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EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES D CONVERTIBLE PREFERRED STOCK
OF
EFAX.COM
eFax.com (formerly known as 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 Four Hundred Forty-Seven (1,447) shares of Series D
Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 1,447 shares of
Series D 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. The Preferred Shares shall not bear any dividends.
(2) 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.
(a) Certain Defined Terms. For purposes of this Certificate
of Designations, the following terms shall have the following meanings:
(i) "ACCRETION RATE" means, with respect to any
Preferred Share, 8.0%.
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(ii) "ADDITIONAL AMOUNT" means, on a per share basis,
the result of the following formula: (the Accretion Rate)(N/365)(the Stated
Value minus $2,500).
(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) "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 begins to operate on an extended hours basis and does
not designate the closing bid price, then the last bid price of such security
prior to 4:00:00 p.m., Eastern Time, as reported by 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.
(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 begins to operate on an
extended hours basis and does not designate the closing trade price, then the
last trade price of such security prior to 4:00:00 p.m., Eastern Time, 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 holders
of Preferred Shares. If the Company and
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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.
(vi) "CONVERSION AMOUNT" means the sum of (A) the
Additional Amount and (B) the Stated Value.
(vii) "CONVERSION PRICE" means (A) in all cases other
than pursuant to or in connection with Section 4(p) of the Exchange Agreement,
Sections 4(a) and 4(b) of the Side Agreement (as defined in the Exchange
Agreement), Section 6 of this Certificate of Designations and all provisions of
the Draft Merger Agreement and Definitive Merger Agreement (each as defined in
the Exchange Agreement) (each a "MERGER PURPOSE"), (I) as of any Conversion Date
(as defined in Section 2(d)) or other date of determination prior to May 13,
2002, $0.7833, subject to adjustment as provided herein, and (B) on and after
May 13, 2002, the Market Price as of such date, each in effect as of such date
and subject to adjustment as provided herein, and (B) in all cases pursuant to
or in connection with a Merger Purpose, that price which results in the
Conversion Rate (as defined in Section 2(c)) being equal to a number of shares
of Common Stock which, in connection with the JFAX.COM Merger (as defined in
Section 6), would be converted (without regard to any limitations on conversions
of Preferred Shares or on issuances of Common Stock or JFAX.COM Common Stock)
into a number of shares of JFAX.COM Common Stock (as defined in the Exchange
Agreement) equal to the sum of (x) 4,922.75, plus (y) the product of (i)
4,922.75, multiplied by (ii) 0.035, multiplied by (iii) the quotient of (I) Z
(as defined in Section 2(a)(xix)), divided by (II) 365, (subject to adjustment
for stock splits, stock dividends, stock combinations and other similar
transactions in the Common Stock or the JFAX.COM Common Stock (as defined in the
Exchange Agreement)).
(viii) "EXCHANGE AGREEMENT" means that certain exchange
agreement, dated July 13, 2000, between the Company and the initial holders of
the Preferred Shares.
(ix) "ISSUANCE DATE" means, with respect to each
Preferred Share, the date of issuance of the applicable Preferred Share.
(x) "JFAX.COM" means JFAX.COM, Inc., a Delaware
corporation.
(xi) "JFAX.COM MERGER SUB" means JFAX.COM Merger Sub,
Inc., a Delaware corporation and a wholly-owned subsidiary of JFAX.COM.
(xii) "MATURITY DATE" means May 13, 2002, subject to
extension as provided in Section 2(d)(vii).
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(xiii) "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.
(xiv) "N" means the number of days from, but excluding,
the Issuance Date 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.
(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) "SERIES A WARRANTS" means the warrants to
acquire Common Stock issued by the Company pursuant to the securities purchase
agreement, dated May 7, 1999, between the Company and the buyers named therein
in the Schedule of Buyers.
(xviii) "STATED VALUE" means the Conversion Amount (as
defined in the Series B Certificate of Designations (as defined in the Exchange
Agreement)) of the Series B Preferred Share (as defined in the Exchange
Agreement), which was exchanged for the Preferred Share pursuant to the Exchange
Agreement, immediately prior to such exchange on the Issuance Date of such
Preferred Share.
(xix) "Z" means the number of days from, but excluding,
July 12, 2000 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.
(b) Holder's Conversion Right. Subject to the provisions of
Section 5, at any time or times on or after the Issuance Date, any
holder of Preferred Shares shall be entitled to convert any whole or
fractional 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.
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(c) 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
(d) 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) 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.
(iii) 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
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(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 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.
(iv) 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.
(v) Company's Failure to Timely Convert.
(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
Exchange 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.
(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
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obligations to make any payments which have accrued prior to the date of such
notice pursuant to Section 2(d)(v)(A) or otherwise.
(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").
(vi) 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.
(vii) 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
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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 May 13, 2002 to
convert and 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.
(viii) 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 on the face thereof. Each certificate for
Preferred Shares shall bear the following legend:
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.
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(e) 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.
(f) Adjustments to Conversion Price -- Dilution and Other
Events. The Conversion Price will be subject to adjustment from time to
time as provided in this Section 2(f).
(i) Adjustment of 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(f) 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
Series A 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
Conversion Price then in effect shall be reduced to an amount equal to the
product of (x) the Conversion Price in effect immediately prior to such
issuance, 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(f)(i), no
adjustment to the Conversion Price shall be required to be made pursuant to this
Section 2(f)(i) unless such adjustment would result in a decrease in the
Conversion Price of at least $0.025; 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 Conversion Price, under this Section
2(f)(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(f)(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 Conversion Price
shall be made upon the actual issuance
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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(f)(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(f)(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 Conversion Price 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
Conversion Price, as applicable, had been or are to be made pursuant to other
provisions of this Section 2(f)(i), no further adjustment of the Conversion
Price shall be made by reason of such issue or sale. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 2(f)(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 Conversion Price 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(f)(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 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
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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(f)(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.
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(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 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 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
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(f) 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 as otherwise determined pursuant to this Section 2(f).
(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
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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(f)(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(f)(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.
(3) 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 (ii) of Section 3(b), the sum of (w)
100% of the Stated Value, plus (x) the Additional Amount for such
Preferred Share, and (II) in the case of a Triggering Event under
subparagraphs (iii), (iv), (v) or (vi), the greater of (i) the sum of
(y) 100% 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").
(b) "Triggering Event". A "TRIGGERING EVENT" shall be deemed
to have occurred at such time as any of the following events:
(i) prior to May 13, 2001, on any day there shall not
be available adequate current public information with respect to the Company as
determined in accordance with Rule 144(c) under the Securities Act of 1933, as
amended, or any successor rule thereto;
(ii) the suspension from trading or failure of the
Common Stock to be listed or designated for quotation on the Nasdaq National
Market, The Nasdaq SmallCap Market, The New York Stock Exchange, Inc. or The
American Stock Exchange, Inc. or to be
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included for reporting on the over-the-counter electronic bulletin board
(sponsored by the Nasdaq Stock Market, Inc.) for a period of 20 consecutive
Business Days or for more than an aggregate of 30 Business Days in any 365-day
period;
(iii) 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;
(iv) upon the Company's receipt of a Conversion Notice,
provided such Conversion Notice is delivered after the date of the Merger
Termination (as defined in Section 4(l) of the Exchange Agreement), the Company
shall not be obligated to issue shares of Common Stock upon such conversion due
to the provisions of Section 14;
(v) at any time within five (5) Business Days prior to
or after the closing of the merger of the Company and JFAX.COM Merger Sub, the
terms of the Definitive Merger Agreement (as defined in the Exchange Agreement)
provide that the aggregate number of shares of JFAX.COM Common Stock (as defined
in the Exchange Agreement) (including for purposes of this determination the
shares of JFAX.COM Common Stock to be issuable upon exercise of any
Consideration Warrant (as defined in Section 4(p) of the Exchange Agreement)) to
be received by holders of the Common Stock (excluding 2,000,000 shares of
JFAX.COM Common Stock to be received by Integrated Global Concepts, Inc.
pursuant to the terms of the Agreement of Understanding (as defined in the
Exchange Agreement)) and holders of the Preferred Shares exceeds 12,000,000
(subject to adjustment for stock splits, stock dividends, stock combinations and
other similar transactions in the Common Stock and the JFAX.COM Common Stock);
or
(vi) at any time within five (5) Business Days prior to
or after the closing of the merger of the Company and JFAX.COM Merger Sub, the
holders of the Common Stock receive, are entitled to receive or are proposed to
receive any consideration in exchange for such shares of Common Stock in
connection with the merger of the Company and JFAX.COM Merger Sub except for (A)
shares of JFAX.COM Common Stock, (B) cash in lieu of fractional shares of
JFAX.COM Common Stock and (C) in the event that the Common Stock is delisted
from the Nasdaq National Market, consideration pursuant to the exercise of
appraisal rights pursuant to and in accordance with Section 262 of the Delaware
General Corporation Law.
(c) 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
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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.
(d) 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 (in
the case of a Triggering Event described in clause (i), (ii), (iii) or
(iv) of Section 3(b)) or one (1) Business Day (in the case of a
Triggering Event described in clause (v) or (vi) of Section 3(b)) 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 Exchange 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.
(e) 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.
(f) 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
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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.
(4) 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 (other than pursuant to the JFAX.COM Merger (as defined in Section
6) provided that the Company has complied with the material provisions of this
Certificate of Designations and the Exchange Agreement, including without
limitations, Section 4(p) of the Exchange Agreement) 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).
(5) 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
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conversion such Person (together with such Person's affiliates) would have
acquired, through conversion of Preferred Shares or otherwise, beneficial
ownership of a number of shares of Common Stock during the 60-day period ending
on and including such Conversion Date (the "60 DAY PERIOD"), that, when added to
the number of shares of Common Stock beneficially owned by such Person (together
with such Person's affiliates) at the beginning of the 60 Day Period, exceeds
10.00% of the number of shares of Common Stock outstanding immediately after
giving effect to such conversion. For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by a Person and its
affiliates 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, 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 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.
(6) Conversion at the Company's Election. Subject to Section 5 and
Section 14, at any time prior to December 31, 2000, the Company shall have the
right, in its sole discretion, to require that any or all of such outstanding
Preferred Shares be converted into shares of Common Stock ("CONVERSION AT
COMPANY'S ELECTION") at the Conversion Rate concurrent with the consummation of
a merger of the Company with JFAX.COM Merger Sub on substantially the same terms
set forth in the Draft Merger Agreement (as defined in Section 4(i) of the
Exchange Agreement) (including, without limitation, on terms no less favorable
to the Investors than the terms set forth in Exhibit B to the Draft Merger
Agreement) (the "JFAX.COM MERGER"); 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 date which is at least
three (3) Business Days, but not more than five (5) Business Days prior to the
closing date of the JFAX.COM Merger ("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 on the same date as the closing of the JFAX.COM Merger
at least three (3) Business Days, but not more than five (5) Business Days
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after the receipt by each holder of Preferred Shares of the Notice of Conversion
at Company's Election, and (z) each holder's pro rata share of outstanding
Preferred Shares. All Preferred Shares selected for conversion in accordance
with the provisions of this Section 6 shall be converted concurrent with the
closing of the JFAX.COM Merger on 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
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: 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 Exchange Agreement, the
Series A Warrants and the Side Agreement, dated as of July 13, 2000, by and
among the Company, JFAX.COM, Fisher Capital Ltd. and Wingate Capital Ltd.
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.
(7) 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.
(8) Reservation of Shares; Authorized Shares.
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(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, however, that prior to the date of the Merger Termination (as
defined in Section 4(l) of the Exchange Agreement), the Company shall
not be required to reserve in excess of 12,000,000 shares of Common
Stock (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions) (less any shares of Common
Stock issued upon conversion of Preferred Shares after the Issuance
Date) to provide for the issuance of shares of Common Stock upon
conversion of the Preferred Shares (collectively, 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.
(b) 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.
(9) 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.
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(10) 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.
(11) 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.
(12) 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
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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.
(13) 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 10) of such Preferred
Shares.
(14) 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 Exchange 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 Exchange Agreement and
the denominator of which is the aggregate amount of all the Preferred Shares
issued to the Purchasers pursuant to the Exchange 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
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holders of Preferred Shares on a pro rata basis in proportion to the number of
Preferred Shares then held by each such holder.
(15) 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.
(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) 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.
(18) 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.
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(19) 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.
(20) Restriction on Transfer of Preferred Shares. In addition to an
restrictions on transfer in the Exchange 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 20, 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 20, a "PERMITTED TRANSFEREE"
shall mean (i) an Investor (as defined in the Exchange Agreement), (ii) an
Affiliate (as that term is defined in Rule 501(b) under the 1933 act) of an
Investor, (iii) any holder of Preferred Shares or Series A Warrants and (iv) any
Affiliate of a holder of Preferred Shares or Series A Warrants.
* * * * * * *
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IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Todd J. Kenck, its Chief Financial Officer, as of
the 13th day of July, 2000.
EFAX.COM
By: /s/ TODD J. KENCK
------------------------------------
Name: Todd J. Kenck
Its: Chief Financial Officer
25
EXHIBIT I
EFAX.COM
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Series D 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 D Convertible Preferred
Stock, par value $.01 per share (the "PREFERRED SHARES"), of eFax.com (formerly
known as 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 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]