SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
SCHEDULE 13D*
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO
13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO 13d-2(a)
Worldtalk Communications Corporation
(Name of Issuer)
Common Stock
(Title of Class of Securities)
98155G101
(CUSIP Number)
Peter K. Hilal, MD
c/o Hilal Capital Management
60 East 42nd Street, Suite 1946
New York, NY 10165
(Name, address, and telephone
number of person authorized to
receive notices and communications)
July 19, 1999
(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box [ ].
NOTE: Schedules filed in paper format shall include a signed original
and five copies of the schedule, including all exhibits. See Rule 13d-7 for
other parties to whom copies are to be sent.
(Continued on following pages)
(Page 1 of 70 Pages)
- ----------------
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter the disclosures provided in a prior cover page.
The information required in the remainder of this cover page shall not be
deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934 ("Act") or otherwise subject to the liabilities of that section of the
Act but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
CUSIP No. 98155G101 13D Page 2 of 70 Pages
- ----------------------------------------------------------------------------
(1) NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS.
OF ABOVE PERSONS (ENTITIES ONLY)
Hilal Capital QP, LP
- ----------------------------------------------------------------------------
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP **
(a) [X]
(b) [ ]
- ----------------------------------------------------------------------------
(3) SEC USE ONLY
- ----------------------------------------------------------------------------
(4) SOURCE OF FUNDS **
WC
- ----------------------------------------------------------------------------
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ----------------------------------------------------------------------------
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- ----------------------------------------------------------------------------
NUMBER OF (7) SOLE VOTING POWER
-0-
SHARES
------------------------------------------------------------
BENEFICIALLY (8) SHARED VOTING POWER
683,500
OWNED BY
------------------------------------------------------------
EACH (9) SOLE DISPOSITIVE POWER
-0-
REPORTING
------------------------------------------------------------
PERSON WITH (10) SHARED DISPOSITIVE POWER
683,500
- ----------------------------------------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON
683,500
- ----------------------------------------------------------------------------
(12) CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ]
- ----------------------------------------------------------------------------
(13) PERCENT OF CLASS REPRESENTED
BY AMOUNT IN ROW (11)
4.3%
- ----------------------------------------------------------------------------
(14) TYPE OF REPORTING PERSON **
PN
- ----------------------------------------------------------------------------
** SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 98155G101 13D Page 3 of 70 Pages
- ----------------------------------------------------------------------------
(1) NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS.
OF ABOVE PERSONS (ENTITIES ONLY)
Hilal Capital, LP
- ----------------------------------------------------------------------------
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP **
(a) [X]
(b) [ ]
- ----------------------------------------------------------------------------
(3) SEC USE ONLY
- ----------------------------------------------------------------------------
(4) SOURCE OF FUNDS **
WC
- ----------------------------------------------------------------------------
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ----------------------------------------------------------------------------
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- ----------------------------------------------------------------------------
NUMBER OF (7) SOLE VOTING POWER
-0-
SHARES
------------------------------------------------------------
BENEFICIALLY (8) SHARED VOTING POWER
268,000
OWNED BY
------------------------------------------------------------
EACH (9) SOLE DISPOSITIVE POWER
-0-
REPORTING
------------------------------------------------------------
PERSON WITH (10) SHARED DISPOSITIVE POWER
268,000
- ----------------------------------------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON
268,000
- ----------------------------------------------------------------------------
(12) CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ]
- ----------------------------------------------------------------------------
(13) PERCENT OF CLASS REPRESENTED
BY AMOUNT IN ROW (11)
1.7%
- ----------------------------------------------------------------------------
(14) TYPE OF REPORTING PERSON **
PN
- ----------------------------------------------------------------------------
** SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 98155G101 13D Page 4 of 70 Pages
- ----------------------------------------------------------------------------
(1) NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS.
OF ABOVE PERSONS (ENTITIES ONLY)
Hilal Capital Associates LLC
- ----------------------------------------------------------------------------
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP **
(a) [X]
(b) [ ]
- ----------------------------------------------------------------------------
(3) SEC USE ONLY
- ----------------------------------------------------------------------------
(4) SOURCE OF FUNDS **
WC
- ----------------------------------------------------------------------------
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ----------------------------------------------------------------------------
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- ----------------------------------------------------------------------------
NUMBER OF (7) SOLE VOTING POWER
-0-
SHARES
------------------------------------------------------------
BENEFICIALLY (8) SHARED VOTING POWER
1,792,000
OWNED BY
------------------------------------------------------------
EACH (9) SOLE DISPOSITIVE POWER
-0-
REPORTING
------------------------------------------------------------
PERSON WITH (10) SHARED DISPOSITIVE POWER
1,792,000
- ----------------------------------------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON
1,792,000
- ----------------------------------------------------------------------------
(12) CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ]
- ----------------------------------------------------------------------------
(13) PERCENT OF CLASS REPRESENTED
BY AMOUNT IN ROW (11)
11.3%
- ----------------------------------------------------------------------------
(14) TYPE OF REPORTING PERSON **
OO
- ----------------------------------------------------------------------------
** SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 98155G101 13D Page 5 of 70 Pages
- ----------------------------------------------------------------------------
(1) NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS.
OF ABOVE PERSONS (ENTITIES ONLY)
Hilal Capital Partners LLC
- ----------------------------------------------------------------------------
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP **
(a) [X]
(b) [ ]
- ----------------------------------------------------------------------------
(3) SEC USE ONLY
- ----------------------------------------------------------------------------
(4) SOURCE OF FUNDS **
AF
- ----------------------------------------------------------------------------
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ----------------------------------------------------------------------------
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- ----------------------------------------------------------------------------
NUMBER OF (7) SOLE VOTING POWER
-0-
SHARES
------------------------------------------------------------
BENEFICIALLY (8) SHARED VOTING POWER
2,743,500
OWNED BY
------------------------------------------------------------
EACH (9) SOLE DISPOSITIVE POWER
-0-
REPORTING
------------------------------------------------------------
PERSON WITH (10) SHARED DISPOSITIVE POWER
2,743,500
- ----------------------------------------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON
2,743,500
- ----------------------------------------------------------------------------
(12) CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ]
- ----------------------------------------------------------------------------
(13) PERCENT OF CLASS REPRESENTED
BY AMOUNT IN ROW (11)
17.3%
- ----------------------------------------------------------------------------
(14) TYPE OF REPORTING PERSON **
OO
- ----------------------------------------------------------------------------
** SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 98155G101 13D Page 6 of 70 Pages
- ----------------------------------------------------------------------------
(1) NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS.
OF ABOVE PERSONS (ENTITIES ONLY)
Hilal Capital Management LLC
- ----------------------------------------------------------------------------
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP **
(a) [X]
(b) [ ]
- ----------------------------------------------------------------------------
(3) SEC USE ONLY
- ----------------------------------------------------------------------------
(4) SOURCE OF FUNDS **
AF
- ----------------------------------------------------------------------------
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ----------------------------------------------------------------------------
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- ----------------------------------------------------------------------------
NUMBER OF (7) SOLE VOTING POWER
-0-
SHARES
------------------------------------------------------------
BENEFICIALLY (8) SHARED VOTING POWER
1,906,500
OWNED BY
------------------------------------------------------------
EACH (9) SOLE DISPOSITIVE POWER
-0-
REPORTING
------------------------------------------------------------
PERSON WITH (10) SHARED DISPOSITIVE POWER
1,906,500
- ----------------------------------------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON
1,906,500
- ----------------------------------------------------------------------------
(12) CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ]
- ----------------------------------------------------------------------------
(13) PERCENT OF CLASS REPRESENTED
BY AMOUNT IN ROW (11)
12.0%
- ----------------------------------------------------------------------------
(14) TYPE OF REPORTING PERSON **
IA
- ----------------------------------------------------------------------------
** SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 98155G101 13D Page 7 of 70 Pages
- ----------------------------------------------------------------------------
(1) NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS.
OF ABOVE PERSONS (ENTITIES ONLY)
Peter K. Hilal, M.D.
- ----------------------------------------------------------------------------
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP **
(a) [X]
(b) [ ]
- ----------------------------------------------------------------------------
(3) SEC USE ONLY
- ----------------------------------------------------------------------------
(4) SOURCE OF FUNDS **
AF
- ----------------------------------------------------------------------------
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ----------------------------------------------------------------------------
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- ----------------------------------------------------------------------------
NUMBER OF (7) SOLE VOTING POWER
-0-
SHARES
------------------------------------------------------------
BENEFICIALLY (8) SHARED VOTING POWER
4,650,000
OWNED BY
------------------------------------------------------------
EACH (9) SOLE DISPOSITIVE POWER
-0-
REPORTING
------------------------------------------------------------
PERSON WITH (10) SHARED DISPOSITIVE POWER
4,650,000
- ----------------------------------------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON
4,650,000
- ----------------------------------------------------------------------------
(12) CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ]
- ----------------------------------------------------------------------------
(13) PERCENT OF CLASS REPRESENTED
BY AMOUNT IN ROW (11)
29.3%
- ----------------------------------------------------------------------------
(14) TYPE OF REPORTING PERSON **
IN
- ----------------------------------------------------------------------------
** SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 98155G101 13D Page 8 of 70 Pages
- ----------------------------------------------------------------------------
(1) NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS.
OF ABOVE PERSONS (ENTITIES ONLY)
Philip Hilal
- ----------------------------------------------------------------------------
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP **
(a) [x]
(b) [ ]
- ----------------------------------------------------------------------------
(3) SEC USE ONLY
- ----------------------------------------------------------------------------
(4) SOURCE OF FUNDS **
PF
- ----------------------------------------------------------------------------
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ----------------------------------------------------------------------------
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- ----------------------------------------------------------------------------
NUMBER OF (7) SOLE VOTING POWER
150,000
SHARES
------------------------------------------------------------
BENEFICIALLY (8) SHARED VOTING POWER
OWNED BY
------------------------------------------------------------
EACH (9) SOLE DISPOSITIVE POWER
150,000
REPORTING
------------------------------------------------------------
PERSON WITH (10) SHARED DISPOSITIVE POWER
- ----------------------------------------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON
150,000
- ----------------------------------------------------------------------------
(12) CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ]
- ----------------------------------------------------------------------------
(13) PERCENT OF CLASS REPRESENTED
BY AMOUNT IN ROW (11)
.9%
- ----------------------------------------------------------------------------
(14) TYPE OF REPORTING PERSON **
IN
- ----------------------------------------------------------------------------
** SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 98155G101 13D Page 9 of 70 Pages
Item 1. Security and Issuer.
This statement relates to shares of common stock, par value $0.01 (the
"Common Stock") of Worldtalk Communications Corporations (the "Company") and
warrants issued by the Company that entitle the holder to purchase Common Stock
(the "Warrants"). The Company's principal executive offices are located at
5155 Old Ironsides Drive, Santa Clara, CA 95054.
Item 2. Identity and Background.
(a) This statement is filed by:
(i) Hilal Capital QP, LP ("HCQP"), a Delaware limited
partnership, with respect to the shares of Common Stock and
Warrants owned by it; (ii) Hilal Capital, LP ("HCLP"), a
Delaware limited partnership, with respect to the shares of
Common Stock and Warrants owned by it; (iii) Hilal Capital
Associates LLC ("HCA"), a Delaware limited liability company,
with respect to the shares of Common Stock and Warrants
owned by it; (iv) Hilal Capital Partners, LLC ("HCP"), a
Delaware limited liability company, with respect to the
shares of Common Stock and Warrants directly owned by HCQP,
HCLP and HCA; (v) Hilal Capital Management LLC ("HCM"), a
Delaware limited liability company, with respect to the
shares of Common Stock and Warrants directly owned by Hilal
Capital International ("HCI"), a Cayman Islands company,
and shares of Common Stock and Warrants held in another
discretionary account ("the Account"); (vi) Peter K. Hilal,
M.D. ("Dr. Hilal"), with respect to the shares of Common Stock
directly owned by HCQP, HCLP, HCA, HCI and the Account; and
(vii) Philip Hilal ("Mr. Hilal"), with respect to the shares
of Common Stock and Warrants directly owned by him.
The general partner of HCQP and HCLP is HCP. The managing
member of HCA is HCP. HCM serves as investment manager to
HCI and the Account. Dr. Hilal serves as managing
member to HCP and HCM.
The foregoing persons are hereinafter sometimes
collectively referred to as the "Reporting Persons". Any
disclosures herein with respect to persons other than the
Reporting Persons are made on information and belief after
making inquiry to the appropriate party.
(b) The address of the business office of each of the Reporting
Persons (with the exception of Mr. Hilal) is 60 East 42nd Street, Suite 1946,
New York, New York 10165. The address of the business office of Mr. Hilal is
Goldman Sachs & Co., 85 Broad Street, New York, NY 10004. Mr. Hilal is
investing in these securities for his own account, and not for the account of,
or at the direction of, Goldman, Sachs & Co., which has no involvement in his
investment.
<PAGE>
No. 98155G101 13D Page 10 of 70 Pages
(c) The principal business of HCQP, HCLP and HCA is that of a private
investment firm engaging in the purchase and sale of securities for investment
for its own account. The principal business of HCP is serving as general
partner to HCQP, HCLP and HCA.
The principal business of HCM is that of an investment adviser engaging in the
purchase and sale of securities for investment on behalf of HCI and the
Account. The principal occupation of Dr. Hilal is serving as the Managing
Member of HCP and HCM. The principal occupation of Mr. Hilal is as a financial
analyst.
(d) None of the persons referred to in paragraph (a) above has,
during the last five years, been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors).
(e) None of the persons referred to in paragraph (a) above has,
during the last five years, been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and, as a result of such
proceeding, was, or is subject to, a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
Federal or State securities laws or finding any violation with respect to such
laws.
(f) HCQP and HCLP are limited partnerships organized under the laws
of the State of Delaware. HCA, HCP and HCM are limited liability companies
organized under the laws of the State of Delaware. Dr. Hilal and Mr. Hilal are
United States citizens.
Item 3. Source and Amount of Funds and Other Consideration.
The net investment cost (including commissions, if any) of the shares of
Common Stock and Warrants directly owned by HCQP is $1,387,583; HCA is
$3,584,000; HCLP is $544,576; HCI is $1,869,303; the Account is $2,000,303 and
Mr. Hilal is $300,000. Neither HCP, HCM nor Dr. Hilal owns directly any
shares of Common Stock.
The shares of Common Stock and Warrants purchased by HCQP, HCLP and HCA
were purchased with the investment capital of these entities. The shares of
Common Stock and Warrants purchased on behalf of HCI and the Account were
purchased with their investment capital. The shares of Common Stock and
Warrants purchased by Mr. Hilal were purchased with his personal investment
capital.
Item 4. Purpose of the Transaction.
The Reporting Persons acquired the shares of Common Stock and Warrants
for investment purposes, and the Reporting Persons intend to evaluate the
performance of such securities as an investment in the ordinary course of
business. The Reporting Persons pursue an investment objective that seeks
capital appreciation. In pursuing this investment objective, the Reporting
Persons analyze the operations, capital structure and markets of companies in
which they invest, including the Company, on a continuous basis through
analysis of documentation and discussions with knowledgeable industry and
market observers and with representatives of such companies (often at the
invitation of management).
<PAGE>
No. 98155G101 13D Page 11 of 70 Pages
Each Reporting Person will continuously assess the Company's business,
financial condition, results of operations and prospects, general economic
conditions, the securities markets in general and those for the Company's
securities in particular, other developments and other investment
opportunities. Depending on such assessments, one or more of the Reporting
Persons may acquire additional shares of Common Stock or Warrants or may
determine to sell or otherwise dispose of all or some of its holdings of
shares of Common Stock or Warrants. Such actions will depend upon a variety
of factors, including, without limitation, current and anticipated future
trading prices for such Common Stock, the financial condition, results of
operations and prospects of the Company, alternate investment opportunities,
and general economic, financial market and industry conditions.
Pursuant to rights granted to the Reporting Persons in the Securities
Purchase Agreement filed as Exhibit 2 hereto, Paul Hilal was appointed to the
Company's Board of Directors. None of the Reporting Persons has any plans or
proposals which relate to, or could result in, any of the matters referred to
in paragraphs (a) through (j), inclusive, of Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer.
(a) The approximate aggregate percentage of shares of Common Stock and
Warrants reported beneficially owned by each person herein is
based upon the 14,280,500 shares of Common Stock issued and
outstanding as of July 19, 1999 as reflected in the Company's Form
8K filed as of such date, and also includes the 1,583,333
Warrants issued to the Reporting Persons in connection with the
acquisition by the Reporting Persons of the Common Stock from the
Company on July 19, 1999 for a total number of 15,863,833 shares
issued and outstanding.
As of the close of business on July 29, 1999:
(i) HCQP owns beneficially 459,667 shares of Common Stock and
223,833 Warrants, for a total of 683,500 shares, constituting
approximately 4.3% of the shares outstanding.
(ii) HCLP owns beneficially 180,333 shares of Common Stock and
87,667 Warrants, for a total of 268,000 shares, constituting
approximately 1.7% of the shares outstanding.
(iii) HCA owns beneficially 1,194,667 shares of Common Stock and
597,333 Warrants, for a total of 1,792,000 shares, constituting
approximately 11.3% of the shares outstanding.
(iv) HCP owns directly no shares of Common Stock or Warrants. By
reason of the provisions of Rule 13d-3 of the Securities Exchange
Act of 1934, as amended (the "Act"), HCP may be deemed to own
beneficially the 1,834,667 shares of Common Stock and 908,833
Warrants held by HCQP, HCLP and HCA, for a total of 2,743,500
Shares constituting approximately 17.3% of the Shares outstanding.
<PAGE>
No. 98155G101 13D Page 12 of 70 Pages
(v) HCM owns directly no shares of Common Stock. By reason of the
provisions of Rule 13d-3 of the Act, it may be deemed to
beneficially own the 619,167 shares of Common Stock and 301,333
Warrants beneficially owned by HCI and the 662,833 shares of Common
Stock and 323,167 Warrants beneficially owned by the Account. When
the Shares beneficially owned by HCI and the Account are aggregated
they total 1,282,000 shares of Common Stock and 624,500 Warrants,
totaling 1,906,500 shares, constituting approximately 12.0% of the
Shares outstanding.
(vi) Dr. Hilal owns directly no Shares of Common Stock. By reason
of the provisions of Rule 13d-3 of the Act, he may be deemed to own
beneficially the 459,667 shares of Common Stock and 223,833 Warrants
owned by HCQP; the 180,333 shares of Common Stock and 87,667
Warrants owned by HCLP; the 1,194,667 shares of Common Stock and
597,333 Warrants owned by HCA; the 619,167 shares of Common Stock
and 301,333 Warrants owned by HCI, and the 662,833 shares of Common
Stock and 323,167 Warrants owned by the Account. When the shares of
Common Stock and Warrants beneficially owned by HCQP, HCLP, HCA, HCI
and the Account are aggregated, they total 3,166,667 shares of
Common Stock and 1,533,333 Warrants, totaling 4,650,000 Shares or
approximately 29.3% of the shares outstanding.
(vii) Mr. Hilal owns beneficially 100,000 shares of Common Stock and
50,000 Warrants, totaling 150,000 shares or constituting approximately
0.9% of the Shares outstanding.
(viii) In the aggregate, the Reporting Persons beneficially own
3,216,667 shares of Common Stock, and 1,583,333 Warrants, for a
total of 4,800,000 shares, constituting 30.3% of the shares
outstanding.
(b) HCQP and HCLP have the power to dispose of and the power to vote the
shares of Common Stock and Warrants beneficially owned by them,
which power may be exercised by their general partner, HCP, or HCP's
managing member, Dr. Hilal. HCA has the power to dispose of and the
power to vote the Shares of Common Stock and the Warrants
beneficially owned by it, which power may be exercised by its
managing member, HCP, or HCP's managing member, Dr. Hilal. Each of
HCI and the Account is a party to an investment management agreement
with HCM pursuant to which HCM has investment authority with respect
to securities held in such an account. Such authority includes the
power to dispose of and the power to vote securities held in such
accounts. Such power may be exercised by HCM's managing member, Dr.
Hilal. Dr. Hilal, as the managing member of HCM and HCP, has shared
power to dispose of and shared power to vote the Common Stock and
warrants held by other Reporting Persons.
(c) The trading dates, number of shares of Common Stock and Warrants
purchased or sold and price per share for all transactions in the
Common Stock and Warrants from the 60th day prior to July 19, 1999
until July 29, 1999 by HCQP, HCLP, HCA, HCM (on behalf of HCI and
the Account) and Mr. Hilal are set forth in Schedules A,B,C,D and E,
respectively.
<PAGE>
CUSIP No. 98155G101 13D Page 13 of 70 Pages
(d) No person other than each respective record owner of shares of
Common Stock or Warrants referred to herein is known to have the
right to receive or the power to direct the receipt of dividends
from or the proceeds of sale of such shares of Common Stock.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the Issuer.
Other than the Joint Acquisition Statement attached as Exhibit 1 hereto,
the Securities Purchase Agreement attached as Exhibit 2 hereto, and the Form of
Warrant attached as Exhibit 3 hereto, there are no contracts, arrangements,
understandings or relationships (legal or otherwise) among the persons named in
Item 2 hereof and between such persons and any person with respect to any
securities of the Company, including but not limited to transfer or voting of
any other securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, divisions of profits or
loss, or the giving or withholding of proxies.
Item 7. Materials to be Filed as Exhibits.
There is filed herewith as Exhibit 1 a written agreement relating to the
filing of joint acquisition statements as required by Rule 13d-1(k) under the
Securities Exchange Act of 1934, as amended.
Exhibit 2 contains the Securities Purchase Agreement utilized for the purchase
of the securities described in this filing.
Exhibit 3 contains the Form of Warrant utilized for the Warrants issued in
this transaction.
SIGNATURES
After reasonable inquiry and to the best of our knowledge and belief, the
undersigned certify that the information set forth in this statement is true,
complete and correct.
DATED: July 29, 1999
/s/
Dr. Peter K. Hilal, individually, and as
managing member of Hilal Capital Partners
LLC, on behalf of itself and on behalf
of Hilal Capital, LP and Hilal Capital,
QP, LP as the general partner thereof and
on behalf of Hilal Capital Associates LLC
as the managing member thereof, and as
managing member of Hilal Capital
Management LLC, on behalf of itself.
/s/ Philip Hilal
<PAGE>
CUSIP No. 98155G101 13D Page 14 of 70 Pages
Schedule A
HILAL CAPITAL QP, LP
Price Per Share
Date of Number of Shares (including commissions,
Transaction Purchased/(Sold) if any)
5/24/99 1,200 $3.75
5/28/99 10,800 $3.6892
7/19/99 447,667 $3.00
Number of Warrants
Exercisable to
Purchase Common Stock
Purchased/(Sold) Exercise Price Expiration Date
223,833 $7.00 July 7, 2006
<PAGE>
CUSIP No. 98155G101 13D Page 15 of 70 Pages
Schedule B
HILAL CAPITAL, LP
Price Per Share
Date of Number of Shares (including commissions,
Transaction Purchased/(Sold) if any)
5/24/99 500 $3.75
5/28/99 4,500 $3.6892
7/19/99 175,333 $3.00
Number of Warrants
Exercisable to
Purchase Common Stock
Purchased/(Sold) Exercise Price Expiration Date
87,667 $7.00 July 7, 2006
<PAGE>
CUSIP No. 98155G101 13D Page 16 of 70 Pages
Schedule C
HILAL CAPITAL ASSOCIATES, LLC
Price Per Share
Date of Number of Shares (including commissions,
Transaction Purchased/(Sold) if any)
7/19/99 1,194,667 $3.00
Number of Warrants
Exercisable to
Purchase Common Stock
Purchased/(Sold) Exercise Price Expiration Date
597,333 $7.00 July 7, 2006
<PAGE>
CUSIP No. 98155G101 13D Page 17 of 70 Pages
Schedule D
HILAL CAPITAL MANAGEMENT LLC
Price Per Share
Date of Number of Shares (including commissions,
Transaction Client Purchased/(Sold) if any)
5/24/99 Account 1,650 $3.75
5/28/99 Account 14,850 $3.6892
7/19/99 Account 646,333 $3.00
5/24/99 HCI 1,650 $3.75
5/28/99 HCI 14,850 $3.6892
7/19/99 HCI 602,667 $3.00
Number of Warrants
Exercisable to
Purchase Common Stock
Client Purchased/(Sold) Exercise Price Expiration Date
Account 323,167 $7.00 July 7, 2006
HCI 301,333 $7.00 July 7, 2006
<PAGE>
CUSIP No. 98155G101 13D Page 18 of 70 Pages
Schedule E
PHILIP HILAL
Price Per Share
Date of Number of Shares (including commissions,
Transaction Purchased/(Sold) if any)
7/19/99 100,000 $3.00
Number of Warrants
Exercisable to
Purchase Common Stock
Purchased/(Sold) Exercise Price Expiration Date
50,000 $7.00 July 7, 2006
<PAGE>
CUSIP No. 98155G101 13D Page 19 of 70 Pages
EXHIBIT 1
JOINT ACQUISITION STATEMENT
PURSUANT TO RULE 13D-1(k)
The undersigned acknowledge and agree that the foregoing statement on Schedule
13D, is filed on behalf of each of the undersigned and that all subsequent
amendments to this statement on Schedule 13D, shall be filed on behalf of each
of the undersigned without the necessity of filing additional joint
acquisition statements. The undersigned acknowledge that each shall be
responsible for the timely filing of such amendments, and for the completeness
and accuracy of the information concerning him or it contained therein, but
shall not be responsible for the completeness and accuracy of the information
concerning the others, except to the extent that he or it knows or has reason
to believe that such information is inaccurate.
Dated: July 29, 1999
/s/
Dr. Peter K. Hilal, individually, and as
managing member of Hilal Capital Partners
LLC, on behalf of itself and on behalf
of Hilal Capital, LP and Hilal Capital,
QP, LP as the general partner thereof and
on behalf of Hilal Capital Associates LLC
as the managing member thereof, and as
managing member of Hilal Capital
Management LLC, on behalf of itself.
/s/ Philip Hilal
<PAGE>
CUSIP No. 98155G101 13D Page 20 of 70 Pages
EXHIBIT 2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of July 7,
1999, by and among Worldtalk Communications Corporation, a Delaware
corporation, with headquarters located at 5155 Old Ironsides Drive, Santa
Clara, California 95054 (the "Company"), and the investors listed on the
Schedule of Buyers attached hereto (individually, a "Buyer" and collectively,
the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act");
B. The Company has authorized the issuance of between $5 million
and $10 million of the Company's common stock, $.01 par value per share (the
"Common Stock") at a purchase price of $3 per share, in the amount designated
by Hilal Capital Management LLC ("Hilal") on the date of the Initial Closing
(as defined below) (which amount at the Initial Closing shall not be less than
$5 million) and the Second Closing (as defined below);
C. The Company has authorized the issuance of Common Stock
Purchase Warrants (the "Warrants"), in the form attached hereto as Exhibit B,
---------
to acquire shares of Common Stock (such shares of Common Stock issued upon
exercise of the Warrants are hereinafter referred to as the "Warrant Shares",
and together with Common Stock purchased hereunder and the Warrants, the
"Securities");
D. The Buyers (which term as used herein shall include those
persons designated by Hilal to purchase Common Stock at the Second Closing,
who became a party to this Agreement by executing the signature page and whose
names and purchase amounts shall be added to the Schedule of Buyers at the
Second Closing) wish to purchase, upon the terms and conditions stated in this
Agreement, an aggregate of between $5 million and $10 million of Common Stock
(as determined by Hilal) in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers; and to receive, in consideration for
such purchase, the Warrants who became a party to this Agreement by executing
the signature page to purchase an additional number of shares of Common Stock
equal to one-half the number of shares of Common Stock that the Buyers
purchase, subject to adjustment as provided in the Warrants; and
E. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement in the form attached hereto as Exhibit C
---------
(the "Registration Rights Agreement") pursuant to which the Company has agreed
to provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
<PAGE>
CUSIP No. 98155G101 13D Page 21 of 70 Pages
NOW, THEREFORE, the Company and the Buyers hereby agree as follows.
1. INITIAL PURCHASE AND SALE OF COMMON STOCK.
-----------------------------------------
a. Initial Purchase of Common Stock. Subject to the
--------------------------------
satisfaction (or waiver) of the conditions set forth in Sections 7 and 8
below, the Company shall issue and sell to the Buyers and the Buyers shall
purchase from the Company an aggregate of not less than $5 million and not
more than $10 million of Common Stock (the "Initial Purchase Price") in the
respective amounts as are set forth opposite each Buyer's name on the Schedule
of Buyers at an initial closing (the "Initial Closing"). The per share
purchase price (the "Purchase Price") of the Common Stock shall be $3.00. On
the Initial Closing Date (as defined below) the Company shall deliver to each
Buyer a stock certificate representing the number of shares which such Buyer
is then purchasing (as indicated opposite such Buyer's name on the Schedule of
Buyers), duly executed on behalf of the Company and registered in the name of
such Buyer or its designee (the "Stock Certificates").
b. Initial Closing Date. The date and time of the
--------------------
Initial Closing (the "Initial Closing Date") shall be 5:00 p.m. Eastern
Standard Time on July 7, 1999, subject to notification of satisfaction (or
waiver) of the conditions to the Closing set forth in Sections 7 and 8 below
(or such later date as is mutually agreed to by the Company and Hilal). The
Initial Closing shall occur on the Initial Closing Date at the offices of
Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022.
Notwithstanding the foregoing, if on the Initial Closing Date all of the
conditions set forth in Sections 7 and 8 are satisfied except for the
condition in Section 8(b), such closing shall be made into escrow pursuant to
the terms of Escrow Agreement annexed as Exhibit D (the "Escrow Agreement")
---------
and other appropriate escrow documents, pending satisfaction of such remaining
condition not later than July 14, 1999 (or such later date as is mutually
agreed to by the Company and Hilal). In the event of such escrow closing, the
Initial Closing (and the sale of the securities) shall not be deemed to have
been completed unless and until the condition in Section 8(b) is satisfied in
accordance with the terms hereof and of the Escrow Agreement, but if such
condition is timely satisfied, the Initial Closing Date shall be deemed the
date of deposit into escrow.
c. Form of Payment. On the Initial Closing Date
---------------
(subject to escrow, if applicable), each Buyer shall pay the Purchase Price to
State Street for the Common Stock to be issued and sold to such Buyer at the
Initial Closing, by wire transfer of immediately available funds in accordance
with the Company's written wire instructions provided in writing to the Buyers
at least two days prior to the Initial Closing Date.
<PAGE>
CUSIP No. 98155G101 13D Page 22 of 70 Pages
d. Warrants. In consideration of the purchase of the
--------
Common Stock, the Company shall on the Initial Closing Date (subject to
escrow, if applicable) issue and deliver to each Buyer, Warrants to purchase
an additional number of shares of Common Stock equal to one-half the number of
shares of Common Stock that the Buyer purchases at the Initial Closing.
2. SECOND PURCHASE AND SALE OF COMMON STOCK.
----------------------------------------
a. Second Purchase of Common Stock. If so elected by
-------------------------------
Hilal in its sole discretion, and subject to the satisfaction (or waiver) of
the conditions set forth in Sections 7 and 8 below, the Company shall issue
and sell to such additional Buyers as may be designated by Hilal and such
Buyers shall purchase from the Company at a second closing (the "Second
Closing" and, together with the Initial Closing, the "Closings") additional
shares of Common Stock, at the Purchase Price, provided that the aggregate
amount of Common Stock so purchased shall not be more than the difference
between $10 million and the aggregate purchase price of Common Stock purchased
at the Initial Closing. On the Second Closing Date (as defined below) the
Company shall deliver to each such Buyer a stock certificate representing the
number of shares that such Buyer is then purchasing (as indicated opposite
such Buyer's name on the Schedule of Buyers, as amended), duly executed on
behalf of the Company and registered in the name of such Buyer or its
designee.
b. Second Closing Date. The date and time of the Second
-------------------
Closing (the "Second Closing Date" and, together with the Initial Closing
Date, the "Closing Dates") shall be 10:00 a.m. Eastern Standard Time on the
fifth business day following the later of July 7, 1999 or, if applicable, the
release of the escrow closing upon timely satisfaction of the condition in
Section 8(b), but not later than July 21, 1999, subject to the continuing
satisfaction (or waiver) of the conditions set forth in Sections 7 and 8 below
(or such later date as is mutually agreed to by the Company and Hilal). The
Second Closing shall occur on the Second Closing Date at the offices of
Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022.
Notwithstanding the foregoing, if on the Second Closing Date all of the
conditions set forth in Sections 7 and 8 are satisfied except for the
condition in Section 8(b), such closing shall be made into escrow pursuant to
the Escrow Agreement and other appropriate escrow documents, pending
satisfaction of such remaining condition not later than July 14, 1999 (or such
later date as is mutually agreed to by the Company and Hilal). In the event
of such escrow closing, the Second Closing (and the sale of the securities)
shall not be deemed to have been completed unless and until the condition in
Section 8(b) is satisfied in accordance with the terms hereof and of the
Escrow Agreement, but if such condition is timely satisfied, the Second
Closing Date shall be deemed the date of deposit into escrow.
<PAGE>
CUSIP No. 98155G101 13D Page 23 of 70 Pages
c. Form of Payment. On the Second Closing Date (subject
---------------
to escrow, if applicable), each Buyer at the Second Closing shall pay the
Company the Purchase Price for the Common Stock to be issued and sold to such
Buyer at the Second Closing, by wire transfer of immediately available funds
in accordance with the Company's written wire instructions provided in writing
to Hilal at least two days prior to the Second Closing Date.
d. Warrants. In consideration of the purchase of the
--------
additional Common Stock, the Company shall on the Second Closing Date (subject
to escrow, if applicable), issue and deliver to each Buyer at the Second
Closing, Warrants to purchase an additional number of shares of Common Stock
equal to one-half the number of shares of Common Stock that such Buyer
purchases at the Second Closing.
3. BUYER'S REPRESENTATIONS AND WARRANTIES.
--------------------------------------
Each Buyer (including each Buyer purchasing at the Second
Closing) represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer (i) is purchasing the
------------------
Common Stock and the Warrants and (ii) upon exercise of the Warrants, will
acquire the Warrant Shares then issuable for its own account for investment
only and not with a present view towards, or for resale in connection with,
the public sale or distribution thereof; provided, however, that by making the
representations herein, such Buyer does not agree to hold any Securities for
any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an
--------------------------
"accredited investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that
----------------------
the Common Stock and Warrants are being offered and sold to it in reliance on
specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying in part upon
the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the Common Stock and
the Warrants.
<PAGE>
CUSIP No. 98155G101 13D Page 24 of 70 Pages
d. Information. Such Buyer and its advisors, if any,
-----------
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Common Stock and the Warrants which have been requested by such Buyer. Such
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on
the Company's representations and warranties contained in Section 3 below.
e. No Governmental Review. Such Buyer understands that
----------------------
no United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement of
the Securities or the fairness or suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of the
offering of the Securities.
f. Transfer or Resale. Such Buyer understands that
------------------
except as provided in the Registration Rights Agreement: (i) the Securities
have not been and are not being registered under the 1933 Act or any state
securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer
shall have delivered to the Company an opinion of counsel, in a generally
acceptable form, to the effect that such Securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration, or (C) such securities can be sold, assigned or transferred
pursuant to Rule 144 promulgated under the 1933 Act (or a successor rule
thereto) ("Rule 144"); (ii) any sale of such securities made in reliance on
Rule 144 may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 Act or
the rules and regulations of the SEC thereunder; and (iii) neither the Company
nor any other person is under any obligation to register such securities under
the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
g. Legends. Such Buyer understands that the
-------
certificates or other instruments representing the Securities, and, until such
time as the sale of the Securities have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the certificates or other
documents representing the Securities, except as set forth below, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such certificates or other documents):
<PAGE>
CUSIP No. 98155G101 13D Page 25 of 70 Pages
THE SECURITIES REPRESENTED BY THIS [CERTIFICATE] HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Securities upon
which it is stamped, if (i) any such Securities are registered for sale
under the 1933 Act, (ii) in connection with a sale transaction, such
holder provides the Company with an opinion of counsel, in a generally
acceptable form, to the effect that a public sale, assignment or
transfer of any of the Securities may be made without registration under
the 1933 Act, or (iii) any of the Securities can be sold pursuant to
Rule 144 without any restriction as to the number of securities acquired
as of a particular date that can then be immediately sold. Each Buyer
acknowledges, covenants and agrees to sell any of the Securities from
which the legend has been removed only pursuant to (i) a registration
statement effective under the 1933 Act, or (ii) advice of counsel that
such sale is exempt from registration required by Section 5 of the 1933
Act. In the event the above legend is removed from any of the
Securities, the Company may, upon reasonable advance notice to the
holder, require that the above legend be placed on any of the Securities
that cannot then be sold pursuant to an effective registration statement
or Rule 144(k) under the 1933 Act (or any successor rule thereto).
h. Authorization; Enforcement. This Agreement, the
--------------------------
Warrant and the Registration Rights Agreement have been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of the United
---------
States of America.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to each of the Buyers,
except as disclosed in the letter from the Company to the Buyers of even date
herewith containing certain disclosures (the "Disclosure Letter"), that:
<PAGE>
CUSIP No. 98155G101 13D Page 26 of 70 Pages
a. Organization and Qualification. The Company and its
------------------------------
sole subsidiary, Deming Software, Inc., are corporations duly organized and
validly existing in good standing under the laws of the jurisdiction in which
they are incorporated, and have the requisite corporate power to own their
properties and to carry on their business as now being conducted. Each of the
Company and its subsidiary is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect. "Material Adverse Effect" means any material
adverse effect on (i) the business, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company
and its subsidiary, taken as a whole, or (ii) on the ability of the Company to
perform its obligations hereunder or under the agreements or instruments to be
entered into or filed in connection herewith, or under the Securities.
b. Authorization; Enforcement; Compliance with Other
-------------------------------------------------
Instruments. (i) The Company has the requisite corporate power and
- -----------
authority to enter into and perform its obligations under this Agreement, the
Warrant and the Registration Rights Agreement (collectively, the "Closing
Agreements"), to issue and sell the Common Stock in accordance with the terms
hereof, and to issue the Warrant Shares upon the exercise of the Warrants, in
accordance with the terms and conditions of the Warrants, (ii) the execution
and delivery of the Closing Agreements by the Company and the consummation by
it of the transactions described herein and therein, including, without
limitation, the issuance of the Common Stock and the Warrants and the
reservation for issuance and the issuance of the Warrant Shares upon exercise
of the Warrants have been duly authorized by the Company's Board of Directors
and no further consent or authorization is required by the Company, its Board
of Directors or its stockholders under the Delaware General Corporation Law,
the Company's Certificate of Incorporation or otherwise, and, (iii) the
Closing Agreements have been duly executed and delivered by the Company, and
constitute the valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally, the enforcement of creditors' rights
and remedies.
c. Capitalization and Indebtedness. As of the date
-------------------------------
hereof, the authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, of which as of the date hereof 10,947,188 shares are
issued and outstanding, and 6,500,000 shares of Preferred Stock, par value
$.01 per share (the "Preferred Stock"), none of which as of the date hereof
are issued or outstanding. All of the outstanding shares of Common Stock have
been validly issued and are fully paid and nonassessable. No shares of Common
Stock or Preferred Stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances created or agreed to by the Company. As
of the date hereof, (i) there are no outstanding options, warrants, scrip,
<PAGE>
CUSIP No. 98155G101 13D Page 27 of 70 Pages
rights to subscribe to, calls or commitments issued by the Company of any
character whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of the Company or its subsidiary, or contracts,
commitments, understandings or arrangements by which the Company or its
subsidiary is or may become bound to issue additional shares of capital stock
of the Company or its subsidiary or to issue options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into, any shares of capital stock of the
Company or its subsidiary, (ii) there are no outstanding debt securities,
notes, credit agreements, or other agreements, documents or instruments
evidencing indebtedness for borrowed money in excess of $250,000 of the
Company or its subsidiary or by which the Company or subsidiary is or may
become bound and (iii) there are no agreements or arrangements under which the
Company or its subsidiary is obligated to register the sale of any of their
securities under the 1933 Act (except the Registration Rights Agreement) or
which conflict in any way with the Registration Rights Agreement. There are
no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of any of the Securities as described
in this Agreement. The Company has furnished to the Buyer true and correct
copies of the Company's Certificate of Incorporation, as amended and as in
effect on the date hereof (the "Certificate of Incorporation"), and the
Company's By-laws, as in effect on the date hereof (the "By-laws"), and the
terms of all securities convertible into or exercisable for Common Stock and
the material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Securities are duly
----------------------
authorized and, upon issuance in accordance with the terms hereof and the
Warrants, as the case may be, shall be validly issued, fully paid and non-
assessable, free from all taxes, liens and charges with respect to the issue
thereof, and are not and shall not be (except to Buyers), as the case may be,
subject to preemptive rights or other similar rights of stockholders of the
Company. The maximum number of shares of Common Stock issuable pursuant to
this Agreement, including those issuable upon exercise of the Warrants as
currently in effect, have been duly authorized and reserved for issuance.
e. No Conflicts. The execution, delivery and
------------
performance of the Closing Agreements by the Company, and the consummation by
the Company of the transactions contemplated hereby and thereby (including,
without limitation, the issuance of the Securities) do not (i) result in a
violation of the Certificate of Incorporation or By-laws or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or its subsidiary is a party, or result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and the rules and
regulations of the principal market or exchange on which the Common Stock is
traded or listed) of any governmental entity applicable to the Company or its
subsidiary or by which any property or asset of the Company or its subsidiary
<PAGE>
CUSIP No. 98155G101 13D Page 28 of 70 Pages
is bound or named as a party, the violation of, breach of or conflict with
which reasonably could be expected to have a Material Adverse Effect. Neither
the Company nor its subsidiary is in violation of any term of or in default
under its Certificate of Incorporation or By-laws or its organizational
charter or by-laws, respectively, or in material violation of any term of or
in default under any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiary. The business of the
Company and its subsidiary is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, which violation reasonably
could be expected to have a Material Adverse Effect. Except as specifically
described in the Closing Agreements and as required under the 1933 Act and
applicable State securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any court or governmental agency or NASDAQ in order for it to execute, deliver
or perform any of its obligations under any of the Closing Agreements in
accordance with the terms hereof or thereof. All consents, authorizations,
orders, filings and registrations that the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior
to the date hereof. Upon consummation of the Initial Closing, the Company
will not be in violation of the listing requirements of the NASDAQ National
Market and does not reasonably anticipate that the Common Stock will be
delisted by the NASDAQ National Market in the foreseeable future. The Company
and its subsidiary are unaware of any facts or circumstances which might give
rise to any of the foregoing.
f. SEC Documents; Financial Statements. Since the
-----------------------------------
Company's initial public offering, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to
the date hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC Documents"). The Company (i) has
delivered or made available to each Buyer or its representative true and
complete copies of the SEC Documents as each Buyer or its representative has
requested from the Company and (ii) agrees to deliver or make available to
each Buyer or its representative true and complete copies of any additional
SEC Documents, upon request. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and
the rules and regulations of the SEC promulgated thereunder applicable to the
SEC Documents, and none of the SEC Documents, at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements
of the Company included in the SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied during the periods involved (except (i) as
<PAGE>
CUSIP No. 98155G101 13D Page 29 of 70 Pages
may be otherwise indicated in such financial statements or the notes thereto,
or (ii) in the case of unaudited interim statements, to the extent they may
exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of
the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). No other information provided by or on behalf of
the Company to any Buyer which is not included in the SEC Documents,
including, without limitation, information referred to in Section 3(d) of this
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they are or were made, not misleading.
g. Absence of Certain Changes. Except as expressly
--------------------------
disclosed in SEC Documents filed after December 31, 1998 and prior to the date
hereof, since December 31, 1998, there has been no material adverse change and
no material adverse development in the business, properties, operations,
condition (financial or otherwise) or results of operations or prospects of
the Company and its subsidiary taken as a whole, it being agreed that if the
Company has sales of at least $2.5 million and an operating loss not exceeding
$2 million for its second 1999 fiscal quarter, such level of sales as net loss
shall not be deemed to constitute a material adverse change. The Company has
not taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company or its
subsidiary have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
---------------------
proceeding, inquiry or investigation before or by any court, government agency
or body pending or, to the knowledge of the Company or its subsidiary,
threatened against or affecting the Company or its subsidiary or their
respective directors or officers, or the Common Stock, wherein an unfavorable
decision, ruling or finding, individually or in the aggregate, reasonably
could be expected to have a Material Adverse Effect. The Disclosure Letter
contains a complete list and summary description of any pending, or to the
knowledge of the Company, threatened proceeding against or affecting the
Company or its subsidiary, without regard to whether it could have a Material
Adverse Effect.
i. Acknowledgment Regarding Buyers' Purchase of the
------------------------------------------------
Securities. The Company acknowledges and agrees that each of the Buyers is
- ----------
acting solely in the capacity of arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that each Buyer is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any of the Buyers
or any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to
such Buyer's purchase of the Securities. The Company further represents to
<PAGE>
CUSIP No. 98155G101 13D Page 30 of 70 Pages
each Buyer that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation by the Company and its
representatives.
j. No General Solicitation. Neither the Company, nor
-----------------------
any person acting on its behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the 1933 Act) in connection with the offer or sale of any of the Securities
offered hereby.
k. No Integrated Offering. Neither the Company, nor any
----------------------
person acting on its behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under
circumstances that would require registration of any of the Securities under
the 1933 Act or cause the offering of any of the Securities to be integrated
with prior offerings by the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of the National Association of Securities
Dealers Automated Quotation system ("NASDAQ").
l. Employment Matters; ERISA Matters. The Company and
---------------------------------
its subsidiary are in compliance with all federal, state, local and foreign
laws and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours except where failure to be in
compliance would not have a Material Adverse Effect. To the Company's
knowledge, there are no pending investigations involving the Company or its
subsidiary by the U.S. Department of Labor or any other governmental agency
responsible for the enforcement of such federal, state, local or foreign laws
and regulations. To the Company's knowledge, there is no unfair labor
practice charge or complaint against the Company or its subsidiary pending
before the National Labor Relations Board or any strike, picketing, boycott,
dispute, slowdown or stoppage pending or threatened against the Company or its
subsidiary. No collective bargaining agreement or modification thereof is
currently being negotiated by the Company or its subsidiary. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company or its subsidiary. No material labor
dispute with the employees of the Company or its subsidiary exists or, to the
knowledge of the Company, is imminent.
m. Intellectual Property Rights. The Company and its
----------------------------
subsidiary own or possess the requisite rights or licenses to use all
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights currently used and
necessary to conduct their respective businesses (collectively, "Intellectual
Property Rights"). None of the Intellectual Property Rights or other
intellectual property rights are expected to expire or terminate in the near
future to the extent such expiration or termination could reasonably be
<PAGE>
CUSIP No. 98155G101 13D Page 31 of 70 Pages
expected to have a Material Adverse Effect. The Company does not have any
knowledge of any event, fact or circumstance relating to (i) any infringement
by the Company or its subsidiary of any trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations,
trade secrets or other similar rights of others, or (ii) any person or entity
now infringing any Intellectual Property Rights or other similar rights owned
or used by the Company or its subsidiary and, to the Company's knowledge,
there is no claim, action or proceeding being made or brought against, or
being threatened against, the Company or its subsidiary regarding any
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets or other similar rights of others,
or any person or entity now infringing any Intellectual Property Rights or
other similar rights; and the Company and its subsidiary are unaware of any
facts or circumstances which could reasonably be expected to give rise to any
of the foregoing. The Company and its subsidiary have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their Intellectual Property Rights.
n. Environmental Laws. (i) The Company and its
------------------
subsidiary (A) are in material compliance with any and all Environmental Laws,
(B) have received all material permits, licenses or other approvals required
of them under applicable Environmental Laws to conduct their respective
businesses, and (C) are in material compliance with all terms and conditions
of any such permit, license or approval. With respect to the Company and/or
its subsidiary (A) there are no past or present releases of any material into
the environment, actions, activities, circumstances, conditions, events,
incidents, or contractual obligations attributable to such entity which may
give rise to any common law environmental liability or any liability under any
Environmental Law by such entity and (B) neither the Company nor its
subsidiary has received any currently effective notice with respect to the
foregoing, nor is any action pending or to the Company's knowledge, threatened
in connection with the foregoing. The term "Environmental Laws" means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved
thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law or those not attributable to the
acts or omissions of the Company or its subsidiary, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
<PAGE>
CUSIP No. 98155G101 13D Page 32 of 70 Pages
Company or its subsidiary, and no Hazardous Materials were released on or
about any real property previously owned, leased or used by the Company or its
subsidiary during the period the property was owned, leased or used by the
Company or its subsidiary.
(iii) There are no underground storage tanks on or under
any real property owned, leased or used by the Company or its subsidiary that
are not in compliance with applicable Environmental Laws.
o. Title. The Company and its subsidiary have good and
-----
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them that is material to the business
of the Company and its subsidiary, in each case free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed
to be made of such property by the Company and its subsidiary. Any real
property and facilities held under lease by the Company and its subsidiary are
held by them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not materially interfere with the use
made and proposed to be made of such property and buildings by the Company and
its subsidiary.
p. Insurance. The Company and its subsidiary are
---------
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as is prudent and customary in the businesses in
which the Company and its subsidiary are engaged. Neither the Company nor
such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not individually or in the aggregate have a
Material Adverse Effect.
q. Regulatory Permits; Compliance. The Company and its
------------------------------
subsidiary possess all franchises, grants, authorizations, licenses permits,
easements, consents, certificates, approvals and orders necessary to own,
lease and operate its properties and to conduct their respective businesses as
currently being conducted (collectively, the "Company Permits"). There is no
action pending, or to the knowledge of the Company, threatened regarding the
suspension or cancellation of any of the Company Permits. Neither the Company
nor its subsidiary is in default or violation of any of the Company Permits.
Neither the Company nor its subsidiary has received any currently effective
notification with respect to its possible default or violation of applicable
laws.
r. Internal Accounting Controls. The Company and its
----------------------------
subsidiary maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
<PAGE>
CUSIP No. 98155G101 13D Page 33 of 70 Pages
general or specific authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
s. No Materially Adverse Contracts, Etc. Neither the
-------------------------------------
Company nor its subsidiary is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation of any court
or governmental agency which in the reasonable judgment of the Company's
officers has or is expected in the future individually or in the aggregate to
have a Material Adverse Effect. Neither the Company nor its subsidiary is a
party to any contract or agreement which in the reasonable judgment of the
Company's officers has or is expected to have a Material Adverse Effect.
t. Tax Status. Each of the Company and its subsidiary
----------
has made or filed all federal, state and foreign income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and its subsidiary has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provision reasonably adequate for
the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The
Company has not executed a waiver with respect to the statute of limitations
relating to the assessment or collection of any foreign, federal, state or
local tax. The Company has not been notified that any of its tax returns is
currently being audited by any taxing authority.
u. Certain Transactions. Except for arm's length
--------------------
transactions pursuant to which the Company makes payments in the ordinary
course of business upon terms no less favorable than the Company could obtain
from third parties and other than the grant of stock options, none of the
officers, directors or employees of the Company is presently a party to any
transaction with the Company (other than for services as employees, officers
and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of
real or personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any
officer, director or any such employee has a substantial interest or is an
officer, director, trustee or partner.
<PAGE>
CUSIP No. 98155G101 13D Page 34 of 70 Pages
v. S-3 Registration. The Company is currently eligible
----------------
to register securities, including the resale of the Common Stock and the
Warrant Shares, on a registration statement on Form S-3 under the 1933 Act.
w. Disclosure. All information relating to or
----------
concerning the Company or its subsidiary set forth in this Agreement and
provided to the Buyers pursuant to Section 3(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and correct in
all material respects and the Company has not omitted to state any material
fact necessary in order to make the statements made herein or therein, in
light of the circumstances under which they were made, not misleading. No
event or circumstance has occurred or information exists with respect to the
Company or its subsidiary or its or their business, properties, operations or
financial conditions, which, under applicable law, rule or regulation of the
SEC, requires public disclosure or announcement by the Company but which has
not been so publicly announced or disclosed.
x. No Qualified Opinion. The Company has not received
--------------------
an opinion, report or letter from its auditors qualified in any respect,
including as to the Company's ability to proceed as a going concern in
connection with the Company's financial statements and, provided that the
transactions contemplated hereby are consummated, does not anticipate or know
of any basis upon which its auditors might issue any such opinion, report or
letter.
y. Investment Company Status. The Company is not and
-------------------------
upon consummation of the sale of the Securities (but without regard to the
status of the Buyers under the Investment Company Act of 1940, as amended)
will not be an "investment company," as such term is defined in the Investment
Company Act of 1940, as amended.
z. Foreign Corrupt Practices. To the Company's
-------------------------
knowledge, neither the Company nor its subsidiary, nor any director, officer,
agent, employee or other person acting on behalf of the Company or its
subsidiary has, in the course of his actions for, or on behalf of, the
Company: (i) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; (ii)
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii) violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or (iv) made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
aa. Year 2000. Any reprogramming required to permit the
---------
proper functioning, in and following the year 2000, of the Company's and its
subsidiary's (i) computer systems and (ii) equipment containing imbedded
<PAGE>
CUSIP No. 98155G101 13D Page 35 of 70 Pages
microchips (including systems and equipment supplied by others to the Company
or with which are sold as an integral part of Company's or its subsidiary's
systems) and the testing of such systems and equipment, as so reprogrammed has
been completed. The cost to the Company and its subsidiary of such
reprogramming and testing and of the reasonably foreseeable consequences of
year 2000 to the Company and its subsidiary with respect to the matters
referred to in the previous sentence (including without limitation,
reprogramming errors and the failure of systems or equipment supplied by
others to the Company or which are sold as an integral part of the Company's
or its subsidiary's systems) will not have a Material Adverse Effect. The
computer and management information systems of the Company and its subsidiary
are and, with ordinary course upgrading and maintenance, will continue to be,
sufficient to permit the Company and its subsidiary to conduct its business
without a Material Adverse Effect caused thereby.
5. COVENANTS AND AGREEMENTS.
------------------------
a. Best Efforts. Each party shall use its best efforts
------------
timely to satisfy each of the conditions to be satisfied by it as provided in
Sections 7 and 8 of this Agreement.
b. Form D. The Company agrees to file a Form D with
------
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before each Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to the Buyers at such Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to such Closing Date.
c. Reporting Status. Until six months after the date as
----------------
of which the Investors (as that term is defined in the Registration Rights
Agreement) may sell all of the Common Stock and Warrant Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto) (the "Registration Period"), the Company (x) shall timely
file all reports required to be filed with the SEC pursuant to the 1934 Act,
and the Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would otherwise permit such termination and (y) will use its best
efforts and take all necessary action to maintain its ability and eligibility
to register securities on Form S-3.
d. Use of Proceeds. The Company will use the proceeds
---------------
from the sale of the Common Stock and Warrants for working capital and general
corporate purposes and shall not otherwise, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership,
<PAGE>
CUSIP No. 98155G101 13D Page 36 of 70 Pages
enterprise or other person (except in connection with its direct or indirect
subsidiaries) or for the repurchase, redemption, or retirement of any capital
stock of the Company.
e. Financial Information. The Company agrees to file
---------------------
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the 1934
Act. The financial statements of the Company will be prepared in accordance
with generally accepted accounting principles, consistently applied, and will
fairly present in all material respects the consolidated financial position of
the Company and its consolidated subsidiaries and results of their operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
f. Reservation of Shares. The Company shall take all
---------------------
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than the number of shares of Common Stock necessary to
provide for the issuance of the Warrant Shares upon exercise of the Warrants,
in accordance with the terms of this Agreement and the Warrants.
g. Listing. The Company shall promptly secure the
-------
listing of the Common Stock and Warrant Shares upon the NASDAQ National Market
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, the listing of the Common
Stock issued and all Warrant Shares from time to time issuable under the terms
of this Agreement and the Warrants on each national securities exchange and
automated quotation system, if any, upon which shares of Common Stock are then
listed. The Company shall promptly provide to Hilal copies of any notices it
receives from NASDAQ regarding the continued eligibility of the Common Stock
for listing on NASDAQ or other principal exchange or quotation system on which
the Common Stock is listed or traded.
h. Expenses. Each of the Company and the Buyers shall
--------
each pay its respective costs and expenses incurred by such party in
connection with the negotiation, investigation, preparation, execution,
delivery and performance of the Closing Agreements; provided, that at the
Closings (or if sooner upon the deposits into escrow contemplated by Sections
1(b) and 2(b)), the Company shall reimburse the Buyers for Buyers' attorneys'
fees and expenses incurred in connection with the preparation of the Closing
Agreements up to an aggregate of $25,000.
i. Additional Issuances of Securities.
----------------------------------
(i) Right of Purchase. If at any time the Company
-----------------
shall desire to issue any Common Stock or any security convertible,
exchangeable or exercisable for Common Stock or any other right to acquire any
<PAGE>
CUSIP No. 98155G101 13D Page 37 of 70 Pages
Common Stock (the "Convertible Securities") pursuant to Section 4(2) of the
1933 Act or an offering under Regulation D or Regulation S of the 1933 Act or
in any other private placement (other than Exempt Issuances under Section
5(i)(v) below), then the Company shall comply with the terms of this Section
5(i).
(ii) Notice Requirements. The Company shall notify,
-------------------
or cause to be notified, the Buyers not less than twenty (20) business days
prior to the time the Company intends to consummate such issuance (the
"Issuance Notice"). The Issuance Notice shall set forth all of the terms of
such proposed issuance.
(iii) Exercise of Right of Purchase. The right of
-----------------------------
purchase provided for in this Section 5(i) may be exercised by the Buyers by
delivery of a written notice to the Company (the "Exercise Notice"), within
ten (10) business days following receipt of the Issuance Notice (the "Exercise
Period"). The Exercise Notice shall state that the Buyers (and among them in
such proportion as they may agree) desire to purchase up to that portion of
the proposed issuance of such Common Stock or Convertible Securities as
necessary to maintain the Buyers' pro rata ownership of the outstanding Common
Stock of the Company (assuming conversion of the Convertible Securities, if
applicable) on terms substantially equal to the terms set forth in the
Issuance Notice, which Exercise Notice shall set forth the portion of the
issuance so elected to be purchased.
(iv) Right to Issue Securities. In the event that
-------------------------
the proposed issuance is consummated on terms substantially equal to the terms
set forth in the Issuance Notice within forty-five (45) calendar days
following the termination of the Exercise Period the Company shall sell to the
Buyers concurrently the securities they elected to purchase if such issuance
is not consummated within such 45 day period substantially on the terms
described in the Issuance Notice, no such issuance may be made without again
giving notice to the Buyers and complying with all of the requirements of this
Section 5(i).
(iv) Exempt Issuances. The following issuances of
----------------
Common Stock or Convertible Securities shall be "Exempt Issuances" not subject
to the right of purchase in this Section 5(i):
(a) any shares of the Company's Common Stock and/or
Convertible Securities issued to employees, officers, directors, contractors,
advisors or consultants of the Company pursuant to incentive agreements or
plans approved by the Board of Directors of the Company;
(b) any securities issuable upon exercise of any
Convertible Securities outstanding on the date of this agreement;
(c) shares of the Company's Common Stock issued in
<PAGE>
CUSIP No. 98155G101 13D Page 38 of 70 Pages
connection with any stock split or stock dividend;
(d) securities offered by the Company to the public
pursuant to a registration statement filed under the Securities Act;
(e) any shares of the Company's Common Stock (and/or
options or warrants therefor) issued or issuable to parties providing the
Company with equipment leases, real property leases, loans, credit lines,
guaranties of indebtedness, cash price reductions or similar financing;
(f) securities issued pursuant to the acquisition of
another corporation or entity by the Company by consolidation, merger,
purchase of all or substantially all of the assets, or other reorganization in
which the Company acquires, in a single transaction or series of related
transactions, all or substantially all of the assets of such other corporation
or entity or fifty percent (50%) or more of the voting power of such other c
corporation or entity or fifty percent (50%) or more of the equity ownership
of such other entity; or
(g) securities issued to a strategic business
partner who is either a supplier or customer of the Company.
j. Board Representation. The Company shall cause Paul
--------------------
Hilal to be elected to serve on the Board of Directors of the Company (or, if
Paul Hilal is unable to serve, such other person as may be designated by Hilal
who is reasonably acceptable to the Company) for so long as the Buyers in
aggregate hold at least 25% (assuming the exercise of all Warrants) of all
Common Stock issued or issuable to the Buyers pursuant to this Agreement and
the Warrants. The Company shall compensate Paul Hilal (or such other
designees) for reasonable travel expenses in connection with his duties as a
Director, and pay such person such other compensation as may be paid to any
outside Director not represented by a venture capital investor in such
person's capacity as a Director. The Company also agrees that such person
shall be covered by director/officer liability insurance and indemnification
by the Company to the same extent as any other Director.
k. No Integration. The Company will not conduct any
--------------
future offering that will be integrated with the issuance of the Securities
for purposes of the rules promulgated by the SEC.
l. Confidentiality. The Buyers agree to keep
---------------
confidential any non-public information heretofore disclosed to them by the
Company, in accordance with customary confidentiality restrictions.
6. TRANSFER AGENT INSTRUCTIONS.
---------------------------
The Company shall issue irrevocable instructions to its transfer
<PAGE>
CUSIP No. 98155G101 13D Page 39 of 70 Pages
agent (in the form attached hereto as Exhibit E) to issue certificates, or at
---------
a Buyer's request, to electronically issue such shares (e.g., through DWAC or
DTC), registered in the name of each Buyer or its respective nominee(s), for
the Warrant Shares in such amounts as specified from time to time by each
Buyer to the Company in accordance with the terms of and upon exercise of the
Warrants (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Common Stock and the Warrant Shares under the 1933 Act,
such certificates shall bear the restrictive legend specified in Section 3(g)
of this Agreement. The Company warrants that no instruction with respect to
the Securities other than (i) the Irrevocable Transfer Agent Instructions
referred to in this Section 6, and (ii) stop transfer instructions (a) to give
effect to Section 3(f) hereof (in the case of the Common Stock and the Warrant
Shares, prior to registration of the Common Stock and the Warrant Shares under
the 1933 Act), (b) to comply with any SEC or court order, or (c) to suspend
use of a then effective registration statement in the event an amendment or
supplement thereto is necessary, will be given by the Company to its transfer
agent and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in the Closing
Agreements. Nothing in this Section 6 shall affect in any way each Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of any of the Securities. If a Buyer provides the Company with an
opinion of counsel, reasonably satisfactory in form and substance to the
Company, that registration of a resale by such Buyer of any of the Securities
is not required under the 1933 Act, the Company shall permit the transfer,
and, in the case of the Common Stock or Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 6 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 6, that the Buyers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic
loss and without any bond or other security being required.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
----------------------------------------------
The obligation of the Company hereunder to issue and sell the
Common Stock and Warrants to each Buyer at each Closing is subject to the
satisfaction, with respect to each Buyer, at or before the applicable Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion:
a. Such Buyer shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
b. Such Buyer or the Escrow Agent shall have delivered to the
Company the purchase price for the Common Stock being purchased by such Buyer
<PAGE>
CUSIP No. 98155G101 13D Page 40 of 70 Pages
at such Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided by the Company.
c. The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and as of
such Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Buyer at or prior to such Closing Date.
d. The transactions contemplated hereby shall not violate any
law, regulation or order then in effect and applicable to Buyers or the
Company.
e. Such Buyers shall have entered into the Escrow Agreement.
8. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
-------------------------------------------------
The obligation of each Buyer hereunder to purchase the Common Stock
and Warrants at each Closing is subject to the satisfaction, at or before the
applicable Closing Date, of each of the following conditions, provided that
these conditions are for the Buyers' sole benefit and may be waived by a
Majority of the Buyers (as defined in Section 10(e) hereof) at any time in its
sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyers.
b. The Common Stock and Warrant Shares shall be listed and
authorized for trading, upon notice of issuance, on the NASDAQ National
Market, and trading in the Common Stock shall not have been suspended by the
SEC or NASDAQ. The Company shall have received and furnished to the Buyers a
letter from NASDAQ confirming its approval of the continued listing of the
Common Stock on NASDAQ-NMS subject to no conditions other than consummation of
the Initial Closing (and subject to NASDAQ's published requirements for
continued listing, all of which shall then be satisfied), and such letter
shall not have been withdrawn or modified.
c. The representations and warranties of the Company shall be
true and correct in all material respects (except to the extent that any of
such representations and warranties is already qualified as to materiality in
Section 4 above, in which case such representations and warranties shall be
true and correct without further qualification) as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing Date.
Such Buyer shall have received a certificate, executed by the Chief Executive
Officer and Chief Financial Officer of the Company, dated as of the Closing
<PAGE>
CUSIP No. 98155G101 13D Page 41 of 70 Pages
Date, to the foregoing effect and as to board resolutions, incumbency, charter
and bylaws, and an update as of the Closing Date regarding the representation
contained in Section 4(c) hereof.
d. The Buyers shall have received the opinion of Fenwick &
West LLP, counsel to Company, dated as of the Closing Date, in form reasonably
satisfactory to Hilal and to the effect set forth in Exhibit F attached
---------
hereto.
e. The Company shall have executed and delivered to each Buyer
the Warrants being purchased by such Buyer at the Closing.
f. As of the Closing Date, the Company shall have reserved out
of its authorized and unissued Common Stock, solely for the purpose of
effecting the exercise of the Warrants, an additional number of shares of
Common Stock sufficient to provide for the issuance of the Warrant Shares in
accordance with the terms of this Agreement and the Warrants.
g. The Irrevocable Transfer Agent Instructions, in the form of
Exhibit G attached hereto, shall have been delivered to and acknowledged in
- ---------
writing by the Company's transfer agent.
h. The transactions contemplated hereby shall not violate any
law, regulation or order then in effect and applicable to Buyers or the
Company.
i. Paul Hilal shall have been duly elected as a director of
the Company.
j. There shall not have occurred any mutual adverse change in
the business condition (financial or otherwise), results of operations or
prospects of the Company since the date of this Agreement.
9. INDEMNIFICATION.
---------------
In consideration of each Buyer's execution and delivery of this
Agreement and acquiring the Securities hereunder and in addition to all of the
Company's other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of
Securities and all of their officers, directors, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Buyer
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses
in connection therewith (irrespective of whether any such Buyer Indemnitee is
a party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Buyer Indemnified
Liabilities"), incurred by any Buyer Indemnitee (and shall advance the same)
as a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in the Closing
Agreements or any other certificate, instrument or document contemplated
<PAGE>
CUSIP No. 98155G101 13D Page 42 of 70 Pages
hereby or thereby, (b) any breach of any covenant, agreement or obligation of
the Company contained in the Closing Agreements or any other certificate,
instrument or document contemplated hereby or thereby, or (c) the execution,
delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the Buyer
Indemnitees. To the extent that the foregoing undertaking by the Company may
be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Buyer Indemnified
Liabilities which is permissible under applicable law. This indemnity will
survive the Initial Closing or Second Closing for one year after the date of
the Initial Closing and will not apply to any grossly negligent acts or
willful misconduct of any Buyer.
10. GOVERNING LAW; MISCELLANEOUS.
----------------------------
a. Governing Law. This Agreement shall be governed by
-------------
and interpreted in accordance with the laws of the State of California without
regard to the principles of conflict of laws.
b. Counterparts. This Agreement may be executed in two
------------
or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party. In the event any signature
page is delivered by facsimile transmission, the party using such means of
delivery shall cause four additional original executed signature pages to be
physically delivered to the other party within five days of the execution and
delivery hereof.
c. Headings. The headings of this Agreement are for
--------
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement
------------
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement
----------------------------
supersedes all other prior oral or written agreements between the Buyers, the
Company, their affiliates and persons acting on their behalf with respect to
the matters discussed herein, and this Agreement and the documents referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
<PAGE>
CUSIP No. 98155G101 13D Page 43 of 70 Pages
of this Agreement may be waived or amended other than by an instrument in
writing signed by the Company and Buyers purchasing a majority of the Common
Stock hereunder (a "Majority of the Buyers").
f. Notices. Any notices, consents, waivers or other
-------
communications required or permitted to be given under the terms of this
Agreement shall be in writing and will be deemed to have been delivered (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile; (iii) three days after being sent by U.S. certified mail, return
receipt requested, or (iv) one day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Worldtalk Communications Corp.
5155 Old Ironsides Drive
Santa Clara, CA 95054
Telephone: (650) 567-1500
Facsimile: (650) 567-5122
Attention: Chief Executive Officer and
Chief Financial Officer
With a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Telephone: (650) 494-0600
Facsimile: (650) 494-1417
Attention: Gail E. Suniga, Esq.
If to the Transfer Agent:
State Street Bank and Trust
Company of California, N.A.
633 W. 5th Street, 12th Floor
Los Angeles, CA 90071
Telephone: (213) 362-7373
Facsimile: (213) 362-7357
Attention: Transfer Agency Department
If to a Buyer, to its address and facsimile number on the
Schedule of Buyers, with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Marc Weingarten
<PAGE>
CUSIP No. 98155G101 13D Page 44 of 70 Pages
Each party shall provide five days' prior written notice to the
other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be
----------------------
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Securities. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of a Majority of the Buyers. A Buyer may
assign some or all of its rights hereunder without the consent of the Company,
provided, however, that (i) any such assignment shall not release such Buyer
from its obligations hereunder unless such obligations are assumed by such
assignee and the Company has consented to such assignment and assumption, and
(ii) no Buyer may assign its rights hereunder in a manner that would cause the
offering of Securities hereunder to be required to be registered under the
1933 Act.
h. No Third Party Beneficiaries. This Agreement is
----------------------------
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. The representations and warranties of the
--------
Company and the Buyers contained in Sections 4 and 3, respectively, and the
agreements and covenants set forth in Sections 5, 6 and 10, and the
indemnification provisions set forth in Section 11, shall survive the Closing.
Each Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
j. Publicity. The Company and Hilal shall have the
---------
right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
--------
however, that the Company shall be entitled, without the prior approval of
- -------
Hilal, to make any press release or other public disclosure with respect to
such transactions as is required by applicable law and regulations (although
Hilal shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof), but only to the extent required by such law or
regulation.
k. Further Assurances. Each party shall do and perform,
------------------
or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
<PAGE>
CUSIP No. 98155G101 13D Page 45 of 70 Pages
l. Enforcement. In any litigation between the parties
-----------
with respect to or arising under the Closing Agreements, the prevailing party
shall be entitled to payment of its reasonable costs and expenses (including,
without limitation, reasonable legal fees and expenses) in connection
therewith from the other party.
m. Equitable Relief. Each party recognizes that in the
----------------
event that it fails to perform, observe, or discharge any or all of its
obligations under this Agreement, any remedy at law may prove to be inadequate
relief to the other parties. Each party therefore agrees that the other
parties shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages.
<PAGE>
CUSIP No. 98155G101 13D Page 46 of 70 Pages
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
- ------- ------
WORLDTALK COMMUNICATIONS HILAL CAPITAL, LP
CORPORATION
By: Hilal Capital Partners LLC,
General Partner
By: By:
-------------------------- ----------------------------
Name: Name: Peter K. Hilal, MD
Title: Title: Managing Member
HILAL CAPITAL QP, LP
By: Hilal Capital Partners LLC,
General Partner
By:
------------------------
Name: Peter K. Hilal, MD
Title: Managing Member
HILAL CAPITAL ASSOCIATES LLC
By: Hilal Capital Partners LLC,
its Managing Member
By:
-------------------------
Name: Peter K. Hilal, MD
Title: Managing Member
<PAGE>
CUSIP No. 98155G101 13D Page 47 of 70 Pages
HILAL CAPITAL
INTERNATIONAL, LTD
By: Hilal Capital Management LLC,
Investment Manager
By:
------------------------
Name: Peter K. Hilal, MD
Title: Managing Member
---------------------------------
Phil Hilal
HIGHBRIDGE INTERNATIONAL
By: Hilal Capital Management LLC,
Investment Manager
By:
------------------------
Name: Peter K. Hilal, MD
Title: Managing Member
NARRAGANSETT I, LP
By: Narragansett Asset
Management, LLC
General Partner
By:
------------------------
Name: Joseph Dowling
Title: Managing Member
NARRAGANSETT OFFSHORE LTD.
By: Leo Holdings, LLC
Investment Adviser
By:
------------------------
Name: Joseph Dowling
Title: Managing Member
<PAGE>
CUSIP No. 98155G101 13D Page 48 of 70 Pages
SCHEDULE OF BUYERS
Investor Address, Aggregate Shares
Telephone and Purchase of Common
Investor Name Facsimile Number Price Stock Warrants
- ------------- ---------------- --------- --------- --------
Hilal Capital, LP 60 East 42nd Street $526,000.00 175,333 87,667
Suite 1946
New York, NY 10165
Facsimile: (212) 953-1012
Hilal Capital QP, LP 60 East 42nd Street $1,343,000.00 447,667 223,833
Suite 1946
New York, NY 10165
Facsimile: (212) 953-1012
Hilal Capital 60 East 42nd Street $3,584,000.00 1,194,667 597,333
Associates LLC Suite 1946
New York, NY 10165
Facsimile: (212) 953-1012
Hilal Capital c/o Hilal Capital $1,808,000.00 602,667 301,333
International, Ltd. Management LLC
60 East 42nd Street
Suite 1946
New York, NY 10165
Facsimile: (212) 953-1012
Philip Hilal c/o Hilal Capital $300,000.00 100,000 50,000
Management LLC
60 East 42nd Street
Suite 1946
New York, NY 10165
Facsimile: (212) 953-1012
Highbridge c/o Hilal Capital $1,939,000.00 646,333 323,167
International Management LLC
60 East 42nd Street
Suite 1946
New York, NY 10165
Facsimile: (212) 953-1012
Narragansett I, LP c/o Narragansett Asset $395,000.00 131,667 65,833
Management LLC
375 Park Avenue, Suite 1404
New York, New York 10152
Facsimile: (212) 521-5029
Narragansett c/o Leo Holdings, LLC $105,000.00 35,000 17,500
Offshore Ltd. 375 Park Avenue, Suite 1404
New York, NY 10152
Facsimile: (212) 521-5029
<PAGE>
CUSIP No. 98155G101 13D Page 49 of 70 Pages
EXHIBIT 3
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH
ACT AND SUCH LAWS.
WORLDTALK COMMUNICATIONS CORPORATION
COMMON STOCK PURCHASE WARRANT
No. W-[ ] July 7, 1999
--
Warrant to Purchase [ ]
------
Shares of Common Stock
WORLDTALK COMMUNICATIONS CORPORATION, a Delaware corporation (the
"Company"), for value received, hereby certifies that , or registered
-------
assigns (the "Holder"), is entitled to purchase from the Company duly
-------
authorized, validly issued, fully paid and nonassessable shares of Common
Stock, par value $.01 per share, of the Company (the "Common Stock"), at a
purchase price equal to $7.00 per share, at any time or from time to time
prior to 5:00 P.M., New York City time, on July 7, 2006 (the "Expiration
Date"), all subject to the terms, conditions and adjustments set forth below
in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants
(collectively, the "Warrants", such term to include any such warrants issued
in substitution therefor) originally issued pursuant to the terms of the
Securities Purchase Agreement, dated as of July 7, 1999, by and among the
Company and the "Buyers" signatory thereto (the "Purchase Agreement").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned such terms in the Purchase Agreement.
After the later of (a) the Initial Closing Date or (b) the date the
Purchase Price is released to the Company pursuant to the Escrow Agreement
(the "Release Date"), the Company is to register the Common Stock issuable
pursuant to this Warrant with the SEC pursuant to the terms of the
Registration Rights Agreement dated July 7, 1999. The number of shares of
Common Stock subject to this Warrant shall automatically increase by 10% (or a
pro rata portion thereof) for each 30 day period (or part thereof) after the
earlier of 135 days after the Release Date and December 14, 1999 that the
registration statement required to be filed by the Company pursuant to the
Registration Rights Agreement has not been declared effective by the
Securities and Exchange Commission.
<PAGE>
CUSIP No. 98155G101 13D Page 50 of 70 Pages
1. DEFINITIONS. As used herein, unless the context otherwise
-----------
requires, the following terms shall have the meanings indicated:
"Additional Shares of Common Stock" shall mean all shares (including
---------------------------------
treasury shares) of Common Stock issued or sold (or, pursuant to Section 3.3
or 3.4, deemed to be issued) by the Company after the date hereof, whether or
not subsequently reacquired or retired by the Company, other than
(a) (i) shares of Common Stock issued upon the exercise of the
Warrants, (ii) shares of Common Stock issued at the Closings under the
Purchase Agreement and (iii) such number of additional shares of Common
Stock as may become issuable upon the exercise of the Warrants by reason
of adjustments required pursuant to the anti-dilution provisions
applicable to such Warrants as in effect on the date hereof;
(b) shares of Common Stock issued pursuant to Approved Stock
Plans; and
(c) shares issued upon exercise of options and warrants or other
convertible securities outstanding as of the date hereof.
"Approved Stock Plan" shall mean any contract, plan or agreement
-------------------
which has been or shall be approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to any employee,
officer, director, consultant or other service provider of the Company or to
any bank or equipment lessor providing loans to the Company or its subsidiary.
"Business Day" shall mean any day other than a Saturday or a Sunday
------------
or a day on which commercial banking institutions in the City of New York are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
"Closing Bid Prices" shall mean for any security as of any date, the
------------------
closing bid price of such security on the principal securities exchange or
trade market where such security is listed or trades as reported by Bloomberg,
L.P. ("Bloomberg"), or if the foregoing does not apply, the closing bid price
of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing bid price
is reported for such security by Bloomberg, the average of the bid prices of
any market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated
for such security on such date, as set forth above, the Closing Bid Price of
such security shall be the fair market value as determined in good faith by an
investment banking firm selected jointly by the Company and the Holders, with
the fees and expenses of such determination borne solely by the Company.
"Commission" shall mean the Securities and Exchange Commission or
----------
any successor agency having jurisdiction to enforce the Securities Act.
2
<PAGE>
CUSIP No. 98155G101 13D Page 51 of 70 Pages
"Common Stock" shall have the meaning assigned to it in the
------------
introduction to this Warrant, such term to include any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of any class or
classes (however designated) of the Company the holders of which have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference.
"Company" shall have the meaning assigned to it in the introduction
-------
to this Warrant, such term to include any corporation or other entity which
shall succeed to or assume the obligations of the Company hereunder in
compliance with Section 4.
"Convertible Securities" shall mean any evidences of indebtedness,
----------------------
shares of stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Additional Shares of Common
Stock.
"Current Market Price" shall mean, on any date specified herein, the
--------------------
average of the daily Closing Bid Prices during the 10 consecutive trading days
commencing 15 trading days before such date, except that, if on any such date
the shares of Common Stock are not listed or admitted for trading on any
national securities exchange or quoted in the over-the-counter market, the
Current Market Price shall be the Fair Value on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"Expiration Date" shall have the meaning assigned to it in the
---------------
introduction to this Warrant.
"Fair Value" shall mean, on any date specified herein (i) in the
----------
case of cash, the dollar amount thereof, (ii) in the case of a security
admitted for trading on any national securities exchange or quoted in the
over-the-counter market, the Current Market Price, and (iii) in all other
cases as determined in good faith jointly by the Board of Directors of the
Company and the Holder; provided, however, that if such parties are unable to
-------- -------
reach agreement within a reasonable period of time, the Fair Value shall be
determined in good faith by an independent investment banking firm selected
jointly by the Company and the Holder or, if that selection cannot be made
within ten days, by an independent investment banking firm selected by the
American Arbitration Association in accordance with its rules, and provided
--------
further, that the Company shall pay all of the fees and expenses of any third
- -------
parties incurred in connection with determining the Fair Value.
3
<PAGE>
CUSIP No. 98155G101 13D Page 52 of 70 Pages
"Options" shall mean any rights, options or warrants to subscribe
-------
for, purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
"Other Securities" shall mean any stock (other than Common Stock)
----------------
and other securities of the Company or any other Person (corporate or
otherwise) which the holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or
shall have been issued in exchange for or in replacement of Common Stock or
Other Securities pursuant to Section 4 or otherwise.
"Person" shall mean any individual, firm, partnership, corporation,
------
trust, joint venture, association, joint stock company, limited liability
company, unincorporated organization or any other entity or organization,
including a government or agency or political subdivision thereof, and shall
include any successor (by merger or otherwise) of such entity.
"Purchase Agreement" shall have the meaning assigned to it in the
------------------
introduction to this Warrant.
"Purchase Price" shall mean initially the amount per share indicated
--------------
in the introductory paragraph to this Warrant, subject to adjustment and
readjustment from time to time as provided in Section 3, and, as so adjusted
or readjusted, shall remain in effect until a further adjustment or
readjustment thereof is required by Section 3.
"Registration Rights Agreement" shall mean the Registration Rights
-----------------------------
Agreement dated as of July 7, 1999, substantially in the form of Exhibit C to
the Purchase Agreement.
"Rights" shall have the meaning assigned to it in Section 3.10.
------
"Securities Act" shall mean the Securities Act of 1933, as amended
--------------
from time to time, and the rules and regulations thereunder, or any successor
statute.
"Warrants" shall have the meaning assigned to it in the introduction
--------
to this Warrant.
4
<PAGE>
CUSIP No. 98155G101 13D Page 53 of 70 Pages
2. EXERCISE OF WARRANT.
-------------------
2.1. Manner of Exercise; Payment of the Purchase Price.
-------------------------------------------------
(a) This Warrant may be exercised by the Holder, in whole or in part, at any
time or from time to time prior to the Expiration Date, by surrendering to the
Company at its principal office (or such other office or agency of the Company
as the Company may designate in a written notice to the Holder) this Warrant,
together with the form of Election to Purchase Shares attached hereto as
Exhibit A (or a reasonable facsimile thereof) duly executed by the Holder and
accompanied by payment of the Purchase Price for the number of shares of
Common Stock specified in such form.
(b) Payment of the Purchase Price may be made as follows (or by
any combination of the following): (i) in United States currency by cash or
delivery of a certified check or bank draft payable to the order of the
Company or by wire transfer to the account of the Company, (ii) by
cancellation of such number of the shares of Common Stock otherwise issuable
to the Holder upon such exercise as shall be specified in such Election to
Purchase Shares, such that the excess of the Current Market Price of such
specified number of shares on the date of exercise over the portion of the
Purchase Price attributable to such shares shall equal the Purchase Price
attributable to the shares of Common Stock to be issued upon such exercise, in
which case upon delivery of such notice such amount shall be deemed to have
been paid to the Company and the number of shares issuable upon such exercise
shall be reduced by such specified number, or (iii) by surrender to the
Company for cancellation, certificates representing shares of Common Stock of
the Company owned by the Holder (properly endorsed for transfer in blank)
having a Current Market Price on the date of Warrant exercise equal to the
Purchase Price.
2.2. When Exercise Effective. Each exercise of this Warrant
-----------------------
shall be deemed to have been effected immediately prior to the close of
business on the Business Day on which this Warrant shall have been surrendered
to, and the Purchase Price shall have been received by, the Company as
provided in Section 2.1, and at such time the Person or Persons in whose name
or names any certificate or certificates for shares of Common Stock (or Other
Securities) shall be issuable upon such exercise as provided in Section 2.3
shall be deemed to have become the holder or holders of record thereof for all
purposes.
2.3. Delivery of Stock Certificates, etc.; Charges, Taxes and
--------------------------------------------------------
Expenses. (a) As soon as practicable after each exercise of this Warrant, in
- --------
whole or in part, and in any event within three Business Days thereafter, the
Company shall cause to be issued in such denominations as may be requested by
Holder in the Election to Purchase Shares, in the name of and delivered to the
Holder or, subject the Purchase Agreement, as the Holder may direct,
5
<PAGE>
CUSIP No. 98155G101 13D Page 54 of 70 Pages
(i) a certificate or certificates, or, if then permissible under
the Securities Act and the Registration Rights Agreement, at a Holder's
request to electronically issue such shares (e.g., through DWAC or DTC),
----
for the number of shares of Common Stock (or Other Securities) to which
the Holder shall be entitled upon such exercise plus, in lieu of issuance
of any fractional share to which the Holder would otherwise be entitled,
if any, a certified check for the amount of cash equal to the same
fraction multiplied by the Current Market Price per share on the date of
Warrant exercise, and
(ii) in case such exercise is for less than all of the shares of
Common Stock purchasable under this Warrant, a new Warrant or Warrants
of like tenor, for the balance of the shares of Common Stock purchasable
hereunder.
(b) Issuance of certificates for shares of Common Stock upon the
exercise of this Warrant shall be made without charge to the Holder hereof for
any issue or transfer tax or other incidental expense, in respect of the
issuance of such certificates, all of which such taxes and expenses shall be
paid by the Company.
2.4. Company to Reaffirm Obligations. The Company shall, at the
-------------------------------
time of each exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing its continuing obligation to afford to such Holder all
rights to which such Holder shall continue to be entitled after such exercise
in connection with the Common Stock yet to be acquired upon exercise hereof in
accordance with the terms of this Warrant, provided that if the Holder of this
--------
Warrant shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford such rights to the Holder.
3. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE.
-------------------------------------------------
3.1. Adjustment of Number of Shares.
------------------------------
Upon each adjustment of the Purchase Price as a result of the
calculations made in this Section 3, this Warrant shall thereafter evidence
the right to receive, at the adjusted Purchase Price, that number of shares of
Common Stock (calculated to the nearest one-hundredth) obtained by dividing
(i) the product of the aggregate number of shares covered by this Warrant
immediately prior to such adjustment and the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price by (ii) the
Purchase Price in effect immediately after such adjustment of the Purchase
Price.
3.2. Adjustment of Purchase Price.
----------------------------
3.2.1 Issuance of Additional Shares of Common Stock. In case the
---------------------------------------------
Company at any time or from time to time after the date hereof shall issue or
6
<PAGE>
CUSIP No. 98155G101 13D Page 55 of 70 Pages
sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 3.3 or 3.4 but excluding
Additional Shares of Common Stock purchasable upon exercise of Rights referred
to in Section 3.10), other than in a registered public offering, without
consideration or for a consideration per share less than 95% of the Current
Market Price (or if the issuance involves more than 10% of the number of
shares of Common Stock outstanding immediately prior to such issue, less than
the Current Market Price) as in effect immediately prior to such issue or
sale, then, and in each such case, subject to Section 3.8, the Purchase Price
shall be reduced, concurrently with such issue or sale, to a price (calculated
to the nearest .001 of a cent) determined by multiplying such Purchase Price
by a fraction
(a) the numerator of which shall be the sum of (i) the number of
shares of Common Stock outstanding immediately prior to such issue or
sale and (ii) the number of shares of Common Stock which the gross
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at
such Current Market Price, and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale, provided
--------
that, for the purposes of this Section 3.2.1, (x) immediately after any
Additional Shares of Common Stock are deemed to have been issued pursuant
to Section 3.3 or 3.4, such Additional Shares shall be deemed to be
outstanding, and (y) treasury shares shall not be deemed to be
outstanding.
3.2.2. Extraordinary Dividends and Distributions. In case the
-----------------------------------------
Company at any time or from time to time after the date hereof shall declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of other or additional stock or other securities
or property or Options by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement) on the Common Stock,
then, in each such case, subject to Section 3.8, the Purchase Price in effect
immediately prior to the close of business on the record date fixed for the
determination of holders of any class of securities entitled to receive such
dividend or distribution shall be reduced, effective as of the close of
business on such record date, to a price determined by multiplying such
Purchase Price by a fraction
(x) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading, less the Fair Value of such dividend or distribution applicable
to one share of Common Stock, and
(y) the denominator of which shall be such Current Market Price.
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CUSIP No. 98155G101 13D Page 56 of 70 Pages
3.3. Treatment of Options and Convertible Securities. In case
-----------------------------------------------
the Company at any time or from time to time after the date hereof shall
issue, sell, grant or assume, or shall fix a record date for the determination
of holders of any class of securities of the Company entitled to receive, any
Options or Convertible Securities (whether or not the rights thereunder are
immediately exercisable), then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in
the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue, sale, grant or
assumption or, in case such a record date shall have been fixed, as of the
close of business on such record date (or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), provided that such Additional Shares of Common Stock shall not be
--------
deemed to have been issued unless (i) the consideration per share (determined
pursuant to Section 3.5) of such shares would be less than the Current Market
Price in effect on the date of and immediately prior to such issue, sale,
grant or assumption or immediately prior to the close of business on such
record date (or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), as the case may be and
(ii) such Additional Shares of Common Stock are not purchasable pursuant to
Rights referred to in Section 3.10, and provided, further, that
-------- -------
(a) whether or not the Additional Shares of Common Stock
underlying such Options or Convertible Securities are deemed to be
issued, no further adjustment of the Purchase Price shall be made upon
the subsequent issue or sale of Convertible Securities or shares of
Common Stock upon the exercise of such Options or the conversion or
exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof (by change of rate or otherwise), the Purchase Price
computed upon the original issue, sale, grant or assumption thereof (or
upon the occurrence of the record date, or date prior to the commencement
of ex-dividend trading, as the case may be, with respect thereto), and
any subsequent adjustments based thereon, shall, upon any such increase
or decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options, or the rights of conversion
or exchange under such Convertible Securities, which are outstanding at
such time;
8
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CUSIP No. 98155G101 13D Page 57 of 70 Pages
(c) upon the expiration or termination (or purchase by the
Company and cancellation or retirement) of any such Options which shall
not have been exercised or the expiration of any rights of conversion or
exchange under any such Convertible Securities which (or purchase by the
Company and cancellation or retirement of any such Convertible Securities
the rights of conversion or exchange under which) shall not have been
exercised, the Purchase Price computed upon the original issue, sale,
grant or assumption thereof (or upon the occurrence of the record date,
or date prior to the commencement of ex-dividend trading, as the case may
be, with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration (or such cancellation or retirement, as the
case may be), be recomputed as if:
(i) in the case of Options for Common Stock or Convertible
Securities, the only Additional Shares of Common Stock issued or
sold were the Additional Shares of Common Stock, if any, actually
issued or sold upon the exercise of such Options or the conversion
or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such
Options, whether or not exercised, plus the consideration actually
received by the Company upon such exercise, or for the issue or sale
of all such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually
received by the Company upon such conversion or exchange, and
(ii) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued or sold
upon the exercise of such Options were issued at the time of the
issue or sale, grant or assumption of such Options, and the
consideration received by the Company for the Additional Shares of
Common Stock deemed to have then been issued was the consideration
actually received by the Company for the issue, sale, grant or
assumption of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company (pursuant
to Section 3.5) upon the issue or sale of such Convertible
Securities with respect to which such Options were actually
exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of increasing the Purchase Price by an amount in
excess of the amount of the adjustment thereof originally made in respect
of the issue, sale, grant or assumption of such Options or Convertible
Securities; and
(e) in the case of any such Options which expire by their terms
not more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Purchase Price shall be made until the
expiration or exercise of all such Options, whereupon such adjustment
shall be made in the manner provided in subdivision (c) above.
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CUSIP No. 98155G101 13D Page 58 of 70 Pages
3.4. Treatment of Stock Dividends, Stock Splits, etc. In case
------------------------------------------------
the Company at any time or from time to time after the date hereof shall
declare or pay any dividend on the Common Stock payable in Common Stock, or
shall effect a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in Common Stock), then, and in each such case,
Additional Shares of Common Stock shall be deemed to have been issued (a) in
the case of any such dividend, immediately after the close of business on the
record date for the determination of holders of any class of securities
entitled to receive such dividend, or (b) in the case of any such subdivision,
at the close of business on the day immediately prior to the day upon which
such corporate action becomes effective.
3.5. Computation of Consideration. For the purposes of this
----------------------------
Section 3,
(a) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting treatment of
such consideration,
(i) insofar as it consists of cash, be computed at the
amount of cash received by the Company, without deducting any
expenses paid or incurred by the Company or any commissions or
compensations paid or concessions or discounts allowed to
underwriters, dealers or others performing similar services in
connection with such issue or sale,
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the Fair Value thereof
at the time of such issue or sale, and
(iii) in case Additional Shares of Common Stock are issued or
sold together with other stock or securities or other assets of the
Company for a consideration which covers both, be the portion of
such consideration so received, computed as provided in clauses
(i) and (ii) above, allocable to such Additional Shares of Common
Stock, such allocation to be determined in the same manner that the
Fair Value of property not consisting of cash or securities is to be
determined as provided in the definition of 'Fair Value' herein;
(b) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 3.3, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share
determined by dividing
(i) the total amount, if any, received and receivable by
the Company as consideration for the issue, sale, grant or
assumption of the Options or Convertible Securities in question,
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CUSIP No. 98155G101 13D Page 59 of 70 Pages
plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
consideration to protect against dilution) payable to the Company
upon the exercise in full of such Options or the conversion or
exchange of such Convertible Securities or, in the case of Options
for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities, in each case computing such consideration as
provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
number to protect against dilution) issuable upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities; and
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 3.4, relating to stock dividends, stock splits, etc.,
---
shall be deemed to have been issued for no consideration.
3.6. Adjustments for Combinations, etc. In case the outstanding
----------------------------------
shares of Common Stock shall be combined or consolidated, by reclassification
or otherwise, into a lesser number of shares of Common Stock, the Purchase
Price in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
3.7. Dilution in Case of Other Securities. In case any Other
------------------------------------
Securities shall be issued or sold or shall become subject to issue or sale
upon the conversion or exchange of any stock (or Other Securities) of the
Company (or any issuer of Other Securities or any other Person referred to in
Section 4) or to subscription, purchase or other acquisition pursuant to any
Options issued or granted by the Company (or any such other issuer or Person)
for a consideration such as to dilute, on a basis consistent with the
standards established in the other provisions of this Section 3, the purchase
rights granted by this Warrant (other than in circumstances comparable to
those described in clauses (a), (b) or (c) of the definition of "Additional
Shares of Common Stock"), then, and in each such case, the computations,
adjustments and readjustments provided for in this Section 3 with respect to
the Purchase Price and the number of shares purchasable upon Warrant exercise
shall be made as nearly as possible in the manner so provided and applied to
determine the amount of Other Securities from time to time receivable upon the
exercise of the Warrants, so as to protect the holders of the Warrants against
the effect of such dilution.
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CUSIP No. 98155G101 13D Page 60 of 70 Pages
3.8. De Minimis Adjustments. If the amount of any adjustment of
----------------------
the Purchase Price per share required pursuant to this Section 3 would be less
than $.01, such amount shall be carried forward and adjustment with respect
thereto made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate a change in the Purchase Price of at least $.01 per share.
All calculations under this Warrant shall be made to the nearest .001 of a
cent or to the nearest one-hundredth of a share, as the case may be.
3.9. Abandoned Dividend or Distribution. If the Company shall
----------------------------------
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or other distribution (which results in an
adjustment to the Purchase Price under the terms of this Warrant) and shall,
thereafter, and before such dividend or distribution is paid or delivered to
stockholders entitled thereto, legally abandon its plan to pay or deliver such
dividend or distribution, then any adjustment made to the Purchase Price and
number of shares of Common Stock purchasable upon Warrant exercise by reason
of the taking of such record shall be reversed, and any subsequent
adjustments, based thereon, shall be recomputed.
3.10. Shareholder Rights Plan. Notwithstanding the foregoing,
-----------------------
in the event that the Company shall distribute "poison pill" rights pursuant
to a "poison pill" shareholder rights plan (the "Rights"), the Company shall,
in lieu of making any adjustment pursuant to Section 3.2.1 or Section 3.2.2
hereof, make proper provision so that each Holder who exercises a Warrant
after the record date for such distribution and prior to the expiration or
redemption of the Rights shall be entitled to receive upon such exercise, in
addition to the shares of Common Stock issuable upon such exercise, a number
of Rights to be determined as follows: (i) if such exercise occurs on or
prior to the date for the distribution to the holders of Rights of separate
certificates evidencing such Rights (the "Distribution Date"), the same number
of Rights to which a holder of a number of shares of Common Stock equal to the
number of shares of Common Stock issuable upon such exercise at the time of
such exercise would be entitled in accordance with the terms and provisions of
and applicable to the Rights; and (ii) if such exercise occurs after the
Distribution Date, the same number of Rights to which a holder of the number
of shares into which the Warrant so exercised was exercisable immediately
prior to the Distribution Date would have been entitled on the Distribution
Date in accordance with the terms and provisions of and applicable to the
Rights, and in each case subject to the terms and conditions of the Rights.
4. CONSOLIDATION, MERGER, ETC.
--------------------------
4.1. Adjustments for Consolidation, Merger, Sale of Assets,
------------------------------------------------------
Reorganization, etc.
- -------------------
In case the Company after the date hereof (a) shall consolidate with or
merge into any other Person and shall not be the continuing or surviving
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CUSIP No. 98155G101 13D Page 61 of 70 Pages
corporation of such consolidation or merger, or (b) shall permit any other
Person to consolidate with or merge into the Company and the Company shall be
the continuing or surviving Person but, in connection with such consolidation
or merger, the Common Stock or Other Securities shall be changed into or
exchanged for stock or other securities of any other Person or cash or any
other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other Securities
(other than a capital reorganization or reclassification resulting in the
issue of Additional Shares of Common Stock for which adjustment in the
Purchase Price is provided in Section 3.2.1 or 3.2.2), then, and in the case
of each such transaction, proper provision shall be made so that, upon the
basis and the terms and in the manner provided in this Warrant, the Holder of
this Warrant, upon the exercise hereof at any time after the consummation of
such transaction shall be entitled to receive (at the aggregate Purchase Price
in effect at the time of such consummation for all Common Stock or Other
Securities issuable upon such exercise immediately prior to such
consummation), in lieu of the Common Stock or Other Securities issuable upon
such exercise prior to such consummation, the amount of securities, cash or
other property to which such Holder would actually have been entitled as a
stockholder upon such consummation if such Holder had exercised this Warrant
immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to the adjustments provided for
in Sections 3 through 5.
4.2. Assumption of Obligations. Notwithstanding anything
-------------------------
contained in the Warrants or in the Purchase Agreement to the contrary, the
Company shall not effect any of the transactions described in clauses (a)
through (d) of Section 4.1 unless, prior to the consummation thereof, each
Person (other than the Company) which may be required to deliver any stock,
securities, cash or property upon the exercise of this Warrant as provided
herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (a) the obligations of the
Company under this Warrant (and if the Company shall survive the consummation
of such transaction, such assumption shall be in addition to, and shall not
release the Company from, any continuing obligations of the Company under this
Warrant), (b) the obligations of the Company under the Purchase Agreement and
the Registration Rights Agreement and (c) the obligation to deliver to the
Holder such shares of stock, securities, cash or property as, in accordance
with the foregoing provisions of this Section 4, the Holder may be entitled to
receive. Nothing in this Section 4 shall be deemed to authorize the Company
to enter into any transaction not otherwise permitted by the Purchase
Agreement.
5. OTHER DILUTIVE EVENTS. In case any event shall occur as to
---------------------
which the provisions of Section 3 or Section 4 hereof are not strictly
applicable or if strictly applicable would not fairly protect the purchase
rights of the Holder in accordance with the essential intent and principles of
such Sections, then, in each such case, the Board of Directors of the Company
shall make an adjustment in the application of such provisions, in accordance
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CUSIP No. 98155G101 13D Page 62 of 70 Pages
with such essential intent and principles, so as to preserve, without
dilution, the purchase rights represented by this Warrant.
6. NO DILUTION OR IMPAIRMENT. The Company shall not, by
-------------------------
amendment of its certificate of incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be reasonably necessary or appropriate in
order to protect the rights of the Holder of this Warrant against dilution or
other impairment. Without limiting the generality of the foregoing, the
Company (a) shall not permit the par value of any shares of stock receivable
upon the exercise of this Warrant to exceed the amount payable therefor upon
such exercise, (b) shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of stock, free from all taxes, liens, security
interests, encumbrances, preemptive rights and charges on the exercise of the
Warrants from time to time outstanding, (c) shall not take any action which
results in any adjustment of the Purchase Price if the total number of shares
of Common Stock (or Other Securities) issuable after the action upon the
exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's
certificate of incorporation and available for the purpose of issue upon such
exercise, and (d) shall not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon voluntary
or involuntary dissolution, liquidation or winding-up, unless the rights of
the holders thereof shall be limited to a fixed sum or percentage of par value
or a sum determined by reference to a formula based on a published index of
interest rates, an interest rate publicly announced by a financial institution
or a similar indicator of interest rates in respect of participation in
dividends and to a fixed sum or percentage of par value in any such
distribution of assets.
7. CERTIFICATE AS TO ADJUSTMENTS. In each case of any
-----------------------------
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
of this Warrant and prepare a certificate, signed by the Chairman of the
Board, President or one of the Vice Presidents of the Company, and by the
Chief Financial Officer, the Treasurer or one of the Assistant Treasurers of
the Company, setting forth such adjustment or readjustment and showing in
reasonable detail the method of calculation thereof and the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any Additional
Shares of Common Stock issued or sold or deemed to have been issued, (b) the
number of shares of Common Stock outstanding or deemed to be outstanding, and
(c) the Purchase Price in effect immediately prior to such issue or sale and
as adjusted and readjusted (if required by Section 3) on account thereof. The
Company shall forthwith mail a copy of each such certificate to each holder of
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CUSIP No. 98155G101 13D Page 63 of 70 Pages
a Warrant and shall, upon the written request at any time of any holder of a
Warrant, furnish to such holder a like certificate. The Company shall also
keep copies of all such certificates at its principal office and shall cause
the same to be available for inspection at such office during normal business
hours by any holder of a Warrant or any prospective purchaser of a Warrant
designated by the holder thereof. The Company shall, upon the request in
writing of the Holder (at the Company's expense), retain independent public
accountants of recognized national standing selected by the Board of Directors
of the Company to make any computation required in connection with adjustments
under this Warrant, and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment, which shall be binding on the
Holder and the Company.
8. NOTICES OF CORPORATE ACTION. In the event of:
---------------------------
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities or property, or to receive any other
right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company,
any consolidation or merger involving the Company and any other Person,
any transaction or series of transactions in which more than 50% of the
voting securities of the Company are transferred to another Person, or
any transfer, sale or other disposition of all or substantially all the
assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company shall mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which
any such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, sale, disposition, dissolution, liquidation or winding-up is
to take place and the time, if any such time is to be fixed, as of which the
holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for the securities
or other property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 20 days prior to the date
therein specified.
9. REGISTRATION OF COMMON STOCK. If any shares of Common Stock
----------------------------
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal
or state law (other than the Securities Act and any State blue sky law) before
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CUSIP No. 98155G101 13D Page 64 of 70 Pages
such shares may be issued upon exercise, the Company shall, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved, as the case may be. At any such time as Common
Stock is listed on any national securities exchange or trade market, the
Company shall, at its expense, obtain promptly and maintain the approval for
listing on each such exchange or trade market, upon official notice of
issuance, the shares of Common Stock issuable upon exercise of the then
outstanding Warrants; and the Company shall also list on such national
securities exchange or trade market, shall register under the Exchange Act and
shall maintain such listing of, any Other Securities that at any time are
issuable upon exercise of the Warrants, if and at the time that any securities
of the same class shall be listed on such national securities exchange or
trade market by the Company.
10. RESERVATION OF STOCK, ETC. The Company shall at all times
--------------------------
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time outstanding
and otherwise in accordance with the terms of the Purchase Agreement. All
shares of Common Stock (or Other Securities) issuable upon exercise of any
Warrants shall be duly authorized and, when issued upon such exercise, shall
be validly issued and, in the case of shares, fully paid and nonassessable
with no liability on the part of the holders thereof, and, in the case of all
securities, shall be free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges. The transfer agent for the
Common Stock, which may be the Company (the "Transfer Agent"), and every
subsequent Transfer Agent for any shares of the Company's capital stock
issuable upon the exercise of any of the purchase rights represented by this
Warrant, are hereby irrevocably authorized and directed at all times until the
Expiration Date to reserve such number of authorized and unissued shares as
shall be requisite for such purpose. The Company shall keep copies of this
Warrant on file with the Transfer Agent for the Common Stock and with every
subsequent Transfer Agent for any shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by this
Warrant. The Company shall supply such Transfer Agent with duly executed
stock certificates for such purpose. All Warrant Certificates surrendered
upon the exercise of the rights thereby evidenced shall be canceled, and such
canceled Warrants shall constitute sufficient evidence of the number of shares
of stock which have been issued upon the exercise of such Warrants.
Subsequent to the Expiration Date, no shares of stock need be reserved in
respect of any unexercised Warrant.
11. REGISTRATION AND TRANSFER OF WARRANTS, ETC.
-------------------------------------------
11.1. Warrant Register; Ownership of Warrants. Each Warrant issued
---------------------------------------
by the Company shall be numbered and shall be registered in a warrant register
(the "Warrant Register") as it is issued and transferred, which Warrant
Register shall be maintained by the Company at its principal office or, at the
Company's election and expense, by a Warrant Agent or the Company's transfer
agent. The Company shall be entitled to treat the registered Holder of any
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CUSIP No. 98155G101 13D Page 65 of 70 Pages
Warrant on the Warrant Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or
interest in such Warrant on the part of any other Person, and shall not be
affected by any notice to the contrary, except that, if and when any Warrant
is properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer thereof as the owner of such Warrant for all purposes. A
Warrant, if properly assigned, may be exercised by a new holder without a new
Warrant first having been issued.
11.2. Transfer of Warrants. This Warrant and all rights hereunder
--------------------
are transferable in whole or in part, without charge to the Holder hereof,
upon surrender of this Warrant with a properly executed Form of Assignment
attached hereto as Exhibit B at the principal office of the Company (or such
other office or agency of the Company as it may in writing designate to the
Holder). Upon any partial transfer, the Company shall at its expense issue
and deliver to the Holder a new Warrant of like tenor, in the name of the
Holder, which shall be exercisable for such number of shares of Common Stock
with respect to which rights under this Warrant were not so transferred and to
the transferee a new Warrant of like tenor, in the name of the transferee,
which shall be exercisable for such number of shares of Common Stock with
respect to which rights under this Warrant were so transferred.
11.3. Replacement of Warrants. On receipt by the Company of
-----------------------
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any such loss,
theft or destruction of this Warrant, on delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of
any such mutilation, on surrender of such Warrant to the Company at its
principal office and cancellation thereof, the Company at its expense shall
execute and deliver, in lieu thereof, a new Warrant of like tenor.
11.4. Adjustments To Purchase Price and Number of Shares.
--------------------------------------------------
Notwithstanding any adjustment in the Purchase Price or in the number or kind
of shares of Common Stock purchasable upon exercise of this Warrant, any
Warrant theretofore or thereafter issued may continue to express the same
number and kind of shares of Common Stock as are stated in this Warrant, as
initially issued.
11.5. Fractional Shares. Notwithstanding any adjustment pursuant
-----------------
to Section 3 in the number of shares of Common Stock covered by this Warrant
or any other provision of this Warrant, the Company shall not be required to
issue fractions of shares upon exercise of this Warrant or to distribute
certificates which evidence fractional shares. In lieu of fractional shares,
the Company shall make payment to the Holder, at the time of exercise of this
Warrant as herein provided, in an amount in cash equal to such fraction
multiplied by the Current Market Price of a share of Common Stock on the date
of Warrant exercise.
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CUSIP No. 98155G101 13D Page 66 of 70 Pages
12. REMEDIES; SPECIFIC PERFORMANCE. The Company stipulates that
------------------------------
there would be no adequate remedy at law to the Holder of this Warrant in the
event of any default or threatened default by the Company in the performance
of or compliance with any of the terms of this Warrant and accordingly, the
Company agrees that, in addition to any other remedy to which the Holder may
be entitled at law or in equity, the Holder shall be entitled to seek to
compel specific performance of the obligations of the Company under this
Warrant, without the posting of any bond, in accordance with the terms and
conditions of this Warrant in any court of the United States or any State
thereof having jurisdiction. Except as otherwise provided by law, a delay or
omission by the Holder hereto in exercising any right or remedy accruing upon
any such breach shall not impair the right or remedy or constitute a waiver of
or acquiescence in any such breach. No remedy shall be exclusive of any other
remedy. All available remedies shall be cumulative.
13. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. Nothing contained
---------------------------------------
in this Warrant shall be construed as conferring upon the Holder hereof any
rights as a stockholder of the Company or as imposing any obligation on the
Holder to purchase any securities or as imposing any liabilities on the Holder
as a stockholder of the Company, whether such obligation or liabilities are
asserted by the Company or by creditors of the Company.
14. NOTICES. Any notices, consents, waivers or other
-------
communications required or permitted to be given hereunder must be in writing
and will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile, (iii) three days after
being sent by U.S. certified mail, return receipt requested, or (iv) one day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
Worldtalk Communications Corporation
5155 Old Ironsides Drive
Santa Clara, CA 95054
Telephone: (650) 567-1500
Facsimile: (650) 567-5122
Attention: Chief Executive Officer and Chief Financial Officer
If to a Holder, to its address and facsimile number on the register
maintained by the Company. Each party shall provide five days' prior written
notice to the other party of any change in address or facsimile number.
Notwithstanding the foregoing, the exercise of any Warrant shall be effective
in the manner provided in Section 2.
15. AMENDMENTS. This Warrant contains the entire agreement
----------
regarding its subject matter. This Warrant and any term hereof may not be
amended, modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, except by written
18
<PAGE>
CUSIP No. 98155G101 13D Page 67 of 70 Pages
instrument duly executed by the party against which enforcement of such
amendment, modification, supplement, termination or consent to departure is
sought.
16. DESCRIPTIVE HEADINGS, ETC. The headings in this Warrant are
--------------------------
for convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant
otherwise requires: (1) words of any gender shall be deemed to include each
other gender; (2) words using the singular or plural number shall also include
the plural or singular number, respectively; and (3) the words "hereof",
"herein" and "hereunder" and words of similar import when used in this Warrant
shall refer to this Warrant as a whole and not to any particular provision of
this Warrant, and Section and paragraph references are to the Sections and
paragraphs of this Warrant unless otherwise specified.
17. GOVERNING LAW. This Warrant shall be governed by, and
-------------
construed in accordance with, the laws of the State of California (without
giving effect to the conflict of laws principles thereof).
18. REGISTRATION RIGHTS AGREEMENT. The shares of Common Stock
-----------------------------
(and Other Securities) issuable upon exercise of this Warrant (or upon
conversion of any shares of Common Stock issued upon such exercise) shall
constitute Registrable Securities (as such term is defined in the Registration
Rights Agreement). Each holder of this Warrant shall be entitled to all of
the benefits afforded to a holder of any such Registrable Securities under the
Registration Rights Agreement and such holder, by its acceptance of this
Warrant, agrees to be bound by and to comply with the terms and conditions of
the Registration Rights Agreement applicable to such holder as a holder of
such Registrable Securities.
WORLDTALK COMMUNICATIONS
CORPORATION
By:
----------------------------
Name: Bernard Harguindeguy
Title: President
19
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CUSIP No. 98155G101 13D Page 68 of 70 Pages
EXHIBIT A to
Common Stock Purchase Warrant
-----------------------------
[FORM OF]
ELECTION TO PURCHASE SHARES
AND TRANSFER AGENT INSTRUCTIONS
The undersigned hereby irrevocably elects to exercise the Warrant to
purchase shares of Common Stock, par value $.01 per
----
share ("Common Stock"), of WORLDTALK COMMUNICATIONS CORPORATION (the
"Company") and hereby [makes payment of $ in consideration
--------
therefor] [or] [makes payment in consideration therefor by reduction pursuant
to Section 2.1(b)(ii) of the Warrant of the number of shares of Common Stock
otherwise issuable to the Holder upon Warrant exercise by
shares] [or] [makes payment in consideration therefor by delivery
- ------
of the following Common Stock Certificates of the Company pursuant to Section
2.1(b)(iii) of the Warrant, certificates of which are attached hereto for
cancellation [list certificates by number and
-------
amount]]. The undersigned hereby requests that certificates for such shares
be issued and delivered as follows:
ISSUE TO:
--------------------------------------------------------------------
(NAME)
- -----------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
- -----------------------------------------------------------------------------
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:
------------------------------------------------------------------
(NAME)
- -----------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
If the number of shares of Common Stock purchased hereby is less
than the number of shares of Common Stock covered by the Warrant, the
undersigned requests that a new Warrant representing the number of shares of
Common Stock not so purchased be issued and delivered as follows:
ISSUE TO:
--------------------------------------------------------------------
(NAME OF HOLDER)
- -----------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
<PAGE>
CUSIP No. 98155G101 13D Page 69 of 70 Pages
EXHIBIT A to
Common Stock Purchase Warrant
-----------------------------
DELIVER TO:
------------------------------------------------------------------
(NAME OF HOLDER)
- -----------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
Dated: _____________________ [NAME OF HOLDER]
By
-------------------
Name:
Title:
, as transfer agent and registrar of the
------------------
Common Stock, is hereby authorized and directed to issue the above number of
shares of Common Stock in the name of the above referenced entity or person
and to deliver the certificates representing such shares using an overnight
delivery service.
WORLDTALK
COMMUNICATIONS
CORPORATION
By:
-------------------
<PAGE>
CUSIP No. 98155G101 13D Page 70 of 70 Pages
EXHIBIT B to
Common Stock Purchase
---------------------
Warrant
-------
[FORM OF] ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned
to purchase Common Stock, par value $.01 per share ("Common Stock") of
WORLDTALK COMMUNICATIONS CORPORATION represented by the Warrant, with respect
to the number of shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint as Attorney
--------
to make such transfer on the books of WORLDTALK COMMUNICATIONS CORPORATION
maintained for that purpose, with full power of substitution in the premises.
Dated: [NAME OF HOLDER]
----------------
By
---------------------
Name:
Title:
