UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 1999.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
---------------- -------------------
Commission File Number 0-22561
EFAX.COM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 77-0182451
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1378 Willow Road, Menlo Park, California 94025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 324-0600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of May 5, 1999 there were 12,415,655 shares of common stock, $.01 par value,
outstanding.
This Report on Form 10-Q includes 173 pages with the Index to Exhibits located
on page 22.
<PAGE>
<TABLE>
<CAPTION>
EFAX.COM, INC. AND SUBSIDIARIES
INDEX TO
REPORT ON FORM 10-Q
FOR QUARTER ENDED APRIL 3, 1999
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - March 31, 1999
and December 31, 1998..................................... 3
Condensed Consolidated Statements of Operations - Three
Months Ended March 31, 1999 and 1998...................... 4
Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1999 and 1998...................... 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 21
Item 2. Changes in Securities......................................... 21
Item 5. Other Information............................................. 21
Item 6. Exhibits and Reports on Form 8-K.............................. 22
Signature..................................................... 23
</TABLE>
2
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
EFAX.COM, INC. (FORMERLY JETFAX, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 31, December 31,
1999 1998 (1)
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,932 $ 1,305
Short-term investments 1,058 2,808
Accounts receivable, net 4,905 4,402
Inventories 4,008 4,519
Prepaid expenses 200 247
--------- ---------
Total current assets 13,103 13,281
Property, net 1,531 1,339
Other assets 1,625 1,595
--------- ---------
Total assets $ 16,259 $ 16,215
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,948 $ 777
Accrued liabilities 1,352 1,576
--------- ---------
Total current liabilities 3,300 2,353
Deferred revenue 25 25
Stockholders' equity:
Convertible preferred stock, $0.01 par value;
5,000,000 shares authorized, shares
outstanding: none in 1999 and 1998 - -
Common stock, $0.01 par value; 35,000,000
shares authorized, shares outstanding:
12,376,796 in 1999 and 11,873,711 in 1998 124 119
Additional paid-in capital 43,330 42,946
Accumulated deficit (30,520) (29,228)
--------- ---------
Total stockholders' equity 12,934 13,837
--------- ---------
Total liabilities and stockholders' equity $ 16,259 $ 16,215
========= =========
</TABLE>
(1) Derived from the December 31, 1998 audited consolidated balance sheet
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
See notes to condensed consolidated financial statements.
3
<PAGE> 3
<TABLE>
<CAPTION>
EFAX.COM, INC. (FORMERLY JETFAX, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended
March 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Revenues:
Product $ 6,196 $ 6,024
Software and technology license fees 1,148 1,342
Development fees 426 332
--------- ---------
Total revenues 7,770 7,698
--------- ---------
Costs and expenses:
Cost of product revenues 4,304 4,286
Cost of software and license revenues 238 301
Research and development 1,655 1,451
Selling and marketing 2,096 2,230
General and administrative 791 755
--------- ---------
Total costs and expenses 9,084 9,023
--------- ---------
Loss from operations (1,314) (1,325)
Other income (expense):
Interest income 53 78
Interest expense - (2)
Other expense (16) (23)
--------- ---------
Total other income, net 37 53
--------- ---------
Loss before income taxes (1,277) (1,272)
Provision for income taxes 15 17
--------- ---------
Net loss $ (1,292) $ (1,289)
Net loss per share:
Basic $ (0.11) $ (0.11)
========= =========
Diluted $ (0.11) $ (0.11)
========= =========
Shares used in computing net
loss per share:
Basic 12,009 11,741
========= =========
Diluted 12,009 11,741
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 4
<TABLE>
<CAPTION>
EFAX.COM, INC. (FORMERLY JETFAX, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,292) $ (1,289)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 195 98
Issuance of Common Stock for services 208 -
Changes in assets and liabilities:
Trade receivables (503) 566
Inventories 511 622
Prepaid expenses 47 21
Accounts payable 1,171 (309)
Deferred revenue - (24)
Accrued liabilities (224) 252
--------- ---------
Net cash provided by (used for)
operating activities 113 (63)
--------- ---------
Cash flows from investing activities:
Maturity of short-term investments 1,750 -
Purchase of property (314) (206)
Increase in other assets (103) (83)
--------- ---------
Net cash provided by (used for)
investing activities 1,333 (289)
--------- ---------
Cash flows from financing activities:
Proceeds from sale of Common Stock 181 -
--------- ---------
Net cash provided by financing activities 181 -
--------- ---------
Increase (decrease) in cash and cash equivalents 1,627 (352)
Cash and cash equivalents, beginning of period 1,305 7,224
--------- ---------
Cash and cash equivalents, end of period $ 2,932 $ 6,872
========= =========
Supplemental cash flow information:
Interest paid $ - $ 2
========= =========
Supplemental non-cash investing and financial
information:
Conversion of accrued ESPP for purchase of
Common Stock $ - $ 76
========= =========
Issuance of Common Stock for services $ 208 $ -
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 5
EFAX.COM, INC. (FORMERLY JETFAX, INC.) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Interim Financial Information
The accompanying condensed consolidated financial statements of eFax.com,
Inc. and its wholly-owned subsidiaries ("eFax.com" or "eFax" or the "Company")
as of March 31, 1999 and for the three months ended March 31, 1999 and 1998 are
unaudited. In the opinion of management, the condensed consolidated financial
statements include all adjustments (consisting of normal recurring accruals)
that management considers necessary for a fair presentation of its financial
position, operating results and cash flows for the interim periods presented.
Operating results and cash flows for interim periods are not necessarily
indicative of results for the entire year.
This financial data should be read in conjunction with the audited
financial statements and notes thereto included in eFax.com's Annual Report on
Form 10-K for the year ended December 31, 1998.
Fiscal Period End
eFax.com uses a 52-53 week fiscal year ending on the first Saturday on or
after December 31. For presentation purposes, eFax.com refers herein to the 13-
week periods ended April 3, 1999 and April 4, 1998 as the three months ended
March 31, 1999 and 1998, respectively.
Per Share Information
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average common shares outstanding for the period while diluted
earnings (loss) per share also includes the dilutive impact of stock options
and warrants. Common stock equivalents from options and warrants have been
excluded from the computation during all periods presented as their effect is
antidilutive due to eFax.com's net losses. Such options and warrants will be
included, using the treasury stock method, in periods where eFax.com reports
net income and the average fair market value of its common stock exceeds the
exercise price. The net loss and the shares used for the computation of both
basic and diluted loss per share are the same.
2. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Materials and supplies $ 1,855 $ 1,982
Work-in-process 77 93
Finished goods 2,076 2,444
----------- -----------
Total $ 4,008 $ 4,519
=========== ===========
</TABLE>
6
<PAGE> 6
EFAX.COM, INC. (FORMERLY JETFAX, INC.) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. Accrued Liabilities
Accrued liabilities consist of (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Compensation and related benefits $ 810 $ 632
Product warranty 67 78
Royalties 52 62
Other 423 804
----------- -----------
Total $ 1,352 $ 1,576
=========== ===========
</TABLE>
4. Comprehensive Income
Effective January 1, 1998, eFax.com adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 requires an enterprise to report, by major components and as a single
total, the change in net assets during the period from non-owner sources. For
the three months ended March 31, 1999 and 1998, there were no differences
between eFax.com's comprehensive loss and net loss.
5. Disclosures about Segments of an Enterprise and Related Information
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes annual and interim reporting standards for an enterprise's business
segments and related disclosures about its products, services, geographic areas
and major customers. Adoption of this statement does not impact eFax.com's
consolidated financial position, results of operations or cash flows. It is
eFax.com's opinion that its business is a single reportable segment, which
addresses the communication and handling of electronic and paper documents.
Organizational structure and internal management reporting are not segmented,
nor are there specific segment profitability responsibilities within
management.
6. Effect Of Changes In Accounting Principles
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which defines
derivatives, requires that all derivatives be carried at fair value, and
provides for hedging accounting when certain conditions are met. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. On a forward-looking basis, although eFax.com has not fully
assessed the implications of this new statement, eFax.com does not believe
adoption of this statement will have a material impact on eFax.com's financial
position or results of operations.
7. Subsequent Events
In early March 1999, E-Fax Communications, Inc. ("E-Fax Communications"), a
California corporation, filed a
7
<PAGE> 7
EFAX.COM, INC. (FORMERLY JETFAX, INC.) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
complaint against eFax.com Inc., a Delaware corporation, in the United States
District Court, Northern District of California. The Complaint alleged that
the Company had engaged in trademark and service mark infringement and unfair
competition in connection with the Company's use of the name "eFax.com." On
April 9, 1999, the Company and E-Fax Communications signed a settlement
agreement in which E-Fax Communications will dismiss all charges against the
Company, transfer all rights to the mark "E-FAX" to the Company, stop all use
of the "E-FAX" trademark, and change its corporate name. The Company has
agreed to pay E-Fax Communications a combination of cash and Common Stock in an
amount not exceeding $2.5 million based on the average share price of the
Common Stock just prior to the stock registration becoming effective. The
purchased trademark rights will become an asset of the Company and be amortized
over the period of benefit, estimated to be seven to ten years. The parties
consider the settlement a compromise of disputed claims and preferable to a
possible extended legal proceeding with uncertain outcome.
On May 10, 1999, eFax.com entered into a purchase agreement with an
investor for the private placement of $15 million of Series A Convertible
Preferred Stock, convertible into Common Stock based upon the five-day average
stock price prior to closing. The conversion price is subject to an adjustment
after one year to the greater of the then current market price of the Common
Stock or 60% of the initial conversion price. The agreement also includes
300,000 warrants exercisable at a 10% premium to the Series A Convertible
Preferred Stock conversion price. The Series A Convertible Preferred Stock
includes an 8% dividend payable in cash or common stock at the option of
eFax.com. The closing occurred on May 13, 1999. eFax.com has agreed to file a
registration statement for the resale of the shares of Common Stock acquired on
conversion of the Convertible Preferred Stock and upon exercise of the warrants
within 15 days after the closing date.
8
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The statements contained in this Report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 (the ''Securities Act'') and Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act"), including statements
regarding eFax.com's expectations, hopes, intentions or strategies regarding
the future. When used herein, the words ''may,'' ''will,'' ''expect,''
''anticipate,'' ''continue,'' ''estimate,'' ''project,'' ''intend'' and similar
expressions are intended to identify forward-looking statements within the
meaning of the Securities Act and the Exchange Act. Forward-looking statements
include: statements regarding events, conditions and financial trends that may
affect eFax.com's future plans of operations, business strategy, results of
operations and financial position. All forward-looking statements included in
this document are based on information available to eFax.com on the date
hereof, and eFax.com assumes no obligation to update any such forward-looking
statements. Investors are cautioned that any forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties and
that actual results may differ materially from those included within the
forward-looking statements as a result of various factors. These forward-
looking statements are made in reliance upon the safe harbor provision of The
Private Securities Litigation Reform Act of 1995. Factors that could cause or
contribute to such differences include, but are not limited to, those described
below, under the heading "Factors That May Affect Operating Results" and
elsewhere in this Report on Form 10-Q.
Pursuant to a Certificate of Ownership and Merger, which provided for the
merger of JetFax, Inc. with eFax.com, Inc., a Delaware corporation and wholly
owned subsidiary of JetFax, Inc., filed with the Delaware Department of
Corporations and declared effective on February 8, 1999, the corporate name of
JetFax, Inc., a Delaware Corporation has been changed to "eFax.com, Inc." All
filings and reports made after February 8, 1999 bear the name "eFax.com, Inc."
eFax.com, Inc. is a leading developer and provider of integrated embedded
system technology, branded products and desktop software solutions for the
multifunction product ("MFP") market, which consists of electronic office
devices that combine print, fax, copy and scan capabilities in a single unit.
eFax.com was incorporated in August 1988 and since that time has engaged in the
development, manufacture and sale of its branded MFPs. eFax.com has also
entered into agreements with a number of manufacturers for the customization
and integration of eFax.com's embedded system technology and desktop software
in OEMs' MFPs. The desktop software includes JetSuite, which resulted from
eFax.com's July 1996 purchase of substantially all of the assets of the
Crandell Group, Inc., and PaperMaster, which was acquired in a December 1997
pooling of interests transaction with DocuMagix, Inc. Building from this strong
technology base, eFax.com is now emphasizing Internet applications for its
document transmission and software expertise.
eFax.com uses a 52-53 week reporting year ending on the first Saturday on
or following December 31. The 13-week periods from January 3, 1999 to April 3,
1999 and from January 4, 1998 to April 4, 1998 are referred to herein as the
three months ended March 31, 1999 and March 31, 1998, respectively.
eFax.com's revenues are derived from three sources: (i) product revenues
consisting of sales of JetFax branded MFPs, consumables and upgrades; (ii)
software and technology license fees related to both its embedded system
technology for MFPs and its desktop software; and (iii) development fees for
the customization and integration of eFax.com's embedded system technology and
desktop software in OEM products. Historically, product revenues have accounted
for the majority of eFax.com's total revenues. For the three months ended
March 31, 1999, product revenues, software and technology fees, and development
fees as a percentage of total revenues, were 80%, 15%, and 6%, respectively, as
compared to 78%, 17%, and 4% for the comparable period in the prior year.
eFax.com in the past has experienced, and in the future may experience,
significant fluctuations in quarterly operating results that have been or may
be caused by many factors including: the timing of introductions of new
products or product enhancements; initiation, expansion, reduction or
termination of arrangements between eFax.com and significant OEM customers or
dealers and distributors; the size and timing of and fluctuations in end user
demand: currency fluctuations; and general economic conditions. eFax.com
expects that its operating results will continue to fluctuate significantly as
a result of these and other factors discussed under the heading "Factors That
May Affect Operating Results".
9
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Results of Operations
The following table sets forth, as a percentage of total revenues, certain
items in eFax.com's statements of operations for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Product 79.7% 78.3%
Software and technology license fees 14.8 17.4
Development fees 5.5 4.3
------ ------
Total revenues 100.0% 100.0%
------ ------
Costs and expenses:
Cost of product revenues 55.4 55.7
Cost of software and licensing revenue 3.1 3.9
Research and development 21.3 18.8
Selling and marketing 27.0 29.0
General and administrative 10.2 9.8
------ ------
Total costs and expenses 116.9 117.2
------ ------
Loss from operations (16.9) (17.2)
Other income, net 0.5 0.7
------ ------
Loss before income taxes (16.4) (16.5)
Provision for income taxes 0.2 0.2
------ ------
Net loss (16.6)% (16.7)%
====== ======
</TABLE>
Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998
Revenues. Total revenues increased 1% to $7.8 million for the quarter
--------
ended March 31, 1999 from $7.7 million for the quarter ended March 31, 1998.
Product revenues rose 3% to $6.2 million from $6.0 million for the quarter
ended March 31, 1999 and March 31, 1998, respectively. MFP unit sales were
essentially flat for the quarters ended March 31, 1999 and March 31, 1998,
while MFP revenues declined by 8% to $3.7 million from $4.0 million, driven by
average selling price declines due to competitive pricing in the market.
Consumable revenue increased 38% in the first quarter versus the year ago
quarter, while accessories declined slightly by 5%.
Software and technology licensing fees declined 15% to $1.1 million from
$1.3 for the quarters ended March 31, 1999 and March 31, 1998, respectively,
the result of withdrawal of the acquired PaperMaster software products from the
retail distribution channel in mid-1998. Per unit royalties were flat in the
first quarter versus the year ago quarter, but declined by 13% from the
preceding quarter due to volume reductions for the H-P SureStore CD-Writer.
Development revenue increased 28% to $.4 million from $.3 million for the
quarters ended March 31, 1999 and March 31, 1998, respectively. Follow-on
development efforts for the Hewlett-Packard contract are currently underway;
conversely, in the year ago quarter the original contract was approaching
completion and commencement of per unit royalty revenue generation.
10
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
International revenues declined to 16% of total revenues for the quarter ended
March 31, 1999 from 20% for the comparable period in 1998, primarily the result
of MFP average selling price declines. Two customers, Hewlett-Packard and IKON
Office Solutions, accounted for $1.2 million (16%) and $1.0 million (14%),
respectively, of total revenues for the quarter ended March 31, 1999, compared
with $1.1 million (14%) and $1.4 million (18%), respectively, for the same year
ago period. Additionally, Konica Business Technologies accounted for $828,000
(11%) of total revenues for the quarter ended March 31, 1999; no revenues from
Konica were included in the prior year period.
Cost of Product Revenues. Cost of product revenues were flat at $4.3
------------------------
million for the quarters ended March 31, 1999 and March 31, 1998. Given the
higher revenue in the current quarter, product gross margins expanded to 30.5%
from 28.9% in the year ago quarter. Product mix between the lower cost Series
M900 MFP relative to the earlier M5 product line accounted for the majority of
the margin improvement, but was offset in part by the strengthening of the Yen
in the quarter.
eFax.com purchases print engines for its Series M900 product line in Yen
from Oki Data Corporation and includes exchange gains and losses related to
Yen-based purchases in cost of goods sold. For the quarter ended March 31, 1999
the average exchange rate for purchases weakened to 113 from 127 Yen to the
dollar for the same year ago period. As a result of this rate change, cost of
goods sold was increased by $137,000.
Cost of Software and License Revenues. Cost of software and license
-------------------------------------
revenues decreased 21% to $238,000 from $301,000 for the quarters ended March
31, 1999 and March 31, 1998, respectively. The lower level of expenses was a
result of reduced purchases of external engineering services, offset by start
up costs related to eFax.com's new eFax(c) Service.
Research and Development. Research and development expenses increased
------------------------
14% to $1.7 million from $1.5 million for the quarters ended March 31, 1999
and March 31, 1998, respectively. Software development charges in support of
the new eFax Service accounted for the increase. As a percentage of revenues,
research and development expenses increased to 21% from 19% for the quarters
ended March 31, 1999 and March 31, 1998, respectively.
Selling and Marketing. Selling and marketing expenses decreased 6% to
---------------------
$2.1 million from $2.2 million for the quarters ended March 31, 1999 and March
31, 1998, respectively. Initial external promotion costs of $800,000
associated with startup of the eFax Service were offset by a similar decrease
in dealer incentives and other promotional efforts in support of the Series
M900. Non-recurrence of statutory expenses related to the wholly-owned
subsidiary, JetFax GmbH, in Germany accounted for the remainder of the
decrease. As a percentage of revenues, selling and marketing expenses declined
to 27% from 29% for the quarters ended March 31, 1999 and March 31, 1998,
respectively.
General and Administrative. General and administrative expenses
--------------------------
increased 5% to $791,000 from $755,000 for the quarters ended March 31, 1999
and March 31, 1998, respectively. Expenses related to the addition of the new
president and chief operating officer were offset by the elimination of
redundant administration costs incurred in the prior year quarter with the
acquisition of DocuMagix. As a percentage of revenues, general and
administrative expenses were flat at 10% for the quarters ended March 31, 1999
and March 31, 1998, respectively.
Interest and Other Income (Expense). Interest and other income, net,
-----------------------------------
decreased to $37,000 from $53,000 for the quarters ended March 31, 1999 and
March 31, 1998, respectively. Interest income from investments declined to
$53,000 from $78,000, while foreign exchange losses decreased to $18,000 from
$23,000 for the quarters ended March 31, 1999 and March 31, 1998, respectively.
Provision for Income Taxes. Due to eFax.com's net losses, there were no
--------------------------
provisions for federal or state income taxes for quarters ended March 31, 1999
and March 31, 1998, respectively. Income tax provisions of $15,000 and $17,000
for the quarters ended March 31, 1999 and March 31, 1998, respectively, relate
primarily to foreign withholding taxes on certain royalty fees, but also
include minimum state and franchise taxes.
Net Loss. The net loss for the quarter ended March 31, 1999 was $1.3
--------
million or $0.11 per share. The net loss for the quarter ended March 31, 1998
was also $1.3 million or $0.11 per share.
11
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources
eFax.com has financed its operations to date principally through private
placements of debt and equity securities, proceeds from borrowings under a bank
line of credit, debt associated with the Crandell Acquisition, and sales of
common stock. The total amount of equity raised through March 31, 1999 was $43
million through a series of private financing rounds at both the Company and
DocuMagix, and sales of common stock.
At March 31,1999, eFax.com had $1.5 million available under its bank credit
facility under which there were no borrowings at that date. This lending
facility is collateralized by substantially all of eFax.com's assets. The
maximum amount available under the line of credit is the lesser of $1.5 million
or 80% of eFax.com's eligible outstanding domestic accounts receivable. The
revolving line of credit was renegotiated on September 18, 1998, and terminates
on August 23, 1999. The line of credit contains certain covenants which
include the requirements that eFax.com maintain tangible net worth (as defined)
of $5.0 million, quarterly net income, a quick ratio of at least 1.0 to 1.0, a
maximum debt to net worth ratio (as defined) of 1.5 to 1.0, and certain minimum
liquidity and debt service coverage. In addition, the agreement prohibits the
payment of cash dividends. eFax.com was in compliance with all such covenants
at March 31, 1999, except the quarterly net income covenant for which eFax.com
received a waiver dated May 11, 1999.
Cash, cash equivalents and short-term investments remained essentially flat
for the period ended March 31, 1999 as compared to the period ended December
31, 1998. Inventories of $4.0 million at March 31, 1999 decreased from $4.5
million at December 31, 1998. Accounts receivable rose to $4.9 million at
March 31, 1999 from $4.4 million, the result of the increased sales volume
quarter to quarter, which was offset by improved collection on aged accounts.
Accounts payable rose to $1.9 million at March 31, 1999 from $777,000 at
December 31, 1998, driven by commitments for external promotions in support of
the new eFax Service.
Investing activities for the three months ended March 31, 1999 generated
$1.3 million of cash: $1.8 million from sale of short-term investments, offset
by $314,000 for property purchases, and $103,000 for investment in other
assets.
On May 10, 1999, eFax.com entered into a purchase agreement with an
investor for the private placement of $15 million of Series A Convertible
Preferred Stock, convertible into Common Stock based upon the five-day average
stock price prior to closing. The conversion price is subject to an adjustment
after one year to the greater of the then current market price of the Common
Stock or 60% of the initial conversion price. The agreement also includes
300,000 warrants exercisable at a 10% premium to the Series A Convertible
Preferred Stock conversion price. The Series A Convertible Preferred Stock
includes an 8% dividend payable in cash or common stock at the option of
eFax.com. The closing occurred on May 13, 1999. eFax.com has agreed to file a
registration statement for the resale of the shares of Common Stock acquired on
conversion of the Convertible Preferred Stock and upon exercise of the warrants
within 15 days after the closing date.
eFax.com currently believes that its cash and equivalents, together with
proceeds from the recent private placement of convertible preferred stock,
available borrowings under its line of credit, and funds from current and
anticipated operations, will be sufficient to meet eFax.com's working capital
and capital expenditure requirements for the next twelve months. If eFax.com
acquires one or more businesses or products, eFax.com's capital requirements
could increase substantially.
Factors That May Affect Operating Results
eFax.com operates in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. The following section lists some,
but not all, of those risks and uncertainties which may have a material adverse
effect on eFax.com's business, financial condition or results of operations.
This section should be read in conjunction with the unaudited Condensed
Consolidated Financial Statements and Notes thereto included in Part I - Item 1
of this Quarterly Report on Form 10-Q and the audited Consolidated Financial
Statements and Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year
12
<PAGE> 12
ended December 31, 1998, contained in eFax.com's Annual Report on Form 10-K for
the year ended December 31, 1998.
This Quarterly Report on Form 10-Q and the documents incorporated by
reference into this Quarterly Report on Form 10-Q may contain projections of
results of operations and financial condition or other "forward-looking
statements" which involve risks and uncertainties. The words "anticipate,"
"believe," "estimate," and "expect" and similar expressions when used in this
prospectus in relation to eFax.com or its management are intended to identify
such forward-looking statements. eFax.com's actual results, performance, or
achievements could differ materially from these projections or forward-looking
statements as a result of many factors, including those discussed in this
"Factors That May Affect Operating Results" section of the Quarterly Report on
Form 10-Q.
Our Quarterly Results are Uncertain and May Fluctuate.
eFax.com in the past has experienced, and in the future may experience,
significant fluctuations in its quarterly operating results. These
fluctuations have been or may be caused by many factors, including:
o acceptance and timing of new products combining fax technology with
the Internet;
o the size and timing of development or software licensing agreements;
o the timing of new introductions or phase-out of eFax.com's brand
products;
o fluctuations in consumer demand for eFax.com's brand products and for
products which are made by eFax.com's manufacturing customers
incorporating eFax.com's products; and
o seasonal trends, competition and pricing.
eFax.com expects that its operating results will continue to fluctuate as a
result of these and other factors.
eFax.com has often received a substantial portion of its quarterly revenues
during the last month of a quarter. These revenues frequently concentrate in
the last weeks or days of a quarter. One reason for this is that eFax.com's
brand products are primarily sold through dealers, and these dealers often
place orders for products at or near the end of a quarter. The booking and
shipping of one or more key orders at the end of a quarter may be delayed until
the beginning of the next quarter or it may be cancelled. As a result, we are
not able to predict future revenues with any significant degree of accuracy.
For these and other reasons, we believe that period-to-period comparisons of
eFax.com's results of operations are not necessarily meaningful. We believe
that you should not rely upon these comparisons as indicators of future
performance. It is likely that in future quarters, eFax.com's operating
results will sometimes be below the expectations of public market analysts and
investors. This could have a material adverse effect on the price of
eFax.com's common stock.
We believe that the accuracy of eFax.com's report of its quarterly license
revenues received from its manufacturing customers has been, and will continue
to be, dependent on the timing and accuracy of product sales reports which we
receive from these manufacturing customers. Our manufacturing customers only
provide these reports on a quarterly basis and this quarterly basis may not
coincide with eFax.com's quarter. Our manufacturing customers may also delay
or revise these reports. Therefore, we are required to estimate all of the
recurring license revenues from manufacturing customers for each quarter. As a
result, we will record an estimate of such revenues prior to public
announcement of eFax.com's quarterly results. In the event the product sales
reports we receive from our manufacturing customers are delayed or subsequently
revised, we may be required to restate eFax.com's recognized revenues or adjust
revenues for subsequent periods. This restatement or adjustment of revenues
could have a material adverse effect on eFax.com's business, financial
condition and results of operations and, as a result, the price of eFax.com's
common stock.
The Price of eFax.com Stock May Be Volatile.
The trading price of eFax.com's common stock is likely to be highly
volatile. The price could be subject to wide fluctuations in response to
factors such as:
o actual or anticipated variations in eFax.com's quarterly operating
results;
13
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
o announcements of technological innovations or new services by
eFax.com or its competitors;
o announcements of significant acquisitions or strategic partnerships
by eFax.com or its competitors;
o changes in financial estimates and recommendations by securities
analysts; and
o news reports relating to trends in eFax.com's markets.
In addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced extreme volatility
that is often unrelated to the operating performance of these companies. These
broad market and industry fluctuations may adversely affect the price of
eFax.com's common stock, regardless of eFax.com's actual operating performance.
We are Dependent on Intellectual Property Rights and There is Risk of
Infringement.
eFax.com's success is heavily dependent upon its intellectual property. To
protect its proprietary rights, eFax.com relies on a combination of copyright,
trade secret and trademark laws, patents, nondisclosure agreements and other
contractual restrictions. As part of its confidentiality procedures, eFax.com
generally enters into nondisclosure agreements with its employees, consultants,
manufacturing customers and strategic partners. eFax.com also limits access to
and distribution of its designs, software and other proprietary information.
Despite these efforts, eFax.com may be unable to effectively protect its
proprietary rights. In addition, enforcement of eFax.com's proprietary rights
may be expensive. We cannot assure you that eFax.com's means of protecting its
proprietary rights will be adequate. Nor can we assure you that eFax.com's
competitors will not independently develop similar technology.
As the number of patents, copyrights, trademarks and other intellectual
property rights in eFax.com's industry increases, eFax.com's intellectual
property may increasingly become the subject of infringement claims. In the
past, eFax.com has received communications from other parties claiming that
eFax.com's trademarks or products infringe the proprietary rights of these
parties. eFax.com has also received communications asking for
"indemnification" against such infringement. "Indemnification" means that
eFax.com would promise to repay or reimburse the other party for loss or
damages suffered by that other party as a result of infringement. eFax.com's
manufacturing customers generally require eFax.com to reimburse or "indemnify"
the manufacturing customers for claims of infringement from third parties. We
can give you no assurance that third parties will not make infringement claims
against eFax.com or its manufacturing customers in the future. Any of these
claims, even if they have no legal merit, could be time consuming (especially
for key management and technical personnel), result in costly litigation or
cause delays in revenues. In addition, these claims could require eFax.com to
enter into royalty or licensing agreements on terms unacceptable to eFax.com.
If eFax.com fails to develop a substitute technology, or to license a
substitute technology on acceptable terms, this could have a material adverse
effect on eFax.com's business, financial condition and results of operations.
As an example, eFax.com was recently sued by a E-Fax Communications which
claimed that the use of the name "eFax.com" infringed this party's trademark
rights. In settlement of the matter, eFax.com has agreed to pay E-Fax
Communications a combination of cash and Common Stock in an amount not
exceeding $2.5 million based on the average share price of the Common Stock
just prior to the stock registration becoming effective.
Internet-related Revenues are Risky.
The market for Internet-related document communication and handling
services is very new and is evolving rapidly. eFax.com expects to rely
significantly in the future on revenues generated through its "eFax" service, a
free fax-to-e-mail service, and products which support this service. We cannot
assure you, however, that the base of customers subscribing to our eFax(c)
Service will continue to expand rapidly. Nor can we assure you that users will
be willing to pay fees for premium services or that the subscriber base will
grow large enough to be capable of generating advertising revenue. As a
result, our revenues may not grow as anticipated, which would have a negative
effect on our business.
14
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
There are Risks Associated with the Change in the Focus of Our Business.
Historically, eFax.com has focused primarily on the development,
manufacture and sale of its brand multifunction products. eFax.com currently
derives a substantial portion of its revenues from the sale of these brand
multifunction products. However, eFax.com expects that its future revenue
growth will be dependent, on expansion of its recently introduced Internet-
based document services, such as its fax-to-e-mail service, and on further
licensing of eFax.com's hardware and software technologies and software
products. However, we cannot assure you that eFax.com will realize growth in
revenues from such sales. If such growth in revenues does not occur and if
revenues from the sale of eFax.com's brand multifunction products do not to
continue at past growth rates, it could have a material adverse effect on
eFax.com's business, financial condition and results of operations.
We are Dependent on Continued Growth of Commerce over the Internet.
eFax.com intends to derive a significant portion of its revenues from its
fax-to-e-mail service, called "eFax", and related products. Rapid growth in the
use of and interest in the Internet and online Internet services is a recent
phenomenon. As a result, a sufficiently broad base of consumers may not adopt
and continue to use the Internet and other online services as a way of
purchasing and conducting business. Internet web-based advertising and the
sales of premium Internet services are relatively new. It is difficult to
predict the extent that these will grow, or if they will grow at all. In
addition, the Internet may not prove to be a viable commercial marketplace for
reasons such as potentially inadequate development of:
o Internet network infrastructure;
o technologies which enable use of the Internet; and
o performance improvements to support increased levels of Internet
activity.
If any of the following take place, it could have a material adverse effect
on eFax.com's business, financial condition and results of operation:
o if the use of the Internet and other online services does not
continue to increase or increases more slowly than expected;
o if the infrastructure for the Internet and online services proves to
be inadequate to effectively support expansion; or
o if the Internet does not become a viable commercial marketplace.
We are Dependent on Our Manufacturing Customers.
eFax.com has derived a significant portion of its revenues from licensing
of its software and hardware and software technologies to other parties and
from providing development services to manufacturing customers. eFax.com
currently has manufacturing relationships with Hewlett-Packard Company, Oki
Data Corporation, and Konica Business Systems. eFax.com anticipates that it
will derive a significant portion of its revenues in the future from its
manufacturing customers and that eFax.com's revenues will be dependent upon,
among other things, the ability and willingness of its manufacturing customers
to develop and promote multifunction products that incorporate eFax.com's
technology. The ability and willingness of these manufacturing customers to do
this is based upon a number of factors, including eFax.com's ability to
complete timely development of designs for them. We cannot give you any
assurances regarding the ability or willingness of eFax.com's manufacturing
customers to continue developing, marketing and selling products incorporating
eFax.com's technology. The loss of any of eFax.com's significant manufacturing
customers could have a material adverse effect on eFax.com's business,
financial condition and results of operations.
We are Dependent on Our Dealers and Distributors.
eFax.com has derived a substantial portion of its revenues from sales of
its JetFax brand multifunction products
15
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
through dealers and distributors. eFax.com expects that sales of these products
through its dealers and distributors will continue to account for a substantial
portion of eFax.com's revenues for the foreseeable future. eFax.com currently
maintains distribution relationships with dealers associated with IKON Office
Solutions, a national group of office equipment dealers, and A. Messerli AG,
one of eFax.com's office equipment dealers located in Switzerland.
Each of eFax.com's dealers and distributors can stop marketing eFax.com's
products with only limited notice to eFax.com and with little or no penalty.
The loss of one or more of eFax.com's major dealers or distributors could have
a material adverse effect on eFax.com's business, financial condition and
results of operations. eFax.com's dealers and distributors also offer
competing products manufactured by third parties. We can give no assurance that
eFax.com's dealers and distributors will give priority to the marketing of
eFax.com's products as compared to the marketing of our competitors' products.
Any reduction or delay in sales of eFax.com's products by our dealers and
distributors could have a material adverse effect on eFax.com's business,
financial condition and results of operations.
We have a History of Operating Losses and an Accumulated Deficit.
eFax.com has had annual net losses since eFax.com was formed. eFax.com's
historical losses and certain preferred stock dividends have resulted in an
accumulated deficit of approximately $30.5 million as of March 31, 1999. We
can give you no assurance that eFax.com will achieve profitability on a
quarterly or annual basis in the future.
We are Subject to Risks Associated with Technological Change.
The market for eFax.com's products and services is characterized by rapidly
changing technology, evolving industry standards and needs, and frequent new
product introductions. As the market for Internet-based document communication
and handling services grows, this market will begin to exert more pressure on
companies to develop advanced features at more economical pricing. The
multifunction product market already expects the continued development and
release of new products with better performance and improved features at
competitive prices. As product development increases in complexity and the
expected time to bring a product to market continues to decrease, the risk and
difficulty in meeting these development schedules increases and the costs to
eFax.com and its manufacturing customers also increases. In addition,
eFax.com, its manufacturing customers and their competitors may, from time to
time, announce new products, capabilities or technologies that may replace or
shorten the life cycles of eFax.com's brand products and software and the life
cycles of manufacturing customers' products incorporating eFax.com's
technology. eFax.com's success will depend on, among other things:
o market acceptance of eFax.com's product offerings; and
o the ability of eFax.com and its manufacturing customers to respond to
industry changes and market demands.
Any failure of eFax.com to anticipate or respond adequately to the rapidly
changing technology and evolving industry standards and needs could result in a
loss of our competitiveness or revenues. Any significant delay in our
development or introduction of new and enhanced products and services could
also result in a loss of competitiveness or revenues. Such a loss of
competitiveness or revenues could have a material adverse effect on eFax.com's
business, financial condition and results of operations.
We Operate in a Highly Competitive Industry.
The market for Internet-related document communication and handling
services, such as eFax.com's fax-to-e-mail service, is a newly emerging market
and competitors are just beginning to appear. eFax.com anticipates that it
will need to:
o provide good service and grow its business rapidly to meet demand;
o create name recognition for eFax.com in advance of competitors;
o build its subscriber base prior to any significant entry by the
competition; and
16
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
o continue to expand and improve on its eFax fax-to-e-mail service
offerings.
eFax.com's technology, development services and software primarily compete
with solutions developed internally by manufacturing customers. Virtually all
of eFax.com's manufacturing customers have significant investments in their
existing solutions. These manufacturing customers have the substantial
resources necessary to develop competing multifunction technologies and
software that may be implemented into their own products. eFax.com also
competes with technologies, software and development services provided in the
multifunction product market by other systems and software suppliers to
manufacturing customers.
With respect to hardware and software technologies for multifunction
products, eFax.com competes with Peerless Systems Corporation, Personal
Computer Products, Inc. and Xionics Document Technologies, Inc., among others.
With respect to desktop software, eFax.com competes with Caere Corporation,
Simplify Development Corporation, Smith Micro Software, Inc., Visioneer Inc.,
Wordcraft International and Xerox, among others. In the newly evolving market
for fax-to-e-mail services, competitors include JFAX.com, Inc., an established
business, and CallWave, a start-up that is just introducing its product.
The market for multifunction products and related technology and software
is highly competitive. This market is characterized by continuous pressure to
improve performance, to introduce new features and to accelerate the release of
new products. eFax.com's brand products compete primarily with the dominant
vendors in the fax market, all of whom have substantially greater resources
than eFax.com. These dominant vendors include Canon Inc., Panasonic, a
division of Matsushita Electrical Industrial Co., Ltd., Pitney Bowes Inc.,
Ricoh Co. Ltd., Sharp Electronics Corporation and Xerox, among others. eFax.com
also competes on the basis of vendor name and recognition, technology and
software expertise, product functionality, development time and price.
eFax.com anticipates increasing competition for its multifunction products,
technologies, software under development and Internet services. Most of
eFax.com's existing competitors, many of its potential competitors and all of
eFax.com's manufacturing customers have substantially greater financial,
technical, marketing and sales resources than eFax.com. In the event that
price competition increases, competitive pressures could cause eFax.com to:
o reduce the cost of its eFax Service offerings;
o reduce the price of its brand products;
o reduce the amount of royalties received on new licenses; and
o reduce the fees for its development services in order to maintain
existing business and generate additional product sales and license
and development revenues.
In turn, these reductions could reduce eFax.com's profit margins and result
in losses and a decrease in market share, which would have a material adverse
effect on eFax.com's business, financial condition and results of operations.
We are Dependent on Key Personnel.
eFax.com is largely dependent upon the skills and efforts of its senior
management, particularly Edward R. Prince, III, known as ''Rudy", its Chief
Executive Officer, and Lon Radin, its Vice President of Engineering, as well as
other officers and key employees, some of whom only recently have joined
eFax.com. eFax.com maintains key person life insurance policies on Rudy Prince
and Lon Radin. None of eFax.com's officers or key employees have an employment
agreement with eFax.com. eFax.com believes that its future success will depend
in large part upon its ability to attract and retain highly skilled
engineering, managerial, sales, marketing and operations personnel, many of
whom are in great demand. Competition for such personnel, especially
engineering personnel, has recently increased significantly. The loss of key
personnel or the inability to hire or retain qualified personnel could have a
material adverse effect on eFax.com's business, financial condition and results
of operations.
17
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
We are Subject to the Effect of Rapid Growth on Existing Resources and the
Risks of Potential Acquisitions.
eFax.com has grown rapidly in recent years. A continuing period of rapid
growth could place a significant strain on eFax.com's management, operations
and other resources. eFax.com's ability to manage its growth will require
eFax.com to continue to invest in its operational, financial and management
information systems, procedures and controls, and to attract, retain, motivate
and effectively manage its employees. We can give no assurance that eFax.com
will be able to manage its growth effectively. Failure to manage growth
effectively would have a material adverse effect on eFax.com's business,
financial condition and results of operations.
eFax.com may, from time to time, pursue the acquisition of other companies,
assets or product lines that complement or expand its existing business.
Acquisitions involve a number of risks that could adversely affect eFax.com's
operating results. These risks include:
o the diversion of management's attention from day-to-day business;
o the difficulty of combining and assimilating the operations and
personnel of the acquired companies;
o charges to eFax.com's earnings as a result of the purchase of
intangible assets; and
o the potential loss of key employees as a result of an acquisition.
eFax.com has no present commitments nor is it engaged in any discussions or
negotiations regarding possible acquisitions. However, should any acquisition
by eFax.com take place, we can give no assurance that this acquisition will not
materially and adversely affect eFax.com or that any such acquisition will
enhance eFax.com's business.
We are Dependent on a Limited Number of Outside Suppliers.
eFax.com relies on various suppliers of components for its products.
eFax.com generally buys components under purchase orders and does not have
long-term agreements with its suppliers. Alternate suppliers may be readily
available for some of these components. However, for other components, we do
not know how long it would take to find a replacement supplier and to receive
replacement components. If we need to find another supplier of those
components which we now purchase from a single source, we may not have
sufficient inventory to fill customer orders without interruption. Although we
believe we could develop other sources for these single source components, no
alternative source currently exists and the process of finding an alternate
source could take several months or longer. Therefore, any interruption in the
supply of these components could have a material adverse effect on eFax.com's
business, financial condition and results of operations.
eFax.com purchases many of the components used in its products from
suppliers located outside the United States. Foreign manufacturing facilities
are subject to the risk of changes in governmental policies, imposition of
tariffs and import restrictions and other factors beyond eFax.com's control. We
can give you no assurance that United States or foreign trading policies will
not restrict the availability of components or increase their cost. Any
significant increase in component prices or decrease in component availability
could have a material adverse effect on eFax.com's business, financial
condition and results of operations.
Certain components used in eFax.com's products are available only from one
source. eFax.com is dependent on Oki America, Inc., as the supplier of major
components, contained in eFax.com's Series M900, one of eFax.com's most
important products. Oki America is also a competitor of eFax.com. eFax.com is
also dependent on:
o American Microsystems, Inc. to provide customized integrated circuits
incorporating eFax.com's imaging and logic circuitry;
o Motorola, Inc. to provide microprocessors;
o Pixel Magic, Inc., a subsidiary of Oak Technology, Inc., to provide a
specialized imaging processor;
o Conexant Systems, Inc., to provide modem chips.
18
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Given our dependence on single source suppliers, any of the following
events could have a material adverse effect on eFax.com's business, financial
condition and results of operations:
o if any of these companies were to limit or reduce the sale of such
components to eFax.com;
o if these suppliers were to experience financial difficulties or other
problems which prevented them from supplying eFax.com with necessary
components;
o any shortage or interruption in the supply of any of the components
used in eFax.com's products; or
o the inability of eFax.com to obtain these components from alternate
sources on acceptable terms.
We are Subject to Risks from Our International Activities.
A significant portion of eFax.com's total revenues come from sales to
eFax.com's customers outside the United States. The international market for
eFax.com's brand products and products incorporating eFax.com's technology and
software is highly competitive. Risks inherent in eFax.com's international
business activities also include:
o currency fluctuations and restrictions;
o the burdens of complying with a wide variety of foreign laws and
regulations;
o longer accounts receivable cycles;
o the imposition of government controls;
o risks of localizing and internationalizing products to local
requirements in foreign countries;
o trade restrictions;
o tariffs and other trade barriers;
o restrictions on bringing earnings back into the United States; and
o potentially adverse tax consequences.
Any of these risks could have a material adverse effect on eFax.com's
business, financial condition and results of operations. Substantially all of
eFax.com's international sales are currently made in U.S. dollars. Therefore,
increases in the value of the U.S. dollar relative to foreign currencies could
make eFax.com's products less competitive in foreign markets. Because of
eFax.com's international activities, it faces currency exposure and currency
exchange risks. For example, eFax.com purchases some of its key components
pursuant to purchase contracts which require payment in foreign currency which
results in currency exchange risks.
We are Dependent on a Single Manufacturing Facility.
eFax.com's manufacturing operations are located in its facility in Northern
California. In addition, eFax.com relies on several suppliers of components
for eFax.com's products and a number of companies which assemble eFax.com
products which are located in Northern California. eFax.com does not currently
operate multiple facilities in different geographic areas and does not have
alternative sources for many of its components or assembly processes. As a
result, a disruption of eFax.com's manufacturing operations, or the operations
of its suppliers, could cause eFax.com to cease or limit its manufacturing
operations. Consequently, this would have a material adverse effect on
eFax.com's business, financial condition and results of operations.
Future Sale of Shares Could Affect the Stock Trading Price.
Sales of substantial amounts of common stock in the public market could
have an adverse effect on the trading price of the common stock. Based on
shares outstanding as of May 5, 1999, eFax.com has outstanding approximately
12,415,655 shares of common stock. Of such shares outstanding, approximately
11,736,000 shares
19
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
are freely tradable without restriction or further registration under the
Securities Act, unless held by "affiliates" of eFax.com as that term is defined
in Rule 144 under the Securities Act.
eFax.com may have Problems with Readiness for the Year 2000.
Readiness for the year 2000 refers to the issue surrounding computer
programs that use two digits rather than four to define a given year. These
programs might read a date using "00" as the year 1900 rather than the year
2000, which could cause a system failure or a miscalculation.
We do not believe eFax.com's manufacturing facilities are vulnerable in any
significant way to year 2000 system failures involving non-information
technology. In August 1998, eFax.com renovated its existing telephone system
at a cost of approximately $40,000, which made the phone system ready for the
year 2000. eFax.com has invested approximately $367,000 and will continue to
make certain investments, estimated not to exceed $50,000, in its software
systems and applications to ensure eFax.com's information systems are ready for
the year 2000. The necessary funds to support these renovations have come from
eFax.com's operating budget and eFax.com does not anticipate that it will need
to allocate special future funding outside of historical levels for this item.
The financial impact of eFax.com's year 2000 readiness effort has not been and
is not anticipated to be material to eFax.com's financial position or results
of operations in any given year. For example, during 1997 and 1998, eFax.com
purchased and implemented new manufacturing and accounting information systems
with a total capitalized cost of $338,000. eFax.com has obtained written
assurances from the vendor, QAD Inc., that the systems are ready for the year
2000. However, eFax.com has not conducted internal testing of the systems'
readiness.
eFax.com believes that its current products are ready for the year 2000.
Certain of eFax.com's older products, which may not be year 2000 ready, are no
longer under warranty. eFax.com believes it has no obligation related to these
products. If eFax.com is mistaken in this assessment, eFax.com could incur
expenses in defending legal actions for breach of contract or other causes of
action. We can give you no assurance that these expenses will not be material
to eFax.com's financial position or results of operations.
As discussed above, eFax.com has recently implemented new information
systems and accordingly does not anticipate any internal year 2000 problems
from those information systems, databases or programs. However, year 2000
problems faced by major distributors, suppliers, customers and financial
service organizations with which we interact could adversely impact eFax.com.
We expect to complete our assessment of the potential impact of these
additional issues by June 1, 1999. We can give you no assurance that we will be
able to detect all potential failures of eFax.com's computer systems or the
computer systems of third parties. A significant failure of eFax.com's or a
third party's computer system could have a material adverse effect on
eFax.com's business, financial condition and results of operations. However,
we are unable at this time to assess what might be the extent of such effect.
eFax.com intends to complete a contingency plan by July 1, 1999, detailing
actions that would be taken in the event that such a failure occurs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No change has occurred since the filing by the Registrant on Form 10-K for
the year ended December 31, 1998. Reference is made to Part II, Item 7A,
Quantitative and Qualitative Disclosures About Market Risk, in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998.
20
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In early March 1999, E-Fax Communications, Inc. ("E-Fax Communications"), a
California corporation, filed a complaint against eFax.com Inc., a Delaware
corporation, in the United States District Court, Northern District of
California. The Complaint alleged that the Company had engaged in trademark and
service mark infringement and unfair competition in connection with the
Company's use of the name "eFax.com." On April 9, 1999, the Company and E-Fax
Communications signed a settlement agreement in which E-Fax Communications will
dismiss all charges against the Company, transfer all rights to the mark "E-
FAX" to the Company, stop all use of the "E-FAX" trademark, and change its
corporate name. The Company has agreed to pay E-Fax Communications a
combination of cash and Common Stock in an amount not exceeding $2.5 million
based on the average share price of the Common Stock just prior to the stock
registration becoming effective. The purchased trademark rights will become an
asset of the Company and be amortized over the period of benefit, estimated to
be seven to ten years. The parties consider the settlement a compromise of
disputed claims and preferable to a possible extended legal proceeding with
uncertain outcome.
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable.
(b) Not applicable.
(c) During the first quarter ended March 31, 1999, the Company has sold
the following unregistered securities:
In February 1999, the Company agreed to issue IGC Partners ("IGC")
30,000 shares of restricted common stock, subject to the one-year
holding period required by SEC Rule 144, per the terms of the
Development and Co-Location Agreement between IGC and eFax.com
effective that same month. The stock was valued at a price of $6.94
per share.
In March 1999, the Company issued warrants to purchase 10,000 shares
of Common Stock to Global NAPS, Inc., in connection with the
completion and acceptance of project milestones. The warrant
exercise price for each increment of 5,000 shares was $15.19 and
$17.88, respectively. These warrants may be exercised immediately.
The issuance and sale of all such securities was intended to be
exempt from registration and prospectus delivery requirements under
the Securities Act of 1933, as amended (the "Securities Act"), by
virtue of Section 4(2) thereof due to, among other things, (i) the
limited number of persons to whom the securities were issued, (ii)
the distribution of disclosure documents to the investor, (iii) the
fact that such person represented and warranted to the Company,
among other things, that such person was acquiring the securities
for investment only and not with a view to the resale or
distribution thereof, and (iv) the fact that a certificate
representing the securities was issued with a legend to the effect
that such securities had not been registered under the Securities
Act or any state securities laws and could not be sold or
transferred in the bsence of such registration or an exemption
therefrom.
ITEM 5. OTHER INFORMATION
Not applicable.
21
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
--------- ----------------------------------------------------------------
<S> <C>
3.19 Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of eFax.com, Inc. dated as of May
12, 1999.
3.20 Certificate of Amendment of the Certificate of Designations,
Preferences and Rights of Series A Convertible Preferred Stock of
eFax.com, Inc. dated as of May 13, 1999.
4.2 Form of Warrant to Purchase Common Stock by and between eFax and
Global NAPS, Inc.
4.3 Form of Warrant to Purchase Common Stock by and between eFax and
Fisher Capital, Ltd.
4.4 Form of Warrant to Purchase Common Stock by and between eFax and
Wingate Capital, Ltd.
4.5 Registration Rights Agreement, dated as of May 7, 1999, by and
between eFax and Fisher Capital, Ltd., and Wingate Capital, Ltd.
10.52# Collocation Agreement, dated as of March 19, 1999, by and between
eFax and Global NAPS Realty, Inc. (the "Collocation Agreement")
and the General Terms and Conditions and Addendum incorporated
therein.
10.53# Telephone Switch Service Agreement, dated as of March 19, 1999,
by and between eFax and Global NAPS, Inc. (the "Service
Agreement") and the General Terms and Conditions and Addendum
incorporated therein (incorporated by reference to Exhibit 10.52)
10.54 Stock Purchase Agreement, dated as of February 23, 1999 by and
between eFax and Integrated Global Concepts, Inc.
10.55 Securities Purchase Agreement, dated as of May 7, 1999 by and
between eFax and Fisher Capital, Ltd., and Wingate Capital, Ltd.
27.1 Financial Data Schedule.
99.1 Press Release
-----------------
</TABLE>
# Portions of the exhibit have been omitted pursuant to a
request for confidential treatment and the omitted portions
have been separately filed with the Commission.
(b) Reports on Form 8-K. On February 8, 1999, the Registrant filed a
Form 8-K in connection with the announcement that the corporate
name of JetFax, Inc., a Delaware Corporation, had been changed to
"eFax.com, Inc." which contained disclosures under on Item 5. Other
Events and Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits. On March 12, 1999, the Registrant filed
Form 8-K in connection with eFax.com's announcement that a complaint
had been filed against the Registrant that contained disclosures
under Item 5. Other Events.
22
<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EFAX.COM, INC.
---------------------------
(Registrant)
Date: May 18, 1999 By: /s/ TODD J. KENCK
----------------------------
Todd J. Kenck
Vice President, Finance and
Chief Financial Officer
(Authorized Officer and
Principal Accounting and
Financial Officer)
23
<PAGE> 23
EXHIBIT 3.19
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
EFAX.COM, INC.
eFax.com, Inc. (the "Company"), a corporation organized and existing under
the General Corporation Law of the State of Delaware, does hereby certify that,
pursuant to authority conferred upon the Board of Directors of the Company by
the Certificate of Incorporation, as amended, of the Company, and pursuant to
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Company at a meeting duly held, adopted resolutions (i)
authorizing a series of the Company's previously authorized preferred stock,
par value $.01 per share, and (ii) providing for the designations, preferences
and relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of One Thousand Five Hundred (1,500)
shares of Series A Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 1,500 shares of Series A
Convertible Preferred Stock (the "Preferred Shares"), par value $.01 per share,
which shall have the following powers, designations, preferences and other
special rights:
(1) Dividends. Subject to Section 4(c), the Preferred Shares shall bear
---------
dividends ("Dividends") at a rate per annum equal to the Dividend Rate (as
defined below), which shall be cumulative, accrue daily from the Issuance Date
(as defined below) and be payable on each of the date which is one (1) year
after the Issuance Date (as defined below), the date which is two (2) years
after the Issuance Date and the date which is three (3) years after the
Issuance Date (subject to Section 4(c), each a "Dividend Date"). If a Dividend
Date is not a Business Day (as defined below) then the Dividend shall be due
and payable on the Business Day immediately following the Dividend Date.
Dividends shall be payable in cash or, at the option of the Company, in shares
of Common Stock based on the Dividend Conversion Price (as defined below) on
the Dividend Date, provided that the Dividends which accrued during any period
shall be payable in shares of Common Stock only if the Company provides written
notice ("Dividend Election Notice") to each holder of Preferred Shares at least
five (5) Business Days prior to the Dividend Date. Notwithstanding the
foregoing, the Company shall not be entitled to pay Dividends in shares of
Common Stock and shall be required to pay such Dividends in cash if (a) any
event constituting a Triggering Event (as defined in Section 3(b)), or an event
that solely with the passage of time would constitute a Triggering Event if not
cured, has occurred and is continuing on the date of the Company's Dividend
Election Notice or on the Dividend Date, unless otherwise consented to in
writing by the holder of Preferred Shares entitled to receive such Dividend, or
(b) the Registration Statement (as defined below) has not been declared
effective by the Securities and Exchange Commission (the "SEC") on or before
the Dividend
<PAGE> 24
Date. Any accrued and unpaid dividends which are not paid (in stock or cash as
applicable) within seven (7) Business Days of such accrued and unpaid
dividends' Dividend Date shall bear interest at the rate of 18.0% per annum
from such Dividend Date until the same is paid (the "Default Interest").
(2)
(3) Conversion of Preferred Shares. Preferred Shares shall be convertible into
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"), on the terms and conditions set forth in this Section 2.
(4)
(a) Certain Defined Terms. For purposes of this Certificate of Designations,
the following terms shall have the following meanings:
(b)
(i) "Additional Amount" means, on a per share basis, the sum of (A) unpaid
-----------------
Default Interest, if any, through the date of determination plus (B) the result
of the following formula: (the Dividend Rate)(N/365)($10,000).
(ii)
(iii) "Business Day" means a day on which the Principal Market or, if the
------------
Principal Market is not the principal trading market for the Common Stock, the
principal trading market for the Common Stock is open for general trading of
securities.
(iv)
(v) "Closing Bid Price" means, for any security as of any date, the last
-----------------
closing bid price for such security on the Principal Market (as defined below)
as reported by Bloomberg Financial Markets ("Bloomberg"), or, if the Principal
Market is not the principal securities exchange or trading market for such
security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded
as reported by Bloomberg, or if the foregoing do not apply, the last 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 last closing trade
price of such security as reported by Bloomberg, or, if no last closing trade
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 on any of the foregoing bases, the Closing Bid
Price of such security on such date shall be the fair market value as mutually
determined by the Company and the holders of Preferred Shares. If the Company
and the holders of Preferred Shares are unable to agree upon the fair market
value of the Common Stock, then such dispute shall be resolved pursuant to
Section 2(d)(iii) below with the term "Closing Bid Price" being substituted for
the term "Market Price." All such determinations to be appropriately adjusted
for any stock dividend, stock split or other similar transaction during such
period.
(vi) "Closing Sale Price" means, for any security as of any date, the last
------------------
closing trade price for such security on the Principal Market as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last closing trade price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing trade 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 last closing trade
<PAGE> 25
price is reported for such security by Bloomberg, the last closing ask price of
such security as reported by Bloomberg, or, if no last closing ask price is
reported for such security by Bloomberg, the average of the ask prices of any
market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Sale Price cannot be calculated
for such security on such date on any of the foregoing bases, the Closing Sale
Price of such security on such date shall be the fair market value as mutually
determined by the Company and the holders of Preferred Shares. If the Company
and the holders of the Preferred Shares are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be resolved pursuant
to Section 2(d)(iii) below with the term "Closing Sale Price" being
substituted for the term "Market Price". All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
(vii)
(viii) "Conversion Amount" means the sum of (A) the Additional Amount and
-----------------
(B) $10,000.
(ix)
(x) "Conversion Price" means (A) as of any Conversion Date (as defined in
----------------
Section 2(d)) or other date of determination prior to the date which is three
(3) years after the Issuance Date, the Fixed Conversion Price in effect on such
date and subject to adjustment as provided herein (including, without
limitation, pursuant to Section 2(f)), and (B) on and after the date which is
three (3) years after the Issuance Date, the Market Price as of such date, each
in effect as of such date and subject to adjustment as provided herein.
(xi)
(xii) "Dividend Conversion Price" means, as of any Dividend Date, the
-------------------------
average of the Closing Bid Prices of the Common Stock for the five consecutive
Business Days immediately preceding such Dividend Date.
(xiii)
(xiv) "Dividend Rate" means, with respect to any Preferred Share, (A) 8.0%,
-------------
prior to the date the holder of such Preferred Share delivers a Holder's
Registration Failure Notice to the Company pursuant to Section 4(c), and (B)
30.0%, on and after the date the holder of such Preferred Share delivers a
Holder's Registration Failure Notice to the Company pursuant to Section 4(c).
(xv)
(xvi) "Fixed Conversion Price" means 100% of the average of the Closing Bid
----------------------
Prices of the Common Stock for the five consecutive Business Days immediately
preceding the Issuance Date, subject to adjustment as provided herein
(including, without limitation, pursuant to Section 2(f)).
(xvii) "Initial Fixed Conversion Price" means the Fixed Conversion Price in
------------------------------
effect on the Issuance Date, subject to adjustment as provided herein.
(xviii)
(xix) "Issuance Date" means, with respect to each Preferred Share, the
-------------
date of issuance of the applicable Preferred Share.
(xx)
(xxi) "Maturity Date" means the date which is three (3) years after the
-------------
applicable Issuance Date, subject to extension as provided in Section
2(d)(vii).
<PAGE> 26
(xxii)
(xxiii) "Market Price" means, with respect to any security for any period,
------------
that price which shall be computed as the arithmetic average of the Closing Bid
Prices for such security on each of the 20 consecutive Business Days
immediately preceding such date of determination. All such determinations to
be appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
(xxiv)
(xxv) "N" means the number of days from, but excluding, the last Dividend
--
Date with respect to which Dividends, along with any Default Interest, has been
paid by the Company on the applicable Preferred Share through and including the
Conversion Date for the Preferred Shares for which conversion is being elected
or such other date with respect to which this determination is being made.
(xxvi)
(xxvii) "Person" means an individual, a limited liability company, a
------
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(xxviii)
(xxix) "Principal Market" means the Nasdaq National Market.
----------------
(xxx)
(xxxi) "Registration Rights Agreement" means that certain registration
-----------------------------
rights agreement between the Company and the initial holders of the Preferred
Shares relating to the filing of a registration statement covering the resale
of the shares of Common Stock issuable upon conversion of the Preferred Shares
and exercise of the Warrants.
(xxxii)
(xxxiii) "Securities Purchase Agreement" means that certain securities
-----------------------------
purchase agreement between the Company and the initial holders of the Preferred
Shares.
(xxxiv)
(xxxv) "Stated Value" means $10,000.
------------
(xxxvi)
(xxxvii)"Warrants" means the warrants to acquire Common Stock issued by the
--------
Company pursuant to the Securities purchase Agreement.
(xxxviii)
(c) Holder's Conversion Right. Subject to the provisions of Section 5, at
-------------------------
any time or times on or after the Issuance Date (as defined below), any holder
of Preferred Shares shall be entitled to convert any whole number of Preferred
Shares into fully paid and nonassessable shares of Common Stock in accordance
with Section 2(d) at the Conversion Rate (as defined below). The Company shall
not issue any fraction of a share of Common Stock upon any conversion. All
shares of Common Stock (including fractions thereof) issuable upon conversion
of more than one Preferred Share by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of
a fraction of a share of Common Stock. If, after the aforementioned
aggregation, the issuance would result in the issuance of a fraction of a share
of Common Stock, the Company shall round such fraction of a share of Common
Stock up or down to the nearest whole share.
<PAGE> 27
(a) Conversion Rate. The number of shares of Common Stock issuable upon
---------------
conversion of each Preferred Share pursuant to Section 2(b) shall be determined
according to the following formula (the "Conversion Rate"):
Conversion Amount
-----------------
Conversion Price
(a) Mechanics of Conversion. The conversion of Preferred Shares shall be
-----------------------
conducted in the following manner:
(i) Holder's Delivery Requirements. To convert Preferred Shares into shares
------------------------------
of Common Stock on any date (the "Conversion Date"), the holder thereof shall
(A) transmit by facsimile (or otherwise deliver), for receipt on or prior to
11:59 p.m., Central Time on such date, a copy of a fully executed notice of
conversion in the form attached hereto as Exhibit I (the "Conversion Notice")
to the Company with a copy thereof to the Company's designated transfer agent
(the "Transfer Agent") and (B) if required by Section 2(d)(viii), surrender to
a common carrier for delivery to the Company as soon as practicable, but in no
event later the five (5) Business Days, following such date the original
certificates representing the Preferred Shares being converted (or an
indemnification undertaking with respect to such shares in the case of their
loss, theft or destruction) (the "Preferred Stock Certificates").
(ii)
(iii) Company's Response. Upon receipt by the Company of a copy of a
------------------
Conversion Notice, the Company, on or before the second Business Day following
the date of receipt (the "Share Delivery Date"), (A) issue and deliver to the
address as specified in the Conversion Notice, a certificate, registered in the
name of the holder or its designee, for the number of shares of Common Stock to
which the holder shall be entitled, or (B) provided the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer Program, upon the request of the holder, credit such aggregate number
of shares of Common Stock to which the holder shall be entitled to the holder's
or its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system. If the number of Preferred Shares represented by the
Preferred Stock Certificate(s) physically submitted for conversion is greater
than the number of Preferred Shares being converted, then the Company shall, as
soon as practicable and in no event later than five Business Days after receipt
of the Preferred Stock Certificate(s) (the "Preferred Stock Delivery Date") and
at its own expense, issue and deliver to the holder a new Preferred Stock
Certificate representing the number of Preferred Shares not converted.
(iv)
(v) Dispute Resolution. In the case of a dispute as to the determination
------------------
of the Market Price or the arithmetic calculation of the Conversion Rate, the
Company shall instruct the Transfer Agent to issue to the holder the number of
shares of Common Stock that is not disputed and promptly shall submit the
disputed determinations or arithmetic calculations to the holder via facsimile.
If such holder and the Company are unable to agree upon the determination of
the Market Price or arithmetic calculation of the Conversion Rate within one
(1) Business Day of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company promptly shall submit via facsimile
(A) the disputed
<PAGE> 28
determination of the Market Price to an independent, reputable investment bank
selected by the Company and approved by the holders of a majority of the
Preferred Shares then outstanding or (B) the disputed arithmetic calculation of
the Conversion Rate to the Company's independent, outside accountant. The
Company shall use its reasonable best efforts to cause the investment bank or
the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the holder of the results no later than
ten (10) Business Days from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
manifest error.
(vi)
(vii) Record Holder. The person or persons entitled to receive the shares
--------------
of Common Stock issuable upon a conversion of Preferred Shares shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on the Conversion Date.
(viii)
(ix) Company's Failure to Timely Convert.
-----------------------------------
(x)
(xi) (A) Cash Damages. If within five (5) Business Days after the
------------
Company's receipt of the facsimile copy of a Conversion Notice the Company
shall fail to issue a certificate to a holder or credit such holder's balance
account with DTC for the number of shares of Common Stock to which such holder
is entitled upon such holder's conversion of Preferred Shares or to issue a new
Preferred Stock Certificate representing the number of Preferred Shares to
which such holder is entitled pursuant to Section 2(d)(ii), in addition to all
other available remedies which such holder may pursue hereunder and under the
Securities Purchase Agreement (including indemnification pursuant to Section 8
thereof), the Company shall pay additional damages to such holder for each date
after the Share Delivery Date such conversion is not timely effected and/or
each date after the Preferred Stock Delivery Date such Preferred Stock
Certificate is not delivered in an amount equal to 0.5% of the product of (I)
the sum of the number of shares of Common Stock not issued to the holder on or
prior to the Share Delivery Date and to which such holder is entitled and, in
the event the Company has failed to deliver a Preferred Stock Certificate to
the holder on or prior to the Preferred Stock Delivery Date, the number of
shares of Common Stock issuable upon conversion of the Preferred Shares
represented by such Preferred Stock Certificate, as of the Preferred Stock
Delivery Date, and (II) the Closing Bid Price of the Common Stock on the Share
Delivery Date, in the case of the failure to deliver Common Stock, or the
Preferred Stock Delivery Date, in the case of failure to deliver a Preferred
Stock Certificate.
(xii)
(xiii) (B) Void Conversion Notice; Adjustment to Conversion Price. If
-------------------------------------------------------
for any reason a holder has not received all of the shares of Common Stock
prior to the tenth (10th) Business Day after the Share Delivery Date with
respect to a conversion of Preferred Shares, then the holder, upon written
notice to the Company, with a copy to the Transfer Agent, may void its
Conversion Notice with respect to, and retain or have returned, as the case may
be, any Preferred Shares that have not been converted pursuant to such holder's
Conversion Notice; provided that the voiding of a holder's Conversion Notice
shall not affect the Company's obligations to make any payments which have
accrued prior to the date of such notice pursuant to Section 2(d)(v)(A) or
otherwise.
<PAGE> 29
(xiv)
(xv) (C) Redemption. If for any reason, other than a Force Majeure
----------
Event (as defined below) a holder has not received all of the shares of Common
Stock on or prior to the tenth (10th) Business Day after the Share Delivery
Date with respect to a conversion of Preferred Shares (a "Conversion Failure"),
then the holder, upon written notice to the Company, may require that the
Company redeem all Preferred Shares previously submitted for conversion and
with respect to which the Company has not delivered shares of Common Stock, in
accordance with Section 3; provided that no holder shall be entitled to require
the Company to redeem Preferred Shares pursuant to this Section 2(d)(v)(C) to
the extent the failure of the Company to deliver such shares of Common Stock
results from fire, flood, storm, earthquake, shipwreck, strike, war, acts of
terrorism, crash involving facilities of a common carrier, act of God or any
similar event outside the control of the Company (it being understood that the
actions or failure to act of the Transfer Agent shall not be deemed an event
outside the control of the Company except to the extent resulting from fire,
flood, storm, earthquake, shipwreck, strike, war, acts of terrorism, crash
involving the facilities of a common carrier, acts of God, the bankruptcy,
liquidation or reorganization of the Transfer Agent under any bankruptcy,
insolvency or other similar law or any similar event outside the control of the
Transfer Agent) (a "Force Majeure Event").
(xvi)
(xvii) Pro Rata Conversion and Redemption. In the event the Company
----------------------------------
receives a Conversion Notice from more than one holder of Preferred Shares for
the same Conversion Date and the Company can convert some, but not all, of such
Preferred Shares, the Company shall convert from each holder of Preferred
Shares electing to have Preferred Shares converted at such time a pro rata
amount of such holder's Preferred Shares submitted for conversion based on the
number of Preferred Shares submitted for conversion on such date by such holder
relative to the number of Preferred Shares submitted for conversion on such
date.
(xviii)
(xix) Mandatory Conversion or Redemption at Maturity. If any Preferred
----------------------------------------------
Shares remain outstanding on the Maturity Date, then all such Preferred Shares,
at the Company's option, either (i) shall be converted as of such date in
accordance with this Section 2 as if the holders of such Preferred Shares had
given the Conversion Notice on the Maturity Date (a "Maturity Date Mandatory
Conversion") or (ii) shall be redeemed as of such date for an amount in cash
per Preferred Share (the "Maturity Date Redemption Price") equal to the
Liquidation Preference as of such date (a "Maturity Date Mandatory
Redemption"); provided, however, that if the Company has elected a Maturity
Date Mandatory Conversion and a Triggering Event has occurred and is continuing
on the Maturity Date or any event shall have occurred and be continuing on the
Maturity Date which solely with the passage of time and the failure to cure
would result in a Triggering Event, then the Company shall, within 30 Business
Days following the Maturity Date (unless otherwise notified in writing by the
holder of its request to have the Preferred Shares converted into Common
Stock), pay to each holder of Preferred Shares then outstanding, in immediately
available funds, an amount equal to the Maturity Date Redemption Price. The
Company shall be deemed to have elected a Maturity Date Mandatory Redemption
unless it delivers written notice to each holder of Preferred Shares at least
30 Business Days prior to the Maturity Date of its election to effect a
Maturity Date Mandatory Conversion. If the Company elects a Maturity Date
Mandatory Redemption, then on the Maturity Date the Company shall pay to each
holder of Preferred Shares outstanding on the Maturity Date, by wire transfer
of immediately available funds, an amount per Preferred Share equal to the
Maturity Date Redemption Price. All holders of Preferred Shares shall
thereupon surrender all Preferred Stock Certificates, duly endorsed for
cancellation, to the Company, provided that the Company has complied with its
obligations under this Section 2(d)(vii). Notwithstanding the foregoing, if the
Company has elected a Maturity Date Mandatory Conversion, then, if applicable,
the Maturity Date shall be extended for any Preferred Shares for as long as the
conversion of such Preferred Shares would violate the provisions of Section 5;
provided that the holder of such Preferred Shares shall use its reasonable best
efforts after the date which is three (3) years after the Issuance Date to
convert sell shares of Common Stock in such a manner so as to permit the
conversion of all Preferred Shares held by such holder as soon as practicable
after such date; provided, further, that Dividends shall stop accruing on the
Preferred Shares after the date which is three(3) years after the Issuance
Date. In addition to the foregoing extension of the Maturity Date, the
Maturity Date for a Preferred Share shall be extended for one (1) day for each
day during a Grace Period (as defined in Section 3(u) of the Registration
Rights Agreement), provided that the holder of such Preferred Share shall have
delivered a Maturity Date Extension Notice (as defined in Section 3(u) of the
Registration Rights Agreement) to the Company in accordance with the terms of
Section 3(u) of the Registration Rights Agreement.
(xx)
(xxi) Book-Entry. Notwithstanding anything to the contrary set forth
----------
herein, upon conversion of Preferred Shares in accordance with the terms
hereof, the holder thereof shall not be required to physically surrender the
certificate representing the Preferred Shares to the Company unless the full
number of Preferred Shares represented by the certificate are being converted.
The holder and the Company shall maintain records showing the number of
Preferred Shares so converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the holder and the Company, so as
not to require physical surrender of the certificate representing the Preferred
Shares upon each such conversion. In the event of any dispute or discrepancy,
such records of the Company shall be controlling and determinative in the
absence of manifest error. Notwithstanding the foregoing, if Preferred Shares
represented by a certificate are converted as aforesaid, the holder may not
transfer the certificate representing the Preferred Shares unless the holder
first physically surrenders the certificate representing the Preferred Shares
to the Company, whereupon the Company will forthwith issue and deliver upon the
order of the holder a new certificate of like tenor, registered as the holder
may request, representing in the aggregate the remaining number of Preferred
Shares represented by such certificate. The holder and any assignee, by
acceptance of a certificate, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of any Preferred Shares, the
number of Preferred Shares represented by such certificate may be less than the
number of Preferred Shares stated of the face thereof. Each certificate for
Preferred Shares shall bear the following legend:
(xxii)
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF THE
COMPANY'S CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF THE PREFERRED
SHARES REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION 2(d)(viii) THEREOF.
THE NUMBER OF PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN
THE NUMBER OF PREFERRED SHARES STATED ON THE FACE HEREOF PURSUANT TO SECTION
2(d)(viii) OF THE CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS.
(a) Taxes. The Company shall pay any and all taxes that may be payable
-----
with respect to the issuance and delivery of Common Stock upon the conversion
of Preferred Shares.
(b) One-Year Adjustment to Fixed Conversion Price. In addition to any
---------------------------------------------
other adjustment to the Fixed Conversion Price provided for in this Certificate
of Designations, the Fixed Conversion Price shall be subject to the following
adjustment. In the event that the Market Price of the Common Stock on the date
which is one (1) year after the Issuance Date (the "One-Year Adjustment Date")
is less than the Fixed Conversion Price in effect on the date immediately
preceding the One-Year Adjustment Date, then from and after the One-Year
Adjustment Date, the Fixed Conversion Price shall be equal to the greater of
(A) 60.0% of the Initial Fixed Conversion Price on the date immediately
preceding the One-Year Adjustment Date (subject to appropriate adjustment
pursuant to Section 2(g)) and (B) the Market Price on the One-Year Adjustment
Date; subject to further adjustment as provided elsewhere in this Certificate
of Designations.
(a) Adjustments to Conversion Price -- Dilution and Other Events. The
-------------------------------------------------------------
Conversion Price and the Initial Fixed Conversion Price will be subject to
adjustment from time to time as provided in this Section 2(g).
(i) Adjustment of Fixed Conversion Price and the Initial Fixed
Conversion Price upon Issuance of Common Stock. If and whenever on or after
the Issuance Date, the Company issues or sells, or in accordance with this
Section 2(g) is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding shares of Common Stock deemed to
have been issued by the Company in connection with an Approved Stock Plan (as
defined below) or Excluded Securities (as defined below) or upon conversion of
the Preferred Shares or exercise of the Warrants) for a consideration per share
less than a price (the "Applicable Price") equal to the Closing Sale Price of
the Common Stock on the date of such issue or sale, then immediately after such
issue or sale, the Fixed Conversion Price and/or the Initial Fixed Conversion
Price, as applicable, then in effect shall be reduced to an amount equal to the
product of (x) the Fixed Conversion Price or the Initial Fixed Conversion
Price, as applicable, and (y) the quotient of (1) the sum of (I) the product of
the Applicable Price multiplied by the number of shares of Common Stock Deemed
Outstanding (as defined below) immediately prior to such issue or sale and (II)
the consideration, if any, received by the Company upon such issue or sale,
divided by (2) the product of (I) the Applicable Price multiplied by (II) the
number of shares of Common Stock Deemed Outstanding immediately after such
issue or sale. Notwithstanding anything to the contrary in this Section
2(g)(i), no adjustment to the Fixed Conversion Price or the Initial Fixed
Conversion Price shall be required to be made pursuant to this Section 2(g)(i)
unless such adjustment would result in a decrease in the Fixed Conversion Price
and/or the Initial Fixed Conversion Price, as the case may be, of at least 2.5%
of the Fixed Conversion Price or the Initial Fixed Conversion Price, as
applicable, on the Issuance Date; provided that any adjustments which by reason
of this sentence are not required to be made at a certain time shall be carried
forward and taken into account and applied in any subsequent adjustment. For
purposes of determining the adjusted Fixed Conversion Price and/or the Initial
Fixed Conversion Price, as applicable, under this Section 2(g)(i), the
following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants or
-------------------
sells any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange of any Convertible Securities issuable upon exercise of such Option is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time
of the granting or sale of such Option for such price per share. For purposes
of this Section 2(g)(i)(A), the "lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange of any Convertible Securities issuable upon exercise of
such Option" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon granting or sale of the Option, upon exercise of the Option
and upon conversion or exchange of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Fixed Conversion Price
and/or the Initial Fixed Conversion Price, as applicable, shall be made upon
the actual issuance of such Common Stock or of such Convertible Securities upon
the exercise of such Options or upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities. Notwithstanding
the foregoing, no adjustment shall be made pursuant to this Section 2(g)(i)(A)
to the extent that such adjustment is based solely on the fact that the
Convertible Securities issuable upon exercise of such Option are convertible
into or exchangeable for Common Stock at a price which varies with the market
price of the Common Stock.
(B) Issuance of Convertible Securities. If the Company in any manner
-----------------------------------
issues or sells any Convertible Securities and the lowest price per share for
which one share of Common Stock is issuable upon such conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance of sale of such Convertible Securities for
such price per share. For the purposes of this Section 2(g)(i)(B), the "price
per share for which one share of Common Stock is issuable upon such conversion
or exchange" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the issuance or sale of the Convertible Security and upon the
conversion or exchange of such Convertible Security. No further adjustment of
the Fixed Conversion Price and/or the Initial Fixed Conversion Price, as
applicable, shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Fixed Conversion Price and/or the Initial Fixed
Conversion Price, as applicable, had been or are to be made pursuant to other
provisions of this Section 2(g)(i), no further adjustment of the Fixed
Conversion Price and/or the Initial Fixed Conversion Price, as applicable,
shall be made by reason of such issue or sale. Notwithstanding the foregoing,
no adjustment shall be made pursuant to this Section 2(g)(i)(B) to the extent
that such adjustment is based solely on the fact that such Convertible
Securities are convertible into or exchangeable for Common Stock at a price
which varies with the market price of the Common Stock.
(C) Change in Option Price or Rate of Conversion. If the purchase
--------------------------------------------
price provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion or exchange of any Convertible Securities,
or the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock changes at any time, the Fixed Conversion Price
and/or the Initial Fixed Conversion Price, as applicable, in effect at the time
of such change shall be adjusted to the Fixed Conversion Price and/or the
Initial Fixed Conversion Price, as applicable, which would have been in effect
at such time had such Options or Convertible Securities provided for such
changed purchase price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold. For purposes
of this Section 2(g)(i)(C), if the terms of any Option or Convertible Security
that was outstanding as of the date of issuance of the Preferred Shares are
changed in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such change. No adjustment shall be made if such adjustment
would result in an increase of the Fixed Conversion Price or the Initial Fixed
Conversion Price then in effect.
(D) Calculation of Consideration Received. In case any Option is
-------------------------------------
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be
deemed to be the net amount received by the Company therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by
the Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Market Price of such securities on the date
of receipt. If any Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with any merger in
which the Company is the surviving entity, the amount of consideration therefor
will be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined jointly by the
Company and the holders of a majority of the Preferred Shares then outstanding.
If such parties are unable to reach agreement within 10 days after the
occurrence of an event requiring valuation (the "Valuation Event"), the fair
value of such consideration will be determined within five Business Days after
the tenth (10th) day following the Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the holders of a majority of the
Preferred Shares then outstanding. The determination of such appraiser shall
be deemed binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the Company.
(E) Record Date. If the Company takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible
Securities or (2) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(F) Certain Definitions. For purposes of this Section 2(g)(i),
-------------------
the following terms have the respective meanings set forth below:
(I) "Approved Stock Plan" shall mean any employee benefit plan
-------------------
which has been approved, or after the Issuance Date is approved, by the Board
of Directors of the Company, pursuant to which the Company's securities may be
issued to any employee, officer, director or consultant for services provided
to the Company.
(II) "Common Stock Deemed Outstanding" means, at any given time,
-------------------------------
the number of shares of Common Stock actually outstanding at such time, plus
the number of shares of Common Stock issuable upon conversion or exercise of
outstanding Options and Convertible Securities regardless of whether the
Options or Convertible Securities are actually exercisable at such time, but
excluding any shares of Common Stock owned or held by or for the account of the
Company.
(III) "Options" means any rights, warrants or options to
-------
subscribe for or purchase Common Stock or Convertible Securities.
(IV) "Convertible Securities" means any stock or securities
----------------------
(other than Options) directly or indirectly convertible into or exchangeable
for Common Stock.
(V) "Excluded Securities" means any of the following (a) any
-------------------
issuance by the Company of securities in connection with a strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), (b) shares of Common Stock issued by the Company in a firm
commitment, underwritten public offering and (c) any issuance by the Company of
securities as consideration for a merger or consolidation or the acquisition of
a business, product, license or other assets of another person or entity.
(ii) Adjustment of Fixed Conversion Price and Initial Fixed Conversion
Price upon Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Fixed Conversion Price and Initial Fixed
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Fixed Conversion Price and
Initial Fixed Conversion Price in effect immediately prior to such combination
will be proportionately increased.
(iii) Other Events. If any event occurs of the type contemplated by the
------------
provisions of this Section 2(g) but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided that no such adjustment will increase the Conversion Price or
the Initial Fixed Conversion Price as otherwise determined pursuant to this
Section 2(g).
(v) Notices.
-------
(A) Promptly after any adjustment of the Conversion Price, the
Company will give written notice thereof to each holder of Preferred Shares,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment.
(B) The Company will give written notice to each holder of
Preferred Shares at least ten (10) days prior to the date on which the Company
closes its books or takes a record (I) with respect to any dividend or
distribution upon the Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock or (III) for determining rights
to vote with respect to any Organic Change, dissolution or liquidation,
provided that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder; provided that if
such information has not been made known to the public and in the good faith
opinion of the Board of Directors of the Company it is not in the best interest
of the Company to disclose such information, then the Company shall not be
required to give the notice provided for in this Section 2(g)(v)(B) until the
earlier of the date on which the Company publicly releases such information and
the date on which the Board of Directors no longer believes that in the good
faith opinion of the Board of Directors such information should not be
disclosed.
(C) The Company will also give written notice to each holder of
Preferred Shares at least ten (10) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder; provided that if such information
has not been made known to the public and in the good faith opinion of the
Board of Directors of the Company it is not in the best interest of the Company
to disclose such information, then the Company shall not be required to give
the notice provided for in this Section 2(g)(v)(C) until the earlier of the
date on which the Company publicly releases such information and the date on
which the Board of Directors no longer believes that in the good faith opinion
of the Board of Directors such information should not be disclosed.
(1) Redemption at Option of Holders.
-------------------------------
(a) Redemption Option Upon Triggering Event. In addition to all other
---------------------------------------
rights of the holders of Preferred Shares contained herein, after a Triggering
Event (as defined below), each holder of Preferred Shares shall have the right,
at such holder's option, to require the Company to redeem all or a portion of
such holder's Preferred Shares at a price per Preferred Share equal to (I) in
the case of a Triggering Event under subparagraphs (i) or (iii) of Section
3(b), the sum of (w) 125% of the Stated Value, plus (x) the Additional Amount
for such Preferred Share, and (II) in the case of a Triggering Event under
subparagraphs (ii), (iv) or (v), the greater of (i) the sum of (y) 125% of the
Stated Value, plus (z) the Additional Amount for such Preferred Share, and (ii)
the product of (A) the Conversion Rate in effect at such time as such holder
delivers a Notice of Redemption at Option of Buyer (as defined below) and (B)
the Closing Bid Price of the Common Stock on the date immediately preceding
such Triggering Event on which the Principal Market, or the market or exchange
where the Common Stock is then traded, is open for trading ("Redemption
Price").
(a) "Triggering Event". A "Triggering Event" shall be deemed to have
----------------
occurred at such time as any of the following events:
(i) the failure of the Company to use its best efforts to cause the
Registration Statement to be declared effective by the SEC on or prior to the
date that is 150 days after the Issuance Date;
(i) while the Registration Statement is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement, the effectiveness
of the Registration Statement lapses for any reason (including, without
limitation, the issuance of a stop order) or is unavailable (other than on any
days during an Allowable Grace Period (as defined in Section 3(u) of the
Registration Rights Agreement)) to the holder of the Preferred Shares for sale
of all of the Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights Agreement
that may then be issued upon conversion of the Preferred Shares in accordance
with the terms hereof, and such lapse or unavailability continues for a period
of ten (10) consecutive Business Days (other than on any days during an
Allowable Grace Period), provided that the cause of such lapse or
unavailability is not due to factors solely within the control of such holder
of Preferred Shares;
(ii)
(iii) the suspension from trading or failure of the Common Stock to be listed
on the Nasdaq National Market, The Nasdaq SmallCap Market, The New York Stock
Exchange, Inc. or The American Stock Exchange, Inc. for a period of 10
consecutive Business Days or for more than an aggregate of 20 Business Days in
any 365-day period;
(iv)
(v) a Conversion Failure (as defined in Section 2(d)(v)(C)), provided that
such Conversion Failure shall only constitute a Triggering Event with respect
to the Preferred Shares submitted for conversion; or
(vi)
(vii) upon the Company's receipt of a Conversion Notice, the Company shall not
be obligated to issue the Conversion Shares due to the provisions of Section
16.
(viii)
(b) Mechanics of Redemption at Option of Buyer. Within one (1) Business
------------------------------------------
Day after the occurrence of a Triggering Event, the Company shall deliver
written notice thereof via facsimile ("Notice of Triggering Event") to each
holder of Preferred Shares. At any time (i) after the earlier of a holder's
receipt of a Notice of Triggering Event and such holder becoming aware of a
Triggering Event, but (ii) prior to the later of (A) the date which is 15 days
after such holder's receipt of the Notice of Triggering Event and (B) such
holder's receipt of written notice from the Company that such Triggering Event
has been cured, any holder of Preferred Shares then outstanding may require the
Company to redeem all of the Preferred Shares by delivering written notice
thereof via facsimile ("Notice of Redemption at Option of Buyer") to the
Company, which Notice of Redemption at Option of Buyer shall indicate (i) the
number of Preferred Shares that such holder is electing to redeem and (ii) the
applicable Redemption Price, as calculated pursuant to Section 3(a) above.
(a) Payment of Redemption Price. Upon the Company's receipt of a
---------------------------
Notice(s) of Redemption at Option of Buyer from any holder of Preferred Shares,
the Company shall immediately notify each holder of Preferred Shares by
facsimile of the Company's receipt of such notices and each holder which has
sent such a notice shall promptly submit to the Transfer Agent such holder's
Preferred Stock Certificates which such holder has elected to have redeemed.
The Company shall deliver the applicable Redemption Price to such holder within
20 Business Days after the Company's receipt of a Notice of Redemption at
Option of Buyer; provided that a holder's Preferred Stock Certificates shall
have been so delivered to the Transfer Agent. If the Company is unable to
redeem all of the Preferred Shares submitted for redemption, the Company shall
(i) redeem a pro rata amount from each holder of Preferred Shares based on the
number of Preferred Shares submitted for redemption by such holder relative to
the total number of Preferred Shares submitted for redemption by all holders of
Preferred Shares and (ii) in addition to any remedy such holder of Preferred
Shares may have under this Certificate of Designations and the Securities
Purchase Agreement, pay to each holder interest at the rate of 1.5% per month
(prorated for partial months) in respect of each unredeemed Preferred Share
until paid in full.
(a) Void Redemption. In the event that the Company does not pay the
---------------
Redemption Price within the time period set forth in Section 3(d), at any time
thereafter and until the Company pays such unpaid applicable Redemption Price
in full, a holder of Preferred Shares shall have the option (the "Void Optional
Redemption Option") to, in lieu of redemption, require the Company to promptly
return to such holder any or all of the Preferred Shares that were submitted
for redemption by such holder under this Section 3 and for which the applicable
Redemption Price (together with any interest thereon) has not been paid, by
sending written notice thereof to the Company via facsimile (the "Void Optional
Redemption Notice"). Upon the Company's receipt of such Void Optional
Redemption Notice, (i) the Notice of Redemption at Option of Buyer shall be
null and void with respect to those Preferred Shares subject to the Void
Optional Redemption Notice and (ii) the Company shall immediately return any
Preferred Shares subject to the Void Optional Redemption Notice.
(a) Disputes; Miscellaneous. In the event of a dispute as to the
-----------------------
determination of the Closing Bid Price or the arithmetic calculation of the
Redemption Price, such dispute shall be resolved pursuant to Section 2(d)(iii)
above with the term "Closing Bid Price" being substituted for the term "Market
Price" and the term "Redemption Price" being substituted for the term
"Conversion Rate". A holder's delivery of a Void Optional Redemption Notice
and exercise of its rights following such notice shall not effect the Company's
obligations to make any payments which have accrued prior to the date of such
notice. In the event of a redemption pursuant to this Section 3 of less than
all of the Preferred Shares represented by a particular Preferred Stock
Certificate, the Company shall promptly cause to be issued and delivered to the
holder of such Preferred Shares a preferred stock certificate representing the
remaining Preferred Shares which have not been redeemed.
(1) Other Rights of Holders.
-----------------------
(2)
(3) (a) Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets to another Person or
other transaction which is effected in such a way that holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is
referred to herein as "Organic Change." Prior to the consummation of any (i)
sale of all or substantially all of the Company's assets to an acquiring Person
or (ii) other Organic Change following which the Company is not a surviving
entity, the Company will secure from the Person purchasing such assets or the
successor resulting from such Organic Change (in each case, the "Acquiring
Entity") a written agreement (in form and substance reasonably satisfactory to
the holders of a majority of the Preferred Shares then outstanding) to deliver
to each holder of Preferred Shares in exchange for such shares, a security of
the Acquiring Entity evidenced by a written instrument substantially similar in
form and substance to the Preferred Shares, including, without limitation,
having a stated value and liquidation preference equal to the Stated Value and
the Liquidation Preference of the Preferred Shares held by such holder, and
reasonably satisfactory to the holders of a majority of the Preferred Shares
then outstanding. Prior to the consummation of any other Organic Change, the
Company shall make appropriate provision (in form and substance reasonably
satisfactory to the holders of a majority of the Preferred Shares then
outstanding) to insure that each of the holders of the Preferred Shares will
thereafter have the right to acquire and receive in lieu of or in addition to
(as the case may be) the shares of Common Stock immediately theretofore
acquirable and receivable upon the conversion of such holder's Preferred Shares
such shares of stock, securities or assets that would have been issued or
payable in such Organic Change with respect to or in exchange for the number of
shares of Common Stock which would have been acquirable and receivable upon the
conversion of such holder's Preferred Shares as of the date of such Organic
Change (without taking into account any limitations or restrictions on the
convertibility of the Preferred Shares).
(4)
(5) (b) Optional Redemption Upon Major Corporate Event. In addition
----------------------------------------------
to the rights of the holders of Preferred Shares under Section 4(a), upon a
Major Corporate Event (as defined below) of the Company each holder of
Preferred Shares shall have the right, at such holder's option, to require the
Company to redeem all or a portion of such holder's Preferred Shares at a price
per Preferred Share equal to the sum of (i) 125% of the Stated Value, plus (ii)
the Additional Amount for such Preferred Share ("Major Corporate Event
Redemption Price"). No sooner than 30 days nor later than five (5) days prior
to the consummation of a Major Corporate Event, but not prior to the public
announcement of such Major Corporate Event, the Company shall deliver written
notice thereof via facsimile (a "Notice of Major Corporate Event") to each
holder of Preferred Shares. At any time during the period beginning after
receipt of a Notice of Major Corporate Event (or, in the event a Notice of
Major Corporate Event is not delivered at least five (5) days prior to a Major
Corporate Event, at any time on or after the date which is five (5) days prior
to a Major Corporate Event) and ending on the date of such Major Corporate
Event, any holder of the Preferred Shares then outstanding may require the
Company to redeem all or a portion of the holder's Preferred Shares then
outstanding by delivering written notice thereof via facsimile (a "Notice of
Redemption Upon Major Corporate Event") to the Company, which Notice of
Redemption Upon Major Corporate Event shall indicate (i) the number of
Preferred Shares that such holder is submitting for redemption, and (ii) the
applicable Major Corporate Event Redemption Price, as calculated pursuant to
this Section 4(b). Upon the Company's receipt of a Notice(s) of Redemption Upon
Major Corporate Event from any holder of Preferred Shares, the Company shall
promptly, but in no event later than one (1) Business Day following such
receipt, notify each holder of Preferred Shares by facsimile of the Company's
receipt of such Notice(s) of Redemption Upon Major Corporate Event. The
Company shall deliver the applicable Major Corporate Event Redemption Price
simultaneous with the consummation of the Major Corporate Event; provided that,
if required by Section 2(d)(viii), a holder's Preferred Stock Certificates
shall have been so delivered to the Company. For purposes of this Section
4(b), "Major Corporate Event" means (i) the consolidation, merger or other
business combination of the Company with or into another Person (other than (A)
a consolidation, merger or other business combination in which holders of the
Company's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (B) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company), (ii) the sale or
transfer of all or substantially all of the Company's assets, or (iii) a
purchase, tender or exchange offer made to and accepted by the holders of more
than the 50% of the outstanding shares of Common Stock.
(6)
(7) (c) Registration Failure Not Constituting a Triggering Event. If
--------------------------------------------------------
the Registration Statement is not declared effective by the SEC on or prior to
the date which is 150 days after the Issuance Date and such failure does not
constitute a Triggering Event pursuant Section 3(b)(i) (a "Non-Triggering Event
Registration Failure"), then within one (1) Business Day after the occurrence
of such Non-Triggering Event Registration Failure the Company shall deliver
written notice thereof via facsimile ("Non-Triggering Event Registration
Failure Notice") to each holder of Preferred Shares. At any time (i) after the
earlier of a holder's receipt of a Non-Triggering Event Registration Failure
Notice and such holder becoming aware of such Non-Triggering Event Registration
Failure, but (ii) prior to the later of (A) the date which is 15 after such
holder's receipt of the Non-Triggering Event Registration Failure Notice and
(B) such holder's receipt of written notice from the Company that such Non-
Triggering Event Registration Failure has been cured, such holder of Preferred
Shares may elect to have, but subject to the Company's right to make a
Company's Registration Failure Redemption Election (as defined below), the
Dividend Rate increased to 30.0% per annum, accruing daily and payable in cash
on the last Business Day of each calendar month (a "Holder's Registration
Failure Election") by delivering written notice thereof via facsimile
("Holder's Registration Failure Notice") to the Company. On and after the date
of the Company's receipt of a Holder's Registration Failure Notice, (i) the
term "Dividend Rate" with respect to the Preferred Shares held by the holder
which delivered a Holder's Registration Failure Notice shall mean 30.0%
retroactive to the Issuance Date, (ii) the term "Dividend Date" with respect to
the Preferred Shares held by the holder which delivered a Holder's Registration
Failure Notice shall mean the last Business Day of each calendar month
beginning with the calendar month during which the Company received the
Holder's Registration Failure Notice, and (iii) the Dividends, which pursuant
to Section 1 shall be cumulative and accrue daily, shall be payable in cash to
such holder on each Dividend Date. Notwithstanding the above, on any day
during the period beginning on and including the date the Company receives a
Holder's Registration Failure Notice and ending on and including the date which
is five (5) Business Days after the Company's receipt of a Holder's
Registration Failure Notice, the Company may elect to redeem the Preferred
Shares held by the holder of Preferred Shares which delivered such Holder's
Registration Failure Notice (a "Company's Registration Failure Redemption
Election") by delivering written notice thereof via facsimile ("Company's
Registration Failure Redemption Notice") to such holder within five (5)
Business Days of the Company's receipt of such Holder's Registration Failure
Notice. The Company's Registration Failure Redemption Notice shall state (a)
the date selected by the Company for redemption, which date shall be not later
than the date which is 10 Business Days after the Company's receipt of the
Holder's Registration Failure Notice (the "Company's Registration Failure
Redemption Date") and (b) the Company's calculation of the Company's
Registration Failure Redemption Price (as defined below) as of the Company's
Registration Failure Redemption Date. The redemption price for each Preferred
Share subject to a Company's Registration Failure Election Redemption shall
equal to the sum of (x) 125% of the Stated Value, plus (y) the Additional
Amount (using a Dividend Rate of 8.0%) for such Preferred Share on the
Company's Registration Failure Redemption Date (the "Company's Registration
Failure Redemption Price"). On the Company's Registration Failure Redemption
Date, the Company shall pay each holder of Preferred Shares subject to such
Company's Registration Failure Redemption Election the Company's Registration
Failure Redemption Price for such Preferred Shares by wire transfer of
immediately available funds; provided that the Preferred Stock Certificate
representing such Preferred Shares shall have been delivered to the Transfer
Agent. If the Company fails to pay the full Company's Registration Failure
Redemption Price with respect to any Preferred Shares subject to a Company's
Registration Failure Redemption Election on the Company's Registration Failure
Redemption Date, then the Company's Registration Failure Redemption Election
shall be null and void with respect to such Preferred Shares and the holder of
such Preferred Shares shall be entitled to all the rights of a holder of
outstanding Preferred Shares set forth in this Certificate of Designations.
Notwithstanding the foregoing, a holder of Preferred Shares which has delivered
a Holder's Registration Failure Notice and the Company may waive the increase
in the Dividend Rate from 8.0% to 30.0% by agreeing to such waiver in a written
agreement signed by such holder and the Company.
(8)
(9) Limitations on Conversion. The Company shall not effect any conversion
-------------------------
of Preferred Shares and no holder of Preferred Shares shall have the right to
convert any Preferred Shares pursuant to Section 2(b) to the extent that after
giving effect to such conversion such Person (together with such Person's
affiliates) (A) would beneficially own in excess of 10.00% of the outstanding
shares of the Common Stock following such conversion or (B) would have
acquired, through conversion of Preferred Shares or otherwise, in excess of
10.00% of the outstanding shares of the Common Stock following such conversion
during the 60-day period ending on and including such Conversion Date (as
defined below). For purposes of the foregoing sentence, the number of shares
of Common Stock beneficially owned by a Person and its affiliates or acquired
by a Person and its affiliates, as the case may be, shall include the number of
shares of Common Stock issuable upon conversion of the Preferred Shares with
respect to which the determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (i)
conversion of the remaining, nonconverted Preferred Shares beneficially owned
by such Person and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
(including, without limitation, the Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by such Person and its affiliates. Except as set forth in
the preceding sentence, for purposes of this Section 5(a), beneficial ownership
shall be calculated in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended. For purposes of this Section 5, in determining the
number of outstanding shares of Common Stock a holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most
recent Form 10-Q or Form 10-K, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
For any reason at any time, upon the written or oral request of any a holder,
the Company shall within two (2) Business Days confirm orally and in writing to
any such holder the number of shares Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion of Preferred Shares by such holder since
the date as of which such number of outstanding shares of Common Stock was
reported.
(10)
(11) Conversion at the Company's Election. At any time on or after the date
------------------------------------
which is 30 days after the date the Registration Statement is declared
effective by the SEC, the Company shall have the right, in its sole discretion,
to require that any or all of such outstanding Preferred Shares be converted
("Conversion at Company's Election") at the Conversion Rate; provided that the
Conditions to Conversion at the Company's Election (as set forth below) are
satisfied. The Company shall exercise its right to Conversion at Company's
Election by providing each holder of Preferred Shares written notice by
facsimile ("Notice of Conversion at Company's Election") by 5:00 p.m., Central
Time, on the Business Day selected by the Company for conversion ("Company's
Election Conversion Date"). If the Company elects to require conversion of
some, but not all, of such Preferred Shares, the Company shall convert an
amount from each holder of Preferred Shares equal to such holder's pro rata
amount (based on the number of such Preferred Shares held by such holder
relative to the number of such Preferred Shares outstanding on the Company's
Election Conversion Date) of all Preferred Shares the Company is requiring to
be converted. The Notice of Conversion at Company's Election shall indicate
(x) the number of Preferred Shares the Company has selected for conversion, (y)
confirmation of the Company's Election Conversion Date, which date shall be the
Business Day on which each holder received such notice prior to 5:00 p.m.,
Central Time, on such date, and (z) each holder's pro rata share of outstanding
Preferred Shares. All Preferred Shares selected for conversion in accordance
with the provision of this Section 5 shall be converted as of the Company's
Election Conversion Date in accordance with Section 2 as if the holders of such
Preferred Shares selected by the Company to be converted had given the
Conversion Notice on the Company's Election Conversion Date. All holders of
Preferred Shares shall thereupon and within two Business Days after the
Company's Election Conversion Date surrender all Preferred Stock Certificates
selected for conversion, duly endorsed for cancellation, to the Company.
"Conditions to Conversion at the Company's Election" means the following
conditions: (i) on each day during the period beginning 20 Business Days prior
to the Company's Election Conversion Date and ending on and including the
Company's Election Conversion Date, no Grace Period (as defined in Section 3(u)
of the Registration Rights Agreement) shall be in effect and the Registration
Statement shall be effective and available for the sale of no less than all of
the Registrable Securities (as defined in the Registration Rights Agreement)
that may then be issued upon conversion of the Preferred Shares in accordance
with the terms hereof; (ii) on each day during the period beginning 20 days
prior to the Company's Election Conversion Date and ending on and including the
Company's Election Conversion Date, the Common Stock is designated for
quotation on the Nasdaq National Market or The Nasdaq SmallCap Market or listed
on The New York Stock Exchange, Inc. and is not suspended from trading; (iii)
on each day during the 20 consecutive Business Days ending on and including the
Company's Election Conversion Date, the Closing Bid Price of the Common Stock
is at least 200% of the Fixed Conversion Price as of the Issuance Date (subject
to adjustment for stock splits, stock dividends, stock combinations and other
similar transactions); and (iv) the Company has satisfied its obligations in
all material respects and is not in default in any material respect under this
Certificate of Designations, the Securities Purchase Agreement, the Warrants
and the Registration Rights Agreement. Notwithstanding the above, any holder
of Preferred Shares may convert such shares (including Preferred Shares
selected for conversion) into Common Stock pursuant to Section 2(b) on or prior
to the date immediately preceding the Company's Election Conversion Date.
(12)
(13) Redemption at the Company's Election Upon Change of Control. At
-----------------------------------------------------------
any time or times on or after the date the Company publicly discloses a Change
of Control Transaction (as defined below), the Company shall have the right, in
its sole discretion, to require that all of the outstanding Preferred Shares be
redeemed ("Redemption at Company's Election") at a price per Preferred Share
equal to the sum of (a) 125% of the Stated Value, plus (b) the Additional
Amount for such Preferred Share ("Company's Election Redemption Price");
provided that the Conditions to Redemption at the Company's Election (as set
forth below) are satisfied. The Company shall exercise its right to Redemption
at Company's Election by providing each holder of Preferred Shares written
notice ("Notice of Redemption at Company's Election") after the public
disclosure of a Change of Control Transaction and at least 20 Business Days
prior to the date of consummation of the Change of Control Transaction
("Company's Election Redemption Date"). The Notice of Redemption at Company's
Election shall indicate the anticipated Company's Election Redemption Date. If
the Company has exercised its right of Redemption at Company's Election and the
conditions to such Redemption at Company's Election have been satisfied, then
all Preferred Shares outstanding at the time of the consummation of the Change
of Control Transaction shall be redeemed as of the Company's Election
Redemption Date by payment by the Company to each holder of Preferred Shares of
the Company's Election Redemption Price concurrent with the closing of the
Change of Control Transaction. All holders of Preferred Shares shall thereupon
and within two (2) Business Days after the Company's Election Redemption Date,
or such earlier date as the Company and each holder of Preferred Shares
mutually agree, surrender all outstanding Preferred Stock Certificates, duly
endorsed for cancellation, to the Company. If the Company fails to pay the
full Company's Election Redemption Price with respect to any Preferred Shares
concurrently with the closing of the Change of Control Transaction, then the
Redemption at Company's Election shall be null and void with respect to such
Preferred Shares and the holder of such Preferred Shares shall be entitled to
all the rights of a holder of outstanding Preferred Shares set forth in this
Certificate of Designations. "Conditions to Redemption at the Company's
Election" means the following conditions: the Company has satisfied its
obligations in all material respects and is not in default in any material
respect under this Certificate of Designations, the Securities Purchase
Agreement, the Warrants and the Registration Rights Agreement. Notwithstanding
the above, any holder of Preferred Shares may convert such shares (including
Preferred Shares selected for redemption) into Common Stock pursuant to Section
2(a) on or prior to the date immediately preceding the Company's Election
Redemption Date. For purposes of this Section 7, "Change of Control
Transaction" means the consolidation, merger or other business combination of
the Company with or into another Person (other than (A) a consolidation, merger
or other business combination in which holders of the Company's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or
their equivalent if other than a corporation) of such entity or entities or (B)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company).
(14)
(15) Redemption at the Company's Election Upon a Qualified Offering. At
--------------------------------------------------------------
any time after the Issuance Date, the Company shall have the right, in its sole
discretion, to require that all of the outstanding Preferred Shares be redeemed
("Company's Offering Redemption") concurrent with the closing of a Qualified
Offering (as defined below); provided that the Conditions to a Company's
Offering Redemption (as set forth below) are satisfied. The redemption price
per Preferred Share upon a Company's Offering Redemption shall be equal to
the Company's Offering Redemption Price (as defined below). The Company shall
exercise its right to Company's Offering Redemption by providing each holder of
Preferred Shares written notice ("Notice of Company's Offering Redemption") at
least 20 days prior to the Company's Offering Redemption Date, but in no event
prior to the filing of the registration statement for the Qualified Public
Offering (as defined below), in the case of a Qualified Public Offering, or the
public announcement of the Qualified Private Placement (as defined below), in
the case of a Qualified Private Placement. The Notice of Company's Offering
Redemption shall indicate the anticipated Company's Public Redemption Date and
the name of the managing underwriters of the proposed Qualified Public Offering
or placement agent, if any, of the Qualified Private Placement, as the case may
be. The date of the consummation of the Company's Offering Redemption (the
"Company's Offering Redemption Date") shall be the date of the closing of the
Qualified Offering. If the Company has exercised its right of Company's
Offering Redemption and the conditions to such Company's Offering Redemption
have been satisfied, then all Preferred Shares outstanding at the time of the
consummation of the Qualified Offering shall be redeemed as of the Company's
Offering Redemption Date by payment by the Company to each holder of Preferred
Shares then outstanding of the Company's Offering Redemption Price concurrent
with the closing of the Qualified Offering. All holders of Preferred Shares
shall thereupon and within two (2) Business Days after the Company's Offering
Redemption Date, or such earlier date as the Company and each holder of
Preferred Shares mutually agree, surrender all outstanding Preferred Stock
Certificates, duly endorsed for cancellation, to the Company. If the Company
fails to pay the full Company's Offering Redemption Price with respect to any
Preferred Shares concurrently with the closing of the Qualified Offering, then
the Company's Offering Redemption shall be null and void with respect to such
Preferred Shares and the holder of such Preferred Shares shall be entitled to
all the rights of a holder of outstanding Preferred Shares set forth in this
Certificate of Designations. "Conditions to Company's Offering Redemption"
means the following conditions: (i) on each day during the period beginning 30
days prior to the date of the Company's Notice of Company's Offering Redemption
and ending on and including the Company's Offering Redemption Date, no Grace
Period shall be in effect and the Registration Statement shall be effective and
available for the sale of no less than all of the Registrable Securities (as
defined in the Registration Rights Agreement) that may then be issued upon
conversion of the Preferred Shares in accordance with the terms hereof; (ii) on
each day during the period beginning 30 days prior to the date of the Company's
Notice of Company's Offering Redemption and ending on and including the
Company's Offering Redemption Date, the Common Stock is designated for
quotation on the Nasdaq National Market or The Nasdaq SmallCap Market or listed
on The New York Stock Exchange, Inc. and is not suspended from trading; and
(iii) the Company has satisfied its obligations in all material respects and
is not in default in any material respect under this Certificate of
Designations, the Securities Purchase Agreement, the Warrants and the
Registration Rights Agreement. Notwithstanding the above, any holder of
Preferred Shares may convert such shares (including Preferred Shares selected
for redemption) into Common Stock pursuant to Section 2(a) on or prior to the
date immediately preceding the Company's Offering Redemption Date. For
purposes of this Section 8, "Qualified Offering" means a Qualified Public
Offering or a Qualified Private Placement, as applicable. For purposes of this
Section 8, "Qualified Public Offering" means a firm commitment, underwritten
public offering of Common Stock by the Company which (a) is being underwritten
by one or more the underwriters agreed to in writing by the Company and the
purchasers of the Preferred Shares on the Issuance Date and (b) is an offering
which generates aggregate gross proceeds to the Company (as reflected in the
preliminary prospectus and the final prospectus for such offering) of at least
$25,000,000. For purposes of this Section 8, "Qualified Private Placement"
means a private placement by the Company of Common Stock or securities
convertible into or exercisable for Common Stock which generates aggregate
gross proceeds to the Company (as reflected in the private placement memorandum
or other offering circular, if any, for such private placement) of at least
$25,000,000. For purposes of this Section 8, "Company's Offering Redemption
Price" means the Company's Public Offering Redemption Price, in the case of a
Qualified Public Offering, or the Company's Private Placement Redemption Price,
in the case of a Qualified Private Placement (each as defined below). For
purposes of this Section 8, "Company's Public Offering Redemption Price" means
that price equal to the sum of (a) the Stated Value, plus (b) the product of
(i) the Stated Value, multiplied by (ii) the greater of (A) 0.15 and (B) the
product of (I) 0.30, multiplied by (I) the quotient of (x) the number of days
during the period beginning on, but excluding, the Issuance Date and ending on
and including the Company's Public Offering Redemption Date (as defined below),
divided by (y) 365, plus (c) the Additional Amount for such Preferred Share on
the Company's Offering Redemption Date. For purposes of this Section 8,
"Company's Private Placement Redemption Price" means the price equal to the sum
of (a) the Stated Value, plus (b) the product of (i) the Stated Value,
multiplied by (ii) the Company's Redemption Percentage (as defined below), plus
(c) the Additional Amount for such Preferred Share on the Company's Offering
Redemption Date. For purposes of this Section 8, "Company's Redemption
Percentage" means (A) 0.00, if the Closing Bid Price of the Common Stock on the
date of the receipt by each holder of Preferred Shares of the Notice of
Redemption at Company's Election is less than $7.50 (subject to adjustment for
stock splits, stock dividends, stock combinations and other similar
transactions), (B) 0.10, if the Closing Bid Price of the Common Stock on the
date of the receipt by each holder of Preferred Shares of the Notice of
Redemption at Company's Election is greater than or equal to $7.50 and less
than $10.00 (each such price subject to adjustment for stock splits, stock
dividends, stock combinations and other similar transactions), (C) 0.25, if the
Closing Bid Price of the Common Stock on the date of the receipt by each holder
of Preferred Shares of the Notice of Redemption at Company's Election is
greater than or equal to $10.00 and less than $15.00 (each such price subject
to adjustment for stock splits, stock dividends, stock combinations and other
similar transactions), and (D) 1.0, if the Closing Bid Price of the Common
Stock on the date of the receipt by each holder of Preferred Shares of the
Notice of Redemption at Company's Election is greater than or equal to $15.00
(subject to adjustment for stock splits, stock dividends, stock combinations
and other similar transactions).
(16)
(17) Purchase Rights. If at any time the Company grants, issues or sells
---------------
any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the holders of Preferred Shares then
outstanding will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock
acquirable upon complete conversion of the Preferred Shares (without taking
into account any limitations or restrictions on the convertibility of the
Preferred Shares) immediately before the date on which a record is taken for
the grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
(18)
(19) Reservation of Shares; Authorized Shares.
----------------------------------------
(20)
(a) Reservation. The Company shall, so long as any of the Preferred
-----------
Shares are outstanding, take all action necessary to reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, such number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Preferred Shares then outstanding (without regard to any
limitations on conversions); provided that on each day prior to the One-Year
Adjustment Date the number of shares of Common Stock so reserved shall at no
time be less than the number of shares of Common Stock issuable upon conversion
of all of the Preferred Shares then outstanding based on a Conversion Price
equal to 60% of the Initial Fixed Conversion Price then in effect (without
regard to any limitations on conversions) (the "Required Reserve Amount). The
initial number of shares of Common Stock reserved for conversions of the
Preferred Shares and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Preferred Shares based on the
number of Preferred Shares held by each holder at the time of issuance of the
Preferred Shares or increase in the number of reserved shares, as the case may
be. In the event a holder shall sell or otherwise transfer any of such
holder's Preferred Shares, each transferee shall be allocated a pro rata
portion of the number of reserved shares of Common Stock reserved for such
transferor. Any shares of Common Stock reserved and allocated to any Person
which ceases to hold any Preferred Shares shall be allocated to the remaining
holders of Preferred Shares, pro rata based on the number of Preferred Shares
then held by such holders.
(a) Insufficient Authorized Shares. If at any time while any of the
------------------------------
Preferred Shares remain outstanding the Company does not have a sufficient
number of authorized and unreserved shares of Common Stock to satisfy its
obligation to reserve for issuance upon conversion of the Preferred Shares at
least a number of shares of Common Stock equal to the Required Reserve Amount
(an "Authorized Share Failure"), then the Company shall immediately take all
action necessary to increase the Company's authorized shares of Common Stock to
an amount sufficient to allow the Company to reserve the Required Reserve
Amount for the Preferred Shares then outstanding. Without limiting the
generality of the foregoing sentence, as soon as practicable after the date of
the occurrence of an Authorized Share Failure, but in no event later than 75
days after the occurrence of such Authorized Share Failure, the Company shall
hold a meeting of its stockholders for the authorization of an increase in the
number of authorized shares of Common Stock. In connection with such meeting,
the Company shall provide each stockholder with a proxy statement and shall use
its best efforts to solicit its stockholders' approval of such increase in
authorized shares of Common Stock and to cause its board of directors to
recommend to the stockholders that they approve such proposal.
(2) Voting Rights. Holders of Preferred Shares shall have no voting
-------------
rights, except as required by law, including but not limited to the General
Corporation Law of the State of Delaware, and as expressly provided in this
Certificate of Designations.
(3)
(4) Liquidation, Dissolution, Winding-Up. In the event of any voluntary
------------------------------------
or involuntary liquidation, dissolution or winding up of the Company, the
holders of the Preferred Shares shall be entitled to receive in cash out of the
assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "Liquidation Funds"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as
to the distributions and payments on the liquidation, dissolution and winding
up of the Company, an amount per Preferred Share equal to the sum of (i) the
Stated Value and (ii) the Additional Amount for such Preferred Share (such sum
being referred to as the "Liquidation Preference"); provided that, if the
Liquidation Funds are insufficient to pay the full amount due to the holders of
Preferred Shares and holders of shares of other classes or series of preferred
stock of the Company that are of equal rank with the Preferred Shares as to
payments of Liquidation Funds (the "Pari Passu Shares"), then each holder of
Preferred Shares and Pari Passu Shares shall receive a percentage of the
Liquidation Funds equal to the full amount of Liquidation Funds payable to such
holder as a liquidation preference, in accordance with their respective
Certificate of Designations, Preferences and Rights, as a percentage of the
full amount of Liquidation Funds payable to all holders of Preferred Shares and
Pari Passu Shares. The purchase or redemption by the Company of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Company. Neither
the consolidation or merger of the Company with or into any other Person, nor
the sale or transfer by the Company of less than substantially all of its
assets, shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Company. No holder of Preferred Shares shall
be entitled to receive any amounts with respect thereto upon any liquidation,
dissolution or winding up of the Company other than the amounts provided for
herein; provided that a holder of Preferred Shares shall be entitled to all
amounts previously accrued with respect to amounts owed hereunder.
(5)
(6) Preferred Rank. All shares of Common Stock shall be of junior rank to
--------------
all Preferred Shares in respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company. The
rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Preferred Shares. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then
outstanding Preferred Shares, the Company shall not hereafter authorize or
issue additional or other capital stock that is of senior rank to the Preferred
Shares in respect of the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company. Without the prior
express written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Preferred Shares, the Company shall not hereafter authorize or
make any amendment to the Company's Certificate of Incorporation or bylaws, or
file any resolution of the board of directors of the Company with the Secretary
of State of the State of Delaware or enter into any agreement containing any
provisions, which would adversely affect or otherwise impair the rights or
relative priority of the holders of the Preferred Shares relative to the
holders of the Common Stock or the holders of any other class of capital stock.
(7)
(8) Participation. The holders of the Preferred Shares shall, as holders
-------------
of Preferred Stock, be entitled to such dividends paid and distributions made
to the holders of Common Stock to the same extent as if such holders of
Preferred Shares had converted the Preferred Shares into Common Stock (without
regard to any limitations on conversion herein or elsewhere) and had held such
shares of Common Stock on the record date for such dividends and distributions.
Payments under the preceding sentence shall be made concurrently with the
dividend or distribution to the holders of Common Stock.
(9)
(10) Restriction on Redemption and Cash Dividends. Until all of the
---------------------------------------------
Preferred Shares have been converted or redeemed as provided herein, the
Company shall not, directly or indirectly, declare or pay any cash dividend or
distribution on, its Common Stock without the prior express written consent of
the holders of not less than two-thirds (2/3) of the then outstanding Preferred
Shares. Until all of the Preferred Shares have been converted or redeemed as
provided herein, the Company shall not, directly or indirectly, redeem,
purchase or buy-back any of its Common Stock unless at least 10 Business Days
prior to the first such redemption, purchase or buy-back the Company offers in
writing each holder of Preferred Shares the right to require the Company to
redeem up to a number of Preferred Shares equal to such holder's pro rata
amount (based on the number of Preferred Shares then outstanding) of a number
of Preferred Shares having an aggregate Stated Value equal to the dollar amount
of shares of Common Stock redeemed, purchased or bought-back by the Company.
Redemption of Preferred Shares pursuant to the immediately preceding sentence
shall be at a price equal to the Liquidation Preference (as defined in Section
12) of such Preferred Shares.
(11)
(12) Limitation on Number of Conversion Shares. The Company shall not be
-----------------------------------------
obligated to issue any shares of Common Stock upon conversion of the Preferred
Shares if the issuance of such shares of Common Stock would exceed that number
of shares of Common Stock which the Company may issue upon Conversion of the
Preferred Shares (the "Exchange Cap") without breaching the Company's
obligations under the rules or regulations of the Principal Market, or the
market or exchange where the Common Stock is then traded, except that such
limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market, or the market or exchange where the Common Stock is then
traded, (or any successor rule or regulation) for issuances of Common Stock in
excess of such amount or (b) obtains a written opinion from outside counsel to
the Company that such approval is not required, which opinion shall be
reasonably satisfactory to the holders of a majority of the Preferred Shares
then outstanding. Until such approval or written opinion is obtained, no
purchaser of Preferred Shares pursuant to the Securities Purchase Agreement
(the "Purchasers") shall be issued, upon conversion of Preferred Shares, shares
of Common Stock in an amount greater than the product of (i) the Exchange Cap
amount multiplied by (ii) a fraction, the numerator of which is the number of
Preferred Shares issued to such Purchaser pursuant to the Securities Purchase
Agreement and the denominator of which is the aggregate amount of all the
Preferred Shares issued to the Purchasers pursuant to the Securities Purchase
Agreement (the "Cap Allocation Amount"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's Preferred Shares, the
transferee shall be allocated a pro rata portion of such Purchaser's Cap
Allocation Amount. In the event that any holder of Preferred Shares shall
convert all of such holder's Preferred Shares into a number of shares of Common
Stock which, in the aggregate, is less than such holder's Cap Allocation
Amount, then the difference between such holder's Cap Allocation Amount and the
number of shares of Common Stock actually issued to such holder shall be
allocated to the respective Cap Allocation Amounts of the remaining holders of
Preferred Shares on a pro rata basis in proportion to the number of Preferred
Shares then held by each such holder.
(13)
(14) Vote to Change the Terms of Preferred Shares. The affirmative vote at
--------------------------------------------
a meeting duly called for such purpose or the written consent without a
meeting, of the holders of not less than two-thirds (2/3) of the then
outstanding Preferred Shares, shall be required for any change to this
Certificate of Designations or the Company's Certificate of Incorporation which
would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares.
(15)
(16) Lost or Stolen Certificates. Upon receipt by the Company of evidence
---------------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
(17)
(18) Remedies, Characterizations, Other Obligations, Breaches and Injunctive
-----------------------------------------------------------------------
Relief. The remedies provided in this Certificate of Designations shall be
- -------
cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of
specific performance and/or other injunctive relief), no remedy contained
herein shall be deemed a waiver of compliance with the provisions giving rise
to such remedy and nothing herein shall limit a holder's right to pursue actual
damages for any failure by the Company to comply with the terms of this
Certificate of Designations. The Company covenants to each holder of Preferred
Shares that there shall be no characterization concerning this instrument other
than as expressly provided herein. Amounts set forth or provided for herein
with respect to payments, conversion and the like (and the computation thereof)
shall be the amounts to be received by the holder thereof and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(19)
(20) Specific Shall Not Limit General; Construction. No specific provision
----------------------------------------------
contained in this Certificate of Designations shall limit or modify any more
general provision contained herein. This Certificate of Designations shall be
deemed to be jointly drafted by the Company and all Buyers and shall not be
construed against any person as the drafter hereof.
(21)
(22) Failure or Indulgence Not Waiver. No failure or delay on the part of
--------------------------------
a holder of Preferred Shares in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
(23)
(24) Restriction on Transfer of Preferred Shares. In addition to an
-------------------------------------------
restrictions on transfer in the Securities Purchase Agreement, no holder of
Preferred Shares may transfer such Preferred Shares except to a Permitted
Transferee (as defined below) or with the prior consent of the Company, which
consent shall not be unreasonably withheld, to a person which is not a
Permitted Transferee. Notwithstanding anything to the contrary contained in
this Section 22, a holder of Preferred Shares shall be entitled to pledge such
Preferred Shares in connection with a bona fide margin account or other loan
secured by such Preferred Shares. For purposes of this Section 22, a
"Permitted Transferee" shall mean (i) a Buyer (as defined in the Securities
Purchase Agreement), (ii) an Affiliate (as that term is defined in Rule 501(b)
under the 1933 act) of a Buyer, (iii) any holder of Preferred Shares or
Warrants and (iv) any Affiliate of a holder of Preferred Shares or Warrants.
(25)
(26)
* * * * * * *
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Edward R. Prince III, its [President and Chief
--------------------
Executive Officer], as of the 12th day of May 1999.
EFAX.COM, INC.
By: /s/ EDWARD R. PRINCE III
Name: Edward R. Prince III
------------------------------
Its: [President and Chief Executive
Officer]
EXHIBIT I
EFAX.COM, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock (the "Certificate of Designations"). In
accordance with and pursuant to the Certificate of Designations, the
undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock, par value $.01 per share (the "Preferred Shares"),
of eFax.com, Inc., a Delaware corporation (the "Company"), indicated below
into shares of Common Stock, par value $.01 per share (the "Common Stock"), of
the Company, by tendering the stock certificate(s) representing the share(s) of
Preferred Shares specified below as of the date specified below.
Date of Conversion:
-----------
Number of Preferred Shares to be converted:
----------
Stock certificate no(s). of Preferred Shares to be converted:
-------
Please confirm the following information:
Conversion Price:
----------
Number of shares of Common Stock to be issued:
-----------
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
-------
Facsimile Number:
-------
Authorization:
-------
By:
-----------------------
Title:
-----------------------
Dated:
-----------------------
Account Number (if electronic book entry transfer):
-------------------
Transaction Code Number (if electronic book entry transfer):
----------
[NOTE TO HOLDER -- THIS FORM MUST BE SENT CONCURRENTLY TO TRANSFER AGENT]
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
[TRANSFER AGENT] to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated May ___, 1999 from the
Company and acknowledged and agreed to by [TRANSFER AGENT].
EFAX.COM, INC.
By:
Name_____________________
Title:_____________________
<PAGE>
EXHIBIT 3.20
CERTIFICATE OF AMENDMENT OF
THE CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A
CONVERTIBLE PREFERRED STOCK OF
EFAX.COM, INC.
EFAX.COM, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is eFax.com, Inc.
SECOND: The date on which the Certificate of Incorporation of the
Corporation was originally filed with the Secretary of State of the State of
Delaware is August 3, 1988. On May 12, 1999, the Corporation filed a
Certificate of Designations, Preferences and Rights of Series A Convertible
Stock (the "Original Certificate of Designations"). No shares of Preferred
Stock have been issued pursuant to the Original Certificate of Designations.
THIRD: Pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, and acting in
accordance with the provisions of Sections 141 and 151 of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation adopted resolutions amending the Original Certificate of
Designations as follows:
Section (2)(a)(ix) shall be amended and restated to read in its
entirety as follows:
"(ix) "Fixed Conversion Price" means 100% of the average of
the Closing Bid Prices of the Common Stock for the five consecutive
Business Days immediately preceding May 12, 1999, subject to
adjustment as provided herein (including, without limitation,
pursuant to Section 2(f))."
IN WITNESS WHEREOF, eFax.com, Inc. has caused this Certificate of
Amendment to be signed by its President and attested to by its Secretary this
13th day of May, 1999.
EFAX.COM, INC.
By: /s/ EDWARD R. PRINCE, III
--------------------------
Edward R. Prince, III, President
ATTEST:
/s/ TODD J. KENCK
- ------------------------------
Todd J. Kenck, Secretary
<PAGE>
CERTIFICATE NO. **200** DATE: March 22, 1999
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE
OF THIS WARRANT (TOGETHER, THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY APPLICABLE STATE SECURITIES
LAW, AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE ENCUMBERED,
PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT THEREFOR UNDER SAID ACT AND
QUALIFICATION UNDER SAID LAW OR AN OPINION OF COUNSEL SATISFACTORY IN FORM AND
SUBSTANCE TO THE CORPORATION AND CONCURRED IN BY THE CORPORATION'S COUNSEL TO
THE EFFECT THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
eFax.com, Inc.
COMMON STOCK PURCHASE WARRANT
TO PURCHASE UP TO 5,000 SHARES OF COMMON STOCK
VOID AFTER March 22, 2002
eFax.com, Inc., a Delaware corporation (the "Corporation"), hereby
certifies that, for good and valuable consideration, receipt and sufficiency of
which are hereby acknowledged by the Corporation, Global NAPs, Inc. (the
"Holder"), is entitled, subject to the terms and conditions set forth below, to
purchase from the Corporation up to 5,000 fully paid and non-assessable shares
(the "Shares") of the Common Stock, par value $.01 per share, of the
Corporation ("Common Stock"), at a purchase price of $15.19 per Share (the
"Purchase Price") at any time or times on or prior to the Expiration Date (as
defined below). This Warrant shall expire and be of no further force or effect
at the earlier of the time when it has been exercised with respect to all
Shares which the Holder is entitled to purchase hereunder or 5:00 p.m.,
California time, on the Expiration Date. Such number of Shares and the
Purchase Price are subject to adjustment, as hereinafter provided. Such number
shall be reduced at such time or times as this Warrant is exercised in part by
the number of Shares as to which this Warrant is then exercised.
1. Manner of Exercise. The Holder of this Warrant may
------------------
exercise the rights hereunder at any time by written notice to the Corporation
as set forth herein. This Warrant may be exercised as a whole at any time, or
in part from time to time, by the Holder by delivering this Warrant, for
cancellation if it is exercised as a whole or for endorsement if it is
exercised in part, together with a Subscription in the form appearing at the
end hereof properly completed and duly executed by or on behalf of the Holder
and such other information and investment representations as may be reasonably
requested by the Corporation for the purpose of complying with applicable
securities laws, to the Corporation at its office in Menlo Park, California (or
at the office of the agency
<PAGE>
maintained for such purpose or at such other office or agency of the
Corporation as it may designate by notice in writing to the Holder at the
address thereof appearing on the books of the Company), accompanied by payment
by certified or official bank check payable to the order of the Corporation, in
an aggregate amount equal to the Purchase Price as then adjusted times the
number of Shares as to which this Warrant is then being exercised. In the
event of any exercise of this Warrant that is partial, the Corporation shall
endorse this Warrant as having been exercised to that extent and return this
Warrant to the Holder for the balance. Anything in this Warrant to the
contrary notwithstanding, this Warrant may not be exercised to any extent after
5:00 p.m., California time, on the Expiration Date or after it has been
exercised in the aggregate for the number of Shares that the Holder is entitled
to purchase hereunder, and unless this Warrant is being exercised with respect
to all Shares subject to this Warrant, this Warrant may be exercised only with
respect to whole Shares.
2. Delivery of Stock Certificates on Exercise. The
------------------------------------------
Corporation will, or will direct its transfer agent to, issue, as soon as
practicable after any exercise of this Warrant, and in any event within thirty
days thereafter, at the Corporation's expense (including the payment by it of
any applicable issue taxes), in the name of and deliver to the Holder, or as
the Holder may direct (on payment by the Holder of any applicable transfer
taxes and compliance with all restrictions on transferability set forth
herein), a certificate or certificates for the number of fully paid and
nonassessable Shares as to which this Warrant is so exercised, plus, in lieu of
any fractional shares to which the Holder would otherwise be entitled, cash
equal to such fraction or fractions multiplied by the Purchase Price as then
adjusted.
3. Anti-Dilution Adjustments.
-------------------------
3.1. Stock Dividends, Splits, Etc. The number of
----------------------------
Shares purchasable on exercise of this Warrant shall be subject to adjustment
from time to time in the event that the Corporation shall (a) pay a dividend
in, or make a distribution of, shares of Common Stock on any of its outstanding
Common Stock, (b) subdivide its outstanding shares of Common Stock into a
greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares or (d) issue by reclassification of its Common
Stock any shares of capital stock of the Corporation (other than a
reclassification resulting from a merger or consolidation covered in section
3.2 or a Buy-Out Event (as defined below)). In any such case, the total number
of Shares issuable upon exercise of this Warrant immediately prior thereto
shall be adjusted so that the Holder shall be entitled to receive at the same
aggregate Purchase Price (as set forth in section 3.3) the number of shares of
stock or other securities of the Corporation or otherwise to which the Holder
would have owned or would have been entitled to receive immediately following
the occurrence of any of the events described above had this Warrant been
exercised in full immediately prior to the occurrence (or applicable record
date) of such event. An adjustment made pursuant to this section 3.1 shall, in
the case of a stock dividend or distribution, be made as of the record date
therefor and, in the case of a subdivision, combination or a reclassification,
be made as of the effective date thereof. In any such case, appropriate
adjustments shall be
2
<PAGE>
made in the application of the provisions hereof with respect to the rights of
the Holder after a recapitalization to the end that the provisions hereof shall
be applicable after that event as nearly equivalent as may be practicable.
3.2. Reorganization, Recapitalization, Consolidation,
-----------------------------------------------
Merger or Sale of Assets. In the event of any reorganization or
- ------------------------
recapitalization of the Corporation (other than as provided in section 3.1) or
in the event that the Corporation consolidates with or merges into another
corporation in a transaction in which the Corporation is not the resulting
corporation or transfers all or substantially all of its assets to another
entity, then and in each such event (other than a Buy-Out Event), the Holder,
on exercise of this Warrant as provided herein, at any time after the
consummation of such reorganization, recapitalization, consolidation, merger or
transfer, shall be entitled to receive the stock or other securities or
property to which the Holder would have been entitled on such consummation if
the Holder had exercised this Warrant immediately prior thereto. In such case,
the terms of this Warrant shall survive the consummation of any such
reorganization, recapitalization, consolidation, merger or transfer and shall
be applicable to the shares of stock or other securities or property receivable
on the exercise of this Warrant after such consummation.
3.3. Adjustment of Purchase Price. On each adjustment
----------------------------
of the number of Shares or other securities issuable upon exercise of this
Warrant pursuant to this section 3, the Purchase Price shall thereafter be the
number obtained by dividing (a) the product of the number of Shares issuable on
full exercise of this Warrant immediately prior to such adjustment by the
Purchase Price in effect immediately prior to such adjustment by (b) the number
of Shares or other securities issuable upon full exercise of this Warrant after
such adjustment.
3.4. Rounding. All calculations under this section 3
--------
shall be made to the nearest cent or to the nearest one-hundredth of a Share,
as the case may be, but in no event shall the Corporation be obligated to issue
any fractional share on any exercise of this Warrant.
4. Expiration Date. This Warrant shall expire and shall be of
---------------
no further force or effect at the earlier of the following times (the
"Expiration Date") (a) the time when the Warrant has been exercised with
respect to all Shares which the Holder is or may be entitled to purchase
hereunder, (b) 5:00 p.m., California time, on March 22, 2002, or (c) a Buy-Out
Event. A "Buy-Out Event" shall occur if a purchaser acquires more than 66-2/3%
of the fully diluted Common Stock of the Corporation, whether through stock
purchase, merger or otherwise.
5. Further Assurances. The Corporation will not, by amendment
------------------
of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issuance or sale of securities or any other voluntary action, avoid or seek to
avoid, directly or indirectly, the performance of any of the terms of this
Warrant, but will at all times in good faith take all necessary action to carry
out all such terms. Without limiting the generality of the
3
<PAGE>
foregoing, the Corporation (a) will not create any par value, or increase the
par value, of any shares of stock receivable on exercise of this Warrant above
the amount payable therefor on such exercise, (b) will take all such action as
may be necessary or appropriate so that the Corporation may validly and legally
issue fully paid and nonassessable shares of stock on the exercise of this
Warrant, and (c) will not transfer all or substantially all of its assets to
any person, or consolidate with or merge into any person or permit any person
to consolidate with or merge into the Corporation (if the Corporation is not
the surviving person), unless such person shall be bound by all of the terms of
this Warrant. This Warrant shall be binding on the successors and assigns of
the Corporation.
6. Notices of Record Dates, Etc.
----------------------------
(a) If the Corporation shall fix a record date of the holders of
Common Stock (or other stock or securities at the time deliverable on exercise
of this Warrant) for the purpose of entitling or enabling them to receive any
dividend (other than a stock dividend) or other distribution, or to receive any
right to subscribe for or purchase any shares of any class of any other
securities, or to receive any other right,
(b) in the event of any reorganization or recapitalization of the
Corporation, any Buy-Out Event, any reclassification of the capital stock of
the Corporation, any consolidation or merger of the Corporation with or into
another corporation or any transfer of all or substantially all of the assets
of the Corporation to another entity,
(c) in the event of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation or
(d) if the Corporation has filed a registration statement under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
for an offering of the Corporation's capital stock,
4
<PAGE>
then in any such event, the Corporation will mail or cause to be mailed to the
Holder a notice specifying, as the case may be, (i) the date on which a record
is to be taken for the purpose of such dividend, distribution or right and
stating the amount and character of such dividend, distribution or right, (ii)
the date on which a record is to be taken for the purpose of voting on or
approving such reorganization, recapitalization, Buy-Out Event,
reclassification, consolidation, merger, conveyance, dissolution, liquidation
or winding up and the date on which such event is to take place and the time,
if any is to be fixed, as of which the holders of record of Common Stock (or
such other stock or securities at the time deliverable on exercise of this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable on such
reorganization, recapitalization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding up or (iii) the date on which
the Corporation's registration statement was filed and the class of securities
proposed to be registered. Such notice shall be mailed at least twenty-one
days prior to the record date therein specified or within twenty-one days after
filing the registration statement, as the case may be.
7. Replacement of Warrant. On receipt of evidence reasonably
----------------------
satisfactory to the Corporation of the loss, theft, destruction or mutilation
of this Warrant and, in the case of any such loss, theft or destruction, on
delivery of a bond or other indemnity reasonably satisfactory to the
Corporation, or, in the case of any such mutilation, on surrender and
cancellation of this Warrant, the Corporation covenants that it will issue a
new Warrant, of like tenor, in lieu of such lost, stolen, destroyed or
mutilated Warrant.
8. Covenant to Reserve Common Stock. The Corporation shall at
--------------------------------
all times reserve and keep available out of its authorized but unissued Common
Stock the full number of shares of Common Stock deliverable upon exercise of
this Warrant and shall, at its own expense, take all such actions and attain
all such permits and orders as may be necessary to enable the Corporation
lawfully to issue such Common Stock upon exercise of this Warrant.
9. Issuance Taxes. On exercise of this Warrant, the
--------------
Corporation pay any and all issuance taxes that may be payable in respect of
any issuance or delivery of shares of Common Stock on such exercise. The
Corporation shall not, however, be required to pay, and the Holder shall pay,
any tax that may be payable in respect of any transfer involved in the issuance
and delivery of shares of Common Stock in a name other than that of the Holder,
and no such issuance or delivery shall be made unless and until the person
requesting such issuance has paid to the Corporation the amount of any such
tax, where it is established to the satisfaction of the Corporation, that such
tax has been paid.
10. Non-Transferability of Warrant. This Warrant is
------------------------------
non-transferable and is only exercisable by the Holder.
5
<PAGE>
11. Survival of Covenants, Representations and Warranties.
-----------------------------------------------------
All agreements, covenants, representations and warranties herein shall survive
the execution and delivery of this Warrant and any investigation at any time
made on behalf of any party and the exercise, sale and purchase of this Warrant
and the Common Stock issuable on exercise hereof.
1.
12. Voting Rights. This Warrant shall not entitle the Holder,
-------------
as such, to any voting rights or other rights as a stockholder of the
Corporation or to any other rights except the rights stated herein.
13. Entire Agreement. This Warrant, the letter agreement
----------------
dated April 20, 1999 between the Corporation and the Holder relating to this
Warrant (the "Letter Agreement"), and the Addendum to the Co-Location and the
Telephone Switch Agreements (the "Addendum") together contain the entire
agreement of the parties and supersede all prior or contemporaneous written or
oral negotiations, correspondence, understandings and agreements between the
parties, regarding the subject matter hereof.
14. Successors and Assigns. Except as otherwise provided
----------------------
herein, this Warrant shall bind and inure to the benefit of the Holder and the
Corporation and any successor of the Corporation.
15. Notices. All demands, notices and other communications to
-------
be given hereunder shall be in writing and shall be deemed duly given and
received when transmitted by facsimile transmission with receipt acknowledged
by the addressee, when delivered personally or three days after being mailed by
first class mail, postage prepaid, properly addressed, if to the Corporation,
at 1378 Willow Road, Menlo Park, California 94025, facsimile number (650) 326-
6003 or, if to the Holder, at the Holder's address contained in the Letter
Agreement between the Holder and the Corporation or at any other address or
facsimile number designated by notice by either party to the other party.
16. Amendments; Waivers; Termination; Governing Law, Headings.
---------------------------------------------------------
This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Warrant shall be governed by and construed and interpreted in accordance with
the laws of the State of California. The headings in this Warrant are for
convenience of reference only and shall not affect the construction or
interpretation of any provision hereof.
17. Saturdays, Sundays, Holidays, etc.. If the last or
---------------------------------
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday or a Sunday or shall be a legal
holiday, then such action may be taken or such right may be exercised on the
next succeeding day not a Saturday, Sunday or legal holiday.
6
<PAGE>
Dated as of March 22, 1999
[SEAL] eFax.com, Inc.
By:____________________________
Edward R. Prince III
CEO
7
<PAGE>
ENDORSEMENTS
------------
Number
Number of of Shares
Shares as Remaining
Exercise to which Available Signature of Authorized
Date Exercised for Exercise Officer of the Corporation
---- --------- ------------ --------------------------
<PAGE>
SUBSCRIPTION
(To be completed and signed only on
an exercise of the Warrant.)
To eFax.com, Inc.
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ____________ shares of the Common Stock of eFax.com, Inc.
of those to which such Holder is entitled thereunder, and herewith makes
payment of $__________ therefor by certified or official bank check. The
undersigned hereby requests that the certificate(s) for such shares be issued
in the name(s) and delivered to the address(es) as follows:
_______________________
________________________________________________
________________________________________________
________________________________________________
Dated: __________________ __________________________________
__________________________, Holder
By ___________________________
Its _________________________
<PAGE>
EXHIBIT 4.3
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. ANY SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH THE
APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
EFAX.COM, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: W-1 Number of Shares: 195,000
Date of Issuance: May 13, 1999
EFAX.COM, INC., a Delaware corporation (the "Company"), hereby certifies that,
FISHER CAPITAL LTD., the registered holder hereof or its permitted assigns, is
entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this warrant (this "Warrant"), at any time or times on or
after the date hereof, but not after 11:59 P.M. Central Time on the Expiration
Date (as defined herein) one hundred ninety-five thousand (195,000) fully paid
nonassessable shares of Common Stock (as defined herein) of the Company (the
"Warrant Shares") at the purchase price per share provided in Section 1(b)
below; provided, however, that the Company shall not effect the exercise of
this Warrant and no holder of this Warrant shall have the right to exercise
this Warrant to the extent that after giving effect to such exercise such
Person (together with such Person's affiliates) (A) would beneficially own in
excess of 10.00% of the outstanding shares of the Common Stock following such
conversion or (B) would have acquired, through the exercise of this Warrant or
otherwise, in excess of 10.00% of the outstanding shares of the Common Stock
following such exercise during the 60-day period ending on and including such
exercise date. For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by a Person and its affiliates or acquired by a
Person and its affiliates, as the case may be, shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with respect to
which the determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (i) conversion of
the remaining, non-exercised Warrants beneficially owned by such Person and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company (including, without limitation,
the Preferred Shares (as defined in the
1
<PAGE>
Securities Purchase Agreement)) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by
such Person and its affiliates. Except as set forth in the preceding sentence,
beneficial ownership shall be calculated in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended. For purposes of this Warrant,
in determining the number of outstanding shares of Common Stock a holder may
rely on the number of outstanding shares of Common Stock as reflected in (1)
the Company's most recent Form 10-Q or Form 10-K, as the case may be, (2) a
more recent public announcement by the Company or (3) any other notice by the
Company or its transfer agent setting forth the number of shares of Common
Stock outstanding. For any reason at any time, upon the written or oral
request of the holder of this Warrant, the Company shall within two (2)
Business Days confirm orally and in writing to any such holder the number of
shares Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the exercise
of this Warrant and the conversion of Preferred Shares by such holder and its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
-----------------------------
warrants of the Company issued pursuant to the Securities Purchase Agreement,
dated as of May 7, 1999, among the Company and the investors set forth on the
Schedule of Investors attached thereto (the "Securities Purchase Agreement").
(b) Definitions. The following words and terms as used in this
-----------
Warrant shall have the following meanings:
(i) "Approved Stock Plan" shall mean any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities may be issued to any employee, officer, director
or consultant for services provided to the Company.
(ii) "Business Day" means a day on which the Principal Market
or, if the Principal Market is not the principal trading market for the Common
Stock, the principal trading market for the Common Stock is open for general
trading of securities.
(iii) "Certificate of Designations" means the Company's
Certificate of Designations, Preferences and Rights of the Preferred Shares.
(iv) "Closing Bid Price" means, for any security as of any
date, the last closing bid price for such security on the Principal Market (as
defined below) as reported by Bloomberg Financial Markets ("Bloomberg"), or, if
the Principal Market is not the principal trading market for such security, the
last closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last 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 last closing trade price for such security
as reported by Bloomberg, or, if no last closing trade price is reported for
such security by Bloomberg, the
2
<PAGE>
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 on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually determined by the Company and the holder of
this Warrant. If the Company and the holder of this Warrant are unable to
agree upon the fair market value of the Common Stock, then such dispute shall
be resolved pursuant to the same procedures as provided in Section 2(d)(iii) of
the Certificate of Designations with the term "Closing Bid Price" being
substituted for the term "Market Price". All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
(v) "Closing Sale Price" means, for any security as of any
date, the last closing trade price for such security on the Principal Market as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing trade
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing trade 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 last closing trade price is reported for such
security by Bloomberg, the last closing ask price of such security as reported
by Bloomberg, or, if no last closing ask price is reported for such security by
Bloomberg, the average of the ask prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Sale Price cannot be calculated for such security on such date on any
of the foregoing bases, the Closing Sale Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
holder of this Warrant. If the Company and the holder of this Warrant are
unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to the same procedures as provided in
Section 2(d)(iii) of the Certificate of Designations with the term "Closing
Sale Price" being substituted for the term "Market Price". All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period.
(vi) "Common Stock" means (i) the Company's common stock, par
value $0.001 per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
(vii) "Common Stock Deemed Outstanding" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock issuable upon conversion or exercise
of outstanding Options (as defined below) and Convertible Securities (as
defined below) regardless of whether the Options or Convertible Securities are
actually exercisable or convertible at such time, but excluding any shares of
Common Stock owned or held by or for the account of the Company or issuable
upon exercise of the Warrants.
(viii) "Convertible Securities" means any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable
for Common Stock.
(ix) "Excluded Securities" means any of the following (A) any
issuance by the Company of securities in connection with a strategic
3
<PAGE>
partnership or joint venture (the primary purpose of which is not to raise
equity capital), (B) shares of Common Stock issued by the Company in a firm
commitment, underwritten public offering and (C) any issuance by the Company of
securities as consideration for a merger or consolidation or the acquisition of
a business, product, license or other assets of another person or entity.
(x) "Expiration Date" means the date four (4) years from the
date of this Warrant or, if such date falls on a Saturday, Sunday or other day
on which banks are required or authorized to be closed in the State of
California or on which trading does not take place on the principal exchange or
automated quotation system on which the Common Stock is traded (a "Holiday"),
the next date that is not a Holiday.
(xi) "Initial Warrant Exercise Price" means the Warrant
Exercise Price in effect on the Issuance Date (as defined in Section 13),
subject to adjustment as provided herein.
(xii) "Market Price" means, with respect to any security for
any period, that price which shall be computed as the arithmetic average of the
Closing Bid Prices for such security on each of the 20 consecutive Business
Days immediately preceding such date of determination. All such determinations
to be appropriately adjusted for any stock dividend, stock split or other
similar transaction during such period.
(xiii) "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(xiv) "Other Securities" means those rights, warrants, options
and convertible securities of the Company issued prior to, and outstanding on,
the date of issuance of this Warrant.
(xv) "Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xvi) "Principal Market" means the Nasdaq National Market.
(xvii) "Registration Rights Agreement" means that certain
registration rights agreement between the Company and the initial holders of
the Preferred Shares relating to the filing of a registration statement
covering the resale of the shares of Common Stock issuable upon conversion of
the Preferred Shares and the exercise of this Warrant.
(xviii) "Securities Act" means the Securities Act of 1933, as
amended.
(xix) "Warrant" means this Warrant and all Warrants issued in
exchange, transfer or replacement of any thereof.
(xx) "Warrant Exercise Price" shall be equal to 110% of the of
the average of the Closing Bid Prices of the Common Stock for the five
consecutive Business Days immediately preceding the Issuance Date, subject to
adjustment as provided herein (including, without limitation, pursuant to
Section 8(e)).
4
<PAGE>
Section 2. Section Exercise of Warrant.
---------------------------
(a) Subject to the terms and conditions hereof, this Warrant may
be exercised by the holder hereof then registered on the books of the Company,
in whole or in part, at any time on any Business Day on or after the opening of
business on the date hereof and prior to 11:59 P.M. Central Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "Exercise Notice"), of
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (plus any applicable issue
or transfer taxes) (the "Aggregate Exercise Price") in cash or by check or wire
transfer or (B) by notifying the Company that this Warrant is being exercised
pursuant to a Cashless Exercise (as defined in Section 2(e)), and (iii) the
surrender to a common carrier for delivery to the Company as soon as
practicable following such date, this Warrant (or an indemnification
undertaking reasonably acceptable to the Company with respect to this Warrant
in the case of its loss, theft or destruction); provided, that if such Warrant
Shares are to be issued in any name other than that of the registered holder of
this Warrant, such issuance shall be deemed a transfer and the provisions of
Section 7 shall be applicable. In the event of any exercise of the rights
represented by this Warrant in compliance with this Section 2(a), a certificate
or certificates for the Warrant Shares so purchased, in such denominations as
may be requested by the holder hereof and registered in the name of, or as
directed by, the holder, shall be delivered at the Company's expense to, or as
directed by, such holder as soon as practicable, and in no event later than two
Business Days, after the Company's receipt of the Exercise Notice, the
Aggregate Exercise Price (or notice of a Cashless Exercise) and this Warrant
(or an indemnification undertaking with respect to this Warrant in the case of
its loss, theft or destruction). Upon delivery of the Exercise Notice and
Aggregate Exercise Price referred to in clause (ii)(A) above or notification to
the Company of a Cashless Exercise referred to in Section 2(e), the holder of
this Warrant shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date of delivery of this Warrant as
required by clause (iii) above or the certificates evidencing such Warrant
Shares.
(b) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than five Business Days after any exercise
and at its own expense, issue a new Warrant identical in all respects to this
Warrant exercised except it shall represent rights to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which such Warrant
is exercised.
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock
issued upon exercise of this Warrant shall be rounded up or down to the nearest
whole number.
(d) If the Company shall fail to issue to the holder of this
Warrant on or before the date which is five Business Days after the Company's
receipt of a Exercise Notice, the Aggregate Exercise Price (or notice of a
Cashless Exercise) and this Warrant (or an indemnification
5
<PAGE>
undertaking reasonably acceptable to the Company with respect to this Warrant
in the case of its loss, theft or destruction) (the "Warrant Delivery Date"), a
certificate for the number of shares of Common Stock to which the holder is
entitled upon the holder's exercise of this Warrant pursuant to Section 2(a) or
a new Warrant for the number of shares of Common Stock to which such holder is
entitled pursuant to Section 2(b) hereof, the Company shall, in addition to any
other remedies under this Warrant or the Securities Purchase Agreement or
otherwise available to such holder, pay as additional damages in cash to such
holder on each day after the Warrant Delivery Date that the issuance of such
Common Stock certificate or new Warrant, as the case may be, is not effected
an amount equal to 0.5% of the product of (A) the sum of the number of shares
of Common Stock not issued to the holder on a timely basis and to which the
holder is entitled and/or, the number of shares represented by the portion of
this Warrant which is not being converted, as the case may be, and (B) the
average of the Closing Sale Price of the Common Stock for the three consecutive
Business Days immediately preceding the last possible date which the Company
could have issued such Common Stock or Warrant, as the case may be, to the
holder without violating this Section 2.
(e) If, despite the Company's obligations provided in the
Securities Purchase Agreement and the Registration Rights Agreement, the
Warrant Shares to be issued are not registered and available for resale
pursuant to a registration statement in accordance with the Registration Rights
Agreement, then notwithstanding anything contained herein to the contrary, the
holder of this Warrant may, at its election exercised in its sole discretion,
exercise this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the number of shares of Common Stock determined according to the
following formula (a "Cashless Exercise"):
Net Number = A x (B - C)
-----------
B
For purposes of the foregoing formula:
A = the total number shares with respect to which
this Warrant is then being exercised.
B = the Closing Sale Price of the Common Stock on
the date immediately preceding the date of the
Subscription Notice delivered in connection with
such exercise.
C = the Warrant Exercise Price then in effect at the
time of such exercise.
Section 3. Covenants as to Common Stock. The Company hereby covenants
----------------------------
and agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for
or replacement of this Warrant will upon issuance be, duly authorized and
validly issued.
6
<PAGE>
(b) All Warrant Shares which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved 100% of the number of shares of Common Stock needed to provide for the
exercise of the rights then represented by this Warrant and the par value of
said shares will at all times be less than or equal to the applicable Warrant
Exercise Price.
(d) The Company shall promptly secure the listing of the shares of
Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other
shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, 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 to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder
of this Warrant in order to protect the exercise privilege of the holder of
this Warrant against dilution or other impairment, consistent with the tenor
and purpose of this Warrant. The Company (i) will not increase the par value
of any shares of Common Stock receivable upon the exercise of this Warrant
above the Warrant Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes which may be
-----
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as
---------------------------------------
otherwise specifically provided herein, no holder, as such, of this Warrant
shall be entitled to vote or receive dividends or be deemed the holder of
shares of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or
7
<PAGE>
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the holder of this Warrant of
the Warrant Shares which he or she is then entitled to receive upon the due
exercise of this Warrant. In addition, nothing contained in this Warrant shall
be construed as imposing any liabilities on such holder to purchase any
securities (upon exercise of this Warrant or otherwise) or as a stockholder of
the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this Section 5, the Company will
provide the holder of this Warrant with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder.
-------------------------
(a) The holder of this Warrant, by the acceptance hereof,
represents that it is acquiring this Warrant and the Warrant Shares for its own
account for investment only and not with a view towards, or for resale in
connection with, the public sale or distribution of this Warrant or the Warrant
Shares, except pursuant to sales registered or exempted under the Securities
Act; provided, however, that by making the representations herein, the holder
does not agree to hold this Warrant or any of the Warrant Shares for any
minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "Accredited Investor").
(b) Upon exercise of this Warrant, except pursuant to a Cashless
Exercise, the holder shall confirm, which confirmation shall be deemed to be
made by delivery of an Exercise Notice, (i) that the Warrant Shares so
purchased are being acquired its own account for investment only and not with a
view towards, or for resale in connection with, the public sale or distribution
of the Warrant Shares, except pursuant to sales registered or exempted under
the Securities Act; provided, however, that by making such representation, the
holder does not agree to hold any of the Warrant Shares for any minimum or
other specific term and reserves the right to dispose of the Warrant Shares at
any time in accordance with or pursuant to a registration statement or an
exemption under the Securities Act and (ii) such holder is an Accredited
Investor.
Section 7. Section Ownership and Transfer.
------------------------------
(a) The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the holder hereof), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this Warrant has been
issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
(b) This Warrant and the rights granted hereunder shall not be
assignable by the holder hereof without the prior written consent of the
8
<PAGE>
Company; provided, however, that this Warrant and the rights granted to the
holder hereof are transferable, in whole or in part, to a Permitted Transferee
(as defined below) without the consent of the Company, which consent shall not
be unreasonably withheld, upon surrender of this Warrant, together with a
properly executed warrant power in the form of Exhibit B attached hereto;
provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 7(c) below. A "Permitted Transferee" shall
mean (i) a Buyer (as defined in the Securities Purchase Agreement), (ii) an
Affiliate (as such term is defined in Rule 501(b) under the Securities Act) of
a Buyer, (iii) any holder of Preferred Shares or warrants issued pursuant to
the Securities Purchase Agreement and (iv) any Affiliate of a holder of
Preferred Shares or warrants issued pursuant to the Securities Purchase
Agreement.
(c) The holder of this Warrant understands that this Warrant has
not been and is not expected to be, registered under the Securities Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (a) subsequently registered thereunder, or (b) such holder
shall have delivered to the Company an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that the securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration; provided that (i) any sale of such securities
made in reliance on Rule 144 promulgated under the Securities Act may be made
only in accordance with the terms of said Rule and further, if said Rule 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 Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the Securities and Exchange Commission thereunder; and (ii)
neither the Company nor any other person is under any obligation to register
the Warrants under the Securities Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
Section 8. Adjustment of Warrant Exercise Price, Initial Warrant
-----------------------------------------------------
Exercise Price and Number of Shares. The Warrant Exercise Price, the
- -----------------------------------
Initial Warrant Exercise Price and the number of shares of Common Stock
issuable upon exercise of this Warrant shall be adjusted from time to time as
follows:
(a) Adjustment of Warrant Exercise Price, Initial Warrant
-----------------------------------------------------
Exercise Price and Number of Shares upon Issuance of Common Stock. If and
----------------------------------------------------------------
whenever on or after the date of issuance of this Warrant, the Company issues
or sells, or in accordance with Section 8(b) is deemed to have issued or sold,
any shares of Common Stock (including the issuance or sale of shares of Common
Stock owned or held by or for the account of the Company, but excluding shares
of Common Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan or Excluded Securities or upon exercise or conversion of
the Other Securities) for a consideration per share less than a price (the
"Applicable Price") equal to the Closing Sale Price of the Common Stock on the
date of such issue or sale, then immediately after such issue or sale the
Warrant Exercise Price and/or the Initial Warrant Exercise Price, as
applicable, then in effect shall be reduced to an amount equal to the product
of (x) the Warrant Exercise Price or the Initial Warrant Exercise Price, as
applicable, in effect immediately prior to such issue or sale and (y) the
quotient determined by dividing (1) the sum of (I) the product derived by
multiplying the Applicable Price by the number of shares of Common Stock Deemed
Outstanding immediately prior to
9
<PAGE>
such issue or sale, plus (II) the consideration, if any, received by the
Company upon such issue or sale, by (2) the product derived by multiplying the
(I) Applicable Price by (II) the number of shares of Common Stock Deemed
Outstanding immediately after such issue or sale. Upon each such adjustment of
the Warrant Exercise Price hereunder, the number of shares of Common Stock
acquirable upon exercise of this Warrant shall be adjusted to the number of
shares determined by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Warrant Exercise Price resulting from
such adjustment. Notwithstanding anything to the contrary in this Section
8(a), no adjustment to the Warrant Exercise Price or the Initial Warrant
Exercise Price shall be required to be made pursuant to this Section 8(a)
unless such adjustment would result in a decrease in the Warrant Exercise Price
and/or the Initial Warrant Exercise Price, as the case may be, of at least 2.5%
of the Warrant Exercise Price or the Initial Warrant Exercise Price, as
applicable, on the date of issuance of this Warrant; provided that any
adjustments which by reason of this sentence are not required to be made at a
certain time shall be carried forward and taken into account and applied in any
subsequent adjustment. For purposes of this Section 8(a), the following shall
be applicable:
(i) Issuance of Options. If the Company in any manner
-------------------
grants any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange of any Convertible Securities issuable upon exercise of any such
Option is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(a)(i), the "lowest price per share for which one
share of Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" shall be equal to the
sum of the lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of Common Stock upon the granting or
sale of the Option, upon exercise of the Option and upon conversion or exchange
of any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price and/or the Initial Warrant Exercise
Price, as applicable, shall be made upon the actual issuance of such Common
Stock or of such Convertible Securities upon the exercise of such Options or
upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities. Notwithstanding the foregoing, no adjustment
shall be made pursuant to this Section 8(a)(i) to the extent that such
adjustment is based solely on the fact that the Convertible Securities issuable
upon exercise of such Option are convertible into or exchangeable for Common
Stock at a price which varies with the market price of the Common Stock.
(ii) Issuance of Convertible Securities. If the Company in
----------------------------------
any manner issues or sells any Convertible Securities and the lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange thereof is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for
such price per share. For the purposes of this Section 8(a)(ii), the "lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to
one share of Common Stock upon the issuance
10
<PAGE>
or sale of the Convertible Security and upon conversion or exchange of such
Convertible Security. No further adjustment of the Warrant Exercise Price
and/or the Initial Warrant Exercise Price, as applicable, shall be made upon
the actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Warrant Exercise Price and/or the Initial Warrant Exercise Price, as
applicable, had been or are to be made pursuant to other provisions of this
Section 8(a), no further adjustment of the Warrant Exercise Price and/or the
Initial Warrant Exercise Price, as applicable, shall be made by reason of such
issue or sale. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 8(a)(ii) to the extent that such adjustment is based
solely on the fact that such Convertible Securities are convertible into or
exchangeable for Common Stock at a price which varies with the market price of
the Common Stock.
(iii) Change in Option Price or Rate of Conversion. If the
--------------------------------------------
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible
into or exchangeable for Common Stock changes at any time, the Warrant Exercise
Price and/or the Initial Warrant Exercise Price, as applicable, in effect at
the time of such change shall be adjusted to the Warrant Exercise Price and/or
the Initial Warrant Exercise Price, as applicable, which would have been in
effect at such time had such Options or Convertible Securities provided for
such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold and the
number of shares of Common Stock acquirable hereunder shall be correspondingly
readjusted. For purposes of this Section 8(a)(iii), if the terms of any Option
or Convertible Security that was outstanding as of the date of issuance of this
Warrant are changed in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such change. No adjustment shall be made if such
adjustment would result in an increase of the Warrant Exercise Price or the
Initial Warrant Exercise Price, as applicable, then in effect.
(iv) Calculation of Consideration Received. In case any
-------------------------------------
Option is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for a consideration of $.01. If any
Common Stock, Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received therefor will be
deemed to be the net amount received by the Company therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of such consideration received by the Company will
be the fair value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Company will be the average of the Closing Bid Price of such securities for
the twenty (20) consecutive Business Days immediately preceding the date of
receipt. If any Common Stock, Options or Convertible Securities are issued to
the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration therefor will
be deemed to be the fair value of such portion of the net assets and business
of the
11
<PAGE>
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined jointly by the
Company and the holders of Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of the Warrants then outstanding. If
such parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the "Valuation Event"), the fair
value of such consideration will be determined within five Business Days after
the tenth (10th) day following the Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the holders of Warrants
representing a majority of the shares of Common Stock obtainable upon exercise
of the Warrants then outstanding. The determination of such appraiser shall be
final and binding upon all parties and the fees and expenses of such appraiser
shall be borne by the Company.
(v) Record Date. If the Company takes a record of the
-----------
holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(b) Adjustment of Warrant Exercise Price and Initial Warrant
Exercise Price upon Subdivision or Combination of Common Stock. If the Company
at any time after the date of issuance of this Warrant subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of
its outstanding shares of Common Stock into a greater number of shares, the
Warrant Exercise Price and/or the Initial Warrant Exercise Price, as
applicable, in effect immediately prior to such subdivision will be
proportionately reduced and the number of shares of Common Stock obtainable
upon exercise of this Warrant will be proportionately increased. If the
Company at any time after the date of issuance of this Warrant combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Warrant
Exercise Price and/or the Initial Warrant Exercise Price, as applicable, in
effect immediately prior to such combination will be proportionately increased
and the number of shares of Common Stock obtainable upon exercise of this
Warrant will be proportionately decreased.
(c) Distribution of Assets. If the Company shall declare or
----------------------
make any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in each
such case:
(i) the Warrant Exercise Price and the Initial Warrant
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of Common Stock entitled to
receive the Distribution shall be reduced, effective as of the close of
business on such record date, to a price determined by multiplying such Warrant
Exercise Price and/or the Initial Warrant Exercise Price, as applicable, by a
fraction of which (A) the numerator shall be the Closing
12
<PAGE>
Bid Price on the Business Day immediately preceding such record date minus the
value of the Distribution (as determined in good faith by the Company's Board
of Directors) applicable to one share of Common Stock, and (B) the denominator
shall be the Closing Bid Price on the Business Day immediately preceding such
record date; and
(ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to
such record date and with an exercise price equal to the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding clause (i).
(d) Certain Events. If any event occurs of the type
--------------
contemplated by the provisions of paragraphs (a), (b) and (c) of this Section 8
but not expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock rights or
other rights with equity features), then the Company's Board of Directors will
make an appropriate adjustment in the Warrant Exercise Price and the number of
shares of Common Stock obtainable upon exercise of this Warrant so as to
protect the rights of the holder of this Warrant; provided that no such
adjustment will increase the Warrant Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 8.
(e) One-Year Adjustment of Warrant Exercise Price. In addition
---------------------------------------------
to any other adjustment to the Warrant Exercise Price provided for in this
Warrant, the Warrant Exercise Price shall be subject to the following
adjustment. In the event that 110% of the Market Price of the Common Stock on
the date which is one (1) year after the Issuance Date (the "One-Year
Adjustment Date") is less than the Warrant Exercise Price in effect on the date
immediately preceding the One-Year Adjustment Date, then from and after the
One-Year Adjustment Date, the Warrant Exercise Price shall be equal to the
greater of (A) 60.0% of the Initial Warrant Exercise Price on the date
immediately preceding the One-Year Adjustment Date (subject to appropriate
adjustment pursuant to Section 8(a)) and (B) 110% of the Market Price on the
One-Year Adjustment Date; subject to further adjustment as provided in this
Warrant. Notwithstanding the foregoing, no adjustment to the Warrant Exercise
Price shall be made pursuant to this Section 8(e) if prior to the One-Year
Adjustment Date there occurs a Company's Election Conversion Date (as defined
in the Certificate of Designations) on which date all outstanding Preferred
Shares are converted.
13
<PAGE>
(f) Notices.
-------
(i) Promptly after any adjustment of the Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of
this Warrant at least ten (10) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder;
provided that if such information has not been made known to the public and in
the good faith opinion of the Board of Directors of the Company it is not in
the best interest of the Company to disclose such information, then the Company
shall not be required to give the notice provided for in this Section 8(f)(ii)
until the earlier of the date on which the Company publicly releases such
information and the date on which the Board of Directors no longer believes
that in the good faith opinion of the Board of Directors such information
should not be disclosed.
(iii) The Company will also give written notice to the holder
of this Warrant at least ten (10) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder; provided that if such information
has not been made known to the public and in the good faith opinion of the
Board of Directors of the Company it is not in the best interest of the Company
to disclose such information, then the Company shall not be required to give
the notice provided for in this Section 8(f)(iii) until the earlier of the date
on which the Company publicly releases such information and the date on which
the Board of Directors no longer believes that in the good faith opinion of the
Board of Directors such information should not be disclosed.
Section 9. Purchase Rights; Reorganization, Reclassification,
--------------------------------------------------
Consolidation, Merger or Sale.
- -----------------------------
(a) In addition to any adjustments pursuant to Section 8 above, if
at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of Common Stock (the "Purchase
Rights"), then the holder of this Warrant will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.
14
<PAGE>
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "Acquiring Entity") written agreement (in form and substance
satisfactory to the holders of Warrants representing a majority of the shares
of Common Stock obtainable upon exercise of the Warrants then outstanding) to
deliver to each holder of Warrants in exchange for such Warrants, a security of
the Acquiring Entity evidenced by a written instrument substantially similar in
form and substance to this Warrant and satisfactory to the holders of the
Warrants (including, an adjusted warrant exercise price equal to the value for
the Common Stock reflected by the terms of such consolidation, merger or sale,
and exercisable for a corresponding number of shares of Common Stock acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Warrant Exercise Price in effect immediately prior to such
consolidation, merger or sale). Prior to the consummation of any other Organic
Change, the Company shall make appropriate provision (in form and substance
satisfactory to the holders of Warrants representing a majority of the shares
of Common Stock obtainable upon exercise of the Warrants then outstanding) to
insure that each of the holders of the Warrants will thereafter have the right
to acquire and receive in lieu of or in addition to (as the case may be) the
shares of Common Stock immediately theretofore acquirable and receivable upon
the exercise of such holder's Warrants, such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of shares of Common Stock which would
have been acquirable and receivable upon the exercise of such holder's Warrant
as of the date of such Organic Change (without taking into account any
limitations or restrictions on the exerciseability of this Warrant).
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this
--------------------------------------------
Warrant is lost, stolen, mutilated or destroyed, the Company shall, on receipt
of an indemnification undertaking in a form reasonably acceptable to the
Company, issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other
------
communications required or permitted to be given under the terms of this
Warrant must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
15
<PAGE>
If to the Company:
eFax.com, Inc.
1378 Willow Road
Menlo Park, California 94025
Telephone: 650-688-6810
Facsimile: 650-470-6969
Attention: Todd J. Kenck, Chief Financial Officer
With copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Telephone: 650-843-5000
Facsimile: 650-857-0663
Attention: Patrick A. Pohlen, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Investors to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of
Investors, or at such other address and facsimile as shall be delivered to the
Company upon the issuance or transfer of this Warrant. Each party shall
provide ten days' prior written notice to the other party of any change in
address or facsimile number. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
Section 12. Amendments. This Warrant and any term hereof may be
----------
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party or holder hereof against which enforcement of such change,
waiver, discharge or termination is sought.
Section 13. Date. The date of this Warrant is May 13, 1999 (the
----
"Issuance Date"). This Warrant, in all events, shall be wholly void and of no
effect after the close of business on the Expiration Date, except that
notwithstanding any other provisions hereof, the provisions of Section 7 shall
continue in full force and effect after such date as to any Warrant Shares or
other securities issued upon the exercise of this Warrant.
Section 14. Amendment and Waiver. Except as otherwise provided herein,
--------------------
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding; provided that no
such action may increase the Warrant Exercise Price of the Warrants or
16
<PAGE>
decrease the number of shares or class of stock obtainable upon exercise of any
Warrants without the written consent of the holder of such Warrant.
Section 15. Descriptive Headings; Governing Law. The descriptive
-----------------------------------
headings of the several sections and paragraphs of this Warrant are inserted
for convenience only and do not constitute a part of this Warrant. All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be governed by the internal laws of the State of
California, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of California or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of California.
* * * * * * *
EFAX.COM, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
17
<PAGE>
EXHIBIT A TO WARRANT
--------------------
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
EFAX.COM, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of eFax.com,
Inc., a Delaware corporation (the "Company"), evidenced by the attached Warrant
(the "Warrant"). Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of the
Warrant Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to
_______________________ Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to
___________________ Warrant Shares (to the extent
permitted by the terms of the Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
4. Confirmation of Representations. Delivery of this notice to the
Company shall constitute confirmation and a representation by the undersigned
holder of the representations set forth in Section 6(b) of the Warrant.
Date: _______________ __, ______
___________________________________
Name of Registered Holder
By: ________________________________
Name:
Title:
i
<PAGE>
EXHIBIT B TO WARRANT
--------------------
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of eFax.com, Inc., a Delaware
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does
hereby irrevocably constitute and appoint ______________, attorney to transfer
the warrants of said corporation, with full power of substitution in the
premises.
Dated: _______________ __, ______
________________________________
By: ____________________________
Its: ___________________________
____________________________________
By: _____________________________
Its: ____________________________
ii
<PAGE>
EXHIBIT 4.4
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. ANY SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH THE
APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
EFAX.COM, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: W-2 Number of Shares: 105,000
Date of Issuance: May 13, 1999
EFAX.COM, INC., a Delaware corporation (the "Company"), hereby certifies that,
WINGATE CAPITAL LTD., the registered holder hereof or its permitted assigns, is
entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this warrant (this "Warrant"), at any time or times on or
after the date hereof, but not after 11:59 P.M. Central Time on the Expiration
Date (as defined herein) one hundred five thousand (105,000) fully paid
nonassessable shares of Common Stock (as defined herein) of the Company (the
"Warrant Shares") at the purchase price per share provided in Section 1(b)
below; provided, however, that the Company shall not effect the exercise of
this Warrant and no holder of this Warrant shall have the right to exercise
this Warrant to the extent that after giving effect to such exercise such
Person (together with such Person's affiliates) (A) would beneficially own in
excess of 10.00% of the outstanding shares of the Common Stock following such
conversion or (B) would have acquired, through the exercise of this Warrant or
otherwise, in excess of 10.00% of the outstanding shares of the Common Stock
following such exercise during the 60-day period ending on and including such
exercise date. For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by a Person and its affiliates or acquired by a
Person and its affiliates, as the case may be, shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with respect to
which the determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (i) conversion of
the remaining, non-exercised Warrants beneficially owned by such Person and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company (including, without limitation,
the Preferred Shares (as defined in the Securities Purchase
1
<PAGE>
Agreement)) subject to a limitation on conversion or exercise analogous tothe
limitation contained herein beneficially owned by such Person and its
affiliates. Except as set forth in the preceding sentence, beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. For purposes of this Warrant, in
determining the number of outstanding shares of Common Stock a holder may rely
on the number of outstanding shares of Common Stock as reflected in (1) the
Company's most recent Form 10-Q or Form 10-K, as the case may be, (2) a more
recent public announcement by the Company or (3) any other notice by the
Company or its transfer agent setting forth the number of shares of Common
Stock outstanding. For any reason at any time, upon the written or oral
request of the holder of this Warrant, the Company shall within two (2)
Business Days confirm orally and in writing to any such holder the number of
shares Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the exercise
of this Warrant and the conversion of Preferred Shares by such holder and its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
-----------------------------
warrants of the Company issued pursuant to the Securities Purchase Agreement,
dated as of May 7, 1999, among the Company and the investors set forth on the
Schedule of Investors attached thereto (the "Securities Purchase Agreement").
(b) Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
(i) "Approved Stock Plan" shall mean any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities may be issued to any employee, officer, director
or consultant for services provided to the Company.
(ii) "Business Day" means a day on which the Principal Market
or, if the Principal Market is not the principal trading market for the Common
Stock, the principal trading market for the Common Stock is open for general
trading of securities.
(iii) "Certificate of Designations" means the Company's
Certificate of Designations, Preferences and Rights of the Preferred Shares.
(iv) "Closing Bid Price" means, for any security as of any
date, the last closing bid price for such security on the Principal Market (as
defined below) as reported by Bloomberg Financial Markets ("Bloomberg"), or, if
the Principal Market is not the principal trading market for such security, the
last closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last 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 last closing trade price for such security
as reported by Bloomberg, or, if no last closing trade price is reported for
such security by Bloomberg, the
2
<PAGE>
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 on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually determined by the Company and the holder of
this Warrant. If the Company and the holder of this Warrant are unable to
agree upon the fair market value of the Common Stock, then such dispute shall
be resolved pursuant to the same procedures as provided in Section 2(d)(iii) of
the Certificate of Designations with the term "Closing Bid Price" being
substituted for the term "Market Price". All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
(v) "Closing Sale Price" means, for any security as of any
date, the last closing trade price for such security on the Principal Market as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing trade
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing trade 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 last closing trade price is reported for such
security by Bloomberg, the last closing ask price of such security as reported
by Bloomberg, or, if no last closing ask price is reported for such security by
Bloomberg, the average of the ask prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Sale Price cannot be calculated for such security on such date on any
of the foregoing bases, the Closing Sale Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
holder of this Warrant. If the Company and the holder of this Warrant are
unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to the same procedures as provided in
Section 2(d)(iii) of the Certificate of Designations with the term "Closing
Sale Price" being substituted for the term "Market Price". All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period.
(vi) "Common Stock" means (i) the Company's common stock, par
value $0.001 per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
(vii) "Common Stock Deemed Outstanding" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock issuable upon conversion or exercise
of outstanding Options (as defined below) and Convertible Securities (as
defined below) regardless of whether the Options or Convertible Securities are
actually exercisable or convertible at such time, but excluding any shares of
Common Stock owned or held by or for the account of the Company or issuable
upon exercise of the Warrants.
(viii) "Convertible Securities" means any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable
for Common Stock.
(ix) "Excluded Securities" means any of the following (A) any
issuance by the Company of securities in connection with a strategic
3
<PAGE>
partnership or joint venture (the primary purpose of which is not to raise
equity capital), (B) shares of Common Stock issued by the Company in a firm
commitment, underwritten public offering and (C) any issuance by the Company of
securities as consideration for a merger or consolidation or the acquisition of
a business, product, license or other assets of another person or entity.
(x) "Expiration Date" means the date four (4) years from the
date of this Warrant or, if such date falls on a Saturday, Sunday or other day
on which banks are required or authorized to be closed in the State of
California or on which trading does not take place on the principal exchange or
automated quotation system on which the Common Stock is traded (a "Holiday"),
the next date that is not a Holiday.
(xi) "Initial Warrant Exercise Price" means the Warrant
Exercise Price in effect on the Issuance Date (as defined in Section 13),
subject to adjustment as provided herein.
(xii) "Market Price" means, with respect to any security for
any period, that price which shall be computed as the arithmetic average of the
Closing Bid Prices for such security on each of the 20 consecutive Business
Days immediately preceding such date of determination. All such determinations
to be appropriately adjusted for any stock dividend, stock split or other
similar transaction during such period.
(xiii) "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(xiv) "Other Securities" means those rights, warrants, options
and convertible securities of the Company issued prior to, and outstanding on,
the date of issuance of this Warrant.
(xv) "Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xvi) "Principal Market" means the Nasdaq National Market.
(xvii) "Registration Rights Agreement" means that certain
registration rights agreement between the Company and the initial holders of
the Preferred Shares relating to the filing of a registration statement
covering the resale of the shares of Common Stock issuable upon conversion of
the Preferred Shares and the exercise of this Warrant.
(xviii) "Securities Act" means the Securities Act of 1933, as
amended.
(xix) "Warrant" means this Warrant and all Warrants issued in
exchange, transfer or replacement of any thereof.
(xx) "Warrant Exercise Price" shall be equal to 110% of the of
the average of the Closing Bid Prices of the Common Stock for the five
consecutive Business Days immediately preceding the Issuance Date, subject to
adjustment as provided herein (including, without limitation, pursuant to
Section 8(e)).
4
<PAGE>
Section 2. Section Exercise of Warrant.
---------------------------
(a) Subject to the terms and conditions hereof, this Warrant may
be exercised by the holder hereof then registered on the books of the Company,
in whole or in part, at any time on any Business Day on or after the opening of
business on the date hereof and prior to 11:59 P.M. Central Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "Exercise Notice"), of
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (plus any applicable issue
or transfer taxes) (the "Aggregate Exercise Price") in cash or by check or wire
transfer or (B) by notifying the Company that this Warrant is being exercised
pursuant to a Cashless Exercise (as defined in Section 2(e)), and (iii) the
surrender to a common carrier for delivery to the Company as soon as
practicable following such date, this Warrant (or an indemnification
undertaking reasonably acceptable to the Company with respect to this Warrant
in the case of its loss, theft or destruction); provided, that if such Warrant
Shares are to be issued in any name other than that of the registered holder of
this Warrant, such issuance shall be deemed a transfer and the provisions of
Section 7 shall be applicable. In the event of any exercise of the rights
represented by this Warrant in compliance with this Section 2(a), a certificate
or certificates for the Warrant Shares so purchased, in such denominations as
may be requested by the holder hereof and registered in the name of, or as
directed by, the holder, shall be delivered at the Company's expense to, or as
directed by, such holder as soon as practicable, and in no event later than two
Business Days, after the Company's receipt of the Exercise Notice, the
Aggregate Exercise Price (or notice of a Cashless Exercise) and this Warrant
(or an indemnification undertaking with respect to this Warrant in the case of
its loss, theft or destruction). Upon delivery of the Exercise Notice and
Aggregate Exercise Price referred to in clause (ii)(A) above or notification to
the Company of a Cashless Exercise referred to in Section 2(e), the holder of
this Warrant shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date of delivery of this Warrant as
required by clause (iii) above or the certificates evidencing such Warrant
Shares.
(b) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than five Business Days after any exercise
and at its own expense, issue a new Warrant identical in all respects to this
Warrant exercised except it shall represent rights to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which such Warrant
is exercised.
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock
issued upon exercise of this Warrant shall be rounded up or down to the nearest
whole number.
(d) If the Company shall fail to issue to the holder of this
Warrant on or before the date which is five Business Days after the Company's
receipt of a Exercise Notice, the Aggregate Exercise Price (or notice of a
Cashless Exercise) and this Warrant (or an indemnification
5
<PAGE>
undertaking reasonably acceptable to the Company with respect to this Warrant
in the case of its loss, theft or destruction) (the "Warrant Delivery Date"), a
certificate for the number of shares of Common Stock to which the holder is
entitled upon the holder's exercise of this Warrant pursuant to Section 2(a) or
a new Warrant for the number of shares of Common Stock to which such holder is
entitled pursuant to Section 2(b) hereof, the Company shall, in addition to any
other remedies under this Warrant or the Securities Purchase Agreement or
otherwise available to such holder, pay as additional damages in cash to such
holder on each day after the Warrant Delivery Date that the issuance of such
Common Stock certificate or new Warrant, as the case may be, is not effected
an amount equal to 0.5% of the product of (A) the sum of the number of shares
of Common Stock not issued to the holder on a timely basis and to which the
holder is entitled and/or, the number of shares represented by the portion of
this Warrant which is not being converted, as the case may be, and (B) the
average of the Closing Sale Price of the Common Stock for the three consecutive
Business Days immediately preceding the last possible date which the Company
could have issued such Common Stock or Warrant, as the case may be, to the
holder without violating this Section 2.
(e) If, despite the Company's obligations provided in the
Securities Purchase Agreement and the Registration Rights Agreement, the
Warrant Shares to be issued are not registered and available for resale
pursuant to a registration statement in accordance with the Registration Rights
Agreement, then notwithstanding anything contained herein to the contrary, the
holder of this Warrant may, at its election exercised in its sole discretion,
exercise this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the number of shares of Common Stock determined according to the
following formula (a "Cashless Exercise"):
Net Number = A x (B - C)
-----------
B
For purposes of the foregoing formula:
A = the total number shares with respect to which
this Warrant is then being exercised.
B = the Closing Sale Price of the Common Stock on
the date immediately preceding the date of the
Subscription Notice delivered in connection
with such exercise.
C = the Warrant Exercise Price then in effect at
the time of such exercise.
Section 3. Covenants as to Common Stock. The Company hereby covenants
----------------------------
and agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for
or replacement of this Warrant will upon issuance be, duly authorized and
validly issued.
6
<PAGE>
(b) All Warrant Shares which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved 100% of the number of shares of Common Stock needed to provide for the
exercise of the rights then represented by this Warrant and the par value of
said shares will at all times be less than or equal to the applicable Warrant
Exercise Price.
(d) The Company shall promptly secure the listing of the shares of
Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other
shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, 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 to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder
of this Warrant in order to protect the exercise privilege of the holder of
this Warrant against dilution or other impairment, consistent with the tenor
and purpose of this Warrant. The Company (i) will not increase the par value
of any shares of Common Stock receivable upon the exercise of this Warrant
above the Warrant Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes which may be
-----
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as
---------------------------------------
otherwise specifically provided herein, no holder, as such, of this Warrant
shall be entitled to vote or receive dividends or be deemed the holder of
shares of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or
7
<PAGE>
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the holder of this Warrant of
the Warrant Shares which he or she is then entitled to receive upon the due
exercise of this Warrant. In addition, nothing contained in this Warrant shall
be construed as imposing any liabilities on such holder to purchase any
securities (upon exercise of this Warrant or otherwise) or as a stockholder of
the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this Section 5, the Company will
provide the holder of this Warrant with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder.
-------------------------
(a) The holder of this Warrant, by the acceptance hereof,
represents that it is acquiring this Warrant and the Warrant Shares for its own
account for investment only and not with a view towards, or for resale in
connection with, the public sale or distribution of this Warrant or the Warrant
Shares, except pursuant to sales registered or exempted under the Securities
Act; provided, however, that by making the representations herein, the holder
does not agree to hold this Warrant or any of the Warrant Shares for any
minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "Accredited Investor").
(b) Upon exercise of this Warrant, except pursuant to a Cashless
Exercise, the holder shall confirm, which confirmation shall be deemed to be
made by delivery of an Exercise Notice, (i) that the Warrant Shares so
purchased are being acquired its own account for investment only and not with a
view towards, or for resale in connection with, the public sale or distribution
of the Warrant Shares, except pursuant to sales registered or exempted under
the Securities Act; provided, however, that by making such representation, the
holder does not agree to hold any of the Warrant Shares for any minimum or
other specific term and reserves the right to dispose of the Warrant Shares at
any time in accordance with or pursuant to a registration statement or an
exemption under the Securities Act and (ii) such holder is an Accredited
Investor.
Section 7. Section Ownership and Transfer.
------------------------------
(a) The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the holder hereof), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this Warrant has been
issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
(b) This Warrant and the rights granted hereunder shall not be
assignable by the holder hereof without the prior written consent of the
8
<PAGE>
Company; provided, however, that this Warrant and the rights granted to the
holder hereof are transferable, in whole or in part, to a Permitted Transferee
(as defined below) without the consent of the Company, which consent shall not
be unreasonably withheld, upon surrender of this Warrant, together with a
properly executed warrant power in the form of Exhibit B attached hereto;
provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 7(c) below. A "Permitted Transferee" shall
mean (i) a Buyer (as defined in the Securities Purchase Agreement), (ii) an
Affiliate (as such term is defined in Rule 501(b) under the Securities Act) of
a Buyer, (iii) any holder of Preferred Shares or warrants issued pursuant to
the Securities Purchase Agreement and (iv) any Affiliate of a holder of
Preferred Shares or warrants issued pursuant to the Securities Purchase
Agreement.
(c) The holder of this Warrant understands that this Warrant has
not been and is not expected to be, registered under the Securities Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (a) subsequently registered thereunder, or (b) such holder
shall have delivered to the Company an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that the securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration; provided that (i) any sale of such securities
made in reliance on Rule 144 promulgated under the Securities Act may be made
only in accordance with the terms of said Rule and further, if said Rule 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 Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the Securities and Exchange Commission thereunder; and (ii)
neither the Company nor any other person is under any obligation to register
the Warrants under the Securities Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
Section 8. Adjustment of Warrant Exercise Price, Initial Warrant
-----------------------------------------------------
Exercise Price and Number of Shares. The Warrant Exercise Price, the
- -----------------------------------
Initial Warrant Exercise Price and the number of shares of Common Stock
issuable upon exercise of this Warrant shall be adjusted from time to time as
follows:
(a) Adjustment of Warrant Exercise Price, Initial Warrant Exercise
Price and Number of Shares upon Issuance of Common Stock. If and whenever on
or after the date of issuance of this Warrant, the Company issues or sells, or
in accordance with Section 8(b) is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of Common Stock
deemed to have been issued by the Company in connection with an Approved Stock
Plan or Excluded Securities or upon exercise or conversion of the Other
Securities) for a consideration per share less than a price (the "Applicable
Price") equal to the Closing Sale Price of the Common Stock on the date of such
issue or sale, then immediately after such issue or sale the Warrant Exercise
Price and/or the Initial Warrant Exercise Price, as applicable, then in effect
shall be reduced to an amount equal to the product of (x) the Warrant Exercise
Price or the Initial Warrant Exercise Price, as applicable, in effect
immediately prior to such issue or sale and (y) the quotient determined by
dividing (1) the sum of (I) the product derived by multiplying the Applicable
Price by the number of shares of Common Stock Deemed Outstanding immediately
prior to
9
<PAGE>
such issue or sale, plus (II) the consideration, if any, received by the
Company upon such issue or sale, by (2) the product derived by multiplying the
(I) Applicable Price by (II) the number of shares of Common Stock Deemed
Outstanding immediately after such issue or sale. Upon each such adjustment of
the Warrant Exercise Price hereunder, the number of shares of Common Stock
acquirable upon exercise of this Warrant shall be adjusted to the number of
shares determined by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Warrant Exercise Price resulting from
such adjustment. Notwithstanding anything to the contrary in this Section
8(a), no adjustment to the Warrant Exercise Price or the Initial Warrant
Exercise Price shall be required to be made pursuant to this Section 8(a)
unless such adjustment would result in a decrease in the Warrant Exercise Price
and/or the Initial Warrant Exercise Price, as the case may be, of at least 2.5%
of the Warrant Exercise Price or the Initial Warrant Exercise Price, as
applicable, on the date of issuance of this Warrant; provided that any
adjustments which by reason of this sentence are not required to be made at a
certain time shall be carried forward and taken into account and applied in any
subsequent adjustment. For purposes of this Section 8(a), the following shall
be applicable:
(i) Issuance of Options. If the Company in any manner
-------------------
grants any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange of any Convertible Securities issuable upon exercise of any such
Option is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(a)(i), the "lowest price per share for which one
share of Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" shall be equal to the
sum of the lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of Common Stock upon the granting or
sale of the Option, upon exercise of the Option and upon conversion or exchange
of any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price and/or the Initial Warrant Exercise
Price, as applicable, shall be made upon the actual issuance of such Common
Stock or of such Convertible Securities upon the exercise of such Options or
upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities. Notwithstanding the foregoing, no adjustment
shall be made pursuant to this Section 8(a)(i) to the extent that such
adjustment is based solely on the fact that the Convertible Securities issuable
upon exercise of such Option are convertible into or exchangeable for Common
Stock at a price which varies with the market price of the Common Stock.
(ii) Issuance of Convertible Securities. If the Company in
----------------------------------
any manner issues or sells any Convertible Securities and the lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange thereof is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for
such price per share. For the purposes of this Section 8(a)(ii), the "lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to
one share of Common Stock upon the issuance
10
<PAGE>
or sale of the Convertible Security and upon conversion or exchange of such
Convertible Security. No further adjustment of the Warrant Exercise Price
and/or the Initial Warrant Exercise Price, as applicable, shall be made upon
the actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Warrant Exercise Price and/or the Initial Warrant Exercise Price, as
applicable, had been or are to be made pursuant to other provisions of this
Section 8(a), no further adjustment of the Warrant Exercise Price and/or the
Initial Warrant Exercise Price, as applicable, shall be made by reason of such
issue or sale. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 8(a)(ii) to the extent that such adjustment is based
solely on the fact that such Convertible Securities are convertible into or
exchangeable for Common Stock at a price which varies with the market price of
the Common Stock.
(iii) Change in Option Price or Rate of Conversion. If the
--------------------------------------------
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible
into or exchangeable for Common Stock changes at any time, the Warrant Exercise
Price and/or the Initial Warrant Exercise Price, as applicable, in effect at
the time of such change shall be adjusted to the Warrant Exercise Price and/or
the Initial Warrant Exercise Price, as applicable, which would have been in
effect at such time had such Options or Convertible Securities provided for
such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold and the
number of shares of Common Stock acquirable hereunder shall be correspondingly
readjusted. For purposes of this Section 8(a)(iii), if the terms of any Option
or Convertible Security that was outstanding as of the date of issuance of this
Warrant are changed in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such change. No adjustment shall be made if such
adjustment would result in an increase of the Warrant Exercise Price or the
Initial Warrant Exercise Price, as applicable, then in effect.
(iv) Calculation of Consideration Received. In case any
-------------------------------------
Option is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for a consideration of $.01. If any
Common Stock, Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received therefor will be
deemed to be the net amount received by the Company therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of such consideration received by the Company will
be the fair value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Company will be the average of the Closing Bid Price of such securities for
the twenty (20) consecutive Business Days immediately preceding the date of
receipt. If any Common Stock, Options or Convertible Securities are issued to
the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration therefor will
be deemed to be the fair value of such portion of the net assets and business
of the
11
<PAGE>
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined jointly by the
Company and the holders of Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of the Warrants then outstanding. If
such parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the "Valuation Event"), the fair
value of such consideration will be determined within five Business Days after
the tenth (10th) day following the Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the holders of Warrants
representing a majority of the shares of Common Stock obtainable upon exercise
of the Warrants then outstanding. The determination of such appraiser shall be
final and binding upon all parties and the fees and expenses of such appraiser
shall be borne by the Company.
(v) Record Date. If the Company takes a record of the
-----------
holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(b) Adjustment of Warrant Exercise Price and Initial Warrant
--------------------------------------------------------
Exercise Price upon Subdivision or Combination of Common Stock. If the
- --------------------------------------------------------------
Company at any time after the date of issuance of this Warrant subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Warrant Exercise Price and/or the Initial Warrant Exercise Price,
as applicable, in effect immediately prior to such subdivision will be
proportionately reduced and the number of shares of Common Stock obtainable
upon exercise of this Warrant will be proportionately increased. If the
Company at any time after the date of issuance of this Warrant combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Warrant
Exercise Price and/or the Initial Warrant Exercise Price, as applicable, in
effect immediately prior to such combination will be proportionately increased
and the number of shares of Common Stock obtainable upon exercise of this
Warrant will be proportionately decreased.
(c) Distribution of Assets. If the Company shall declare or
----------------------
make any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in each
such case:
(i) the Warrant Exercise Price and the Initial Warrant
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of Common Stock entitled to
receive the Distribution shall be reduced, effective as of the close of
business on such record date, to a price determined by multiplying such Warrant
Exercise Price and/or the Initial Warrant Exercise Price, as applicable, by a
fraction of which (A) the numerator shall be the Closing
12
<PAGE>
Bid Price on the Business Day immediately preceding such record date minus the
value of the Distribution (as determined in good faith by the Company's Board
of Directors) applicable to one share of Common Stock, and (B) the denominator
shall be the Closing Bid Price on the Business Day immediately preceding such
record date; and
(ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to
such record date and with an exercise price equal to the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding clause (i).
(d) Certain Events. If any event occurs of the type
--------------
contemplated by the provisions of paragraphs (a), (b) and (c) of this Section 8
but not expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock rights or
other rights with equity features), then the Company's Board of Directors will
make an appropriate adjustment in the Warrant Exercise Price and the number of
shares of Common Stock obtainable upon exercise of this Warrant so as to
protect the rights of the holder of this Warrant; provided that no such
adjustment will increase the Warrant Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 8.
(e) One-Year Adjustment of Warrant Exercise Price. In addition
---------------------------------------------
to any other adjustment to the Warrant Exercise Price provided for in this
Warrant, the Warrant Exercise Price shall be subject to the following
adjustment. In the event that 110% of the Market Price of the Common Stock on
the date which is one (1) year after the Issuance Date (the "One-Year
Adjustment Date") is less than the Warrant Exercise Price in effect on the date
immediately preceding the One-Year Adjustment Date, then from and after the
One-Year Adjustment Date, the Warrant Exercise Price shall be equal to the
greater of (A) 60.0% of the Initial Warrant Exercise Price on the date
immediately preceding the One-Year Adjustment Date (subject to appropriate
adjustment pursuant to Section 8(a)) and (B) 110% of the Market Price on the
One-Year Adjustment Date; subject to further adjustment as provided in this
Warrant. Notwithstanding the foregoing, no adjustment to the Warrant Exercise
Price shall be made pursuant to this Section 8(e) if prior to the One-Year
Adjustment Date there occurs a Company's Election Conversion Date (as defined
in the Certificate of Designations) on which date all outstanding Preferred
Shares are converted.
13
<PAGE>
(f) Notices.
-------
(i) Promptly after any adjustment of the Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of
this Warrant at least ten (10) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder;
provided that if such information has not been made known to the public and in
the good faith opinion of the Board of Directors of the Company it is not in
the best interest of the Company to disclose such information, then the Company
shall not be required to give the notice provided for in this Section 8(f)(ii)
until the earlier of the date on which the Company publicly releases such
information and the date on which the Board of Directors no longer believes
that in the good faith opinion of the Board of Directors such information
should not be disclosed.
(iii) The Company will also give written notice to the holder
of this Warrant at least ten (10) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder; provided that if such information
has not been made known to the public and in the good faith opinion of the
Board of Directors of the Company it is not in the best interest of the Company
to disclose such information, then the Company shall not be required to give
the notice provided for in this Section 8(f)(iii) until the earlier of the date
on which the Company publicly releases such information and the date on which
the Board of Directors no longer believes that in the good faith opinion of the
Board of Directors such information should not be disclosed.
Section 9. Purchase Rights; Reorganization, Reclassification,
--------------------------------------------------
Consolidation, Merger or Sale.
- -----------------------------
(a) In addition to any adjustments pursuant to Section 8 above, if
at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of Common Stock (the "Purchase
Rights"), then the holder of this Warrant will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete exercise
14
<PAGES>
of this Warrant immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "Acquiring Entity") written agreement (in form and substance
satisfactory to the holders of Warrants representing a majority of the shares
of Common Stock obtainable upon exercise of the Warrants then outstanding) to
deliver to each holder of Warrants in exchange for such Warrants, a security of
the Acquiring Entity evidenced by a written instrument substantially similar in
form and substance to this Warrant and satisfactory to the holders of the
Warrants (including, an adjusted warrant exercise price equal to the value for
the Common Stock reflected by the terms of such consolidation, merger or sale,
and exercisable for a corresponding number of shares of Common Stock acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Warrant Exercise Price in effect immediately prior to such
consolidation, merger or sale). Prior to the consummation of any other Organic
Change, the Company shall make appropriate provision (in form and substance
satisfactory to the holders of Warrants representing a majority of the shares
of Common Stock obtainable upon exercise of the Warrants then outstanding) to
insure that each of the holders of the Warrants will thereafter have the right
to acquire and receive in lieu of or in addition to (as the case may be) the
shares of Common Stock immediately theretofore acquirable and receivable upon
the exercise of such holder's Warrants, such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of shares of Common Stock which would
have been acquirable and receivable upon the exercise of such holder's Warrant
as of the date of such Organic Change (without taking into account any
limitations or restrictions on the exerciseability of this Warrant).
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this
--------------------------------------------
Warrant is lost, stolen, mutilated or destroyed, the Company shall, on receipt
of an indemnification undertaking in a form reasonably acceptable to the
Company, issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other
------
communications required or permitted to be given under the terms of this
Warrant must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
15
<PAGE>
If to the Company:
eFax.com, Inc.
1378 Willow Road
Menlo Park, California 94025
Telephone: 650-688-6810
Facsimile: 650-470-6969
Attention: Todd J. Kenck, Chief Financial Officer
With copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Telephone: 650-843-5000
Facsimile: 650-857-0663
Attention: Patrick A. Pohlen, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Investors to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of
Investors, or at such other address and facsimile as shall be delivered to the
Company upon the issuance or transfer of this Warrant. Each party shall
provide ten days' prior written notice to the other party of any change in
address or facsimile number. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
Section 12. Amendments. This Warrant and any term hereof may be
----------
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party or holder hereof against which enforcement of such change,
waiver, discharge or termination is sought.
Section 13. Date. The date of this Warrant is May 13, 1999 (the
----
"Issuance Date"). This Warrant, in all events, shall be wholly void and of no
effect after the close of business on the Expiration Date, except that
notwithstanding any other provisions hereof, the provisions of Section 7 shall
continue in full force and effect after such date as to any Warrant Shares or
other securities issued upon the exercise of this Warrant.
Section 14. Amendment and Waiver. Except as otherwise provided herein,
--------------------
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding; provided that no
such action may increase the Warrant Exercise Price of the Warrants or
16
<PAGE>
decrease the number of shares or class of stock obtainable upon exercise of any
Warrants without the written consent of the holder of such Warrant.
Section 15. Descriptive Headings; Governing Law. The descriptive
-----------------------------------
headings of the several sections and paragraphs of this Warrant are inserted
for convenience only and do not constitute a part of this Warrant. All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be governed by the internal laws of the State of
California, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of California or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of California.
* * * * * * *
EFAX.COM, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
17
<PAGE>
EXHIBIT A TO WARRANT
--------------------
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
EFAX.COM, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of eFax.com,
Inc., a Delaware corporation (the "Company"), evidenced by the attached Warrant
(the "Warrant"). Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of the
Warrant Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to
_______________________ Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to
___________________ Warrant Shares (to the extent
permitted by the terms of the Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
4. Confirmation of Representations. Delivery of this notice to the
Company shall constitute confirmation and a representation by the undersigned
holder of the representations set forth in Section 6(b) of the Warrant.
Date: _______________ __, ______
___________________________________
Name of Registered Holder
By:________________________________
Name:
Title:
i
<PAGE>
EXHIBIT B TO WARRANT
--------------------
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of eFax.com, Inc., a Delaware
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does
hereby irrevocably constitute and appoint ______________, attorney to transfer
the warrants of said corporation, with full power of substitution in the
premises.
Dated: _______________ __, ______
________________________________
By: ____________________________
Its: ___________________________
____________________________________
By: _____________________________
Its: ____________________________
ii
<PAGE>
EXHIBIT 4.5
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 7, 1999,
by and among eFax.com, Inc., a Delaware corporation, with headquarters located
at 1378 Willow Road, Menlo Park, California 94025 (the "Company"), and the
undersigned buyers (each, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers shares of the
Company's Series A Convertible Preferred Stock, par value $0.01 per share (the
"Preferred Shares"), which will be convertible into shares of the Company's
common stock, par value $0.01 per share (the "Common Stock") (as converted, the
"Conversion Shares") in accordance with the terms of the Company's Certificate
of Designations, Preferences and Rights of the Series A Convertible Preferred
Stock (the "Certificate of Designations"), and (ii) issue Warrants (the
"Warrants") which will be exercisable to purchase shares of Common Stock (the
"Warrant Shares"); and
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"),
and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyers hereby
agree as follows:
1. DEFINITIONS.
-----------
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer, any transferee or assignee
--------
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section
9 and any transferee or assignee thereof to whom a transferee or assignee
assigns its rights under this Agreement and who agrees to become bound by the
provisions of this Agreement in accordance with Section 9.
b. "Person" means a corporation, a limited liability company,
------
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
<PAGE>
c. "Register," "registered," and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. "Registrable Securities" means the Conversion Shares and
----------------------
the Warrant Shares issued or issuable upon conversion of the Preferred Shares
and exercise of the Warrants, respectively, and any shares of capital stock
issued or issuable with respect to the Conversion Shares, the Warrant Shares,
the Warrants or the Preferred Shares as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise, without
regard to any limitation on conversions of Preferred Shares or the exercise of
the Warrants.
e. "Registration Statement" means a registration statement of
----------------------
the Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
------------
a. Mandatory Registration. The Company shall prepare, and, as
----------------------
soon as practicable but in no event later than 15 days after the Closing Date
(as defined in the Securities Purchase Agreement), file with the SEC a
Registration Statement or Registration Statements (as is necessary) on Form S-3
covering the resale of all of the Registrable Securities. In the event that
Form S-3 is unavailable for such a registration, the Company shall use such
other form as is available for such a registration, subject to the provisions
of Section 2(d). The initial Registration Statement prepared pursuant hereto
shall register for resale at least that number of shares of Common Stock equal
to the sum of (i) the number of Conversion Shares issuable upon the conversion
of all Preferred Shares at a Conversion Price (as defined in the Certificate of
Designation) equal to the Initial Fixed Conversion Price (as defined in the
Certificate of Designations), without regard to any limitations on conversion,
and (ii) the number of Warrant Shares issuable upon the exercise of all the
Warrants, subject to adjustment as provided in Section 3(b). The Company shall
use its best efforts to have the Registration Statement declared effective by
the SEC as soon as practicable, but in no event later than 90 days after the
issuance of the relevant Preferred Shares.
b. Allocation of Registrable Securities. The initial number
------------------------------------
of Registrable Securities included in any Registration Statement and each
increase in the number of Registrable Securities included therein shall be
allocated pro rata among the Investors based on the number of Registrable
Securities held by each Investor at the time the Registration Statement
covering such initial number of Registrable Securities or increase thereof is
declared effective by the SEC. In the event that an Investor sells or
otherwise transfers any of such Person's Registrable Securities, each
transferee shall be allocated a pro rata portion of the then remaining number
of Registrable Securities included in such Registration Statement for such
transferor. At the option of the Company, any shares of Common Stock included
in a Registration Statement and which remain allocated
<PAGE>
to any Person which ceases to hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors.
c. Legal Counsel. Subject to Section 5 hereof, the Buyers
-------------
holding a majority of the Registrable Securities shall have the right to select
one legal counsel to review and oversee any offering pursuant to this Section 2
("Legal Counsel"), which shall be Katten Muchin & Zavis or such other counsel
as thereafter designated by the holders of a majority of Registrable
Securities. The Company shall reasonably cooperate with Legal Counsel in
performing the Company's obligations under this Agreement.
d. Ineligibility for Form S-3. In the event that Form S-3 is
--------------------------
not available for any registration of Registrable Securities hereunder, the
Company shall (i) register the sale of the Registrable Securities on another
appropriate form and (ii) undertake to register the Registrable Securities on
Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC.
e. Sufficient Number of Shares Registered. In the event the
--------------------------------------
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities or an
Investor's allocated portion of the Registrable Securities pursuant to Section
2(b), the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable),
or both, so as to cover at least 100% of the number of Registrable Securities
then issuable, in each case, as soon as practicable, but in any event not later
than fifteen (15) days after the necessity therefor arises. The Company shall
use it reasonable best efforts to cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed "insufficient to cover
all of the Registrable Securities" if at any time the number of Registrable
Securities issued or issuable upon conversion of the Preferred Shares and
exercise of the Warrants is greater than the number of shares of Common Stock
available for resale undersuch Registration Statement. For purposes of the
calculation set forth in the foregoing sentence, any restrictions on the
convertibility of the Preferred Shares or exerciseability of the Warrants shall
be disregarded and such calculation shall assume that the Preferred Shares and
the Warrants are then convertible and exercisable, respectively, into shares of
Common Stock at the then prevailing Conversion Rate (as defined in the
Company's Certificate of Designations) and Warrant Exercise Price (as defined
in the Warrant), respectively, if applicable.
f. Effect of Failure to Obtain and Maintain Effectiveness of
---------------------------------------------------------
Registration Statement. If (i) the Registration Statement is not declared
- ----------------------
effective by the SEC on or before the date (the "Scheduled Effective Date")
which is (A) 90 days after the Closing Date (as defined in the Securities
Purchase Agreement), if the SEC has not elected to review the Registration
Statement or (B) 120 days after the Closing Date, if the SEC has elected to
review the
<PAGE>
Registration Statement; or (ii) after the Registration Statement has been
declared effective by the SEC, sales cannot be made (other than on any days
during any Allowable Grace Period (as defined in Section 3(u))) pursuant to the
Registration Statement (whether because of a failure to keep the Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to the Registration Statement, to register sufficient shares
of Common Stock or otherwise); then, as partial relief for the damages to any
holder by reason of any such delay in or reduction of its ability to sell any
of the Registrable Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity), the Company shall pay to each holder
of Preferred Shares an amount in cash per Preferred Share held equal to the
product of (i) $10,000 multiplied by (ii) the sum of (A) .00033, for each day,
up to and including the 30th day, that the Registration Statement is not
declared effective by the SEC after the Scheduled Effective Date, plus, (B)
beginning on and including the 31st day after the Scheduled Effective Date,
.0005, for each day that the Registration Statement is not declared effective
by the SEC after the 30th day after the Scheduled Effective Date, plus (C) the
product of (I) .0005 multiplied by (II) the number of days after the date the
Registration Statement has been declared effective by the SEC that the
Registration Statement is not available (other than on any days during any
Allowable Grace Period) for sales of at least all of the Registrable
Securities. The payments to which a holder shall be entitled pursuant to this
Section 2(f) are referred to herein as "Registration Delay Payments."
Registration Delay Payments shall be paid within five (5) business days of the
earlier of (A) the first day of the month following the occurrence of the event
resulting in the requirement to make Registration Delay Payments, or (B) the
date on which the event resulting in the requirement to make Registration Delay
Payments is cured. In the event the Company fails to make Registration Delay
Payments in a timely manner, such Registration Delay Payments shall bear
interest at the rate of 1.5% per month (or the maximum rate permitted by law),
prorated for partial months, until paid in full.
3. RELATED OBLIGATIONS.
-------------------
At such time as the Company is obligated to file a Registration Statement
with the SEC pursuant to Section 2(a) or 2(e), the Company will use its
reasonable best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the fifteenth (15th) day after the date of issuance of any Preferred Shares
for the registration of Registrable Securities pursuant to Section 2(a)) and
use its reasonable best efforts to cause such Registration Statement relating
to the Registrable Securities to become effective as soon as possible after
such filing (but in no event later than 90 days after the issuance of any
Preferred Shares for the registration of Registrable Securities pursuant to
Section 2(a)), and keep such Registration Statement effective pursuant to Rule
415 at all times (subject to Section 3(u)) until the earlier of (i) the date as
of which the Investors may sell all of the Registrable Securities without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto), (ii) the date on which (A) the Investors shall have sold
all the Registrable Securities and (B) none of the Preferred Shares or Warrants
is outstanding or (iii) the date which is three (3) years and 30 days after the
Closing Date (the "Registration Period"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. The term "reasonable best efforts" as used in the first sentence
of this Section 3(a) shall mean, among other things, that the Company shall
submit to the SEC, within two business days after the Company learns that no
review of a particular Registration Statement will be made by the staff of the
SEC or that the staff has no further comments on the Registration Statement, as
the case may be, a request for acceleration of effectiveness of such
Registration Statement to a time and date not later than 48 hours after the
submission of such request.
<PAGE>
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period. In the case
of amendments and supplements to a Registration Statement which are required to
be filed pursuant to this Agreement (including pursuant to this Section 3(b))
by reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or
any analogous report under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the Company shall file such amendments or supplements with the SEC
within two (2) business days after the date on which the 1934 Act report is
filed which created the requirement for the Company to amend or supplement the
Registration Statement.
c. The Company shall permit Legal Counsel to review and comment
upon a Registration Statement and all amendments and supplements thereto at
least three (3) days prior to their filing with the SEC. The Company shall
furnish to Legal Counsel, without charge, (i) any correspondence from the SEC
or the staff of the SEC to the Company or its representatives relating to any
Registration Statement, (ii) promptly after the same is prepared and filed with
the SEC, one copy of any Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated
therein by reference and all exhibits and (iii) upon the effectiveness of any
Registration Statement, one copy of the prospectus included in such
Registration Statement and all amendments and supplements thereto.
d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy
of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits, (ii) upon the effectiveness of any Registration
Statement, one (1) copy of the prospectus included in such Registration
Statement and all amendments and supplements thereto (or such other number of
copies as such Investor may reasonably request) and (iii) such other documents,
including copies of any preliminary or final prospectus, as such
<PAGE>
Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.
e. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period
and (iii) take all other actions reasonably necessary to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
f. Subject to Section 3(u), as promptly as practicable after
becoming aware of such event, the Company shall notify Legal Counsel and each
Investor in writing of the happening of any event as a result of which the
prospectus included in a Registration Statement, as then in effect, includes an
untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare a supplement or amendment to such Registration Statement to
correct such untrue statement or omission, and deliver one (1) copy of such
supplement or amendment to Legal Counsel and each Investor (or such other
number of copies as Legal Counsel or such Investor may reasonably request).
The Company shall also promptly notify Legal Counsel and each Investor in
writing (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and when a Registration Statement or any post-
effective amendment has become effective (notification of such effectiveness
shall be delivered to Legal Counsel and each Investor by facsimile on the same
day of such effectiveness and by overnight mail), (ii) of any request by the
SEC for amendments or supplements to a Registration Statement or related
prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate.
g. The Company shall use its reasonable best efforts to prevent
the issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
<PAGE>
h. At the reasonable request of any Investor and at such
Investor's expense, the Company shall furnish to such Investor, on the date of
the effectiveness of the Registration Statement and thereafter from time to
time on such dates as an Investor may reasonably request (i) a letter, dated
such date, from the Company's independent certified public accountants in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to
the Investors, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering,
addressed to the Investors.
i. At the reasonable request of any Investor and at such
Investor's expense, the Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents
retained by the Investors (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties
of the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall hold in strict confidence and
shall not make any disclosure (except to an Investor) or use of any Record or
other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the 1933 Act, (b) the release of such Records is ordered pursuant to a
final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector has knowledge. Each Investor
agrees that it shall, upon learning that disclosure of such Records is sought
in or by a court or governmental body of competent jurisdiction or through
other means, give prompt notice to the Company and allow the Company, at its
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, the Records deemed confidential, provided that no
Investor shall be required to violate a subpoena.
j. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to
<PAGE>
prevent disclosure of, or to obtain a protective order for, such information,
provided that the Company shall not be required to violate a subpoena.
k. The Company shall use its reasonable best efforts either to
(i) cause all the Registrable Securities covered by a Registration Statement to
be listed on each securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities covered
by the Registration Statement on the Nasdaq National Market System or, if,
despite the Company's reasonable best efforts to satisfy the preceding clause
(i) or (ii), the Company is unsuccessful in satisfying the preceding clause (i)
or (ii), to secure the inclusion for quotation on The Nasdaq SmallCap Market
for such Registrable Securities. The Company shall pay all fees and expenses
incurred by the Company in connection with satisfying its obligation under this
Section 3(k).
l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered to facilitate the timely preparation and
delivery of certificates representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investors may reasonably
request and registered in the names of the Investors.
m. The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of such
Registration Statement.
n. If reasonably requested by an Investor, the Company shall (i)
as soon as practicable incorporate in a prospectus supplement or post-effective
amendment such information as an Investor requests to be included therein
relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable
Securities being offered or sold, the purchase price being paid therefor and
any other terms of the offering of the Registrable Securities; (ii) make all
required filings of such prospectus supplement or post-effective amendment as
soon as practicable after being notified of the matters to be incorporated in
such prospectus supplement or post-effective amendment; and (iii) supplement or
make amendments to any Registration Statement if requested by a holder of such
Registrable Securities and the Company reasonably concurs that such supplement
or amendment is necessary.
o. Intentionally omitted.
p. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
<PAGE>
q. The Company shall otherwise use its reasonable efforts to
comply with all applicable rules and regulations of the SEC in connection with
any registration hereunder.
r. Within two (2) business days after the Registration Statement
which includes the Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that the Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
s. Intentionally omitted.
t. Intentionally omitted.
u. Notwithstanding anything to the contrary in this Agreement, at
any time after the Registration Statement has been declared effective by the
SEC, the Company may delay the disclosure of material non-public information
concerning the Company, the disclosure of which at the time is not, in the good
faith opinion of the Board of Directors of the Company and its counsel, in the
best interest of the Company and, in the opinion of counsel to the Company,
otherwise required (a "Grace Period"); provided, that the Company shall
promptly (i) notify the Investors in writing of the existence of material non-
public information giving rise to a Grace Period (provided that in such notice
the Company shall not disclose the content of such material non-public
information to the Investors) and the date on which the Grace Period will
begin, and (ii) notify the Investors in writing of the date on which the Grace
Period ends; and, provided further, that during any consecutive 365 day period,
there shall be not more than three Grace Periods and each Grace Period shall
not exceed 15 days (an "Allowable Grace Period"). For purposes of determining
the length of a Grace Period above, the Grace Period shall begin on and include
the date the holders receive the notice referred to in clause (i) above and
shall end on and include the later of the date the holders receive the notice
referred to in clause (ii) above and the date referred to in such notice. The
provisions of Sections 2(f), 3(b), 3(g) and 3(n) hereof and Section 3(d)(ii) of
the Certificate of Designations and such other provisions as noted elsewhere in
this Agreement as being subject to Section 3(u) shall not be applicable during
the period of any Allowable Grace Period. Upon expiration of the Grace Period,
the Company shall again be bound by the first sentence of Section 3(f) with
respect to the information giving rise thereto. Notwithstanding anything to
the contrary, the Company shall cause its transfer agent to deliver unlegended
shares of Common Stock to a transferee of an Investor in accordance with the
terms of the Certificate of Designations in connection with any sale of
Registrable Securities with respect to which an Investor has entered into a
contract for sale prior to the Investor's receipt of the notice referred to in
clause (i) and for which the Investor has not yet settled. Any Investor
holding Preferred Shares shall have the option of extending the Maturity Date
(as defined in the Certificate of Designations) one day for each day during a
Grace Period. An Investor may exercise its option to extend the Maturity Date
for its Preferred Shares by delivering a written notice ("Maturity Date
Extension Notice") of its exercise of such option within five (5) business days
of the Investor's receipt of the written notice from the Company stating the
date on
<PAGE>
which the Grace Period shall end, provided that if the Company does not give
such a notice, then the Investor may give notice of its exercise of its option
pursuant to this Section 3(u) at any time after the beginning of the Grace
Period.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated filing
date of the Registration Statement, the Company shall notify each Investor in
writing of the information the Company requires from each such Investor if such
Investor elects to have any of such Investor's Registrable Securities included
in such Registration Statement. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder.
c. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the
copies of the supplemented or amended prospectus contemplated by Section 3(g)
or the first sentence of 3(f). Notwithstanding anything to the contrary, the
Company shall cause its transfer agent to deliver unlegended shares of Common
Stock to a transferee of an Investor in accordance with the terms of the
Certificate of Designations in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale prior to the Investor's receipt of a notice from the Company of the
happening of any event of the kind described in Section 3(g) or the first
sentence of 3(f) and for which the Investor has not yet settled.
d. In connection with any sale of Registrable Securities which is
made by an Investor pursuant to the Registration Statement (i) if such sale is
made through a broker, such Investor shall instruct its broker or brokers to
deliver the prospectus to the purchaser (or the broker therefor) in connection
with such sale and deliver or have previously delivered a copy of such
prospectus to such Investor's broker; (ii) if such sale is made in a
transaction directly with a purchaser and not through the facilities of any
securities exchange or market, such Investor shall deliver, or cause to be
delivered, the prospectus to such purchaser; and (iii) if such sale is made by
any means other than those described in the immediately preceding clauses (i)
and (ii), such Investor shall otherwise use its reasonable best efforts to
comply with the prospectus delivery requirements of the 1933 Act applicable to
such sale.
<PAGE>
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
brokerage commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees,
and fees and disbursements of counsel for the Company and, subject to the
limitations set forth in Section 4(h) of the Securities Purchase Agreement,
fees and disbursements of Legal Counsel, shall be paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents,
representatives of, and each Person, if any, who controls any Investor within
the meaning of the 1933 Act or the 1934 Act (each, an "Indemnified Person"),
against any losses, claims, damages, liabilities, judgments, fines, penalties,
charges, costs, attorneys' fees, amounts paid in settlement or expenses, joint
or several, (collectively, "Claims") incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation or appeal
taken from the foregoing by or before any court or governmental, administrative
or other regulatory agency, body or the SEC, whether pending or threatened,
whether or not an indemnified party is or may be a party thereto ("Indemnified
Damages"), to which any of them may become subject insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other "blue sky" laws of any jurisdiction
in which Registrable Securities are offered ("Blue Sky Filing"), or the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). The
Company shall reimburse the Indemnified Persons for any legal fees or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim.
<PAGE>
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(d); (ii) shall not be available to the extent such Claim
is based on a failure of the Investor to deliver or to cause to be delivered
the prospectus made available by the Company, if such prospectus was timely
made available by the Company pursuant to Section 3(d); and (iii) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors,
each of its officers who signs the Registration Statement, each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim
or Indemnified Damages arise out of or are based upon any Violation, in each
case to the extent, and only to the extent, that such Violation occurs in
reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and, subject to Section 6(d), such Investor will reimburse any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only
that amount of a Claim or Indemnified Damages as does not exceed the gross
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any prospectus shall not inure to the benefit of
any Indemnified Party if the untrue statement or omission of material fact
contained in the prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any
<PAGE>
governmental action or proceeding) involving a Claim, such Indemnified Person
or Indemnified Party shall, if a Claim in respect thereof is to be made against
any indemnifying party under this Section 6, deliver to the indemnifying party
a written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such case, the Company shall pay reasonable
fees for only one separate legal counsel for the Investors, and such legal
counsel shall be selected by the Investors holding a majority in interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall cooperate
fully with the indemnifying party in connection with any negotiation or defense
of any such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified
Party or Indemnified Person which relates to such action or claim. The
indemnifying party shall keep the Indemnified Party or Indemnified Person fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for
any settlement of any action, claim or proceeding effected without its written
consent, provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the consent of the Indemnified Party or Indemnified Person, consent to entry of
any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party or Indemnified Person of a release from all
liability in respect to such claim or litigation. Following indemnification as
provided for hereunder, the indemnifying party shall be subrogated to all
rights of the Indemnified Party or Indemnified Person with respect to all third
parties, firms or corporations relating to the matter for which indemnification
has been made. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action.
d. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
e. The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the
<PAGE>
indemnifying party or others, and (ii) any liabilities the indemnifying party
may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however,
that: (i) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any seller of Registrable Securities who was
not guilty of fraudulent misrepresentation; and (ii) contribution by any seller
of Registrable Securities shall be limited in amount to the gross amount of
proceeds received by such seller from the sale of such Registrable Securities
pursuant to the Registration Statement.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to
use all reasonable best efforts:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long
as the Company remains subject to such requirements and the filing of such
reports and other documents is required for the applicable provisions of Rule
144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
<PAGE>
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment; (ii) the Company is, prior to
such transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned; (iii)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the 1933 Act
and applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, the Certificate of Designations and the Warrants.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold two-thirds (?) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be
binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any
of this Agreement unless the same consideration also is offered to all of the
parties to this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
<PAGE>
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business 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:
eFax.com, Inc.
1378 Willow Road
Menlo Park, California 94025
Telephone: 650-688-6810
Facsimile: 650-470-6969
Attention: Todd J. Kenck, Chief Financial Officer
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Telephone: 650-843-5000
Facsimile: 650-857-0663
Attention: Patrick A. Pohlen, Esq.
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5200
Facsimile: 312-902-1061
Attention: Robert J. Brantman, Esq.
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers attached hereto, with copies to such Buyer's representatives
as set forth on the Schedule of Buyers, or at such other address and/or
facsimile number and/or to the attention of such other person as the recipient
party has specified by written notice given to each other party five days prior
to the effectiveness of such change. Written confirmation of receipt (A) given
by the recipient of such notice, consent, waiver or other communication, (B)
mechanically or
<PAGE>
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. Questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by the internal laws of
the State of California, without giving effect to any choice of law or conflict
of law provision or rule (whether of the State of California or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of California. 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.
Each party hereby irrevocably waives any right it may have, and agrees not to
request, a jury trial for the adjudication of any dispute hereunder or in
connection herewith or arising out of this Agreement or any transaction
contemplated hereby.
e. This Agreement, the Securities Purchase Agreement, the
Warrants and the Certificate of Designations constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the
Securities Purchase Agreement, the Warrants and the Certificate of Designations
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates,
<PAGE>
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.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Preferred Shares and the Warrants then
outstanding, or in the case of the Warrants, issuable, have been converted into
or exercised for Registrable Securities without regard to any limitation on
conversions of Preferred Shares or the exercise of the Warrants.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. 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.
* * * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
EFAX.COM, INC. FISHER CAPITAL LTD.
By: /s/ EDWARD R. PRINCE III By: /s/ DANIEL J. HOPKINS
------------------------------ --------------------------
Name: Edward R. Prince III Name: Daniel J. Hopkins
----------------------------
Its: CEO and Chairman Its: Authorized Signatory
----------------------------
WINGATE CAPITAL LTD.
By: /s/ DANIEL J. HOPKINS
-----------------------
Name: Daniel J. Hopkins
Its: Authorized Signatory
<PAGE>
SCHEDULE OF BUYERS
Investor Name Investor's Address
and Facsimile Number
- ------------------------------ ---------------------------------
Fisher Capital Ltd. Citadel Investment Group, L.L.C.
225 West Washington Street
Chicago, Illinois 60606
Attention: Daniel Hopkins
Facsimile: (312) 338-0780
Telephone: (312) 338-7800
Wingate Capital Ltd. Citadel Investment Group, L.L.C.
225 West Washington Street
Chicago, Illinois 60606
Attention: Daniel Hopkins
Facsimile: (312) 338-0780
Telephone: (312) 338-7800
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attn:
-------------------------
Re: eFax.com, Inc.
-------------
Ladies and Gentlemen:
We are counsel to eFax.com, Inc., a Delaware corporation (the "Company"),
and have represented the Company in connection with that certain Securities
Purchase Agreement (the "Purchase Agreement") entered into by and among the
Company and the buyers named therein (collectively, the "Holders") pursuant to
which the Company issued to the Holders shares of its Series A Convertible
Preferred Stock, par value $0.01 per share, (the "Preferred Shares")
convertible into shares of the Company's common stock, par value $0.01 per
share (the "Common Stock"), and warrants to purchase shares of the Common
Stock, subject to adjustment (the "Warrants"). Pursuant to the Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holders (the "Registration Rights Agreement") pursuant to which the
Company agreed, among other things, to register the Registrable Securities (as
defined in the Registration Rights Agreement), including the shares of Common
Stock issuable upon conversion of the Preferred Shares and exercise of the
Warrants, under the Securities Act of 1933, as amended (the "1933 Act"). In
connection with the Company's obligations under the Registration Rights
Agreement, on ____________ ___, 1999, the Company filed a Registration
Statement on Form S-3 (File No. 333-_____________) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
the Registrable Securities which names each of the Holders as a selling
stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
---------------------------
cc: [LIST NAMES OF HOLDERS]
<PAGE>
Exhibit 10.52 ***Text Omitted Filed Separately
Confidential Treatment Request
Under 17 C.F.R. Subsection 200.80(b)(4),
200.83 and 240.24b-2
EXHIBIT 10.52
GLOBAL NAPs REALTY, INC. COLLOCATION AGREEMENT
Global NAPS Realty, Inc., ("GLOBAL") and eFax.com ("CLIENT") hereby agree,
subject to the terms of GLOBAL's General Terms and Conditions which are
incorporated herein by reference, that GLOBAL shall provide and license to
CLIENT the use of collocation space as set out below:
1. Description of Equipment To Be Installed: GLOBAL shall install the
----------------------------------------
following equipment for CLIENT's use, if any: None.
2. Client 24-Hour Maintenance Telephone Number: 650-688-3815
-------------------------------------------
3. Start Date: To Be Determined By Separate Letter Agreement
----------
4. Rack / Space Requirements:
-------------------------
4.1 Number of Racks: To Be Determined By Separate
Letter Agreement
4.2 Cage Required: To Be Determined By Separate
Letter Agreement
4.3 Installation and materials charges apply to equipment installed by
GLOBAL. All installations must meet GLOBAL installation
Standards. NOTE: All customer specifications or drawings must be
attached and approved by GLOBAL prior to commencement of work.
5. Service Description
-------------------
5.1 GLOBAL shall provide and license to CLIENT rack and cabinet space
at its facility/facilities at To Be Determined By Separate Letter
Agreement. GLOBAL shall provide CLIENT with a single 20 amp, 120
volt electrical service, unless otherwise agreed.
5.2 CLIENT acknowledges that space at GLOBAL's facility is limited
and GLOBAL provides rack and cabinet space under an Agreement
with Global NAPs, Inc., as an accommodation to line service
customers of Global NAPs, Inc. CLIENT may obtain
telecommunication and network services, for redundancy purposes
at this
Page 1
<PAGE> 1
facility from vendors other than Global NAPs, Inc., but
not in a monthly dollar amount to exceed service purchased from
Global NAPs, Inc.
5.3 It is specifically understood between the parties that this
Agreement creates a license to use rack space and not a leasehold.
The parties specifically agree that in the event this Agreement is
terminated, GLOBAL may only take possession of the subject space
after completion of Porting Services referenced in Addendum, Item
#4. Under no circumstances must GLOBAL initiate a Summary Process
action to regain possession of the space. Upon termination of the
license, GLOBAL may, if necessary, physically remove CLIENT's
equipment from the rack space or, at its discretion, may obtain
injunctive relief to compel CLIENT to remove said equipment.
5.4 Intentional Interference: In the event that CLIENT intentionally
interferes with another party's rack space, this Agreement shall
terminate immediately and, in addition to all other remedies set
forth herein, CLIENT shall forfeit the contents of its rack space
to GLOBAL.
6. Compensation
------------
6.1 CLIENT agrees to pay GLOBAL a one time set up fee of [...***...]
per rack, and an annual charge of [...***...] per rack to be paid
in twelve monthly installments of [...***...] per month per rack.
CLIENT acknowledges that this figure reflects a discount which
shall be granted if, and only if, payment is received by GLOBAL
on or before the first day of the month. If payment is not
received by the first day of the month, CLIENT will pay
[...***...] per month per rack. CLIENT shall pay for its
electricity. GLOBAL shall provide CLIENT with a good faith
estimate of CLIENT'S average electrical usage on a monthly basis
and CLIENT will pay for same. If CLIENT disputes GLOBAL's
assessment of CLIENT's use, CLIENT may, at its own expense,
separately meter its electrical usage and pay GLOBAL in
accordance with the meter reading.
6.2 CLIENT shall pay to GLOBAL the set up fee and the first monthly
rack charge upon execution of this Agreement. Subsequent monthly
rack charges shall be paid in advance of the month to which they
apply. GLOBAL shall invoice CLIENT for estimated electrical usage,
and these invoices shall be paid within Thirty (30) days following
the date of CLIENT's invoice. CLIENT's payments to GLOBAL shall be
made without set off.
* Confidential Treatment Requested
Page 2
<PAGE> 2
6.3 Any charges not paid when due, shall be subject to late charges at
one and one-half percent (1 1/2%) per month.
6.4 GLOBAL may terminate this Agreement upon Ten (10) days written
notice and without waiving any other rights if any charge is not
paid in full within Thirty (30) days after the due date. In such
event CLIENT shall be responsible for all unpaid charges plus all
of GLOBAL's costs and expenses associated with the collection of
said unpaid charges (including attorneys' fees).
7. Certain Federal, State and Local Taxes
--------------------------------------
7.1 Any state or local excise, sales, or use taxes (excluding any
taxes on income) resulting from the performance of this Agreement
shall be borne by the Party upon which the obligation for payment
is imposed under applicable law even if the obligation to collect
and remit such taxes is placed upon the other Party. Each Party
shall be responsible for filing all returns for federal, state or
local sales, use, excise, governmental, or other taxes or tax-like
fees imposed on or with respect to its services.
7.2 To the extent permitted by applicable law, the Party obligated to
pay such taxes may contest the same in good faith and shall be
entitled to the benefit of any refund, provided that such Party
cannot permit any lien to exist on any assets of the other Party
by reason of any such contest.
WITNESS our hands and seals this 20th day of April, 1999.
Global NAPs Realty, Inc. ("GLOBAL")
By: /s/ WILLIAM ROONEY
-----------------------------
(Signature)
William Rooney
-----------------------------
(Name)
Vice President
-----------------------------
(Title)
eFax.com
1378 Willow Road
Menlo Park, CA 94025-1430
tel: 650-688-3815
fax: 650-688-6880
Page 3
<PAGE> 3
e-mail: [email protected]
("CLIENT")
By: /s/ ROBERT POLLOCK
-------------------------------
Robert Pollock, President & COO
Page 4
<PAGE> 4
GENERAL TERMS AND CONDITIONS
The following General Terms and Conditions are incorporated into the
agreements between Global NAPs, INC., Global NAPs Realty, INC. and/or Global
NAPs Networks, Inc. (each hereinafter referred to as "GLOBAL") and eFax.com
("CLIENT").
1. Term and Termination
--------------------
1.1 The initial term of this Agreement is One (1) year and thereafter
shall continue from month to month until either Party gives
Thirty (30) days written notice of termination to the other or as
otherwise provided for herein. If substantially all of the assets
of either Party are sold the buyer may, upon Nine (9) months
written notice, terminate this contract.
1.2 Except as otherwise provided for herein, in the event that either
Party commits a material breach of this Agreement, and fails to
cure such breach within Thirty (30) days after written notice of
such breach from the nonbreaching Party, the non-breaching Party
may terminate this Agreement.
1.3 Neither Party shall be relieved of its respective obligations
arising prior to the termination of this Agreement.
1.4 In the event that CLIENT intentionally interferes with another
party's rack space, this Agreement shall terminate immediately
and, in addition to all other remedies set forth herein, CLIENT
shall forfeit the contents of its rack space to GLOBAL .
2. Severability
------------
In the event that any one or more of the provisions contained
herein shall for any reason be held to be unenforceable in any
respect under the laws of the jurisdiction governing the entire
Agreement, such unenforceability shall not affect any other
provision of this Agreement, but this Agreement shall be construed
as if such unenforceable provision or provisions had never been
contained herein.
3. Amendments: Waivers
-------------------
3.1 Except as otherwise provided herein, this Agreement may be amended
only by written Agreement signed by authorized representatives of
both Parties.
Page 1
<PAGE> 1
3.2 No waiver of any provisions of this Agreement and no consent to
any default under this Agreement shall be effective unless the
same shall be in writing and signed by or on behalf of the Party
against whom such waiver or consent is claimed. No course of
dealing or failure of any Party to enforce any term, right or
condition of this Agreement shall be construed as a waiver of such
term, right or condition.
4. Independent Contractors
-----------------------
Each Party shall perform its obligations hereunder as an
independent contractor and not as the agent, employee or servant
of the other Party, and neither Party nor any person furnished by
such Party shall be deemed employees, agents or servants of the
other Party or entitled to any benefits available under the plans
for such other Party's employees.
5. No Exclusivity
--------------
Nothing herein shall be construed to prohibit either Party from
entering into similar arrangements with any third Party, or to use
its own assets and personnel for any legitimate business purpose.
6. Force Majeure
-------------
Neither Party shall be held liable for any delay or failure in
performance of any part of this Agreement from any force majeure
condition, including acts of God, acts of civil or military
authority, government regulations, embargoes, epidemics, war,
terrorist acts, riots, insurrections, fires, explosions,
earthquakes, nuclear accidents, floods, strikes, power blackouts,
unusually severe weather conditions, inability to secure products
or services of other persons or transportation facilities, acts of
GLOBAL's suppliers, acts or omissions of transportation common
carriers, or other causes beyond their reasonable control whether
or not similar to the foregoing conditions.
7. Warranty
--------
GLOBAL warrants that it has as of the Effective Date hereof, the
right to provide the Service to CLIENT. GLOBAL makes no other
warranties with respect to its provision of the Service under this
Agreement, either express or implied. GLOBAL AND ITS SUPPLIERS
EXPRESSLY DISCLAIM ALL IMPLIED WARRANTIES, INCLUDING WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
Page 2
<PAGE> 2
8. Liabilities
-----------
NEITHER PARTY SHALL BE LIABLE FOR ANY LOSS OR DAMAGE INCURRED BY
REASON OF OR INCIDENTAL TO SUCH PARTY'S OBLIGATIONS UNDER THIS
AGREEMENT. SUCH LIMITATION OF DAMAGES SHALL INCLUDE, BUT NOT BE
LIMITED TO, AMOUNTS FOR INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES
OF ANY KIND WHATSOEVER, INCLUDING LOST REVENUE OR LOST PROFITS,
EVEN IF ADVISED OF THE POSSIBILITY THEREOF, WHETHER SUCH DAMAGES
ARISE OUT OF BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE,
STRICT LIABILITY OR ANY OTHER THEORY OF LIABILITY AND WHETHER SUCH
DAMAGES WERE FORESEEABLE OR NOT AT THE TIME THIS AGREEMENT WAS
EXECUTED.
9. Indemnification
---------------
To the extent not prohibited by law, and except as otherwise
provided herein, the Parties shall indemnify, defend and hold each
other and their suppliers harmless from and against any loss,
cost, claim, injury or liability brought by a person not a party
or an affiliate under this Agreement that relates to or arises out
of their own acts or omissions or the acts or omissions of their
employees, agents or contractors in the use of the Service under
this Agreement, whether negligent or otherwise. The Parties shall
notify each other of any claims as soon as practicable, and
reasonably cooperate with each other in the defense of any claims.
10. Governing Law
-------------
This Agreement shall be deemed to be a contract made in the State
of Massachusetts, and the construction, interpretation, and
performance of this Agreement shall be governed by the substantive
laws of said State.
Page 3
<PAGE> 3
11. Executed in Counterparts
------------------------
This Agreement may be executed in any number of counterparts, each
of which shall be an original; but such counterparts shall
together constitute but one and the same document.
12. Headings
--------
The headings and numbering of sections in this Agreement are for
convenience only and shall not be construed to define or limit any
of the terms herein or affect the meaning or interpretation of
this Agreement.
13. Entire Agreement
----------------
This Agreement, including any Attachments, constitutes the entire
Agreement between the Parties and supersedes all prior oral or
written Agreements, representations, statements, negotiations,
understandings, proposals or undertakings with respect to the
subject matter hereof.
14. Notices and Demands
-------------------
All notices, demands, requests, elections, or other communications
herein provided to be given or which may be given by one Party to
the other Party shall be made in writing and, except as otherwise
provided herein, such notices, demands, requests, elections, or
other communications shall be deemed to have been duly given when
received. If hand delivered, any such notice, demand, request,
election or other communication shall be deemed to have been
received on the business day received; if sent by registered or
certified mail, return receipt requested, the date of receipt; if
sent by overnight courier, the day after delivery to the courier;
and if sent by electronic facsimile and followed by an original
sent via overnight or first class mail, the date of confirmation
of the facsimile; and in all cases shall be addressed as follows:
If to GLOBAL:
William J. Rooney, Jr.
General Counsel
Global NAPs, Inc.
Ten Merrymount Rd.
Quincy, MA 02169
Page 4
<PAGE> 4
If to CLIENT: At the address set forth in the Agreement.
The address to which such notices may be given by either Party may
be changed by written notice given by such Party to the other
Party pursuant to this Section. All notices sent hereunder,
whether by mail, overnight courier, or personal delivery, shall be
sent return receipt requested.
15. Third-Party Beneficiaries
-------------------------
This Agreement shall not provide any person not a Party to this
Agreement with any remedy, claim, liability, reimbursement, cause
of action or other right in excess of those existing without
reference to this Agreement. Either Party may, however, assign
this contract to an affiliate, parent or subsidiary upon Seven (7)
days written notice.
16. Delegation and Assignment
-------------------------
16.1 Neither Party may assign, transfer, or sell its rights under this
Agreement, or delegate its obligations hereunder, without the
prior written consent of the other Party which written consent
will not be unreasonably withheld. The Parties may, however,
assign their rights or delegate their obligations to affiliated or
successor corporations, or parent or subsidiary corporations.
16.2 Subject to the above restrictions, the provisions of this
Agreement shall be binding upon and shall inure to the benefit of
the Parties and their permitted assigns and successors.
17. Survival
--------
The provisions contained herein, the provisions contained in the
Telephone Switch Service Agreement and the provisions contained in
the Collocation Agreement, if any, between the Parties shall
survive the termination of said Agreements.
18. Governmental Compliance
-----------------------
18.1 Each Party shall perform this Agreement in compliance with all
applicable federal, state, county, and local laws, regulations,
government agency orders or decisions and codes, and shall obtain
permits and certificates where needed. In the event that such
permits or certificates cannot be obtained, or in the event that
legislative, regulatory, other legal action or changes in laws
invalidate a material term(s) of this Agreement or adversely
affects a Party's ability to perform a material term(s) of this
Agreement, the Parties shall attempt to renegotiate a new term(s)
as may be
Page 5
<PAGE> 5
required to allow this Agreement to continue. In the event that
such new term(s) cannot be renegotiated, and the ability of one or
both Parties to perform this Agreement has been materially
adversely affected, then, the adversely affected Party shall have
the right to terminate this agreement upon Thirty (30) days
notice.
18.2 All obligations under this Agreement shall be performed in
compliance with those statutes, government agency orders, and
regulations prohibiting discrimination against any employee or
applicant for employment because of race, color, religion, sex,
national origin, age, or handicap. Where required by law,
certificates of compliance shall be provided.
19. Confidentiality
---------------
The Parties covenant and agree that they will not either during
the term of this agreement, or at any time thereafter, disclose
to anyone any confidential information concerning each other's
business or affairs. Information shall be considered confidential
only if it is clearly marked as confidential or designated in
writing as confidential before being provided to the other Party.
WITNESS our hands and seals this 20th day of April, 1999.
Global NAPs Realty, Inc. ("GLOBAL")
By: /s/ WILLIAM ROONEY
-----------------------------
(Signature)
William Rooney
-----------------------------
(Name)
Vice President
-----------------------------
(Title)
eFax.com
1378 Willow Road
Menlo Park, CA 94025-1430
tel: 650-688-3815
fax: 650-688-6880
e-mail: [email protected]
("CLIENT")
Page 6
<PAGE> 6
By: /s/ ROBERT POLLOCK
-------------------------------
Robert Pollock, President & COO
Page 7
<PAGE> 7
B ADDENDUM
The following Addendum is incorporated into the standard agreements
between GLOBAL NAPS, INC., Ten Merrymount Road, Quincy, MA 02169 (hereinafter
referred to as "Global") and eFax.com, Inc., 1378 Willow Road, Menlo Park, CA
94025 (hereinafter referred to as "Client").
Whereas, Global is in the business of providing telecommunication services
either directly or through its affiliates.
Whereas, Client is in the business of providing facsimile services and is
in need of telecommunications services for said business. Specifically, client
requires large blocks of telephone numbers for use in its facsimile service
business.
Whereas, Client wishes to obtain telecommunications services from Global
and its subsidiaries or affiliates at its various locations throughout the
United States and Global wishes to provide said services.
Now, therefore, in consideration of the mutual provisions contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Global and Client hereby agree as follows:
1. Telephone Numbers. Global, its subsidiaries and affiliates, shall use
their best efforts to obtain for Client the telephone numbers that it
requires for its facsimile service business.
2. Stock Option. For every [...***...] telephone numbers that Global, its
subsidiaries or its affiliates provides to Client and Client accepts,
Client shall provide Global with a stock option to purchase 2,500
shares of common stock of Client at the then current fair market price.
The maximum number of options shall not exceed 100,000 shares. This
option may be exercised by Global or its designee at anytime for a
period of three years after receipt of said option.
3. Additional Payment. Client shall, in addition to all other payments
required for the services rendered by Global, pay Global [...***...] per
telephone number per month for each telephone number provided to Client
by Global, its subsidiaries or its affiliates up to [...***...]
telephone numbers. Global and Client shall negotiate in good faith
regarding treatment of telephone numbers in excess of [...***...].
4. Porting. In the event that Client wishes to have any or all of its
telephone numbers ported from Global, its subsidiaries or its
affiliates, to another telecommunications carrier, whether by means of
local number portability (" LNP") or remote call forwarding ("RCF"),
Client agrees to pay Global its standard charge for this service which
shall
* Confidential treatment requested
Page 1 of
<PAGE> 1
include all costs Global, its subsidiaries or its affiliates, reasonably
incur in providing said service as well as a reasonable markup.
5. Cooperative Marketing. The parties agree to engage in cooperative
marketing ventures whereby they shall assist each other in marketing
their products. This shall include but not be limited to including
links for each other on their respective Internet Web pages.
6. Initial Order. Client agrees to make an initial order of [...***...]
telephone numbers.
7. Additional Terms. The parties acknowledge that there are no additional
terms except those terms that appear in the telecommunications and
collocation agreements executed by the parties, however the terms of
the general Terms and Conditions shall govern where applicable.
In Witness Whereof, the parties hereto have signed this agreement as a
sealed instrument on this 20th day of April, 1999.
Global NAPs, Inc. eFax.com, Inc.
By: /s/ WILLIAM ROONEY By: /s/ ROBERT POLLOCK
------------------------------ ---------------------------
William Rooney, Vice President Robert Pollock, President
* Confidential treatment requested
Page 2 of
<PAGE> 2
<PAGE>
Exhibit 10.52 ***Text Omitted Filed Separately
Confidential Treatment Request
Under 17 C.F.R. Subsection 200.80(b)(4),
200.83 and 240.24b-2
EXHIBITS 10.53
GLOBAL NAPs, INC. TELEPHONE SWITCH SERVICE AGREEMENT
Global NAPs, INC. ("GLOBAL") and eFax.com("CLIENT") hereby agree, subject
to the GLOBAL's General Terms and Conditions, which are incorporated herein by
reference, that GLOBAL shall provide to CLIENT the following service as set
out below:
1. Description of Service: GLOBAL shall provide CLIENT with telephone
----------------------
service as may be more particularly described as follows: To Be
Determined By Separate Letter Agreement PRIs. Client shall be serviced
from GLOBAL's facility/facilities at To Be Determined By Separate
Letter Agreement.
2. Start Date: To Be Determined By Separate Letter Agreement
----------
3. Compensation
------------
CLIENT agrees to pay GLOBAL a one time set up fee of [...***...]
per trunk, and an annual charge of [...***...] per trunk to be paid in
Twelve (12) monthly installments of [...***...] per month per trunk.
CLIENT acknowledges that this figure reflects a discount which shall be
granted if, and only if, payment is received by GLOBAL on or before the
first day of the month. If payment is not received by the first day of
the month, CLIENT will pay [...***...] per month per trunk. CLIENT
shall pay for electrical power. In addition thereto, CLIENT shall pay
GLOBAL for all outgoing telephone calls according to the rates and
terms set forth in GLOBAL's tariff, or in accordance with the rates and
terms set forth in the special agreement between GLOBAL and CLIENT, if
any.
4. Payment
-------
4.1 CLIENT shall pay GLOBAL the set up fee and the first monthly trunk
charge upon execution of this Agreement. Subsequent monthly trunk
charges shall be paid in advance of the month to which they apply.
GLOBAL shall invoice CLIENT for outbound service, and these
invoices shall be paid within Thirty (30) days following the date
of CLIENT's invoice. CLIENT's payments to GLOBAL shall be made
without set off.
4.2 Any charges not paid when due, shall be subject to late charges at
one and one-half percent (1 1/2%) per month.
* Confidential Treatment Requested
Page 1
<PAGE> 1
4.3 GLOBAL may terminate this Agreement upon Ten (10) days written
notice and without waiving any other rights if any charge is not
paid in full within Fifteen (15) days after the due date. In such
event, CLIENT shall be responsible for all unpaid charges plus all
of GLOBAL's costs and expenses associated with the collection of
said unpaid charges (including attorneys' fees) .
5. Certain Federal. State and Local Taxes
--------------------------------------
5.1 Any state or local excise, sales, or use taxes (excluding any
taxes on income) resulting from the performance of this Agreement
shall be borne by the Party upon which the obligation for payment
is imposed under applicable law even if the obligation to collect
and remit such taxes is placed upon the other Party. Each Party
shall be responsible for filing all returns for federal, state or
local sales, use, excise, governmental, or other taxes or tax-like
fees imposed on or with respect to its services.
5.2 To the extent permitted by applicable law, the Party obligated to
pay such taxes may contest the same in good faith and shall be
entitled to the benefit of any refund, provided that such Party
cannot permit any lien to exist on any assets of the other Party
by reason of any such contest.
WITNESS our hands and seals this 20th day of April, 1999.
Global NAPs Realty, Inc. ("GLOBAL")
By: /s/ WILLIAM ROONEY
-----------------------------
(Signature)
William Rooney
-----------------------------
(Name)
Vice President
-----------------------------
(Title)
eFax.com
1378 Willow Road
Menlo Park, CA 94025-1430
tel: 650-688-3815
fax: 650-688-6880
e-mail: [email protected]
("CLIENT")
Page 2
<PAGE> 2
By: /s/ ROBERT POLLOCK
-------------------------------
Robert Pollock, President & COO
Page 3
<PAGE>
EXHIBIT 10.54
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 23rd day of February, 1999, by and
between EFAX.COM, INC., a Delaware corporation (the "Company"), and IGC
PARTNERS ("Purchaser").
W I T N E S S E T H:
WHEREAS, the Company desires to issue to Purchaser thirty thousand
(30,000) shares of Common Stock of the Company (the "Stock") as herein
described, on the terms and conditions hereinafter set forth; and
WHEREAS, the issuance of Common Stock hereunder is in connection with
services rendered by the Purchaser to the Company; and
WHEREAS, the issuance of Common Stock hereunder is intended to comply with
the provisions of Rule 505 promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act").
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. The Company agrees to issue and deliver to the Purchaser thirty
thousand (30,000) shares of the Company's Common Stock in consideration for
past services rendered by Purchaser to the Company.
2. Purchaser acknowledges that Purchaser is aware that the Stock to be
issued to him by the Company pursuant to this Agreement has not been registered
under the Act, and that the Stock is deemed to constitute "restricted
securities" under Rule 505 and Rule 144 promulgated under the Act. In this
connection, Purchaser warrants and represents to the Company that Purchaser is
purchasing the Stock for Purchaser's own account for investment only and not
with a view towards distribution, and Purchaser has no present intention of
distributing or selling said Stock except as permitted under the Act and
applicable provisions of the California Corporations Code and other applicable
Blue Sky requirements and Statutes. Purchaser further warrants and represents
that Purchaser has either (i) preexisting personal or business relationships
with the Company or any of its officers, directors or controlling persons, or
(ii) the capacity to protect Purchaser's own interests in connection with the
purchase of the Stock by virtue of the business or financial expertise of any
professional advisors to the Purchaser who are unaffiliated with and who are
not compensated by the Company or any of its affiliates, directly or
indirectly. Purchaser further acknowledges that the exemption from
registration under Rule 144 will not be available for at least one year from
the date of sale of the Stock (the date of the issuance of the stock
certificate) and unless other terms and conditions of Rule 144 are complied
with; and that any sale of the Stock may be made only in limited amounts in
accordance with such terms and conditions.
3. Purchaser further represents and warrants that Purchaser has received
and read the Company's annual report to shareholders for the most
<PAGE>
recent fiscal year, the definitive proxy statement filed in connection with
such annual report, a copy of the Purchaser's most recent Form 10-K and copies
of documents or reports filed by the Purchaser with the Securities Exchange
Commission under the Securities Exchange Act of 1934, as amended, since the
filing of the most recent Form 10-K. Purchaser further represents and warrants
that Purchaser has had an opportunity (i) to discuss the Company's business,
management and financial affairs with directors, officers, and management of
the Company, (ii) to review the Company's operations and facilities, and (iii)
to ask questions of and receive answers from, the Company and its management
regarding the terms and conditions of this investment.
4. All certificates representing any shares of Stock subject to the
provisions of this Agreement shall have endorsed thereon the following legends:
(a) The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"). They may not be sold
or offered for sale or otherwise distributed unless the securities are
registered under the Act or an exemption therefrom is available.
(b) Any legend required to be placed thereon by the Company's
Bylaws.
(c) Any legend required to be placed thereon by appropriate Blue Sky
officials.
5. Without in any way limiting the foregoing, Purchaser further agrees
that Purchaser shall in no event make any disposition of all or any portion of
the Stock which Purchaser is purchasing unless and until:
(a) there is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with said registration statement; or
(b) purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition; provided, however, that
Purchaser shall not make such disposition if the Company is advised by its
counsel that the disposition will require registration of such shares under the
Act.
6. The Company shall not be required (a) to transfer on its books any
shares of Stock of the Company which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement or (b) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
7. Purchaser hereby agrees that for a period of not less than ninety (90)
days and up to a maximum of one hundred eighty (180) days following the
effective date of a registration statement of the Company covering Common Stock
(or other securities) to be sold on its behalf in an underwritten public
offering, Purchaser shall not, to the extent requested by the Company and any
underwriter, sell or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any Common Stock of the Company held
2
<PAGE>
by him at any time during such period except Common Stock included in such
registration; provided, however, that all officers and directors of the Company
who hold securities of the Company or options to acquire securities of the
Company enter into similar agreements. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Common Stock held by the Purchaser (and the shares or securities of every other
person subject to the foregoing restriction) until the end of such period.
8. The parties agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this
Agreement.
9. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or delivery by
express courier, or four (4) days after deposit in the United States Post
Office, by registered or certified mail with postage and fees prepaid,
addressed to the other party hereto at its address hereinafter shown below its
signature or at such other address as such party may designate by ten (10)
days' advance written notice to the other party hereto.
10. This Agreement shall be governed by the laws of the State of
California and interpreted and determined in accordance with the laws of the
State of California, as such laws are applied by California courts to contracts
made and to be performed entirely in California by residents of that state.
11. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the Company. No rights under this Agreement shall be
assignable by purchaser, either voluntarily or by operation of law, except
where such assignment is required by law or expressly authorized by the terms
of the Agreement. Subject to the restrictions on transfer herein set forth,
shall be binding upon the Purchaser, Purchaser's heirs, executors,
administrators, successors and assigns.
12. This Agreement constitutes the entire, final and exclusive statement
of the agreement of the parties with respect to the subject matter hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EFAX.COM IGC PARTNERS
Signature: /s/ EDWARD R. PRINCE III Signature: /s/ JOHN R. NEURAUTER
------------------------- ------------------------
By: Edward R. Prince III By: John R. Neurauter
------------------------------- -------------------------------
Title: CEO Title: President
---------------------------- ----------------------------
Address: 1378 Willow Road Address: 2800 River Road - Suite 170
Menlo Park, CA 94205 Des Plaines, IL 60018
4
<PAGE>
EXHIBIT 10.55
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of May 7, 1999,
by and among eFax.com, Inc., a Delaware corporation, with headquarters located
at 1378 Willow Road, Menlo Park, California 94025 (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 following new series of its
preferred stock, par value $.01 per share: the Company's Series A Convertible
Preferred Stock (the "Preferred Stock"), which shall be convertible into shares
of the Company's Common Stock, par value $.01 per share (the "Common Stock")
(as converted, the "Conversion Shares"), in accordance with the terms of the
Company's Certificate of Designations, Preferences and Rights of the Preferred
Stock, substantially in the form attached hereto as Exhibit A (the "Certificate
of Designations");
C. The Buyers wish to purchase, upon the terms and conditions stated
in this Agreement, an aggregate of up to 1,500 shares of the Preferred Stock
(the "Preferred Shares") in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers and warrants, in substantially the form
attached hereto as Exhibit E (the "Warrants"), to acquire 200 shares of Common
Stock for each Preferred Share purchased (as exercised, collectively, the
"Warrant Shares"); and
D. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement substantially in the form attached hereto as Exhibit B (the
"Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
-------------------------------------
a. Purchase of Preferred Shares. Subject to the satisfaction
----------------------------
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to each Buyer and each Buyer severally agrees to purchase
from the Company the respective number of Preferred Shares set forth opposite
such Buyer's name on the Schedule of Buyers, along with Warrants to acquire the
respective number of Warrant Shares set forth opposite such Buyer's name on the
Schedule of Buyers (the "Closing"). The purchase price (the "Purchase Price")
of the Preferred Shares and the related Warrants at the Closing shall be
$15,000,000.
<PAGE>
b. Closing Date. The date and time of the Closing (the "Closing
------------
Date") shall be 10:00 a.m. Central Time, within three (3) business days
following the date hereof, subject to notification of satisfaction (or waiver)
of the conditions to the Closing set forth in Sections 6 and 7 below (or such
later date as is mutually agreed to by the Company and the Buyers). The
Closing shall occur on the Closing Date at the offices of Katten Muchin &
Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.
c. Form of Payment. On the Closing Date, (i) each Buyer shall
---------------
pay the Purchase Price to the Company for the Preferred Shares and Warrants to
be issued and sold to such Buyer at the Closing, by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, and (ii) the Company shall deliver to each Buyer, stock
certificates (in the denominations as such Buyer shall request) (the "Preferred
Stock Certificates") representing such number of the Preferred Shares which
such Buyer is then purchasing (as indicated opposite such Buyer's name on the
Schedule of Buyers) along with the Warrants such Buyer is purchasing (as
indicated opposite such Buyer's name on the Schedule of Buyers) hereunder,
duly executed on behalf of the Company and registered in the name of such Buyer
or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
--------------------------------------
Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer (i) is acquiring the
------------------
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred
Shares, will acquire the Conversion Shares then issuable and (iii) upon
exercise of the Warrants, will acquire the Warrant Shares issuable upon
exercise thereof (the Preferred Shares, the Conversion Shares, the Warrants and
the Warrant Shares collectively are referred to herein as the "Securities"),
for its own account for investment only and not with a view towards, or for
resale in connection with, the distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making
the representations herein, such Buyer does not agree to hold any of the
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)(3) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
----------------------
Securities 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
2
<PAGE>
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such securities.
d. Information. Such Buyer and its advisors, if any, have been
------------
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither
such inquiries nor any other due diligence investigations conducted by such
Buyer or its advisors, if any, or its representatives shall modify, amend or
affect such Buyer's right to rely on the Company's representations and
warranties contained in Section 3 below. Such Buyer understands that its
investment in the Securities involves a high degree of risk. Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.
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 form reasonably acceptable to the Company,
to the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company with assurances reasonably acceptable to
the Company that such Securities can be sold, assigned or transferred pursuant
to Rule 144 promulgated under the 1933 Act, as amended, (or a successor rule
thereto) ("Rule 144"); (ii) any sale of the 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 the 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, subject to the last
-------
paragraph of this Section 2(g), the certificates or other instruments
representing the Preferred Shares and the Warrants and the stock certificates
representing the Conversion Shares and the Warrant Shares, 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 stock
certificates):
3
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it
is stamped, if, unless otherwise required by state securities laws, (i) such
Securities are sold in a registered sale under the 1933 Act, (ii) in connection
with a sale transaction, such holder provides the Company with an opinion of
counsel, in a form reasonably acceptable to the Company, to the effect that a
public sale, assignment or transfer of the Securities may be made without
registration under the 1933 Act, or (iii) such holder provides the Company with
assurances reasonably acceptable to the Company that 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.
h. Validity; Enforcement. This Agreement has been duly and
---------------------
validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable against such Buyer in
accordance with its 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 that country specified in
---------
its address on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its
------------------------------
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or
40
<PAGE>
indirectly, owns capital stock or holds an equity or similar interest) 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 and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or 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. As used in this Agreement, "Material Adverse
Effect" means any material adverse effect on the business, properties, assets,
operations, results of operations, financial condition or prospects of the
Company and its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered into in
connection herewith, or on the authority or ability of the Company to perform
its obligations under the Transaction Documents (as defined below). The
Company has no Subsidiaries except as set forth on Schedule 3(a).
b. Authorization; Enforcement; Validity. (i) The Company has
------------------------------------
the requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions (as defined in Section 5), the Warrants and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof
and thereof, (ii) the execution and delivery of the Transaction Documents and
the Certificate of Designations by the Company and the consummation by it of
the transactions contemplated hereby and thereby, including without limitation
the issuance of the Preferred Shares and the Warrants and the reservation for
issuance and the issuance of the Conversion Shares and the Warrant Shares
issuable upon conversion or exercise thereof, have been duly authorized by the
Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors or its stockholders (except
such stockholder approval as may be required (A) by the Nasdaq National Market
for the issuance of a number of Conversion Shares which is greater than 20% of
the number of shares of Common Stock outstanding on the Closing Date ("20%
Approval") or (B) to increase the number of authorized shares of Common Stock
of the Company), (iii) the Transaction Documents have been duly executed and
delivered by the Company, (iv) the Transaction Documents constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies, and (v)
prior to the Closing Date, the Certificate of Designations has been filed with
the Secretary of State of the State of Delaware and has not been amended since
the date it was filed.
c. Capitalization. As of the date hereof, the authorized
--------------
capital stock of the Company consists of (i) 35,000,000 shares of Common Stock,
of which as of May 5, 1999, 12,415,655 shares are issued and outstanding,
3,234,144 shares are reserved for issuance
5
<PAGE>
pursuant to the Company's stock option and purchase plans and 204,832 shares
are issuable and reserved for issuance pursuant to securities (other than the
Preferred Shares and the Warrants) exercisable or exchangeable for, or
convertible into, shares of Common Stock and (ii) 5,000,000 shares of preferred
stock, of which as of the date hereof zero shares are issued and outstanding.
As of the Closing Date the Company shall not have issued or reserved for
issuance any shares of Common Stock since May 5, 1999 except pursuant to the
exercise of options for which shares of Common Stock were reserved as of May 5,
1999 and are reflected in the number of reserved shares set forth in clause (i)
of the immediately preceding sentence. All of such outstanding shares have
been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(c), (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company, (ii)
there are no outstanding debt securities, (iii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, or
contracts, commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is bound to issue currently or potentially in the
future additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement),
(v) there are no outstanding securities or instruments of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is bound to redeem currently or potentially
in the future a security of the Company or any of its Subsidiaries, (vi) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities as described in this
Agreement, and (vii) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or 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 amended and
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 Preferred Shares are duly
----------------------
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issue thereof and (iii) entitled to the rights
and preferences set forth in the Certificate of Designations. A sufficient
number of shares of Common Stock (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(f) below) have been duly authorized
and reserved for issuance upon conversion of the Preferred Shares and upon
exercise of the Warrants. Upon conversion or exercise in accordance with the
Certificate of Designations or the Warrants, as the case may be,
6
<PAGE>
the Conversion Shares and the Warrant Shares will be validly issued, fully paid
and nonassessable and free from all taxes, liens and charges with respect to
the issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Assuming the accuracy of the representations set forth
in Section 2, the issuance by the Company of the Securities is exempt from
registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
------------
execution, delivery and performance of the Transaction Documents by the
Company, the performance by the Company of its obligations under the
Certificate of Designations and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation,
the reservation for issuance and issuance of the Conversion Shares and the
Warrant Shares) will not (i) result in a violation of the Certificate of
Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the Principal Market (as defined
below)) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Except as disclosed in Schedule 3(e), neither the Company nor its
Subsidiaries is in violation of any term of or in default under its Certificate
of Incorporation, any Certificate of Designation, Preferences and Rights of any
outstanding series of preferred stock of the Company or By-laws or their
organizational charter or by-laws, respectively. Except as disclosed in
Schedule 3(e), neither the Company or any of its Subsidiaries is in violation
or any term of or in default under any contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its Subsidiaries, except for
possible conflicts, defaults, terminations or amendments which would not,
individually or in the aggregate, have a Material Adverse Effect. The
business of the Company and its Subsidiaries is not being conducted in
violation of any law, ordinance or regulation of any governmental entity,
except for possible violations the sanctions for which either individually or
in the aggregate would not have a Material Adverse Effect. Except as
specifically contemplated by the Transaction Documents and as required under
the 1933 Act, 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 any regulatory or self-regulatory agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by the
Transaction Documents or to perform its obligations under the Certificate of
Designations, in each case in accordance with the terms hereof or thereof.
Except as disclosed in Schedule 3(e), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain on or prior
to the Closing Date pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company is not in
7
<PAGE>
violation of the listing requirements of the Nasdaq National Market, including,
without limitation, the requirements set forth in Rule 4460 of the Nasdaq
National Market.
f. SEC Documents; Financial Statements. Since December 31,
-----------------------------------
1997, 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"). A complete list of the SEC Documents is set forth on Schedule
3(f). 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 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). Neither the
Company nor any of its Subsidiaries or any of their officers, directors,
employees or agents have provided the Buyers with any material, nonpublic
information.
g. Absence of Certain Changes. Except as disclosed in Schedule
--------------------------
3(g), since December 31, 1998, there has been no material adverse change and no
material adverse development in the business, properties, operations, financial
condition, results of operations or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy law nor
does the Company or any of its Subsidiaries have any knowledge or reason to
believe that its creditors intend to initiate involuntary bankruptcy
proceedings. Except as disclosed in Schedule 3(g), since December 31, 1998,
the Company has not declared or paid any dividends, sold any assets in excess
of $1,000,000 outside of the ordinary course of business or had capital
expenditures in excess of $1,000,000.
h. Absence of Litigation. There is no action, suit,
---------------------
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against the
Company, the Common Stock or any of the Company's Subsidiaries or,
8
<PAGE>
to the knowledge of the Company, any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, except as set
forth in Schedule 3(h).
i. Acknowledgment Regarding Buyers' Purchase of Preferred
------------------------------------------------------
Shares. The Company acknowledges and agrees that each of the Buyers is
- ------
acting solely in the capacity of arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and thereby.
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 the Transaction Documents and the transactions contemplated hereby and
thereby and any advice given by any of the Buyers or any of their respective
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Buyer's purchase of the Securities. The Company further represents to each
Buyer that the Company's decision to enter into the Transaction Documents has
been based solely on the independent evaluation by the Company and its
representatives.
j. No General Solicitation. Neither the Company, nor any of its
-----------------------
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
k. No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or, except as set forth on Schedule 3(k)
cause this offering 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
any exchange or automated quotation system on which any of the securities of
the Company are listed or designated. Neither the Company nor any of its
Subsidiaries take any action or steps that would require registration of any of
the Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings for purposes of provisions relating to the 20%
Approval.
l. Employee Relations. No executive officer (as defined in Rule
------------------
501(f) of the 1933 Act) has notified the Company that such officer intends to
leave the Company or otherwise terminate such officer's employment with the
Company.
m. Intellectual Property Rights. Except as disclosed in the SEC
----------------------------
Documents, each of the Company and each Subsidiary (i) to the knowledge of the
Company and the Subsidiaries, owns, or possesses adequate rights to use, all
patents, patent rights, inventions, trade secrets, know-how, proprietary
techniques, including processes and substances, trademarks, service marks,
trade names and copyrights described or referred to in the SEC Documents or
owned or used by it or which are necessary for the conduct of its business,
except for failure to own or possess any such rights as would not, individually
or in the aggregate, have a material
<PAGE>
adverse effect on the business, properties, assets, operations, results of
operations, financial condition or prospects of the Company and its
Subsidiaries, if any, taken as a whole, and (ii) has no reason to believe, and
is not aware of any claim, that the conduct of its business will conflict with
any such rights of others which conflict or claim is or would be material to
the business, properties, assets, operations, results of operations, financial
condition or prospects of the Company and its Subsidiaries, if any, taken as a
whole.
n. Tax Status. The Company and each of its Subsidiaries has
----------
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless
and only to the extent that the Company and each of its Subsidiaries has set
aside on its books provisions reasonably adequate for the payment of all unpaid
and unreported taxes) and has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the officers
of the Company know of no basis for any such claim.
o. Transactions With Affiliates. Except as set forth on
----------------------------
Schedule 3(o) and in the SEC Documents filed at least ten days prior to the
date hereof and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (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.
p. Application of Takeover Protections. The Company and its
-----------------------------------
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar anti-
takeover provision under the Certificate of Incorporation or the laws of the
state of its incorporation which is or could become applicable to the Buyers as
a result of the transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Securities and the Buyer's ownership
of the Securities.
q. Rights Agreement. The Company has not adopted a shareholder
----------------
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.
10
<PAGE>
r. Year 2000 Compliance. The Company has initiated a review and
--------------------
assessment of all areas within its and each Subsidiaries' business and
operations that could be adversely affected by the "Year 2000 Problem" (that
is, the risk that computer applications used by the Company or any of the
Subsidiaries may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999). Based on the foregoing, the Company believes that the computer
applications that are currently material to its or any Subsidiaries' business
and operations are reasonably expected to be able to perform properly date-
sensitive functions for all dates before and after January 1, 2000, except to
the extent that a failure to do so would not reasonably be expected to have a
Material Adverse Effect.
4. COVENANTS.
---------
a. Best Efforts. Each party shall use its best efforts timely
------------
to satisfy each of the conditions to be satisfied by it as provided in Sections
6 and 7 of this Agreement.
b. Form D and Blue Sky. 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 the Closing Date, take such action as the Company shall determine is
reasonably necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyers on
or prior to the Closing Date. The Company shall make all filings and reports
relating the offer and sale of the Securities required under applicable
securities or "Blue Sky" laws of the states of the United States following the
Closing Date.
c. Reporting Status. Until the earlier of (i) the date which is
----------------
one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Conversion Shares and
the Warrant Shares without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto), or (ii) the date on which (A) the
Investors shall have sold all the Conversion Shares and the Warrant Shares and
(B) none of the Preferred Shares or Warrants is outstanding (the "Registration
Period"), the Company shall file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would otherwise permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the
---------------
sale of the Preferred Shares for substantially the same purposes and in
substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send the
---------------------
following to each Investor during the Registration Period: (i) unless the
following are filed with the SEC through EDGAR and are available to the public
through
11
<PAGE>
EDGAR, within one (1) business day after the filing thereof with the SEC, a
copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q,
any Current Reports on Form 8-K and any registration statements (other than on
Form S-8) or amendments filed pursuant to the 1933 Act; (ii) on the same day as
the release thereof, facsimile copies of all press releases issued by the
Company or any of its Subsidiaries; and (iii) copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.
f. Right of First Refusal. Subject to the exceptions described
----------------------
below, the Company and its Subsidiaries shall not contract with any party for
any equity financing (including any debt financing with an equity component) or
issue any equity securities of the Company or any Subsidiary or securities
convertible or exchangeable into or for equity securities of the Company or any
Subsidiary (including debt securities with an equity component) in any form
("Future Offerings") during the period beginning on the date hereof and ending
on, and including, the date which is one year after the Closing Date, unless it
shall have first delivered to each Buyer or a designee appointed by such Buyer
written notice (the "Future Offering Notice") describing the proposed Future
Offering, including the terms and conditions thereof, and providing each Buyer
an option to purchase up to its Aggregate Percentage (as defined below) of the
securities to be issued in such Future Offering, as of the date of delivery of
the Future Offering Notice, in the Future Offering (the limitations referred to
in this and the preceding sentence are collectively referred to as the "Capital
Raising Limitations"). For purposes of this Section 4(g), "Aggregate
Percentage" at any time with respect to any Buyer shall mean the percentage
obtained by dividing (i) the aggregate number of the Preferred Shares initially
issued to such Buyer by (ii) the aggregate number of the Preferred Shares
initially issued to all the Buyers. A Buyer can exercise its option to
participate in a Future Offering by delivering written notice thereof to
participate to the Company within five (5) business days after receipt of a
Future Offering Notice, which notice shall state the quantity of securities
being offered in the Future Offering that such Buyer will purchase, up to its
Aggregate Percentage, and that number of securities it is willing to purchase
in excess of its Aggregate Percentage. In the event that one or more Buyers
fail to elect to purchase up to each such Buyer's Aggregate Percentage, then
each Buyer which has indicated that it is willing to purchase a number of
securities in such Future Offering in excess of its Aggregate Percentage shall
be entitled to purchase its pro rata portion (determined in the same manner as
described in the preceding sentence) of the securities in the Future Offering
which one or more of the Buyers have not elected to purchase. In the event the
Buyers fail to elect to fully participate in the Future Offering within the
periods described in this Section 4(g), the Company shall have 60 days
thereafter to sell the securities of the Future Offering that the Buyers did
not elect to purchase, upon terms and conditions, no more favorable to the
purchasers thereof than specified in the Future Offering Notice. In the event
the Company has not sold such securities of the Future Offering within such 60
day period, the Company shall not thereafter issue or sell such securities
without first offering such securities to the Buyers in the manner provided in
this Section 4(g). The Capital Raising Limitations shall not apply to (i) a
loan from a commercial bank which does
12
<PAGE>
not have any equity feature, (ii) any transaction involving the Company's
issuances of securities (A) as consideration in a merger or consolidation, (B)
in connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), (C) as consideration for the
acquisition of a business, product, license or other assets by the Company, or
(D) equipment lease financing, (iii) the issuance of Common Stock in a firm
commitment, underwritten public offering, (iv) the issuance of securities upon
exercise or conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof, (v) the grant of additional
options or warrants, or the issuance of additional securities, under any
Company stock option plan, restricted stock plan or stock purchase plan for the
benefit of the Company's employees, officers, directors or consultants for
services provided to the Company. The Buyers shall not be required to
participate or exercise their right of first refusal with respect to a
particular Future Offering in order to exercise their right of first refusal
with respect to later Future Offerings.
g. Listing. The Company shall promptly secure the listing of
-------
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities
from time to time issuable under the terms of the Transaction Documents and the
Certificate of Designations. The Company shall maintain the Common Stock's
authorization for quotation on the Nasdaq National Market, The Nasdaq SmallCap
Market, The New York Stock Exchange, Inc. or The American Stock Exchange, Inc.
(collectively, the "Principal Market"). The Company shall promptly, and in no
event later than 10 business days, provide to each Buyer copies of any notices
it receives from the Principal Market regarding the continued eligibility of
the Common Stock for listing on such automated quotation system or securities
exchange. The Company shall pay all fees and expenses incurred by the Company
in connection with satisfying its obligations under this Section 4(h).
h. Expenses. Upon submission of appropriate receipts, subject
--------
to Section 9(l) below, at the Closing, the Company shall reimburse the Buyers
for the Buyers' expenses (including reasonable attorneys' fees and expenses) in
due diligence and negotiating and preparing the Transaction Documents and
consummating the transactions contemplated thereby (including the review of any
provision of information for the Registration Statement) up to an aggregate of
$35,000.
i. Filing of Form 8-K. On or before May 17, 1999, the Company
------------------
shall file a Form 8-K with the SEC describing the terms of the transactions
contemplated by the Transaction Documents in the form required by the 1934 Act
or, at the Company's option, a Form 10-Q containing the information that would
otherwise be disclosed in such Form 8-K.
j. Right to Exchange Preferred Shares. Subject to the
----------------------------------
exceptions described below, so long as any Preferred Shares remain outstanding,
if the Company issues or agrees to
13
<PAGE>
issue any equity securities or any instrument convertible into or exercisable
or exchangeable for equity securities of the Company (other than pursuant to a
firm commitment, underwritten public offering) ("New Equity Securities"), the
Company shall provide written notice thereof via facsimile and overnight
courier to each holder of Preferred Shares ("New Financing Notice") at least
ten (10) days prior to the date that the Company enters into any agreement with
respect to any New Equity Securities or issues any New Equity Securities.
Within one business day after each issuance of New Equity Securities, the
Company shall make an irrevocable exchange offer to each holder of Preferred
Shares on such terms and conditions as each such holder shall reasonably
require to exchange any or all of such holder's Preferred Shares for a like
amount (based on the following formula to value each Preferred Share: the
Stated Value plus any accrued and unpaid dividends) of the New Equity
Securities. Each such exchange offer shall remain open until the earlier of
(i) the date which is 15 business days after the receipt by each holder of
Preferred Shares of the New Financing Notice or (ii) such time as all of the
holders of Preferred Shares accept or reject, in writing, such exchange offer
(the "Exchange Offer Notice Period"). Notwithstanding the foregoing, a holder
of Preferred Shares shall not be entitled pursuant to this Section 4(j) to
exchange such Preferred Shares for securities issued by the Company as part of
(i) a loan from a commercial bank which does not have any equity feature, (ii)
any transaction involving the Company's issuances of securities (A) as
consideration in a merger or consolidation, (B) in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), (C) as consideration for the acquisition of a business,
product, license or other assets by the Company, or (D) equipment lease
financing, (iii) the issuance of Common Stock in a firm commitment,
underwritten public offering, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, (v) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan or stock purchase plan for the benefit of
the Company's employees, officers, directors or consultants for services
provided to the Company.
k. Restrictions on Sales. Each Buyer severally agrees during
---------------------
the 20 trading days immediately preceding the One-Year Adjustment Date (as
defined in the Certificate of Designations), such Buyer will not sell any
shares of Common Stock at a price below the Conversion Price (as defined in the
Certificate of Designations ) then in effect.
l. Compliance with Section 9 of Securities Exchange Act. So
----------------------------------------------------
long as a Buyer holds any Preferred Shares, such Buyer will comply at all times
with the provisions of Section 9 of the 1934 Act, and the rules promulgated
thereunder, with respect to transactions involving the securities of the
Company.
14
<PAGE>
5. TRANSFER AGENT INSTRUCTIONS.
---------------------------
The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of each Buyer or its respective nominee(s), for the Conversion Shares
and the Warrant Shares in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Preferred Shares or exercise of the
Warrants (the "Irrevocable Transfer Agent Instructions"). All certificates
representing the Conversion Shares and Warrant Share shall bear the
restrictive legend specified in Section 2(g) until such legend is permitted to
be removed pursuant to the last paragraph of Section 2(g). The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
the Warrant Shares, prior to registration of the Conversion Shares and the
Warrant Shares under the 1933 Act) 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 this
Agreement and the Registration Rights Agreement. Nothing in this Section 5
shall affect in any way each Buyer's obligations and agreements set forth in
Section 4(d) to comply with all applicable prospectus delivery requirements, if
any, upon resale of the Securities. If a Buyer provides the Company with an
opinion of counsel, in a form reasonably acceptable to the Company, to the
effect that a public sale, assignment or transfer of the Securities may be made
without registration under the 1933 Act or the Buyer provides the Company with
assurances reasonably acceptable to the Company that 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, the Company
shall permit the transfer, and, in the case of the Conversion Shares and the
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
and without any restrictive legend. 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 5 will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of this
Section 5, that the Buyers shall be entitled, in addition to all other
available remedies, to an order and/or 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.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
----------------------------------------------
<PAGE>
The obligation of the Company hereunder to issue and sell the
Preferred Shares to each Buyer at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion by providing each Buyer with
prior written notice thereof:
a. Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
b. The Certificate of Designations shall have been filed with the
Secretary of State of the State of Delaware.
c. Such Buyer shall have delivered to the Company the Purchase
Price for the Preferred Shares and the related Warrants being purchased by such
Buyer at the Closing by wire transfer of immediately available funds pursuant
to the wire instructions provided by the Company.
d. The representations and warranties of such Buyer 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 2 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 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 the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
-------------------------------------------------
The obligation of each Buyer hereunder to purchase the Preferred
Shares at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for each Buyer's sole benefit and may be waived by such Buyer at any time in
its sole discretion by providing the Company with prior written notice thereof:
a. The Company shall have executed each of the Transaction
Documents and delivered the same to such Buyer.
b. The Certificate of Designations, shall have been filed with
the Secretary of State of the State of Delaware, and a copy thereof certified
by such Secretary of State shall have been delivered to such Buyer.
c. The Common Stock shall be authorized for quotation on the
Principal Market, trading in the Common Stock shall not have been suspended by
the SEC or the Principal
16
<PAGE>
Market and the Conversion Shares and the Warrant Shares shall be listed upon
the Principal Market.
d. The representations and warranties of the Company shall be
true and correct in all material respects (except to the extent that any of
such representations and warranties is already qualified as to materiality in
Section 3 above, in which case, such representations and warranties shall be
true and correct without further qualification) as of the date when made and as
of the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents 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 of the Company,
dated as of the Closing Date, to the foregoing effect and an update as of the
Closing Date regarding the representation contained in Section 3(c) above.
e. Such Buyer shall have received the opinion of the Company's
counsel dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to such Buyer and in substantially the form of Exhibit C attached
hereto.
f. The Company shall have executed and delivered to such Buyer
the Warrants and the Preferred Stock Certificates (in such denominations as
such Buyer shall request) for the Preferred Shares being purchased by such
Buyer at the Closing.
g. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii).
h. The Irrevocable Transfer Agent Instructions, in the form of
Exhibit D attached hereto, shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
i. The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company in Delaware and
the qualification and good standing of the Company in California issued by the
Secretary of State of each such state as of a date within 10 days of the
Closing Date.
j. The Company shall have delivered to such Buyer a certified
copy of the Articles of Incorporation as certified by the Secretary of State of
the State of Delaware within 10 days of the Closing Date.
k. The Company shall have delivered to such Buyer a secretary's
certificate, dated as the Closing Date, as to (i) the resolutions described in
Section 7(g), (ii) the Certificate of Incorporation and (iii) the Bylaws, each
as in effect at the Closing.
17
<PAGE>
l. The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five days of the Closing Date.
m. The Company shall have made all filings under all applicable
federal and state securities laws necessary to consummate the issuance of the
Securities pursuant to this Agreement in compliance with such laws, except such
filings as are not required to be made on or prior to the Closing Date.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
---------------
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Designations, the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of the
Securities and all of their stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses
in connection therewith (irrespective of whether any such Indemnitee is a party
to the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee 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 Transaction Documents or any other certificate, instrument
or document contemplated hereby or thereby or (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents
or the Certificate of Designations or any other certificate, instrument or
document contemplated hereby or thereby. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
----------------------------
a. Governing Law; Jurisdiction; Jury Trial. All questions
---------------------------------------
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of California,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of California or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of
California. Each party hereby irrevocably waives any right it may have, and
agrees not to request, a jury trial for the adjudication of any dispute
hereunder or in connection with or arising out of this agreement or any
transaction contemplated hereby.
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
18
<PAGE>
effective when counterparts have been signed by each party and delivered to the
other party; provided that a facsimile signature shall be considered due
execution and shall be binding upon the signatory thereto with the same force
and effect as if the signature were an original, not a facsimile signature.
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 instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding, and no provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought.
No such amendment shall be effective to the extent that it applies to less than
all of the holders of the Preferred Shares then outstanding. No consideration
shall be offered or paid to any person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents or the
Certificate of Designations unless the same consideration also is offered to
all of the parties to the Transaction Documents or holders of Preferred Shares,
as the case may be.
f. Notices. Any notices, consents, waivers or other
-------
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
business 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:
eFax.com, Inc.
1378 Willow Road
Menlo Park, California 94025
Telephone: 650-688-6810
19
<PAGE>
Facsimile: 650-470-6969
Attention: Todd J. Kenck, Chief Financial Officer
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Telephone: 650-843-5000
Facsimile: 650-857-0663
Attention: Patrick A. Pohlen, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, New York 11219
Telephone: 718-921-8293
Facsimile: 718-921-8334
Attention: Isaac Kagen
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or at such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness
of such change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
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 Preferred Shares. The Company shall
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of the holders of at least two-thirds (2/3) of the
Preferred Shares then outstanding, including by merger or consolidation, except
pursuant to a Major Transaction (as defined in Section 3(c) of the Certificate
of Designations) with respect to which the Company is in compliance with
Section 3 of the Certificate of Designations. A Buyer may assign some or all
of its rights hereunder to (i) a Permitted Transferee (as defined below)
without the consent of the Company and (ii) to a person which is not a
Permitted Transferee with the prior consent of the Company, which consent shall
not be unreasonably withheld. Notwithstanding anything to the contrary
contained in the Transaction Documents, the Buyers shall be entitled to pledge
the Securities in connection with a bona fide margin account or other loan
secured by such Securities. For purposes of this Section 9(i), a "Permitted
Transferee" shall mean (i) a Buyer, (ii) an Affiliate (as that term is defined
in Rule 501(b) under the 1933 act) of a Buyer, (iii) any holder of Preferred
Shares or Warrants and (iv) any Affiliate of a holder of Preferred Shares or
Warrants.
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. Unless this Agreement is terminated under Section
--------
9(l), the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8,
shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right
---------
to approve before issuance any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of any Buyer, to make
any press release or other public disclosure with respect to such transactions
as is required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform, or
------------------
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have
-----------
occurred with respect to a Buyer on or before five (5) business days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching
party at the close of business on such date without liability of any party to
any other party; provided, however, that if this Agreement is terminated by the
Buyers pursuant to this Section 9(l), the Company shall remain obligated to
reimburse the nonbreaching Buyers for the expenses described in Section 4(i)
above.
m. Placement Agent. The Company acknowledges that it has
---------------
engaged Reedland Capital Partners as placement agent in connection with the
sale of the Preferred Shares
21
<PAGE>
and the related Warrants, which placement agent may have formally or informally
engaged other agents on its behalf. The Company shall be responsible for the
payment of any placement agent's fees or broker's commissions (other than those
of placement agents or brokers engaged by a Buyer) relating to or arising out
of the transactions contemplated hereby. The Company shall pay, and hold each
Buyer harmless against, any liability, loss or expense (including, without
limitation, attorneys' fees and out of pocket expenses) arising in connection
with any such claim. Each Buyer, severally and not jointly, represents that it
has not engaged any placement agent or broker for the sale by the Company of
the Preferred Shares and Warrants to such Buyer.
n. No Strict Construction. The language used in this Agreement
----------------------
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of the Securities shall
--------
have all rights and remedies set forth in the Transaction Documents and the
Certificate of Designations and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
-----------------
payment or payments to the Buyers hereunder or pursuant to the Certificate of
Designations or Warrants or the Buyers enforce or exercise their rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
* * * * * *
22
<PAGE>
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:
------- ------
EFAX.COM, INC. FISHER CAPITAL LTD.
By: /s/ EDWARD R. PRINCE III By: /s/ DANIEL J. HOPKINS
------------------------------ --------------------------
Name: Edward R. Prince III Name: Daniel J. Hopkins
----------------------------
Its: CEO and Chairman Its: Authorized Signatory
----------------------------
WINGATE CAPITAL LTD.
By: /s/ DANIEL J. HOPKINS
-----------------------
Name: Daniel J. Hopkins
Its: Authorized Signatory
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Investor's Name Investor Address Number of Investor's Legal
and Facsimile Number Preferred Representatives'
Shares/ Address and
Warrant Facsimile Number
Shares
- ----------------------- -------------------------------- ----------- -------------------------
<S> <C> <C> <C>
Fisher Capital Ltd. Citadel Investment Group, L.L.C. 975/195,000 Katten Muchin & Zavis
225 West Washington Street 525 W. Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Daniel Hopkins Attention: Robert J.
Facsimile: (312) 338-0780 Brantman, Esq.
Telephone: (312) 338-7800 Facsimile: (312) 902-1061
Residence: Illinois Telephone: (312) 902-5200
Wingate Capital Ltd. Citadel Investment Group, L.L.C. 525/105,000 Katten Muchin & Zavis
225 West Washington Street 525 W. Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Daniel Hopkins Attention: Robert
Facsimile: (312) 338-0780 J. Brantman, Esq.
Telephone: (312) 338-7800 Facsimile: (312) 902-1061
Residence: Illinois Telephone: (312) 902-5200
</TABLE>
<PAGE>
<TABLE>
SCHEDULES
---------
<S> <C>
Schedule 3(a) Subsidiaries
Schedule 3(c) Capitalization
Schedule 3(e) Conflicts
Schedule 3(f) SEC Documents
Schedule 3(g) Material Changes
Schedule 3(h) Litigation
Schedule 3(k) Integrated Offerings
Schedule 3(o) Transactions with Affiliates
Schedule 4(d) Use of Proceeds
</TABLE>
<TABLE>
EXHIBITS
--------
<S> <C>
Exhibit A Form of Certificate of Designations, Preferences and Rights of
the Preferred Shares
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Company Counsel Opinion
Exhibit D Form of Irrevocable Transfer Agent Instructions
Exhibit E Form of Warrant
</TABLE>
<TABLE> <S> <C>
<S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS <F1>
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,932
<SECURITIES> 1,058
<RECEIVABLES> 4,905 <F2>
<ALLOWANCES> 0
<INVENTORY> 4,008
<CURRENT-ASSETS> 13,103
<PP&E> 1,531 <F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,259
<CURRENT-LIABILITIES> 3,300
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 12,810
<TOTAL-LIABILITY-AND-EQUITY> 12,934
<SALES> 6,196
<TOTAL-REVENUES> 7,770
<CGS> 4,304
<TOTAL-COSTS> 4,542
<OTHER-EXPENSES> 1,655 <F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,277)
<INCOME-TAX> 15
<INCOME-CONTINUING> (1,292)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,292)
<EPS-PRIMARY> (0.11)<F4>
<EPS-DILUTED> (0.11)
<FN>
<F1> The 13-week period from January 3, 1999 to April 3, 1999 is referred to
herein as the three months ended March 31, 1999. Year-to-date data is
for quarters presented.
<F2> Item shown net of allowance, consistent with the balance sheet
presentation.
<F3> Item consists of research and development.
<F4> Item consists of basic earnings per share.
</FN>
<PAGE>
</TABLE>
EXHIBIT 99.1
CONTACTS:
- --------
eFax.com
Janice V. Kapner
650.688.6841
Neale-May & Partners650.328-5555
Jane D'Arcy x 116
Amy Beth Arnold x 113
FOR IMMEDIATE RELEASE
- ---------------------
EFAX.COM TO RAISE $15.0 MILLION IN PRIVATE EQUITY FINANCING
MENLO PARK, CA (May 10, 1999) - eFax.com, Inc. (NASDAQ: EFAX), the leader in
free, fax-to-email Internet services, announced today that it has signed a
purchase agreement for the private placement of $15 million of Series A
Convertible Preferred Stock. Shares of the Series A Convertible Preferred Stock
will be convertible into Common Stock based upon the five-day average stock
price prior to closing. The Series A Convertible Preferred Stock includes an
8% dividend payable in cash or common stock at the option of eFax.com.
"We have entered into this agreement to secure additional funds to fuel our
next phase of growth. These funds will enhance our ability to face any future
competitive challenges head-on and potentially to acquire new technologies for
our services as needed," said Todd Kenck, eFax.com's CFO. "In addition to
increasing our general working capital, the additional funds will be utilized
for continued marketing and business development programs to build our eFax
subscriber base and to support the launches associated with future revenue-
generating products, services and other opportunities."
Last February, eFax.com announced a strategic shift to the Internet, with
services aimed at bridging the paper world of fax with the electronic messaging
capability of the Internet. The company's flagship product, available at
www.eFax.com, is a free fax-to-email service that provides an easy way for
users to get fax documents into their email accounts. With more than 500,000
subscribers signed up in the first three months, this service has set a new
standard in fax communications by making fax accessible, anywhere at anytime.
The transaction involves a Convertible Preferred Series of stock that converts
to common stock at the market price upon the closing of the deal. The
conversion price is subject to an adjustment after one year to the greater of
the then current market price of the Common Stock or 60% of the initial
conversion price. The agreement also includes 300,000 warrants exercisable at
a 10% premium to the Series A Convertible Preferred Stock conversion price.
Kenck added: "We are very excited about this financing for several reasons
including its effect to bolster our current balance sheet, the potential for
eFax.com to receive significantly more cash when the warrants are exercised, a
conversion feature at our option based on stock performance and, finally, the
flexibility to redeem this issue under certain circumstances."
1
<PAGE>
The closing of this placement is expected to occur on May 12, 1999, subject to
the satisfaction of closing conditions customary for transactions of this type.
Funds managed by Citadel Investment Group, L.L.C. are the sole investors in
this transaction. eFax.com was advised by Reedland Capital Partners. eFax.com
has agreed to file a registration statement for the resale of the shares of
Common Stock acquired on conversion of the Convertible Preferred Stock within
15 days after the closing date. The summary of the terms and conditions of the
Convertible Preferred Stock and Warrants included in this press release is not
intended to be a complete summary of the terms and conditions of such
securities. Copies of the Convertible Preferred Stock Purchase Agreement,
Warrants and related documents will be filed with the SEC after the closing
date.
About eFax.com
eFax.com, Inc. (formerly JetFax, Inc.) is a leading provider of Internet
document communication solutions. eFax.com has a range of products that allow
users, regardless of technical expertise, to manage and distribute paper and
digital documents easily. The company's flagship products are HotSendTM, free
software to read any email attachment, and eFax.com, a free fax-to-email
consumer service. The company also sells software and hardware products, and is
headquartered in Menlo Park, Calif. For more information, call 877/EFAXCOM
650/324-0600, fax 650/326-6003, or visit www.eFax.com.
# # #
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: With the exception of historical information, the statements set forth
above include forward-looking statements that involve risk and uncertainties.
The Company wishes to caution readers that a number of important factors could
cause actual results to differ materially from those in the forward-looking
statements. Those factors include the following: the uncertain performance,
user adoption, and financial results from products integrating fax technology
with the Internet; protection of the Company's intellectual property rights and
risk of infringement claims against the Company's intellectual property; the
size and timing of and fluctuations in end user demand for the Company's
branded products and OEM products incorporating the Company's technology; the
fact that the Company's markets are characterized by rapidly changing
technology, evolving industry standards and frequent introductions of new
products and enhancements, and the Company's ability to respond to such
changes; difficulties which the Company may experience in completing the
development of turnkey designs for OEM customers, its color technology or other
products; the highly competitive nature of the markets for the Company's
products; the phase-out or early termination of the Company's branded products
or OEM products incorporating the Company's technology; the Company's ability
to attract and retain skilled personnel; the Company's reliance on third party
suppliers for components used in the Company's products; the quarterly
variability in the Company's bookings and design wins; and the Company's
reliance on a relatively small number of OEM customers for a large percentage
of its revenue. These and other factors which could cause actual results to
differ materially from those in the forward-looking statements are also
discussed in the Company's filings with the Securities and Exchange Commission,
including its recent filings on Form S-3, Form 10-K, and Form 10-Q.
(C) 1999 eFax.com, Inc. All rights reserved.
2
<PAGE>
