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EXHIBIT 2.1
April 5, 2000
xXXX.xxx
0000 Xxxxxx Xxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Re: Letter of Intent
Ladies and Gentlemen:
This letter sets forth the terms of the proposed two-step transaction (the
"Transactions") pursuant to which xXXX.xxx, Inc. ("eFAX") will borrow $5 million
from XXXX.XXX, Inc. ("XXXX.XXX") (the "Loan"), following which eFAX will be
merged into XXXX.XXX or with a subsidiary of XXXX.XXX (the "Merger") in exchange
for shares of XXXX.XXX common stock in the amount described below. Such shares
will be distributed to the existing equityholders of eFAX. This letter
supersedes the terms of any other agreement that purports to forth the terms of
a proposed stock or asset purchase transaction between the parties.
The basic terms upon which the Transactions will be consummated are as follows:
1. Loan. XXXX.XXX will lend eFAX $5 million. The terms of the Loan are as
follows:
(a) Maturity date: The later of (i) August 31, 2000 and (ii) the
date which is sixty (60) days following the date, if any, upon
which XXXX.XXX terminates the Merger discussions (other than
following a material breach by xXXX hereunder) prior to the
execution of the Definitive Merger Agreement (defined below) or
upon which the Definitive Merger Agreement is terminated as a
result of a failure to obtain approval of the XXXX.XXX
shareholders or as a result of a material breach by XXXX.XXX
thereunder.
(b) Interest: 13% per annum.
(c) Warrants: 250,000 warrants to purchase eFAX common stock at an
exercise price equal to the market price for eFAX common stock
on the date of grant; provided, however, that the exercise price
will be automatically re-set to $1.00 per share in the event
that either party terminates the Merger discussions for any
reason prior to the execution of the Definitive Merger Agreement
or in the event the Definitive Merger Agreement is terminated
for any reason. The warrants will have a two-year term and will
contain standard anti-dilution protections and will be granted
upon delivery of the Loan commitment (and will be further
documented in a definitive warrant agreement executed and
delivered no later than the first funding under the Loan).
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(d) Security: All of the assets of eFAX (except for non-material
assets in which a security interest cannot be legally created).
(e) Funding: The Loan will be funded in 3 equal installments on or
about April 13, on May 10 and on June 10, 2000; provided that
eFAX may opt to not draw down any installment of the Loan or
eFax may require that any installment of the Loan be drawn down
at a later date within the term of the Loan upon providing prior
written notice to XXXX.XXX.
(f) Covenants: The Loan documents will include standard
representations and warranties and loan covenants, including
covenants that, until the Loan is paid off in full, without the
prior written consent of Lender, (i) eFAX will not exceed a cash
burn rate (excluding any cash expenditures for Excluded
Professional Fees and Severance Payments (as hereinafter
defined) and without any credit being given for cash received
from asset sales) of greater than $1.25 million per month,
calculated on a two-month rolling average basis, (ii) eFAX
will not dispose of any of its assets other than a basket of
"non-core" assets which will not exceed $100,000 in aggregate
value (absent the approval of XXXX.XXX, such approval not to be
unreasonably withheld), all the proceeds of which shall be
deposited in a segregated account (the "Asset Sales Account")
and shall not be used to fund eFAX operating expenses and (iii)
eFAX will deposit into the Asset Sales Account any proceeds
received by eFAX upon exercise of eFAX options or warrants.
As used herein, "Excluded Professional Fees and Severance
Payments" shall mean eFAX's cash expenditures for professional
fees and severance, which expenditures shall not exceed
$1,000,000 absent the approval of XXXX.XXX (such approval not to
be unreasonably withheld).
(g) Conditions to close:
(i) Reasonably satisfactory lien search completed;
(ii) Delivery of opinion of counsel for xXXX (relating to due
incorporation, qualification, authorization, execution,
and delivery; enforceability; no conflicts of any
material eFAX agreement as determined by xXXX's
management as evidenced by an officer's certificate; no
required consents; usury; and creation of security
interest, in each case subject to standard
qualifications); and
(iii) Delivery of loan and security documents.
The Loan will NOT be conditioned on the execution of the
Definitive Merger Agreement or the closing of the Merger.
(h) Commitment letter: A signed commitment letter (the "Commitment
Letter") in respect of the Loan is being executed and delivered
by JFAX to eFAX concurrently with the execution of this letter.
Upon such execution and
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delivery, the Commitment Letter shall supercede in all respects
the provisions of this paragraph 1.
2. Merger. The consideration for the Merger Transaction will be a number of
shares of XXXX.XXX common stock determined pursuant to the formula set
forth in (a) below, and otherwise subject to the following conditions:
(a) Consideration: The eFAX shareholders will receive a number of
shares of common stock of XXXX.XXX ("XXXX.XXX Shares")
determined by the following formula:
E = ((CS x FMV(E)) + P - LA + M)
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FMV(J)
Where:
E = number of XXXX.XXX Shares issuable to eFAX
CS = 13,184,072, the number of outstanding common shares
of eFAX, as of the date hereof, plus shares, if any,
issued upon exercise of eFAX options or warrants during
the period between the date hereof and the closing of
the Merger.
FMV(E) = $6.50, the deemed value for eFAX common stock
P = $16.2 million, the dollar value (principal and
accrued dividends only) of the outstanding eFAX Series A
Preferred Stock
LA = the amount disbursed under the Loan as of the
closing date of the Merger
FMV(J) = $5.50, the deemed value for XXXX.XXX common
stock
M = the cash on hand at eFAX as of the closing date of
the Merger (but in no event will M exceed LA and in no
event will M include any cash deposited or required to
be deposited in the Asset Sales Account)
(b) Adjustment: FMV(J) (the assumed value for XXXX.XXX common stock)
will be subject to adjustment in the event that, on or prior to
April 30, 2000, XXXX.XXX announces a corporate transaction (the
"Announcement") involving the issuance of XXXX.XXX common stock
having a fair market value, or the payment of other
consideration to XXXX.XXX, in excess of $25 million. In such
event (and only upon the first such event), FMV(J) will be
re-determined as follows:
FMV(J) = $5.50 + D
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Where:
D = the excess (if any) of (i) the 5-trading-day average
of the closing price for XXXX.XXX common stock
immediately following the Announcement, over (ii) the
5-trading-day trailing average of the closing price for
XXXX.XXX common stock as of the Announcement; provided
that D will be no more than $2.75 in the event that the
Announcement occurs within 5 days of the announcement of
the Transactions.
(c) Conditions. The Merger will be subject to the satisfaction of
the following conditions:
(1) The negotiation and execution of a definitive merger
agreement (the "Definitive Merger Agreement") embodying
the terms of the transaction set forth herein and other
standard representations, warranties, and covenants,
including a covenant on the part of eFAX's officers and
directors to vote all of their outstanding shares of
common stock and all shares for which they hold an
affirmative proxy in favor of the Merger, as well as a
covenant on the part of eFAX to convert its outstanding
preferred stock to common stock prior to consummation of
the Merger.
(2) Satisfactory completion, prior to the execution of the
Definitive Merger Agreement, by each party and its
advisors, of all legal, business and accounting due
diligence investigations, including without limitation,
their investigation of the business and financial
records of the other party.
(3) XXXX.XXX's board shall have received an appropriate
fairness opinion from a reputable investment bank.
(4) Execution of definitive Loan documents.
(5) Agreement by the holders of eFAX's Series A Preferred
Stock to convert their preferred shares into a fixed
number of shares of eFAX's common stock on or prior to
the Merger.
(6) Agreement by the holders of eFAX's Series A Preferred
Stock to a lock-up of the shares of eFAX common stock,
and the shares of XXXX.XXX common stock to be issued to
them upon consummation of the Merger, which lock-up will
include a prohibition against engaging in shorting or
hedging strategies both prior to and following the
consummation of the Merger. Between the date of
execution of the Definitive Merger Agreement and the
consummation of the Merger, the lock-up will permit the
net disposition of no more than
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400,000 shares of eFAX common stock per calendar month
(with partial months pro-rated) (subject to adjustment
for stock-splits, stock dividends, stock combinations,
and similar circumstances) and, from and after
consummation of the Merger, the lock-up will permit, on
a monthly basis, the disposition of 10% of the total
number of shares of JFAX common stock received by the
holders of eFAX's Series A Preferred Stock upon
consummation of the Merger.
(d) Definitive Merger Agreement: The Definitive Merger Agreement
will be subject to standard conditions to closing, including
without limitation the following:
(1) XXXX.XXX's and xXXX's respective shareholders shall have
approved the Merger.
(2) The parties shall have filed, and all applicable waiting
period shall have expired on, the required notices under
the Xxxx-Xxxxx-Xxxxxx Act.
(3) The parties shall have obtained all other required
governmental consents including the filing and
effectiveness of registration statement on Form S-4 and
listing on NASDAQ for the shares of XXXX.XXX common
stock issued upon consummation of the Merger.
(e) Board Seat: The Definitive Merger Agreement will include an
undertaking by XXXX.XXX to nominate (for a period of three
years) a person designated by eFAX to serve on the XXXX.XXX
board of directors.
(f) Options and Warrants: The Definitive Merger Agreement will
provide that XXXX.XXX will assume all of eFAX's obligations
under outstanding eFAX options and warrants (with appropriate
adjustment to reflect the final conversion ratio of eFAX common
stock into JFAX common stock resulting upon consummation of the
Merger); provided that, the numbers of such warrants and options
and the exercise prices are those which eFAX has previously
disclosed to XXXX.XXX as described on the option/warrant
disclosure schedule provided by eFAX to XXXX.XXX on the date
hereof.
(g) Indemnification: The Definitive Merger Agreement will provide
that for six years after the consummation of the Merger (the
"Merger Date"), XXXX.XXX will (i) indemnify and hold harmless to
the fullest extent permitted under applicable law, individuals
who, either prior to the date hereof, as of the date hereof, or
as of the Merger Date, are or were officers, directors and
employees of eFAX as of the Merger Date with respect to all acts
or omissions by them in their capacities as such at any time on
or prior to the Merger Date, (ii) will honor all indemnification
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obligations presently provided under eFAX's certificate of
incorporation and by-laws in effect on the date hereof, and (iii)
procure the provision of officers' and directors' liability
insurance in respect of acts or omissions occurring prior to the
Merger Date covering each person currently covered by eFAX's
officers' and directors' liability insurance policy on terms with
respect to coverage and in amounts no less favorable than those
of such policy in effect on the date hereof; provided, that if
the aggregate annual premiums for such insurance at any time
during such period shall exceed 150% of the per annum rate of
premium paid by eFAX as of the date hereof for such insurance,
then XXXX.XXX shall provide only such coverage as shall then be
available at an annual premium equal to 150% of such rate.
3. Warrants. In the event that either party terminates the Merger
discussions for any reason prior to the execution of the Definitive
Merger Agreement or in the event the Definitive Merger Agreement is
terminated for any reason, XXXX.XXX shall be granted 1,750,000 warrants
to purchase eFAX common stock at an exercise price of $1.00; provided,
that only 750,000 warrants at $1.00 will granted in the event that
XXXX.XXX terminates the Merger discussions (other than following a
material breach by eFAX hereunder) prior to the execution of the
Definitive Merger Agreement or the Definitive Merger Agreement is
terminated as a result of a failure to obtain approval of the XXXX.XXX
shareholders or as a result of a material breach by XXXX.XXX thereunder.
The warrants will have a two-year term and will contain standard
anti-dilution protections and will be further documented in a form
warrant agreement to be agreed to prior to the first funding under the
Loan. The parties agree that it will be the responsibility of eFAX to
obtain, within two weeks following the date hereof, the agreements from
the holders of its Series A Preferred Stock necessary to satisfy the
conditions set forth in paragraphs 2(c)(5) and 2(c)(6) above and that
any termination of Merger discussions by XXXX.XXX upon failure of either
such condition shall be deemed to be a termination of such discussions
by xXXX.xxx. xXXX.xxx further agrees (i) prior to xXXX.xxx's executing
agreements with the holders of its Series A Preferred Stock satisfying
the conditions set forth in paragraphs 2(c)(5) and 2(c)(6) above, to
notify XXXX.XXX in writing of the terms of such proposed agreements and
(ii) to notify XXXX.XXX immediately after such agreements have been
executed by the parties.
4. Exclusivity. It is anticipated that the Definitive Merger Agreement will
be executed by May 8, 2000. In consideration of the substantial
expenditure of time, effort and expense to be undertaken by XXXX.XXX and
its representatives, following the execution and delivery of this
letter, eFAX will undertake and agree that without the prior written
consent of XXXX.XXX, during the period from March 31, 2000 through the
earlier of May 8, 2000, or such earlier date as XXXX.XXX may deliver a
Notice of Termination as described below (the "Termination Date"),
neither eFAX nor any of its authorized representatives or agents will
directly or indirectly take any action to initiate, assist, solicit,
negotiate,
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encourage, accept or otherwise pursue any offer or inquiry from any
person or entity (a) to engage in any Business Combination (as defined
below) other than the transactions contemplated hereby, or (b) to reach
any agreement or understanding (whether or not such agreement or
understanding is absolute, revocable, contingent or conditional) for, or
otherwise attempt to consummate, any Business Combination other than the
transaction contemplated hereby. For purposes hereof, "Business
Combination" means (i) any merger, consolidation, business combination,
sale, lease or similar transaction relating to eFAX; (ii) any sale or
other disposition of capital stock of, or other equity interests in,
eFAX, (iii) any sale, dividend or other disposition of any or all of the
assets or properties of eFAX, and/or (iv) any other transaction
involving eFAX or its assets (other than sales of "non-core" assets
permitted under the Loan documents ) that is inconsistent with the
transactions contemplated hereby. If at any time XXXX.XXX determines
that it has no intention to proceed with the transactions contemplated
by this letter, XXXX.XXX shall give prompt written notice (the "Notice
of Termination") to eFAX of such decision not to proceed.
5. Access to Information. Each party and its employees, representatives and
agents shall afford, and shall use reasonable efforts to induce others
to afford, to the other party and its representatives and agents
reasonable access to its properties, business, personnel, advisors and
financial, legal, tax and other data and information, in each case as
may be reasonably requested by the other party.
6. Expenses. eFAX and XXXX.XXX shall each be responsible for its own
expenses incurred in connection with the Merger Transaction; provided
that eFAX will reimburse XXXX.XXX for such out-of-pocket expenses in the
event that eFAX terminates the Merger discussions prior to the execution
of the Definitive Merger Agreement or the Definitive Merger Agreement is
terminated as a result of a failure to obtain approval of the eFAX
shareholders or an action on the part of the eFAX board or as a result
of a material breach by eFAX thereunder. xXXX and XXXX.XXX agree to
split the Xxxx-Xxxxx-Xxxxxx filing fee.
7. Publicity and Disclosure. The parties shall jointly produce and mutually
agree on the substance of public press releases and announcements
regarding the Transactions, the first of which will be made on
Thursday, April 6, 2000; provided, that either party shall have the
right in its sole and absolute discretion (after consultation with the
other party) to make whatever public press releases or announcements
which it deems necessary in order to comply with applicable federal and
state securities or other laws, and the rules and regulations
promulgated by the NASDAQ; provided, further, that XXXX.XXX shall make
no such announcement prior to the initial announcement on Thursday,
April 6, 2000.
In addition, the parties agree to continue to be bound by the terms and
conditions of the confidentiality agreement, dated March 26, 2000,
between eFAX and XXXX.XXX.
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8. No Brokers. Both eFAX and XXXX.XXX represent and warrant to the other
that neither it nor any of its employees, affiliates, representatives or
agents has entered into any agreement regarding any transaction
involving eFAX or its stock or assets that could result in the other
party hereto (or any of its affiliates or representatives) having any
liability to any third party as a result of entering into this letter or
consummating the transactions contemplated hereby. Both eFAX and
XXXX.XXX shall indemnify, defend, save and hold harmless the other (and
its affiliates, partners and representatives) from any and all claims or
liabilities resulting from any breach of the foregoing representations
and warranties, including any legal or other expenses incurred in
connection with the defense of any such claims.
9. Termination. Paragraph 2 of this letter will terminate automatically and
be of no further force and effect upon the earliest of (a) the execution
of the Definitive Merger Agreement, (b) the mutual agreement of eFAX and
XXXX.XXX, or (c) the Termination Date. All of the other provisions of
this letter (except paragraph 5) shall survive and shall remain binding
following any such termination . Any termination of this letter shall
not affect any rights that any party has with respect to the breach of
any terms hereof by the other party prior to such termination.
10. Legal Effect. This letter of intent is intended to constitute an
expression of XXXX.XXX's and xXXX's mutual intent regarding the subject
matter of Paragraph 2 herein. Except as referred to or set forth in
paragraphs 3, 4, 5, 6, 7, 8, 9 and this paragraph 10, neither eFAX,
XXXX.XXX, nor any of their respective employees, affiliates,
representatives or agents shall have any legally binding obligations,
rights, or liabilities of any nature whatsoever to each other or to any
other persons or entities, whether pursuant to the terms of this letter,
relating in any manner to the transactions contemplated hereby, or the
consideration hereof. Neither this letter of intent nor any person's
execution hereof shall constitute an obligation or commitment of any
party to enter into the Definitive Merger Agreement or give any party
any rights or claim against the other in the event any party for any
reason terminates negotiations to effect the transactions contemplated
hereby, other than in respect of claimed breaches of paragraphs 3, 4, 5,
6, 7, 8, or 9 or this paragraph 10. All obligations or commitments to
proceed with the Merger contemplated hereby shall be contained only in
the Definitive Merger Agreement.
The Loan Commitment is a separate agreement binding on the parties
hereto and enforceable in accordance with its terms. The covenants and
agreements in the Loan Commitment and those set forth herein are
separate and independent covenants and in no event shall any covenant or
agreement set forth in this letter be subject to any counterclaim,
set-off or deduction whatsoever based upon any alleged breach of the
Loan Commitment.
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This letter shall be governed by and construed in accordance with the
laws of the state of California without regard to principles of
conflicts of laws as would cause the application of the laws of any
jurisdiction other than the state of California.
If you are in agreement with the terms set forth above and intend to proceed
with transaction on that basis, please execute this letter of intent in the
space provided below and return an executed copy by facsimile to the
undersigned.
Very truly yours,
XXXX.XXX, INC.
By: /s/ XXXXXX X. XXXXXXXXX
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Xxxxxx X. Xxxxxxxxx
President and CEO
ACCEPTED AND AGREED as of the date first set forth above,
XXXX.XXX
By: /s/ XXXXXX XXXXX
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Xxxxxx Xxxxx
President
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