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.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transaction applies:
N/A
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(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):
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(4) Proposed maximum aggregate value of transaction:
$3,000
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(5) Total fee paid:
-0-, because fee is less than the de minimis fee amount
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|_| 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 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:
HOMECOM COMMUNICATIONS, INC.
3495 Piedmont Road
Building 12, Suite 110
Atlanta, Georgia 30305
Telephone: 404-237-4646
December ___, 2001
To Our Stockholders:
As you know, we announced our intention to wind down the operations of our
company, HomeCom Communications, Inc., in March of this year. In connection with
our plan to wind down our operations, a number of changes to our company have
occurred. We sold our InsureRate business in January, we sold our internet
banking group in March, and several of our directors and officers have departed.
In furtherance of our plan to wind down our operations, we are having a Special
Meeting of Stockholders of HomeCom Communications, Inc. to be held at the
Company's offices at 3495 Piedmont Road, Building 12, Suite 110, Atlanta,
Georgia 30305 on January __, 2002, at 10:00 a.m. local time. You are cordially
invited to attend this meeting.
We are seeking your approval of several proposals at the Special Meeting.
First, we will ask you to consider and vote upon a proposal to sell our
remaining hosting and web site maintenance business to Tulix Systems, Inc., a
company in which Timothy R. Robinson, Gia Bokuchava and Nino Doijashvili, who
are officers and directors of both the Company and Tulix, are the principal
shareholders. This business is our only operating business, and the sale of this
business will constitute a sale of substantially all of our operating assets.
We will also ask you to consider several amendments to our Certificate of
Incorporation. First, we will ask you to consider and vote upon a proposal to
amend the Company's Certificate of Incorporation to change the name of the
Company to "Prospect Technologies, Inc." Second, we will ask you to consider and
vote upon a proposal to amend the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock from 15,000,000 to
100,000,000. Third, we will ask you to consider and vote upon a proposal to
amend the Company's Certificate of Incorporation to allow corporate actions
requiring stockholder approval to be approved without a stockholder meeting by
fewer than all of the stockholders (currently, the Certificate of Incorporation
requires the written approval of all of the stockholders if the approval is
obtained without a stockholder meeting). And, fourth, we will ask you to
consider and vote upon a proposal to effect a reverse split of the Company's
common stock in a ratio of between 5-for-1 and 15-for-1, if and when the Board
of Directors determines that such a reverse split is in the best interests of
the Company.
Finally, we will ask you to consider the election of David Danovitch, Larry
Shatsoff, Michael Sheppard and Nino Doijashvili to the Board of Directors.
We urge you to carefully review the enclosed materials. Whether or not you
plan to attend the Special Meeting, we ask that you read the information on the
following pages and promptly submit your proxy card in the postage-paid envelope
provided. If you attend the Special Meeting, you may vote in person if you wish,
even though you have previously returned your proxy.
Your vote is very important, and we appreciate your cooperation in
considering and acting on the matters presented.
Sincerely,
-----------------------------
Timothy R. Robinson
Executive Vice President and
Chief Financial Officer
HOMECOM COMMUNICATIONS, INC.
3495 Piedmont Road
Building 12, Suite 110
Atlanta, Georgia 30305
Telephone: 404-237-4646
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY __, 2002
To the Stockholders of HomeCom Communications, Inc.:
Notice is hereby given that a Special Meeting of Stockholders of HomeCom
Communications, Inc., a Delaware corporation (the "Company"), will be held on
the ____ day of January, 2002 at 10:00 a.m., local time, at 3495 Piedmont Road,
Building 12, Suite 110, Atlanta, Georgia 30305 (the "Special Meeting") for the
following purposes:
1. To consider and vote upon the sale of substantially all of the assets of
the Company to Tulix Systems, Inc., an entity that is owned by Timothy R.
Robinson, Gia Bokuchava and Nino Doijashvili, who are directors and
officers of both the Company and Tulix.
2. To consider and vote upon a proposal to amend the Company's Certificate of
Incorporation to change the name of the Company to "Prospect Technologies,
Inc."
3. To consider and vote upon a proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of common stock
from 15,000,000 to 100,000,000.
4. To consider and vote upon a proposal to amend the Company's Certificate of
Incorporation to allow fewer than all of the stockholders to approve
corporate actions by written consent without a stockholder meeting.
Currently, the Certificate of Incorporation requires the written approval
of all of the stockholders if the approval is obtained without a
stockholder meeting.
5. To consider and vote upon a proposal to effect a reverse split of the
Company's common stock in a ratio between 5-for-1 and 15-for-1, if and when
the Board of Directors determines that such a reverse split is in the best
interests of the Company.
6. To elect David Danovitch, Larry Shatsoff, Michael Sheppard and Nino
Doijashvili to the Board of Directors.
7. To transact such other business as may properly come before the Special
Meeting or at any adjournments or postponements thereof.
The disinterested members of the board of directors recommend that you vote
"FOR" approval of the sale of assets, notwithstanding the fact that owners of
Tulix include three of our directors and officers, and the entire Board of
Directors recommends that you vote "FOR" approval of each of the amendments to
the Certificate of Incorporation, "FOR" approval of the proposed reverse split
of the Company's common stock, and "FOR" election of the nominees to the Board
of Directors.
You do not have the right, under Delaware law, to dissent from the proposed
actions.
A Proxy Statement describing the matters to be considered at the Special
Meeting is attached to this notice. Only Stockholders of record at the close of
business on December 28, 2001 (the "Record Date") are entitled to notice of, and
to vote at, the Special Meeting and at any adjournments thereof. A list of
Stockholders entitled to vote at the Special Meeting will be located at the
offices of the Company at 3495 Piedmont Road, Building 12, Suite 110, Atlanta,
Georgia 30305, no later than January __, 2002. That list will remain available
for inspection at the offices of the Company until the Special Meeting, and will
also be available for inspection at the Special Meeting.
To ensure that your vote will be counted, please complete, date and sign
the enclosed proxy card and return it promptly in the enclosed prepaid envelope,
whether or not you plan to attend the Special Meeting. Since proxies may be
revoked at any time, you may attend the Special Meeting and vote in person even
if you have previously returned a proxy.
By Order of the Board of Directors,
-----------------------------
Timothy R. Robinson
Executive Vice President and
Chief Financial Officer
December ___, 2001
PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL ENSURE THAT YOUR SHARES ARE VOTED IN
ACCORDANCE WITH YOUR WISHES.
HOMECOM COMMUNICATIONS, INC.
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PROXY STATEMENT FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY __, 2002
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The Board of Directors of HomeCom Communications, Inc., a Delaware
corporation ("HomeCom," the "Company," "we" or "us"), is furnishing this Proxy
Statement to you in connection with its solicitation of proxies to be voted at
the Special Meeting of Stockholders to be held on the ____ day of January, 2002
at 10:00 a.m., local time, at the offices of the Company, at 3495 Piedmont Road,
Building 12, Suite 110, Atlanta, Georgia 30305 and at any adjournments or
postponements thereof (the "Special Meeting"). This Proxy Statement and the
enclosed proxy are first being sent to Stockholders on or about December ___,
2001.
At the Special Meeting, we will ask you to:
(1) consider and vote upon a proposal to sell substantially all of the
assets of the Company to Tulix Systems, Inc. ("Tulix"), an entity in
which Timothy R. Robinson, Gia Bokuchava and Nino Doijashvili, who are
directors and officers of both the Company and Tulix, own all of the
outstanding shares of capital stock (the "Asset Sale").
(2) consider and vote upon a proposal to amend the Company's Certificate
of Incorporation to change the name of the Company to "Prospect
Technologies, Inc."
(3) consider and vote upon a proposal to amend the Company's Certificate
of Incorporation to increase the number of shares of common stock that
the Company is authorized to issue from 15,000,000 to 100,000,000.
(4) consider and vote upon a proposal to amend the Company's Certificate
of Incorporation to allow fewer than all of the stockholders to
approve actions by written consent without a stockholder meeting.
Currently, the Certificate of Incorporation requires the written
approval of all of the stockholders if the approval is obtained
without a stockholder meeting.
(5) consider and vote upon a proposal to effect a reverse split of the
Company's common stock at a ratio of between 5-for-1 and 15-for-1, if
and when the Board of Directors determines that such a reverse split
is in the best interests of the Company.
(6) elect the following persons to serve on the Board of Directors of the
Company: David Danovitch, Larry Shatsoff, Michael Sheppard and Nino
Doijashvili.
(7) transact such other business as may properly come before the Special
Meeting or at any adjournments or postponements thereof.
The Board of Directors recommends that you vote for each of these
proposals. Except for procedural matters, we do not know of any matters other
than those listed above that will be brought before the Special Meeting. If,
however, other matters are properly brought before the Special Meeting, we will
vote your proxy on those matters as determined by the person identified on the
proxy card as your proxy.
The principal executive offices of the Company are located at 3495 Piedmont
Road, Building 12, Suite 110, Atlanta, Georgia 30305 and the telephone number is
404-237-4646.
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YOU SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION INCLUDED IN THIS PROXY
STATEMENT AND ITS ATTACHMENTS BEFORE RETURNING YOUR PROXY.
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THE DATE OF THIS PROXY STATEMENT IS DECEMBER ___, 2001.
SUMMARY TERM SHEET
FOR PROPOSED SALE OF ASSETS
We have prepared a summary term sheet that highlights the material terms of
the Asset Sale. We have included page references to direct you to more complete
information which appears elsewhere in this document. A copy of the Asset
Purchase Agreement governing the Asset Sale is attached to this Proxy Statement
as Exhibit A (the "Sale Agreement"). You should read the Proxy Statement, the
Sale Agreement and the other documents attached to this Proxy Statement in their
entirety to fully understand the Asset Sale and its consequences to you.
o Parties to the Asset Sale (see page 4)
Tulix Systems, Inc., a newly-formed Georgia corporation, will purchase
substantially all of our operating assets. Timothy R. Robinson, Gia
Bokuchava and Nino Doijashvili, who are officers and directors of both
the Company and Tulix, own all of the outstanding shares of capital
stock of Tulix.
o Assets being sold (see page 4)
We are selling the assets used in our hosting and web site maintenance
business, representing substantially all of our operating assets.
o Payments by Tulix (see page 4)
Tulix will not pay us any cash to acquire these assets; instead, Tulix
will issue to us shares of Tulix common stock that will represent 15%
of the outstanding shares of Tulix. Tulix will also assume certain
obligations of ours, including certain accounts payable and lease
obligations relating to the hosting and web site maintenance business.
o No Operating Business of the Company following the Sale (see page 7)
Following the Asset Sale, our only assets will be the shares of Tulix
common stock issued to us in the Asset Sale and cash. We will have no
ongoing business operations. Consequently, we will not be able to
generate revenue, and we have no expectation of generating profits.
Moreover, we remain unable to satisfy our existing obligations to
creditors and the liquidation preferences of our preferred stock.
o Reasons for the Sale (see page 5)
The board of directors has determined that it is in the best interests
of the stockholders to sell our hosting and web site maintenance
business, even though the sale will leave us without any operating
assets, because this business is both unprofitable and unstable. We
have been unsuccessful in our previous attempts to dispose of this
business, and the board of directors believes that the proposed sale
to Tulix is the best course of action for us at this time. In
addition, the board of directors believes that there may be some value
in keeping the Company current in its reporting obligations under the
securities laws, although we can give you no assurance that we will
ever be able to realize any value in the Company or your shares.
o Management of the Company following the Sale (see page 7)
Mr. Robinson, Mr. Bokuchava and Ms. Doijashvili have indicated their
intent to resign their positions with us upon completion of the Asset
Sale. We will pay Messrs. Robinson and Bokuchava severance payments in
an aggregate amount of approximately $146,000 upon their resignations.
These are amounts that we would owe Messrs. Robinson and Bokuchava
under their employment agreements if we were to terminate them. If the
Asset Sale is completed and all of our current officers resign, we
will be left without any officers or employees. The Board may seek to
hire new officers, although there will be no business to manage and
the primary responsibility of the new management team will be to keep
the Company current in its reporting obligations under the securities
laws.
-i-
o No Payments or distributions to stockholders (see page 5)
You will not receive anything for the sale. We hope that through the
Asset Sale we will be able to preserve some value in the Company and
correspondingly some value in your shares, although we cannot offer
you any assurances that we will be able to achieve these objectives.
o Conditions of the Asset Sale (see page 5)
There are several conditions that, unless waived, the parties must
satisfy before either of them is obligated to complete the Asset Sale.
These include:
o Stockholders who hold a majority of our outstanding shares of
common stock must approve the Asset Sale;
o Third parties who have a contractual right to approve the
assignment of their contracts to Tulix must consent to such
assignment; and
o Other standard closing conditions must be satisfied or waived.
o Completion of the Asset Sale (page 5)
If the stockholders approve the Asset Sale at the Special Meeting, if
the closing conditions are satisfied or waived, and if the Sale
Agreement is not terminated, we intend to complete the Asset Sale as
soon as possible following the Special Meeting.
o U.S. federal income tax consequences of the Asset Sale to you (see
Page 7)
Since you will not be receiving anything in the Asset Sale, there will
not be any tax effect to you.
-ii-
PROXY AND VOTING INFORMATION
Who May Vote
Holders of record of HomeCom's common stock at the close of business on
December 28, 2001 may vote at the meeting or any adjournment or postponement of
the meeting. On December 28, 2001, ______ shares of our common stock were issued
and outstanding and held of record by approximately ___ stockholders. Each
stockholder is entitled to one vote per share.
How Do You Vote
You may vote by proxy or in person at the meeting. To vote by proxy, please
complete, sign, date and return your proxy card in the postage-paid envelope
that we have provided.
How Do Proxies Work
Giving your proxy means that you authorize us to vote your shares at the
Special Meeting in the manner you direct. If you sign, date and return the
enclosed proxy card but do not specify how to vote, we will vote your shares for
the sale of substantially all of our assets, for each amendment to the
Certificate of Incorporation, for authorization of the Board of Directors to
effect the proposed reverse stock split and for the election of the four
nominees of the Board of Directors as directors. We do not know of any other
matters that will be brought before the Special Meeting. If, however, other
matters are properly brought before the Special Meeting, we will vote your proxy
on those matters as determined by a majority of the Board of Directors.
How Do You Revoke a Proxy
You may revoke your proxy before it is voted by submitting a new proxy with
a later date, or by written notice to such effect to our Secretary at 3495
Piedmont Road, Building 12, Suite 110, Atlanta, Georgia 30305.
What Is a Quorum
In order to carry on the business of the meeting, we must have a quorum. A
quorum requires the presence, in person or by proxy, of the holders of a
majority of the votes entitled to be cast at the meeting. We count abstentions
and broker non-votes as present and entitled to vote for purposes of determining
a quorum. A broker non-vote occurs when you fail to provide voting instructions
to your broker for shares that your broker holds on your behalf in a nominee
name, which is commonly referred to as holding your shares in "street name."
Under those circumstances, your broker may be authorized to vote for you on some
routine items but is prohibited from voting on other items. Those items for
which your broker cannot vote result in broker non-votes.
How Many Votes Are Required to Approve Each Proposal
The affirmative vote of a majority of the outstanding shares of common
stock entitled to vote is necessary for approval of the Asset Sale and each
proposed amendment to the Certificate of Incorporation, including the proposed
reverse stock split. For this purpose, if you vote to "abstain" on these
proposals, your shares will have the same effect as if you voted against the
proposal. Broker non-votes also will have the same effect as a vote against the
proposal.
The four nominees for director receiving the greatest number of votes at
the meeting will be elected as directors. Abstentions and broker non-votes are
not counted for this purpose.
For all other matters that the stockholders vote upon at the meeting, the
affirmative vote of a majority of shares present in person or represented by
proxy, and entitled to vote on the matter, is necessary for approval.
Who will Tabulate the Votes
Persons appointed by the chairman of the Special Meeting to act as
inspectors of election for the Special Meeting will tabulate stockholders'
votes. The inspectors of election will count all shares represented and entitled
to vote on a proposal, whether voted for or against the proposal, or abstaining
from voting, as present and entitled to vote on the proposal. Accordingly, an
abstention from voting on the proposal by a stockholder present in person or
represented by proxy at the Special Meeting will have the same legal effect as a
vote against the matter, even though the stockholder may interpret an abstention
differently.
Who Pays for This Proxy Solicitation
Your proxy is being solicited by the Board of Directors. We will pay the
expenses of soliciting proxies. In addition to solicitation by mail, our
officers may solicit proxies in person or by telephone. We will also make
arrangements with brokerage houses and other custodians, nominees and
fiduciaries for forwarding solicitation materials to beneficial owners. We will
reimburse these persons for their reasonable expenses.
Dissenters' Rights
You do not have the right, under Delaware law, to dissent to the proposed
actions.
How Can You Submit a Stockholder Proposal for Next Year's Meeting
We provide all stockholders with the opportunity, under certain
circumstances, to participate in the governance of the Company by submitting
proposals that they believe merit consideration at the next annual meeting of
stockholders. Given our situation, we are unsure when our next annual meeting of
stockholders will be held. Nevertheless, to enable us to analyze and respond
adequately to proposals and to prepare appropriate proposals for presentation in
next year's proxy statement, you must submit your proposal to us no later than a
date that marks a reasonable period of time before we begin to print and mail
our proxy materials, to the attention of our Secretary, at our principal place
of business in Atlanta, Georgia. You may also submit the names of individuals
whom you wish to be considered by the Board of Directors as nominees for
directors. For each matter you intend to bring before the meeting, your notice
must include a brief description of the business you wish to be considered, any
material interest you have in that business and the reasons for conducting that
business at the meeting. The notice must also include your name and address and
the number of shares of our stock that you own. Any proposal for presentation at
our next annual meeting which is outside the processes of Rule 14a-8 under the
Securities Exchange Act of 1934 will be considered untimely for purposes of
Rules 14a-4 and 14a-5 if we receive it after a date that marks a reasonable
period of time before we begin to print and mail our proxy materials, to the
attention of our Secretary, at our principal place of business in Atlanta,
Georgia.
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Where Can You Find More Information About Us
We are subject to the informational requirements of the Exchange Act and
are required to file reports, proxy statements and other information with the
Securities and Exchange Commission. You may inspect and copy our reports, proxy
statements and other information at the Public Reference Section of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the Commission at 1-800-SEC-0330 for further information about the public
reference rooms. You may also obtain copies of the reports, proxy statements and
other information from the Public Reference Section of the Commission,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a
world-wide web site on the internet at http://www.sec.gov that contains reports,
proxies, information statements, and registration statements and other
information filed with the Commission through the EDGAR system.
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PROPOSAL 1 - SALE OF SUBSTANTIALLY ALL OF THE ASSETS
If the Asset Sale is approved, we intend to complete the sale of our
remaining hosting and web site maintenance business to Tulix, pursuant to the
terms of the Sale Agreement. The description of the Sale Agreement in this Proxy
Statement is a summary, remains subject to change, and it is qualified in its
entirety by the Sale Agreement, which is attached to this Proxy Statement as
Exhibit A.
Contact Information
HomeCom and Tulix are the parties to the proposed Asset Sale. The contact
information for us and Tulix, as of any time prior to the completion of the
Asset Sale, are set forth below:
HomeCom Communications, Inc.
3495 Piedmont Road
Building 12, Suite 110
Atlanta, Georgia 30305
Attention: Timothy R. Robinson
(404) 237-4646
Tulix Systems, Inc.
3495 Piedmont Road
Building 12, Suite 110
Atlanta, Georgia 30305
Attention: Timothy R. Robinson
(404) 237-4646
Business Conducted
Our ongoing business operations consist solely of our hosting and web site
maintenance business. Currently, this business unit represents our entire
business and is our sole source of revenue.
Description of Transaction
Under the Sale Agreement, Tulix will purchase all of the assets used in the
operation of our business, including intangible assets (including intellectual
property), machinery, equipment, contracts, receivables, and prepaid expenses.
As payment for these assets, Tulix will issue to us shares of Tulix common stock
representing 15% of the shares of Tulix common stock outstanding after we
complete the transaction. Tulix will also assume certain outstanding accounts
payable of the Company that pertain to our web development and hosting services
business. We will also assign to Tulix the lease for our primary office space at
3495 Piedmont Road, Building 12, Suite 100, Atlanta, Georgia 30305, although we
will remain liable for payments under the lease.
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The Sale Agreement is between the Company and Tulix. The Stockholders will
not receive anything in connection with the Asset Sale. We intend to use the
cash remaining after the Asset Sale to pay the expenses required to remain in
existence and to comply with our ongoing reporting obligations as a public
company under the Exchange Act. Consequently, we do not anticipate any
distributions to Stockholders in the foreseeable future.
The parties are not required to complete the Asset Sale unless it is
approved by the Stockholders as required under Delaware law and unless the other
conditions to closing set forth in the Sale Agreement are satisfied or waived.
These conditions include, among others, the requirement that all third parties
who have a contractual right to approve the assignment of their contracts to
Tulix must consent to such assignment. If the Stockholders approve the Asset
Sale, and if the conditions to closing are satisfied or waived, we expect to
close the Asset Sale promptly after the Special Meeting.
Background of the Sale and Reasons for Engaging in the Sale
On March 23 of this year, we announced our intention to wind down our
operations and, to the extent possible, sell our remaining assets. We announced
our intentions to wind down our operations because our business was
unprofitable. We sold our Internet banking operations in March 2001 and our
InsureRate division in January 2001. The proposed Asset Sale represents the next
step in our process of winding down our operations.
Our sole remaining business, consisting of our hosting and web site
maintenance business, is both unprofitable and unstable. In 2000, this business
generated a net loss. This business has a small number of customers, and our
contract with our primary customer will expire on December 31, 2001, unless it
is renewed by the customer prior to that date. In addition, the continued
viability of this business is dependent on the retention of the key employees
who operate the business. If any of these employees were to leave, their
departure could have a material adverse effect on our ability to operate the
business. Given these circumstances, and given that this business has been
unprofitable, the Board believes that it is in the best interests of the Company
to dispose of the business. So far, however, we have been unsuccessful in our
numerous efforts to dispose of this business. See "Past Contacts, Transactions
or Negotiations." Consequently, the Board has determined that the sale of the
business to Tulix is the only satisfactory option for the business at this time.
In addition, the Board of Directors believes that there may be some value
in keeping the Company current in its reporting obligations under the Exchange
Act, although we cannot give you any assurance that we will ever be able to
recognize this value.
Past Contacts, Transactions or Negotiations
In late 1999, we engaged Raymond James & Associates, Inc. to assist us in
locating persons either willing to provide financing to the Company or
interested in acquiring the Company. During 1999 and 2000, Raymond James &
Associates, Inc. contacted over 100 potential investors and acquirors and
explored various options to finance or sell the Company. In addition, during
this time, we independently contacted numerous potential investors and acquirors
and explored various options to finance or sell either all or parts of the
Company. While the results of these efforts were successful in leading to the
sale of our InsureRate division and our Internet banking operations, we have
been unsuccessful in our attempts to sell our hosting and web site maintenance
business.
5
In addition, our largest and primary customer had informed us that it was
unwilling to consent to the assignment of its contract with us unless our
principal officers and employees would continue to provide the services that
they were providing to that customer as employees of the Company. This
restriction further constrained our ability to sell the hosting and web site
maintenance business. By March of 2001, the Company's management believed that
it was highly unlikely that any party was prepared to provide capital or acquire
the remaining assets of the Company. The board of directors concluded that the
orderly winding down of the Company was the course of action that was in the
best interests of the stockholders. The board believed, and still believes, that
the hosting and web site maintenance business is unprofitable and unstable and
that there may be some value in keeping the Company current in its reporting
obligations under the securities laws, although we cannot give you any assurance
that we will ever be able to recognize this value.
In March of this year, we began discussions with representatives of the
holders of our Series C and E preferred stock, who shared our beliefs that: (1)
it was advisable to sell our hosting and web site maintenance business and (2)
there may be some value in keeping the Company current in its reporting
obligations under the Exchange Act after the sale of the business. Currently,
these persons are the beneficial owners of 90.479 shares of Series C preferred
stock and 106.35 shares of Series E preferred stock. (Assuming a market price of
$.01 per share of Common Stock, these shares of preferred stock would be
convertible into approximately 445,500,000 shares of our Common Stock, although
our Certificate of Incorporation contains a restriction that prevents a holder
of either Series C or Series E preferred stock from beneficially owning more
than 4.9% of the outstanding shares of our common stock at any one time).
During the course of our discussions with the preferred stockholders, Mr.
Robinson, Mr. Bokuchava and Ms. Doijashvili, the principal officers to which our
customer had referred, decided that they were interested in continuing to
perform services for our customer. Accordingly, we began discussions among Mr.
Robinson, Mr. Bokuchava and Ms. Doijashvili, and the representatives of the
preferred stockholders regarding a possible sale of the assets to Mr. Robinson,
Mr. Bokuchava and Ms. Doijashvili or an entity controlled by them. These
discussions have led us to negotiate the Sale Agreement with Tulix and have led
the board of directors to approve the Asset Sale.
Fairness To Stockholders
We will not obtain a fairness opinion with respect to the Asset Sale.
Conflicts of Interest; Interests of Certain Persons in Matters to be Acted Upon
As of December 28, 2001, Timothy R. Robinson, Gia Bokuchava and Nino
Doijashvili (each a director and officer of the Company) beneficially owned an
aggregate of 174,265 shares of Common Stock of the Company, or approximately
____ percent of the outstanding shares of Common Stock of the Company. As of
December 28, 2001, Mr. Robinson, Mr.Bokuchava and Ms. Doijashvili also
beneficially owned 100% of the outstanding capital stock of Tulix. In addition,
Mr. Robinson, Mr. Bokuchava and Ms. Doijashvili are directors and officers of
both the Company and Tulix.
As such, the Asset Sale raises a number of potential conflicts of interest.
Mr. Robinson, Mr. Bokuchava and Ms. Doijashvili, as officers and directors of
both the Company and Tulix, have negotiated and will continue to participate in
the negotiation of the terms of the Asset Sale for both parties. Because these
officers and directors have a significant economic interest in Tulix, Mr.
Robinson, Mr. Bokuchava and Ms. Doijashvili recused themselves from the vote of
the Board of Directors on the approval of the Asset Sale. Mr. Robinson, Mr.
Bokuchava and Ms. Doijashvili will abstain from voting the shares of Common
Stock beneficially owned by them with respect to the approval of the Asset Sale.
6
Tax Consequences of the Sale
The Company believes that the Asset Sale will either be at the Company's
book value for those assets, or if there is any gain, the Company will be able
to apply tax loss carry forward to offset any taxable income. Consequently, the
Company does not expect that the Asset Sale will result in any taxes to the
Company. Since the stockholders will not be receiving anything directly in this
transaction, there should be no tax consequences to them from this sale.
Operation of the Business of the Company after the Sale
Because Tulix will acquire all of our ongoing operations, we will not have
any ongoing business operations upon completion of the sale. We expect that all
of our employees, including Mr. Robinson, Mr. Bokuchava and Ms. Doijashvili,
will resign from their positions with the Company upon completion of the sale in
order to work full-time for Tulix. The Board of Directors may search for new
executive officers, but we will have no business to operate and the primary
responsibility of any officer that we may hire will be to keep the Company
current in its reporting obligations under the Exchange Act. We may move our
executive offices following the Asset Sale, but we have no firm plans to do so
at this point.
Regulatory Approvals
To the best of our knowledge, the Company is not required to comply with
any Federal or state regulatory requirements or obtain approval from any Federal
or state agency in connection with the sale of assets described in this Proxy
Statement. The Company has not made any inquiries as to whether Tulix or any of
its principals is required to comply with any such requirements or obtain
approval from any such agencies.
Reports, Opinions Appraisals
The Company has not received any report, opinion or appraisal materially
relating to this transaction from an outside party.
Information About Tulix
Description of Business
Tulix is a newly-formed corporation that has been incorporated under the
laws of the State of Georgia. Tulix has informed the Company that as of the
Record Date (and on the date it signs the Sale Agreement), Tulix had no assets,
liabilities or business history and has been formed for the purpose of acquiring
the Assets. If the Asset Sale is completed, Tulix will own and operate the web
development and hosting services businesses that we now own and operate. Mr.
Robinson, Mr. Bokuchava and Ms. Doijashvili have advised the Company that as of
the Record Date (and on the date Tulix signs the Sale Agreement), they own in
the aggregate 100% of the outstanding capital stock of Tulix. Each will also be
a director and officer of Tulix. Mr. Robinson serves as a director and vice
president of Tulix. He is also a director of the Company and serves our
Executive Vice President and Chief Financial Officer. Mr. Bokuchava serves as a
director and the President of Tulix. He is also a director of the Company and
our Chief Technical Officer. Ms. Doijashvili serves as a director and vice
president of Tulix. She is also a director of the Company and our Director of
7
Technical Services. Mr. Robinson does not own any shares of Common Stock of the
Company, although he holds options to acquire 75,000 shares of our Common Stock;
Mr. Bokuchava beneficially owns 64,559 shares of Common Stock of the Company;
and Ms. Doijashvili beneficially owns 34,706 shares of Common Stock of the
Company. Each of Mr. Robinson, Mr. Bokuchava and Ms. Doijashvili has advised the
Company that he or she intends to abstain from voting on the Asset Sale. We
expect Mr. Robinson, Mr. Bokuchava and Ms. Doijashvili to resign from their
positions with the Company upon completion of the Asset Sale. If the Asset Sale
is completed, we have been informed that our four other employees also intend to
resign from the Company and go to work for Tulix. The Company has no other
information about Tulix, and does not anticipate that Tulix will provide any
additional information about the it to the Company.
Description of Property
At this time, Tulix does not have any office space. If the Asset Sale is
completed, we will assign to Tulix our lease for approximately 7,000 square feet
at 3495 Piedmont Road, Building 12, Suite 110, Atlanta, Georgia 30305, although
we will remain liable for rent payments under the lease. This lease expires in
October 2002.
Legal Proceedings
Tulix has informed us that it is not a party to any material legal
proceedings. From time to time, it may become involved in various routine legal
proceedings incidental to the conduct of our business.
Tulix Financial Statements
Tulix is a Georgia corporation that has been recently formed for the
purpose of acquiring the assets used in the hosting and web site maintenance
business of HomeCom. Because Tulix is a newly-formed entity, we have not
provided any financial information for Tulix. Tulix has been capitalized with
$20,000 and, if the Asset Sale is completed, will have assets consisting of the
assets acquired from HomeCom and $20,000.
Information About the Company
Description of Business
On March 23, 2001, we announced our intentions to wind down our operations.
If the Asset Sale is approved, we will sell our remaining operating assets to
Tulix. Upon completion of the sale, we will have no operating assets and no
source of revenue or profits.
History
HomeCom was organized in 1994 to provide complex web-based software
applications and integration services to businesses seeking to take advantage of
the Internet. Over time, we evolved into a Web design, financial applications
and solutions provider to the financial services market, including banking,
insurance, securities brokerage firms and other financially oriented web
portals.
8
Prior to and during 2000, we derived revenue from, among other sources,
professional web development services, software licensing, application
development, insurance and securities sales commissions, and hosting and
transactions fees. However, following our various divestitures, including the
sales of our InsureRate division and our Internet banking operations during
2001, we now derive revenue only from hosting and web site maintenance services.
On April 16, 1998, we acquired all of the outstanding capital stock of The
Insurance Resource Center, Inc. ("IRC") for 351,391 shares of our common stock.
IRC provides Internet development and hosting services to the insurance industry
and was incorporated into our FAST group. We wrote off the remaining goodwill
for IRC during 1999.
On June 9, 1998, we sold substantially all of the assets of our HostAmerica
Internet network outsourcing services division to Sage Acquisition Corp.
("Sage") for cash of $4,250,000 and Sage's assumption of approximately $250,000
of unearned revenue. We recorded a gain on the sale of approximately $4,402,000.
This transaction allowed us to further consolidate our business focus on the
financial services market.
On November 6, 1998 we signed a definitive agreement and plan of merger to
acquire, among other things, all of the outstanding shares of First
Institutional Marketing, Inc. ("FIMI") and certain of our affiliates for
1,252,174 shares of common stock. In addition, we entered into employment
agreements for an initial term of 3 years with the three principals of FIMI,
calling for them to continue in their current roles for the acquired companies.
On March 24, 1999, we completed this acquisition. Prior to the closing of the
acquisition, we loaned the shareholders of FIMI $370,000 ("FIMI notes"). The
notes were to be repaid in either cash or common stock and were collateralized
by common stock. Additionally, the principal shareholders of FIMI were granted
300,000 warrants to acquire HomeCom common stock at an exercise price of $3.74
per share. Vesting of the warrants was contingent upon FIMI meeting certain
operating goals as defined in the agreement.
On April 23, 1999, HomeCom acquired all the outstanding shares of Ganymede
Corporation for total consideration of 185,342 shares of common stock and
$100,000 cash. Ganymede was a Chicago-based web site developer for financial
institutions. In addition, we entered into employment agreements with the three
principals of Ganymede, calling for them to continue in their current roles for
the acquired company.
On October 1, 1999 we sold our security consulting and integration service
operations for $200,000 in cash, certain security audit rights and shares of a
non-public entity originally valued at approximately $823,000, and entered into
a joint marketing program with the acquirer.
On January 31, 2001, we sold substantially all of the assets of FIMI and
its affiliates to Digital Insurance, Inc. ("Digital") for approximately $458,000
in cash and the assumption of certain liabilities. Additionally, the FIMI notes
were forgiven in exchange for the surrender of the common stock that
collateralized the notes and the warrants were forfeited.
On March 15, 2001, we sold substantially all of the assets used in our
Internet banking operations to Netzee, Inc. The sale generated net proceeds to
HomeCom of approximately $275,000.
9
Products and Services
Following the sale of our Internet Banking operations and our InsureRate
division, we had only one remaining operating business, our hosting and web site
maintenance business.
Sales and Marketing
We currently have no active marketing strategies or plans.
Intellectual Property Rights
In accordance with industry practice, we have relied primarily on a
combination of copyright, patent and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect our proprietary
rights. We have sought to protect our software, documentation and other written
materials principally under trade secret and copyright laws, which afford only
limited protection. We do not believe that any of our products infringe the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by us with respect to our products. In
addition, Web site developers such as ours face potential liability for the
actions of customers and others using their services, including liability for
infringement of intellectual property rights, rights of publicity, defamation,
libel fraud, misrepresentation, unauthorized computer access, theft, tort
liability and criminal activity under the laws of the United States, various
states and foreign jurisdictions. We routinely enter into non-disclosure and
confidentiality agreements with employees, vendors, contractors, consultants and
customers.
There can be no assurance that our means of protecting our proprietary
rights will be adequate or that our competitors will not independently develop
similar technology. We believe that, due to the rapid pace of Internet
innovation and related software industries, factors such as the technological
and creative skills of our personnel are more important in establishing and
maintaining a leadership position within the industry than are the various legal
protections of our technology.
Employees
As of November 30, 2001, we had 7 full-time employees. If the Asset Sale
is completed, we expect that all of these employees will resign from their
positions with us and go to work for Tulix. Such being the case, the Board of
Directors intends to search for new executive officers.
Customers
We have one principal customer, Time Warner Roadrunner. We will assign our
contract with this customer and our contracts with our other customers to Tulix
if the Asset Sale is completed. Consequently, we will not have any customers
following completion of the Asset Sale.
Insurance
We maintain liability and other insurance that we believe to be customary
and generally consistent with industry practice. We believe that such insurance
is adequate to cover potential claims relating to our existing business
activities.
10
Government Regulation
Except with regard to insurance and securities sales, as discussed below,
we do not believe that we are currently subject to direct regulation by any
government agency, other than regulations applicable to businesses generally,
and also believe that there are currently few laws or regulations directly
applicable to Web site service companies. The Federal Communications Commission
is studying the possible regulation of the Internet. Any such regulations
adopted by the Federal Communications Commission may adversely impact the manner
in which we conduct our business, our financial condition and our operating
results. Moreover, the applicability to the Internet of existing laws governing
issues such as property ownership, libel, and personal privacy is uncertain. We
cannot predict the impact, if any, that future regulation or regulatory changes
may have on our business. In addition, Web site developers such as us face
potential liability for the actions of customers and others using their
services, including liability for infringement of intellectual property rights,
rights of publicity, defamation, libel, fraud, misrepresentation, unauthorized
computer access, theft, tort liability and criminal activity under the laws of
the U.S., various states and foreign jurisdictions. Any imposition of liability
could have a material adverse effect on us.
In addition, our network services are transmitted to our customers over
dedicated and public telephone lines. These transmissions are governed by
regulatory policies establishing charges and terms for communications. Changes
in the regulatory environment relating to the telecommunications and media
industry could have an effect on our business, including regulatory changes
which directly or indirectly affect use or access of the Internet or increase
the likelihood or scope of competition from regional telephone companies, could
have a material adverse effect on us.
Of course, if the Asset Sale is completed, the matters discussed in this
section could adversely affect the value of our stock in Tulix.
We own, and prior to January 31, 2001, operated a NASD regulated
broker/dealer and were affiliated with various insurance agencies. These
subsidiaries and affiliates are subject to federal and state regulation of their
operations, including but not limited to, the Securities Act of 1933, the
Securities and Exchange Act of 1934 and various comparable state securities and
insurance laws and regulations.
Properties
As of November 30, 2001, we occupy approximately 7,000 square feet in one
office building in Atlanta, Georgia under a lease expiring in October 2002. This
facility serves as our headquarters and computer center. We intend to assign
this lease to Tulix if the Asset Sale is completed, although we expect that we
will remain jointly liable for payments under the lease. We believe that we will
be able to find suitable facilities following the completion of the Asset Sale
with no material adverse effect on the Company.
We have abandoned an office in New York City where we used to occupy
approximately 3,400 square feet under a lease expiring in January 2003. We have
accrued a real estate disposition liability of approximately $400,000 at
December 31, 2000, which we believe will be sufficient to settle all obligations
related to the closing and abandonment of our offices in New York and Atlanta.
11
Legal Proceedings
We are not a party to any material legal proceedings. From time to time, we
are involved in various routine legal proceedings incidental to the conduct of
our business.
SELECTED HISTORICAL FINANCIAL STATEMENTS
Accompanying this Proxy Statement are the copies of the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 and the Company's
quarterly report on Form 10-Q for the quarter ended September 30, 2001. The
financial statements included in these reports are incorporated in, and
constitute a part of, this Proxy Statement.
SELECTED FINANCIAL DATA
The following selected financial data of the Company should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes, all
of which are included in the copy of our Annual Report on Form 10-K for the year
2000 enclosed herewith.
Year Ended December 31,
----------------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------
Statement of Operations Data:
- -----------------------------
Revenues $ 2,229,975 $ 2,503,185 $ 2,481,905 $ 3,907,282 $ 4,509,977
Cost of revenues 775,435 2,139,982 2,085,598 951,406 2,722,309
------------ ------------ ------------ ------------ ------------
Gross profit 1,454,540 363,203 396,307 2,955,876 1,787,668
------------ ------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 962,220 1,440,002 1,142,222 2,878,303 1,944,020
Product development 78,887 514,655 633,268 315,809 321,259
General and administrative 909,230 2,538,229 2,896,287 3,765,514 1,182,192
Depreciation and amortization 85,068 238,537 542,269 1,757,124 1,605,345
Asset Impairment 1,436,078
------------ ------------ ------------ ------------ ------------
Total operating expenses 2,035,405 4,731,423 5,214,046 8,716,750 6,488,894
------------ ------------ ------------ ------------ ------------
Operating loss (580,865) (4,368,22) (4,817,739) (5,760,874) (4,701,226)
Other expenses (income):
Gain on sale of division (4,402,076)
Interest expense (income) 51,272 543,420 445,216 32,583 (5,981)
Other expense (income), net (6,554) (93,298) (166,917) (103,175) (90,793)
------------ ------------ ------------ ------------ ------------
Loss from continuing operations before (625,583) (4,818,34) (693,962) (5,690,282) (4,604,452)
income taxes
Income tax provision (benefit) -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Loss from continuing operations (625,583) (4,818,342) (693,962) (5,690,282) (4,604,452)
Loss from discontinued operations (62,839) (510,178) (4,630,508) (1,755,898)
Gain (loss) on disposal of business segment 1,144,591 (3,000,377)
------------ ------------ ------------ ------------ ------------
Net Loss (625,583) (4,881,181) (1,204,140) (9,176,199) (9,360,727)
Deemed preferred stock dividend -- (666,667) (2,557,466) (1,526,728)
------------ ------------ ------------ ------------ ------------
Loss applicable to common shareholders $ (625,583) $(4,881,181) $ (1,870,807) $(11,733,665) $(10,887,455)
============ ============ ============ ============ ============
Loss per common share--basic and diluted
Continuing operations $ (0.34) $ (1.86) $ (0.32) $ (1.30) $ (0.72)
Discontinued operations (0.02) (0.12) (0.56) (0.55)
------------ ------------ ------------ ------------ ------------
Total $ (0.34) $ (1.88) $ (0.44) $ (1.86) $ (1.27)
============ ============ ============ ============ ============
Weighted average common shares outstanding 1,862,223 2,602,515 4,287,183 6,324,791 8,549,693
============ ============ ============ ============ ============
--------------------------------------------------------------------
1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- -----------
Balance Sheet Data:
- -------------------
Working capital (deficit) $(1,304,682) $ 2,721,930 $ 2,265,725 $ 1,033,802 $ (823,406)
Total assets 1,726,522 4,664,779 4,565,490 10,535,718 2,528,973
Long-term obligations 147,833 1,652,009 88,242 315,275 357,757
Total liabilities 2,347,191 2,708,007 1,117,041 2,930,600 2,298,013
Redeemable Preferred stock 1,624,920 251,750
Stockholders' equity (deficit) (620,669) 1,956,772 3,448,449 5,980,198 (20,790)
PRO-FORMA FINANCIAL STATEMENTS
The tables below set forth the historical unaudited balance sheets and
results of operations for the Company for the fiscal year ended December 31,
2000, and the nine months ended September 30, 2001 and the balance sheet and
results of operations of the Company as of those dates on a pro-forma basis.
These unaudited pro-forma financial statements are not necessarily indicative of
results that actually would have occurred if the transaction had been in effect
as of and for the periods presented or the results that may be achieved in the
future. The adjustments related to the unaudited pro-forma balance sheet assume
the transaction was consummated at September 30, 2001, while adjustments to the
unaudited pro-forma statements of operations assume the transaction was
consummated at January 1, 2000. These statements should be read in conjunction
with the description of the proposed sale described elsewhere in this Proxy
Statement, and the financial statements of the Company included in the company's
Form 10-K for the year ended December 31, 2000, and the Company's form 10-Q for
the third quarter ended September 30, 2001, included as a part of Exhibit C to
this Proxy Statement.
12
HOMECOM COMMUNICATIONS, INC.
Unaudited Historical and Pro-forma Statements of Operations
Year Ended Nine Months Ended
December 31, 2000 September 30, 2001
----------------------------------------- -----------------------------------------
HOMECOM Pro-forma HOMECOM HOMECOM Pro-forma HOMECOM
Historical Adjustments Pro-forma Historical Adjustments Pro-forma
(1) (1)
----------- ----------- ----------- ----------- ----------- -----------
Revenues $ 4,509,977 $ 4,509,977 $ -- $ 929,010 $ 929,010 $ --
Cost of Revenues 2,722,309 2,722,309 -- 763,322 763,322 --
----------- ----------- ----------- ----------- ----------- -----------
GROSS PROFIT 1,787,668 1,787,668 -- 165,688 165,688 --
----------- ----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Sales and marketing 1,944,020 1,633,481 310,539 704 704 --
Product development 321,259 -- 321,259 -- -- --
General and administrative 1,182,192 521,147 661,045 596,494 486,495 109,999
Depreciation and amortization 1,605,345 1,605,345 -- -- -- --
Asset Impairment Charge 1,436,078 1,106,808 329,270 493,905 -- 493,905
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses 6,488,894 4,866,781 1,622,113 1,091,103 487,199 603,904
----------- ----------- ----------- ----------- ----------- -----------
OPERATING LOSS (4,701,226) (3,079,113) (1,622,113) (925,415) (321,511) (603,904)
OTHER EXPENSES (INCOME)
Interest expense (5,981) -- (5,981) -- -- --
Other income, net (90,793) -- (90,793) (144,766) -- (144,766)
----------- ----------- ----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (4,604,452) (3,079,113) (1,525,339) (780,649) (321,511) (459,138)
=========== =========== =========== =========== =========== ===========
LOSS PER SHARE - BASIC AND DILUTED $ (0.54) $ (0.36) $ (0.18) $ (0.08) $ (0.03) $ (0.05)
WEIGHTED NUMBER OF SHARES OUTSTANDING 8,549,693 8,549,693 8,549,693 9,359,156 9,359,156 9,359,156
Notes to Pro-forma Statements of Operations:
1. Historically, the Company was organized into five separate business
units. The Company's reportable segments were: custom Web development
(FAST), Internet outsourcing services (HostAmerica), Internet security
services (HISS), software products (PIB), and InsureRate/FIMI. On June
9, 1998, the Company sold substantially all of the assets of its
HostAmerica internet outsourcing services business unit to Sage
Acquisition Corp. On October 1, 1999 the Company sold all of its HISS
unit to Infrastructure Defense, Inc. On January 31, 2001 the Company
sold all of the assets of its InsureRate/FIMI unit to Digital
Insurance, Inc. On March 15, 2001 the company sold the remaining
assets of its PIB unit to Netzee, Inc. As such the only remaining
business represents hosting and web site maintenance services
(formerly included in FAST), with all other business units being
reported as discontinued operations. These Pro-forma Adjustments
represent the sale of the remaining business unit, FAST, leaving only
corporate general expenses, which were incurred to sustain public
corporate operations and were unrelated to FAST.
13
HOMECOM COMMUNICATIONS, INC.
Unaudited Historical and Pro-forma Balance Sheets as of September 30, 2001
HOMECOM Pro-forma HOMECOM
Historical Adjustments Pro-forma
(1) (2)
------------ ------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 394,051 $ -- $ 394,051
Accounts receivable, net 202,731 202,731 --
------------ ------------ ------------
Total current assets 596,782 202,731 394,051
Furniture, fixtures and equipment held for sale 81,755 81,755 --
------------ ------------ ------------
Total assets $ 678,537 $ 284,486 $ 394,051
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,288,933 $ -- $ 1,288,933
Accrued payroll liabilities 20,038 20,038 --
Current portion of obligations under capital leases 14,511 -- 14,511
------------ ------------ ------------
Total current liabilities 1,323,482 20,038 1,303,444
Other liabilities 5,385 5,385 --
Obligations Under capital Leases 6,347 -- 6,347
------------ ------------ ------------
Total liabilities 1,335,214 25,423 1,309,791
------------ ------------ ------------
Redeemable Preferred stock, Series B, $.01 par value, 125 shares authorized,
125 shares issued at September 30, 2001 and December 31, 2000 and 17.8
shares outstanding at September 30, 2001 and December 31, 2000,
convertible, participating; $401,147 liquidation value as of September 30, 2001 251,750 -- 251,750
------------ ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.0001 par value, 15,000,000 shares
authorized, 9,359,156 shares issued and outstanding at
September 30, 2001 and December 31, 2000 936 -- 936
Preferred stock, Series C, $.01 par value, 175 shares
issued and authorized, 92.1 shares outstanding at September 30, 2001 and
December 31, 2000, convertible, participating; $2,082,880 liquidation value
at September 30, 2001 1 -- 1
Preferred stock, Series D, $.01 par value, 75 shares issued
and authorized, 1.3 shares outstanding at September 30,
2001 and December 31, 2000, convertible, participating;
$28,931 liquidation value at September 30, 2001 1 -- 1
Preferred stock, Series E, $.01 par value, 106.4 shares
issued and authorized, 106.4 shares outstanding at September 30, 2001 and
December 31, 2000, convertible, participating; $2,375,946 liquidation value
at September 30, 2001 1 -- 1
Additional paid-in capital 24,724,570 -- 24,724,570
Retained earnings (accumulated deficit) (25,633,936) 259,063 (25,892,999)
------------ ------------ ------------
Total stockholder's equity (deficit) (908,427) 259,063 (1,167,490)
------------ ------------ ------------
Total liabilities and stockholder's equity $ 678,537 $ 284,486 $ 394,051
============ ============ ============
Notes to Pro-forma Balance Sheet:
1. Historically, the Company was organized into five separate business
units. The Company's reportable segments were: custom Web development
(FAST), Internet outsourcing services (HostAmerica), Internet security
services (HISS), software products (PIB), and InsureRate/FIMI. On June
9, 1998, the Company sold substantially all of the assets of its
HostAmerica internet outsourcing services business unit to Sage
Acquisition Corp. On October 1, 1999 the Company sold all of its HISS
unit to Infrastructure Defense, Inc. On January 31, 2001 the Company
sold all of the assets of its InsureRate/FIMI unit to Digital
Insurance, Inc. On March 15, 2001 the company sold the remaining
assets of its PIB unit to Netzee, Inc. As such the only remaining
business represents hosting and web site maintenance services
(formerly included in FAST), with all other business units being
reported as discontinued operations. The Pro-forma Adjustments
represent the sale of the remaining business unit, FAST.
14
FORWARD-LOOKING STATEMENTS
When used in this Proxy statement, the words "estimate," "project,"
"intend," "expect" and similar expressions are intended to identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this Proxy
Statement or as of the date of such other documents. Actual results may differ
materially from those contemplated in forward-looking statements and
projections. Important assumptions and factors that could cause actual results
to differ materially from those contemplated, projected, forecasted, estimated
or budgeted in, or expressed or implied by, projections and forward-looking
statements include industry trends, currency fluctuations, government fiscal and
monetary policy, general economic and business conditions. Other factors and
assumptions not identified above were also involved in the derivation of these
forward-looking statements, and the failure of such other assumptions to be
realized, as well as other factors, may also cause actual results to differ
materially from those projected. The Company assumes no obligation to update
such forward-looking statements or any projections to reflect actual results,
changes in assumptions or changes in other factors affecting such
forward-looking statements, except to the extent necessary to make such
statements and projections not misleading.
15
PROPOSAL 2: AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
CHANGE THE NAME OF THE COMPANY
The Board of Directors has adopted a resolution and recommends to the
Stockholders for their adoption and approval an amendment to the Company's
Certificate of Incorporation to change the name of the Company from "HomeCom
Communications, Inc." to "Prospect Technologies, Inc."
Purpose of Proposed Change of Name
We believe that the name change to "Prospect Technologies, Inc." will
better reflect the current and future business opportunities that exist for the
Company. In addition, because the Asset Sale will result in the disposition of
all of our remaining operations, we will no longer conduct any business that is
associated with the HomeCom Communications name. Accordingly, management
believes that a change of the corporate name to "Prospect Technologies, Inc." is
appropriate and recommends a vote for the adoption of the amendment to the
Certificate Incorporation.
Amendment to Certificate of Incorporation
If approved, Article I of our Certificate of Incorporation would be
restated in its entirety as follows:
"I.
The name of the Corporation is Prospect Technologies, Inc."
The form of amendment to the Certificate of Incorporation to amend Article
I of our Certificate of Incorporation changing the name from "HomeCom
Communications, Inc." to "Prospect Technologies, Inc." is included in Exhibit B
attached hereto.
Vote Required and Board Recommendation
The adoption and approval of the amendment to the Certificate of
Incorporation requires approval by a vote of the holders of a majority of all of
the outstanding shares of capital stock of the Company entitled to vote at the
Special Meeting of Stockholders (or the holders of a majority of the Common
Stock). If the amendment is approved by the Stockholders, the Board of Directors
intends to make the change effective at the earliest appropriate time consistent
with an orderly transition to the new name.
Upon the effective date of the name change we will take action to change
the stock trading symbol for our Common Stock. Stock certificates representing
the Common Stock issued prior to the effective date of the change in the
corporate name to "Prospect Technologies, Inc." will continue to represent the
same number of shares, remain authentic, and will not be required to be returned
to us or to our transfer agent for reissuance. New stock certificates issued
upon transfer of shares of Common Stock after the name change will bear the name
"Prospect Technologies, Inc.", and will have a new CUSIP number. Delivery of
existing stock certificates will continue to be accepted in transactions made by
a Stockholder after the corporate name is changed.
16
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDEMENT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION.
17
PROPOSAL 3: AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has approved, and is recommending to the
Stockholders for approval at the Special Meeting of Stockholders, an amendment
to the Company's Certificate of Incorporation to increase the number of shares
of Common Stock which we are authorized to issue from fifteen million
(15,000,000) shares to one hundred million (100,000,000) shares. The Board of
Directors has determined that this amendment is advisable and should be
considered at the Special Meeting of Stockholders.
Purposes and Effects of Proposed Increase in the Number of Shares of Common
Stock.
The proposed amendment would increase the number of shares of Common Stock
which we are authorized to issue from 15,000,000 shares to 100,000,000 shares.
The additional 85,000,000 shares would be part of the existing class of Common
Stock and, if and when issued, would have the same rights and privileges of the
shares Common Stock presently issued and outstanding. At December 28, 2001,
___________ shares of Common Stock were outstanding.
The Board of Directors believes it is desirable to increase the number of
shares of Common Stock we are authorized to issue by an additional 85,000,000
shares for several reasons. First, we currently do not have available a
sufficient number of authorized but unissued shares of common stock to support
conversion of our outstanding shares of Preferred Stock and the exercise of
outstanding options and warrants. As of September 30, 2001, the aggregate
liquidation value of the outstanding shares of our preferred stock was
approximately $4,887,757.00. If these outstanding shares of preferred stock were
to be converted into shares of common stock as of such date, we would be
obligated to issue in excess of 488,390,000 shares of common stock upon such
conversions. Such being the case, if our stock price remains at $.01 per share,
we will have insufficient authorized but unissued shares of common stock
available even if the proposed amendment is approved. Secondly, the proposed
increase will provide us with sufficient additional authorized but unissued
shares of Common Stock to issue in connection with such corporate purposes as
the Board of Directors may, from time to time, consider advisable. Having such
shares available for issuance in the future will give the Company greater
flexibility and will allow the Board of Directors to issue such shares without
the delay and expense of a special meeting of Stockholders to authorize such
issuance. The Company could issue shares in connection with acquisitions, stock
splits, stock dividends, the exercise of options granted under various stock
option and other employee benefit plans, equity financings or other
transactions. There are at present no specific understandings, arrangements or
agreements with respect to any future acquisitions that would require us to
issue a material amount of new shares of its Common Stock. The Board of
Directors believes that the currently available unissued shares (irrespective of
the proposed reverse stock split) do not provide sufficient flexibility for
corporate action in the future.
The increase in the number of shares of Common Stock that we are authorized
to issue will not have any immediate effect on the rights of existing
Stockholders. However, the Board of Directors will have the authority to issue
authorized Common Stock without requiring future Stockholder approval of such
issuances, except as may be required by the Certificate of Incorporation and
applicable law and regulations. To the extent that the additional authorized
shares of Common Stock are issued in the future, they will decrease the existing
Stockholders' percentage equity ownership and, depending upon the price at which
they are issued as compared to the price paid by existing Stockholders for their
shares, could be dilutive to our existing Stockholders. The holders of Common
Stock have no preemptive rights to subscribe for or purchase any additional
shares of Common Stock that may be issued in the future.
18
The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of the Company without further action by the
Stockholders. Shares of authorized and unissued Common Stock could (within the
limits imposed by applicable law) be issued in one or more transactions which
would make a change in control of the Company more difficult, and therefore less
likely. Any such issuance of additional stock could have the effect of diluting
the earnings per share and book value per share of outstanding shares of Common
Stock, and such additional shares of Common Stock could be used to dilute the
stock ownership or voting rights of a person seeking to obtain control of the
Company. The Board of Directors has not presented this proposal with the
intention that the increase in the authorized shares of Common Stock be used as
a type of antitakeover device.
Amendment to Certificate of Incorporation.
If approved, the first sentence of Article IV of our Certificate
Incorporation would be amended and restated in its entirety as follows:
"IV.
The total number of shares of capital stock which the Corporation
is authorized to issue is One Hundred One Million (101,000,000),
divided into two classes as follows:
(1) One Hundred Million (100,000,000) 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
("Preferred Stock")."
The Certificate of Incorporation will remain the same in all other respects. The
form of the amendment to the Certificate of Incorporation is included in Exhibit
B attached hereto.
Vote Required and Board Recommendation.
The affirmative vote of holders of a majority of the outstanding shares of
Capital Stock of the Company entitled to vote at the Special Meeting of
Stockholders (or the holders of a majority of our Common Stock) is required to
approve the proposed amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION.
Description of Capital Stock
Our authorized capital stock consists of 15,000,000 shares of common stock,
$.0001 par value, and 1,000,000 shares of preferred stock, $.01 par value. As of
December 28, 2001, there were outstanding _________ shares of common stock held
of record by _____ record holders. Of the authorized preferred stock, 20,000
shares have been designated series A convertible preferred stock, none of which
are presently outstanding, 125 shares have been designated series B convertible
preferred stock, 17.813 shares of which are presently outstanding and held by
three record holders, 175 shares have been designated series C convertible
preferred stock, 90.479 shares of which are presently outstanding and are held
by one record holder, and 75 shares have been designated series D convertible
preferred stock, 1.291 of which are presently outstanding and are held by one
record holder, and 107 shares have been designated series E convertible
preferred stock, 106.35 of which are presently outstanding and are held by one
record holder.
19
Common Stock
Holders of shares of common stock are entitled to one vote per share for
the election of directors and all matters to be submitted to a vote of the
stockholders. Subject to the rights of any holders of preferred stock, the
holders of shares of common stock are entitled to share ratably in any dividends
as may be declared by the board of directors out of legally available funds. In
the event of our dissolution, liquidation or winding up, holders of shares of
common stock are entitled to share ratably in all assets remaining after payment
of all liabilities and the aggregate liquidation preference of outstanding
shares of preferred stock. Holders of shares of common stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of common
stock are duly authorized, validly issued, fully paid and nonassessable.
Preferred Stock
Our restated certificate of incorporation authorizes the issuance of
preferred stock with designations, rights and preferences determined from time
to time by the board of directors. Accordingly, the board of directors is
empowered, without stockholder approval, to issue preferred stock with
dividends, liquidation, conversion, voting and other rights that could adversely
affect the voting power or other rights of the holders of common stock.
Series B Convertible Preferred Stock
Pursuant to our certificate of incorporation, the board has classified 125
shares of preferred stock as series B convertible preferred stock with the
rights, preferences, privileges and terms set forth in the certificate of
designations filed with the State of Delaware. Of the 125 shares authorized by
the board, 17.813 are currently outstanding. The stated value per share of the
series B preferred stock is $20,000. All shares of common stock are of junior
rank to all series B preferred shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution, and winding up.
The rights of the shares of common stock are subject to the preferences and
relative rights of the series B preferred shares. The series B preferred shares
will be of greater rank than any series of common or preferred stock issued by
us in the future. Without the prior express written consent of the holders of at
least a majority of the then outstanding series B preferred shares, we will not
authorize or issue capital stock that is of senior or equal rank to the series B
preferred shares regarding the preferences as to distributions and payments upon
our liquidation, dissolution and winding up. Without the prior express written
consent of the holders of not less than a majority of the then outstanding
series B preferred shares, we will not hereafter authorize or make any amendment
to our certificate of incorporation or bylaws, or make any resolution of the
board of directors with the Delaware Secretary of State containing any
provisions which would materially and adversely affect or impair the rights or
relative priority of the holders of the series B preferred shares relative to
the holders of the common stock or the holders of any other class of capital
stock. In the event of our merger or consolidation with or into another
corporation, the series B preferred shares will maintain their relative powers,
designations, and preferences, and no merger may result that is inconsistent
with this provision.
20
Holders of the series B preferred stock are not entitled to receive
dividends. If any series B preferred shares are outstanding, we may not, without
the prior express written consent of the holders of a majority of the then
outstanding series B preferred shares, directly or indirectly declare, pay or
make any dividends or other distributions upon any of the common stock unless
written notice thereof has been given to holders of the series B preferred
shares at least thirty days prior to the earlier of (a) the record date taken
for or (b) the payment of the dividend or other distribution. We may declare and
pay a dividend in cash with respect to the common stock so long as we pay
simultaneously to each holder of series B preferred shares an amount in cash
equal to the amount the holder would have received had all of the holder's
series B preferred shares been converted to common stock one business day before
the record date for the dividend, and after giving effect to the payment of any
dividend and any other required payments, including required payments to the
holders of the series B preferred shares, we have in cash or cash equivalents an
amount equal to the aggregate of:
o all of our liabilities reflected on our most recently available
balance sheet;
o the amount of any indebtedness incurred by us or any of our
subsidiaries since our most recent balance sheet; and
o 120% of the amount payable to all holders of any shares of any class
of preferred stock assuming a liquidation as the date of our most
recently available balance sheet.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up, the holders of the series B preferred shares will be entitled to
receive in cash out of our assets, whether from capital or from earnings
available for distribution to our stockholders, before any amount will be paid
to the holders of any of our capital stock of any class junior in rank to the
series B preferred shares in respect of the preferences as to the distributions
and payments on the liquidation, dissolution and winding up, an amount per
series B preferred share equal to the sum of (i) $20,000 and (ii) a premium of
5% per year of the stated value from the date of issuance of the series B
preferred stock; provided that, if the funds are insufficient to pay the full
amount due to the holders of series B preferred shares and holders of shares of
other classes or series of preferred stock that are of equal rank with the
series B preferred shares as to payments of this type, then each holder of
series B preferred shares and other preferred shares will share equally in the
available funds in accordance with their respective liquidation preferences. The
purchase or redemption by us of stock of any class in any manner permitted by
law will not be regarded as a liquidation, dissolution or winding up. Neither
our consolidation or merger with or into any other person, nor the sale or
transfer by us of less than substantially all of its assets will be deemed to be
a liquidation, dissolution or winding up.
The holders of series B preferred shares have no voting rights, except as
required by law, including the General Corporation Law of the State of Delaware.
Each share of series B preferred stock is convertible into the number of
shares of our common stock, equal to the stated value, or $20,000, plus a
premium of 5% per year of the stated value from the date of issuance of the
series B preferred stock, divided by the conversion price. The conversion price
is equal to the lesser of:
21
(1) the average closing bid prices of the common stock for any four
consecutive trading days during the twenty-five consecutive trading day
period ending on the day prior to the conversion; or
(2) $5.23.
As of September 30, 2001, the aggregate liquidation value of the shares of
series B preferred stock outstanding was approximately $400,000. If these shares
of series B preferred stock were to be converted into shares of common stock as
of such date, we would be obligated to issue in excess of 40,000,000 shares of
common stock upon such conversions.
Under the conversion price formula, there is no ceiling on the number of
shares of common stock into which the outstanding shares of series B preferred
stock can be converted. As a result, as the price of the common stock decreases,
the number of shares of common stock underlying the outstanding shares of series
B preferred stock continues to increase.
Under the conversion price formula, the series B preferred stock may, from
time to time, be convertible at a rate at or below the common stock's market
price. The lower the common stock's market price at the time a holder converts
his outstanding shares of series B preferred stock, the more shares of common
stock the holder will get in the conversion. To the extent a holder of shares of
series B preferred stock converts and then sells the shares of common stock, the
common stock's market price may decrease due to the additional shares in the
market, allowing the selling holder to convert other shares of series B
preferred stock into greater amounts of common stock, the sale of which could
further depress the market price for the common stock. The downward pressure on
the market price of the common stock as a holder of the series B preferred stock
converts and sells material amounts of common stock could encourage short sales
by other holders or others, placing further downward pressure on the market
price of the common stock. The conversion of the outstanding shares of series B
preferred stock may result in substantial dilution to the interest of other
common stockholders, since each holder of the outstanding shares of series B
preferred stock may ultimately convert and sell the full amount of common stock
issuable upon conversion.
The series B preferred stock is subject to redemption at our option at 120%
of the principal amount of the stock being redeemed. If any series B preferred
stock remain outstanding on March 24, 2002, all the shares will automatically be
converted into common stock.
No shares of the series B preferred stock may be converted if, following
such conversion, the holder of the shares would beneficially own in excess of
4.9% of the outstanding shares. Pursuant to the terms of the NASDAQ National
Market's Market Place Rule 4460(i), we have agreed with the holders of the
series B preferred stock that so long as we are subject to this rule or any rule
substantially similar to this rule, we will not issue more than 19.99% of the
common stock outstanding on the date the series B preferred stock was issued
upon conversion of the series B preferred stock in the absence of:
o the approval of the issuance by our stockholders; or
o a waiver by NASDAQ of the provisions of that rule.
22
We issued series B preferred stock totaling $2,500,000 on March 25, 1999.
The series B preferred stock investors were issued 125 shares of preferred
stock, having a stated value of $20,000 per share, and 225,000 warrants to
purchase common stock at $5.70 per share. We paid offering costs of $216,250
cash plus 25,000 warrants to purchase common stock at $5.70 per share, resulting
in net proceeds to us of $2,283,750 for the preferred shares and warrants.
Series C Convertible Preferred Stock
Pursuant to our certificate of incorporation, the Board has classified 175
shares of preferred stock as series C convertible preferred stock with the
rights, preferences, privileges and terms set forth in the certificate of
designations filed with the State of Delaware. Of the 175 shares authorized by
the Board, 90.479 shares are currently outstanding. The stated value per share
of the series C preferred stock is $20,000. All shares of common stock are to be
of junior rank to all series C preferred shares in respect to the preferences as
to distributions and payments upon our liquidation, dissolution, and winding up.
The rights of the shares of common stock are subject to the preferences and
relative rights of the series C preferred shares. Except for the series B
preferred stock, the series C preferred shares will be of greater rank than any
series of common or preferred stock issued by us in the future. Without the
prior express written consent of the holders of not less than a majority of the
then outstanding series C preferred shares, we will 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 our liquidation, dissolution and winding up. Without the prior
express written consent of the holders of not less than a majority of the then
outstanding series C preferred shares, we will not hereafter authorize or make
any amendment to the our certificate of incorporation or bylaws, or make any
resolution of the board of directors with the Delaware Secretary of State
containing any provisions which would materially and adversely affect or
otherwise impair the rights or relative priority of the holders of the series C
preferred shares relative to the holders of the common stock or the holders of
any other class of capital stock. In the event of our merger or consolidation
with or into another corporation, the series C preferred shares will maintain
their relative powers, designations, and preferences provided for herein, and no
merger may result that is inconsistent with this provision.
Holders of the series C preferred stock are not entitled to receive
dividends. If any series C preferred shares are outstanding, we may not, without
the prior express written consent of the holders of a majority of the then
outstanding series C preferred shares, directly or indirectly declare, pay or
make any dividends or other distributions upon any of the common stock unless
written notice has been given to holders of the series C preferred shares at
least thirty days prior to the earlier of (a) the record date taken for or (b)
the payment of the dividend or other distribution. We may declare and pay a
dividend in cash with respect to the common stock so long as we: (i) pay
simultaneously to each holder of series C preferred shares an amount in cash
equal to the amount the holder would have received had all of the holder's
series C preferred shares been converted to common stock one business day prior
to the record date for the dividend, and after giving effect to the payment of
any dividend and any other payments required in connection therewith, including
to the holders of the series C preferred shares, we have in cash or cash
equivalents an amount equal to the aggregate of:
o all of our liabilities reflected on our most recently available
balance sheet;
o the amount of any indebtedness incurred by us or any of our
subsidiaries since our most recent balance sheet;
o 120% of the amount payable to all holders of any shares of any class
of preferred stock assuming a liquidation as the date of our most
recently available balance sheet.
23
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up, the holders of the series C preferred shares will be entitled to
receive in cash out of our assets, whether from capital or from earnings
available for distribution to its stockholders, before any amount will be paid
to the holders of any of our capital stock of any class junior in rank to the
series C preferred shares in respect of the preferences as to the distributions
and payments on the liquidation, dissolution and winding up, an amount per
series C preferred share equal to the sum of (i) $20,000 and (ii) a premium of
6% per year of the stated value from the date of issuance of the series C
preferred stock; provided that, if the funds are insufficient to pay the full
amount due to the holders of series C preferred shares and holders of shares of
other classes or series of preferred stock that are of equal rank with the
series C preferred shares as to payments of this type, then each holder of
series C preferred shares and other preferred shares will share equally in the
available funds in accordance with their respective liquidation preferences. The
purchase or redemption by us of stock of any class in any manner permitted by
law will not be regarded as a liquidation, dissolution or winding up. Neither
our consolidation or merger with or into any other person, nor the sale or
transfer by us of less than substantially all of its assets will be deemed to be
a liquidation, dissolution or winding up.
The holders of series C preferred shares have no voting rights, except as
required by law, including, but not limited to, the General Corporation Law of
the State of Delaware.
The series C preferred stock has an initial stated value of $20,000 per
share, which increases at the rate of 6% per year. Each series C preferred share
is convertible, beginning 120 days following the date of issuance, at the option
of the holder, into the number of shares of common stock determined dividing the
stated value by the lower of (a) $5.875, and (b) 82.5% of the average of the
closing bid prices for the five trading days prior to the date of conversion.
Any series C preferred stock outstanding on July 22, 2002 will automatically be
converted into common stock at the conversion price then in effect.
As of September 30, 2001, the aggregate liquidation value of the shares of
series C preferred stock outstanding was approximately $2,082,880. If these
shares of series C preferred stock were to be converted into shares of common
stock as of such date, we would be obligated to issue in excess of 208,000,000
shares of common stock upon such conversions.
Under the conversion price formula, there is no ceiling on the number of
shares of common stock into which the outstanding shares of series C preferred
stock can be converted. As a result, as the price of the common stock decreases,
the number of shares of common stock underlying the outstanding shares of series
C preferred stock continues to increase.
Under the conversion price formula, the series C preferred stock will be
convertible at a rate at or below the common stock's market price. The lower the
common stock's market price at the time a holder converts his outstanding shares
of series C preferred stock, the more shares of common stock the holder will get
in the conversion. To the extent a holder of shares of series C preferred stock
converts and then sells the shares of common stock, the common stock's market
price may decrease due to the additional shares in the market, allowing the
selling holder to convert other shares of series C preferred stock into greater
amounts of common stock, the sale of which could further depress the market
price for the common stock. The downward pressure on the market price of the
common stock as a holder of the series C preferred stock converts and sells
material amounts of common stock could encourage short sales by other holders or
others, placing further downward pressure on the market price of the common
stock. The conversion of the outstanding shares of series C preferred stock may
result in substantial dilution to the interest of other common stockholders,
since each holder of the outstanding shares of series C preferred stock may
ultimately convert and sell the full amount of common stock issuable upon
conversion.
24
Through July 22, 2001, we had the right, under specified circumstances, to
prohibit holders of the Series C preferred stock from exercising any conversion
rights for up to 90 days. On August 2, 2000, we exercised that right by notice
to the holder of the series C preferred stock. We were required to compensate
the holders of the series C preferred stock in cash or in shares of common
stock.
At any time after the issuance date, we have the right, in our sole
discretion, to redeem, from time to time, any or all of the series C preferred
stock provided that specified conditions are met, including that we have cash,
credit or standby underwriting facilities available to fund the redemption. The
redemption price is 120% of the original purchase price.
No shares of the series C preferred stock may be converted if, following
such conversion, the holder of the shares would beneficially own in excess of
4.9% of the outstanding shares. Pursuant to the terms of the NASDAQ National
Market's Market Place Rule 4460 (i), we have agreed with the holders of the
series C preferred stock that so long as we are subject to this rule or any rule
substantially similar to this rule, we will not issue more than 19.99% of the
common stock outstanding on the date the series C preferred stock was issued
upon conversion of the series C preferred stock in the absence of:
o the approval of the issuance by our stockholders; or
o a waiver by NASDAQ of the provisions of that rule.
On July 28, 1999, we completed a private placement of $3,500,000 principal
amount of our series C convertible preferred stock and related warrants to
purchase up to 59,574 shares of common stock. The series C preferred stock and
warrants were sold in reliance on Rule 506 of the Securities Act, which provides
an exemption from registration for sales to accredited investors, as defined by
Rule 501 under Regulation D of the Securities Act.
Series D Convertible Preferred Stock
Pursuant to our certificate of incorporation, the board has classified 75
shares of preferred stock as Series D Convertible Preferred Stock with the
rights, preferences, privileges and terms set forth in the certificate of
designations filed with the State of Delaware. Of the 75 shares authorized by
the board, 1.291 shares are currently outstanding. The stated value per share of
the series D preferred stock is $20,000. All shares of common stock are to be of
junior rank to all series D preferred shares in respect to the preferences as to
distributions and payments upon our liquidation, dissolution, and winding up.
The rights of the shares of common stock are subject to the preferences and
relative rights of the series D preferred shares. Except for the series B
preferred stock and the series C preferred stock, the series D preferred shares
will be of greater rank than any series of common or preferred stock issued by
us in the future. Without the prior express written consent of the holders of
not less than a majority of the then outstanding series D preferred shares, we
will 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 our liquidation, dissolution
and winding up. Without the prior express written consent of the holders of not
less than a majority of the then outstanding series D preferred shares, we will
not hereafter authorize or make any amendment to our certificate of
incorporation or bylaws, or make any resolution of the board of directors with
the Delaware Secretary of State containing any provisions which would materially
and adversely affect or otherwise impair the rights or relative priority of the
holders of the series D preferred shares relative to the holders of the common
stock or the holders of any other class of capital stock. In the event of our
merger or consolidation with or into another corporation, the series D preferred
shares will maintain their relative powers, designations, and preferences
provided for herein, and no merger may result that is inconsistent with this
provision.
25
Holders of the series D preferred stock are not entitled to receive
dividends. If any series D preferred shares are outstanding, we may not, without
the prior express written consent of the holders of a majority of the then
outstanding series D preferred shares, directly or indirectly declare, pay or
make any dividends or other distributions upon any of the common stock unless
written notice thereof has been given to holders of the series D preferred
shares at least thirty days prior to the earlier of (a) the record date taken
for or (b) the payment of the dividend or other distribution. We may declare and
pay a dividend in cash with respect to the common stock so long as we: (i) pay
simultaneously to each holder of series D preferred shares an amount in cash
equal to the amount the holder would have received had all of the holder's
series D preferred shares been converted to common stock one business day prior
to the record date for the dividend, and after giving effect to the payment of
any dividend and any other payments required in connection therewith, including
to the holders of the series D preferred shares, we have in cash or cash
equivalents an amount equal to the aggregate of:
o all of our liabilities reflected on our most recently available
balance sheet;
o the amount of any indebtedness incurred by us or any of our
subsidiaries since our most recent balance sheet;
o 120% of the amount payable to all holders of any shares of any class
of preferred stock assuming a liquidation as the date of our most
recently available balance sheet.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up, the holders of the series D preferred shares will be entitled to
receive in cash out of our assets, whether from capital or from earnings
available for distribution to our stockholders, before any amount will be paid
to the holders of any of our capital stock of any class junior in rank to the
series D preferred shares in respect of the preferences as to the distributions
and payments on the liquidation, dissolution and winding up, an amount per
series D preferred share equal to the sum of (a) $20,000 and (b) a premium of 6%
per year of the stated value from the date of issuance of the series D preferred
stock; provided that, if the funds are insufficient to pay the full amount due
to the holders of series D preferred shares and holders of shares of other
classes or series of preferred stock that are of equal rank with the series D
preferred shares as to payments of this type, then each holder of series D
preferred shares and other preferred shares will share equally in the available
funds in accordance with their respective liquidation preferences. The purchase
or redemption by us of stock of any class in any manner permitted by law will
not be regarded as a liquidation, dissolution or winding up. Neither our
consolidation or merger with or into any other person, nor the sale or transfer
by us of less than substantially all of its assets will be deemed to be a
liquidation, dissolution or winding up.
26
The holders of series D preferred shares have no voting rights, except as
required by law, including, but not limited to, the General Corporation Law of
the State of Delaware.
The series D preferred stock has an initial stated value of $20,000 per
share, which increases at the rate of 6% per year. Each series D preferred share
is convertible, at the option of the holder, into the number of shares of common
stock determined by dividing the stated value by the lower of (a) $5.875, and
(b) 82.5% of the average of the closing bid prices for the five trading days
prior to the date of conversion. Any series D preferred stock outstanding on
September 27, 2002 will automatically be converted into common stock at the
conversion price then in effect.
As of September 30, 2001, the aggregate liquidation value of the shares of
series D preferred stock outstanding was approximately $28,931. If these shares
of series D preferred stock were to be converted into shares of common stock as
of such date, we would be obligated to issue in excess of 2,890,000 shares of
common stock upon such conversions.
Under the conversion price formula, there is no ceiling on the number of
shares of common stock into which the outstanding shares of series D preferred
stock can be converted. As a result, as the price of the common stock decreases,
the number of shares of common stock underlying the outstanding shares of series
D preferred stock continues to increase.
Under the conversion price formula, the series D preferred stock will be
convertible at a rate at or below the common stock's market price. The lower the
common stock's market price at the time a holder converts his outstanding shares
of series D preferred stock, the more shares of common stock the holder will get
in the conversion. To the extent a holder of shares of series D preferred stock
converts and then sells the shares of common stock, the common stock's market
price may decrease due to the additional shares in the market, allowing the
selling holder to convert other shares of series D preferred stock into greater
amounts of common stock, the sale of which could further depress the market
price for the common stock. The downward pressure on the market price of the
common stock as a holder of the series D preferred stock converts and sells
material amounts of common stock could encourage short sales by other holders or
others, placing further downward pressure on the market price of the common
stock. The conversion of the outstanding shares of series D preferred stock may
result in substantial dilution to the interest of other common stockholders,
since each holder of the outstanding shares of series D preferred stock may
ultimately convert and sell the full amount of common stock issuable upon
conversion.
Through September 27, 2001, we had the right, under specified
circumstances, to prohibit holders of the series D preferred stock from
exercising any conversion rights for up to 90 days. If we had exercised that
right, we would have been required to compensate the holders of the series D
preferred stock in cash or in shares of common stock.
At any time after the issuance date, we have the right, in our sole
discretion, to redeem, from time to time, any or all of the series D preferred
stock provided that specified conditions are met, including that we have cash,
credit or standby underwriting facilities available to fund the redemption. The
redemption price is 120% of the original purchase price after 120 days from the
issuance date.
27
No shares of the series D preferred stock may be converted if, following
such conversion, the holder of the shares would beneficially own in excess of
4.9% of the outstanding shares. Pursuant to the terms of the NASDAQ National
Market's Market Place Rule 4460 (i), we have agreed with the holders of the
series D preferred stock that so long as we are subject to this rule or any rule
substantially similar to this rule, we will not issue more than 19.99% of the
common stock outstanding on the date the series D preferred stock was issued
upon conversion of the series D preferred stock in the absence of:
o the approval of the issuance by our stockholders; or
o a waiver by NASDAQ of the provisions of that rule.
On September 28, 1999, we completed a private placement of $1,500,000
principal amount of our series D convertible preferred stock and related
warrants to purchase up to 25,000 shares of common stock. The series D preferred
stock and warrants were sold in reliance on Rule 506 of the Securities Act,
which provides an exemption from registration for sales to accredited investors,
as defined by Rule 501 under Regulation D of the Securities Act.
Series E Convertible Preferred Stock
Pursuant to our certificate of incorporation, the board has classified 107
shares of preferred stock as Series E Convertible Preferred Stock with the
rights, preferences, privileges and terms set forth in the certificate of
designations filed with the State of Delaware. Of the 107 shares authorized by
the board, 106.35 shares are currently outstanding. The stated value per share
of the series E preferred stock is $20,000. All shares of common stock are to be
of junior rank to all series E preferred shares in respect to the preferences as
to distributions and payments upon our liquidation, dissolution, and winding up.
The rights of the shares of common stock are subject to the preferences and
relative rights of the series E preferred shares. Except for the series B
preferred stock, the series C preferred stock, and the series D preferred stock,
the series E preferred shares will be of greater rank than any series of common
or preferred stock issued by us in the future. Without the prior express written
consent of the holders of not less than a majority of the then outstanding
series E preferred shares, we will 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 our
liquidation, dissolution and winding up. Without the prior express written
consent of the holders of not less than a majority of the then outstanding
series E preferred shares, we will not hereafter authorize or make any amendment
to the our certificate of incorporation or bylaws, or make any resolution of the
board of directors with the Delaware Secretary of State containing any
provisions which would materially and adversely affect or otherwise impair the
rights or relative priority of the holders of the series 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 our merger or consolidation with or into anther
corporation, the series E preferred shares will maintain their relative powers,
designations, and preferences provided for herein, and no merger may result that
is inconsistent with this provision.
Holders of the series E preferred stock are not entitled to receive
dividends. If any series E preferred shares are outstanding, we may not, without
the prior express written consent of the holders of a majority of the then
outstanding series E preferred shares, directly or indirectly declare, pay or
make any dividends or other distributions upon any of the common stock unless
written notice thereof has been given to holders of the series E preferred
shares at least thirty days prior to the earlier of (a) the record date taken
for or (b) the payment of the dividend or other distribution. We may declare and
pay a dividend in cash with respect to the common stock so long as we: (i) pay
simultaneously to each holder of series E preferred shares an amount in cash
equal to the amount the holder would have received had all of the holder's
series E preferred shares been converted to common stock one business day prior
to the record date for the dividend, and after giving effect to the payment of
any dividend and any other payments required in connection therewith, including
to the holders of the series E preferred shares, we have in cash or cash
equivalents an amount equal to the aggregate of:
28
o all of our liabilities reflected on our most recently available
balance sheet;
o the amount of any indebtedness incurred by us or any of our
subsidiaries since our most recent balance sheet;
o 120% of the amount payable to all holders of any shares of any class
of preferred stock assuming a liquidation as the date of our most
recently available balance sheet.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up, the holders of the series E preferred shares will be entitled to
receive in cash out of our assets, whether from capital or from earnings
available for distribution to our stockholders, before any amount will be paid
to the holders of any of our capital stock 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, an amount per
series E preferred share equal to the sum of (i) $20,000 and (ii) a premium of
8% per year of the stated value from the date of issuance of the series E
preferred stock; provided that, if the 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 that are of equal rank with the
series E preferred shares as to payments of this type, then each holder of
series E preferred shares and other preferred shares will share equally in the
available funds in accordance with their respective liquidation preferences. The
purchase or redemption by us of stock of any class in any manner permitted by
law will not be regarded as a liquidation, dissolution or winding up. Neither
our consolidation or merger with or into any other person, nor the sale or
transfer by us of less than substantially all of its assets will be deemed to be
a liquidation, dissolution or winding up.
The holders of Series E preferred shares have no voting rights, except as
required by law, including, but not limited to, the General Corporation Law of
the State of Delaware.
The series E preferred stock has an initial stated value of $20,000 per
share, which increases at the rate of 8% per year. Each series E preferred share
is convertible, at the option of the holder, into the number of shares of common
stock determined by dividing the stated value by the lower of (a) $3.53, and (b)
82.5% of the average of the closing bid prices for the five trading days prior
to the date of conversion. Any series E preferred stock outstanding on April 14,
2003 will automatically be converted into common stock at the conversion price
then in effect.
As of September 30, 2001, the aggregate liquidation value of the shares of
series E preferred stock outstanding was approximately $2,375,946. If these
shares of series E preferred stock were to be converted into shares of common
stock as of such date, we would be obligated to issue in excess of 237,500,000
shares of common stock upon such conversions.
29
Under the conversion price formula, there is no ceiling on the number of
shares of common stock into which the outstanding shares of series E preferred
stock can be converted. As a result, as the price of the common stock decreases,
the number of shares of common stock underlying the outstanding shares of series
E preferred stock continues to increase.
Under the conversion price formula, the series E preferred stock will be
convertible at a rate at or below the common stock's market price. The lower the
common stock's market price at the time a holder converts his outstanding shares
of series E preferred stock, the more shares of common stock the holder will get
in the conversion. To the extent a holder of shares of series E preferred stock
converts and then sells the shares of common stock, the common stock's market
price may decrease due to the additional shares in the market, allowing the
selling holder to convert other shares of series E preferred stock into greater
amounts of common stock, the sale of which could further depress the market
price for the common stock. The downward pressure on the market price of the
common stock as a holder of the series E preferred stock converts and sells
material amounts of common stock could encourage short sales by other holders or
others, placing further downward pressure on the market price of the common
stock. The conversion of the outstanding shares of series E preferred stock may
result in substantial dilution to the interest of other common stockholders,
since each holder of the outstanding shares of series E preferred stock may
ultimately convert and sell the full amount of common stock issuable upon
conversion.
Through April 14, 2002, we have the right, under specified circumstances,
to prohibit holders of the series E preferred stock from exercising any
conversion rights for up to 90 days. If we exercise that right, we are required
to compensate the holders of the series E preferred stock in cash or in shares
of common stock.
At any time after the issuance date, we have the right, in our sole
discretion, to redeem, from time to time, any or all of the series E preferred
stock provided that specified conditions are met, including that we have cash,
credit or standby underwriting facilities available to fund the redemption. The
redemption price is 120% of the original purchase price.
No shares of the series E preferred stock may be converted if, following
such conversion, the holder of the shares would beneficially own in excess of
4.9% of the outstanding shares. Pursuant to the terms of the NASDAQ National
Market's Market Place Rule 4460 (i), we have agreed with the holders of the
series E preferred stock that so long as we are subject to this rule or any rule
substantially similar to this rule, we will not issue more than 19.99% of the
common stock outstanding on the date the series E preferred stock was issued
upon conversion of the series E preferred stock in the absence of:
o the approval of the issuance by our stockholders; or
o a waiver by NASDAQ of the provisions of that rule.
On April 14, 2000, we completed a private placement of $2,127,000 principal
amount of our series E convertible preferred stock and related warrants to
purchase up to 66,667 shares of common stock. The series E preferred stock and
warrants were sold in reliance on Rule 506 of the Securities Act, which provides
an exemption from registration for sales to accredited investors, as defined by
Rule 501 under Regulation D of the Securities Act.
30
Pursuant to certain registration rights granted to the investors in the
private placement, we are obligated to file under the Securities Act the
registration statement of which this prospectus forms a part.
Warrants
In connection with the completion with the our initial public offering, we
granted to our underwriter, Ladenburg Thalmann & Co. Inc., the underwriter,
warrants to acquire 100,000 shares of the common stock at an exercise price of
$7.20 per share. The exercise price is subject to adjustment under specified
circumstances. The underwriter warrants expire on May 12, 2002, if not earlier
exercised.
31
In connection with the completion of the sale of series B convertible
preferred stock, we issued series B convertible preferred stock warrants. These
warrants represent the right to acquire an aggregate of 250,000 shares of common
stock, each with an exercise price per share equal to $5.70 per share. The
exercise price of these warrants is subject to adjustment under specified
circumstances. The series B convertible preferred stock warrants will expire on
March 24, 2004, if not earlier exercised.
In connection with the sale of the series C convertible preferred stock, we
issued series C preferred stock warrants. These warrants represent the right to
acquire an aggregate of up to 59,574 shares of common stock. The warrants expire
on July 27, 2004 and have an exercise price of $7.34 per share, subject to
adjustment. We also issued warrants to acquire an aggregate of 77,000 shares of
common stock having an exercise price per share equal to $5.813, subject to
adjustment. These warrants will expire on July 30, 2004.
In connection with the sale of the series D convertible preferred stock, we
issued series D preferred stock warrants. These warrants represent the right to
acquire an aggregate of up to 25,000 shares of common stock. The warrants expire
on September 27, 2004 and have an exercise price of $7.34 per share, subject to
adjustment.
In connection with the sale of the series E convertible preferred stock, we
issued series E preferred stock warrants. These warrants represent the right to
acquire an aggregate of up to 66,667 shares of common stock. The warrants expire
on April 14, 2005 and have an exercise price of $3.35 per share, subject to
adjustment.
32
PROPOSAL 4: AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
CHANGE THE STOCKHOLDER APPROVAL REQUIREMENTS
The Board of Directors has adopted a resolution and recommends to the
stockholders for their adoption and approval an amendment to the Company's
Certificate of Incorporation to allow fewer than all of the stockholders to
approve corporate actions by written consent without a stockholder meeting.
Currently, the Certificate of Incorporation requires the written approval of all
of the stockholders if the approval is obtained without a stockholder meeting.
Purpose of Proposed Amendment
Currently, our Amended and Restated Certificate of Incorporation allows our
stockholders to take action in one of two ways: (1) at an annual or special
meeting of the stockholders, or (2) without a meeting, by the written consent of
all of the stockholders. Obtaining the written consent of all of our
stockholders is very difficult. There were ____holders of record of our common
stock as of December __, 2001, and a number of those holders of record hold
shares in "street name" for the beneficial owners of those shares (and therefore
may not be authorized to take action on all matters on behalf of those
beneficial owners). Such being the case, holding a meeting of the stockholders
is our only practical mechanism for obtaining stockholder approval. We believe
that the proposed amendment would allow us, in situations where stockholders
holding the requisite number of shares have approved an action in writing, to
take that action without the delay and expense of convening a stockholder
meeting for the purpose of approving the action. The Board of Directors believes
that the time and expense saved by the proposed amendment could be better
utilized for other corporate purposes.
Amendment to Certificate of Incorporation
If approved, Article IX of our Certificate of Incorporation would be
restated in its entirety as follows:
"IX.
Action required to be taken or which may be taken at any Annual Meeting or
Special Meeting of the Stockholders of the Corporation may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
corporation by delivery to its registered office in the State of Delaware, to
its principal place of business, or to an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded."
The form of amendment to the Certificate of Incorporation to amend Article
IX of our Certificate of Incorporation is included in Exhibit B attached hereto.
Vote Required and Board Recommendation
The adoption and approval of the amendment to the Certificate of
Incorporation requires approval by a vote of the holders of a majority of all of
the outstanding shares of capital stock of the Company entitled to vote at the
Special Meeting of Stockholders (or the holders of a majority of the Common
Stock). If the amendment is approved by the Stockholders, the Board of Directors
intends to make the change effective at the earliest appropriate time.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDEMENT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION.
33
PROPOSAL 5: AUTHORIZATION FOR THE BOARD OF DIRECTORS TO CAUSE
A REVERSE SPLIT OF THE COMPANY'S COMMON STOCK
Proposed Amendment
Our Board of Directors has adopted a proposal, subject to Stockholder
approval, to amend our Certificate of Incorporation to effect a reverse stock
split in which the outstanding shares of Common Stock, referred to as "Old
Common Stock," will be combined and reconstituted as a smaller number of shares
of Common Stock, referred to as "New Common Stock," in a ratio of between five
(5) and fifteen (15) shares of Old Common Stock for each share of New Common
Stock. Our Board of Directors believes that, because it is not possible to
predict market conditions at the time the reverse stock split is to be
effectuated, it would be in the best interests of the Stockholders if the Board
of Directors were able to determine, within specified limits approved in advance
by the Stockholders, the appropriate reverse stock split ratio. Therefore, the
exact ratio will be determined by the Board of Directors based on prevailing
market conditions at the time the reverse stock split is effected. Stockholders
are being asked to approve a separate amendment to the Certificate of
Incorporation corresponding to each of the possible reverse split ratios between
5-for-1 and 15-for-1, with the Board of Directors, having the authority to give
its final approval to only one of such amendments. The form of the amendment to
the Certificate of Incorporation is included in Exhibit B attached hereto.
By approving the proposed amendment, the Stockholders will authorize the
Board of Directors to implement the reverse split at any time on or before
December 31, 2002 or to abandon the reverse split at any time. If the amendment
has not been filed with the Delaware Secretary of State by the close of business
on the foregoing date, the Board of Directors will either resolicit Stockholder
approval or abandon the reverse split.
Purposes and Effects of the Reverse Stock Split.
The purposes of the reverse stock split are to reduce the number of shares
of our Common Stock outstanding and, potentially, to increase the per share bid
price of our Common Stock, although it is possible that this effect may not be
realized and that the aggregate value of the common stock will, in fact,
decrease. The Company's Common Stock is traded on the OTC Bulletin Board. As of
December 28, 2001, the Company had [________] outstanding shares of Common Stock
and the bid price of the Company's Common Stock was [_______]. The immediate
effect of the reverse stock split will be to decrease the number of shares of
Common Stock outstanding from approximately [_____________] shares to between
approximately [____________] shares and approximately [___________] shares. In
addition, the reverse split will result in a proportionate decrease in the
number of shares authorized for issuance under our stock option plans and the
number of shares of Common Stock issuable upon exercise of outstanding options,
and a proportionate increase in the exercise prices of outstanding options. The
reverse stock split will also effect a similar proportionate reduction in the
number of shares issuable upon exercise of outstanding warrants and a
proportionate increase in the exercise prices of outstanding warrants, and a
proportionate reduction in the number of shares of common stock into which our
preferred stock is convertible.
Stockholders should note that a 5-for-1 through 15-for-1 reverse stock
split of the Company's Common Stock will not guarantee that the bid price of the
company's Common Stock, after the reverse split will be higher than the present
bid price. In fact, it is possible that the aggregate market value of the common
stock could decrease following the reverse split. In addition, stockholders who
will own less than 100 shares of the Company's Common Stock after the reverse
stock split may incur higher brokerage costs if they sell their shares.
34
As of December 28, 2001, the Company estimates that it has approximately
[______] holders of record of its Common Stock, which amount includes shares of
Common Stock held by central securities depositories and broker firms which
typically hold securities as nominees for their customers.
The reverse split will not alter the number of shares of common stock that
we are authorized to issue, but will only reduce the number of shares of common
stock issued and outstanding.
The shares of New Common Stock will be fully paid and non-assessable. The
amendment will not change the terms of our Common Stock. The shares of New
Common Stock will have the same voting rights and rights to dividends and
distributions and will be identical in all other respects to the Common Stock
now authorized. If a reverse stock split is implemented, the number of shares of
the Company's Common Stock owned by each Stockholder would be reduced in the
same proportion as the reduction in the total number of shares of Common Stock
outstanding. Therefore, no Stockholder's percentage ownership of Common Stock
will be altered, except for the effect of rounding fractional shares.
Also, because the reverse split will result in fewer shares of our common
stock outstanding, the per share loss, per share book value, and other "per
share" calculations will be increased.
Amendment to Certificate of Incorporation
If approved the following paragraph would be inserted at the end of the
second paragraph of Article IV of the Amended and Restated Certificate of
Incorporation:
"Each ( ) shares of the Common Stock issued as of the date and
time immediately preceding [INSERT DATE UPON WHICH ARTICLES OF
AMENDMENT ARE FILED], the effective date of a reverse stock split (the
"Split Effective Date"), shall be automatically changed and
reclassified, as of the Split Effective Date and without further
action, into one (1) fully paid and non-assessable share of the Common
Stock; provided, however, that any fractional interest resulting from
such change and reclassification shall be rounded upward to the
nearest whole share. Share interests due to rounding are given solely
to save expense and inconvenience of issuing fractional shares and do
not represent separately bargained for consideration. Each holder of
record of a certificate or certificates which immediately prior to the
Split Effective Date represents outstanding shares of Common Stock
(the "Old Certificates," whether one or more) shall be entitled to
receive upon surrender of such Old Certificates to the Corporation's
transfer agent for cancellation, a certificate or certificates (the
"New Certificates," whether one or more) representing the number of
whole shares of Common Stock into and for which the shares of the
Common Stock formerly represented by such Old Certificates so
surrendered, are reclassified under the terms hereof. From and after
the Split Effective Date, Old Certificates shall represent only the
right to receive New Certificates pursuant to the provisions hereof."
Vote Required and Board of Directors' Recommendation.
The affirmative vote of the holders of a majority of the outstanding
Capital Stock entitled to vote at the Special Meeting of Stockholders (or the
holders of a majority of our Common Stock) is required to approve the proposed
amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
ASSUMING THE PROPOSAL IS APPROVED BY THE STOCKHOLDERS, THE COMPANY'S BOARD OF
DIRECTORS INTENDS TO IMPLEMENT THE PROPOSAL IF, IN ITS DISCRETION, IT DETERMINES
IT TO CONTINUE TO BE IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS.
NOTWITHSTANDING STOCKHOLDER APPROVAL OF THE REVERSE STOCK SPLIT, THE BOARD OF
DIRECTORS MAY, IN ITS DISCRETION, DELAY IMPLEMENTATION OF THE REVERSE STOCK
SPLIT OR ABANDON IT ALTOGETHER IF IT DEEMS SUCH ACTION TO BE IN THE BEST
INTEREST OF THE COMPANY.
Effectiveness of the Reverse Stock Split.
If this proposal is approved by Stockholders, and if the Board determines
to proceed with the reverse split, management intends to file the amendment to
our Certificate of Incorporation with the Delaware Secretary of State promptly
after the Board of Directors approves the final conversion ratio and complies
with applicable requirements, upon which the reverse split will become
effective. Upon the filing of the amendment, all the Old Common Stock will be
converted into New Common Stock as set forth in the amendment. Even if the
reverse stock split is approved by Stockholders, our Board of Directors has
discretion to decline to carry out the reverse split if it determines for any
reason that the reverse split will not be in our best interests. If the reverse
split is not implemented on or before December 31, 2001, the Board of Directors
will either resolicit stockholder approval or abandon the reverse split.
35
Certificates and Fractional Shares.
As soon as practicable after the effective date, we will request that all
Stockholders return their stock certificates representing shares of Old Common
Stock outstanding on the effective date in exchange for certificates
representing the number of whole shares of New Common Stock into which the
shares of Old Common Stock have been converted as a result of the reverse stock
split. Each Stockholder will receive a letter of transmittal from our transfer
agent containing instructions on how to exchange certificates. Stockholders
should not submit their old certificates to the transfer agent until they
receive these instructions on how to exchange certificates. In order to receive
new certificates, stockholders must surrender their old certificates in
accordance with the transfer agent's instructions, together with the properly
executed and completed letter of transmittal.
Beginning with the effective date, each old certificate, until exchanged as
described above, will be deemed for all purposes to evidence ownership of the
number of whole shares of New Common Stock into which the shares evidenced by
the old certificates have been converted.
Any fractional shares resulting from the reverse stock split will be
rounded upward to the nearest whole share.
Federal Income Tax Consequences.
The following discussion of the material federal income tax consequences of
the proposed reverse stock split is based upon the Internal Revenue Code of
1986, as amended, Treasury regulations thereunder, judicial decisions and
current administrative rulings and practices, all as in effect on the date
hereof and all of which could be repealed, overruled or modified at any time,
possibly with retroactive effect. No ruling from the Internal Revenue Service
(the "IRS") with respect to the matters discussed herein has been requested and
there is no assurance that the IRS would agree with the conclusions set forth in
this discussion. This discussion may not address certain federal income tax
consequences that may be relevant to particular Stockholders in light of their
personal circumstances (such as persons subject to alternative minimum tax) or
to certain types of Stockholders (such as dealers in securities, insurance
companies, foreign individuals and entities, financial institutions and
tax-exempt entities) that may be subject to special treatment under the federal
income tax laws. This discussion also does not address any tax consequences
under state, local or foreign laws.
STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE REVERSE STOCK SPLIT, INCLUDING THE APPLICABILITY OF
ANY STATE, LOCAL, OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE TAX LAWS, AND ANY
PENDING OR PROPOSED LEGISLATION.
36
Tax Consequences to the Company
The Company should not recognize any gain or loss as a result of the
reverse stock split.
Tax Consequences to Stockholders Generally
No gain or loss should be recognized by a stockholder who receives only the
Company's Common Stock as a result of the reverse stock split.
Stockholder's Tax Basis in Share of Common Stock Split
Except as provided above with respect to fractional shares, the aggregate
tax basis of the shares of Common Stock held by a Stockholder following the
reverse stock split will equal the Stockholder's aggregate basis in the shares
of Common Stock held immediately prior to the reverse stock split and generally
will be allocated amount the shares of the Company's Common Stock held following
the reverse stock split on a pro rata basis. Stockholders who have used the
specific identification method to identify their basis in shares of Common Stock
combined in the reverse stock split should consult their own tax advisors to
determine their basis in the post-reverse stock split shares that they will
receive in exchange therefor.
37
PROPOSAL 6: 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 directors, 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
six directors, divided into three classes of directors serving staggered
three-year terms. At the Special Meeting, two directors will be elected to Class
I and two directors will be elected to Class III, each for a three-year term. As
described below, the Board of Directors' nominees to serve as Class I directors
are David Danovitch and Nino Doijashvili, and the nominees to serve as Class III
directors are Larry Shatsoff and Michael Sheppard.
Unless otherwise instructed on the proxy, properly executed proxies will be
voted for the election of David Danovitch, Larry Shatsoff and Michael Sheppard
as directors. The Board of Directors believes that such nominees will stand for
reelection and will serve if elected. However, if any of them fails to stand for
reelection or is unable to accept reelection, 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 elected by a plurality of the
votes cast at the Special Meeting. There are no cumulative voting rights in the
election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ITS NOMINEES FOR
DIRECTOR.
Information as to Nominees, Continuing Directors and Executive Officers
The names and ages of the director nominees and the other directors and
executive officers of the Company as of November 30, 2001 and terms of office
(in the case of directors) are as follows:
Term as Director
Director Nominees Age Position Expires
- ----------------- --- -------- ----------------------
David Danovitch 39 Not an officer Not applicable
Larry Shatsoff 47 Not an officer Not applicable
Michael Sheppard 51 Not an officer Not applicable
Nino Doijashvili, Ph.D. 39 Director of Technical At the Special Meeting
Services and Director
Other Directors and
Executive Officers
- ------------------
Gia Bokuchava, Ph.D. 38 Chief Technical Officer 2002 (current term)
and Director
Timothy R. Robinson 38 Executive Vice President, 2002 (current term)
Chief Financial Officer
and Director
38
Recent Resignations
William Walker resigned from his position as a member of the Board of
Directors in September 2000. In November of 2000, Claude A. Thomas and Daniel A.
Delity resigned from their positions as members of the Board (Dr. Doijashvili
was named to the Board in April 2001 to fill Mr. Thomas' position and Mr.
Danovitch was named to the Board in November 2001 to fill Mr. Delity's position,
until such positions expire). In December of 2000, James Wm. Ellsworth resigned
as a member of the Board (in November 2001, Mr. Shatsoff was named to the Board
to fill Mr. Ellsworth's position until such position expires). Roger Nebel
resigned from his position as a member of the Board in February 2001 (Mr.
Robinson was named to the Board in March 2001 to fill Mr. Nebel's position until
Mr. Nebel's term expires). Harvey Sax resigned from the Board effective March
29, 2001 (in November 2001, Mr. Sheppard was named to the Board to fill Mr.
Sax's position until such position expires).
The Board is divided into three classes, each of which serves a three-year
term. The Class I directors (Dr. Doijashvili, and Mr. Danovitch, formerly Mr.
Thomas, Mr. Walker and Mr. Delity) were to serve until the 2001 Annual Meeting
of Stockholders. However, because we never had a 2001 Annual Meeting of
Stockholders, they have been nominated for election at the Special Meeting. The
Class II directors (Dr. Bokuchava and Mr. Robinson, formerly Mr. Nebel) will
serve until the 2002 Annual Meeting of Stockholders. The Class III directors
(formerly Messrs. Sax and Ellsworth) were to serve until the 2000 Annual Meeting
of Stockholders. However, because we never held the 2000 Annual Meeting of
Stockholders, these individuals remained in office until they resigned. Thus, we
are electing two Class I and two Class III Directors at the Special Meeting. The
Class I nominees, if elected, will serve until the 2004 Annual Meeting of
Stockholders and the Class III nominees, if elected, will serve until the 2003
Annual Meeting of Stockholders. Please note, however, that we expect Mr.
Robinson, Mr. Bokuchava and Dr. Doijashvili to resign from the Board of
Directors if we complete the Asset Sale. This would leave us with one Class I
director (David Danovitch), no Class II directors, and two Class III directors
(Messrs. Shatsoff and Sheppard).
Background of our Director Nominees, Directors and Executive Officers
Gia Bokuchava, Ph.D., has served as our 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, Tbilisi, 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,
Tbilisi, in 1990. Dr. Bokuchava has been a member of the Board of Directors
since September 1996.
Timothy R. Robinson has served as our Executive Vice President, Chief
Financial Officer since August 2000. Prior to joining the Company, Mr. Robinson
served as Vice President and Chief Financial Officer of Tanner's Restaurant
Group, Inc. from December of 1996 until January of 2000. Mr. Robinson, a
Certified Public Accountant, served as a senior manager with the firm that is
now known as PricewaterhouseCoopers, LLP from June 1986 to December 1996. Mr.
Robinson graduated from Georgia State University with a Bachelor of Business
Administration, Accounting. Mr. Robinson has been a member of the Board since
March 2001.
39
Nino Doijashvili, Ph.D., has served as our Director of Technical Services
since December of 1997. Prior to that Dr. Doijashvili served as one of our
Senior Software Engineers from September 1995 until December 1997. Dr.
Doijashvili served as a visiting professor at Emory University from February
1995 until September 1995. From September 1989 until February 1995, Dr.
Doijashvili was an Associate Professor at the Georgia Technical University,
Tbilisi, Georgia (formerly a part of the Soviet Union) teaching CAD/CAM systems
and computer science. Dr. Doijashvili received a doctorate in Computer Science
from Moscow Technical University, Russia in February 1989. Dr. Doijashvili has
been a member of the Board since April 2001.
David Danovitch, 39, is currently a Senior Partner of NewWest Associates,
LLC, an international firm specializing in business consultancy, Del Rey
Investments, LLC., a merchant banking firm, and NewWest Films, a feature film
production and finance concern. The companies are involved with a variety of
enterprises throughout the world in a variety of industries, including
technology, medical device, entertainment, and energy concerns. Prior to joining
NewWest and Del Rey, Mr. Danovitch was a Managing Director of Cambridge
Partners, a merchant bank with $1.7 billion under management, which focused on
misunderstood or mis-financed companies and assets. Prior to joining Cambridge,
he was a founding principal of Snowden Capital, Inc., a New York City-based
investment banking and direct investment firm focused on serving the corporate
finance needs of middle market companies. Mr. Danovitch received a bachelor of
arts from Kenyon College in 1984, a juris doctor from Suffolk University Law
School in 1987, and an L.L.M. in Taxation from Boston University School of Law
in 1988. He is a member of the District of Columbia, Massachusetts, and New York
bar associations. His honors include having been named by the American Banker -
the primary industry publication - as one of the "50 Most Influential People in
Banking" in 1990. Throughout his career, he has been a speaker at many seminars
and conferences covering a range of issues in a variety of industry and has
served on several boards of directors of both for-profit and not-for-profit
concerns, including, among others, the boards of Imaging Diagnostic Systems,
Inc, Renaissance, Inc., Milestone Pictures, Vidikron of America, Inc., and Great
Clips Mid-Atlantic Regional Companies, Inc. Mr. Danovitch also serves as a
director of Imaging Diagnostic Systems, Inc. and Markland Technologies, Inc.
Lawrence Shatsoff, 47, is President of Markland Technologies, Inc., a
technology company involved in the sale and marketing of home theater products,
and serves on the board of directors of Markland. Prior to becoming President of
Markland in June 2001, Mr. Shatsoff served from June 2000 to April 2001 in
various executive capacities and as a director of Corzon, Inc., a
telecommunications company. From 1995 to 2000, Mr. Shatsoff was the Vice
President and Chief Operations Officer of DCI Telecommunications, Inc. From 1991
to 1994 he served as Vice President and Chief Operations Officer of Alpha
Products, a computer circuit board sales and manufacturing company. Mr. Shatsoff
graduated in 1975 from Rider College with a B.S. Degree in Decision Sciences and
Computers.
Michael Sheppard, 51, is the President of Technest Holdings, Inc. Mr.
Sheppard joined Technest in 1997 and heads up the day-to-day strategy of
Technest. Prior to joining Technest, Mr. Sheppard was the Chief Operating
Officer of Freelinq Communications, a provider of real time video-on-demand via
ATM/XDSL technology. Mr. Sheppard has also acted as the Chief Executive Officer
and Chief Operating Officer of several early stage development companies,
overseeing the development of a corporate infrastructure for each company. From
1980 to 1992, Mr. Sheppard served as the President of Lee America, a Westward
Communications Company whose North American holdings included Panavision, Inc.
Mr. Sheppard has an extensive background in the entertainment industry and
received a BA and an MFA in film from New York University.
40
Committees of the Board of Directors and Nominations by Stockholders
Historically, the Board of Directors had four standing committees: a
Compensation Committee, an Audit Committee, a Strategic Planning Committee and
an Executive Committee. The Compensation Committee provided recommendations to
the Board of Directors concerning salaries and incentive compensation for
officers and employees of the Company. The Audit Committee recommended our
independent auditors and reviewed the results and scope of audit and other
accounting-related services provided by such auditors. The Strategic Planning
Committee was authorized to work with out investment bankers to identify and
evaluate strategic alternatives for us. The Executive Committee had day-to-day
executive decision-making authority on behalf of the Company, subject to the
overall review and approval of the Board of Directors.
With the resignation of the directors and the recent appointments of Mr.
Robinson, Dr. Doijashvili, Mr. Bokuchava, Mr. Danovitch, Mr. Shatsoff and Mr.
Sheppard to the Board of Directors, these committees have been disbanded and
were not reconstructed upon the filling of vacancies on the Board of Directors.
There were no changes to the Company's executive compensation policies in 2000.
Legal Proceedings
We are not aware of any proceedings in which any of our directors, officers
of holders of five percent of our common stock have a material interest adverse
to us.
Meetings and Attendance
The full Board of Directors met four times during 2000. Except for James
Wm. Ellsworth, who was not present at two of these meetings, all of the
directors attended at least 75% of the meetings of the Board of Directors and
committees of which they were members.
Transactions with Management and Others
If the Asset Sale is completed, Messrs. Robinson and Bokuchava have
indicated that they intend to resign their positions as officers and directors
of the Company. We intend to pay them severance in the aggregate amount of
$146,000 upon their resignations, which is the amount to which they would be
entitled under their employment agreements if we were to terminate them.
On March 29, 2001, the Company entered into a separation and release
agreement with Harvey W. Sax pursuant to which Mr. Sax resigned as President,
Chief Executive Officer and Director of the Company. Pursuant to this agreement,
the Company paid Mr. Sax a severance payment of $150,000, representing the
amount to which he would have been entitled has he been terminated, and the
Company and Mr. Sax released one another from various potential claims and
liabilities.
41
Indebtedness of Management
On January 31, 2001 HomeCom sold substantially all the assets used in the
operation of its InsureRate division to Digital Insurance, Inc. As part of this
transaction, the Company forgave loans that it had made to Dan Delity
($165,316), Jim Ellsworth ($102,342), and David Frank ($102,342), and Messrs.
Delity, Ellsworth and Frank surrendered their options and the shares of Common
Stock that collateralized the notes.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the officer,
directors and persons who own more than ten percent of a registered class of the
Company's stock to file reports of ownership and changes of ownership with the
Securities Exchange Commission (SEC). Officers, directors and greater than ten
percent owners are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on our review of the copies of such forms received by the
Company, we believe that, to the best of our knowledge, each of our officers,
directors, and greater than ten-percent owners complied with all Section 16(a)
filing requirements applicable to them during the year ended December 31, 2000.
Compensation of Directors
Directors who are not employees of the Company are eligible to receive
$1,000 per Board meeting attended, although we have never made any payments to
our directors for attending meetings, 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.
42
Executive Compensation
The following table sets forth the total compensation paid or accrued by
the Company in 2000 to its Chief Executive Officer and each executive officer of
the Company whose total annual salary and bonus exceeded $100,000 (each, a
"Named Executive Officer"):
Summary Compensation Table
Annual Compensation Long-Term Compensation
Awards
- -------------------------------------------------------------------------------------------------
Name and Principal Year Salary Bonus Other Annual Number of All Other
Position Compensation(1) Securities Compensation
Underlying
Options
- -------------------------------------------------------------------------------------------------
Harvey W. Sax 2000 $146,297 0 0 0 0
Former President 1999 $147,420 0 0 50,000 0
Former Chief 1998 $147,192 0 0 0 0
Executive Officer and
Former Director
- -------------------------------------------------------------------------------------------------
Gia Bokuchava, Ph.D 2000 $102,022 0 $66,518 0 0
Chief Technical 1999 $100,019 0 $75,566 0 0
Officer and Director 1998 $ 99,085 0 $75,566 0 0
- -------------------------------------------------------------------------------------------------
James Wm. Ellsworth 2000 $111,651 0 $26,860 0 0
Former Chief 1999 $103,551 0 0 0 0
Financial Officer 1998 N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------
Dan Delity 2000 $118,805 0 $75,838 0 0
Former President of 1999 $ 78,301 0 0 0 0
InsureRate, Former 1998 N/A N/A N/A N/A N/A
Director
- -------------------------------------------------------------------------------------------------
David Frank 2000 $115,659 0 $22,973 0 0
Former Director of 1999 $103,486 0 0 0 0
InsureRate 1998 N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------
(1) Pursuant to the employment agreement between the Company and Dr. Bokuchava,
Dr. Bokuchava 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. Messrs.
Ellsworth, Delity, and Frank deferred portions of their salary from 1999
and early 2000 which were repaid in lump sum in the fall of 2000. 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
No options were granted to or exercised by named executive officers in
2000. The following table sets forth the value of options held by the executive
officers at December 31, 2000:
43
Option Exercises in Last Fiscal Year and Year-End Option Values
- -------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised Options In-The-Money Options at
Executive Officer Shares Value at December 31, 2000
Acquired Realized December 31, 2000
on Exercise Unexercisable Exercisable Unexercisable Exercisable
- -------------------------------------------------------------------------------------------------------
Harvey W. Sax 0 0 40,000 20,000(2) $0 $0
- -------------------------------------------------------------------------------------------------------
Gia Bokuchava, Ph.D 0 0 6,250 18,750 $0 $0
- -------------------------------------------------------------------------------------------------------
James Wm. Ellsworth 0 0 0 0 $0 $0
(1)
- -------------------------------------------------------------------------------------------------------
Dan Delity (1) 0 0 100,000 0 $0 $0
- -------------------------------------------------------------------------------------------------------
David Frank (1) 0 0 100,000 0 $0 $0
- -------------------------------------------------------------------------------------------------------
(1) The options held by Messrs. Ellsworth, Delity and Frank were cancelled upon
termination of the employment of Messrs. Ellsworth, Delity and Frank in
connection with the sale of the Company's InsureRate division to Digital
Insurance, Inc. on January 31, 2001.
(2) The options held by Mr. Sax were cancelled in connection with Mr. Sax's
resignation from his position with the Company in March.
Employment Contracts
We have entered into an employment agreement with Timothy R. Robinson, our
Executive Vice President, Chief Financial Officer and Director. 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 not less than
$135,000 and for annual bonus compensation up to 30% of base salary. The
employment agreement further provides for a severance payment if termination
occurs for any reason other than for cause, with the minimum amount of such
severance payment to be equal to six months' salary. Further, the employment
agreement provides that any relocation or diminution of title, role or
compensation, as defined in the employment agreement, shall also result in the
payment of a severance amount of not less than six months' salary.
We have entered into an employment agreement with Gia Bokuchava, our Chief
Technical Officer. 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 not less than $105,000. The employment agreement provides for a
severance payment if termination occurs for any reason other than for cause,
with the minimum amount of such severance payment to be equal to nine months'
salary. Further, the employment agreement provides that any relocation or
diminution of title, role or compensation, as defined in the employment
agreement, shall also result in the payment of a severance amount of not less
than nine months' salary.
44
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.
Performance Graph
The graph below compares our cumulative stockholder return on an indexed
basis based on an investment of $100 on May 8, 1997 with the cumulative total
return of the Nasdaq Computer Stocks Index (IXCO) (assuming the reinvestment of
all dividends). The Company has paid no dividends to date.
Homecom
Communications Inc. S&P 500 Index Nasdaq Computer & Data Process
------------------- ------------- ------------------------------
5/8/97 100.00 100.00 100.00
12/31/97 259.37 119.73 113.06
12/31/98 58.33 153.95 201.86
12/31/99 53.13 186.34 426.64
12/31/00 .16 155.30 237.60
10/31/01 .16 124.66 150.75
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
The following tables provide information as of December 28, 2001,
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. This table excludes holders of our convertible securities who have agreed
to limit the number of shares of common stock that any such stockholders hold at
any one time to not more than 4.9% of the outstanding shares of our common
stock.
45
- --------------------------------------------------------------------------------
Title of Name of Beneficial Owner (2) Amount and Nature of Percent
Class Beneficial Ownership (3) of Class
- --------------------------------------------------------------------------------
Common Harvey W. Sax (4) 804,744 [ ]
Common Gia Bokuchava, Ph.D. (5) 64,559 (1)
Common Nino Doijashvili, Ph.D. (7) 34,706 (1)
Common Timothy Robinson (6) 75,000 (1)
Common Brittany Capital 5,640,000 [ ]
Management Limited
Common All executive Officers and 174,265 (1)
Directors as a group (Mr.
Bokuchava, Ms. Doijashvili and
Mr. Robinson)
- --------------------------------------------------------------------------------
(1) Less than 1%.
(2) Except as otherwise noted, the street address of each named beneficial
owner is Building 12, Suite 110, 3495 Piedmont Road, Atlanta, Georgia
30305.
(3) 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 by them, subject to community property
laws where applicable. Shares of Common Stock subject to options that are
currently exercisable or exercisable within 60 days of following the date
of this Proxy Statement 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.
(4) Excludes 5,000 common shares owned by a family member, to which Mr. Sax
disclaims beneficial ownership.
(5) Includes 25,000 shares of Common Stock issuable upon the exercise options
outstanding as of October 31, 2001 at a weighted average exercise price of
$4.49 per share.
(6) Excludes 75,000 shares of Common Stock issuable upon the exercise of
options outstanding as of October 31, 2001 at a weighted average exercise
price of $.75 which are not currently exercisable and which become
exercisable more than 60 days following the date of this Proxy Statement.
(7) Excludes 16,668 shares of Common Stock issuable upon the exercise of
options outstanding as of October 31, 2001 at a weighted average exercise
price of $0.59 which are not currently exercisable and which become
exercisable more than 60 days following the date of this Proxy Statement.
Currently, there are 17.813 shares of our Series B preferred stock, 92.107
shares of our Series C preferred stock, 1.291 shares of our Series D preferred
stock and 106.35 shares of our Series E preferred stock outstanding. All of
these shares of preferred stock are convertible into shares of our common stock
at any time.
Changes in Control
During December, 2001, a change in control of the Company occurred in
conjunction with the sequential conversions of 1.62855 shares of Series C
Preferred Stock by Mac Nab, LLC into 5,640,000 shares of Common Stock, and the
subsequent transfers of those shares of common stock to Brittany Capital
Management Limited, an entity organized under the laws of the Bahamas. As such,
Brittany Capital Management Limited now owns 5,640,000 shares of our common
stock, or ____% of the outstanding shares of Common Stock of the Company. In
addition, we appointed three new directors to the Board of Directors: David
Danovitch, Larry Shatsoff and Michael Sheppard.
46
Accountants
Our principal accountants are Feldman, Sherb & Co. P.C. We do not expect
any representatives of Feldman, Sherb & Co. P.C. to be present at the Special
Meeting.
Audit Fees
The aggregate fees billed for professional services rendered for the audit
of the registrant's annual financial statements for 2000 and for reviews of the
financial statements included in our Forms 10-Q during 2000 were $58,000.
Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure
(a) Previous Independent Accounts
(i) On February 8, 2001, we dismissed PricewaterhouseCoopers LLP
("PWC"), as our independent accountants effective immediately. Our
Board of Directors participated in and approved the decision to change
independent accountants.
(ii) The reports of PWC on our consolidated balance sheets as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows, did not
contain, except as otherwise described in this subsection (a)(ii), an
adverse opinion or disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope or accounting principles.
However, in its report on our financial statements for the fiscal
years ended December 31, 1999 and 1998, it included the following
explanatory paragraph: "The accompanying financial statements have
been prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the
Company has experienced recurring losses and negative cash flows since
its inception and has an accumulated deficit. The Company is dependent
on continued financing from investors to sustain its activities and
there is no assurance that such financing will be available. These
factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty."
(iii) In connection with its audits for the two most recent fiscal
years and through February 8, 2001, there have been no disagreements
with PWC on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of PWC would have
caused them to make reference thereto in their report on the financial
statements for such years.
(iv) During the two most recent fiscal years and through February 8,
2001, there have been no reportable events (as defined in Regulation
S-K Item 304(a) (1) (v)).
(v) On February 13, 2001, we delivered a copy of the disclosures which
we made in Item 4 on the Form 8-K that we filed on February 14, 2001,
and requested that PWC furnish us with a letter addressed to the
Securities and Exchange Commission stating whether or not PWC agreed
with such disclosures. A copy of such letter dated February 13, 2001
indicating such agreement was filed as Exhibit 16.1 to that Form 8-K.
(b) New Independent Accountants
(i) On February 8, 2001, the Company engaged the firm of Feldman Sherb
& Co. ("FSC") as independent accountants for the Company's fiscal year
ending December 31, 2000. The Company's Board of Directors approved
the selection of FSC as independent accountants.
(ii) During the two most recent fiscal years and through February 8,
2001, the Company has not consulted with FSC with respect to (1) the
application of accounting principles to a specified transaction,
either completed or proposed; or the type of audit opinion that might
be rendered on the Company's financial statements; or (2) on any
matter that was either the subject of a disagreement (as defined in
Item 304 (a) (1) (iv) of Regulation S-K) or a reportable event (as
described in Item 304 (a) (1) (v) of Regulation S-K).
47
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to incorporate by reference information into this Proxy
Statement, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this Proxy Statement except
for any information superseded by information combined directly in, or
incorporated by reference in, this Proxy Statement. Copies of the Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 2001 and the
Annual Report on Form 10-K, for the fiscal year ended December 31, 2000
accompany this Proxy Statement. The Company hereby incorporates by reference
into this Proxy Statement the following sections of the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 2001: (i) the
Consolidated Financial Statements (unaudited) set forth at pages 1 through 4
thereof; (ii) Notes to Consolidated Financial Statements set forth at pages 5
through 6 thereof; and (iii) the Management's Discussion and Analysis of
Financial Condition and Results of Operations set forth at pages 6 through 9
thereof. We also hereby incorporate by reference into this Proxy Statement the
following sections of the Company's Annual Report on Form 10-K for the year
ended December 31, 2000: (i) Consolidated Financial Statements set forth at
pages 13 through 19 thereof; (ii) Notes to Consolidated Financial Statements set
forth at pages 20 through 34 thereof; (iii) Report to Independent Auditors set
forth at page 14 thereof; (iv) the Selected Financial Data set forth at page 7
thereof; and (v) the Management Discussion and Analysis of Financial Condition
and Results of Operations set forth at pages 8 through 12 thereof.
We may be required to file other documents with the SEC pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act between the time this
Proxy Statement is mailed and the date of the Special Meeting. Those other
documents will be deemed incorporated by reference into this Proxy Statement and
to be a part of it from the date they are filed with the SEC.
The Company will provide without charge to each person to whom a copy of
this Proxy Statement is delivered, on the written or oral request of such person
and by first class mail or other equally prompt means within one business day of
receipt of such request, a copy of any and all of the documents referred to
above which have been incorporated by reference in this Proxy Statement
(excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this Proxy Statement). Such written or oral request should be
directed to the Secretary at 3495 Piedmont Road, Building 12, Suite 110,
Atlanta, Georgia 30305.
You should rely only on the information contained or incorporated by
reference in this Proxy Statement to vote on the proposals. We had not
authorized anyone to provide you with information that is different from what is
contained in this Proxy Statement. This Proxy Statement is dated [_____________,
2001]. You should not assume that the information contained in this Proxy
Statement is accurate as of any date other than this date. Neither the mailing
of this Proxy Statement to our Stockholders nor the completion of the Asset Sale
will create any implication to the contrary.
AS OF THE DATE OF THIS PROXY STATEMENT, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS THAT MAY COME BEFORE THE SPECIAL MEETING. IF ANY OTHER BUSINESS
IS PROPERLY BROUGHT BEFORE THE SPECIAL MEETING, IT IS THE INTENTION OF THE PROXY
HOLDERS TO VOTE OR ACT IN ACCORDANCE WITH THEIR BEST JUDGMENT WITH RESPECT TO
SUCH MATTERS.
December ____, 2001
By Order of the Board of Directors
---------------------------------------
Timothy R. Robinson
Executive Vice President and
Chief Financial Officer
48
PROXY
HOMECOM COMMUNICATIONS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ______________________ as Proxy, with full
power of substitution and revocation, and hereby authorizes him to represent and
to vote, as designated below, all the shares of common stock of HomeCom
Communications, Inc. (the "Company") held of record by the undersigned as of
December 28, 2001, at the special meeting of shareholders to be held at 10:00
a.m. local time on January __, 2002 and at any adjournments or postponements
thereof.
1) Proposal to approve the sale of substantially all of the assets of the
Company to Tulix Systems, Inc., an entity that is owned by Timothy R.
Robinson, Gia Bokuchava and Nino Doijashvili, who are directors and
officers of both the Company and Tulix. (Check applicable box.)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2) Proposal to amend the Company's Certificate of Incorporation to change the
name of the Company to "Prospect Technologies, Inc." (Check applicable
box.)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3) Proposal to amend the Company's Certificate of Incorporation to increase
the number of authorized shares of common stock from 15,000,000 to
100,000,000. (Check applicable box.)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4) Proposal to amend the Company's Certificate of Incorporation to allow fewer
than all of the stockholders to approve corporate actions by written
consent without a stockholder meeting. Currently, the Certificate of
Incorporation requires the written approval of all of the stockholders if
the approval is obtained without a stockholder meeting. (Check applicable
box.)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5) Proposal to effect a reverse split of the Company's common stock in a ratio
between 5-for-1 and 15-for-1, if and when the Board of Directors determines
that such a reverse split is in the best interests of the Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6) Election of Directors.
[ ] For all nominees listed below [ ] Withhold authority to vote for all
(except as marked to the nominees listed below:
contrary below)
David Danovitch
Larry Shatsoff
Michael Sheppard
Nino Doijashvili
(Instruction: To withhold authority to vote for any individual nominee(s), write
the name(s) of such nominee(s) immediately below.)
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting.
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO DIRECTION IS INDICATED,
WILL BE VOTED "FOR" THE ABOVE MATTERS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HOMECOM COMMUNICATIONS, INC.
Dated: ______________, _____
-------------------------
Print Name
-------------------------
Signature
-------------------------
Signature if held jointly
IMPORTANT: Please date this proxy and sign exactly as your name or names appear
above. If stock is held jointly, signature should include both names. Executors,
administrators, trustees, guardians and others signing in a representative
capacity, please give your full title(s).
Do you plan to attend the Annual Meeting of Shareholders? [ ] Yes [ ] No
IMPORTANT: PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAME OR NAMES APPEAR ABOVE.
EXHIBIT A
ASSET PURCHASE AGREEMENT
By and Between
TULIX SYSTEMS, INC.
(A Georgia corporation)
And
HOMECOM COMMUNICATIONS, INC.
(A Delaware corporation)
Dated as of
_______________, 2001
TABLE OF CONTENTS
Page
----
SECTION 1. SALE AND PURCHASE...................................................1
(a) Intellectual Property........................................1
(b) Contracts....................................................1
SECTION 2. ASSUMPTION OF CONTRACTS BY THE PURCHASER............................2
SECTION 3. PURCHASE PRICE AND PAYMENT..........................................2
(a) Generally....................................................2
(b) Liquidation Event............................................2
SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER............................2
(a) Corporate Existence..........................................2
(b) Corporate Power; Authorization; Enforceable Obligations......2
(c) No Conflict..................................................3
(d) Required Government Consents.................................3
(e) Required Contract Consents...................................3
(f) Assigned Contracts...........................................3
(g) Condition of Equipment; Adequacy of Assets...................4
(h) Intellectual Property........................................4
(i) Ownership...........................................4
(i) Litigation...................................................4
(j) Court Orders, Decrees, and Laws..............................4
(k) Access to Information........................................5
(l) Disclosure...................................................5
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER.........................5
(a) Corporate Existence..........................................5
(b) Corporate Power; Authorization; Enforceable Obligations......5
(c) No Conflict; Consents........................................6
(d) Purchaser Common Stock.......................................6
(e) Purchaser Capital Structure..................................6
(f) Access to Information........................................6
(g) Disclosure...................................................6
SECTION 6. CONDITIONS TO CLOSING...............................................7
(a) Conditions to Seller's Obligations...........................7
(b) Conditions to Purchaser's Obligations........................7
SECTION 7. CLOSING.............................................................8
(a) Closing......................................................8
(b) Actions at Closing...........................................8
(i) Copies of Consents..................................8
(ii) Conveyance Instruments..............................8
(iii) Assumption Agreements...............................8
(iv) Certificates........................................8
(v) Other...............................................8
(c) Delivery of Purchase Price...................................8
i
SECTION 8. COVENANTS OF SELLER AND PURCHASER...................................8
(a) Allocation of Purchase Price.................................8
(b) Maintenance of Books and Records.............................9
(c) Mail, Etc....................................................9
(d) Certain Consents.............................................9
(e) Best Efforts; Further Assurances; Cooperation................9
(f) Transition..................................................10
SECTION 9. CLAIMS, ARBITRATION................................................10
(a) Survival of Representations and Warranties..................10
(b) Limitation on Claims by Purchaser...........................10
(c) Limitation on Claims........................................10
(d) Arbitration.................................................10
SECTION 10. MISCELLANEOUS.....................................................11
(a) Acknowledgement regarding Legal Counsel.....................11
(b) Sales, Transfer and Documentary Taxes, etc..................11
(c) Entire Agreement; Assignment................................11
(d) Waiver......................................................12
(e) Notices.....................................................12
(f) Georgia Law to Govern.......................................13
(g) No Benefit to Others........................................13
(h) Headings; Gender; Certain Definitions.......................13
(i) Schedules...................................................13
(j) Severability................................................13
(k) Counterparts................................................13
(l) Drafting of Agreement.......................................13
(m) Time of the Essence.........................................14
(n) Actions and Proceedings.....................................14
(o) Execution by Facsimile......................................14
ii
Schedules
---------
1(a) -- Intellectual Property
1(b) -- Contracts
1(c) -- Accounts Receivable
1(d) -- Equipment
4(d) -- Required Government Consents
4(e) -- Required Contract Consents
4(f) -- Contracts - Terms and Monthly Revenues
4(i)(i) -- Intellectual Property - Ownership
4(j) -- Litigation
8(a) -- Allocation of Purchase Price
iii
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement (this "Agreement") is made and entered into
as of the __ day of _________, 2001, by and between Tulix Systems, Inc., a
Georgia corporation (the "Purchaser"), and HomeCom Communications, Inc., a
Delaware corporation (the "Seller").
RECITALS
--------
The Seller is engaged in the business of developing and hosting Internet
applications, products and services to commercial customers (the "Business").
The Purchaser desires to purchase, and the Seller desires to sell, all of
the assets of Seller associated with the Business, and Seller desires to assign,
and Purchaser desires to assume, certain contracts of Seller related to the
Business, all upon the terms and conditions and subject to the limited
exceptions set forth herein.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, and agreements of the parties hereinafter set forth, the parties
hereto, intending to be legally bound, do hereby agree as follows:
SECTION 1.
SALE AND PURCHASE
Upon the terms and subject to the conditions of this Agreement, Purchaser
shall purchase, accept, and acquire from Seller, and Seller shall sell,
transfer, assign, convey, and deliver to Purchaser, at the Closing (as defined
in Section 7(a)), all right, title, and interest in and to the following assets
of Seller:
(a) The intellectual property identified in Schedule 1(a) (the
"Intellectual Property").
(b) The contracts identified in Schedule 1(b) (the "Contracts").
(c) Accounts Receivable as identified in Schedule 1(c) (the "Accounts
Receivable").
(d) The equipment currently being used to service and maintain the
Contracts and operate the Business and, in addition, the equipment identified in
Schedule 1(d) (the "Equipment", and together with the Intellectual Property,
Accounts Receivable and the Contracts, the "Assets").
1
SECTION 2.
ASSUMPTION OF CONTRACTS BY THE PURCHASER
From and after the Closing, Purchaser shall assume and be responsible for
only the obligations and liabilities of Seller relating to the Contracts
identified in Schedule 1(b); provided, however, that Purchaser does not thereby
assume any liability or obligation of Seller relating to acts or omissions of
Seller in the performance of such Contracts prior to the Closing Date, except to
the extent that such liabilities relate to accounts payable incurred in the
ordinary course of business. Seller does not assume any liability or obligation
of Purchaser relating to acts or omissions of Purchaser in the performance of
the Contracts subsequent to the Closing Date.
SECTION 3.
PURCHASE PRICE AND PAYMENT
(a) Generally. The total consideration to be paid to Seller for the sale,
transfer and conveyance of the Assets shall consist of ____ shares of Common
Stock (the "Purchase Price"). Purchaser acknowledges that it is purchasing the
Assets "as is", without any representation or warranty, explicit or implied,
except as set forth in this Agreement.
(b) Liquidation Event. In the event that the Board of Directors of
Purchaser decides, within six months after the date of this Agreement, to
liquidate Purchaser, Seller, notwithstanding its respective pro rata ownership
interest in Purchaser, shall receive fifty percent (50%) of the proceeds of such
liquidation that relate to the Equipment so liquidated. If the Board of
Directors of Purchaser makes such a liquidation decision after the date which is
six months after the date of this Agreement, Seller shall receive those proceeds
of such liquidation to which it is entitled under applicable law and applicable
governing documents.
SECTION 4.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
(a) Corporate Existence. Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. Seller
has the corporate power and authority to conduct its business and to own and
lease all of its properties and assets and is duly qualified or licensed to do
business and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the failure to be so qualified would not
have a material adverse effect on the Assets or the Business (financial or
otherwise) (a "Material Adverse Effect").
(b) Corporate Power; Authorization; Enforceable Obligations. Seller has the
corporate power and authority to execute and deliver this Agreement and the
other agreements and instruments to be executed and delivered by it in
connection with the transactions contemplated hereby and thereby and to perform
its respective obligations hereunder and thereunder (this Agreement and such
other agreements and instruments collectively the "Seller Documents"). Seller
has taken or will take all necessary corporate action, including obtaining
approval of the stockholders of Seller, that is required under the Delaware
General Corporation Law, to authorize the execution and delivery of this
Agreement and the other Seller Documents and the consummation of the
transactions contemplated hereby and thereby. This Agreement is, and the other
Seller Documents will be, the legal, valid, and binding obligations of Seller,
enforceable in accordance with their terms, except as such enforcement may be
subject to or limited by bankruptcy, insolvency, reorganization, moratorium, or
other similar laws now or hereafter in effect and by general principles of
equity.
2
(c) No Conflict. To the best of the knowledge of Seller, the execution and
delivery of this Agreement and the other Seller Documents will not (i) violate
any foreign, federal, state, or local law, regulation, ordinance, zoning
requirement, governmental restriction, order, judgment, or decree (collectively,
"Laws") applicable to Seller or the Assets or the Business, (ii) violate or
conflict with any provision of the certificate of incorporation or bylaws, or
(iii) conflict with, result in the breach of, or constitute a default under any
mortgage, indenture, license, instrument, trust, contract, agreement, or other
commitment or arrangement to which Seller is a party or by which Seller or any
of the Assets or the Business are bound.
(d) Required Government Consents. Except for (i) the filing or recording of
instruments of conveyance, transfer, or assignment required by federal
copyright, patent, or trademark laws or the laws of the U.S. and non-U.S.
jurisdictions and states in which the Assets are located; and (ii) the further
exceptions disclosed in Schedule 4(d) (the foregoing items (i) and (ii) being
referred to herein as the "Required Government Consents"), to the best of the
knowledge of Seller, no approval, authorization, certification, consent,
permission, license, or permit to or from, or notice, filing, or recording to or
with, U.S. or non-U.S., federal, state, or local governmental authorities
("Governmental Authorities") is necessary for the execution and delivery of this
Agreement and the other Seller Documents or the consummation by Seller of the
transactions contemplated hereby or thereby, or the ownership and use of the
Assets or operation of the Business (including by Purchaser, assuming such
ownership, use and operation is substantially the same as the ownership, and use
and operation by Seller).
(e) Required Contract Consents. To the best of the knowledge of Seller,
except as disclosed in Schedule 4(e) (such scheduled items being referred to
herein as the "Required Contract Consents"), no approval, authorization,
consent, permission, or waiver to or from, or notice, filing, or recording to or
with, any person (other than the Required Government Consents) is necessary for
(i) the execution and delivery of this Agreement and the other Seller Documents
or the consummation by Seller of the transactions contemplated hereby or
thereby; (ii) the transfer and assignment to Purchaser at the Closing of the
Assets; or (iii) the ownership and use of the Assets or operation of the
Business (including by Purchaser, assuming such ownership, use and operation is
substantially the same as the ownership, use and operation by Seller).
(f) Assigned Contracts. To the best of the knowledge of Seller, (i) the
Contracts are valid, binding, and enforceable in accordance with their terms and
are in full force and effect and (ii) subject to obtaining the consent of the
other party thereto as specified on Schedule 4(f), the continuation, validity
and effectiveness of all the Contracts under the current terms thereof will in
no way be affected, altered or impaired by the consummation of the transactions
contemplated by this Agreement. There are no existing defaults by Seller under
the Contracts and, to the best knowledge of Seller, no act, event, or omission
has occurred that, whether with or without notice, lapse of time, or both, would
constitute a default thereunder. Seller has received no notice of, and has no
knowledge of, any pending or threatened early termination or cancellation of any
Contract. The amounts disclosed in Schedule 4(f) accurately present the current
terms and monthly revenues attributable to the Contracts.
3
(g) Condition of Equipment; Adequacy of Assets. To the best of the
knowledge of Seller, (i) all of the Equipment is in good operating order,
condition, and repair, ordinary wear and tear excepted, and is suitable for use
in the Business in the ordinary course, as presently operated and (ii) the
Assets constitute all of the property and assets necessary to conduct the
Business as currently conducted. Purchaser accepts the Equipment "as is" and no
warranties, explicit or implied, are offered by Seller except as specifically
set forth in this Agreement.
(h) Intellectual Property. The Intellectual Property includes certain
proprietary application software products and systems which Seller develops,
markets and licenses to customers (the "Software Programs"), and in connection
therewith Seller has developed certain related technical documentation and user
reference manuals (the "Documentation"). The Software Programs and the
Documentation are collectively referred to as the "Software".
(i) Ownership. To the best of the knowledge of Seller, except as set
forth in Schedule 4(i)(i), Seller owns all of the Intellectual Property and all
other proprietary information included in the Assets. Schedule 4(i)(i) sets
forth all domestic and foreign patents, trademarks, service marks, trade names
and copyrights included in the Assets and all applications therefor and
registrations thereof. Except as disclosed in Schedule 4(i)(i), to the best
knowledge of Seller, no person has a prior use of any trademark, service mark,
or trade name that is the same as, or confusingly similar to, any of the
trademarks, service marks and trade names included in the Assets.
(i) Litigation. Except as disclosed in Schedule 4(j), no claim, action,
suit, proceeding, inquiry, hearing, arbitration, administrative proceeding,
infringement claim, or investigation (collectively, "Litigation") is pending,
or, to Seller's best knowledge, threatened against Seller or its subsidiaries or
any of its present or former directors, officers, or employees, affecting,
involving, or relating to any of the Assets or the Business. Seller knows of no
facts or circumstances that could reasonably be expected to serve as the basis
for Litigation against Seller (or Purchaser upon acquisition of the Assets) or
its present or former directors, officers, or employees, affecting, involving,
or relating to the Assets or the Business.
(j) Court Orders, Decrees, and Laws. There is no outstanding or, to
Seller's best knowledge, threatened, order, writ, injunction, or decree of any
court, governmental agency, or arbitration tribunal against Seller affecting,
involving, or relating to the Assets or the Business. To the best of the
knowledge of Seller, the Business is and has been in compliance in all material
respects with all applicable Laws, and Seller has received no notices of any
such alleged violation. The foregoing shall be deemed to include Laws relating
to the patent, copyright, and trademark laws, state trade secret and unfair
competition laws of the U.S. and foreign jurisdictions, and all other applicable
Laws, including equal opportunity, wage and hour, and other employment matters,
and antitrust and trade regulation laws.
4
(k) Access to Information. Seller has had access to sufficient information
about Purchaser upon which to analyze the transactions contemplated by this
Agreement. Seller has been given the opportunity to ask questions and receive
answers from the officers of Purchaser concerning the terms and conditions of
the transactions contemplated by this Agreement and the business and financial
condition of Purchaser. Seller has had the opportunity to obtain any additional
information it deems necessary to verify the accuracy and completeness of
information provided by Purchaser in connection with this Agreement and the
transactions contemplated hereby.
(l) Disclosure. Seller has completely and accurately responded to the
inquiries and diligence requests of Purchaser and its agents, representatives,
attorneys and employees in connection with the transactions contemplated by this
Agreement. No representation, warranty, or statement made by Seller in this
Agreement or in any document or certificate furnished or to be furnished to
Purchaser pursuant to this Agreement contains or will contain any untrue
statement or omits or will omit to state any fact necessary to make the
statements contained herein or therein, under the circumstances in which they
were made, not materially misleading. Seller has disclosed to Purchaser all
facts known or reasonably available to Seller that are material to the Assets or
the Business.
SECTION 5.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
(a) Corporate Existence. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Georgia. Purchaser
has the corporate power and authority to conduct its business and to own and
lease all of its properties and assets and is duly qualified or licensed to do
its business and is in good standing under the laws of each jurisdiction where
such qualification is required, except where the failure to be so qualified
would not have a material adverse effect on Purchaser.
(b) Corporate Power; Authorization; Enforceable Obligations. Purchaser has
the corporate power, authority and legal right to execute, deliver and perform
this Agreement and the other agreements and instruments to be executed and
delivered in connection with the transactions contemplated hereby and thereby
(this Agreement and such other agreements and instruments collectively the
"Purchaser Documents"). The execution, delivery and performance of this
Agreement and the other Purchaser Documents, and the consummation of the
transactions contemplated hereby and thereby, by Purchaser have been duly
authorized by all necessary corporate action of Purchaser. This Agreement is,
and the other Purchaser Documents will be, the legal, valid and binding
obligation of Purchaser enforceable against Purchaser in accordance with their
terms except as such enforcement may be subject to or limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, fraudulent
transfer or other similar laws now or hereafter in effect affecting creditors'
rights generally, and by general principles of equity.
5
(c) No Conflict; Consents. The execution, delivery and performance of this
Agreement and the other Purchaser Documents, and the consummation of the
transactions contemplated hereby and thereby, by Purchaser do not and will not
violate any Laws to which Purchaser is subject, and will not violate, conflict
with or result in the breach of, or constitute a default under, any term,
condition or provision of, or require the consent of any other party to, (i) any
judgment, order, writ, injunction, decree or award of any court, arbitrator or
governmental or regulatory official, body or authority which is applicable to
Purchaser, or (ii) the articles of incorporation, bylaws, or other governing or
organizational instrument of Purchaser.
(d) Purchaser Common Stock. The shares of Purchaser Common Stock to be
issued to Seller pursuant to this Agreement, when issued and delivered in
accordance with this Agreement will be duly authorized, validly issued, fully
paid and non-assessable.
(e) Purchaser Capital Structure. The authorized capital stock of Purchaser
consists of ____ shares of preferred stock and ____ shares of common stock, of
which, as of the date hereof, ____ shares are issued and outstanding.
(f) Access to Information. Purchaser has had access to sufficient
information about Seller upon which to analyze the transactions contemplated by
this Agreement. Purchaser has been given the opportunity to ask questions and
receive answers from the officers of Seller concerning the terms and conditions
of the transactions contemplated by this Agreement and the business and
financial condition of Seller. Purchaser has had the opportunity to obtain any
additional information it deems necessary to verify the accuracy and
completeness of information provided by Seller in connection with this Agreement
and the transactions contemplated hereby.
(g) Disclosure. Purchaser has completely and accurately responded to the
inquiries and diligence requests of Seller and its agents, representatives,
attorneys and employees in connection with the transactions contemplated by this
Agreement. No representation, warranty, or statement made by Purchaser in this
Agreement or in any document or certificate furnished or to be furnished to
Seller pursuant to this Agreement contains or will contain any untrue statement
or omits or will omit to state any fact necessary to make the statements
contained herein or therein, under the circumstances in which they were made,
not materially misleading. Purchaser has disclosed to Seller all facts known or
reasonably available to Purchaser that are material to Purchaser.
6
SECTION 6.
CONDITIONS TO CLOSING
(a) Conditions to Seller's Obligations. The obligations of Seller to be
performed hereunder shall be subject to the satisfaction (or waiver by Seller)
at or prior to the Closing Date of each of the following conditions:
(i) Purchaser's representations and warranties contained in this
Agreement shall be true and correct in all respects on and as of the date of
this Agreement.
(ii) Purchaser shall have performed and complied with all agreements,
obligations and conditions required by this Agreement to be performed or
complied with by it on or prior to the Closing.
(iii) Seller's stockholders shall have approved the sale of the Assets
to Purchaser.
(iv) No Litigation shall be threatened or pending against Seller
before any court or governmental agency that, in the reasonable opinion of
counsel for Seller, could result in the restraint or prohibition of Seller in
connection with this Agreement or the consummation of the transactions
contemplated hereby.
(v) Purchaser shall have delivered to Seller a certificate signed by a
duly authorized officer of Purchaser certifying that the conditions set forth in
Sections 6(a)(i) and (ii) have been satisfied.
(b) Conditions to Purchaser's Obligations. Each of the obligations of
Purchaser to be performed hereunder shall be subject to the satisfaction (or
waiver by Purchaser) at or prior to the Closing Date of each of the following
conditions:
(i) Seller's representations and warranties contained in this
Agreement shall be true and correct in all respects on and as of the date of
this Agreement.
(ii) Seller shall have performed and complied with all agreements,
obligations, and conditions required by this Agreement to be performed or
complied with by it on or prior to the Closing.
(iii) No Litigation shall be threatened or pending against Purchaser
before any court or governmental agency that, in the reasonable opinion of
counsel for Purchaser, could result in the restraint or prohibition of Purchaser
in connection with this Agreement or the consummation of the transactions
contemplated hereby.
7
(iv) Seller shall have delivered to Purchaser a certificate signed by
a duly authorized officer of Seller certifying that the conditions set forth in
Sections 6(b)(i) and (ii) have been satisfied.
(v) Seller shall have entered into severance agreements with Timothy
R. Robinson and Gia Bokuchava.
SECTION 7.
CLOSING
(a) Closing. The closing of the purchase and sale of the Assets (the
"Closing") shall take place at the offices of Sutherland Asbill & Brennan LLP,
999 Peachtree Street, N.E., Atlanta, Georgia commencing at 2:00 p.m. on
_______________, 2002 (the "Closing Date"). Subject to consummation of the
Closing on the Closing Date, the sale, assignment, transfer and conveyance to
Purchaser of the Assets will be effective as of 12:01 a.m. Eastern Standard Time
on the Closing Date.
(b) Actions at Closing. At Closing, Purchaser and Seller shall take the
following actions, in addition to such other actions as may otherwise be
required under this Agreement:
(i) Copies of Consents. Seller shall deliver to Purchaser copies of
all Required Contract Consents and all Required Government Consents which have
been obtained.
(ii) Conveyance Instruments. Seller shall deliver to Purchaser such
bills of sale, assignments, and other instruments of conveyance and transfer as
Purchaser may reasonably request to effect the transfer and assignment of the
Assets to Purchaser.
(iii) Assumption Agreements. Purchaser shall deliver to Seller one or
more assumption agreements in form reasonably acceptable to Seller, pursuant to
which Purchaser assumes and agrees to pay and perform the Contracts.
(iv) Certificates. The parties shall deliver to each other the
certificates to each other required under Section 6.
(v) Other. Each party shall deliver such other agreements and
instruments as the other party may reasonably request.
(c) Delivery of Purchase Price. At Closing, Purchaser shall deliver the
payments required under Section 3.
SECTION 8.
COVENANTS OF SELLER AND PURCHASER
(a) Allocation of Purchase Price. The Purchase Price shall be allocated as
disclosed in Schedule 8(a), and all tax returns and reports filed by Seller and
Purchaser with respect to the transactions contemplated by this Agreement shall
be consistent with that allocation.
8
(b) Maintenance of Books and Records. Each of Seller and Purchaser shall
preserve until the second anniversary of the Closing Date all records possessed
or to be possessed by such party relating to any of the Assets or the Business
prior to the Closing Date, except for those records transferred from Seller to
Purchaser at Closing. After the Closing Date, where there is a legitimate
purpose, such party shall provide the other party with access, upon prior
reasonable written request specifying the need therefor, during regular business
hours, to (i) the officers and employees of such party, and (ii) the books of
account and records of such party, but, in each case, only to the extent
relating to the Assets or the Business prior to the Closing Date, and the other
party and its representatives shall have the right to make copies of such books
and records; provided, however, that the foregoing right of access shall not be
exercisable in such a manner as to interfere unreasonably with the normal
operations and business of such party; and further provided, that, as to so much
of such information as constitutes trade secrets or confidential business
information of such party, the requesting party and its officers, directors and
representatives will use due care to not disclose such information except (A) as
required by any applicable Laws, (B) with the prior written consent of the party
who owns such information, which consent shall not be unreasonably withheld,
delayed or conditioned or (C) where such information becomes available to the
public generally, or becomes generally known to competitors of such party,
through sources other than the requesting party, its affiliates or its officers,
directors or representatives. Such books and records may nevertheless be
destroyed by a party if such party sends to the other party written notice of
its intent to destroy such books and records, specifying with particularity the
contents of the books and records to be destroyed. Such books and records may
then be destroyed after the 30th day after such notice is given unless the other
party objects to the destruction, in which case the party seeking to destroy the
books and records shall deliver such books and records to the objecting party.
(c) Mail, Etc. Mail and payments relating to the Assets received by Seller
after the Closing Date will be forwarded to Purchaser. From and after the
Closing Date, Seller will promptly refer all inquiries relating to the Assets to
Purchaser.
(d) Certain Consents. To the extent that Seller's rights under any
Contract, permit, or other Asset to be assigned to Purchaser hereunder may not
be assigned without the consent of another person which has not been obtained
prior to the Closing Date, and which is material to the ownership, use or
disposition of an Asset or the operation of the Business, this Agreement shall
not constitute an agreement to assign the same if an attempted assignment would
constitute a breach thereof or be unlawful, and Seller and Purchaser shall use
their commercially reasonable good faith efforts to obtain any such required
consents as promptly as possible.
(e) Best Efforts; Further Assurances; Cooperation. Subject to the other
provisions in this Agreement, the parties hereto shall in good faith perform
their obligations under this Agreement before, at and after the Closing, and
shall each use their reasonable best efforts to do, or cause to be done, all
things necessary, proper or advisable under applicable Laws to obtain all
authorizations and consents and satisfy all conditions to the obligations of the
parties under this Agreement, and to cause the transactions contemplated by this
Agreement to be carried out promptly in accordance with the terms hereof. The
parties shall cooperate fully with each other and their respective officers,
directors, employees, agents, counsel, accountants and other designees in
connection with any steps required to be taken as part of their respective
obligations under this Agreement. Upon the execution of this Agreement and
thereafter, each party shall take such actions and execute and deliver such
documents as may be reasonably requested by the other party hereto in order to
consummate more effectively the transactions contemplated by this Agreement
9
(f) Transition. Seller shall have a reasonable period of time after the
Closing in which to remove its books and records from Seller's former premises.
Purchaser will provide such assistance in this process as Seller may reasonably
request, including but not limited to providing access to Purchaser's premises
at such reasonable times as Seller may request.
SECTION 9.
CLAIMS, ARBITRATION
(a) Survival of Representations and Warranties. All of the representations
and warranties, covenants and agreements in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Closing and continue
until the date which is the eighteen month anniversary of the Closing Date.
(b) Limitation on Claims by Purchaser. Notwithstanding any other provision
of this Agreement, Purchaser agrees that it shall not be entitled to make any
claim against Seller based on the alleged breach by Seller of any representation
or warranty contained in this Agreement if such alleged breach relates to
information or circumstances about which the officers or employees of Purchaser
knew or should have known by virtue of the offices and positions they held at
Seller prior to Closing.
(c) Limitation on Claims. Neither party will be liable under this Agreement
for any demands, claims, actions, or causes of action, assessments, losses,
damages, liabilities, costs, or expenses, including reasonable fees and expenses
of counsel, other expenses of investigation, handling, and litigation, and
settlement amounts, together with interest and penalties (collectively, a "Loss"
or "Losses"), resulting from the breach of any representation or warranty of
such party contained in this Agreement or in any other agreement or instrument
executed and delivered by such party in connection with this Agreement, until
the aggregate amount of all such Losses exceeds $25,000 and, in that event, the
damaged party shall be entitled to recovery of all such Losses.
(d) Arbitration. In the event of a dispute between Purchaser and Seller
arising under this Agreement, the parties shall act in good faith to reach
agreement regarding such claim. If the parties hereto, acting in good faith,
cannot reach agreement with respect to such claim, within thirty (30) days after
notice thereof by one party to the other, such claim will be submitted to and
settled by binding arbitration in Atlanta, Georgia, in accordance with the then
current Commercial Arbitration Rules of the American Arbitration Association
(the "AAA") or such other mediation or arbitration service as shall be mutually
agreeable to the parties, and judgment upon the award rendered by the arbitrator
shall be final and binding on the parties and may be entered in any court having
jurisdiction thereof; provided, however, that any party shall be entitled to
appeal a question of law or determination of law to a court of competent
jurisdiction; and provided, further, however, that the parties may first seek
appropriate injunctive relief prior to, and/or in addition to pursuing
negotiation or arbitration. Such arbitration shall be conducted by an arbitrator
chosen by mutual agreement of the parties, or failing such agreement, an
arbitrator appointed by the AAA. The arbitrator shall be required to provide in
writing to the parties the basis for the award or order of such arbitrator, and
a court reporter shall record all hearings (unless otherwise agreed to by the
parties), with such record constituting the official transcript of such
proceedings.
10
SECTION 10.
MISCELLANEOUS
(a) Acknowledgement regarding Legal Counsel. Purchaser acknowledges and
agrees that Sutherland Asbill & Brennan LLP ("SAB") is acting as counsel to
Seller and is representing Seller in connection with this Agreement and the
transactions contemplated hereby and that SAB is not representing, and has not
represented, Purchaser in any respect, including any representation in
connection with this Agreement and the transactions contemplated hereby.
Purchaser further acknowledges and agrees that it has been advised to seek its
own independent legal counsel in connection with this Agreement and the
transactions contemplated hereby.
(b) Sales, Transfer and Documentary Taxes, etc. All sales and use taxes
relating to the sale and transfer of the Assets pursuant to this Agreement shall
be paid by Seller. Seller also shall pay all other federal, state and local
documentary and other transfer taxes, if any, due as a result of the purchase,
sale or transfer of the Assets in accordance herewith whether imposed by
applicable Laws on Seller or Purchaser, and Seller shall indemnify, reimburse
and hold harmless Purchaser in respect of the liability for payment of or
failure to pay any such taxes or the filing of or failure to file any reports
required in connection therewith.
(c) Entire Agreement; Assignment. This Agreement, which includes the
Schedules and the other documents, agreements, certificates and instruments
executed and delivered pursuant to or in connection with this Agreement, sets
forth the entire understanding and agreement of the parties hereto with respect
to the transactions contemplated hereby. Any and all prior or contemporaneous
negotiations, agreements, representations, warranties and understandings between
the parties regarding the subject matter hereof, whether written or oral, are
superseded in their entirety by this Agreement and shall not create any
liability on the part of either party hereto in favor of the other party, except
as otherwise expressly set forth in this Agreement. This Agreement shall not be
assigned, amended or modified except by written instrument duly executed by each
of the parties hereto; provided, however, that Purchaser may assign its rights
and obligations under this Agreement to a wholly owned subsidiary or to a
purchaser of all or substantially all of Purchaser's assets, whether by sale of
assets, sale of stock, merger or otherwise.
11
(d) Waiver. Any term or provision of this Agreement may be waived at any
time by the party entitled to the benefit thereof by a written instrument duly
executed by such party.
(e) Notices. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given only if delivered personally or sent by facsimile, air
courier, telegram or by registered or certified mail, postage prepaid, as
follows:
If to Purchaser:
Tulix Systems, Inc.
3495 Piedmont Road
Suite 110
Atlanta, GA 30305
(404) 237-4646
(404) 233-1977 (facsimile)
Attn: Timothy R. Robinson, Executive Vice President and
Chief Financial Officer
If to Seller:
HomeCom Communications, Inc.
3495 Piedmont Road, Suite 110
Atlanta, GA 30305
Attn: President
(404) 237-4646
(404) 233-1977 (facsimile)
With a copy, which shall not constitute notice, to:
Wade H. Stribling, Esq.
Sutherland Asbill & Brennan LLP
2300 First Union Plaza
999 Peachtree Street, N.E.
Atlanta, GA 30309-3996
(404) 853-8000
(404) 853-8806 (facsimile)
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communication will be deemed to have been given as of
the date so delivered, transmitted by facsimile, telegraphed or mailed, as the
case may be.
12
(f) Georgia Law to Govern. This Agreement shall be governed by and
interpreted and enforced in accordance with the laws of the State of Georgia,
without regard to its conflict of law principles.
(g) No Benefit to Others. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto and their respective successors and assigns, and nothing contained in
this Agreement or the other Purchase Agreements shall be construed as conferring
any rights on any other persons.
(h) Headings; Gender; Certain Definitions. All section headings contained
in this Agreement are for convenience of reference only, do not form a part of
this Agreement and shall not affect in any way the meaning or interpretation of
this Agreement. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine, or neuter, as the
context requires. Any reference to a "person" herein shall include an
individual, firm, corporation, partnership, trust, governmental authority or
body, association, unincorporated organization or any other entity. The
"knowledge" of a person shall include the current actual awareness of such
person, such person's officers charged with the responsibility for the matters
qualified by the use of the term "knowledge" and such matters as would be
revealed by a review of such person's records.
(i) Schedules. All Schedules referred to herein are incorporated herein by
reference and are intended to be and hereby are specifically made a part of this
Agreement.
(j) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not invalidate or render unenforceable any other provision
of this Agreement.
(k) Counterparts. This Agreement may be executed in any number of
counterparts and either party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties. It shall
not be necessary in making proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
(l) Drafting of Agreement. Each party has participated in the negotiation
and preparation of this Agreement; therefore, this Agreement shall be construed
without regard to any presumption or other rule requiring construction against
the party causing the Agreement to be drafted.
13
(m) Time of the Essence. Time is of the essence of this Agreement.
(n) Actions and Proceedings. Each party to this Agreement consents to the
exclusive jurisdiction and venue of the courts of any county in the State of
Georgia and the United States District Court for any District of Georgia in any
action or judicial proceeding seeking an injunction or other equitable relief or
to enforce an arbitration award. Each party consents and submits to the
non-exclusive personal jurisdiction of any court in the State of Georgia in
respect of any such proceeding. Each party consents to service of process upon
it with respect to any such proceeding by registered mail, return receipt
requested, and by any other means permitted by applicable Laws. Each party
waives any objection that it may now or hereafter have to the laying of venue of
any such proceeding in any court in the State of Georgia and any claim that it
may now or hereafter have that any such proceeding in any court in the State of
Georgia has been brought in an inconvenient forum. Each party waives trial by
jury in any such proceeding.
(o) Execution by Facsimile. Either party may deliver an executed copy of
this Agreement and any documents contemplated hereby by facsimile transmission
to the other party, and such delivery shall have the same force and effect as
any other delivery of a manually signed copy of this Agreement or of such other
documents.
[Signatures follow on next page]
14
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first written above:
PURCHASER:
TULIX SYSTEMS, INC.
By:
--------------------------------------
Name:
Title:
SELLER:
HOMECOM COMMUNICATIONS, INC.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
15
EXHIBIT B
---------
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
HOMECOM COMMUNICATIONS, INC.
HomeCom Communications, Inc. (the "Corporation"), organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify that:
ARTICLE I
---------
The name of the Corporation is HomeCom Communications, Inc.
ARTICLE II
----------
The Amended and Restated Certificate of Incorporation of the Corporation
shall be amended by deleting Article I in its entirety and substituting in lieu
thereof the following:
"I
The name of the Corporation is Prospect Technologies, Inc."
ARTICLE III
-----------
The Amended and Restated Certificate of Incorporation of the Corporation
shall be amended by amending Article IV as follows:
"IV
The total number of shares of capital stock which the Corporation is
authorized to issue is One Hundred and One Million (101,000,000) divided into
two classes as follows:
(1) One Hundred Million (100,000,000) 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 remainder of Article IV shall remain unchanged.
ARTICLE IV
----------
The Amended and Restated Certificate of Incorporation of the Corporation
shall be amended by deleting Article IX in its entirety and substituting in lieu
thereof the following:
"IX
Action required to be taken or which may be taken at any Annual Meeting or
Special Meeting of the Stockholders of the Corporation may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, and shall be delivered to the
Corporation by delivery to its registered office in the State of Delaware, to
its principal place of business or to an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded."
ARTICLE V
---------
The Amended and Restated Certificate of Incorporation of the Corporation
shall be amended to include the following at the end of the second paragraph of
Article IV thereof:
"Each ( ) shares of the Common Stock issued as of the date and
time immediately preceding [INSERT DATE UPON WHICH ARTICLES OF
AMENDMENT ARE FILED], the effective date of a reverse stock split (the
"Split Effective Date"), shall be automatically changed and
reclassified, as of the Split Effective Date and without further
action, into one (1) fully paid and non-assessable share of the Common
Stock; provided, however, that any fractional interest resulting from
such change and reclassification shall be rounded upward to the
nearest whole share. Share interests due to rounding are given solely
to save expense and inconvenience of issuing fractional shares and do
not represent separately bargained for consideration. Each holder of
record of a certificate or certificates which immediately prior to the
Split Effective Date represents outstanding shares of Common Stock
(the "Old Certificates," whether one or more) shall be entitled to
receive upon surrender of such Old Certificates to the Corporation's
transfer agent for cancellation, a certificate or certificates (the
"New Certificates," whether one or more) representing the number of
whole shares of Common Stock into and for which the shares of the
Common Stock formerly represented by such Old Certificates so
surrendered, are reclassified under the terms hereof. From and after
the Split Effective Date, Old Certificates shall represent only the
right to receive New Certificates pursuant to the provisions hereof."
ARTICLE VI
----------
All other provisions of the Amended and Restated Certificate of
Incorporation of the Corporation shall remain unchanged and in full force and
effect.
IN WITNESS WHEREOF, said Corporation hereby executes this Certificate of
Amendment of Amended and Restated Certificate of Incorporation this _____ day of
_____________, ______.
HOMECOM COMMUNICATIONS, INC.
By: ______________________________
Name: ______________________________
Title: ______________________________