________________________
By: ____________________________________
Title: _________________________________
Dated: _________________________________
ACKNOWLEDGED AND AGREED:
HOMECOM COMMUNICATIONS, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
</TABLE>
<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 725(th) 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"), $.01 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 725(th) 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, $.01 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>
APPENDIX E
FORM OF SERIES C PREFERRED WARRANT AGREEMENT
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of July 28, 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 C 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 27, 2004 (the "WARRANT EXERCISE
TERM"), 59,574 Shares at an exercise price (subject to adjustment as provided in
Article 7 hereof) of $7.34 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 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
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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 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.
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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.
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
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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 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.
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.
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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, nonassessable 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
(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.
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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.
15. TERMINATION.
This Agreement shall terminate at the close of business on July 27, 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 27, 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.
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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: ____________________________
Name: ____________________________
Title: ____________________________
INVESTOR
By: ____________________________
Name:
Title:
Attest: ____________________________
Name: ____________________________
Title: ____________________________
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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 27, 2004
No.____________ 59,574 Shares
WARRANT CERTIFICATE
This Warrant Certificate certifies that ("INVESTOR") or registered
assigns, is the registered holder of 59,574 Warrant shares to purchase, at any
time from July 28, 1999, until 5:00 P.M. Eastern Standard Time on July 27, 2004
("EXPIRATION DATE"), up to 59,574 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 $7.34 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 28,
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 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.
<PAGE>
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 28, 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 __.
<TABLE>
<S> <C>
Dated: ---------------- Signature: ----------------------------------------------
(Signature must conform in all respects to name of holder
as specified on the face of the Warrant Certificate.)
</TABLE>
_________________________________
_________________________________
(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.
<TABLE>
<S> <C>
Dated: ---------------- Signature: ----------------------------------------------
(Signature must conform in all respects to name of holder
as specified on the face of the Warrant Certificate.)
</TABLE>
_________________________________
_________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
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 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
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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;
(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.
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(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 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.
(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
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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 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
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<PAGE>
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 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
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<PAGE>
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 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 90(th)
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 646(st) day following the Issuance Date, the Lock-Up
Period shall terminate on the 725(th) 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") 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
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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 90(th) 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 120(th) 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 150(th) 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.
(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
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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
(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 referred to
as the "LIQUIDATION VALUE"); provided that, if the Preferred Funds are
insufficient to pay the full amount due to the holders of
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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 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
F-9
<PAGE>
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 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.
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<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 27(th)day of
September, 1999.
<TABLE>
<S> <C> <C>
HOMECOM COMMUNICATIONS, INC.
By:
-----------------------------------------
Harvey Sax
CHIEF EXECUTIVE OFFICER
</TABLE>
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<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:(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.
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 725(th) day following the Issuance Date (as defined in the Certificate
of Designations).
<TABLE>
<S> <C>
Authorization:
-----------------------------------------------
By:
-----------------------------------------------
Title:
-----------------------------------------------
Dated:
-----------------------------------------------
</TABLE>
<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 725(th) 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.
<TABLE>
<S> <C>
Very truly yours,
------------------------------------------------
Signature
------------------------------------------------
Print Name
</TABLE>
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of September 27, 1999, between HomeCom
Communications, Inc., a Delaware corporation (the "COMPANY"), and Jackson LLC, a
Cayman Island limited liability company (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 $5.875 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 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
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<PAGE>
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 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
G-2
<PAGE>
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.
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 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
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<PAGE>
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.
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<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, nonassessable 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
(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.
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<PAGE>
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.
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.
G-6
<PAGE>
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.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
G-7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
<TABLE>
<S> <C> <C>
HOMECOM COMMUNICATIONS, INC.
By:
-----------------------------------------
Name: Harvey Sax
Title: CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Attest: -------------------------------------
Name: ------------------------------------
Title: -------------------------------------
Investor: JACKSON LLC
By:
-----------------------------------------
Name:
Title:
Attest: -------------------------------------
Name: ------------------------------------
Title: -------------------------------------
</TABLE>
G-8
<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. 1999-D-1 25,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Jackson LLC ("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 25,000 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 $5.875 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 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.
<PAGE>
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.
<TABLE>
<S> <C>
Dated: September 27, 1999 HOMECOM COMMUNICATIONS, INC.
By: ----------------------------------------
Name: --------------------------------------
Title:
---------------------------------------
Attest:
--------------------------------------
Name: --------------------------------------
Title:
---------------------------------------
</TABLE>
<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 ______________________________________________________________.
<TABLE>
<S> <C>
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)
</TABLE>
<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.
<TABLE>
<S> <C>
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)
</TABLE>
<PAGE>
AMENDED
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS
OF
SERIES E 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 100 shares of Series E Convertible
Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 100 shares of
Series E Convertible Preferred Stock (the "SERIES E PREFERRED SHARES"), $.01
par value per share, which shall have the following powers, designations,
preferences and other special rights:
(1) DIVIDENDS. The Series E Preferred Shares shall not bear any
dividends.
(2) HOLDER'S CONVERSION OF SERIES E PREFERRED SHARES. A holder of
Series E Preferred Shares shall have the right, at such holder's option, to
convert the Series E 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 Section 3(a)
below, at any time or times upon the earlier to occur of (i) a date on or
after 120 days after the Issuance Date (as defined herein) or (ii) the
date that the U.S. Securities & Exchange Commission declares the
Company's Registration Statement with respect to the Series E Preferred
Shares (the "Effective Date"), any holder of Series E Preferred Shares
shall be entitled to convert any Series E 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 Conversion pursuant to Section 2(f) hereof, shall any
holder be entitled to convert Series E Preferred Shares in excess of that
number of Series E 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 E 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 E 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.
H-1
<PAGE>
(b) CONVERSION RATE. The number of shares of Common Stock issuable
upon conversion of each of the Series E Preferred Shares pursuant to
Section (2)(a) shall be determined according to the following formula
(the "CONVERSION RATE");
(.08)(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 $3.53, 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;
(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 E Preferred Shares for which conversion is being elected.
(viii) "ISSUANCE DATE" means the date of issuance of the
Series E 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).
H-2
<PAGE>
(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
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 E 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 E 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 E 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 E 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 E 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 E Preferred
Shares then outstanding), the obligation to deliver to each holder of
Series E 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 E 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 E 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 E 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.
H-3
<PAGE>
(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 E
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 E 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 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 E
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 E
Preferred Shares
H-4
<PAGE>
(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
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.
(f) MANDATORY CONVERSION. If any Series E Preferred Shares remain
outstanding on April 14, 2003, then all such Series E Preferred Shares
shall be converted as of such date in accordance with this Section 2 as
if the holders of such Series E Preferred Shares had given the Conversion
Notice on Apri114, 2003, and the Conversion Date had been fixed as of
April 14, 2003, (the "MANDATORY CONVERSION DATE") for all purposes of
this Section 2, and all holders of Series E 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
H-5
<PAGE>
Agent. No person shall thereafter have any rights in respect of Series E
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 E 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 E 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 90(th)
day following the Issuance Date through April 14, 2002 (the "LOCK-UP
EXERCISE PERIOD"), prohibit holders of the Series E 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 646(st) day following the Issuance Date, the Lock-Up
Period shall terminate on the 725(th) 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 E 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 E Preferred Shares at the
Company's election (i) a cash payment equal to 3% of the principal
amount of the Series E 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 E 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 E 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
H-6
<PAGE>
Lock-Up Notice Delivery Date which, for the benefit of the holders of
the Series E 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 E 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 E
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).
(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 E Preferred
Shares; 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 E Preferred Shares
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 E Preferred Shares, the Company shall
redeem a pro-rata amount from each holder of the Series E Preferred
Shares.
(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 E Preferred Shares. 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 E Preferred Shares selected for
redemption at the address and facsimile number of such holder
appearing in the Company's Series E Preferred Shares 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 E 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 E Preferred Shares which it is otherwise
entitled to convert, including Series E 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
H-7
<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 E
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 E 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 E Preferred Shares a Preferred Stock Certificate
representing the remaining Series E Preferred Shares which have not been so
converted or redeemed.
(5) RESERVATION OF SHARES. The Company shall, so long as any of the
Series E 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 E 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 E 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 E Preferred Shares are at any time convertible,
(6) VOTING RIGHTS. Holders of Series E 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 E 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 E
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 (.08) (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 E 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 E Preferred Shares as
to payments of Preferred Funds (the "PARI PASSU SHARES"), then each holder
of Series E 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 E 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,
H-8
<PAGE>
dissolution or winding up of the Company. No holder of Series E 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 E 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 E Preferred Shares. Except for the Series B Convertible
Preferred Stock, the Series E 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 E 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 E 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 E 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 E 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 E
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 E Preferred Shares are
outstanding, without the prior express written consent of the holders of not
less than a majority of the then outstanding Series E 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 E 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 E Preferred
Shares an amount in cash equal to the amount such holder would have received
had all of such holder's Series E 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 E 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 E 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 E 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 E 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 E
Preferred Shares, and, in the case of loss, theft or destruction, of any
indemnification
H-9
<PAGE>
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 E 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 E 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 E Preferred Shares on the holder of
such Series E 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 E
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 E 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 E 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]
H-10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Amended Certificate of
Designations to be signed by James Ellsworth, its Chief Financial Officer, as of
the 14th day of April, 2000.
HOMECOM COMMUNICATIONS, INC.
By:
<TABLE>
<S> <C>
--------------------------------------------
James Ellsworth
Chief Financial Officer
</TABLE>
H-11
<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 E Convertible Preferred
Stock, $.01 par value per share (the "SERIES E 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 E 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 E 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.
<TABLE>
<S> <C>
Date of Conversion:
------------------------------------------------
Number of Series E
Preferred Shares to be converted
------------------------------------------------
Stock certificate no(s). of Series E
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:
------------------------------------------------
</TABLE>
<PAGE>
please issue the Common Stock into which the Series E Preferred Shares are being
converted in the following name and to the following address:
<TABLE>
<S> <C>
Issue to:(1)
------------------------------------------------
------------------------------------------------
Facsimile Number:
------------------------------------------------
Authorization:
------------------------------------------------
By:
Title:
Dated:
------------------------------------------------
ACKNOWLEDGED AND AGREED:
HOMECOM COMMUNICATIONS, INC.
By:
Name:
Title:
Date:
</TABLE>
- ------------------------
(1) If other than to the record holder of the Series E 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 E
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 725(th) day following the Issuance Date (as defined in the Certificate
of Designations).
<TABLE>
<S> <C>
Authorization:
-----------------------------------------------
By:
-----------------------------------------------
Title:
-----------------------------------------------
Dated:
-----------------------------------------------
</TABLE>
<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 E PREFERRED SHARES"), $.01 par value per share. Consequently, the
Company shall not be required to convert any Series E 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 725(th) day following the Issuance Date
(as defined in the Certificate of Designations).
In consideration of the agreement by the holders of the Series E 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 E 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 E 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 E 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 E
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>
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of April 14, 2000, between HomeCom
Communications, Inc., a Delaware corporation (the "COMPANY"), and McNab LLC, a
limited liability company (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 $2,000,000 in principal amount of
Series E Preferred Stock (the "PREFERRED STOCK") for an aggregate purchase price
$2,000,000; 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 April 14, 2005 (the "WARRANT EXERCISE
TERM"), 33,334 Shares at an exercise price (subject to adjustment as provided in
Article 7 hereof) of $3.35 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 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
I-1
<PAGE>
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 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.
I-2
<PAGE>
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.
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
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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.
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.
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
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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, nonassessable 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
(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
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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.
15. TERMINATION.
This Agreement shall terminate at the close of business on April 14, 2005.
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 April 14, 2005.
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.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
<TABLE>
<S> <C> <C>
HOMECOM COMMUNICATIONS, INC.
By:
-----------------------------------------
Name: Harvey Sax
Title: CHIEF EXECUTIVE OFFICER
Attest: -------------------------------------
Name: ------------------------------------
Title: -------------------------------------
INVESTOR
By:
Name:
Title:
Attest: -------------------------------------
Name: ------------------------------------
Title: -------------------------------------
</TABLE>
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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, MARCH 31, 2005
No. 2000-E-1 33,334 Shares
WARRANT CERTIFICATE
This Warrant Certificate certifies that McNab LLC ("INVESTOR") or registered
assigns, is the registered holder of a warrant to purchase, at any time from
April 14, 2000, until 5:00 P.M. Eastern Standard Time on April 14, 2005
("EXPIRATION DATE"), up to 33,334 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 $3.64 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 April 14,
2000, 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 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
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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.
<TABLE>
<S> <C>
Dated: As of April 14, 2000 HOMECOM COMMUNICATIONS, INC.
By:
Name:
Title:
Attest:
Name:
Title:
</TABLE>
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[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 ____________________________________________________________________.
<TABLE>
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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)
</TABLE>
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[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.
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<S> <C>
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)
</TABLE>
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HOMECOM COMMUNICATIONS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 8, 2000
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned stockholder of HomeCom Communications, Inc. (the "Company")
hereby appoints James Wm. Ellsworth and Harvey W. Sax, or either of them, with
full power of substitution, as proxies to cast all votes, as designated below,
which the undersigned stockholder is entitled to cast at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on June 8, 2000 at 9:00 a.m.
Eastern Standard Time at the Conference Center, 3rd Floor, 400 Northpark Town
Center, 1000 Abernathy Road, N.E., Atlanta, Georgia, upon the following matters
and any other matter as may properly come before the Annual Meeting or any
adjournments thereof.
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<S> <C> <C>
1. Election of two Class II Directors to serve on the Board of Directors:
Class II Directors: Gia Bokuchava, Ph.D. Roger J. Nebel
/ / FOR all the nominees listed above (except as marked to the contrary
below).
/ / WITHHOLD AUTHORITY to vote for all the nominees listed above.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
Proposal to approve the amendment to Article IV of the Company's Amended
2. and Restated Certificate of Incorporation to increase the number of
authorized shares of the Company's Common Stock.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to ratify the issuance of shares of the Company's Series B
Convertible Preferred Stock and certain related warrants to purchase shares
of Common Stock, and to approve the issuance of shares of Common Stock of
the Company in excess of 19.99 percent of the outstanding shares.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to ratify the issuance of shares of the Company's Series C
Convertible Preferred Stock and certain related warrants to purchase shares
of Common Stock, and to approve the issuance of shares of Common Stock of
the Company in excess of 19.99 percent of the outstanding shares.
/ / FOR / / AGAINST / / ABSTAIN
5. Proposal to ratify the issuance of shares of the Company's Series D
Convertible Preferred Stock and certain related warrants to purchase shares
of Common Stock, and to approve the issuance of Common Stock of the Company
in excess of 19.99 percent of the outstanding shares.
/ / FOR / / AGAINST / / ABSTAIN
6. Proposal to ratify the issuance of shares of the Company's Series E
Convertible Preferred Stock and certain related warrants to purchase shares
of Common Stock, and to approve the issuance of Common Stock of the Company
in excess of 19.99 percent of the outstanding shares.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
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(Continued and to be dated and signed on reverse side)
<PAGE>
<TABLE>
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7. Proposal to ratify the appointment of PricewaterhouseCoopers, LLC as the
independent auditors of the Company for the fiscal year ending
December 31, 1999.
/ / FOR / / AGAINST / / ABSTAIN
8. Proposal to approve the amendment to the Employee Stock Purchase Plan to
increase the number of shares of the Company's Common Stock that may be
issued thereunder.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
This proxy, when properly executed, will be voted as directed by the undersigned
stockholder and in accordance with the best judgment of the proxies as to other
matters. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" PROPOSALS ONE,
TWO, THREE, FOUR, FIVE, SIX, SEVEN AND EIGHT AND IN ACCORDANCE WITH THE BEST
JUDGMENT OF THE PROXIES AS TO OTHER MATTERS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS ONE, TWO, THREE, FOUR,
FIVE, SIX, SEVEN AND EIGHT.
The undersigned hereby acknowledges prior receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement dated May , 2000, and hereby
revokes any proxy or proxies heretofore given. This Proxy may be revoked at any
time before it is voted by delivering to the Secretary of the Company either a
written revocation of proxy or a duly executed proxy bearing a later date, or by
appearing at the Annual Meeting and voting in person.
If you receive more than one proxy card, please sign and return all cards in
the accompanying envelope.
/ / I PLAN TO ATTEND THE JUNE 8, 2000, ANNUAL STOCKHOLDERS MEETING
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY TO ENSURE A
QUORUM AT THE MEETING. IT IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES. DELAY
IN RETURNING YOUR PROXY MAY SUBJECT THE COMPANY TO ADDITIONAL EXPENSE.
Dated: _______________________, 2000
____________________________________________
Signature of Stockholder or Authorized
Representative
Please date and sign exactly as name appears
hereon. Each executor, administrator,
trustee, guardian, attorney-in-fact and
other fiduciary should sign and indicate his
or her full title. In the case of stock
ownership in the name of two or more
persons, all persons should sign.
