Exhibit 2.1
April 5, 2000
xXXX.xxx
0000 Xxxxxx Xxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Re: Letter of Intent
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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
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follows:
(a) Maturity date: The later of (i) August 31, 2000 and (ii) the date
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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 eFAX 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.
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(c) Warrants: 250,000 warrants to purchase eFAX common stock at an
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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
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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).
(d) Security: All of the assets of eFAX (except for non-material assets in
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which a security interest cannot be legally created).
(e) Funding: The Loan will be funded in 3 equal installments on or about
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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
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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:
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(i) Reasonably satisfactory lien search completed;
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(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
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Merger Agreement or the closing of the Merger.
(h) Commitment letter: A signed commitment letter (the "Commitment Letter")
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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
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
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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
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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
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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
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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
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
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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
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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 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
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subject to standard conditions to closing, including without
limitation the following:
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(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
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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
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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
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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 obligations presently provided under xXXX'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 xXXX's officers'
and directors' liability insurance policy on terms with respect
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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
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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 xXXX xxxxxxxxx) 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
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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
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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, 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
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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
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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
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mutually agree on the substance of public press releases and
announcements regarding the
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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.
8. No Brokers. Both eFAX and XXXX.XXX represent and warrant to the other
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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
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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
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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
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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.
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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