Delaware 4822 51-0371142
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
|
10960 Wilshire Boulevard
Suite 500
Los Angeles, California 90024
(310) 966-1800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Copies to:
Frank H. Golay, Jr., Esq. Nicholas P. Saggese, Esq.
Sullivan & Cromwell Skadden, Arps, Slate, Meagher & Flom LLP
1888 Century Park East 300 S. Grand Avenue
Los Angeles, California 90067 Los Angeles, California 90071
Telephone: (310) 712-6600 Telephone: (213) 687-5000
Fax: (310) 712-8800 Fax: (213) 687-5600
------------------
|
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 464(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
Proposed Maximum
Title of Each Class Aggregate Amount of
of Securities to be Registered Offering Price(1) Registration Fee
-------------------------------------------------------------------------------
Common Stock, $.01 par value.... $90,000,000 $25,020
================================================================================
|
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
We will amend and complete the information in this prospectus. Although we are
permitted by US federal securities laws to offer these securities using this
prospectus, we may not sell them or accept your offer to buy them until the
documentation filed with the SEC relating to these securities has been declared
effective by the SEC. This prospectus is not an offer to sell these securities
or our solicitation of your offer to buy these securities in an jurisdiction
where that would not be permitted or legal.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Our Company The Offering
. We are an Internet-based messaging . JFAX.COM is offering ______ of the
and communications services shares and existing stockholders
provider to individuals and are offering ______ of the shares.
businesses.
. The underwriters have an option to
. JFAX.COM, INC. purchase an additional ______
10960 Wilshire Boulevard, shares from JFAX.COM and selling
Suite 500 stockholders to cover over-
Los Angeles, California 90024 allotments.
(310) 966-1800
www.jfax.com . This is our initial public offering
and no public market currently
Proposed Symbol/Proposed Market: exists for our shares.
. "JFAX"/Nasdaq National Market . We plan to use the proceeds from
the offering to expand our network
around the world, to repay
indebtedness and redeem preferred
stock and to fund marketing and
advertising activities. We will not
receive any proceeds from the
shares sold by the selling
stockholders.
. Closing , 1999
-----------------------------------------------------------------------------
Per Share Total
-----------------------------------------------------------------------------
Public offering price (Estimated): $ $
Underwriting fees:
Proceeds to JFAX.COM:
Proceeds to selling stockholders:
--------------------------------
|
This investment involves risk. See "Risk Factors" beginning on Page 8.
The undersigned is facilitating Internet distribution.
DLJdirectInc.
[ARTWORK]
Table of Contents
Page
----
Prospectus Summary.......................................... 4
Risk Factors................................................ 8
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Consolidated Financial Data........................ 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................ 22
Business.................................................... 29
Management.................................................. 41
Security Ownership of Management
and Principal Stockholders............................... 47
Certain Transactions........................................ 49
Description of Capital Stock................................ 52
Shares Eligible for Future Sale............................. 56
Underwriting................................................ 58
Validity of Securities...................................... 60
Experts..................................................... 60
Available Information....................................... 61
Index to Financial Statements............................... F-1
|
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus, including "Risk Factors" beginning on page 8, carefully. Unless the context otherwise requires, in this prospectus "JFAX.COM," "we," "us" and "our" refer to JFAX.COM, Inc. Unless we indicate otherwise, the information in this prospectus assumes that the underwriter will not exercise their over-allotment option.
JFAX.COM
Our Company
We are an Internet-based messaging and communications services provider to individuals and businesses throughout the world. Our services enable the user's e-mail box to function as a single repository for all e-mail, fax and voice mail and permit convenient message retrieval through e-mail or by phone. Customers can sign-up for all of our services through our web site and can receive a JFAX.COM phone number in minutes.
Our subscription services are as follows:
. Free Fax: free phone number enabling receipt of faxes in e-mail.
. Free Voice: free phone number enabling receipt of voice mail in e-mail.
. Business Fax: phone number in area code of customer's choice providing comprehensive inbound and outbound faxing capability.
. E-mail by Phone: access and management of e-mail messages through a touch tone phone, including the ability to listen to e-mai messages with a text-to-speech engine.
. Unified Messaging: phone number enabling the end-user's e-mail box to function as a single repository for all e-mails, faxes and voice mails and permitting convenient message retrieval through e-mail or by phone.
In addition to our subscription services, we provide a variety of services, including outbound fax, broadcast fax, outbound voice and broadcast voice, for which we charge based on usage. To further enhance the value of our services to our customers, we are developing additional Internet-based messaging and communications services. See "Business."
We believe we are the world's largest provider of Internet-based unified messaging services with over 27,000 paid subscriptions as of December 31, 1998. Since we started offering our services on a commercial basis in June 1996, we have expanded our network to offer our services in over 60 area codes in the United States and abroad, including in 21 of the 25 most populous metropolitan areas in the United States and such international business centers as London, Paris, Rome, Frankfurt, Zurich, Sydney and Tokyo.
Our Opportunity
The market for our services represents a large and growing opportunity. We consider every active e-mail, voice mail and fax user to be a potential customer for our Internet-based messaging and communications services. Electronic Mail & Messaging Systems estimates that there were approximately 325 million e-mail accounts worldwide in operation at the end of 1998. In addition, International Data Corporation projects that in the United States alone there will be over 12.9 million unified messaging mailboxes in operation by 2002, each generating $20 in unified messaging revenue per month.
Our Strategic Alliances
We have grown our subscriber base directly by signing up members on our web site, as well as indirectly through strategic alliances with key Internet and telecommunications companies, including:
. Internet portals, such as Yahoo!,
. Internet/online service providers, such as America Online,
CompuServe and Prodigy,
. outsourced e-mail providers, such as Critical Path, mail.com and
CommTouch, and
. telecommunications companies, such as Ameritech.
Internationally, we have established strategic alliances with companies such as:
. ACC Telecom in Canada,
. ESAT in Ireland,
. Kuni Research International in Japan, and
. Telecom New Zealand Limited in New Zealand.
Our Strategy
Our objective is to be the leading global provider of Internet-based unified messaging and related services to individuals and businesses. To achieve this objective, we intend to grow our traditional subscriber base, capitalize on our free services, build the JFAX.COM brand, expand our service offerings, further develop strategic alliances and expand our international network. We believe that our experience in meeting the evolving needs of the unified messaging market positions us well to capitalize on the rapidly growing demand for Internet-based unified messaging services.
We are a Delaware corporation. The address of our principal executive office is 10960 Wilshire Boulevard, Suite 500, Los Angeles, California 90024, and our telephone number is (310)966-1800. Our web site address is http://www.jfax.com. The information on our web site is not part of this prospectus.
THE OFFERING
Common stock offered
By JFAX.COM..................... shares
By selling stockholders......... shares
Common stock to be outstanding after
the offering........................ shares
Use of proceeds........................ We will use the net proceeds from the offering to expand our
network around the world, to repay indebtedness and redeem
preferred stock and to fund marketing and advertising
activities. We will use any remaining proceeds for working
capital and general corporate purposes. See "Use of
Proceeds."
Dividend policy........................ We intend to retain all future earnings to fund the
development and growth of our business. Therefore, at
this time we do not anticipate paying cash dividends.
Nasdaq National Market Symbol......... "JFAX"
|
The shares of common stock to be outstanding after the offering are stated as of March 31, 1999 and exclude:
. 3,500,000 shares of common stock reserved for issuance under our stock option plan of which 1,255,055 shares are subject to outstanding options, and
. 3,610,333 shares of common stock issuable upon exercise of outstanding warrants.
JFAX.COM is our service mark. This prospectus contains other product names, trade names, trademarks and service marks of JFAX.COM and of other organizations.
RISK FACTORS
An investment in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 8 to read about risks you should consider before buying shares of our common stock, including financial, developmental, operational, technological, regulatory, competitive and other risks associated with our emerging business.
Summary Consolidated Financial And Other Data
(Dollars in thousands, except per share and other data)
Below is summary historical consolidated financial and other data of JFAX.COM. We derived the statement of operations and balance sheet financial data from our audited consolidated financial statements. You should read this summary data together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes appearing elsewhere in this prospectus. The as adjusted balance sheet data below gives effect to the application of the net proceeds from the sale of _______ shares of common stock by JFAX.COM in the offering, assuming an initial public offering price of $______ per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses.
Year ended December 31,
----------------------------
1996 1997 1998
Statement of Operations Data:
Revenue............................................. $ 105 $ 685 $ 3,520
Gross profit (loss)................................. (45) (173) 122
Operating loss...................................... (768) (4,877) (10,975)
Net loss attributable to common shares.............. (769) (4,663) (12,404)
Loss per share:
Basic and diluted net loss per common share........ $(0.15) $(0.37) $(0.73)
Common shares used in determining net loss
per share (000s).................................. 5,125 12,591 16,954
Other Data (at year end):
Paid subscriptions.................................. 1,268 7,120 27,036
Available area codes................................ 15 45 68
|
As of December 31, 1998
------------------------
As
Actual Adjusted
------ --------
Balance Sheet Data:
Cash and cash equivalents................... $ 7,279 $
Working capital............................. 6,735
Total assets................................ 10,513
Long-term debt.............................. 6,137
Redeemable common and preferred stock*...... 9,003
Stockholders' equity (deficiency)........... (7,747)
|
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should consider the following factors carefully before deciding to purchase shares of our common stock. The risks described below are not the only ones that we face. Additional risks that generally apply to publicly traded companies, that are not yet identified or that we currently think are immaterial, may also materially adversely affect us.
We Cannot Predict Our Success Because We Have a Limited Operating History
We have a limited operating history. We were formed in December 1995, and our services became commercially available in 1996. Because of our limited operating history, you have limited operating and financial data about us upon which to base an evaluation of our performance and an investment in our common stock. You should consider our prospects in light of the risks, expenses and difficulties we may encounter, including those frequently encountered by new companies competing in rapidly evolving markets. If we are unable to execute our plans and grow our business, either as a result of the risks identified in this section or for any other reason, this failure would have a material adverse effect on our business, prospects, financial condition and results of operations.
We Expect Our Losses and Negative Cash Flow to Continue
We have incurred substantial operating losses, net losses and negative cash flow on both an annual and quarterly basis. For the year ended December 31, 1998, we had an operating loss of $11.0 million, a net loss of $11.9 million and negative cash flow from operating and investing activities of $10.6 million. We expect to continue to incur net losses for the foreseeable future and cannot assure you that we will ever achieve profitability or generate positive cash flow.
In addition, we expect our operating expenses and capital expenditures to increase significantly, especially in the areas of sales and marketing expenses and general and administrative expenses, as we develop and expand our business. As a result, we will need to increase our revenue significantly to become profitable. In order to grow our revenue, we need to add customers for our services and increase the usage of our services by our customers, thereby increasing the fees and usage charges that we collect. If our revenue does not increase as much as we expect or if increases in our expenses are not in line with our plans, there could be a material adverse effect on our business, prospects, financial condition and results of operations.
We Cannot Predict Our Success Because Our Business Model is Unproven and Our Market is Developing
Our business strategy is unproven. While a number of our services have been offered to the public since June 1996, we believe it is too early to reliably gauge market penetration rates based on these initial offerings. With respect to sales of our services, we intend to target broad market segments with diverse messaging requirements. We will employ a variety of direct and indirect distribution channels to market and sell our services. To date, we have not established a definite demand or a reliable cost of capture for these services. In addition, there can be no assurance that we will be successful in the offering of any additional services that we are currently planning. If the demand is lower than anticipated, or the cost of capture is higher, our business, prospects, financial condition and results of operations would be materially and adversely affected.
The Pricing for Our Services Is Uncertain
Prices for messaging services have fallen historically. We expect prices in our industry in general to continue to fall, and prices for our existing and future services may fall correspondingly. Accordingly, we cannot predict whether our pricing schedule will prove to be viable, whether demand for our services will materialize at the prices we would like to charge or whether we will be able to sustain adequate future pricing levels as competitors introduce competing services. We recently introduced free services. We expect to generate revenues from our free service customers by selling them additional services for which charges are usage-based. We will also encourage free service customers to convert to paid subscriptions. We have no track record from which to predict levels of revenue to be achieved from customers who are attracted by our free services.
In addition, the prices for our services are in some cases higher than those charged by our competitors. Customers may be unwilling to pay our prices. Furthermore, the widespread availability of free services, including our own, may result in consumers being unwilling to pay for our services. Our failure to achieve or sustain desired pricing levels would have a material adverse effect on our business, prospects, financial condition and results of operations.
Our Operating Results In One or More Future Periods Are Likely to Fluctuate Significantly and May Negatively Impact Our Stock Price
Our annual and quarterly operating results may fluctuate significantly in the future as a result of numerous factors, including:
. the rate at which we are able to add subscriptions and up-sell additional
usage-based services to both free and paid customers of our subscription
services,
. the amount and timing of expenditures to enhance sales and marketing and
to expand our infrastructure, or other costs, as we expand our network,
. the announcement or introduction of new or enhanced services by our
competitors,
. technical difficulties or network downtime, and
. economic and competitive conditions specific to our industry.
As a result, it is likely that in some future periods our operating results will be below the expectations of securities analysts and investors. If this happens, the trading price of our common stock would likely be materially adversely affected.
We May Be Unable to Manage Growth Effectively
If we are successful in implementing our business plan, our operations will expand rapidly. This rapid expansion could place a significant strain on our management, financial and other resources. Our ability to manage future growth, if it occurs, will depend upon the capacity, reliability and security of our network infrastructure. We must continue to expand and adapt our network infrastructure, both domestically and internationally, as the number of customers and the volume of messages they wish to transmit increases. The expansion and adaptation of our network infrastructure will require substantial financial, operational and management resources, even if the expansion is primarily for our free service offerings.
There can be no assurance that we will be able to expand or adapt our network infrastructure to meet any additional demand on a timely basis, at a commercially reasonable cost or at all. Any failure
by us to expand our network infrastructure on a timely basis, or to adapt it to changing customer requirements or evolving industry standards, could have a material adverse effect on our business, prospects, financial condition and results of operations.
We anticipate significantly increasing the size of our sales and marketing efforts following the completion of the offering. We also will be required to increase our customer support staff. There can be no assurance that such expansion will be successfully completed. Our inability to promptly address and respond to these circumstances could have a material adverse effect on our business, prospects, financial condition and results of operations.
We Depend on Our Ability to Obtain Telephone Numbers
Our future success will depend upon our ability to procure large quantities of telephone numbers in the United States and foreign countries, including telephone numbers in area codes that our customers demand. Our ability to procure telephone numbers depends on applicable regulations, the practices of telecommunications carriers that provide telephone numbers and the level of demand for new telephone numbers. Failure to obtain these numbers in a timely and cost-effective manner may prevent us from entering some foreign markets or hamper our growth in domestic markets, and may have a material adverse effect on our business, prospects, financial condition and results of operations.
We Depend on the Internet as a Message Transmission Medium
Our future success will depend upon our ability to route our customers' traffic through the Internet and through dedicated and/or partially dedicated data network bandwidth. Our success is largely dependent upon the viability of the Internet and other bandwidth as a medium for the transmission of documents. We also depend on the continued operation of a user's e-mail system. To date, we have transmitted a limited amount of customer traffic. There can be no assurance that these will prove to be viable communications media, that document transmission will be reliable or that capacity constraints which inhibit efficient document transmission will not develop.
We access the Internet and other data network bandwidth from our nodes by dedicated and/or shared connections to third party service providers. In many cases, we pay fixed monthly fees for such Internet and other bandwidth access, regardless of our usage or the volume of our customers' traffic. There can be no assurance that the current pricing structure for access to and use of these media will not change unfavorably and, if the pricing structure changes unfavorably, our business, prospects, financial condition and results of operations could be materially and adversely affected.
We Depend on the Continued Growth in the Use of the Internet
Our future success is substantially dependent upon continued growth in the use of the Internet in order to support the sale of our services. There can be no assurance that the number of Internet users will continue to grow. As is typical in the case of a new and rapidly evolving industry, demand and market acceptance for recently introduced services are subject to a high level of uncertainty. The Internet may not prove to be a viable avenue to transmit communications for a number of reasons, including lack of acceptable security technologies, lack of access and ease of use, traffic congestion, inconsistent quality or speed of service, potentially inadequate development of the necessary infrastructure, excessive governmental regulation, uncertainty regarding intellectual property ownership or lack of timely development and commercialization of performance improvements, including high-speed modems.
We Cannot Be Assured that the Market Will Switch to Our Services
Our ability to route existing customers' traffic through the Internet and other data network bandwidth and to sell our services to new customers may be inhibited by, among other factors, the reluctance of some customers to switch from real-time fax delivery to "virtual real-time" delivery and by widespread concerns over the adequacy of security in the exchange of information over the Internet and other data network bandwidth. If our existing and potential customers do not accept "virtual real-time" delivery through the Internet and other data network bandwidth as a means of sending and receiving documents via fax, our business, prospects, financial condition and results of operations would be materially and adversely affected.
In addition, we face similar risks regarding the market acceptance of the delivery of customers' voice mail messages through the Internet and other data network bandwidth. As a result, our business, prospects, financial condition and results of operations may be materially and adversely affected.
The Market In Which We Operate is Highly Competitive, and We May Face Increased Competition From New Entrants and Established Industry Competitors With Significantly Greater Financial Resources
Competition in the computer telephony segment of the converging Internet and telecommunications industries is becoming increasingly intense. We face competition for our services from, among others, voice mail providers, fax providers, paging companies, Internet service providers, e-mail providers and telephone companies.
Currently, we are unaware of any competitors offering the full range of unified messaging services that we provide. However, with respect to each of the services that we provide, we compete against other companies that provide one or more of the services that we do. In addition, these competitors may add services to their offerings to provide unified messaging services comparable to ours. Future competition could come from a variety of companies both in the Internet industry and the telecommunications industry. These industries include major companies which have much greater resources than we do, have been in operation for many years and have large subscriber bases. These companies may be able to develop and expand their communications and network infrastructures more quickly, adapt more swiftly to new or emerging technologies and changes in customer requirements, take advantage of acquisition and other opportunities more readily and devote greater resources to the marketing and sale of their products and services than we can. There can be no assurance that additional competitors will not enter markets that we plan to serve or that we will be able to compete effectively.
The Messaging and Communications Industry is Undergoing Rapid Technological Changes and New Technologies May Be Superior to the Technologies We Use
The messaging and communications industry is subject to rapid and significant technological change. We cannot predict the effect of technological changes on our business. Additionally, widely accepted standards have not yet developed for the technologies we use.
We expect that new services and technologies will emerge in the market in which we compete. These new services and technologies may be superior to the services and technologies that we use or these new services may render our services and technologies obsolete. In addition, these services and technologies may not be compatible or operate in a manner sufficient for us to execute our business plan, which could have a material adverse effect on our business, prospects, financial condition and results of operations.
A System Failure or Breach of Network Security Could Delay or Interrupt Service to Our Customers
Our operations are dependent on our ability to protect our network from interruption by damage from fire, earthquake, power loss, telecommunications failure, unauthorized entry, computer viruses or other events beyond our control. Most of our current computer hardware and equipment, including our processing equipment, is located at two redundantly configured sites. There can be no assurance that our existing and planned precautions of backup systems, regular data backups and other procedures will be adequate to prevent significant damage, system failure or data loss.
Despite the implementation of security measures, our infrastructure may also be vulnerable to computer viruses, hackers or similar disruptive problems caused by our customers or other Internet users. Persistent problems continue to affect public and private data networks, including computer break-ins and the misappropriation of confidential information. Computer break-ins and other disruptions may jeopardize the security of information stored in and transmitted through the computer systems of the individuals, businesses and financial institutions utilizing our services, which may result in significant liability to us and also may deter current and potential customers from using our services. Any damage, failure or security breach that causes interruptions or data loss in our operations or in the computer systems of our customers could have a material adverse effect on our business, prospects, financial condition and results of operations.
Our Software May Have Defects and We May Encounter Development Delays
Software-based services and equipment, such as our services, may contain undetected errors or failures when introduced or when new versions are released. There can be no assurance that, despite testing by us and by current and potential customers, errors will not be found in our software after commercial release, or that we will not experience development delays, resulting in delays in market acceptance, any of which could have a material adverse effect on our business, prospects, financial condition and results of operations.
We Depend on a Limited Number of Third Parties to Market Our Services
Currently, we rely on a limited number of third parties, including e-mail providers, Internet service providers, online service providers, telecommunications companies, systems integrators and value-added resellers as a means of marketing our services. In the event of any prolonged technical problems or failures experienced by these third parties or the termination of these marketing agreements, our marketing capabilities would be significantly hindered. As a result, we could experience periods of time in which we had little to no marketing activity. Any such occurrence could have a detrimental effect on our business, prospects, financial condition or results of operations. Many of these relationships are terminable at will or upon short notice. Furthermore, none of our relationships with these third parties includes long- term contractual commitments to continue the relationship, and most of these relationships are in the early stages of development. Although we believe that individually none of these relationships is material to our business, we consider our strategic alliances in their entirety to be important to our future success. Because many of our strategic allies view unified messaging as important to their future, they may elect to directly compete with us in the provision of unified messaging services.
In addition, we have established and intend to continue to build an international customer base by forming strategic sales and marketing alliances. There can be no assurance that we will be able to
form or maintain these strategic alliances. Our success in developing an international customer base depends not only on the formation of such alliances but also on the success of these companies and their ability to successfully market our services. The failure to form and maintain these strategic alliances or the failure of these companies to successfully develop and sustain a market for our services could have a material adverse effect on our business, prospects, financial condition and results of operations.
Our Success Depends on Our Retention of Our Executive Officers and Our Ability to Hire and Retain Additional Key Personnel
Our future performance depends in significant part upon the continued service of our executive officers and other key technical, sales and management personnel. The loss of the services of one or more of our executive officers or other key employees could have a material adverse effect on our business, prospects, financial condition and results of operations. Our future success also depends on our continuing ability to attract and retain highly qualified technical, sales and managerial personnel. Competition for such personnel is intense, and there can be no assurance that we can retain our key employees or that we can attract, assimilate or retain other highly qualified technical, sales and managerial personnel in the future.
Our International Operations Are Risky
At the end of 1998, international telephone numbers represented a significant portion of our total telephone numbers. We intend to continue to enter additional markets and to expand our operations outside the United States. International sales are subject to inherent risks, including:
. recessions in economies outside the United States,
. limited protection of intellectual property rights in some countries,
. political instability,
. unexpected changes in regulatory requirements and tariffs,
. difficulties in staffing and managing foreign operations,
. the possibility of subsidization of our competitors and the
nationalization of business,
. longer payment cycles,
. greater difficulty in accounts receivable collection, and
. potentially adverse tax consequences.
To the extent the services we sell are priced and paid for in foreign currencies, gains and losses on the conversion of U.S. dollars of receivables and payables arising from international operations could in the future contribute to fluctuations in our results of operations. Additionally, fluctuations in exchange rates could affect demand for our services.
The Price of Our Common Stock May Decline Due to Shares Eligible for Future Sale
Sales of a large number of shares of our common stock in the market after the offering or the perception that sales may occur could cause the market price of our common stock to drop.
We will have _________ shares of common stock outstanding immediately after the offering. The ____ shares sold in the offering, plus any shares issued or sold upon exercise of the underwriters' over-allotment option, will be freely tradeable, except for any such shares held at any time by an "affiliate," as defined under Rule 144 under the Securities Act of 1933. Of the remaining shares, ____________ are subject to lock-up agreements in which the holders of the shares have agreed not to sell any shares for a period
of 180 days after the date of this prospectus without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. The shares not subject to lock-up agreements are "restricted securities" as defined in Rule 144 under the Securities Act. These shares may be sold in the future without registration under the Securities Act to the extent permitted by Rule 144 or an exemption under the Securities Act.
You Will Incur Immediate and Substantial Dilution
The initial public offering price will be substantially higher than the deficit in net tangible book value per share of our common stock. Therefore, you will incur immediate and substantial net tangible book value dilution. You will incur additional dilution if holders of stock options, whether currently outstanding or subsequently granted, exercise their options or if warrant holders exercise their warrants to purchase common stock. See "Dilution" for more information.
Our Principal Stockholders and Management Own a Significant Percentage of Our Stock and Will Be Able to Exercise Significant Influence
Our executive officers and directors and principal stockholders together will beneficially own ____% of our common stock after completion of the offering. Accordingly, these stockholders will be able to determine the composition of our Board of Directors, will retain the voting power to approve all matters requiring stockholder approval and will continue to have significant influence over our affairs. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on the market price of the common stock or prevent our stockholders from realizing a premium over the market prices for their shares of common stock. See "Security Ownership of Management and Principal Stockholders" for information about the ownership of common stock by our executive officers, directors and principal stockholders.
Anti-Takeover Provisions Could Negatively Impact Our Stockholders
Provisions of Delaware law and of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of us, even if a change in control would be beneficial to stockholders. See "Description of Capital Stock" for more information.
Our Stock Price May Be Volatile
An active trading market for our common stock may not develop or be sustained after the offering. We will determine the initial public offering price in consultation with the underwriters. The price at which our common stock will trade after the offering is likely to be volatile and may fluctuate substantially due to factors such as:
. our historical and anticipated quarterly and annual operating results,
. variations between our actual results and analyst and investor
expectations,
. announcements by us or others and developments affecting our business and
our competitors' businesses,
. investor perceptions of our company and comparable public companies, and
. conditions and trends in the communications, messaging and Internet-
related industries.
In particular, the stock market has from time to time experienced significant price and volume fluctuations affecting the common stocks of technology companies, which may include communications, messaging and Internet- related companies. These fluctuations may result in a rapid and material decline in the market price of our common stock.
We May Be Unable to Enforce or Defend Our Ownership and Use of Proprietary Technology
Our success depends to a significant degree upon our proprietary technology. We rely on a combination of trademark, trade secret and copyright law and contractual restrictions to protect our proprietary technology. However, these measures provide only limited protection, and we may not be able to detect unauthorized use or take appropriate steps to enforce our intellectual property rights, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. Companies in the messaging industry have experienced substantial litigation regarding intellectual property. Any litigation to enforce our intellectual property rights would be expensive and time-consuming, would divert management resources and may not be adequate to protect our business.
We could be subject to claims that we have infringed the intellectual property rights of others. In addition, we may be required to indemnify our resellers and users for similar claims made against them. Any claims against us could require us to spend significant time and money in litigation, pay damages, develop new intellectual property or acquire licenses to intellectual property that is the subject of the infringement claims. These licenses, if required, may not be available at all or on acceptable terms. As a result, intellectual property claims against us could have a material adverse effect on our business, prospects, financial condition and results of operations.
We May Have Difficulty in Retaining Our Customers
Our sales and marketing and other costs of acquiring new subscriptions are substantial relative to the monthly fees derived from such subscriptions. Accordingly, we believe that our long-term success depends largely on our ability to retain our existing customers, while continuing to attract new ones. We continue to invest significant resources in our network infrastructure and customer and technical support capabilities to provide high levels of customer service. We cannot be certain that these investments will maintain or improve customer retention. We believe that intense competition from our competitors, some of which offer free service or other enticements for new subscriptions, has caused, and may continue to cause, some of our customers to switch to our competitors' services. In addition, some new customers use the Internet only as a novelty and do not become consistent users of Internet services and, therefore, may be more likely to discontinue their service. These factors adversely affect our customer retention rates. Any decline in customer retention rates could have a material adverse effect on our business, prospectus, financial condition and results of operations.
Our Services May Become Subject to Burdensome Government Regulation
We provide our services through data transmissions over public telephone lines and other facilities provided by telecommunications companies. These transmissions are subject to regulation by the Federal Communications Commission, state public utility commissions and foreign governmental authorities. These regulations affect the prices we pay for transmission services, the competition we face from telecommunications services and other aspects of our market. As an Internet messaging services provider, we are not subject to direct regulation by the FCC or any other governmental agency, other than regulations applicable to businesses generally. However, as Internet services and telecommunications services converge or as the services we offer expand, there may be increased
regulation of our business. Therefore, in the future, we may become subject to FCC or other regulatory agency regulation. There also may be changes in the regulatory environment outside the United States. Changes in the regulatory environment could decrease our revenues, increase our costs and affect our service offerings.
There have been various regulations and court cases relating to the liability of Internet service providers and other online service providers for information carried on or through their services or equipment, including in the areas of copyright, indecency, obscenity, defamation and fraud. For example, federal and state statutes prohibit the online distribution of obscene materials. The law in this area is unsettled, and there may be new legislation and court decisions that expose companies such as ours to liabilities or affect their services.
Additional laws and regulations may be adopted with respect to the Internet, covering issues such as universal service fund support payments, content, user privacy, pricing, libel, obscene material, indecency, gambling, intellectual property protection and infringement and technology export and other controls. Other federal Internet-related legislation has been introduced which may limit commerce and discourse on the Internet. The FCC recently ruled that Internet service providers are enhanced service providers, calls to Internet service providers are jurisdictionally interstate and Internet service providers should not pay access charges applicable to telecommunications carriers. The FCC is examining inter-carrier compensation for calls to Internet service providers, which could affect Internet service providers' costs.
Because our services relate principally to the Internet, but convert voice and fax transmissions into e-mails, we are necessarily exposed to legal or regulatory developments affecting either Internet services or telecommunications services.
Our Failure and the Failure of Third Parties to Be Year 2000 Compliant Could Negatively Impact Our Business
The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. As a result, our computer programs that have date-sensitive software and software of companies with which our network is interconnected may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. We have assessed our systems and believe them to be year 2000 compliant. However, if the systems of other companies on whose services we depend or with whom our systems interconnect are not year 2000 compliant, it could have a material adverse effect on our business, prospects, financial condition and results of operations. The year 2000 issue is discussed at greater length in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Impact of Year 2000 Issue."
Our Management has Broad Discretion in the Application of Proceeds, Which May Increase the Risk that the Proceeds Will Not Be Applied Effectively
Our management will have broad discretion in determining how to spend the proceeds of the offering. Accordingly, we can spend the proceeds from the offering in ways which turn out to be ineffective or with which the stockholders may not agree.
Forward-Looking Statements are Inherently Uncertain
Some statements under the captions "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" and elsewhere in this prospectus are forward-looking statements. These forward-looking statements include, but are not limited to, statements about our industry, plans, objectives, expectations, intentions and assumptions and other statements contained in the prospectus that are not historical facts. When used in this prospectus, the words "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate" and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking statements involve risks and uncertainties, including those described in this "Risk Factors" section, actual results may differ materially from those expressed or implied by these forward-looking statements. We do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Market data and forecasts used in this prospectus, including, for example, estimates of growth in unified messaging mailboxes, have been obtained from independent industry sources. Although we believe these sources are reliable, we do not guarantee the accuracy and completeness of historical data obtained from these sources and we have not independently verified these data. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of common stock in the offering will be approximately $__________ million, or $__________ if the underwriters exercise their over-allotment option in full, at an assumed public offering price per share of $___________ and after deducting estimated underwriting discounts and commissions and estimated offering expenses.
We intend to use the net proceeds from the offering to expand our network around the world, to repay indebtedness and redeem preferred stock and to fund marketing and advertising activities. We will use any remaining proceeds for working capital and general corporate purposes. Other than the $____ million that we expect to pay in order to repay indebtedness and redeem preferred stock, we cannot specify with certainty the particular uses for the net proceeds to be received from the offering or the amount to be used specifically with respect to any such use. Accordingly, our management will have broad discretion in the application of the net proceeds. At December 31, 1998, the indebtedness to be repaid accrued interest on principal at a per annum rate of 10% and the preferred stock to be reacquired accumulated dividends on stated amount and unpaid dividends at a per annum rate of 15%. The indebtedness consists of all our 10% Senior Subordinated Notes due 2004, which we issued in June 1998, and the preferred stock is all our Series A Usable Redeemable Preferred Stock, which we issued in July 1998. We issued such indebtedness and preferred stock to fund capital expenditures, to upgrade our network, to fund marketing and advertising expenses and to expand our user base.
Prior to the application of the net proceeds from the offering as described above, the net proceeds from the offering will be invested in marketable, investment-grade securities.
DIVIDEND POLICY
We have never paid any dividends and do not anticipate declaring or paying cash dividends in the foreseeable future. We intend to retain future earnings, if any, to reinvest in our business. The covenants in our current or future financing agreements may prohibit or limit our ability to declare or pay cash dividends.
CAPITALIZATION
The following table sets forth (1) our capitalization as of December 31, 1998 and (2) our capitalization as adjusted to give effect to our sale of _____ million shares of common stock in the offering and receipt and application of the estimated net proceeds from the offering, assuming an initial public offering price of $_____ per share. The information set forth below should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus. See "Use of Proceeds."
As of December 31, 1998
----------------------------------------
Actual As Adjusted
(dollars in thousands)
Cash and cash equivalents.............................................. $ 7,279 $
========== =========
Debt:
Capital lease obligations, including short-term
portion............................................................. 232
Long-term debt, including short-term portion.......................... 6,454
Put Warrants.......................................................... 1,062
---------- ---------
Total debt................................................ 7,748
Redeemable common stock; issued and outstanding
1,766,158 shares at December 31, 1998; no shares as adjusted*......... 4,932
Mandatorily redeemable Series A preferred stock;
authorized 1,000,000 shares; issued and outstanding 5,000
shares at December 31, 1998, liquidation
preference $5,387; no shares as adjusted*............................ 4,071
Stockholders' equity (deficiency):
Common stock; $0.01 par value; authorized
100,000,000 shares; issued and outstanding 17,679,997 shares
at December 31, 1998, excluding 1,766,158 shares issued
as redeemable at December 31, 1998; and _________ shares
issued and outstanding as adjusted................................. 176
Additional paid-in capital............................................ 11,939
Notes receivable from stockholders.................................... (2,499)
Accumulated deficit................................................... (17,363)
---------- ---------
Total stockholders' equity (deficiency).......................... (7,747)
---------- ---------
Total capitalization...................................... $ 9,004 $
========== =========
|
* See Note 4 of the notes to our consolidated financial statements for the conditions applicable to the redeemable securities.
DILUTION
Our net tangible book value (deficit) at December 31, 1998 was a deficit of approximately $7.7 million, or $0.44 per share of common stock. Net tangible book value (deficit) per share of common stock represents the amount of total tangible assets less total liabilities, divided by the total number of shares of common stock outstanding. Net tangible book value excludes 5,000 redeemable preferred shares with a carrying value of $4.1 million and 1,766,158 redeemable common shares with a carrying value of $4.9 million.
Dilution per share represents the difference between the amount per share paid by purchasers of shares of common stock in the offering and the pro forma net tangible book value per share of common stock immediately after the completion of the offering. After giving effect to the assumed sale of _____ shares of common stock at a price of $_____ per share in the offering and the application of the estimated net proceeds from the offering, our pro forma net tangible book value as of December 31, 1998 would have been approximately $_____ million, or $_____ per share. This represents an immediate dilution in net tangible book value per share of $_____ to investors who purchase shares of common stock in the offering. The following table illustrates the dilution in net tangible book value per share to such investors:
Assumed initial public offering price per share........... $
--------
Net tangible book value (deficit) per share
as of December 31, 1998......................... $(0.44)
Increase per share attributable to new
investors....................................... ------
Pro forma net tangible book value per share as of
December 31, 1998 after giving effect to the
offering........................................ --------
Dilution per share to new investors.................. $
|
The following table summarizes, as of December 31, 1998, the difference between the existing stockholders and new investors with respect to the number of shares of common stock purchased from us, including redeemable common shares, the total consideration paid and the average price per share paid at an assumed initial public offering price of $_________ per share:
Shares Purchased Total Consideration
--------------------- --------------------- Average Price
Number Percent Amount Percent per Share
------- --------- -------- --------- -------------------
Existing stockholders... 19,446,155 % $17,555,297 % $0.90
New investors...........
---------- ---- ----------- ----
Total.............. 100% $ 100%
========== ==== =========== ====
|
The foregoing table assumes no exercise of stock options or warrants. As of March 31, 1999, there were options and warrants outstanding to purchase 4,865,388 shares of common stock at a weighted average exercise price of $2.57 per share. To the extent outstanding options and warrants are exercised, there will be further dilution to new investors.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements, related notes and other financial information included elsewhere in this prospectus. The statement of operations data for each of the years in the three year period ended December 31, 1998, and the selected balance sheet data as of December 31, 1998 and 1997, are derived from our consolidated financial statements which have been audited by KPMG LLP and are included in this prospectus.
Years Ended December 31,
------------------------------------------------------------
1995 1996 1997 1998
(dollars in thousands, except per share data)
Statement of Operations Data:
Revenue...................................... $ -- $ 105 $ 685 $ 3,520
Cost of revenue.............................. 1 150 858 3,398
---------- ---------- ----------- -----------
Gross profit (loss)........................ (1) (45) (173) 122
Operating expenses:
Sales and marketing......................... -- 150 1,069 4,990
Research and development.................... -- 61 793 1,226
General and administrative.................. 20 512 2,842 4,881
---------- ---------- ----------- -----------
Total operating expenses................... 20 723 4,704 11,097
---------- ---------- ----------- -----------
Operating loss............................. (21) (768) (4,877) (10,975)
Interest expense (income) net................ -- -- (215) 933
Income tax expense........................... -- 1 1 2
---------- ---------- ----------- -----------
Net loss................................... $ (21) $ (769) $ (4,663) $ (11,910)
========== ========== =========== ===========
Net loss attributable to common
shares.................................. $ (21) $ (769) $ (4,663) $ (12,404)
========== ========== =========== ===========
Basic and diluted net loss per common
share...................................... $ (.01) $ (.15) $ (.37) $ (.73)
========== ========== =========== ===========
Weighted average common shares
used in determining net loss
per share.................................. 4,460,000 5,125,333 12,590,667 16,953,805
========== ========== =========== ===========
Years Ended December 31,
------------------------------------------------------------
1995 1996 1997 1998
(in thousands)
Balance Sheet Data:
Cash and cash equivalents.................... $ -- $ 656 $ 23 $ 7,279
Working capital (deficiency)................. (11) 479 58 6,735
Total assets................................ -- 896 2,613 10,513
Long-term debt............................... -- -- -- 6,137
Redeemable common and preferred
stock*...................................... -- -- -- 9,003
Total stockholders' equity (deficiency)...... (11) 677 1,618 (7,747)
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected Consolidated Financial Data" and our financial statements and related notes included elsewhere in this prospectus.
Overview
We were founded in 1995 to provide Internet-based messaging and communications services. Our company was initially conceived as a solution to facilitate the receipt of faxes and voice messages via the Internet. Since inception our primary activities have included:
. developing our business model,
. hiring management and other key personnel,
. building our infrastructure,
. introducing our initial services,
. expanding geographic coverage and scope of services,
. entering into strategic alliances, and
. developing new services including our usage-based services and free
services.
We are the leading provider of Internet-based unified messaging services with a base of over 27,000 paid subscriptions as of December 31, 1998.
We currently derive substantially all of our revenues from subscription fees, activation fees and charges for usage-based services. In the future, we expect to derive a growing proportion of our revenues from up-selling our subscription and usage-based services to our free subscribers. Our customers are mostly pre-billed on a month-to-month basis. Revenues are recognized as the service is performed.
We expect to increase our sales and marketing expenses following the offering. In the past, we have allocated limited resources to marketing our services, relying on our web site to generate subscriptions and our strategic alliances to market and sell our services to their customer base. We intend to increase our direct and indirect marketing efforts substantially in order to grow our subscriber base and to generate up-sales from our free and paying subscribers and businesses looking to outsource their messaging requirements. These marketing efforts will require a considerable investment on our part.
We also intend to continue to invest in the development of new services, complete the development of our services currently under development and extend and upgrade our network. In particular, we intend to invest in additional infrastructure to increase our capacity and enable us to provide additional Internet-based messaging and communications services.
We have incurred significant losses since our inception. As of December 31, 1998, we had an accumulated deficit of approximately $17.4 million. We expect to incur substantial operating losses for the foreseeable future. See "Risk Factors" for a discussion concerning the risks we face.
Results of Operations
Years Ended December 31, 1998, 1997 and 1996
The following table sets forth, for the years ended December 31, 1998, 1997 and 1996, information derived from our statements of operations as a percentage of revenues. This information should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this prospectus.
Years Ended December 31,
--------------------------------
1996 1997 1998
Revenue.......................... 100% 100% 100%
Cost of revenue.................. 143 125 97
---- ---- ----
Gross profit (loss)....... (43) (25) 3
Operating expenses:
Sales and marketing............. 144 156 142
Research and development........ 59 115 35
General and administrative...... 489 415 138
---- ---- ----
Total operating expenses.. 692 686 315
---- ---- ----
Operating loss............ (735) (711) (312)
Interest expense (income), net... -- (31) 26
---- ---- ----
Loss before income taxes.. (735) (680) (338)
Income tax expense............... 0 0 0
---- ---- ----
Net loss.................. (735)% (680)% (338)%
==== ==== ====
|
Revenue. Revenue was $3.5 million, $685,000 and $105,000 in 1998, 1997, and 1996. The absolute dollar increases in revenue from year to year were due primarily to increases in the number of subscriptions from both our direct marketing and our strategic alliances. Our number of subscriptions were 27,036, 7,120 and 1,268 as of December 31, 1998, 1997 and 1996. Revenue derived from monthly fees from paid subscriptions accounted for substantially all of the revenue in the years ended December 31, 1998, 1997 and 1996. Our subscription services and usage-based services were launched in June 1996. Therefore, revenue for 1997 and 1996 are not directly comparable.
Cost of revenue. Cost of revenue is primarily comprised of data and voice transmission costs, telephone numbers, customer service, online processing fees and equipment depreciation. Cost of revenue was $3.4 million or 97% of revenue, $858,000 or 125% of revenue and $150,000 or 143% of revenue, for the years ended December 31, 1998, 1997 and 1996. The absolute dollar increases in cost of revenue reflect the cost of building and expanding our server and networking infrastructure and customer services to accommodate the growth of our subscriber base. Cost of revenue as a percentage of revenue decreased from year to year as a result of the increases in revenue over the same periods.
Operating expenses
Sales and Marketing. Our sales and marketing costs consist primarily of payments with respect to strategic alliances, sales and marketing personnel, advertising, promotions, public relations, trade shows and business development. Sales and marketing expenses were $5.0 million or 142% of revenue,
$1.1 million or 156% of revenue and $150,000 or 144% of revenue, for the years ended December 31, 1998, 1997 and 1996. The absolute dollar increases in sales and marketing expense from year to year primarily reflect an increase in marketing payments as we have entered into several key strategic relationships with leading Internet and telecommunications companies, and the increase in sales and marketing personnel.
Research and Development. Our research and development costs consist primarily of personnel and consulting costs. Research and development costs were $1.2 million or 35% of revenue, $793,000 or 115% of revenue and $61,000 or 59% of revenue, for the years ended December 31, 1998, 1997 and 1996. The absolute dollar increase in research and development costs from 1997 to 1998 primarily reflects increases in personnel. Prior to 1997, a significant portion of our research and development activity was outsourced. Research and development costs as a percentage of revenue decreased from 1997 to 1998 as a result of increases in revenue over the same period.
General and Administrative. Our general and administrative costs consist primarily of personnel costs, professional services, consulting expenses and building and occupancy costs. General and administrative costs were $4.9 million or 138% of revenue, $2.8 million or 415% of revenue and $512,000 or 489% of revenue, for the years ended December 31, 1998, 1997 and 1996. The absolute dollar increases in general and administrative costs from year to year were primarily due to increases in the number of general and administrative personnel as well as increased costs associated with professional services and facility expenses to support the growth of our operations. General and administrative costs as a percentage of revenue decreased from year to year as a result of increases in revenue over the same periods.
Interest Expense (Income), Net. Our interest expense is primarily related to capital lease obligations and long-term debt. Interest expense (income), net was $933,000, $(215,000) and $0 for December 31, 1998, 1997 and 1996. The increase in interest expense (income), net for 1998 resulted from the issuance in July 1998 of $10 million principal amount of subordinated debt.
Income Taxes. As of December 31, 1998, we had federal and state net operating loss carryforwards of approximately $17.1 million available to offset income in the future. Such net operating loss carryforwards will begin expiring in the year 2000. Under the Tax Reform Act of 1986, the amounts of and benefits from such net operating loss carryforwards may be impaired or limited.
Quarterly Financial Information
The following table sets forth statement of operations data and such statement of operations data as a percentage of revenues for the three months ended December 31, September 30, June 30 and March 31, 1998, and December 31, September 30 and June 30, 1997. The information for each of these quarters has been prepared on substantially the same basis as the audited financial statements included elsewhere in this prospectus and, in the opinion of our management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for such periods. Historical results are not necessarily indicative of the results to be expected in the future, and results of interim periods are not necessarily indicative of results for the entire year.
Three Months Ended
-----------------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, March 31, June 30,
1997 1997 1997 1998 1998
----------- ------------- ------------- ------------- -------------
Revenue.......................... 138,977 202,294 226,467 $ 490,427 $ 784,416
Cost of revenue.................. 88,165 207,388 541,364 626,217 682,814
----------- ------------- ------------- ------------- -------------
Gross profit (loss)............ 50,812 (5,094) (314,897) (135,790) 101,602
Operating expenses:
Sales and marketing............. 206,242 351,727 325,128 371,969 513,347
Research and development........ 48,696 114,706 163,293 261,482 287,462
General and administrative...... 741,221 975,057 1,173,820 917,320 1,105,454
----------- ------------- ------------- ------------- -------------
Total operating expenses....... 996,159 1,441,490 1,662,241 1,550,771 1,906,263
----------- ------------- ------------- ------------- -------------
Operating loss................. (945,347) (1,446,584) (1,977,138) (1,686,561) (1,804,661)
Interest expense (income), net.. (119,063) (72,019) (7,162) 154 (970)
----------- ------------- ------------- ------------- -------------
Loss before income taxes....... (826,284) (1,374,565) (1,969,976) (1,686,715) (1,803,691)
Income tax expense............... -- -- -- 1,500 --
----------- ------------- ------------- ------------- -------------
Net loss....................... (826,284) (1,374,565) (1,969,976) $ (1,688,215) $ (1,803,691)
=========== ============= ============= ============= =============
|
Three Months Ended
-------------------------------
Sept. 30, Dec. 31,
1998 1998
------------- -------------
Revenue................................$ 975,243 1,269,750
Cost of revenue........................ 915,962 1,173,250
------------- -------------
Gross profit (loss).................. 59,281 96,500
Operating expenses:
Sales and marketing................... 1,291,218 2,813,654
Research and development.............. 329,366 347,232
General and administrative............ 1,240,300 1,617,780
------------- -------------
Total operating expenses............. 2,860,884 4,778,666
------------- -------------
Operating loss....................... (2,801,603) (4,682,166)
Interest expense (income), net........ 433,449 500,692
------------- -------------
Loss before income taxes............. (3,235,052) (5,182,858)
Income tax expense..................... -- --
------------- -------------
Net loss.............................$ (3,235,052) $ (5,182,858)
============= =============
|
Three Months Ended
-----------------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, March 31, June 30,
1997 1997 1997 1998 1998
As a percentage of revenues:
Revenue.......................... 100% 100% 100% 100% 100%
Cost of revenue.................. 63 102 239 128 87
----------- ------------- ------------- ------------- -------------
Gross profit (loss)............ 37 (2) (139) (28) 13
Operating expenses:
Sales and marketing............. 149 174 144 76 65
Research and development........ 35 57 72 53 37
General and administrative...... 533 482 518 187 141
----------- ------------- ------------- ------------- -------------
Total operating expenses....... 717 713 734 316 243
----------- ------------- ------------- ------------- -------------
Operating loss................. (680) (715) (873) (344) (230)
Interest expense (income), net.. (86) (36) (3) 0 0
----------- ------------- ------------- ------------- -------------
Loss before income taxes....... (594) (679) (870) (344) (230)
Income tax expense............... -- -- -- -- --
----------- ------------- ------------- ------------- -------------
Net loss...................... (594)% (679)% (870)% (344)% (230)%
=========== ============= ============= ============ =============
|
Three Months Ended
-------------------------------
Sept. 30, Dec. 31,
1998 1998
As a percentage of revenues:
Revenue................................ 100% 100%
Cost of revenue........................ 94 92
------------- -------------
Gross profit (loss).................. 6 8
Operating expenses:
Sales and marketing................... 132 222
Research and development.............. 34 27
General and administrative............ 127 128
------------- -------------
Total operating expenses............. 293 377
------------- -------------
Operating loss....................... (287) (369)
Interest expense (income), net........ 45 39
------------- -------------
Loss before income taxes............. (332) (408)
Income tax expense..................... -- --
------------- -------------
Net loss............................ (332)% (408)%
============= =============
|
Fluctuations in Annual and Quarterly Results
Our annual and quarterly operating results may fluctuate significantly in the future as a result of numerous factors, including:
. the rate at which we are able to add subscriptions and up-sell additional
usage-based services to both free and paid customers of our subscription
services,
. the amount and timing of expenditures to enhance sales and marketing and
to expand our infrastructure, or other costs, as we expand our network,
. the announcement or introduction of new or enhanced services by our
competitors,
. technical difficulties or network downtime,
. economic and competitive conditions specific to our industry, and
. general economic conditions.
Liquidity and Capital Resources
Since our inception, we have financed our operations through the private placement of common stock, preferred stock and long-term debt and through equipment lease financing. At December 31, 1998, we had approximately $7.3 million in cash and cash equivalents.
Net cash used in operating activities increased to $10.0 million for 1998 from $4.5 million for 1997. The increase in net cash used in operating activities from year to year primarily resulted from increasing net losses. Net cash used in investing activities decreased to $543,000 for 1998 from $1.6 million for 1997 primarily due to the completion of the initial build-out of our network, resulting in decreased purchases of furniture, fixtures and equipment in 1998. Net cash provided by financing activities increased to $17.9 million for 1998 from $5.5 million for 1997 resulting primarily from the issuance of $5 million liquidation preference of our redeemable preferred stock, $5 million of subordinated debt net of issuance discount and $5 million of redeemable common stock.
Our capital requirements depend on numerous factors, including market acceptance of our services, the amount of resources we devote to investments in our network and services development, the resources we devote to the sales and marketing of our services and our brand promotions and other factors. We have experienced a substantial increase in our capital expenditures and operating lease arrangements since our inception consistent with the growth in our operations and staffing, and anticipate that this will continue for the foreseeable future. Additionally, we expect to make additional investments in technologies and our network, and plan to expand our sales and marketing programs and conduct more aggressive brand promotions. We currently anticipate that the net proceeds of the offering will be sufficient to meet our anticipated needs for working capital and capital expenditures for at least the next 12 months.
Impact of Year 2000 Issue
The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations causing disruptions of operations for any company using computer programs or hardware, including, among other things, a temporary inability to process transactions, send invoices or engage in normal business activities. As a result, many companies' computer systems may need to be upgraded or replaced in order to avoid "Year 2000" issues.
We are a comparatively new company, and, accordingly, the software and hardware we use to operate our business has all been purchased or developed in the last three years. While this does not protect us against Year 2000 exposure, we believe we gain some mitigation from the fact that the information technology we use to operate our business is of recent origin. All of the software code we have internally developed to operate our business is written with four digits to define the applicable year.
We are in the process of testing our internal information technology and non-information technology systems. To date, we have only completed preliminary testing of our internally developed systems. All of the testing we have completed has been performed by our own personnel. To date, we have not retained any outside service or consultants to test or review our systems for Year 2000 compliance. Based on the testing we have performed, we believe that such software is Year 2000 compliant. However, we intend to complete more extensive testing later in the year.
In addition to our internally developed software, we utilize software and hardware developed by third parties both for our network as well as our internal information systems. We have tested such third-party software and hardware to determine Year 2000 compliance. In addition, we have obtained certifications from our key suppliers of hardware and networking equipment for our data centers that such hardware and networking equipment is Year 2000 compliant. Additionally, we have received assurances from the providers of key software applications for our internal operations that their software is Year 2000 compliant. Based upon an initial evaluation of our broader list of software and hardware providers, we are aware that all of these providers are in the process of reviewing and implementing their own Year 2000 compliance programs, and we will work with these providers to address the Year 2000 issue and continue to seek assurances from them that their products are Year 2000 compliant.
We have not incurred any significant expenses to date, and we do not anticipate that any future costs associated with our Year 2000 remediation efforts will be material. We estimate that the costs associated with implementing our year 2000 compliance plan to be approximately $100,000. However, if we, our customers, our providers of hardware and software or other third parties with whom we do business fail to remedy any Year 2000 issues, our services could be interrupted and we could experience a material loss of revenues that could have a material, adverse effect on our business, prospects, results of operations and financial condition. We could consider such an interruption to be the most reasonably likely unfavorable result of any failure by us, or failure by the third parties upon whom we rely, to achieve Year 2000 compliance. Presently, we are unable to reasonably estimate the duration and extent of any such interruption, or quantify the effect it may have on our future revenues. We have yet to develop a comprehensive contingency plan to address the issues which could result from such an event. We are prepared to develop such a plan if our ongoing assessment leads us to conclude we have significant exposure based upon the likelihood of such an event. See "Risk Factors -- Our Failure and the Failure of Third Parties to Be Year 2000 Compliant Could Negatively Impact Our Business."
Recently Issued Accounting Pronouncements
In December 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 98-9 "Software Revenue Recognition with Respect to Certain Transactions" (SOP 98-9). SOP 98-9 amends certain paragraphs of SOP 97-2 to require recognition of revenue using the "residual method" with respect to certain transactions. The "residual method" established by SOP 98-9 is effective for fiscal years beginning after March 15, 1999. We do not expect SOP 98-9 to have any material impact on our results of operations.
In June 1998, the FASB issued SFAS NO. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for transactions entered into after January 1, 2000. This
statement requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction. The ineffective portion of all hedges will be recognized in earnings. We are in the process of determining the impact that the adoption of SFAS NO. 133 will have on our results of operations and financial position.
In February 1998, the FASB issued SFAS NO. 132, "Employees' Disclosures About Pensions and Other Postretirement Benefit Plans." This statement is effective for fiscal years beginning after December 15, 1997 and restatement of disclosures for earlier periods is required. We adopted SFAS No. 132 in 1998.
In October 1997, the AICPA released Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2). Among other things, SOP 97-2 eliminates the distinction between significant and insignificant vendor obligations promulgated by SOP 91-1 and requires each element of a software arrangement to meet certain criteria in order to recognize revenue allocated to that element. Additionally, SOP 97-2 requires that total fees under an arrangement be allocated to each element in the arrangement based upon vendor specific objective evidence, as defined. SOP 97-2 was effective for software transactions entered into by us in fiscal 1998 and subsequent periods. Application of the statement requirements did not have a material impact on our consolidated financial position, results of operations or loss per share data as currently reported.
BUSINESS
Company Overview
We are an Internet-based messaging and communications services provider to individuals and businesses throughout the world. Our services enable the user's e-mail box to function as a single repository for all e-mail, fax and voice mail and permit convenient message retrieval through e-mail or by phone. Customers can sign-up for all of our services through our web site and can receive a JFAX.COM phone number in minutes.
We believe we are the world's largest provider of Internet-based unified messaging services with over 27,000 paid subscriptions as of December 31, 1998. Since we started offering our services on a commercial basis in June 1996, we have expanded our network to offer our services in over 60 area codes in the United States and abroad, including in 21 of the 25 most populous metropolitan areas in the United States and such international business centers as London, Paris, Rome, Frankfurt, Zurich, Sydney and Tokyo.
Industry Background
Growth of the Internet and E-Commerce
The Internet has experienced rapid growth and has developed into a significant tool for global communications, commerce and media, enabling millions of people to share information and transact business electronically. International Data Corporation, or IDC, estimates that there were over 51 million web users in the United States and over 97 million worldwide at the end of 1998. IDC projects these numbers to increase to over 135 million web users in the United States and over 319 million worldwide by the end of 2002. Internet-based businesses have emerged to offer a variety of products and services over the Internet. Advances in online security and payment mechanisms have also prompted more businesses and consumers to engage in electronic commerce. IDC estimates that the value of purchases of goods and services, excluding fund transfers and stock transfers, on the Internet will grow from $32.4 billion worldwide in 1998 to $425.7 billion worldwide in 2002.
E-mail is the most widely adopted Internet application, ranging from a personal messaging tool to a strategic business tool. According to Electronic Mail & Messaging Systems, there were approximately 325 million e-mail accounts in operation at the end of 1998. E-mail messages have increased in volume and functionality, and this trend is expected to continue. For example, e-mail is expected to become a major vehicle for e-commerce transactions. Forrester Research predicts that the typical online consumer will participate in eight to ten commerce-related exchanges via e-mail per week by 2001. The e-mail box as a locating and delivery device has become the platform for additional applications such as directory services, scheduling and document sharing. Furthermore, the e-mail box can function as a central repository to receive, send, forward, organize and prioritize voice mail, fax and e-mail messages, thus creating unified messaging.
Traditional Faxing
The fax machine is a valuable tool for communication for businesses and individuals. Although e-mail traffic is growing rapidly, faxing continues to grow because telephone rates continue to decrease and computer based fax facilitates broadcast fax and fax-enabled applications. IDC estimates that worldwide fax transmissions will increase from 395 billion minutes in 1998 to 647 billion minutes in 2002. According to IDC, fax transmissions generated estimated revenues of $92 billion in 1998 and are projected to generate $103 billion in 2002.
Trends in Faxing
The transmission of faxes over the Internet has become an increasingly popular tool and provides a low cost method to send and receive faxes. In addition to Internet faxing, users are increasingly faxing documents directly from their computers over traditional phone lines, thereby growing less dependent on traditional fax machines. IDC estimates that the share of faxes sent using a fax machine in the United States was 82% in 1997 and is projected to be 58% in 2002.
Recent advances in technology allow users to send and receive faxes from their computers using e-mail to transmit data over the Internet. Internet faxing using e-mail reduces labor costs associated with traditional faxing by allowing users to send, receive and manage faxes from their computers, and reduces carriage costs because of the use of the Internet rather than telephone lines as the transmission medium.
Trends in Internet Messaging
With continuing developments in modern technology, the various message media are currently in the process of converging. Communication channels are becoming interchangeable as consumers can send the same message through e-mail, voice mail and fax. With the unification of these functions, consumers increasingly value messaging services that are "device-independent." Consumers appreciate the ability to send and retrieve messages in any form and in the most convenient manner, e-mail, voice mail or fax, with the telephone or personal computer or through web access.
As e-mail continues to grow and a portion of fax traffic migrates to the Internet, industry analysts are predicting rapid growth of services that unify and simplify the messaging and communications needs of e-mail users. IDC defines unified messaging as "a single 'in-box' for voice, e-mail and fax messages that is accessible by both telephone and PC." IDC predicts that the market for unified messaging will grow from approximately 90,000 unified messaging mailboxes in 1998 to over 12.9 million boxes in 2002 in the United States alone with each generating $20 in unified messaging revenue per month.
Need for Cost-Effective Solutions
Whether it is an individual avoiding the cost of maintaining a fax machine, answering machine and dedicated fax line or a large corporation attempting to cost-effectively manage expanding and increasingly sophisticated communications systems, individuals and businesses alike are making use of third parties to manage their messaging needs. In addition, businesses often find it difficult to implement state-of-the-art technology in their own infrastructure and individuals with the expertise to maintain a sophisticated messaging system can be scarce and costly to hire, train and retain. As a result, we believe that organizations seeking to lower their costs and to reduce time-to-market with complex technologies will look to Internet-based solutions to outsource non-core competencies, such as messaging systems, to maintain competitiveness.
Our Solution
We provide individual consumers, end-users and businesses with convenient, cost-effective and reliable Internet-based messaging and communications services.
Individual Consumers and End-Users
Our services are designed to provide the following key benefits to individual consumers and end-users:
. Unified Messaging. We believe we are the first company to provide a commercially available Internet-based messaging service that enables the end-user's e-mail box to function as a single repository for all e-mail, fax and voice mail and permit convenient access to and management of their messages through e-mail or by phone.
. Anytime, Anywhere Accessibility. We have designed our services to allow easy access by customers seven days a week, 24 hours a day from any location. Our customers can listen to their e-mail and voice mail and manage their e-mails, faxes and voice mails from any touch-tone phone. In addition to these capabilities, our customers can view their faxes anytime they read their e-mail.
. Access to International Network. We have built a network allowing our customers to establish a local phone number in over 60 area codes in the United States and abroad including in 21 of the 25 most populous metropolitan areas in the United States and such international business centers as London, Paris, Rome, Frankfurt, Zurich, Sydney and Tokyo. Additionally, our proprietary web access and e-commerce solution enables a customer to activate service within minutes.
. Cost Effective Service. We believe that by using our service, customers can achieve cost savings and efficiency when compared to traditional telephone and fax communication.
. Customization. Our services allow customers to create their own messaging solutions. They may elect to use our free services or our paid subscription services, or they may add any of our usage-based features, such as telephone access to e-mail, outbound voice, outbound faxing, broadcast voice and broadcast faxing.
. Customer Support. We offer our customers various levels of support seven days a week, 24 hours a day.
Businesses
In addition to the benefits listed above, our service provides the following key benefits to businesses:
. Cost Effective Service. With our service, businesses have a reduced need for personnel, traditional fax machines, phone lines or other costly hardware. In addition, we offer a turn-key solution priced to reflect our economies of scale.
. Award-Winning Technology. We provide our customers with access to advanced, award-winning Internet-based messaging technologies based on open standards. In addition to being the first to market a unified messaging service, our technology has earned the following awards:
. 1998 CommerceNet award for Electronic Commerce Excellence in the
United States Business-to-Consumer category,
. 1997-98 What Cellphone award for Best Accessory for the Mobile
Office, and
. 1996 British Telecom and Sunday Times Superhighway Technology
Award.
. Scaleability and Reliability. Our system architecture is designed to be highly scaleable, meaning that it allows us to easily add additional locations to our network and additional users at each location. Our system is also designed to have redundant significant components and to meet the stringent telecommunications company standards for reliability.
. Security. Our fax services provide a type of security not available with traditional faxing since messages arrive directly into the customer's e- mail box and do not remain in view on a traditional fax machine. In addition, all of our message transmission services are merely a conduit for electronic messaging and do not store copies of transmissions in any format, electronic or otherwise.
Our Strategy
Our objective is to be the leading global provider of Internet-based unified messaging and related services to individuals and businesses. To achieve this objective, we intend to:
. Grow Our Traditional Subscriber Base. We plan to add new subscribers through our direct marketing efforts and through our strategic alliances with major online service providers, Internet service providers, e-mail service providers and others. We believe that our strategic alliances provide us with direct access to their customer bases, which reinforces our first-to-market advantage.
. Capitalize on Free Services. We believe that our free services will attract a critical mass of users and educate Internet users regarding the benefits of our services. We then plan to build our paid subscriber base by converting a portion of free subscriptions to paid subscriptions and to enhance usage-based services to both free and paid users.
. Build the JFAX.COM Brand. We intend to increase our focus on building the JFAX.COM brand. Historically, our growth has been primarily by word of mouth and the limited promotional efforts of our strategic alliances. Following the offering, we intend to launch a new promotional campaign to increase awareness of the JFAX.COM brand through our strategic alliances and through traditional media, including print and radio.
. Expand Service Offerings. We continue to add features to make our services more functional and convenient for end-users. Our goal is to have sticky services, where each end-user discovers through use that our services facilitate efficient messaging management and, as a result, the end user increases his or her use of our services. For instance, we plan to introduce notification, follow me services, cardless calling and cardless conference calling.
. Further Develop Strategic Alliances. Our indirect marketing efforts use key relationships with companies such as Ameritech, Yahoo!, CompuServe, Critical Path, Prodigy and others. These allies promote our services and provide a base of potential customers. Our intention is to maximize the value of our existing strategic alliances and enter into similar relationships with other leading Internet and communications companies.
. Expand International Network. We are expanding our international network, which currently includes locations in North America, Europe and the Pacific Rim. We offer local phone numbers in over 60 area codes in the United States, including area codes in 21 of the 25 most populous major metropolitan areas. We also have over 15 area codes outside the United States, including area codes in London, Paris, Rome, Frankfurt, Milan, Sydney and Tokyo. We intend to increase the number of area codes and target new international locations.
Our Services
We provide a comprehensive range of Internet-based services to address the messaging and communication needs of individuals and businesses. All of our inbound services provide a unique telephone number assigned from available area codes and digitally compress and route messages to the e-mail box.
Our subscription services are summarized in the following table:
SUBSCRIPTION SERVICES
-----------------------------------------------------------------------------------------------------------------------------------
Services Description Attributes Pricing**
-----------------------------------------------------------------------------------------------------------------------------------
Free Services
-------------
Free Fax Fax to E-mail Free telephone number Free
Unlimited number of incoming faxes
Only incoming fax capability
User cannot choose area code
Free Voice Mail* Voice mail to E-mail Free telephone number Free
Unlimited number of incoming voice
mails
User cannot choose area code
Paid Services
-------------
Business Fax Outbound faxing-User can Can select area code for phone number Setup Fee of $15 and $12.50 per phone
send faxes Unlimited incoming faxes number per month plus additional
Broadcast fax-User can Annotation capability usage-based charges
send the same fax to
numerous recipients
E-mail by Phone Phone access-User can Access, manage and/or reply to Setup Fee of $15 plus $9.50 per month
call e-mail, plus additional usage-based charges
a toll-free number and voice mail and faxes by phone
access e-mail and voice
mail through a touch tone
telephone
Unified Messaging Combined suite of services All benefits of Business Fax and Setup fee of $15 plus $12.50 per month
E-mail by Phone plus additional usage-based charges
|
(*) This service is not yet active.
(**) These are United States dollar prices for phone numbers in most countries.
Additional charges apply to toll-free inbound numbers.
In addition to our subscription services, we provide a number of value- added services which are available to free and paid customers of our subscription services for an incremental usage-based fee. The primary usage- based services that we offer and we expect to offer in the near future are described in the following table:
UP-SALE SERVICES
------------------------------------------------------------------------------------------------------------------------------------
Services Description Attributes
------------------------------------------------------------------------------------------------------------------------------------
Current Usage-Based Services
-----------------------------
Outbound Fax User can fax document through his/her e-mail outbox via the Per minute fax rates
Internet by using the destination fax number "@jfaxsend.com" Paperless forwarding of received
faxes
as the e-mail destination address
Outbound Voice User can send a voice message through his/her e-mail outbox Respond to e-mails with a voice
via the Internet by using the destination phone number message
"@jfaxsend.com" as the e-mail destination address
Broadcast Faxing User can send the same outbound fax to multiple recipients Powerful broadcast faxing
via the Outbound Fax service capabilities
Broadcast Voice User can send the same voice message to multiple recipients Powerful broadcast voice messaging
via the Outbound Voice service capabilities
Telephone Access to E-mail User can call a toll-free number and access e-mail through a Access, manage and/or reply to
touch tone telephone e-mail by phone
Planned Services
----------------
Follow Me Services Will find user by routing incoming calls to any phone number User will be able to assign
or series of phone numbers. Callers will have option to telephone/cell phone numbers and
leave a voice mail or to search for the user pager numbers at which user can be
located
Service will try all numbers and
track user down
Notification Will keep user updated regarding incoming messages. User User will be able to choose to
will be able to apply rules to filter which messages he/she check messages immediately or do it
receives and through which media he/she is notified later
Cardless Calling User will be able to make outgoing calls through JFAX.COM User will be able to make calls
number by entering a pin number without having to hang up and
reenter calling card number
Conference Calling User will be able to speak to more than one party at a time
|
There can be no assurance that we will be successful in the development or offering of these planned services.
Strategic Alliances
In order to introduce our services to end-users, we have developed strategic relationships with various online and offline service providers. These service providers have pre-existing relationships with their customer bases of e-mail-centric and telephone-centric users, thereby providing us with access to likely consumers for our services. The following table lists examples of our current relationships:
E-Mail Providers/Portals Internet/Online Service Providers Critical Path America Online CommTouch CompuServe mail.com Prodigy |
Telecommunications Companies Systems Integrators,
Value Added Resellers,
and International Resellers
Ameritech Telos
Telecom New Zealand Daimler-Benz IT Services
ESAT Telecom E.com Global Ltd.
ACC Telecom Kuni International Research/Eudora Japan
|
The following is a summary of certain of these key relationships:
Critical Path
We are the exclusive unified messaging service offered by Critical Path, a leading provider of outsourced e-mail platforms to corporate clients. Critical Path's customers as of March 1999 included E*Trade, U.S. West, Network Solutions and America Online, or AOL, which has selected Critical Path to provide e-mail accounts to all of its ICQ (real-time Internet messaging service) users. As the exclusive provider of unified messaging to Critical Path's customers, we expect to participate in the deployment of e-mail and related value-added services to Critical Path's rapidly growing base of users.
CompuServe
We provide the exclusive unified messaging service for CompuServe, a leading online service provider. We are an active advertiser on the CompuServe Network and CompuServe.com and also share revenue with CompuServe to the extent that the advertising produces greater customer sign-ups than anticipated.
CommTouch
We are the exclusive unified messaging service offered by CommTouch, a leader in providing outsourced e-mail platforms to corporate clients. CommTouch co-brands our service as "powered by JFAX.COM" under a revenue-sharing arrangement.
Prodigy
We are the exclusive unified messaging service offered by Prodigy, a leading Internet service provider. Prodigy co-brands our services for sale to its customers under a revenue-sharing arrangement.
Telecom New Zealand
We have a revenue sharing arrangement with Telecom New Zealand Limited, which is the dominant telephone company and our exclusive reseller in New Zealand.
Kuni Research International
Kuni Research International is our exclusive reseller in Japan. Kuni is a major reseller of Eudora's e-mail products and is Eudora's exclusive reseller in Japan. We believe that Japan will be an important market, having the largest number of e-mail users in the world outside of the United States. Kuni has a revenue sharing arrangement with us.
Many of these relationships are terminable at will or upon short notice. Furthermore, none of these relationships include long-term contractual commitments to continue the relationship, and most of these relationships are in the early stages of development. Although we believe that individually none of these relationships is material to our business, we consider our strategic alliances in their entirety to be important to our future success.
Sales and Marketing
Within the unified messaging market, we believe that we have a significant level of brand recognition. This is despite the fact that we have spent little on marketing and promotion. We believe that we have the largest market share in the world-wide unified messaging market. We intend to enhance our market position by implementing the following strategy.
Direct Marketing
Our direct marketing efforts have consisted of attracting visitors to our web site and signing them up as customers. In the past, approximately 60% of our new subscriptions have originated directly through our web site. We believe that our free service offerings will result in a significant increase in traffic to our web site. In the past, we have only engaged in modest advertising through direct channels due to limited financial resources.
To fully capitalize on our business model, we intend to initiate a more traditional marketing campaign, which will initially include targeted advertising, direct mail, radio and outbound telemarketing.
Indirect Marketing
Online Advertising and Reselling. We have revenue sharing and commission based arrangements with a large number of resellers that allow us to advertise on their web sites and permit them to resell our service. We have implemented our affiliates program, a tool for enabling companies and individuals to sign up as JFAX.COM resellers online.
Integrated Services. With some of our strategic alliances, we co-brand our service, allowing them to integrate their service with ours and sell a "powered by JFAX.COM" service.
Telecommunications Companies. Recently, we have contracted with Ameritech, Telecom New Zealand and ESAT Telecom in Ireland to offer services to their customers. These agreements represent a first step in executing a broad recruitment program targeting regional bell operating companies, competitive local exchange carriers, long distance providers and wireless carriers.
Value-Added Resellers and Systems Integrators. We are in the early stages of our relationship with value-added resellers and systems integrators. We intend to build a network of value-added resellers
and system integrators. We intend to build a network of value-added resellers and systems integrators that will offer our services as part of an overall information technology solution for their corporate and government customers.
International Marketing. We believe that we benefit from local representatives in our international markets, since they have the cultural understanding and relationships necessary to sell our services. Our international department in Los Angeles focuses on recruiting and supporting our international marketing effort. We intend to move our European representative recruitment and support activities to Europe by adding an office there, maintaining our Pacific Rim and Latin American representative recruitment and support activities in Los Angeles.
Up-Sale Marketing
A critical piece of our direct and indirect marketing strategies is to offer free services. The free services allow us to expand our customer base and get customers in the habit of using our services. By virtue of our modular service approach and flexible billing systems, we can then engage in the following two-step approach to up-sales:
. sell additional usage-based services to both free and paid subscribers,
and
. convert our free subscribers to paid subscriptions.
In order to effectively execute our up-sell strategy, we must identify reasons why our customers may hesitate to buy new services. We believe the primary reasons include:
. mere resistance to change, and
. the existence of functional alternatives, such as answering machines and
fax machines.
We intend to overcome this resistance by selling the factors of unified messaging one at a time. In offering our services on a menu basis, we believe we can:
. decrease the risk, or perceived risk, to the customer,
. take advantage of immediate, compelling needs to bring about behavior changes, for instance, leveraging the privacy afforded by fax to e-mail to wean the customer of dependence on an actual fax machine, and
. render functional alternatives redundant through the gradual introduction of more complete unified messaging services.
For example, a free fax customer may, initially, only see the need for a fax machine substitute and see no value in fax to e-mail, voice to e-mail or telephone access to e-mail. By introducing this customer to unified messaging via the free fax service, this customer may, through targeted selling of add-on features, gradually see the power of combined fax to e-mail, voice to e-mail and telephone access to e-mail, and thereby migrate to unified messaging.
Our unified messaging resources allow us to execute our up-sale strategy efficiently. As a unified messaging company, we have access to our subscribers' e-mail and are able to customize our marketing efforts to specific customers. As a result, we have a direct, low cost channel in which to advertise our services by sending the customer a promotional fax, e-mail or voice mail message.
International Network and Operations
We offer our services in over 60 area codes in the United States and abroad, including in 21 of the 25 most populous major metropolitan areas in the United States and such international business centers as London, Paris, Rome, Frankfurt, Zurich, Sydney and Tokyo. We intend to take advantage of our first-to-market position by creating a leading position in major cities as quickly as possible. We have pursued two basic types of commercial relationships in rolling out our network:
. International Strategic Alliances. To expand our international network rapidly, we are pursuing strategic alliances with telecommunications providers in a number of foreign markets. These alliances provide us with local marketing, billing, customer support, co-location and phone numbers.
. Co-location. Our co-location agreements require the contracting party to provide space in its facility for our server, and a frame-relay network to carry the server's traffic to major network hubs. Each server has connections to at least two major hubs for redundancy purposes. Either the local telephone company or an alternate provides direct inward dial services for our use.
We have entered into major co-location agreements with two carriers. For locations in the United States, we have a co-location agreement with WorldCom/MFS, which is now MCI WorldCom. For international locations, our co-location agreement is with a division of Telecom Italia. We have other preexisting co-location agreements, in which we own the lines and equipment. We pay a fixed fee per month for these co-locations.
Service Architecture and Information Systems
Our services are structured into service categories in a distributed and modular fashion, for rapid deployment, reliability and scalability. The service categories are as follows:
Inbound Services
Inbound servers accept incoming fax and voice mail messages, on trunk lines from local telephone providers. The servers run on the Unix operating system, known for reliability in telecom environments, with digital fax/voice cards and T-1 trunk interface cards supplied by leading telephony card manufacturers, and software designed and written by our programmers. After a fax transmission or a voice message is received by the server, it is compressed into a standard form, and sent to the user's e-mail address via the Internet. Voice messages are typically compressed by a factor of 5 to 1 in the GSM standard voice format, which results in telephone quality voice, with small file sizes. Faxes are compressed to the TIF/F, an Internet standard for multi-page fax documents, with an average page requiring about 40 kilobytes of memory.
Outbound Services
The outbound system accepts e-mail messages via the Internet, that are addressed to fax machines anywhere in the world, or voice messages that are addressed to telephones anywhere in the world. After a message is received by the outbound system, it determines a least cost route for transmitting the message to the final destination fax machine or telephone. The system comprises servers in a distributed network with several scheduling, prioritization and routing procedures designed
and written by our programmers, to ensure that the message is delivered in a timely and cost-effective manner to the destination.
Telephone Access Services
Our telephone access system offers users the capability to call from any touch-tone telephone and listen to their e-mails and voice mails and manage their e-mails, faxes and voice mails via any touch-tone phone. These servers connect via the Internet to the user's e-mail servers, and retrieve all of the user's messages, so that the user may listen to, reply, forward or delete the messages (fax, voice or e-mail via a text-to-speech engine).
Web Access and Web Provisioning Services
Our web access and provisioning systems permit us to provision phone numbers and manage account information in near real-time. These systems work on a network of servers connected to a centralized database, and are built to handle high volume traffic in a redundant and scalable fashion.
Customer Support Services
Our customer service department provides 24-hour support, seven days a week. This department provides support primarily in English, although this department also has French, Spanish and German speakers. The department handles all account issues for our subscribers, ranging from initial sales and sign-up to technical support and account administration. To provide this "one-stop shop," we have installed a technology infrastructure for our customer service representatives to leverage available data from our main enterprise database and our customer database. These databases give our customer service representatives the ability to track purchase history, payment history, caller history, contact history, and report, analyze and solve technical issues in an efficient and organized manner. We maintain a list of frequently asked questions for use by customer service representatives in responding to common queries and issues. This list of questions is updated to keep our customer service representatives abreast of new issues.
Further, we offer web-based online self-help. This allows customers to resolve simple issues on their own. We have found that most customer questions come from new users, and with an online self-help guide we believe we are able to address the majority of new users' questions efficiently.
Competition
We principally compete to provide Internet enabled e-mail users with unified messaging and related communications services. Because unified messaging is a new service that is designed to consolidate other methods of messaging (e.g., voice mail, fax and e-mail) into a single repository, we compete with worldwide providers of voice mail services and products and fax services and products. Each of these markets on a stand-alone basis is highly competitive and has numerous service and product providers.
Although we currently have direct competitors for some of our services, we are not aware of any service provider currently offering an international unified messaging suite of services directly competitive to our own. We believe this lack of direct competition will change. To the extent our services face competition, that competition is based on price, quality, brand recognition, geography and customer support.
Future competition could come from a variety of companies both in the Internet industry and the telecommunications industry. These industries include major companies which have much greater resources than we have, have been in operation for many years and have large subscriber bases. Such companies may be able to develop and expand their communications and network infrastructures more quickly, adapt more swiftly to new or emerging technologies and changes in customer requirements, take advantage of acquisition and other opportunities more readily, and devote greater resources to the marketing and sale of their products and services than we can. There can be no assurance that additional competitors will not enter markets that we plan to serve or that we will be able to compete successfully. On the consumer side of our business, we face competition from companies offering some of our services on a free basis through an advertising-based model.
We believe that our solution competes favorably with that of other current and potential providers with respect to the following:
. range and quality of service offerings,
. access to phone numbers in major metropolitan areas in the United
States and abroad,
. pricing and cost savings for customers,
. customer support, and
. brand recognition.
Patents and Proprietary Rights
We developed substantially all of our software internally. We have agreements with our programmers that provide for our ownership of all software and intellectual property.
We have trademarked the JFAX and JFAX.COM tradenames and our JFAX logo, as shown on the cover. We have multiple patents pending for proprietary aspects of the major components of our technology.
We have licensed some components of our software for unlimited use for one- time, upfront payments. Some of our license agreements provide for a modest additional payment in the event of a subsequent major upgrade.
Facilities
We currently lease approximately 15,000 square feet of office space for our headquarters in Los Angeles, California. Our Los Angeles lease expires in 2000. We have an additional 1,000 square feet of office space at 11 Broadway in downtown New York City. Our New York lease expires in 2000.
Employees
We currently employ or contract a total of 80 employees, including 11 consultants on a full or part-time basis. We have 63 full-time and 6 hourly workers. Thirty of our employees are technical staff, reflecting our emphasis on the development of new technologies.
Our future success will depend, in part, on our ability to continue to attract, retain and motivate highly qualified technical, marketing and management personnel. Our employees are not represented by any collective bargaining unit. We have never experienced a work stoppage. We believe our relationship with our employees is good.
MANAGEMENT
Directors and Executive Officers
Name Age Position
Richard S. Ressler 40 Co-Chairman of the Board and Chief Executive Officer
Jaye Muller 26 Co-Chairman of the Board and Director
Gary H. Hickox 42 President and Chief Operating Officer
Dr. Anand Narasimhan 33 Chief Technology Officer
Hemi Zucker 41 Chief Financial Officer
Zohar Loshitzer 41 Chief Information Officer and Director
John F. Rieley 54 Director
Michael P. Schulhof 55 Director
R. Scott Turicchi 35 Director
Robert J. Cresci 55 Director
|
Richard S. Ressler has been our chief executive officer, co-chairman of the board and a director since 1997. He is a member and manager of Orchard/JFax Investors, LLC, one of our principal stockholders. Since 1994, Mr. Ressler has been the president, sole director and sole shareholder of Orchard Capital Corporation, or Orchard, a consulting firm which provides investment, operational, and financial consulting services to, among others, start-up and turn-around companies. From 1995 to 1997, Mr. Ressler was chief executive officer of MAI Systems Corporation, a software and network computing company, and he currently serves as MAI's chairman. Mr. Ressler has served MAI in such capacities pursuant to a consulting agreement between MAI and Orchard. Since 1995, Orchard has also acted as the manager of CIM Group, LLC, a real estate investment, development and management company. Since 1996, Mr. Ressler has also been a director and shareholder of Orchard Telecom, Inc., a telecommunications consulting firm.
Jaye Muller is a co-founder and co-chairman of the board and has been a director since 1995. From December 1995 until March 1997, he held various offices with JFAX.COM. After March 1997, he has provided consulting services to us under an agreement between us and Boardrush Media LLC, one of our principal stockholders. He is a member and manager of Boardrush. Mr. Muller received his technical education and began his electronics design work in East Germany. He is a musician and the founder of one of the world's first Internet based newsletters, Germany Alert.
Gary H. Hickox has been our president and chief operating officer since 1998. From 1996 to 1998 he was global marketing vice president for AT&T Internet Services, where he was responsible for marketing and securing the delivery of an array of Internet-related voice and call center services. From 1983 to 1996, Mr. Hickox held other executive positions within AT&T.
Dr. Anand Narasimhan has been our chief technology officer since 1996. Dr. Narasimhan began his career with IBM in 1990 as a graduate fellow and conducted research and design work in areas that included audio and speech coding techniques. He developed technologies on five patented telecommunications, digital cellular and network devices, and six additional patents are pending on devices he helped develop in the areas of Internet telephony, voice and audio data transfer and data network switching.
Hemi Zucker has been our chief financial officer since 1996. Prior to joining JFAX.COM in 1996, he was chief operations manager of Motorola's EMBARC division, which packages CNBC and
ESPN for distribution to paging and wireless networks. From 1980 to 1996, Mr. Zucker held various positions in finance, operations and marketing at Motorola in the United States and abroad.
Zohar Loshitzer has been our chief information officer and a director since 1997. Since 1995, he has been a managing director of Orchard Telecom, Inc., a telecommunications consulting company. From 1987 to 1995, Mr. Loshitzer was the general manager and part owner of Life Alert, a nationwide emergency response service. Mr. Loshitzer has been a director of MAI Systems Corporation since 1998.
John F. Rieley is a co-founder and has been a director since 1995. From December 1995 when our business was founded until March 1997, he held various offices with JFAX.COM. After March 1997 he has provided consulting services to us under an agreement between us and Boardrush Media LLC, one of our principal stockholders. He has managed, marketed and consulted on other projects in the media field, the airline industry and in public affairs.
Michael P. Schulhof has been a director since 1997. Mr. Schulhof is a private investor in the media, communications and entertainment industry. From 1993 to 1996, he was president and chief executive officer of Sony Corporation of America. Mr. Schulhof is a trustee of Brandeis University, the Lincoln Center for the Performing Arts, New York University Medical Center and the Brookings Institution. He is a member of the Council on Foreign Relations and the Investment and Services Policy Advisory Committee to the U.S. Trade Representative. Mr. Schulhof is a director of SportsLine, USA, Inc., an Internet-based sports media company.
R. Scott Turicchi has been a director since 1998. Mr. Turicchi is a Managing Director in Donaldson, Lufkin & Jenrette Securities Corporation's Investment Banking department. He is responsible for Corporate Finance activities including public equity offerings, high grade and high yield debt offerings, private equity placements and mergers and acquisitions advisory services. Mr. Turicchi joined DLJ in 1990.
Robert J. Cresci has been a director since 1998. Mr. Cresci has been a Managing Director of Pecks Management Partners Ltd., an investment management firm, since September 1990. Mr. Cresci currently serves on the boards of Bridgeport Machines, Inc., EIS International, Inc., Sepracor, Inc., Arcadia Financial, Ltd., Hitox, Inc., Aviva Petroleum Ltd., Film Roman, Inc., Quest Education Corporation, Castle Dental Centers, Inc., Candlewood Hotel Co., Inc., SeraCare, Inc. and on the boards of several private companies.
Committees of the Board of Directors
In April 1999, the board of directors established an audit committee and a compensation committee. The audit committee consists of Messrs. Cresci, Schulhof and Turicchi, all of whom are outside directors. The audit committee recommends engagement of our independent auditors, approves the services performed by such auditors and reviews and evaluates our accounting policies and our systems of internal accounting controls. The compensation committee consists of Messrs. Cresci, Schulhof and Turicchi, all of whom are outside directors. The compensation committee makes recommendations to the board of directors in connection with matters of compensation, including determining the compensation of our executive officers.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1998, we had no compensation committee. Decisions regarding compensation for 1998 were made by our board of directors. Following the completion of the offering, compensation decisions will be made by the compensation committee.
Director Compensation
Our directors who are also officers receive no separate compensation for serving as directors. Our outside directors, Messrs. Schulhof, Turicchi and Cresci, are themselves, or are representatives of, significant stockholders. They receive no compensation for serving as directors. They are reimbursed for their expenses in attending directors' meetings. See "Certain Transactions."
Executive Compensation
The following table sets forth information concerning compensation of our chief executive officer and the top four other highly compensated executive officers whose salary and incentive compensation exceeded $100,000 for the year ended December 31, 1998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
------------------------- ----------------------------
Other Annual
Name And Principal Position Salary Bonus Compensation Shares Underlying Options
----------------------------- ------------ -------------- ------------ ----------------------------
Richard S. Ressler, $200,000 $0.00 $0.00 _____
Chief Executive Officer
Gary H. Hickox, $60,874/(1)/ $0.00 $40,542/(2)/ 300,000
President
Hemi Zucker, $150,000 $33,261 $0.00 10,000
Chief Financial Officer
Zohar Loshitzer, $140,000 $43,677 $0.00 40,000
Chief Information Officer
Anand Narasimhan, $137,453 $25,798 $0.00 90,000
Chief Technology Officer
|
(1) Represents compensation for the period from September 1998 to December 1998.
(2) Consists of re-location expenses reimbursed to Mr. Hickox.
Option Grants and Exercises
The following table provides information concerning grants of options to purchase our common stock made during the fiscal year ended December 31, 1998 to the Named Executive Officers. They did not exercise any options during this period.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
Number of At Assumed Annual Rates
Securities % of Total of Stock Price Appreciation
Underlying Options Granted Exercise or For Option Term
Options to Employees in Base Price Expiration ---------------------------
Name Granted Fiscal Year ($/SH) Date 5% ($) 10% ($)
-----------------------------------------------------------------------------------------------------------------------
Richard S. Ressler, 0 N/A N/A N/A N/A N/A
Chief Executive
Officer
Gary H. Hickox, 300,000 42.0% $3.00 9/17/08 $566,005 $1,434,368
President
Hemi Zucker, 10,000 1.4% $3.00 9/30/08 $18,867 $47,812
Chief Financial
Officer
Zohar Loshitzer, 40,000 5.6% $3.00 9/30/08 $75,467 $191,249
Chief Information
Officer
Anand Narasimhan, 90,000 12.6% $3.00 9/30/08 $169,082 $430,310
Chief Technology
Officer
|
Potential realizable value is based on the assumption that our common stock appreciates at the annual rate shown (compounded annually) from the date of grant until the expiration of the option term. These numbers are calculated based on the requirements promulgated by the SEC and do not represent our estimate of future stock price growth.
The following table provides information concerning unexercised options held as of December 31, 1998 by the Named Executive Officers. They did not exercise any options during this period.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END VALUES
Number of Unexercised Options Value of Unexercised In-The-
Held at December 31, 1998 Money Options at December 31,
------------------------------- 1998(1)
-----------------------------
Name Exercisable (#)/Unexercisable (#) Exercisable (#)/Unexercisable (#)
--------------------------- ---------------------------------- ----------------------------------
Richard S. Ressler, 0/0 $0/0
Chief Executive Officer
Gary H. Hickox, 0/300,000 0/0
President
Hemi Zucker, 116,667/93,333 $238,000/169,999
Chief Financial Officer
Zohar Loshitzer, 180,000/40,000 $360,000/0
Chief Information Officer
Anand Narasimhan, 60,000/90,000 $122,400/0
Chief Technology Officer
|
(1) The value of the unexercised in-the-money options is based on fair market value at December 31, 1998, as determined by the Board of Directors, and is net of the exercise price of such options.
1997 Stock Option Plan
Our 1997 Stock Option Plan (the "Plan") was adopted by the Board of Directors and approved by the stockholders in November 1997. A total of 3,500,000 shares of common stock has been reserved for issuance under the Plan. As of April 12, 1999, options to purchase 1,255,055 shares of common stock were outstanding under the Plan, and 39,330 shares had been issued upon exercise of previously granted options.
The Plan provides for grants to employees (including officers and employee directors) of "incentive stock options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and for grants of nonstatutory stock options ("NSOs") to employees (including officers and employee directors) and consultants (including non-employee directors).
The Plan is administered by the compensation committee of the board of directors (the "Administrator"). The Administrator may determine the terms of the options granted, including the exercise price, the number of shares subject to each option and the exercisability of the option. The Administrator also has the full power to select the individuals to whom options will be granted and to make any combination of grants to any participants.
Options generally have a term of 10 years. One-third of the shares subject to the option vest on the one-year anniversary of the grant date and each of the remaining one-third portions of the shares subject to the option vest on each annual anniversary of the grant date thereafter.
The option exercise price may not be less than the higher of the par value or 100% of the fair market value of the common stock on the date of grant; provided, however, that NSOs may be granted at
exercise prices of not less than the higher of the par value or 85% of the fair market value on the date the option is granted. In the case of an ISO granted to a person who at the time of the grant owns stock representing more than 10% of the total combined voting power of all classes of our stock, the option exercise price for each share covered stock by such option may not be less than 110% of the fair market value of share of common stock on the date of grant of such option.
In the event of a sale of all or substantially all of our assets, or our merger with or into another corporation, each option will become immediately exercisable in full unless the board of directors determines that the optionee has been offered substantially identical replacement options.
Employment Agreements
We have employment agreements with Mr. Zucker and Mr. Narasimhan. Each of the employment agreements is terminable at will by either party, but provide for severance payments equal to six-months' salary, in the case of Mr. Zucker, and three-months' salary, in the case of Mr. Narasimhan, in the event of a termination by us without cause.
We also have an employment agreement with Mr. Hickox. The agreement is terminable at will by either party, but provides for 12 months' severance in the event of termination by us without cause or by Mr. Hickox following a relocation or change in position.
We have established an incentive compensation bonus plan designed to recognize efforts required to achieve our annual objectives. A management committee administers the plan. This committee is exclusively responsible for determining and approving the following:
. financial planning and setting of corporate goals,
. eligibility of plan participants,
. bonus structure amounts, which are based on base salary, and
. individual assessment guidelines and goals.
Corporate attainment of goals drives the funding of the bonus plan. Messrs. Hickox, Zucker, Loshitzer and Narasimhan each participates in the bonus plan.
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table sets forth information as of April 15, 1999 with respect to the beneficial ownership of our common stock by:
. each person known by us to own beneficially more than five percent, in the aggregate, of the outstanding shares of our common stock,
. our directors and our Named Executive Offices, and
. all executive officers and directors as group.
Share ownership in each case includes shares issuable upon exercise of outstanding options and warrants that are exercisable within 60 days of April 15, 1999 as described in the footnotes below. Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).
This table does not reflect ownership of the outstanding Series A Usable Redeemable Preferred Stock, since we intend to redeem this at or shortly after the closing of the offering.
Shares of Common Stock Shares of Common Stock
Beneficially Owned to be Beneficially Owned
Before the Offering Shares to be Sold After the Offering
---------------------- --------------------- ------------------------
Name and Address of Beneficial Owner/(1)/ Number Percent Number Percent Number Percent
----------------------------------------- ---------- ------- ------ ------- ------ -------
Orchard/JFAX Investors, LLC/(2)/ 10,762,622 54.64% -- -- -- --
Boardrush Media LLC
972 Putney Road, Suite 299
Brattleboro, VT 05301 4,025,000 20.70% -- -- -- --
Pecks Management Partners Ltd. /(3)/
One Rockefeller Plaza
New York, NY 10020 2,141,158 10.80% -- -- -- --
DLJ Entities/(4)/
277 Park Avenue
New York, NY 10172 1,592,500 7.57% -- -- -- --
Jaye Muller/(5)/ 4,025,000 20.70% -- -- -- --
Richard Ressler/(6)/ 10,762,622 54.64% -- -- -- --
John F. Rieley 140,000 * -- -- -- --
Gary Hickox 33,000 * -- -- -- --
Michael P. Schulhof/(7)/ 882,483 4.39% -- -- -- --
Dr. Anand Narasimhan/(8)/ 202,767 1.04% -- -- -- --
Hemi Zucker/(9)/ 326,058 1.67%
Zohar Loshitzer/(10)/ 180,000 * -- -- -- --
R. Scott Turicchi/(11)/ 115,000 * -- -- -- --
Robert Cresci/(12)/ 0 * -- -- -- --
All directors and executive officers
as a group (10 persons) 16,666,930 80.42% -- -- -- --
|
(*) Designates less than 1%.
(1) The address for all executive officers and directors and for Orchard/JFAX Investors, LLC is c/o JFAX.COM, Inc., 10960 Wilshire Blvd., Suite 500, Los Angeles, CA 90024.
(2) Consist of 10,512,622 shares of common stock and 250,000 vested warrants.
(3) Consist of:
. 1,112,867 shares of common stock and 236,500 warrants held by Delaware
State Employees Retirement Fund,
. 306,383 shares of common stock and 65,000 warrants held by ICI American
Holdings, Inc. Defined Benefit Plan,
. 205,656 shares of common stock and 43,500 warrants held by Zeneca
Holdings Inc. Defined Benefit Plan, and
. 141,252 shares of common stock and 30,000 warrants held by the JW
McConnell Family Foundation.
(4) Consist of:
. 12,500 warrants held by DLJ Capital Corp.
. 945,500 warrants held by DLJ Private Equity Partners Fund, L.P.
. 368,500 warrants held by DLJ Fund Investment Partners II, L.P.
. 33,500 warrants held by DLJ Private Equity Employees Fund, L.P.
. 215,000 warrants held by DLJ Securities Corp.
. 17,500 warrants held by DLJ ESC II, L.P.
(5) Consist of holdings of Boardrush Media LLC.
(6) Consist of holdings of Orchard/JFAX Investors, LLC.
(7) Consist of 210,483 shares of common stock and 672,000 vested warrants. For accounting purposes, these warrants are treated as options.
(8) Consist of 142,767 shares of common stock and 60,000 employee options that are exercisable within 60 days of April 15, 1999.
(9) Consist of 209,391 shares of common stock and 116,667 employee options that are exercisable within 60 days of April 15, 1999.
(10) Consist of 180,000 employee options that are exercisable within 60 days of April 15, 1999.
(11) Mr. Turicchi was appointed as the board representative for the holders of the Series A Usable Redeemable Preferred Stock and the warrants.
(12) Mr. Cresci was appointed as the board representative of Delaware State Employees Retirement Fund, ICI American Holdings, Inc. Defined Benefit Plan, Zeneca Holdings Inc. Defined Benefit Plan and the JW McConnell Family Foundation.
CERTAIN TRANSACTIONS
The following directors and officers are indebted to us. Hemi Zucker is
indebted to us in the amount of $113,250. This amount represents the principal
balance of a loan in the original principal amount of $100,000 that was advanced
to Mr. Zucker on April 11, 1997. The loan matures on March 31, 2001 and bears
interest at the rate of 6.32% per annum. However, interest is not paid
periodically, but rather is accrued into principal each September 30 and March
31. Anand Narasimhan is indebted to us in the amount $50,000. This loan was
advanced to Mr. Narasimhan on September 17, 1997, matures on September 17, 1999
and bears interest at the rate of 8.0% per annum with interest deducted from Mr.
Narasimhan's salary. Boardrush Media LLC, a company controlled by Jaye Muller,
is indebted to us in the amount of approximately $2,250,000. The loan to
Boardrush was advanced to Boardrush on March 17, 1997. The loan to Boardrush
matures on March 17, 2004 (provided, however, that Boardrush shall be required
to repay this loan to us upon the sale by Boardrush or its affiliates of at
least $4 million of our common stock) and bears interest at the rate of 6.32%
per annum with interest payments offset against amounts due and owing to
Boardrush under the consulting agreement described below. Gary Hickox is
indebted to us in the amount of $99,000. This loan was made to Mr. Hickox in
September 1998 when he joined us. Mr. Hickox used the proceeds of this loan to
purchase 33,000 shares of our common stock. The loan matures on October 7, 2001
and bears interest at 4.25% per annum, with accrued interest due at maturity.
We have employment agreements with Mr. Zucker and Mr. Narasimhan. Each of the employment agreements is terminable at will by either party, but provide for severance payments equal to six-months' salary, in the case of Mr. Zucker, and three-months' salary, in the case of Mr. Narasimhan, in the event of a termination by us without cause.
We also have an employment agreement with Mr. Hickox. The agreement is terminable at will by either party, but provides for 12 months' severance in the event of termination by us without cause or by Mr. Hickox following a relocation or change in position.
We are a party to a consulting agreement with Boardrush, a company controlled by Mr. Muller, pursuant to which Boardrush provides the services of Mr. Muller and Mr. Rieley to us for a maximum of two days each per month. The term of the consulting agreement runs through the earlier of the date on which the Boardrush loan is repaid in full as described above and March 17, 2004. Therefore, there can be no assurance that upon the repayment of the Boardrush loan, Mr. Muller and Mr. Rieley will continue to provide any consulting services to us. Until March 17, 1999, we paid Boardrush $400,000 per year, payable in equal monthly payments, pursuant to the consulting agreement. From and after March 17, 1999, Boardrush's compensation under the consulting agreement consists solely of forgiveness of interest and principal under the loan discussed above, with principal reductions being made pro rata over the five-year period from March 17, 1999 through March 17, 2004. Pursuant to the consulting agreement, we also reimburse Boardrush for expenses it incurs on our behalf. Monthly reimbursements to Boardrush are approximately $10,000 on average.
We are also a party to a consulting arrangement with Orchard Capital Corporation, a company controlled by Richard S. Ressler, pursuant to which we pay Orchard $200,000 per year, payable in equal monthly payments, for the services of Mr. Ressler. We also reimburse Orchard for expenses it incurs on our behalf. Monthly reimbursements to Orchard are approximately $3,500 on average.
We occupy office space at 10960 Wilshire Blvd., Suite 500, Los Angeles, California, which is contiguous to and under a common sublease with CIM Group, LLC, a limited liability company in which Mr. Ressler is a member and manager. The rent for our office space is paid by CIM and we reimburse CIM our proportionate share which is approximately $15,000 per month.
Because we share office space, the services of our vice president, administration, as well as a receptionist and an administrative assistant are made available to Orchard and CIM and Orchard Telecom, Inc., a company in which Mr. Ressler is a shareholder and director, and we are reimbursed for the proportionate share of certain of their salaries. In addition, telephone service, related telecommunications services, office equipment and other office services, and employee health insurance coverage are provided to Orchard, CIM and Orchard Telecom pursuant to our contracts with our vendors, and we are reimbursed for the proportionate share of the associated expenses.
The services of our general counsel are made available to Orchard, CIM and MAI Systems Corporation, a company in which Mr. Ressler has a significant ownership interest, and we are reimbursed for the proportionate share of his salary.
Monthly reimbursements from Orchard (including Orchard Telecom, Inc.), CIM and MAI are currently approximately $12,500. This amount reflects our business activity, vis a vis the other affiliated entities, as of March 31, 1999, and could increase or decrease as we and/or these affiliated entities grow.
In June 1998, we issued $10 million of our 10% Senior Subordinated Notes due 2004 together with 1,681,577 shares of our common stock to an investor group advised by Pecks Management Partners Ltd., with which Mr. Cresci is associated. The total purchase price was $10 million. In July 1998, we also issued $5 million in liquidation preference of our Series A Usable Redeemable Preferred Stock and warrants to acquire 2,500,000 shares of our common stock. Donaldson, Lufkin & Jenrette Securities Corporation, the affiliate of DLJ Capital Corp. that acted as placement agent for the offerings, received warrants to acquire 215,000 shares of our common stock on the same terms as the purchasers as compensation for its services. The total purchase price was $5 million. Orchard/JFAX Investors, LLC, a company in which Mr. Ressler is the managing member, participated to the extent of $500,000 in the latter investment. In addition, $3.5 million was purchased by DLJ Capital Corp. and its affiliates, with which Mr. Turicchi is associated, and $750,000 was purchased by an investor group advised by Pecks Management Partners, Ltd. The remaining $250,000 was purchased by GMT Partners, LLC. The proceeds of the offering will be used in part to repay the Senior Subordinated notes and the Series A Usable Redeemable Preferred Stock for amounts estimated to be $10,750,000 and $6,600,000, respectively, including accrued and unpaid interest and dividends. Persons participating in these investments will retain their shares of our common stock and warrants to acquire our common stock. To the extent required by the rules of the SEC, the ownership of shares and warrants by such persons is reflected in the table under "Security Ownership of Management and Principal Stockholders."
In March 1998, we issued a total of 3,000,000 shares of our common stock at $1.00 per share pursuant to a rights offering that was made available to all of our stockholders on the same terms.
In January 1998, Orchard/JFAX Investors, LLC, a company in which Richard Ressler is the managing member, loaned us $1,400,000 in order to fund our working capital requirements. The principal amount of this loan, together with accrued interest at the rate of 15% per annum, was repaid in full in March 1998 with the proceeds of the rights offering described above.
In May and June 1998, Orchard/JFAX Investors, LLC loaned us an additional $1,000,000 in order to fund our working capital requirements. The principal amount of these loans, together with accrued interest at the rate of 15% per annum, was repaid in full in July 1998 with the proceeds of the senior subordinated notes and common stock and preferred stock and warrants offerings described above.
In January 1997, we entered into a consulting agreement with Michael P. Schulhof, now a member of our board of directors. Pursuant to this agreement, Mr. Schulhof agreed to provide financial, investment and operational advice to our management team. In consideration for these services, Mr. Schulhof was granted a
warrant to purchase 336,000 shares of our common stock at an exercise price of $0.88 per share and a second warrant to purchase 336,000 shares of our common stock at an exercise price of $2.25 per share. Each of these warrants is currently exercisable and expires in January 2007. The consulting agreement had a two year term and expired by its terms in January 1999.
DESCRIPTION OF CAPITAL STOCK
The following summary information is qualified in its entirety by the provisions of our certificate of incorporation and by-laws, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part. See "Available Information" for more information.
Our authorized capital stock consists of 200,000,000 shares of common stock, par value $0.01 per share, and 1,000,000 shares of preferred stock, par value $0.01 per share. As of April 15, 1999, 19,446,488 shares of common stock were issued and outstanding, and there were 35 holders of record of common stock. As of April 15, 1999, 5,000 shares of Series A Usable Redeemable Preferred Stock were issued and outstanding, and there were 20 holders of record of preferred stock. We also have warrants and stock options outstanding, as described below.
Common Stock
Dividends
Subject to the prior rights of any outstanding preferred stock, the holders of common stock are entitled to receive dividends out of assets legally available for payment of dividends at such times and in such amounts as the board of directors may from time to time determine. See "Dividend Policy."
Voting Rights
Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of our directors, subject to any class or series voting rights granted to the preferred stock. There is no cumulative voting. The board of directors is expressly authorized to adopt, amend or repeal the by-laws in any manner not inconsistent with Delaware law or the certificate of incorporation, subject to the power of the stockholders to adopt, amend or repeal the by-laws. The certificate of incorporation may be amended by an affirmative vote of the holders of a majority of our outstanding capital stock entitled to vote on the matter, subject to any class or series voting rights granted to the preferred stock.
Liquidation Rights and Other Matters
The shares of common stock are neither redeemable nor convertible, and the holders of common stock have no preemptive or subscription rights to purchase any of our securities. Upon our liquidation, dissolution or winding up, the holders of common stock are entitled to receive pro rata any of our assets which are legally available for distribution after payment of all debts and other liabilities and subject to any preferential rights of the holders of preferred stock.
The holders of 1,681,577 shares of our common stock were granted put rights with respect to those shares, which would be available following a change of control, as defined, in a manner similar to the redemption rights applicable to warrants as described below. The put price is $4.00 per share, subject to adjustment.
Preferred Stock
As of April 15, 1999, we have one series of preferred stock issued and outstanding, consisting of 5,000 shares of Series A Usable Redeemable Preferred Stock, which will be redeemed for approximately
$6.6 million using a portion of the proceeds of the offering. This redemption is expected to occur no later than __________, 1999.
The board of directors may authorize the issuance of one or more additional series of preferred stock having such rights, including voting, conversion and redemption rights, and such preferences, including dividend and liquidation preferences, as the board may determine, without further action by our stockholders.
The issuance of additional preferred stock by the board of directors could adversely affect the rights of holders of common stock. For example, the issuance of preferred stock could result in another series of securities outstanding with preferences over the common stock with respect to dividends and in liquidation, with voting rights superior to the common stock, or with rights, upon conversion or otherwise, the same or superior to the common stock.
We believe that the board of directors' ability to issue preferred stock on such a wide variety of terms will enable the preferred stock to be used for important corporate purposes, such as financing acquisitions or raising additional capital. However, were it inclined to do so, the board of directors could issue all or part of the preferred stock with, among other things, substantial voting power or advantageous conversion rights. This stock could be issued to persons deemed by the board of directors likely to support current management in a contest for control of the company, either as a precautionary measure or in response to a specific takeover threat. We have no current plans to issue preferred stock for any purpose.
Warrants and Options
We have issued 2,715,000 warrants to purchase an aggregate of 2,715,000 shares of common stock at an exercise price of $3.00 per share, subject to adjustment. These warrants expire in July 2005. Holders of unexercised warrants are not entitled to receive dividends or other distributions or to receive notice of any meeting of stockholders. Holders of unexercised warrants also do not have voting or any other rights of stockholders.
Upon the occurrence of a change of control, as defined, that is not approved by the holders of 66 2/3% in interest of the warrants and the shares of common stock received on the exercise of warrants, the holders of the warrants and the shares of common stock held as a result of the exercise of the warrants will have the right to require us
. to redeem the warrants at $2.00 each, and
. to redeem the shares of common stock received on exercise of any warrants
at $5.00 each, in each case subject to adjustment.
We have also issued warrants to purchase 336,000 shares of common stock at an exercise price of $0.88 per share, to purchase 336,000 shares of common stock at $2.25 per share and to purchase 23,333 shares of common stock at $3.00 per share, in each case subject to adjustment. The latter warrants expire in April 1, 2005, and the former two series of warrants expire in January 2007.
We also issued 200,000 warrants to America Online on October 15, 1997 to purchase 200,000 shares of our common stock at $3.00 per share.
We also have options outstanding and available for grant under our stock option plan. See "Management -- 1997 Stock Option Plan."
Registration Rights
Pursuant to various registration rights agreements, commencing six months after the effective date of the offering, the holders of 17,006,421 shares of our common stock may make requests that we register their securities, or include their shares in other registrations, under the Securities Act, subject to conditions. These registration rights extend to other shares not yet issued, for example shares issuable upon the exercise of warrants, for the benefit of the persons having these rights. In the event of such requests, we will comply with the registration rights agreements and cause the registrations to occur.
Securityholders' Agreement
We have a Securityholders' Agreement dated as of June 30, 1998 with investors in our notes and preferred stock in the June and July 1998 private placements. Many provisions in this agreement become inapplicable following completion of the offering. Among the surviving provisions, however, are provisions permitting the holders of the shares associated with the respective placements each to elect a director (i.e., a total of two directors) to our board of directors so long as they hold a specified minimum number of shares.
Anti-Takeover Effects of Delaware Law
We are a Delaware corporation and are subject to Delaware law, which generally prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the time that the person became an interested stockholder, unless:
. before such time the board of directors of the corporation approved either the business combination or the transaction in which the person became an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested person owns at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by persons who are directors and also officers of the corporation and by certain employee stock plans; or
. at or after such time the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock of the corporation that is not owned by the interested stockholder.
A "business combination" generally includes mergers, asset sales and similar transactions between the corporation and the interested stockholder, and other transactions resulting in a financial benefit to the stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns 15% or more of the corporation's outstanding voting stock or who is an affiliate or associate of the corporation and, together with his or her affiliates and associates, has owned 15% or more of the corporation's outstanding voting stock within three years.
The provisions of Delaware law described above would make more difficult or discourage a proxy contest or acquisition of control by a holder of a substantial block of our stock or the removal of the incumbent board of directors. Such provisions could also have the effect of discouraging an outsider from making a tender offer or otherwise attempting to obtain control of JFAX, even though such an attempt might be beneficial to us and our stockholders.
Our certificate of incorporation and by-laws also:
. eliminate the personal liability of directors for monetary damages resulting from breaches of fiduciary duty to the extent permitted by Delaware law; and
. indemnify directors and officers to the fullest extent permitted by Delaware law, including in circumstances in which indemnification is otherwise discretionary.
We believe that these provisions are necessary to attract and retain qualified directors and officers.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is .
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have ____ shares of common stock issued and outstanding, ____ shares if the underwriters' over-allotment option is exercised in full. All shares of common stock sold in the offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act, may generally only be resold in compliance with applicable provisions of Rule 144.
We issued and sold the remaining ___________ shares in private transactions. These shares may be publicly sold only if registered under the Securities Act or sold in accordance with an applicable exemption from registration, such as Rule 144. In general, under Rule 144, as currently in effect, a person who has beneficially owned shares for at least one year, including an "affiliate," is entitled to sell, within any three-month period, a number of "restricted" shares that does not exceed the greater of one percent (1%) of the then outstanding shares of common stock or the average weekly trading volume during the four calendar weeks preceding such sale. Sales under Rule 144 are subject to manner of sale limitations, notice requirements and the availability of current public information about the issuer. Rule 144(k) provides that a person who is not deemed an "affiliate" and who has beneficially owned shares for at least two years is entitled to sell such shares at any time under Rule 144 without regard to the limitations described above. Of the 19,446,488 shares outstanding before the offering, affiliates beneficially own over 85% of such shares. See "Risk Factors -- The Price of Our Common Stock May Decline Due to Shares Eligible for Future Sale."
Any employee, officer, director, advisor or consultant who purchased his or her shares pursuant to a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701, which permits non-affiliates to sell their Rule 701 shares without having to comply with the public information, holding period, volume limitation or notice provisions of Rule 144 and permits affiliates to sell their Rule 701 shares without having to comply with Rule 144's holding period restrictions, in each case commencing 90 days after we become subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934.
As of April 15, 1999, there were outstanding stock options to purchase an aggregate of 1,255,055 shares of common stock, of which 321,217 are presently exercisable or exercisable within 60 days. All outstanding stock options are held by our executive officers or employees. Following the offering, we intend to file a registration statement on Form S-8 covering the 3,500,000 shares of common stock issuable under our stock option plan, including shares subject to outstanding options, thus permitting the resale of such shares in the public market without restriction under the Securities Act, other than restrictions applicable to affiliates.
As of April 15, 1999, there were also outstanding warrants to purchase an aggregate of 3,610,333 shares of common stock.
We have granted registration rights to many of our stockholders. See "Description of Capital Stock -- Registration Rights."
We, our executive officers and directors, and certain of our stockholders have agreed that, subject to limited exceptions in which the transferee agrees to the same restriction, for a period of 180 days from the date of this prospectus, neither we nor they will, without the prior written consent of Donaldson, Lufkin & Jenrette: (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable
for common stock; or (2) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any common stock regardless of whether any of the transactions described in clause (1) or (2) is to be settled by the delivery of common stock, or such other securities, in cash or otherwise. In addition, during such period, we have agreed not to file any registration statement with respect to, and each of our executive officers, directors and certain of our stockholders have agreed not to make any demand for, or exercise any right with respect to, the registration of any shares of our common stock or any securities convertible into or exercisable or exchangeable for common stock without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. The lock-up agreements by persons other than us cover an aggregate of shares.
Prior to the offering, there has been no public market for our common stock. We are unable to estimate the number of shares that may be sold in the future by our existing stockholders or the effect, if any, that sales of shares by such stockholders will have on the market price of the common stock prevailing from time to time. Sales of substantial amounts of common stock by existing stockholders could adversely affect prevailing market prices.
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, dated _________, 1999, the underwriters named below, who are represented by Donaldson, Lufkin & Jenrette Securities Corporation, BancBoston Robertson Stephens, Inc. and CIBC Oppenheimer Corp. have severally and not jointly agreed to purchase from us and the selling stockholders the number of shares set forth opposite their names below.
Underwriters Number of
Shares
Donaldson, Lufkin & Jenrette Securities Corporation...
BancBoston Robertson Stephens, Inc. .................
CIBC Oppenheimer Corp.................................
-----------
Total..............................................
===========
|
The underwriting agreement provides that the obligations of the several underwriters to purchase and accept delivery of the shares included in the offering are subject to approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to purchase and accept delivery of all the shares, other than those covered by the over- allotment option described below, if they purchase any of the shares.
The underwriters propose to initially offer some of the shares directly to the public at the public offering price set forth on the cover page of this prospectus and some of the shares to certain dealers at the public offering price less a concession not in excess of $____ per share. The underwriters may allow, and such dealers may re-allow, a concession not in excess of $____ per share on sales to certain other dealers. After the initial offering of the shares to the public, the representatives may change the public offering price and such concessions. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority.
The following table shows the underwriting fees to be paid to the underwriters by us and the selling stockholders in connection with the offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares of common stock.
Paid by JFAX.COM Paid by Selling Stockholders
------------------------------ ------------------------------
No Exercise Full Exercise No Exercise Full Exercise
Per share $ $ $ $
Total $ $ $ $
|
We will pay the offering expenses, estimated to be $900,000.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation and a member of the selling group, is facilitating the distribution of the shares sold in the offering over the Internet. The underwriters have agreed to allocate a limited number of shares to DLJdirect Inc. for sale to its brokerage account holders.
We and the selling stockholders have granted to the underwriters an option, exercisable for 30 days from the date of the underwriting agreement, to purchase up to ________ additional shares at the public offering price less the underwriting fees. The underwriters may exercise such option solely to cover over-allotments, if any, made in connection with the offering. To the extent that the underwriters exercise such option, each underwriter will become obligated, subject to certain conditions, to purchase a number of additional shares approximately proportionate to such underwriter's initial purchase commitment.
We have agreed to indemnify the underwriters against certain civil liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments that the underwriters may be required to make in respect of any of those liabilities.
We, our executive officers and directors, and certain of our stockholders have agreed that, subject to limited exceptions in which the transferee agrees to the same restriction, for a period of 180 days from the date of this prospectus, neither we nor they will, without the prior written consent of Donaldson, Lufkin & Jenrette: (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or (2) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any common stock regardless of whether any of the transactions described in clause (1) or (2) is to be settled by the delivery of common stock, or such other securities, in cash or otherwise. In addition, during such period, we have agreed not to file any registration statement with respect to, and each of our executive officers, directors and certain of our stockholders have agreed not to make any demand for, or exercise any right with respect to, the registration of any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
We have applied to have our common stock approved for quotation on the NASDAQ National Market under the symbol "JFAX."
Prior to the offering, there has been no established trading market for our common stock. The initial public offering price for our shares of common stock offered hereby will be determined by negotiation among us and the representatives of the underwriters. The factors to be considered in determining the initial public offering price include the history of and the prospects for the industry in which we compete, our past and present operations, our historical results of operations, the prospects for future earnings, the recent market prices of securities of generally comparable companies and the general condition of the securities markets at the time of the offering.
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the shares of our common stock included in the offering in any jurisdiction where action for that purpose is required. The shares included in the offering may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisement in connection with the offer and sale of any such shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of such jurisdiction. Persons who receive this prospectus are advised to inform themselves about and to observe any restrictions relating to the offering of the common stock and the distribution of this prospectus. This prospectus is not an offer to sell or a solicitation of an offer to buy any shares of common stock included in the offering in any jurisdiction where that would not be permitted or legal.
At our request, the Underwriters have reserved for sale, at the initial public offering price, up to ______________ of the shares included in the offering, to be sold to certain of our directors, officers, employees, distributors, dealers, business associates and related persons. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares that are not orally confirmed for purchase within one day of the pricing of the offering will be offered by the underwriters to the general public on the same terms as the other shares offered hereby.
Because affiliates of Donaldson, Lufkin & Jenrette Securities Corporation hold more than 10% of our preferred equity, Donaldson, Lufkin & Jenrette Securities Corporation may be deemed to have a conflict of interest with us. Consequently, the offering will be conducted in accordance with Conduct Rule 2720 of the National Association of Securities Dealers, Inc., which requires that the public offering price of any equity security be no higher than the price recommended by a qualified independent underwriter that has participated in the preparation of the registration statement and performed its usual standard of due diligence with respect thereto. _______________________ has agreed to act as qualified independent underwriter with respect to the offering, and the public offering price of the common stock will be no higher than that recommended by _______________________.
In connection with the offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriters may overallot the offering, creating a syndicate short position. The underwriters may bid for and purchase our shares of common stock in the open market to cover such syndicate short position or to stabilize the price of the common stock. In addition, the underwriting syndicate may reclaim selling concessions from syndicate members if Donaldson, Lufkin & Jenrette Securities Corporation repurchases previously distributed common stock in syndicate covering transactions, in stabilizing transactions or otherwise or if Donaldson, Lufkin & Jenrette Securities Corporation receives a report that indicates that the clients of such syndicate members have "flipped" the common stock. These activities may stabilize or maintain the market price of our common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time.
R. Scott Turicchi, a Managing Director of Donaldson, Lufkin & Jenrette Securities Corporation, is a member of our board of directors.
Donaldson, Lufkin & Jenrette Securities Corporation acted as the placement agent for the sale of our common stock and 10% Senior Subordinated Notes due 2004 in June 1998 and for the sale of our preferred stock and warrants to purchase common stock in July 1998.
VALIDITY OF SECURITIES
The validity of the shares of common stock offered hereby will be passed upon for us by Sullivan & Cromwell, Los Angeles, California, our counsel. Certain legal matters in connection with the offering will be passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, California.
EXPERTS
Our consolidated financial statements as of December 31, 1997 and 1998, and for each of the years in the three-year period ended December 31, 1998 included in this prospectus and in the registration
statement have been so included in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere in this prospectus and in the registration statement, and upon the authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered by this prospectus. This prospectus does not contain all the information set forth in the registration statement, certain portion of which are omitted as permitted by the rules and regulations of the SEC.
For further information about us and the shares offered by this prospectus, you should refer to the registration statement, including the exhibits and schedules filed with the registration statement. You may obtain copies of the registration statement, of which this prospectus is a part, together with such exhibits and schedules, upon payment of the fee prescribed by the SEC, or you may examine these documents without charge at the office of the SEC.
After the offering is completed, we will be subject to the informational requirements of the Securities Exchange Act of 1934 and will be required to file annual and quarterly reports, proxy statements and other information with the SEC. You can inspect and copy reports and other information filed by us with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0300. The SEC also maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements regarding issuers, including us, that file electronically with the SEC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report.................................. F-2
Consolidated Balance Sheets................................... F-3
Consolidated Statements of Operations......................... F-4
Consolidated Statements of Stockholders' Equity (Deficiency).. F-5
Consolidated Statements of Cash Flows......................... F-6
Notes to Consolidated Financial Statements.................... F-7
|
Independent Auditors' Report
The Board of Directors
JFAX.COM, Inc.:
We have audited the accompanying consolidated balance sheets of JFAX.COM, Inc. (formerly known as JFAX Communications, Inc.) and subsidiary as of December 31, 1997 and 1998 and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of JFAX.COM, Inc. and subsidiary as of December 31, 1997 and 1998 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998 in conformity with generally accepted accounting principles.
Los Angeles, California /s/ KPMG LLP March 26, 1999, except for note 14 which is as of April 16, 1999 |
JFAX.COM, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1998
Assets 1997 1998
----------------- -----------------
Current assets:
Cash and cash equivalents $ 23,039 7,278,873
Accounts receivable 10,774 112,729
Due from related parties -- 128,578
Interest receivable 4,639 48,603
Prepaid marketing costs 1,000,000 1,000,000
Other current assets 14,100 81,888
----------------- -----------------
Total current assets 1,052,552 8,650,671
Furniture, fixtures and equipment, net 1,560,145 1,777,646
Other long-term assets -- 84,372
----------------- -----------------
$2,612,697 10,512,689
================= ================
Liabilities, Redeemable Securities and Stockholders' Equity (Deficiency)
Current liabilities:
Accounts payable and accrued expenses $945,164 1,100,544
Deferred revenue 49,184 328,740
Current portion of capital lease obligations -- 89,931
Current portion of long-term debt -- 317,402
Customer deposits -- 79,286
----------------- -----------------
Total current liabilities 994,348 1,915,903
Capital lease obligations -- 141,783
Long-term debt -- 6,137,004
Put warrants -- 1,062,331
Redeemable common stock; issued and outstanding 1,766,158 shares
at December 31, 1998 (redemption value of $7,065,000) -- 4,931,975
Mandatorily redeemable Series A preferred stock. Authorized
1,000,000 shares; issued and outstanding 5,000 shares at December 31,
1998 at par value of $1,000 (liquidation preference $5,386,915) -- 4,070,671
Stockholders' equity (deficiency):
Common stock, $0.01 par value. Authorized 100,000,000 shares;
total issued and outstanding 14,548,000 and 17,679,997 shares at
December 31, 1997 and 1998, respectively, excluding 1,766,158
issued as redeemable at December 31, 1998 145,480 176,215
Additional paid-in capital 9,326,074 11,938,828
Notes receivable from stockholders (2,400,000) (2,499,000)
Accumulated deficit (5,453,205) (17,363,021)
----------------- -----------------
Total stockholders' equity (deficiency) 1,618,349 (7,746,978)
Commitment and Contingencies (note 11)
Liquidity (note 13)
Subsequent Events (note 14) ----------------- -----------------
$2,612,697 10,512,689
================= ================
|
See accompanying notes to consolidated financial statements.
JFAX.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1996, 1997 and 1998
1996 1997 1998
--------------- ----------------- -----------------
Revenue $ 104,531 685,465 3,519,836
Cost of revenue 149,651 857,924 3,398,243
--------------- ----------------- -----------------
Gross profit (loss) (45,120) (172,459) 121,593
Operating expenses:
Sales and marketing 150,218 1,068,523 4,990,188
Research and development 61,291 792,985 1,225,542
General and administrative 511,382 2,842,477 4,880,854
--------------- ----------------- -----------------
Total operating expenses 722,891 4,703,985 11,096,584
--------------- ----------------- -----------------
Operating loss (768,011) (4,876,444) (10,974,991)
Other:
Interest expense -- -- (1,353,751)
Interest income -- 214,663 420,426
--------------- ----------------- -----------------
Loss before income taxes (768,011) (4,661,781) (11,908,316)
Income tax expense 721 1,640 1,500
--------------- ----------------- -----------------
Net loss $ (768,732) (4,663,421) (11,909,816)
--------------- ----------------- -----------------
Cumulative preferred dividends, accretion of
discount attributable to preferred stock,
and amortization of preferred stock issuance costs -- -- (494,523)
--------------- ----------------- -----------------
Net loss attributable to common
shareholders $ (768,732) $ (4,663,421) $ (12,404,339)
=============== ================ ================
Net loss per common share:
Basic $ (0.15) (0.37) (0.73)
Diluted (0.15) (0.37) (0.73)
=============== ================ ================
Weighted average common shares used in
determining loss per share:
Basic and diluted 5,125,333 12,590,667 16,953,805
=============== ================ ================
|
See accompanying notes to consolidated financial statements.
JFAX.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficiency)
Years ended December 31, 1996, 1997 and 1998
Notes
Common stock Additional receivable Stockholders'
------------------------------- paid-in Accumulated from equity
Shares Amount capital deficit stockholders (deficiency)
----------------- ------------- ----------------- ----------------- ----------------- -----------------
Balance, December 31, 1995 4,000,000 $ 10,000 -- (21,052) -- (11,052)
Issuance of common stock 1,962,000 49,620 1,316,860 -- -- 1,366,480
Common stock issued for
services 90,000 900 89,100 -- -- 90,000
Net loss -- -- -- (768,732) -- (768,732)
----------------- ------------- ----------------- ----------------- ----------------- -----------------
Balance, December 31, 1996 6,052,000 60,520 1,405,960 (789,784) -- 676,696
Exercise of stock options 296,000 74 -- -- -- 74
Repurchase of common stock (160,000) (1,600) (118,400) -- -- (120,000)
Issuance of common stock 8,360,000 86,486 8,038,514 -- -- 8,125,000
Issuance of notes receivable
from stockholders -- -- -- -- (2,400,000) (2,400,000)
Net loss -- -- -- (4,663,421) -- (4,663,421)
----------------- ------------- ----------------- ----------------- ----------------- -----------------
Balance, December 31, 1997 14,548,000 145,480 9,326,074 (5,453,205) (2,400,000) 1,618,349
Amortization of mandatorily
redeemable preferred
stock issuance costs -- -- (25,823) -- -- (25,823)
Dividends on mandatorily
redeemable Preferred Stock -- -- (386,915) -- -- (386,915)
Amortization of preferred
stock discount -- -- (81,785) -- -- (81,785)
Issuance of common stock 3,033,000 30,330 3,068,670 -- (99,000) 3,000,000
Exercise of stock options 98,997 405 38,607 -- -- 39,012
Net loss -- -- -- (11,909,816) -- (11,909,816)
----------------- ------------- ----------------- ----------------- ----------------- -----------------
Balance, December 31, 1998 17,679,997 $ 176,215 11,938,828 (17,363,021) (2,499,000) (7,746,978)
================ ============ ================ ================ ================ ================
|
See accompanying notes to consolidated financial statements.
JFAX.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1997 and 1998
1996 1997 1998
--------------- ----------------- -----------------
Cash flows from operating activities:
Net loss $ (768,732) (4,663,421) (11,909,816)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 64,775 216,553 605,528
Common stock issued for services 90,000 -- --
Redeemable common stock issued in lieu of interest -- -- 251,999
Notes issued for payment of interest expense -- -- 499,665
Amortization of note payable discount -- -- 420,390
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (34,592) 23,892 (101,955)
Due from related parties -- -- (128,578)
Interest receivable -- (4,639) (43,964)
Prepaid marketing costs -- (1,000,000) --
Other (8,000) (6,100) (152,160)
Increase in:
Accounts payable 107,086 838,078 155,380
Deferred revenue -- 49,184 279,556
Customer deposits -- -- 79,286
--------------- ----------------- -----------------
Net cash used in operating activities (549,463) (4,546,453) (10,044,669)
--------------- ----------------- -----------------
Cash flows from investing activities - purchase of furniture, fixtures
and equipment (265,848) (1,579,409) (543,170)
--------------- ----------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,366,480 8,125,000 3,099,000
Issuance of notes receivable from stockholders -- (2,400,000) (99,000)
Common stock repurchased -- (120,000) --
Exercise of stock options -- -- 39,012
Proceeds from issuance of mandatorily redeemable preferred stock
and put warrants, net -- -- 4,638,479
Proceeds from issuance of notes payable, net -- -- 4,596,981
Proceeds from issuance of redeemable common stock, net -- -- 4,679,976
Proceeds from loan payable -- -- 937,370
Repayments of capital lease obligations -- -- (48,145)
Net increase (decrease) in due to related parties 104,519 (111,787) --
--------------- ----------------- -----------------
Net cash provided by financing activities 1,470,999 5,493,213 17,843,673
------------- -- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents 655,688 (632,649) 7,255,834
Cash and cash equivalents at beginning of year -- 655,688 23,039
--------------- ----------------- -----------------
Cash and cash equivalents at end of year $ 655,688 23,039 7,278,873
=============== ================= =================
Cash paid during the year for:
Income taxes $ -- 721 1,500
Interest -- -- 137,148
=============== ================= =================
Supplemental disclosure of noncash investing and financing activities
(see notes 3, 4, 9 and 11)
|
See accompanying notes to consolidated financial statements.
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
(1) Organization
JFAX.COM, Inc., formerly known as JFAX Communications, Inc., (the Company or JFAX) was incorporated in the state of Delaware on December 14, 1995. The Company is engaged in providing delivery of fax and voice messages via telephone and the Internet network. JFAX has strategic alliances with online network/service providers (OSPs), Internet service providers (ISPs), software and hardware producers (OEMs), other significant online communities and international resellers.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of JFAX.COM, Inc. and its wholly owned marketing subsidiary, JFAX.COM Europe Ltd. All intercompany accounts and transactions have been eliminated in consolidation.
(b) Revenue Recognition
The Company recognizes revenue as services are provided to the customer. Substantially all of the Company's revenue is collected by use of credit cards and is paid in advance. The Company provides customer support as an accommodation to purchasers of its services. These amounts are expensed as incurred. Deferred revenue represents prepayments received from customers in advance of services provided.
In October 1997, the American Institute of Certified Public Accountants (AICPA) released Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2). Among other things, SOP 97-2 eliminates the distinction between significant and insignificant vendor obligations promulgated by SOP 91-1 and requires each element of a software arrangement to meet certain criteria in order to recognize revenue allocated to that element. Additionally, SOP 97-2 requires that total fees under an arrangement be allocated to each element in the arrangement based upon vendor specific objective evidence, as defined. SOP 97-2 was effective for software transactions entered into by the Company during fiscal 1998 and subsequent periods. Application of this statement did not have a material impact on the Company's consolidated financial position, results of operations or loss per share.
On December 22, 1998, the AICPA issued Statement of Position 98-9 "Software Revenue Recognition with Respect to Certain Transactions" (SOP 98-9). SOP 98-9 amends certain paragraphs of SOP 97-2 to require recognition of revenue using the "residual method" with respect to certain transactions. The "residual method" established by SOP 98-9 is effective for fiscal years beginning after March 15, 1999.
(c) Research and Development
Research and development costs are expensed as incurred. Costs for software development incurred subsequent to establishing technological feasibility, in the form of a working model, are capitalized and amortized over their estimated useful lives. To date, software development costs incurred after technological feasibility has been established have not been material.
(continued)
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
(d) Prepaid Advertising Costs
Prepaid advertising costs are recorded for amounts paid to America
Online, Inc. (AOL) under the Company's arrangement with AOL (see note
6). The Company expenses advertising cost, as advertising is placed on
AOL.
(e) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.
(f) Depreciation and Amortization
Furniture, fixtures and equipment are stated at cost. Depreciation is provided on furniture and equipment using the straight-line method over a three to five year period. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or their estimated useful lives.
(g) Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" (SFAS No. 109). SFAS No. 109 requires that deferred income taxes be recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and operating loss carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(h) Accounting for Stock Options
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense for option grants to
employees would be recorded on the date of the grant only if the
current fair value of the underlying stock exceeds the exercise price.
Effective January 1, 1997, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of the grant. Alternatively, SFAS No.
123 also allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro-forma net loss disclosures for employee
stock option grants made in 1995 and future years as if the fair-value
based method defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB No. 25 and provide
the pro-forma disclosure provisions of SFAS No. 123 for options
granted to employees.
(continued
)
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
(i) Use of Estimates
The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and revenues and expenses for the periods. Actual results could differ from those estimates.
(j) Long-Lived Assets
Long-lived assets to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets that are to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.
(k) Fair Value of Financial Instruments
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments," requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. SFAS No. 107 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of December 31, 1997 and 1998, the carrying value of cash and cash equivalents, accounts receivable, interest receivable, accounts payable, accrued expenses, interest payable and customer deposits approximate fair value due to the short- term nature of such instruments. The carrying value of long-term debt and notes payable, approximate fair value as the related interest rates approximate rates currently available to the Company.
(l) Loss Per Share of Common Stock
The Company has adopted SFAS No. 128, "Earnings Per Share." Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Dividends on Preferred Stock and amortization of Preferred Stock issuance costs and mandatory redemption value increase the net loss for determining basic and diluted net loss per share attributable to Common Stock. Diluted net loss per share excludes the effect of common stock equivalents, because their effect would be anti-dilutive.
(m) Reclassifications
Certain reclassifications have been made to the 1996 and 1997 consolidated financial statements to conform to the 1998 presentation.
(continued)
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
(n) Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS Nos. 130 and 131, "Reporting Comprehensive Income" (SFAS 130) and "Disclosure about Segments of an Enterprise and Related Information" (SFAS 131), respectively, (collectively, the Statements). The Statements are effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting of comprehensive income and its components in annual financial statements. SFAS 131 establishes standards for reporting financial and descriptive information about an enterprise's operating segments in its annual financial statements and selected segment information in interim financial reports. Reclassification or restatement of comparative financial statements or financial information for earlier periods is required upon adoption of SFAS 130 and SFAS 131, respectively. Application of the statement requirements did not have a material impact on the Company's consolidated financial position, results of operations or loss per share data as currently reported. With respect to SFAS 130, the Company has no elements of other comprehensive income, therefore net loss equals total comprehensive loss for all periods presented.
With respect to SFAS 131, the Company operates in one reportable segment: unified messaging service, which provides delivery of fax and voice messages via telephone and the Internet network. The Company has a U.K. subsidiary, which operated as a marketing division for nine months in 1998 and, as such, did not generate revenue as of December 31, 1998. Thus, the Company considers that thus far it has only operated in one geographic segment. As the Company operates in one segment, additional disclosure per SFAS 131 has not been presented.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefit Plans." This statement is effective for fiscal years beginning after December 15, 1997 and restatement of disclosures for earlier periods is required. The Company adopted SFAS No. 132 in 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for transactions entered into after January 1, 2000. This statement requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction. The ineffective portion of all hedges will generally be recognized in earnings. The Company does not presently engage in hedging activities and accordingly the adoption of SFAS No. 133 will not have an impact on its results of operations and financial position.
(continued)
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
(3) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment, stated at cost, at December 31, 1997 and 1998 consists of the following:
1997 1998
----------- ----------
Computer and related equipment $1,692,052 2,232,397
Furniture and equipment 36,905 39,729
Capital leases--computer and related equipment -- 279,859
Leasehold improvements 116,661 116,661
---------- ----------
1,845,618 2,668,646
Less accumulated depreciation and amortization (285,473) (891,000)
---------- ----------
$1,560,145 1,777,646
========== ==========
|
Included in accumulated amortization at December 31, 1998 is $58,791 related to capital leases.
(4) Redeemable Securities and Stockholders' Equity (Deficiency)
(a) Private Placement Offering
In June 1998, the Company completed a private placement offering of Senior Subordinated Notes (Notes), Common Stock (Common Shares), and Series A Usable Redeemable Preferred Stock (Preferred Shares) with 2,500,000 detachable warrants (Warrants) for proceeds aggregating $15,000,000 before offering expenses. The private placement offering consisted of the following components:
Notes and Common Shares
$10,000,000 principal amount of Notes (see note 9) together with 1,681,577 Common Shares were issued for combined proceeds of $10,000,000.
The Notes bear interest at 10% per annum of the principal amount. Through June 30, 1999, the Company may pay interest through the issuance of additional interest notes in the form of Senior Subordinated Notes together with a proportionate number of additional Shares. As of December 31, 1998, the Company issued approximately $500,000 of interest notes and 84,581 additional shares in lieu of interest payments.
The Notes are due at maturity on June 30, 2004, but half the Notes must be paid one year earlier, in each case payable at 100% of the principal amount plus accrued and unpaid interest.
The Notes and Shares were recorded at their relative fair values at the date of issuance of $4,955,269 and $5,044,731, respectively. The discount attributable to the Notes is being amortized to interest expense over the term of the Notes using the interest method.
(continued)
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
The Notes are subject to optional redemption by the Company at any time at 101% of the principal amount plus accrued and unpaid interest.
The Common Shares issued in this transaction including shares issued in connection with interest notes are subject to certain put rights by the holders at $4 per share, upon a change of control or as an exit put at fair market value if the Company has not completed a qualified public offering by July 1, 2003. Accordingly, the Common Shares issued in the transaction are shown as redeemable securities in the accompanying 1998 consolidated balance sheet. The fair market value put rights terminate in the event of a public offering of equity securities by the Company.
Preferred Shares and Warrants
The Company issued $5,000,000 in stated value of Preferred Shares consisting of 5,000 shares together with 2,500,000 Warrants to acquire a like number of shares of the Company's common stock, for an exercise price of $3 per share, for a combined purchase price of $5,000,000.
The Preferred Shares are entitled to cumulative dividends at 15% per annum based on the stated value. Until and including the dividend payment date falling on June 30, 2001, it is not contemplated that the Company will pay dividends in cash.
The Preferred Shares are mandatorily redeemable by the holders on June 30, 2005 at the stated value plus all accrued and unpaid dividends.
Preferred Shares are subject to optional redemption by the Company after July 1, 1999 at the following prices:
Percent of
Until Date Stated Value
-------------- -----------------------------
07/01/2000 115.0%
07/01/2001 107.5
Thereafter 100.0 (in each case plus
accrued and unpaid dividends)
|
The Preferred Shares and Warrants and/or warrant shares (if converted to common stock) are subject to certain put rights by the holders, upon a change of control or as an exit put if the Company has not completed a qualified public offering by July 1, 2003. The warrants are exercisable by the holders at $3 per share at any time until June 30, 2005 and may be "put" to the Company upon a change in control and/or an exit put if the Company does not file a qualified public offering prior to July 1, 2003 at $2.00 per share and at fair market value thereafter. The warrants were recorded at their estimated fair value of $1,145,000 as of the date of issuance, as determined using a Black-Scholes model, and are reflected outside of stockholders' equity as a reduction of the proceeds received from the issuance of Preferred Shares in the accompanying consolidated balance sheets. Any increase in
(continued)
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
fair value of these put rights above the initially determined amount of $.45 per warrant will be expensed by the Company in its Statements of Operations as such values accrue. In the event of an underwritten public offering of common stock by the Company, the fair value put feature of the warrants will terminate. (see note 14)
In connection with the placement of Notes, Warrants and Preferred and Common Shares, an additional 215,000 warrants were issued to the placement agent. Such warrants carry the same exercise price and put features as those issued in connection with the preferred shares.
(see note 14)
Fees and expenses related to the offering aggregated $1,084,564 which were allocated based on the relative fair value of the instruments as follows:
Notes $ 358,288
Common Shares 364,755
Preferred Shares 278,852
Warrants 82,669
-----------
$ 1,084,564
===========
|
Capitalized offering fees and expenses allocated to the Notes and Warrants are being amortized to interest expense; offering costs attributable to Common Shares and Preferred Shares are being amortized to additional paid-in capital, using the interest method and straight-line method, respectively.
In addition, warrants to purchase 23,333 common shares at $3.00 per share were issued in connection with issuance of long-term notes to a financial institution and warrants to purchase 200,000 common shares at $3.00 per share were issued to America Online (see note 6).
(b) Notes Receivable from Stockholders
Notes receivable from stockholders were issued in connection with sales of common stock and consist of the following at December 31, 1997 and 1998:
1997 1998
-------------- -------------
Loan receivable secured by 2,340,000 shares of the Company's common
stock held by the stockholder; interest accrues at 6.32% and is
payable monthly, due in March 2004. It is anticipated that this
amount will be repaid in services rendered by the stockholder
ratably over five years $ 2,250,000 2,250,000
Loan receivable secured by 176,000 shares of the Company's common
stock held by the stockholder; interest accrues at 6.32% with all
principal and accrued interest due in March 2001 100,000 100,000
|
(continued)
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
1997 1998
------------ ------------
Loan receivable secured by 120,000 shares of the Company's common
stock held by the stockholder; interest accrues at 8.00% and is
payable monthly, due in September 1999 $ 50,000 50,000
Loan receivable secured by 33,000 shares of the Company's common
stock held by the stockholder; interest accrues at 4.25% and is
payable monthly, due in October 2001 -- 99,000
----------- ---------
$ 2,400,000 2,499,000
=========== =========
|
(5) Amounts Due to Related Parties, Principally Stockholders
Amounts due to related parties were $111,787 as of December 31, 1996 and represented advances by certain stockholders of the Company to fund operations. These amounts did not bear interest, were due upon demand and were repaid in full in 1997.
In January 1998, the Company received bridge financing from a related party. The borrowings were repaid in full in May 1998 with proceeds received from a capital stock rights offering. Interest expense related to the borrowings aggregated $57,725.
As of December 31, 1998, there were $128,578 of amounts due from related parties. Such amounts represent salary advances.
As of December 31, 1998, the Company is involved in a consulting arrangement with a related party, pursuant to which the Company pays $200,000 per year, for services provided by the related party. The Company also reimburses the related party for expenses incurred on the Company's behalf of approximately $14,000 per month.
In connection with the private placement offering in June 1998, certain related parties were directly associated with the investor groups that provided the funding to the Company.
(6) Agreements with OnLine Service Providers
(a) America Online
In October 1997, the Company entered into an interactive marketing relationship with AOL. In connection with this agreement, the Company issued warrants to purchase 200,000 common shares at $3.00 per share. Under the agreement, the Company pays amounts to AOL based on advertising placed on the AOL site.
As of December 31, 1997 and 1998, the Company had $1,000,000 in prepaid advertising costs included in the accompanying consolidated balance sheets.
(continued)
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
The Company expects to fully amortize all prepaid advertising costs during 1999 as services are provided by AOL.
(b) CompuServe and Yahoo
The Company is the exclusive unified messaging provider for CompuServe and Yahoo under interactive marketing agreements. These marketing agreements provide for the Company to make certain fixed and revenue share payments based on advertising amounts placed on the respective sites and customers acquired.
Amounts expensed under agreements with all on line service providers are included in sales and marketing and amounted to $7,888 and $2,959,313 in 1997 and 1998, respectively. Future annual fixed payments associated with all arrangements with on line service providers for future services aggregate $550,000 in 1999.
(7) Income Taxes
The income tax provision for all years presented is comprised of state minimum tax expense.
Deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The significant components of deferred income taxes are as follows:
1997 1998
------------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 2,088,997 6,863,361
Accrued expenses 70,900 127,350
----------- ----------
2,159,897 6,990,711
Less valuation allowance (2,159,897) (6,990,711)
----------- ----------
Net deferred tax assets $ -- --
=========== ==========
|
The Company has recorded a valuation allowance in the amount set forth above for certain deductible temporary differences and net operating loss carryforwards where it is not more likely than not the Company will receive future tax benefits. The net change in the valuation allowance for the years ended 1997 and 1998 was $1,867,070 and $4,830,814, respectively.
As of December 31, 1998, the Company has Federal and state net operating losses (NOL) carryforwards of approximately $17,100,000. These NOL carryforwards will expire through year 2013 for Federal NOLs and 2003 for state NOLs.
The Tax Reform Act of 1986 imposed substantial restrictions on the utilization of net operating losses in the event of an "ownership change" of a corporation. Accordingly, the Company's ability to utilize net
(continued)
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
operating losses may be limited as a result of such an "ownership change," as defined in the Internal Revenue Code.
Income tax expense differs from the amount computed by applying the Federal corporate income tax rate of 34% to loss before income taxes as follows (in percentages):
Year ended December 31
----------------------------------------------------------------------------
1996 1997 1998
-------------------- -------------------- --------------------
Statutory tax rate (34.0)% (34.0)% (34.0)%
Change in valuation allowance 38.1 40.0 41.0
State income taxes, net (5.9) (5.7) (5.9)
Other 1.9 (0.2) (1.0)
-------------------- -------------------- --------------------
Effective tax rate 0.1% 0.1% 0.1%
==================== ==================== ====================
|
(8) Stock Option Plan
In November 1997, the Board of Directors adopted the JFAX Communications, Inc. 1997 Stock Option Plan (the 1997 Plan). Under the 1997 Plan, 2,500,000 authorized shares of common stock are reserved for issuance of options. An additional 772,000 shares were authorized for issuance of options outside the 1997 Plan. Options under the 1997 Plan may be granted at exercise prices determined by the Board of Directors, provided that the exercise prices shall not be less than the fair market value of the Company's common stock on the date of grant for incentive stock options and not less than 85% of the fair market value of the Company's common stock on the date of grant for nonstatutory stock options. At December 31, 1998, 272,552 options and 672,000 options were exercisable under and outside of the 1997 Plan, respectively, and the weighted average exercise price of these options were $.97 and $1.57. Stock options generally expire after 10 years and vest over a three-year period.
At December 31, 1998, there were 847,615 additional shares available for grant under the 1997 Plan and 100,000 additional shares available for grant outside of the 1997 Plan. The per share weighted-average fair value of stock options granted during 1997 and 1998 was $0.28 and $0.61, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: risk-free interest rate of 6.5% and 4.6% for 1997 and 1998, respectively, and an expected life of 5 years.
(continued)
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
The Company applies APB Opinion No. 25 in accounting for its stock option plan and, accordingly, no compensation cost using the intrinsic value method has been recognized for its stock option grants in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net loss attributable to common shareholders for fiscal 1997 and 1998 would have been increased to the pro forma amounts indicated below:
1997 1998
-------------------- --------------------
Net loss attributable to common stockholders As reported $4,663,421 12,404,339
Pro forma 4,748,421 12,614,339
Basic loss per common share As reported .37 .73
Pro forma .38 .74
Diluted loss per common share As reported .37 .73
Pro forma .38 .74
========== ==========
|
The following is a summary of stock option activity:
Weighted-average
Number of shares exercise price
-------------------- --------------------
Options outstanding at December 31, 1996 -- --
Granted 1,833,000 $ 1.03
Exercised (296,000) 0.01
---------
Options outstanding at December 31, 1997 1,537,000 1.24
Granted 713,500 2.93
Exercised (98,997) 0.39
Canceled (222,115) 1.00
---------
Options outstanding at December 31, 1998 1,929,388 1.91
==========
|
(continued)
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
At December 31, 1998, the exercise prices of options ranged from $0.88 to $3.00 with a weighted-average remaining contractual life of 8.9years.
Options outstanding Options exercisable
---------------------------------------------------------------------- --------------------------------
Number Weighted- Number Weighted
Range of outstanding Weighted average average exercisable average
exercise December 31, remaining exercise December 31, exercise
prices 1998 contractual life price 1998 price
--------------- ------------------ -------------------- --------------- --------------- ------------
$ .88 336,000 8.1 $ .88 336,000 $ .88
$ .96-1.00 543,888 8.5 $ .98 272,552 $ .97
$ 2.25 336,000 8.1 $ 2.25 336,000 $ 2.25
$ 2.00-3.00 713,500 9.7 $ 2.93 -- $ --
--------- --------- -------- -------------------- ---------------
1,929,388 8.9 $ 1.91 944,552 $ 1.39
========= ========= ======== ==================== ===============
|
At December 31, 1997 and 1998, 347,764 and 944,552 options, respectively, were exercisable.
(9) Long Term Debt
Long term debt consists of the following at December 31, 1998:
Loan payable secured by certain computer equipment bearing interest at 15%.
Monthly principal and interest payments of $26,086 from April 21, 1998 to
April 2001 $ 716,155
Loan payable secured by certain computer equipment bearing interest at 15%.
Monthly principal and interest payments of $5,879 from December 22, 1998 to
January 1, 2001 192,580
Senior Subordinated Notes with aggregate principal value of $10,000,000 bearing
interest at 10% per annum of principal amount, with maturity date of June 30,
2004, less unamortized debt discount of $4,624,337 and debt issuance costs of
$329,656. The Company also satisfied accrued interest of $499,665 as of July 1,
1998 through the issuance of additional notes payable 5,545,671
----------
6,454,406
Less current installments of long term debt (317,402)
----------
Long term debt, excluding current installments $ 6,137,004
============
|
(continued)
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
At December 31, 1998, annual maturities of long-term debt, before consideration of unamortized original issue discount and debt issuance costs, are as follows:
1999 $ 317,402
2000 352,632
2001 220,257
2002 18,443
2003 5,000,000
Thereafter 5,499,665
--------------------
$ 11,408,399
====================
|
(10) Employee Benefit Plan
The Company has a 401(k) savings plan covering substantially all of its employees. Eligible employees may contribute through payroll deductions. The Company matches employees' contributions at the discretion of the Company's Board of Directors. To date, the Company has not matched employee contributions to the 401(k) savings plan.
(11) Commitments and Contingencies
(a) Leases
The Company leases certain facilities and equipment under noncancelable capital and operating leases which expire at various dates through 2001. The Company sub-leases its corporate facilities from a related party. The sub-lease expires in January 2000 and requires monthly payments of $19,310.
Future minimum lease payments at December 31, 1998, under agreements classified as capital and operating leases with noncancelable terms in excess of one year, are as follows:
Capital Operating leases
leases
-------------------- --------------------
Fiscal year:
1999 $ 106,860 286,078
2000 106,860 41,452
2001 44,681 --
-------------------- --------------------
Total minimum lease payments 258,401 327,530
====================
Amounts representing interest (26,687)
--------------------
Present value of net minimum lease payments 231,714
Less current maturities 89,931
--------------------
Long-term maturities $ 141,783
====================
|
(continued)
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
Rental expense was $18,175, $224,289 and $346,515 for the years ended December 31, 1996, 1997 and 1998, respectively.
(12) Loss Per Share
As discussed in note 1, the Company adopted SFAS No. 128 for all periods presented. The following table illustrates the computation of basic and diluted loss per common share under the provisions of SFAS No. 128:
Year ended December 31
--------------------------------------------------------------------------
1996 1997 1998
-------------------- -------------------- --------------------
Numerator--numerator for basic and diluted loss
per common share:
Net loss $ (768,732) (4,663,421) (11,909,816)
Dividends on Preferred Stock -- -- (386,915)
Amortization of Preferred Stock issuance costs
and accretion of discount on preferred shares -- -- (107,608)
-------------------- -------------------- --------------------
Numerator for basic and diluted loss per
common share (768,732) (4,663,421) (12,404,339)
Denominator:
Denominator for basic loss per common
share--weighted average number of
common shares outstanding during the
period $ 5,125,333 12,590,667 16,953,805
-------------------- -------------------- --------------------
Denominator for diluted loss per common
share $ 5,125,333 12,590,667 16,953,805
==================== ==================== ====================
Basic loss per common share $ (.15) (.37) (.73)
Diluted loss per common share (.15) (.37) (.73)
==================== ==================== ====================
|
The computation of diluted loss per share for each of the years in the three- year period ended December 31, 1998 excludes the effects of incremental common shares attributable to the exercise of 1,929,388 outstanding common stock options and 2,938,333 warrants because their effect would be antidilutive (see notes 4 and 8). Redeemable common shares outstanding have been excluded from the computation of both basic and diluted loss per share.
(continued)
JFAX.COM, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998
(13) Liquidity
The Company has incurred operating losses since its inception and has funded such losses through equity infusions and advances from stockholders. The Company expects losses and negative cash flows from operations during 1999. Based on its present cost structure, financing arrangements, and revenue growth rate, management believes the Company has sufficient capital to fund operations for the upcoming fiscal year. Additionally, management closely monitors its cash balances and projected cash flows and evaluates discretionary operating items accordingly.
(14) Subsequent Events
Subsequent to December 31, 1998, holders of a majority of the put warrants discussed in note 4 agreed to eliminate the fair market value put feature associated with these warrants for nominal consideration, effective January 1, 1999.
JFAX.COM, Inc.
___ Shares of Common Stock
Donaldson, Lufkin & Jenrette
BancBoston Robertson Stephens
CIBC World Markets
DLJdirect Inc.
We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of the company have not changed since the date hereof.
Until __________, 1999 (25 days after the date of this prospectus), all dealers that affect transactions in these securities may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter in the offering and when selling previously unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is a statement of the estimated expenses, other than underwriting discounts and commissions, to be incurred in connection with the distribution of the securities registered under this registration statement.
Amount
to be paid
----------
SEC registration fee...................................... $ 25,020
NASD fees and expenses.................................... $ 9,500
Legal fees and expenses................................... $350,000
Nasdaq National Market listing fees....................... $ 64,375
Accounting fees and expenses.............................. $125,000
Printing and engraving fees............................... $200,000
Registrar and transfer agent's fees....................... $ 10,000
Miscellaneous............................................. $116,105
----------
Total................................................ $900,000
==========
|
Item 14. Indemnification of Directors and Officers
As permitted by Delaware law, our certificate of incorporation includes a provision that eliminates the personal liability of our directors to us or our stockholders for monetary damages for breach of fiduciary duty as a director.
Article VI of our by-laws provides:
"The Corporation shall indemnify to the full extent permitted by law any person made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person or such person's testator or intestate is or was a director, officer or employee of the Corporation or serves or served at the request of the Corporation any other enterprise as a director, officer or employee. Expenses, including attorneys' fees, incurred by any such person in defending any such action, suit or proceeding shall be paid or reimbursed by the Corporation promptly upon receipt by it of an undertaking of such person to repay such expenses if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation. The rights provided to any person by this by-law shall be enforceable against the Corporation by such person who shall be presumed to have relied upon it in serving or continuing to serve as a director, officer or employee as provided above. No amendment of this by-law shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment. For purposes of this by-law, the term 'Corporation' shall include any predecessor of the Corporation and any constituent corporation (including any constituent of a constituent) absorbed by the Corporation in a consolidation or merger; the term 'other enterprise' shall include any corporation, partnership, joint venture, trust or employee benefit plan; service 'at the request of the Corporation' shall include service as a director, officer or employee of
II-1
the Corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants or beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be indemnifiable expenses; and action by a person with respect to an employee benefit plan which such person reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Corporation."
In addition, the underwriting agreement for the offering will include customary provisions indemnifying the officers, directors and our control persons against liabilities in respect of information provided by the underwriters for use in this registration statement.
We have also obtained a policy of directors' and officers' liability insurance for our directors and officers to insure directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances.
II-2
Item 15. Recent Sales of Unregistered Securities
Between December 1995, when we were founded, and March 1997, when Mr. Ressler invested in the Company through Orchard/JFAX Investors LLC and obtained a controlling interest, we issued a total of 5,528,000 shares of our common stock to our founders, Jaye Muller and John F. Rieley, as well as to various individuals who made cash investments totaling $212,830 and who provided investment, software and development consulting services to us in our early stages of growth. During this time, we also issued 124,000 shares to The Regent Trust Company Limited in September 1996 in exchange for a cash investment of $412,500 and we issued 240,000 shares to Toxford Corporation in October 1996 in exchange for a cash investment of $750,000.
In March 1997, we issued 4,300,000 shares of common stock to Boardrush Media LLC in exchange for an equivalent number of Mr. Muller's then-current stock holdings, which holdings were canceled. At the same time, we issued 8,048,000 shares of common stock to Orchard/JFAX Investors LLC in exchange for a cash investment of $7,750,000 and 192,000 shares to Globetrans Ltd. in satisfaction of a consultant's fee due to Globetrans as a result of helping to procure Orchard's investment.
In March and May 1997, we issued 176,000 shares and 120,000 shares to Hemi Zucker and Anand Narasimhan, upon the exercise by Messrs. Zucker and Narasimhan of employee options granted to them when they joined us in 1996 and payment by each of them of the option price of $0.025 per share.
In November 1997, we issued 120,000 shares to Toxford Corporation upon the exercise by Toxford Corporation of a previously issued warrant and the payment by Toxford Corporation of the warrant exercise price of $3.125 per share.
In March 1998, we issued a total of 3,000,000 shares of common stock at
$1.00 per share pursuant to a rights offering that was made available to all of
our then shareholders and warrant holders on the same terms. The shareholders
who participated and the number of shares purchased were as follows:
Orchard/JFAX Investors LLC (2,464,622), Michael P. Schulhof (210,483),
Globetrans Ltd. (117,985), Toxford Corporation (112,759), Hemi Zucker (33,391),
Anand Narasihman (22,767), Geoff Goodfellow (18,793), Neil Seeman (12,000) and
Marc Seeman (7,200).
In April 1998, we granted Transamerica Business Credit Corporation a warrant to purchase 23,333 shares of common stock for $3.00 per share, exercisable until April 21, 2005, as partial consideration for a secured equipment loan in the amount of approximately $1 million. On October 15, 1997, we also issued 200,000 warrants to America Online to purchase 200,000 shares of our common stock at $3.00 per share.
In June 1998, we issued $10 million of our 10% Senior Subordinated Notes due 2004 together with 1,681,577 shares of our common stock to an investor group advised by Pecks Management Partners Ltd. consisting of Declaration of Trust for Defined Benefit Plans of Zeneca Holdings, Inc., Declaration of Trust for Defined Benefit Plans of ICI American Holdings, Inc., Delaware State Employees' Retirement Fund and The J.W. McConnell Family Foundation. The total purchase price was $10 million. At the same time, we also issued $5 million in liquidation preference of our Series A Usable Redeemable Preferred Stock and related warrants to acquire 2,500,000 shares of our common stock at $3.00 per share, $3.5 million of which was purchased by DLJ Capital Corp. and its affiliates and $750,000 of which was purchased by the group advised by Pecks Management Partners Ltd. discussed above. In addition, Donaldson Lufkin & Jenrette Securities Corporation, the affiliate of DLJ Capital Corp. that acted as placement agent for the offerings, received warrants to acquire 215,000 shares of our common stock on the same terms as purchasers, as compensation for its services. The total purchase price was $5 million. Orchard/JFAX Investors LLC, a company in which Richard S. Ressler is the managing member,
II-3
participated to the extent of $500,000 and GMT Partners, LLC participated to the extent of $250,000 in the latter investment.
In October 1998 and January 1999, we issued $256,250 of our 10% Senior Subordinated Notes due 2004 together with 84,581 shares of our common stock to the investor group advised by Pecks Management Partners Ltd. above in satisfaction of certain pay-in-kind obligations owing under the terms of the original issued $10 million in 10% Senior Subordinated Notes due 2004 issued in June 1998.
In October 1998, we issued 33,000 shares of our common stock to Gary H. Hickox in exchange for a $99,000 promissory note given to us by Mr. Hickox. The sale and related note issuance were part of the terms of Mr. Hickox's employment agreement with us. Also in October 1998, we issued 60,000 shares to an individual upon the exercise of an option granted in January 1996 and payment by such individual of the option price of $15.00.
Between August 1998 and January 1999, we issued a total of 39,330 shares of our common stock to various employees who exercised employee options to purchase such stock at a price of $1.00 per share.
All of the above issuances were effected in private transactions pursuant to the exemption provided by Section 4(2) under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended and restated.
3.2 By-laws, as amended and restated.
*4.1 Specimen of common stock certificate.
*5.1 Opinion of Sullivan & Cromwell, counsel to the Company.
9.1 Securityholders' Agreement, dated as of June 30, 1998, with the
investors in the June and July 1998 private placements.
10.1 JFAX.COM Incentive Compensation Bonus Plan.
*10.2 JFAX Communications, Inc. (JFAX.COM) 1997 Stock Option Plan.
10.3 Employment Agreement for Gary H. Hickox, dated September 2, 1998.
10.4 Employment Agreement for Dr. Anand Narasimhan, dated March 17,
1997.
10.5 Employment Agreement for Nehemia Zucker, dated March 21, 1997.
10.6 Consulting Agreement for Boardrush Media LLC, dated as of March 17,
1997.
10.7 Put Rights, for the benefit of the investors in the June and July
1998 private placements
10.8 Registration Rights Agreement, dated as of June 30, 1998, with the
investors in the June and July 1998 private placements.
10.9 Registration Rights Agreement, dated as of March 17, 1997, with
Orchard/JFAX Investors, LLC, Boardrush LLC (Boardrush Media LLC),
Jaye Muller, John F. Rieley, Nehemia Zucker and Anand Narasimhan.
*10.10 Stock Option Agreement, dated as of January 24, 1997, by and among
JFAX Communications, Inc. and Michael P. Schulhof.
*10.11 Letter, dated as of June 30, 1998, to Michael P. Schulhof from
Richard S. Ressler regarding the Stock Option Agreement, dated as of
January 24, 1997, between JFAX Communications, Inc. and Michael P.
Schulhof.
21.1 List of subsidiaries of the Company.
23.1 Consent of KPMG LLP.
23.2 Consent of Sullivan & Cromwell (included in 5.1 above).
II-4
24.1 Power of Attorney (included in Signature Page of this Registration
Statement).
27.1 Financial Data Schedule.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) It will provide to the underwriters at the closing(s) specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on the 14th day of April, 1999.
JFAX.COM, Inc.
By: /s/ Richard S. Ressler
---------------------------------
Name: Richard S. Ressler
Title: Chief Executive Officer
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that such person whose signature appears below constitutes and appoints Richard S. Ressler, Zohar Loshitzer and Nicholas V. Morosoff and each of them severally, his true and lawful attorneys- in-fact with power of substitution and resubstitution to sign in his name, place and stead, in any and all capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable under the Securities Act of 1933, as amended (the "Securities Act"), and any rules, regulations and requirements of the U.S. Securities and Exchange Commission, in connection with the registration under the Securities Act of the Common Stock of the Registrant, including specifically, but without limiting the generality of the foregoing, the power and authority to sign his name in his respective capacity as a member of the Board of Directors or officer of the Registrant, to this Registration Statement and/or such other form or forms as may be appropriate to be filed with the Commission as any of them may deem appropriate in respect of the Common Stock of the Registrant, to any and all amendments thereto (including post-effective amendments) to this Registration Statement, to any related Rule 462(b) Registration Statement and to any documents filed as part of or in connection with this Registration Statement and any and all amendments thereto, including post-effective amendments.
II-6
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 14th, 1999:
Signature Title
/s/ Richard S. Ressler
---------------------------- Co-Chairman of the Board and Chief
Richard S. Ressler Executive Officer
/s/ Hemi Zucker
---------------------------- Chief Financial Officer
Hemi Zucker
/s/ Jaye Muller
---------------------------- Director
Jaye Muller
/s/ Zohar Loshitzer
---------------------------- Director
Zohar Loshitzer
/s/ Jack Rieley
---------------------------- Director
Jack Rieley
/s/ Michael P. Schulhof
---------------------------- Director
Michael P. Schulhof
/s/ R. Scott Turicchi
---------------------------- Director
R. Scott Turicchi
/s/ Robert J. Cresci
---------------------------- Director
Robert J. Cresci
|
II-7
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
JFAX COMMUNICATIONS, INC.
JFAX Communications, Inc., a Delaware corporation (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is JFAX Communications, Inc. The date of filing of its original certificate of incorporation with the Secretary of State was December 14, 1995 and the name under which it was originally incorporated was JFAX Communications, Inc.
2. This restated certificate of incorporation amends, restates and integrates the provisions of the certificate of incorporation of said Corporation and has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware by written consent of the holders of a majority of the outstanding stock entitled to vote thereon in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware.
3. The text of the certificate of incorporation is hereby amended and restated to read herein as set forth in full:
FIRST. The name of the Corporation is JFAX.COM, Inc.
SECOND. The address of the Corporation's registered office in the State of Delaware is 1013 Centre Road in the City of Wilmington, County of New Castle. The name of its registered agent at such address is Corporate Agents, Inc.
THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
FOURTH. (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is 201,000,000, of which 200,000,000 shares of the par value of $0.01 per share shall be designated as Common Stock and 1,000,000 shares of the par value of $0.01 per share shall be designated as Preferred Stock. Shares of Preferred Stock may be issued in one or more series from time to time by the board of directors, and the board of directors is expressly authorized to fix by resolution or resolutions the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof, of the shares of each series of Preferred Stock, including without limitation the following:
(i) the distinctive serial designation of such series which shall distinguish it from other series;
(ii) the number of shares included in such series;
(iii) the dividend rate (or method of determining such rate) payable to the holders of the shares of such series, any conditions upon which such dividends shall be paid and the date or dates upon which such dividends shall be payable;
(iv) whether dividends on the shares of such series shall be cumulative and, in the case of shares of any series having cumulative dividend rights, the date or dates or method of determining the date or dates from which dividends on the shares of such series shall be cumulative;
(v) the amount or amounts which shall be payable out of the assets of the Corporation to the holders of the shares of such series upon voluntary or involuntary liquidation, dissolution or winding up the Corporation, and the relative rights of priority, if any, of payment of the shares of such series;
(vi) the price or prices at which, the period or periods within which and the terms and conditions upon which the shares of such series may be redeemed, in whole or in part, at the option of the Corporation or at the option of the holder or holders thereof or upon the happening of a specified event or events;
(vii) the obligation, if any, of the Corporation to purchase or redeem shares of such series pursuant to a sinking fund or otherwise and the price or prices at which, the period or periods within which and the terms and conditions upon which the shares of such series shall be redeemed or purchased, in whole or in part, pursuant to such obligation;
(viii) whether or not the shares of such series shall be convertible or exchangeable, at any time or times at the option of the holder or holders thereof or at the option of the Corporation or upon the happening of a specified event or events, into shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation, and the price or prices or rate or rates of exchange or conversion and any adjustments applicable thereto; and
(ix) whether or not the holders of the shares of such series shall have voting rights, in addition to the voting rights provided by law, and if so the terms of such voting rights.
Subject to the rights of the holders of any series of Preferred Stock, the
number of authorized shares of any class or series of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the stock
of the Corporation entitled to vote thereon, irrespective of the provisions of
Section 242(b)(2) of the General Corporation Law of Delaware or any
corresponding provision hereafter enacted.
(b) The Board of Directors has provided for the issuance of a series of Preferred Stock of the Corporation consisting of 5,000 shares of Series A Usable Redeemable Preferred Stock with the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions as follows:
(A) the common stock, $.01 par value per share (the "Common Stock"), of the Corporation or (B) on any other class or series of capital stock (together with the Common Stock, the "Junior Stock"), other than a dividend or distribution made in shares of Junior Stock or (2) make any purchase, redemption, retirement or other acquisition of any share of Junior Stock, or of any option, warrant or other right to acquire the Corporation's capital stock, or make any payment on account of, or set apart money for, a sinking or other analogous fund for the purchase, redemption, retirement or acquisition thereof (each of the foregoing actions being referred to herein as a "Restricted Payment"); provided, however, that this restriction shall not apply (a) to the repurchase for an aggregate purchase price of up to $1.0 million for all employees and directors after the Original Issue Date of shares of Junior Stock or options to purchase Junior Stock held by employees or directors of the Corporation upon the termination of employment or office of such employee or director, or (b) the purchase, redemption, retirement or other acquisition of Junior Stock in connection with a Change of Control (as defined herein) in which clause (iv) is complied with; and provided, further, that, so long as (i) there is no outstanding amount that is due and payable on the Series A Preferred Stock (whether by reason of optional redemption, mandatory redemption, change of control redemption or otherwise), (ii) the Corporation is not in breach or default of any of its obligations under the Certificate of Incorporation or the Preferred Stock and Warrants Purchase Agreement dated on or about the Original Issue Date between the Corporation and the investors signatories thereto pursuant to which the Series A Preferred Stock was originally issued (the "Preferred Stock and Warrants Purchase Agreement") and (iii) all dividends on the Series A Preferred Stock accrued and unpaid shall have been paid in full in cash, this restriction shall not apply to an aggregate amount of dividends declared or paid during the period commencing on the Original Issue Date and ending on the date of declaration or payment of such dividend equal to 50% of Consolidated Net
Income for a period commencing July 1, 1998 and ending on the date of declaration or payment of such dividend (the "Consolidated Net Income Period") (or minus 100% of Consolidated Net Income for such Consolidated Net Income Period if Consolidated Net Income for such Consolidated Net Income Period is a loss).
As used herein:
(a) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Corporation or a Subsidiary, and the income (or loss) of any Person, substantially all of the assets of which have been acquired in any manner, realized by such other Person prior to the date of acquisition,
(b) the income (or loss) of any Person (other than a Subsidiary) in which the Corporation or any Subsidiary has an ownership interest, except to the extent that any such income has been actually received by the Corporation or such Subsidiary in the form of cash dividends or similar cash distributions,
(c) the undistributed earnings of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such
Subsidiary is not at the time permitted by the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary,
(d) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period,
(e) any aggregate net gain (but not any aggregate net loss) during
such period arising from the sale, conversion, exchange or other
disposition of capital assets (such term to include, without
limitation, (i) all non-current assets and, without duplication,
(ii) the following, whether or not current: all fixed assets,
whether tangible or intangible, all inventory sold in conjunction
with the disposition of fixed assets, and all securities),
(f) any gains resulting from any write-up of any assets (but not any loss resulting from any write-down of any assets),
(g) any net gain from the collection of the proceeds of life insurance policies,
(i) any gain arising from the acquisition of any security, or the extinguishment, under GAAP, of any indebtedness, of the Corporation or any Subsidiary,
(j) any net income or gain (but not any net loss) during such period from (i) any change in accounting principles in accordance with GAAP, (ii) any prior period adjustments resulting from any change in accounting principles in accordance with GAAP, (iii) any
extraordinary items, or (iv) any discontinued operations or the disposition thereof,
(k) any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary,
(l) in the case of a successor to the Corporation by consolidation or merger or as a transferee of its assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets, and
(m) any portion of such net income that cannot be freely converted into United States dollars.
any shares of any other class of stock of the Corporation, to be paid for each share of Series A Preferred Stock an amount equal to the Stated Value plus all accrued but unpaid dividends (the "Liquidation Preference Price"). Except as provided in this paragraph, the holders of Series A Preferred Stock shall not be entitled to any other distribution in respect of shares of Series A Preferred Stock in the event of liquidation, dissolution or winding up of the affairs of the Corporation.
payable in cash out of funds legally available therefor equal to 107-1/2% of the amount equal to the sum of the Stated Value plus accrued but unpaid dividends and (iii) after July 1, 2001 at a per share redemption price payable in cash out of funds legally available therefore equal to 100% of the amount equal to the sum of the Stated Value plus accrued but unpaid dividends (each, an "Optional Redemption").
(i) the acquisition or holding by
(x) any person (as such term is used in section 13(d) and section 14(d)(2) of the Exchange Act as in effect on the Closing Date), other than an Acceptable Controlling Person or the Investors, or
(y) related Persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act as in effect on the Closing Date), other than related Acceptable Controlling Persons or Investors constituting such a group,
of legal and/or beneficial ownership of more than 35% of the Common Stock or any securities convertible into more than 35% of the Common Stock of the Corporation, outstanding at such time if at such time the owners of Common Stock on the Original Issue Date and the Investors beneficially own in the aggregate less than a majority of the Common Stock or any securities convertible into less than a majority of the Common Stock (excluding for such purpose persons who own shares through any employee benefit plan of the Corporation in connection therewith);
(ii) all or substantially all of the assets of the Corporation are sold or otherwise transferred, in a single transaction or in a series of related transactions, to any other Person;
(iii) any merger, consolidation or other similar transaction of, or in respect of, the Corporation which results in the failure by the owners of Common Stock on the Original Issue Date and the Investors to, directly or indirectly in the aggregate, maintain beneficial ownership and voting control of at least fifty percent (50%) of the outstanding common
stock of the surviving entity in such merger, consolidation or similar transaction; or
(iv) any liquidation or dissolution of the Corporation, or action taken by the Board of Directors of the Corporation to authorize any such liquidation or dissolution.
Any sale of assets of the Corporation (or any of its Subsidiaries) which generated 2/3 or more of the revenues of the Corporation (on a consolidated basis) during the immediately preceding fiscal year shall constitute a "Change of Control".
that a holder of Series A Preferred Stock must follow in order to have his shares redeemed. Within five (5) days after receipt of a Notice of Change of Control Event, a holder of shares of Series A Preferred Stock may, at his option, if applicable, give notice to the Corporation specifying the number of shares of Series A Preferred Stock, if applicable, held by such holder that such holder requires the Corporation to redeem. The redemption date for any Change of Control Event (each, a "Change of Control Redemption Date") shall be the twenty-fifth day following the occurrence of the Change of Control. In the event some or all of the shares of Series A Preferred Stock are not tendered for redemption, the holder of such shares not so tendered shall be deemed to have consented to the redemption by the Corporation of any Junior Stock being prepaid, retired or exchanged pursuant to a Change of Control Event, notwithstanding any approval rights of holders of Series A Preferred Stock pursuant to clause (v) hereof.
Corporation of its repurchase rights for a maximum aggregate purchase price of up to $1.0 million of shares of Junior Stock or options to purchase Junior Stock issued to employees or directors of the Corporation upon a termination of employment or office, or in connection with a Change of Control in which clause (iv) above is complied with, (iv) file a voluntary petition seeking liquidation, dissolution or winding up of the Corporation or (v) consolidate or merge with or into any Person in a transaction that does not constitute a Change of Control unless, after giving effect to such merger or consolidation, the Consolidated Net Worth of the surviving Person in such merger or consolidation would not be less than the Consolidated Net Worth of the Corporation immediately prior to such merger or consolidation. As used herein, "Consolidated Net Worth" of any Person shall mean the consolidated total stockholders' equity of such Person and its Subsidiaries, as determined in accordance with GAAP.
(a) For purposes of this clause (vi), a "Triggering Event" shall be deemed to occur upon the failure by the Corporation to redeem shares of the Series A Preferred Stock and to pay the applicable redemption price upon a Change of Control when requested by a holder of Series A Preferred Stock or upon the Mandatory Redemption Date regardless of the reason for such failure, including but not limited to an insufficient amount of legally available funds.
(b) From and after the occurrence of a Triggering Event, and during the continuation thereof, the holders of a majority of the shares of Series A Preferred Stock shall be entitled to notify the Corporation of their intention to exercise the right of the Series A Preferred Stock (and, upon the giving of such notice, the holders of the Series A Preferred Stock shall have the right), voting as a separate
class, to appoint and to elect such additional number of directors as constitutes a majority of the Board of Directors after giving effect to such increase in the number of directors, and, upon receipt of such notice by the Corporation, the number of directors constituting the Board of Directors shall be accordingly increased. Upon termination of such right upon payment in full of all outstanding obligations in respect of a Change of Control redemption or Mandatory Redemption, the directors elected by the holders of Series A Preferred Stock pursuant to this clause (vi) shall be removed and the number of directors shall be reduced accordingly.
FIFTH. The board of directors of the Corporation is expressly authorized to adopt, amend or repeal by-laws of the Corporation.
SIXTH. Elections of directors need not be by written ballot except and to the extent provided in the by-laws of the Corporation.
SEVENTH. A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent that such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law as currently in effect or as the same may hereafter be amended. No amendment, modification or repeal of this Article SEVENTH shall adversely affect any right or protection of a director that exists at the time of such amendment, modification or repeal.
IN WITNESS WHEREOF, JFAX Communications, Inc. has caused this certificate to be signed by Richard S. Ressler, its Chief Executive Officer, on the 14th day of April, 1999.
JFAX Communications, Inc.
By: /s/ Richard S. Ressler
___________________________
Richard S. Ressler
|
BY-LAWS
OF
JFAX.COM, INC.
ARTICLE I
notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof and the opening and closing of the voting polls.
and the voting power of each, determine the shares represented at the meeting and the validity of proxies and ballots, count all votes and ballots, determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors and certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons to assist them in the performance of their duties. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxy or vote, nor any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted therewith, any information provided by a stockholder who submits a proxy by telegram, cablegram or other electronic transmission from which it can be determined that the proxy was authorized by the stockholder, ballots and the regular books and records of the corporation, and they may also consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for such purpose, they shall, at the time they make their certification, specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable.
of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power, regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or represented by proxy at such meeting shall so determine. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. In all other matters, unless otherwise provided by law or by the certificate of incorporation or these by-laws, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Where a separate vote by class or classes is required, the affirmative vote of the holders of a majority of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class or classes, except as otherwise provided by law or by the certificate of incorporation or these by-laws.
and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to (a) its registered office in the
State of Delaware by hand or by certified mail or registered mail, return
receipt requested, (b) its principal place of business, or (c) an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Every written consent shall bear the date
of signature of each stockholder who signs the consent and no written consent
shall be effective to take the corporate action referred to therein unless,
within sixty days of the earliest dated consent delivered in the manner required
by this by-law to the Corporation, written consents signed by a sufficient
number of holders to take action are delivered to the Corporation by delivery to
(a) its registered office in the State of Delaware by hand or by certified or
registered mail, return receipt requested, (b) its principal place of business,
or (c) an officer or agent of the Corporation having custody of the book in
which proceedings of meetings of stockholders are recorded. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing
and who, if the action had been taken at a meeting, would have been entitled to
notice of the meeting if the record date for such meeting had been the date that
written consents signed by a sufficient number of stockholders to take the
action were delivered to the Corporation as provided in this Section 1.11.
Corporation at any meeting of stockholders shall be delivered to the Secretary of the Corporation at its principal executive office not less than 60 nor more than 90 days prior to the date of the meeting; provided, however, that if the date of the meeting is first publicly announced or disclosed (in a public filing or otherwise) less than 70 days prior to the date of the meeting, such advance notice shall be given not more than ten days after such date is first so announced or disclosed. Public notice shall be deemed to have been given more than 70 days in advance of the annual meeting if the Corporation shall have previously disclosed, in these by-laws or otherwise, that the annual meeting in each year is to be held on a determinable date, unless and until the Board determines to hold the meeting on a different date. Any stockholder who gives notice of any such proposal shall deliver therewith the text of the proposal to be presented and a brief written statement of the reasons why such stockholder favors the proposal and setting forth such stockholder's name and address, the number and class of all shares of each class of stock of the Corporation beneficially owned by such stockholder and any material interest of such stockholder in the proposal (other than as a stockholder). Any stockholder desiring to nominate any person for election as a director of the Corporation shall deliver with such notice a statement in writing setting forth the name of the person to be nominated, the number and class of all shares of each class of stock of the Corporation beneficially owned by such person, the information regarding such person required by paragraphs (a), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and Exchange Commission (or the corresponding provisions of any regulation subsequently adopted by the Securities and Exchange Commission applicable to the Corporation), such person's signed consent to serve as a director of the Corporation if elected, such stockholder's name and address and the number and class of all shares of each class of stock of the Corporation beneficially owned by such stockholder. As used herein, shares "beneficially owned" shall mean all shares as to which such person, together with such person's affiliates and associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934), may be deemed to
beneficially own pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as well as all shares as to which such person, together with such person's affiliates and associates, has the right to become the beneficial owner pursuant to any agreement or understanding, or upon the exercise of warrants, options or rights to convert or exchange (whether such rights are exercisable immediately or only after the passage of time or the occurrence of conditions). The person presiding at the meeting, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall determine whether such notice has been duly given and shall direct that proposals and nominees not be considered if such notice has not been given.
ARTICLE II
or series of stock, voting separately as a class, are entitled to elect one or more directors by the certificate of incorporation, the provisions of the preceding sentence shall apply, in respect to the removal without cause of a director or directors so elected, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares as a whole. Unless otherwise provided in the certificate of incorporation or these by-laws, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class or from any other cause may be filled by a majority of the directors then in office, although less than a quorum, or by the sole remaining director. Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by the sole remaining director so elected. Any director elected or appointed to fill a vacancy shall hold office until the next annual meeting of the stockholders, and until his or her successor is elected and qualified or until his or her earlier resignation or removal.
by the certificate of incorporation or these by-laws, members of the Board of Directors, or any committee designated by the Board, may participate in a meeting of the Board or of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting.
writing or writings are filed with the minutes of proceedings of the Board or committee.
ARTICLE III
conduct of its business. In the absence of a provision by the Board or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee, and in other respects each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these by-laws.
ARTICLE IV
necessary to make it effective. The Board may remove any officer with or without cause at any time. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election of an officer shall not of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board at any regular or special meeting.
ARTICLE V
issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.
If the Corporation is authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided by law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
ARTICLE VI
director, officer or employee. Expenses, including attorneys' fees, incurred by any such person in defending any such action, suit or proceeding shall be paid or reimbursed by the Corporation promptly upon receipt by it of an undertaking of such person to repay such expenses if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation. The rights provided to any person by this by-law shall be enforceable against the Corporation by such person who shall be presumed to have relied upon it in serving or continuing to serve as a director, officer or employee as provided above. No amendment of this by-law shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment. For purposes of this by-law, the term "Corporation" shall include any predecessor of the Corporation and any constituent corporation (including any constituent of a constituent) absorbed by the Corporation in a consolidation or merger; the term "other enterprise" shall include any corporation, company, partnership, joint venture, trust or employee benefit plan; service "at the request of the Corporation" shall include service as a director, officer or employee of the Corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants or beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be indemnifiable expenses; and action by a person with respect to an employee benefit plan which such person reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Corporation.
Directors or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose, if: (1) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
SECURITYHOLDERS' AGREEMENT
AGREEMENT, dated as of June 30, 1998, among JFAX Communications, Inc., a Delaware corporation (the "Company"), the investors listed on Exhibit 1 hereto (the "Investors") and the shareholders listed on Exhibit 2 hereto (the "Shareholders").
WHEREAS, the Company is concurrently herewith entering into a Securities Purchase Agreement with the Investors named therein (the "Securities Purchase Agreement"), authorizing the issuance and delivery of (i) $10,000,000 aggregate principal amount of Senior Subordinated Notes due 2004 (the "Notes") and (ii) shares of the Company's Common Stock, par value $.01 ("Common Stock").
WHEREAS, the Company, on or about the date hereof, is entering into a
Preferred Stock Purchase Agreement with the Investors named therein (the
"Preferred Stock Purchase Agreement"), authorizing the issuance and delivery of
(i) 5,000 shares of the Company's Series A Usable Redeemable Preferred Stock
(the "Preferred Stock") and (ii) warrants to purchase shares of Common Stock
("Warrants");
WHEREAS, it is a condition to the execution of each of the Securities Purchase Agreement and the Preferred Stock Purchase Agreement that the parties hereto enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and mutual covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
and policies of a Person, whether by virtue of the ownership of voting stock, by contract or otherwise.
Issuable under the Warrants, excluding shares of the Preferred Stock.
ARTICLE II.
RESTRICTIONS ON TRANSFER
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND CAN BE TRANSFERRED ONLY PURSUANT TO THE TERMS OF A SECURITYHOLDERS' AGREEMENT DATED AS OF JUNE 30, 1998, AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS SECURITIES. A COPY OF SUCH AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
(a) Any Shareholder hereto (the "Initiating Shareholder") shall give notice of any intended Transfer (each, a "Participation Transfer") to each Investor (each, a "Participating Offeree"). Such notice (the "Participation Notice") shall set forth the terms and conditions of such proposed Participation Transfer, including the name of the prospective transferee, the number of Shares proposed to be Transferred (the "Participation Securities"), the purchase price per share proposed to be paid therefor, the payment terms and type of Participation Transfer to be effectuated, and any other material terms and conditions of such proposed Participation Transfer. Within 20 days following the delivery of the Participation Notice by the Initiating Shareholder, each Participating Offeree shall have the right, but not the obligation, to participate in such Participation Transfer by Transferring (up to the number of Shares Owned by such Participating Offeree), that number of Shares equal to the product obtained by multiplying (i) the total number of Shares proposed to be Transferred in the Participation Transfer times (ii) a fraction, the numerator of which shall be equal to the aggregate number of Shares Owned by such Participating Offeree immediately prior to the Participation Transfer and the denominator of which is equal to the sum of (x) the aggregate number of Shares Owned by the Initiating Shareholder immediately prior to the Participation Transfer plus (y) the aggregate number of Shares Owned by all other Participating Offerees immediately prior to the Participation Transfer and (z) the aggregate number
(b) The closing of any proposed Participating Transfer in respect of which a Participation Notice has been delivered shall occur not earlier than 30 days nor more than 90 days after the date the last Participation Notice has been given. The closing shall be held at 10:00 a.m., local time, on the date of closing at the principal office of the Company, or at such other time or place as the parties to such transaction mutually agree. At the closing, the Initiating Shareholder, together with all Participating Offerees electing to transfer Shares, shall deliver to the proposed Transferee (i) certificates evidencing the Shares to be transferred pursuant thereto, free and clear of any lien, claim or encumbrance and (ii) such other documents, including, without limitation, executed stock powers and evidence of ownership and authority, as the Transferees shall reasonably request, and shall receive in exchange therefor the consideration to be paid or delivered by the proposed Transferee in respect of such Shares as described in the Participation Notice.
(c) Notwithstanding anything contained in this Section 2.4, the Transfers permitted by this Section 2.4 shall not include pledges or encumbrances of Shares.
(d) Any Transfer of Shares pursuant to Section 2.4(B) or 2.4(C) requiring compliance with this Section 2.4(d) shall be deemed a Change of Control for purposes of paragraph 4C of the Securities Purchase Agreement and paragraph (iv)(c) of the Certificate of Designations relating to the Preferred Stock, and, if any of the holders entitled to have their Notes repaid or their shares of Preferred Stock redeemed, as the case may be, exercise such rights, the consummation and validity of such Transfer of Shares shall be subject to the prior or simultaneous payment in full of all amounts due to such holders thereunder.
(ii) The Pull Along Notice shall propose a Third Party Price of an equal amount per Share, in cash, provided that the price for the Warrants shall be reduced by the applicable exercise price per Share; and
(iii) The Offeror shall furnish to the reasonable satisfaction of the Selling Shareholders evidence as to the Offeror's financial ability to consummate the proposed purchase.
ARTICLE III.
MISCELLANEOUS
(b) As long as the Investors signatory to the Preferred Stock Purchase Agreement (the "DLJ Investors") hold at least 25% of the Warrant Shares, the Company and the Shareholders
shall take all action within their respective power, including, but not limited to, the voting of capital stock of the Company, required to cause the Board of Directors of the Company to at all times consist of no more than seven members, one of whom shall be designated by such Investors (the "Preferred Designee"). In addition, if, prior to a Qualified Public Offering, the DLJ Investors hold at least one Warrant Share but less than 25% of the Warrant Shares, then the Preferred Designee may be designated by the holders of a majority of the Warrant Shares. Each of the Shareholders and the Company agree to vote any of their Shares which are outstanding at all meetings of stockholders of the Company (or any written consents in lieu thereof) in which directors are elected in favor of the Preferred Designee.
(c) In the event that the Notes Designee or the Preferred Designee (a
"Withdrawing Director") designated in the manner set forth in Section 3.1(a) or
(b) above is unable to serve, or once having commenced to serve, is removed or
withdraws from the Board of Directors of the Company, such Withdrawing
Director's replacement (the "Substitute Director") on the Board of Directors of
the Company will be designated by appropriate Investors. The Company and the
Shareholders agree to take all action within their respective power, including,
but not limited to, the voting of outstanding capital stock of the Company, to
cause the election of such Substitute Director as soon as practicable following
his designation.
(d) In the event the Investors entitled to designate Directors pursuant to this Agreement cease to be so entitled, the vacancies resulting therefrom shall be filled by the remaining directors or by the Stockholders in the manner provided by applicable law or the number of directors constituting the Board shall be reduced. In the event the Investors entitled to designate any Director pursuant to this Agreement choose not to designate a Director, such directorship shall remain vacant.
(e) Following a Qualified Public Offering, (i) the size of the Board of Directors shall not be limited hereunder to seven directors and (ii) so long as the Investors exercise their rights hereunder to designate a Notes Designee or a Preferred Designee, the appropriate Investors shall vote their respective outstanding Shares in favor of election of up to five directors designated by the Shareholders.
(f) Nothing in this Section 3.1 shall be in limitation of the rights of the holders of the Preferred Stock set forth in clause (vi) of the Certificate of Designations of the Preferred Stock.
(i) upon the written agreement of the Company, the Shareholders and the Investors; or
(ii) on such date as (A) there are no longer any Notes or shares of Preferred Stock outstanding, (B) all rights of the Investors to designate any directors under Section 3.1 have terminated pursuant to the terms of such Section 3.1 and (C) a Qualified Public Offering shall have occurred.
addressed to it at 10960 Wilshire Blvd., Los Angeles, California 90024, Attention: Office of the President, with a copy to Office of General Counsel of the Company, or to such other address with respect to any party as such party shall notify the other in writing.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written.
JFAX COMMUNICATIONS, INC.
By: /s/ Hemi Zucker ------------------------------------ Name: Hemi Zucker Title: |
SHAREHOLDERS:
ORCHARD/JFAX INVESTORS, L.L.C.
By: /s/ Richard S. Ressler ------------------------------------ Richard S. Ressler Manager |
INVESTORS:
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
By: PECKS MANAGEMENT PARTNERS LTD.
Its Investment Advisor
By: /s/ Robert J. Cresci
-------------------------------------
Robert J. Cresci
Managing Director
|
DECLARATION OF TRUST FOR
DEFINED BENEFIT PLANS OF ICI
AMERICAN HOLDING INC.
By: PECKS MANAGEMENT PARTNERS LTD.
Its Investment Advisor
By: /s/ Robert J. Cresci
-------------------------------------
Robert J. Cresci
Managing Director
|
DECLARATION OF TRUST FOR
DEFINED BENEFIT PLANS OF
ZENECA HOLDING INC.
By: PECKS MANAGEMENT PARTNERS LTD.
Its Investment Advisor
By: /s/ Robert J. Cresci
-------------------------------------
Robert J. Cresci
Managing Director
|
THE J.W. MCCONNELL FAMILY FOUNDATION
By: PECKS MANAGEMENT PARTNERS LTD.
Its Investment Advisor
By: /s/ Robert J. Cresci
-------------------------------------
Robert J. Cresci
Managing Director
|
DLJ FUND INVESTMENT PARTNERS II, L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION
Its General Partner
By: /s/ Ivy Dodes
-------------------------------------
Name: Ivy Dodes
Title: Vice President
|
DLJ CAPITAL CORPORATION
By: /s/ Ivy Dodes
-------------------------------------
Name: Ivy Dodes
Title: Vice President
|
GMT PARTNERS, LLC
c/o Blue Capital Management
By: /s/ Chris Gagnon
-------------------------------------
Chris Gagnon
Managing Member
|
ORCHARD/JFAX INVESTORS, L.L.C.
By: /s/ Richard Ressler
-------------------------------------
Name: Richard Ressler
Title: Manager
|
DLJ PRIVATE EQUITY EMPLOYEES FUND, L.P.
By: DLJ LBO PLANS MANAGEMENT CORPORATION
Its General Partner
By: /s/ Ivy Dodes -------------------------------------- Name: Ivy Dodes Title: Vice President |
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, NY 10020
DELAWARE OF TRUST FOR
DEFINED BENEFIT PLANS OF ICI
AMERICAN HOLDING INC.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, NY 10020
DECLARATION OF TRUST FOR
DEFINED BENEFIT PLANS OF
ZENECA HOLDING INC.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, NY 10020
THE J.W. MCCONNELL FAMILY FOUNDATION
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, NY 10020
DLJ FUND INVESTMENT PARTNERS II, L.P.
277 Park Avenue
New York, NY 10172
DLJ CAPITAL CORPORATION
277 Park Avenue
New York, NY 10172
GMT PARTNERS, LLC
c/o Blue Capital Management
152 West 57th Street, 11th Floor
New York, New York 10019
Attention: Chris Gagnon
ORCHARD/JFAX INVESTORS, L.L.C.
10960 Wilshire Blvd.
Los Angeles, California 90024
Attention: Office of the President
DLJ PRIVATE EQUITY EMPLOYEES FUND, L.P.
277 Park Avenue
New York, NY 10172
Shares Owned
------------
Orchard/JFAX Investors, L.L.C. 10,512,622
10960 Wilshire Blvd.
Los Angeles, California 90024
Attention: Office of the President
|
The Incentive Compensation Bonus Plan (`the Plan') is designed to recognize efforts required in supporting JFAX.COM to achieve its annual objectives and maintain its place as the leader in unified messaging.
The Management Committee of JFAX.COM will administer the Plan. This committee will be exclusively responsible for determining and approving the following:
. Financial planning and setting of corporate goals
. Eligibility of plan participants
. Bonus structure amounts (based on base salary)
. Individual assessment guidelines and goals
To be eligible for participation in the Plan, you must be a full-time employee for a minimum of 90 days during that year. In addition, if and when the semi- annual payments are made, you must be employed by JFAX.COM on the date of disbursement to receive actual payment.
The January to June segment will be disbursed either the last pay period of September or first pay period of October. The July to December segment will be disbursed either the last pay period of March or first pay period of April. All applicable taxes and withholdings shall be deducted from any bonus paid.
If a participant's employment is terminated voluntarily, or by JFAX.COM for unsatisfactory performance or cause, all unpaid bonus opportunities will be
forfeited.
September 2, 1998
Mr. Gary H. Hickox
P.O. Box 2244
Morristown, New Jersey 07962-2244
Dear Gary:
I write to confirm the terms under which you will become employed by JFAX Communications, Inc. (the "Company").
You shall serve as the President and Chief Operating Officer of the Company and will have the authority and responsibilities in such position as set forth in the bylaws of the Company. The Company will provide you with facilities and staff services sufficient and conducive to the discharge of your duties. The Company will use its commercially reasonable best efforts to have you elected a director by the stockholders of Company upon the earlier to occur of the initial public offering of the shares in the Company Stock or the first anniversary of your employment.
You will relocate your residence to the greater Los Angeles metropolitan area on or before September 17, 1998. The Company shall reimburse you for all reasonable and actual expenses incurred by you in connection with relocating to the Los Angeles area except that the Company's total reimbursement obligation shall in no event exceed $50,000.
You shall receive an annual base salary during the initial term of your employment of $220,000, payable in accordance with the Company's regular payroll practices. For all additional one year terms of this Agreement, you shall receive a raise in your annual base salary in an amount determined by Company's Board of Directors, payable in reasonable periodic installments in accordance with
Company's regular payroll practices. In addition to the base salary the Company shall pay you an annual bonus, as determined by the Board of Directors of the Company based upon your performance and the Company's performance as measured by written milestones agreed upon annually by you and the Company, of at least 50 percent of your annual salary if the milestones are met and up to 100 percent of your annual salary if the milestones are exceeded.
Pursuant to the terms of the Company's 1997 Stock Option Plan (the "Plan") (to the extent this Agreement conflicts with the provisions of the Plan this Agreement shall control and be deemed a Stock Option Agreement as referred to in the Plan) the Company shall grant you, subject to Board approval, the option to acquire up to 300,000 shares of the Company's Common Stock at an exercise price of $3.00 per share subject to adjustment as provided in the Plan. Unless otherwise set forth herein, you will vest in one-third of the options on each of the first three anniversaries of the Start Date.
In addition you will receive a further annual grant of stock options from the Company. You and I will annually agree upon a recommended number of further options and an exercise price for such options which will be presented to the Board of Directors.
You shall be entitled to participate in and receive the benefits of any profit sharing or retirement plans, and any health, dental, vision, life, accident or disability insurance plans or programs and any other benefits made available to other executive employees of Company. The Company's health, dental and vision plans during the term of your employment will (to the extent such coverage can be obtained on substantially similar commercial terms as the Company's current coverage) provide coverage to same sex unmarried partners.
Subject to Board approval, the Company will sell you 33,000 shares of the Company's Common Stock at a price of $3.00 per share. In order to purchase such shares, the Company will loan you $99,000. This loan will be evidenced by a promissory note (the "Note") providing for repayment of the loan in one balloon payment of principle plus accrued interest due three years from execution of the Note. The Note will bear interest at a fixed rate equal to the yield on U.S. Treasury securities with a 3 year maturity date on the date the loan is made and will be fully recourse to you. In the event that any of my affiliates or I propose to sell shares of the Company's Common Stock, I will give you notice (including the terms) of such proposed sale, and you will have the right to participate in such sale, pro-rata, by selling up to a number of shares equal to the number of shares proposed to be sold by me multiplied by a fraction, the numerator of which is 33,000 and the denominator of which is the total number of shares owned by my affiliates and me prior to such sale. (the "Co-sale Right"). The Co-Sale Right shall survive termination or non-renewal of your employment for so long as any portion of the Note remains unpaid.
The Company may discharge you at any time for Cause upon delivery of written notice to you, making reference to and specifying with particularity the actions or inactions constituting such Cause. For purposes of this Agreement, "Cause" shall mean (i) your breach of any material term of this Agreement or your failure to follow any lawful directive of the Board of Directors of the Company consistent with your duties hereunder, which event is not corrected within a reasonable period after written notice is delivered by the Company to you specifying said failure or breach; (ii) your engaging in a felony or a crime involving moral turpitude; or (iii) your engaging in theft, larceny or embezzlement of any of the Company's property; or (iv) your engaging in harassment of the employees of the Company as defined in the California Fair Employment and Housing Act Government Codes (S)(S) 12900, et seq. In the event you are discharged for Cause, the Company shall have no further obligations or liabilities hereunder after the date of such discharge. For purposes of the stock options granted to you by the Company, the definition of Cause set forth in this Agreement shall supercede and replace the definition
in the Plan. In the event of a termination for Cause, any vested unexercised stock options granted to you by the Company shall expire and cease to be exercisable.
The Company may terminate your employment hereunder "for convenience" at any time. Upon such termination "for convenience" you shall (i) receive severance in an amount equal to 100 percent of your then current annual base salary in accordance with the Company's regular payroll practices and (ii) vest in all unvested stock options otherwise scheduled to vest within 90 days of such termination. In the event of a termination for convenience you will have one year from the date of such termination to exercise all stock options granted to you and vested as of the date of such termination.
You may terminate this Agreement at any time upon 60 days prior written
notice, in which event you shall be entitled to the portion of your then current
annual base salary accrued to the date of termination and any options vested as
of the date of termination; provided, however, that if you terminate this
Agreement because (i) of a breach by the Company of the Company's duties and
obligations under this Agreement, (ii) there occurs a material change from the
date of this Agreement in the authorities, powers, functions or duties attached
to your position as President and Chief Operating Officer of the Company, or
(iii) the Company's principal executive offices are no longer located in the Los
Angeles metropolitan area, you shall (x) receive severance in an amount equal
to 100 percent of your then current annual base salary in accordance with the
Company's regular payroll practices and (y) vest in all unvested stock options
otherwise scheduled to vest within 90 days of such termination. In the event
you terminate this Agreement you shall have one year from the date of such
termination to exercise any vested unexercised stock options granted to you by
the Company.
If you become Disabled (as defined below), the Company will continue the
payment of your annual base salary at its then current rate until the sooner of
(a) 90 days following the date you are first unable to perform your duties due
to such disability or incapacity or (b) the date you are first eligible to
receive disability payments under any disability policy or other benefit plan in
which you are a beneficiary or participant. Thereafter, the Company shall have
no obligation for base salary or other compensation payments to you during the
continuance of such disability or incapacity other than such as may be available
under any disability policy or other benefit plan in which you are a beneficiary
or participant. Upon your disability the Company shall have the right to
terminate this Agreement. The terms "Disabled" and "Disability" mean for the
purposes of this Agreement, that either (i) as a result of your incapacity, you
have become eligible or would be eligible but for a waiting period for full
benefits under all of the Company's long-term disability policies applicable to
you, or (ii) if at any time no such long-term disability policies are in force
or cover the particular disability from which you suffer, pursuant to an
examination by a physician selected by the Company at the Company's sole
expense, it is determined that you are unable, due to a medically determinable
physical or mental condition, to substantially perform the duties of your
employment hereunder for a period of 90 days during any 180-day period. Upon a
termination of this Agreement due to your Disability you will have one year from
such termination to exercise all vested unexercised stock options granted to you
by the Company.
You agree that any of the Company's severance obligations set forth in this Agreement shall, after a period of receiving severance for six months following a termination or non-renewal, immediately terminate upon your securing replacement employment (but shall continue to the extent that your total compensation from the replacement employment is less than the Company's severance obligations hereunder). However, you shall be under no obligation whatsoever to seek or locate such replacement employment.
The Company agrees that it will obtain Board approval for the issuance to you of the stock options and Common Stock contemplated by this Agreement within one week of the date hereof, failing which you will have the right to terminate this Agreement.
The Company agrees to indemnify you and hold you harmless against all costs, expenses (including, without limitation, reasonable attorneys' fees) and liabilities (other than settlements to which the Company does not consent, which consent shall not be unreasonably withheld)(collectively, "Losses") reasonably incurred by you in connection with any claim, action, proceeding or investigation brought against or involving you with respect to, arising out of or in any way relating to your employment with the Company or your service as a director of the Company; provided, however, that the Company shall not be required to indemnify you for Losses incurred as a result of your intentional misconduct or gross negligence (other than matters where you acted in good faith and in a manner you reasonably believed to be in and not opposed to the Company's best interests). The Company further agrees to advance any and all expenses (including, without limitation, the fees and expenses of counsel) reasonably incurred by you in connection with any such claim, action, proceeding or investigation, provided you first enter into an appropriate agreement for repayment of such advances if indemnification is found not to have been available.
This Agreement contains the entire understanding among us with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. This Agreement may not be modified or amended other than by an agreement in writing signed by you and the Company.
To acknowledge your acceptance of this Agreement please sign and return this letter to me as soon as possible.
Very truly yours,
/s/ Richard S. Ressler Richard S. Ressler Chief Executive Officer |
READ AND AGREED
/s/ Gary H. Hickox Gary H. Hickox |
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of March 17, 1997 between JFAX Communications, Inc. (the "Company") and Dr. Anand Narasimhan ("Employee").
The parties agree as follows with respect to the employment by the Company of the Employee:
Employee, according to the schedule of regular salary amounts as set forth below, for a period of three months after the date of such termination, or if earlier, to the date Employee commences new employment (such severance pay shall not, in any event, be less than one month's pay); provided that this sentence shall not be applicable until such time as Employee has moved his residency to California to take up his duties with the Company in California.
Employee as established from time to time between the Company and the Employee. Employee shall further be entitled, commencing from the time he moves to California as aforesaid, to a monthly bonus of $400 per month for twelve months only.
which option will vest when he moves to California as aforesaid, and such 30 options have a term of 10 years and may be exercised at any time until their termination whether or not Employee ceases to be employed by the Company. All stock options of Employee shall otherwise be subject to customary anti-dilution adjustments and other provisions, including vesting upon a change of control, and, if and when practicable, registration of the subject shares on Form S-8, as established for employee stock options generally , it being agreed, however, that with respect to the 15 above-mentioned options exercisable at $3,851.89 per share, if such options, or any of them, shall become vested in the future, and Employee ceases to be employed by the Company, at a time when the Company has not yet gone public, then for purposes of the timing of any exercise of such options, but not for purposes of vesting, Employee will be treated as if he had left the employment of the Company thirty days after the date the Company goes public.
[Paragraphs 6 and 7 intentionally omitted.]
activities on behalf of the Company. The Company will also reimburse Employee for his expenses of relocating to California up to a maximum amount of $10,000. Such expenses will be reimbursed only upon presentation by Employee of appropriate documentation to substantiate such expenses.
generally known to the public or to the Company's competitors. The Employee recognizes, acknowledges and agrees that the Confidential Information constitutes a valuable, special and unique asset to the Company, access to and knowledge of which is essential to the performance of the employee's duties. The Employee specifically agrees that, except as directed by the Company's Board of Directors or its Chief Executive Officer or as required by law, the Employee will not at any time during or after the Term use or disclose any Confidential Information to any person whomsoever or allow any Confidential Information to be disclosed to any person whomsoever except in the good faith performance of his duties.
"Cause" shall mean (i) any act or failure to act, done or omitted in bad faith, (ii) persistent unavailability for service, habitual neglect, material misconduct (after notice and a reasonable opportunity to cure) or dishonesty, or (iii) conviction of a felony (other than ordinary traffic violations or similar minor offenses).
"Inventions" means and refers to any process, computer software (including all manifestations and variations thereof) technique, machine, device, composition of matter, instrument, tool or formula which is new or which the Employee has a reasonable basis to believe may be new, whether or not patentable or reduced to practice by the Company, its parent or its affiliates or any other person, corporation, or other entity, including, without limitation, inventions, Trade Secrets as defined below, know-how and software.
"Proprietary Information" means and refers to any and all non-public materials and information (which has not become known or available to the public or within the
Company's industry) of the Company and/or any of the Company's parents, affiliates, owners, clients, customers, suppliers, agents, licensees or licensors of a confidential, proprietary or secret nature including, but not limited to, the Company's, its parents' and affiliates' customers and prospects, employee lists, business and strategic plans, marketing programs and surveys, pricing information, research and development plans and activities, software source code and documentation, and financial results, reports and statements.
"Trade Secrets" means and refers to information, including a formula, pattern, compilation, program, device, method, technique or process that: (i) derives independent economic value, actual or potential, from not being generally known to and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
"Confidential Information" means and refers, collectively, to all Inventions, Proprietary Information and
Trade Secrets, and each of them, as those terms are respectively defined in this Paragraph 14.
If to the Company:
JFAX Communications, Inc.
c/o Orchard Capital Corporation
10960 Wilshire Boulevard, Suite 500
Los Angeles, CA 90024
Fax: (310) 201-4351
If to Employee:
Dr. Anand Narasimhan
30 Christopher Street, Suite 1J
New York, NY 10014
Fax: (212) 253-4392
employment by the Company. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO ANY CONFLICTS OF LAW PRINCIPLES THEREOF.
IN WITNESS WHEREOF, the Company and the Employee have each duly executed this Agreement on the date first written above.
JFAX Communications, Inc.
By: /s/ Jens Muller
---------------------
Name: Jens Muller
Title: President
/s/ Anand Narasimhan
---------------------
Dr. Anand Narasimhan
|
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of March 21, 1997 between JFAX Communications, Inc. (the "Company") and Mr. Nehemia Zucker ("Employee").
The parties agree as follows with respect to the employment by the Company of the Employee:
Employee, according to the schedule of regular salary amounts as set forth below, for a period of six months after the date of such termination, or if earlier, to the date Employee commences new employment (such severance pay shall not, in any event, be less than one month's pay); provided that this sentence shall not be applicable until such time as Employee has moved his residency to California to take up his duties with the Company in California.
jointly consider at a later date whether the same or a similar provision should apply to subsequent fiscal years of the Company. Employee shall be entitled at the end of each of the first three fiscal quarters of the current fiscal year of the Company to draw against a portion of the potential annual bonus amount for such fiscal year, in the amount of $16,667 per quarter or $50,000 in the aggregate. The remaining portion of the potential annual bonus amount (i.e., $25,000) for the current fiscal year of the Company will only be available at such time as the annual bonus is determined, and any prior draw as aforesaid will be subject to refund by Employee if not earned, provided that, in lieu of such refund, Employee may elect to have the refund amount be added to the loan to Employee under Section 7 below.
agreed, however, that with respect to the 50 above-mentioned options exercisable at $3,851.89 per share, if such options, or any of them, shall become vested in the future, and Employee ceases to be employed by the Company, at a time when the Company has not yet gone public, then for purposes of the timing of any exercise of such options, but not for purposes of vesting, Employee will be treated as if he had left the employment of the Company thirty days after the date the Company goes public.
[Paragraph 6 intentionally omitted]
have the right to extend the maturity date of the loan for a period ending at the earliest to occur of: (a) the date of termination of Employee's employment by the Company, (b) the date six months after the closing of Company's initial public offering, or (c) the date Employee sells the shares, or the entitlement to shares, that secures such loan, or otherwise sells a substantial portion of his shares in the Company. The principal of such loan may be increased as referred to in the final sentence of Section 4 above. Interest on such loan shall not be payable currently, but shall be added to principal on a semi-annual compounding basis, and be payable together with the principal at maturity. The Company and Employee will sign appropriate loan documents to evidence and secure this loan.
will be reimbursed only upon presentation by Employee of appropriate documentation to substantiate such expenses.
and assigns his entire right, title and interest in and to all Inventions (as defined below), copyrights and/or designs which the Employee has made or may hereafter make, conceive, develop or perfect, either alone or jointly with others, either: (i) during the term of his employment by the Company (the "Term"), if such Invention, copyright and/or design is related to the business of the Company or its affiliates or is related to their research or development work; (ii) with the use of any amount or part of Trade Secrets (as defined below) of the Company or its affiliates; or (iii) in any part whatsoever during working hours during the Term of his employment or while the Employee was doing any work for the Company or its affiliates.
valuable, special and unique asset to the Company, access to and knowledge of which is essential to the performance of the employee's duties. The Employee specifically agrees that, except as directed by the Company's Board of Directors or its Chief Executive Officer or as required by law, the Employee will not at any time during or after the Term use or disclose any Confidential Information to any person whomsoever or allow any Confidential Information to be disclosed to any person whomsoever except in the good faith performance of his duties.
"Cause" shall mean (i) any act or failure to act, done or omitted in bad faith, (ii) persistent unavailability
for service, habitual neglect, material misconduct (after notice and a reasonable opportunity to cure) or dishonesty, or (iii) conviction of a felony (other than ordinary traffic violations or similar minor offenses).
"Inventions" means and refers to any process, computer software (including all manifestations and variations thereof) technique, machine, device, composition of matter, instrument, tool or formula which is new or which the Employee has a reasonable basis to believe may be new, whether or not patentable or reduced to practice by the Company, its parent or its affiliates or any other person, corporation, or other entity, including, without limitation, inventions, Trade Secrets as defined below, know-how and software.
"Proprietary Information" means and refers to any and all non-public materials and information of the Company (which has not become known or available to the public or within the Company's industry) and/or any of the Company's parents, affiliates, owners, clients, customers, suppliers, agents, licensees or licensors of a confidential, proprietary or secret nature including, but not limited to,
the Company's, its parents' and affiliates' customers and prospects, employee lists, business and strategic plans, marketing programs and surveys, pricing information, research and development plans and activities, software source code and documentation, and financial results, reports and statements.
"Trade Secrets" means and refers to information, including a formula, pattern, compilation, program, device, method, technique or process that: (i) derives independent economic value, actual or potential, from not being generally known to and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
"Confidential Information" means and refers, collectively, to all Inventions, Proprietary Information and Trade Secrets, and each of them, as those terms are respectively defined in this Paragraph 14.
at the address or facsimile telephone number set forth below and shall be deemed given seventy-two (72) hours after deposit in the United States certified mail, return-receipt requested, first-class, postage prepaid. Notices delivered by overnight service shall be deemed to have been given upon delivery or refusal of the same, charges prepaid to the United States Postal Service or private courier. If any notice is transmitted by facsimile or similar means, the same shall be deemed served or delivered upon confirmation of transmission thereof, provided that a hard copy of such notice is delivered by overnight service on the next business day following such facsimile transmission. Either party may, by notice to the other, specify a different address for notice purposes.
If to the Company:
JFAX Communications, Inc.
c/o Orchard Capital Corporation
10960 Wilshire Boulevard, Suite 500
Los Angeles, CA 90024
Fax: (310) 893-1651
If to Employee:
Mr. Nehemia Zucker
10935 Avenida Santa Ana
Boca Raton, FL 33495
Fax: (212) 208-2555
IN WITNESS WHEREOF, the Company and the Employee have each duly executed this Agreement on the date first written above.
JFAX Communications, Inc.
By: /s/ Jens Muller
---------------------
Name: Jens Muller
Title: President
/s/ Nehemia Zucker
-------------------------
Nehemia Zucker
|
[Note: This agreement has been assigned by Boardrush LLC to Boardrush Media LLC.]
JFAX COMMUNICATIONS, INC.
March 17, 1997
Mr. Jaye Muller
Boardrush LLC
244 Madison Avenue
Suite 191
New York, New York 10016
Dear Jaye:
I am pleased to confirm the participation of the Boardrush LLC (the "LLC") as a consultant, providing the consulting services, as described below, of Jaye Muller and Jack Rieley (the "Consultants") to JFAX Communications, Inc. (the "Company") commencing of the date hereof.
In the performance of the foregoing services, the LLC agrees to make the Consultants available at the reasonable convenience of each Consultant for consultations with the Company estimated to average three (3) to four (4) days each per week during the initial period of three (3) months, commencing on the date hereof, and two (2) to three (3) days each per month during the remaining months of the Initial Term and no more than two (2) days each per month during any
Mr. Jens Muller Boardrush LLC March 17, 1997
month of the Extended Term. In no event shall either of the Consultants be obligated to be available for more than four (4) days per week during the first three (3) months of the Initial Term of this Agreement, no more than three (3) days per month thereafter until the expiration of the Initial Term, and no more than two (2) days per month during the Extended Term. For purposes of this Article 2, a "day" shall be defined as a workday of no more than eight (8) hours.
Mr. Jens Muller Boardrush LLC March 17, 1997
further be reduced (commencing three (3) months after the commencement of such
unavailability) by the sum of U.S. $200,000 and the compensation to be provided
by the Company during the Extended Term, if any, shall not be reduced. Prior to
the end of the Initial Term, the events described in the two immediately
preceding sentences shall not effect any termination of this Agreement. During
the Extended Term such unavailability of either Muller or Rieley (but not both)
shall not effect any termination of this Agreement. However, during the Extended
Term, such availability of both Muller and Rieley shall effect a termination of
this Agreement and the compensation to be made by the Company hereunder during
such Extended Term shall be accelerated as provided in Section 5.3 of the Note
Agreement. The Company shall have the right to set off the amount owed to the
LLC under this Article 4 by any amount owed by the LLC to the Company under the
Note. For the purposes of this Article 4, "Cause" shall mean termination by the
Company of one or both of the Consultants or the LLC due to (i) willful
misconduct on the part of such Consultant or the LLC, which in either case is
materially injurious to the Company or (ii) a violation of Articles 5 or 7 of
this Agreement by either Consultant or the LLC, as determined for both (i) and
(ii) by a court of competent jurisdiction.
Mr. Jens Muller Boardrush LLC March 17, 1997
Mr. Jens Muller Boardrush LLC March 17, 1997
"Restricted Territory" shall mean every county of every state of the United States and every comparable subdivision of every foreign country in which the Company does business now or at the relevant time in the future during such three-year period.
Mr. Jens Muller Boardrush LLC March 17, 1997
confidentiality and non-competition will survive the termination of the LLC's engagement by the Company. If any provision of this letter agreement is held to be void or unenforceable, it will not affect the validity of any other provision hereof.
Mr. Jens Muller Boardrush LLC March 17, 1997
The LLC and the Company agree that this Agreement and the terms of the LLC's engagement hereunder shall be and remain confidential and shall not be disclosed, except as may be required by applicable law, to any third party, other than the current financial advisors of and attorneys for the LLC and the Company, without the express prior written consent of the other party.
Please acknowledge that LLC's acceptance of this offer and the LLC's and each of the Consultant's agreement to the terms set forth herein by signing and returning a copy of this letter to me.
Very truly yours,
JFAX Communications, Inc.
By: /s/ Jens Muller
-------------------------
Name: Jens Muller
Title: President
|
Agreed to this 17th day of March, 1977
Boardrush LLC
By: /s/ Jens Muller
----------------
Name: Jens Muller
Title: Manager
|
Acknowledged and agreed:
/s/ Jens Muller --------------- Jens Muller /s/ Jack Rieley --------------- Jack Rieley |
Following are the put rights that will be applicable after this offering for the benefit of the stockholders and warrantholders identified in these provisions:
(a) the acquisition or holding by
(i) any person (as such term is used in section 13(d) and section 14(d)(2) of the Exchange Act as in effect on the Closing Date) other than an Acceptance Controlling Person or the Investors, or
(ii) related Persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act as in effect on the Closing Date) other than related Acceptable Controlling Persons or Investors constituting such a group,
of legal and/or beneficial ownership of more than 35% of the Common Stock or any securities convertible into more than 35% of the Common Stock of the Company outstanding at such time if at such time the owners of Common Stock on the Closing Date, the Investors and the investors under the Securities Purchase Agreement beneficially own in the aggregate less than a majority of the Common Stock or any securities convertible into less than a majority of the Common Stock of the Company (excluding for such purpose persons who own shares through any employee benefit plan of the Company in connection therewith);
(b) all or substantially all of the assets of the Company are sold or otherwise transferred, in a single transaction or in a series of related transactions, to any other Person;
(c) any merger, consolidation or other similar transaction of, or in respect of, the Company which results in the failure by the owners of Common Stock on the Closing Date, the Investors and the investors under the Securities Purchase Agreement to, directly or indirectly in the aggregate, maintain beneficial ownership and voting control of at least fifty percent (50%) of the outstanding common stock of the surviving entity in such merger, consolidation or similar transaction; or
(d) any liquidations or dissolution of the Company, or action taken by the Board of Directors of the Company to authorize any such liquidation or dissolution.
Notwithstanding the foregoing, any transaction permitted under paragraph 7E of the Securities Purchase Agreement shall not constitute a "Change of Control". Any sale of assets of the Company (or any of its Subsidiaries) which generated 2/3 or more of the revenues of the Company (on a consolidated basis) during the
immediately preceding fiscal year shall constitute a "Change of Control".
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of June 30, 1998, among JFAX Communications, Inc., a Delaware corporation (the "Company") and the investors whose names appear under the heading "Investors" on the signature page hereof.
In connection with each of the Note Purchase Agreement and the Preferred Stock Purchase Agreement, the Company entered into this Registration Rights Agreement, to which the respective investors who received securities thereunder are parties.
Registrable Securities in such registration subject to Sections 2.1(b) and
2.1(g). Thereupon the Company will use its reasonable best efforts to effect
the registrations under the Securities Act of:
(A) the Registrable Securities which the Company has been so requested to register by such Initiating Notes Holders or Initiating Preferred Holders, as the case may be; and
(B) subject to Sections 2.1(b) and 2.1(g), all other Registrable Securities which the Company has been requested to register by the holders thereof by written request given to the Company within 30 days after the giving of such written notice by the Company (which request shall specify the intended method of disposition of such Registrable Securities) all to the extent requisite to permit the disposition of the Registrable Securities so to be registered.
determining the number of registrations pursuant to Section 2.1 hereof.
connection therewith), without prejudice, however, to the rights of any holder
or holders of Registrable Securities entitled to do so to request that such
registration be effected as a registration under Section 2.1 or Section 2.2, and
(ii) in the case of a determination to delay registering, shall be permitted to
delay registering any Registrable Securities for the same period as the delay in
registering such other securities. No registration effected under this Section
2.3 shall relieve the Company of its obligation to effect any registration upon
request under Section 2.1 or Section 2.2. The Company will pay all Registration
Expenses in connection with each registration of Registrable Securities
requested pursuant to this Section 2.3.
(i) prepare and (as soon thereafter as practicable or in any event no later than 45 days after the end of the period within which requests for registration may be given to the Company) file with the Commission the requisite registration statement to effect such registration and thereafter use its
(ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement;
(iii) furnish to each seller of Registrable Securities covered by such registration statement such number of conformed copies of such registration statement and of each such amendment and supplement thereto, such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 or Rule 430A under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller may reasonably request;
(iv) use its reasonable best efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as each seller thereof shall reasonably request, to keep such registration or qualification in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary to enable such seller to consummate the disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (iv) be obligated to be so qualified or to consent to general service of process in any such jurisdiction or subject itself to be required to pay any franchise or income taxes in any such jurisdiction;
(v) use its reasonable best efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed counterpart, addressed to such seller, except as provided in (y) below (and the underwriters, if any), of
(x) an opinion of counsel for the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), reasonably satisfactory in form and substance to counsel for all such sellers or, if such registration includes an underwritten public offering, to such underwriter, and
(y) a "comfort" letter, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, addressed to each seller, to the extent the same can be reasonably obtained, and addressed to the underwriters, if any, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in accountants' letters delivered to the underwriters in underwritten public offerings of securities and such other financial matters as such seller or such holder (or the underwriters, if any) may reasonably request;
(vii) notify each seller of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of any such seller or holder promptly prepare to furnish to such seller or holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made;
(viii) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, and, in the case of a registration requested pursuant to Section 2.1 or 2.2 hereof, will furnish to each such seller at least two business days prior to the filing thereof a copy of any amendment or supplement to such registration statement or prospectus and shall not file any thereof to which any such seller shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder;
(ix) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement; and
(x) use its reasonable best efforts to list all Registrable Securities covered by such registration statement on any securities exchange on which any of the Registrable Securities is then listed.
Notwithstanding the foregoing, the Company may defer its obligations under Section 2.1 and Section 2.2 to file a registration statement, but not its obligations to initiate the process of preparing the applicable registration statement, for a period of no more than 90 days in any 365-day period, if the Company's Board of Directors determines in good faith based upon a written opinion of counsel that filing such a registration statement would require a public disclosure by the Company, which disclosure would interfere with a material transaction then under
The Company may require each proposed seller of Registrable Securities as to which any registration is being effected to promptly furnish the Company, as a condition precedent to including such holder's Registrable Securities in any registration, such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii) of this
Section 2.4, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
Section 2.4 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
underwriters under such underwriting agreement be conditions precedent to the obligations of such holders of Registrable Securities. Any such holder of Registrable Securities shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements typical in an offering of that type, including those regarding such holder, such holder's Registrable Securities, and such holder's intended method of distribution, any other information supplied by such holder to the Company for use in the Registration Statement and any other representation required by law.
the Company will give the holders of Registrable Securities registered under such registration statement, the underwriters, if any, and their respective counsel (such holders' counsel to be appointed by the holders of more than 50% (by number of shares) of Registrable Securities so to be registered, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act.
such director, officer, underwriter or controlling person and shall survive the transfer of such securities by such seller.
plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.
warrants issued pursuant to the Preferred Stock Purchase Agreement and any additional shares of Common Stock received in respect of such shares by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise (collectively, "Preferred Registrable Securities").
As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act or (c) they shall have ceased to be outstanding.
Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission ("Rule 144"). Upon the request of any holder of Registrable Securities, the Company will deliver to such holder a written statement as to whether it has complied with such requirements.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written.
JFAX COMMUNICATIONS, INC.
By: /s/ Hemi Zucker
----------------------------
Name: Hemi Zucker
Title: Chief Financial Officer
|
THE INVESTORS:
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci --------------------- Robert J. Cresci Managing Director |
DECLARATION OF TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci --------------------- Robert J. Cresci Managing Director |
DECLARATION OF TRUST FOR DEFINED BENEFIT PLAN OF
ZENECA HOLDINGS INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci --------------------- Robert J. Cresci Managing Director |
THE J.W. MCCONNELL FAMILY FOUNDATION
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: /s/ Robert J. Cresci --------------------- Robert J. Cresci Managing Director |
DLJ FUND INVESTMENT PARTNERS II, L.P.
By: DLJ LBO PLANS MANAGEMENT CORPORATION
Its General Partner
By: /s/ Ivy Dodes
-------------------------------
Name: Ivy Dodes
Title: Vice President
|
DLJ CAPITAL CORPORATION
By: /s/ Ivy Dodes
-------------------------------
Name: Ivy Dodes
Title: Vice President
|
GMT PARTNERS, LLC
c/o Blue Capital Management
By: /s/ Chris Gagnon
-------------------------------
Chris Gagnon
Managing Member
|
ORCHARD/JFAX INVESTORS, L.L.C.
By: /s/ Richard Ressler
-------------------------------
Name: Richard Ressler
Title: Manager
|
DLJ PRIVATE EQUITY EMPLOYEES FUND, L.P.
By: DLJ LBO PLANS MANAGEMENT CORPORATION
Its General Partner
By: /s/ Ivy Dodes ------------------------------- Name: Ivy Dodes Title: Vice President |
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered into as of March 17, 1997 by and among JFAX Communications, Inc., a Delaware corporation (the "Company"), and the holders of Registrable Securities (the "Holders") signatory to this Agreement.
This Agreement is made pursuant to the Investment Agreement (the "Investment Agreement") dated as of March __, 1997 by and among the Company and certain Persons including the Holders pursuant to which Orchard/JFAX Investors, L.L.C. ("Orchard L.L.C.") is purchasing certain shares of Common Stock of the Company, Boardrush LLC ("LLC") is making a secured borrowing from the Company and certain related transactions are provided for. In order to induce the Holders to enter into the Investment Agreement, the Company has agreed to provide the registration rights set forth in this Agreement for the benefit of the Holders. The execution and delivery of this Agreement is called for in the Investment Agreement.
The parties hereby agree as follows:
As used in this Agreement, certain terms (not otherwise defined herein) shall have the meanings set forth in the Investment Agreement, and the following terms shall have the following respective meanings:
redemption and (ii) shares of common stock of any successor corporation or acquiring corporation of the Company that may be acquired by holders of the previous Common Stock.
receipt or other paper or document in good faith believed by it to be genuine and to have been signed or presented by the proper party or parties. The Company may act in reliance upon the advice of its counsel in reference to any matter in connection with this Agreement and shall not incur any liability for any action taken in good faith in accordance with such advice.
(ii) In the event the Company receives conflicting instructions regarding any action to be taken or withheld hereunder, the Company may suspend further action relating to such action until such time as the conflicting instructions are resolved by the parties giving the same or until the Company is instructed to take or withhold the requested action by a final order from which no appeal may be taken issued by a court of competent jurisdiction.
(a) Whenever the Company effects the registration of any Registrable Securities under the Securities Act as provided in Section 2, the Company, as expeditiously as possible and subject to the terms and conditions herein, will use its reasonable efforts to:
(i) prepare and file with the Commission the requisite registration statement to effect such registration and to cause such registration to become effective;
(ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement Continuously Effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the Selling Holders thereof set forth in such registration statement or, if earlier, until the Expiration Date;
(iii) furnish to the Selling Holders such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, in each case, as the Selling Holders may reasonably request;
(iv) register or qualify all Registrable Securities covered by such registration statement under such other United States state securities or blue sky laws of such jurisdictions as the Selling Holders shall reasonably request, to keep such registration statement qualification in effect for so long as such registration remains in effect, and take any other action which may be reasonably necessary or advisable to enable the Selling Holders to consummate the disposition in such jurisdictions of the Registrable Securities owned by the Selling Holders, except that the Company shall not for any such purpose be required to (a) qualify generally to do business
as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (iv) be obligated to be so qualified, (b) subject itself to taxation in any such jurisdiction or (c) consent to general service of process in any such jurisdiction;
(v) in any underwritten offering, and if reasonable and customary in the context of such offering, use its reasonable efforts to furnish to the Selling Holders a signed counterpart, addressed to the Selling Holders as seller of Registrable Securities (and the underwriters, if any), of
(x) an opinion of counsel for the Company, dated the effective date of such registration statement (or, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), reasonably satisfactory to the Selling Holders in their reasonable judgment, and
(y) a "comfort" letter, reasonably satisfactory to the Selling Holders dated the effective date of such registration statement (or, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), signed by the independent public accountants who have certified the Company's financial statements included in such registration statement,
covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten public offerings of securities and, in the case of the accountants' letter, such other financial matters as such seller or such Holder (or the underwriters, if any) may reasonably request;
(vi) immediately notify the Selling Holders at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of the Selling Holders promptly prepare and furnish to the Selling Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made;
(vi) comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, and not file (or withdraw or correct) any amendment or supplement to such registration statement or prospectus to which the Selling Holders shall have reasonably objected in writing on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder.
(vi) provide a transfer agent and registrar for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement; and
(ix) list all Registrable Securities covered by such registration statement on any securities exchange on which any of the Registrable Securities are then listed.
(b) As a condition of these Registration Rights, the Company may require the Selling Holders, at their own expense, to furnish the Company with such information and undertakings regarding such Holders and the distribution of such securities as the Company may from time to time reasonably request in writing, and the Holders, by their execution hereof, agree to provide such information and make such undertakings as are requested.
(c) The Selling Holders agree (A) that upon receipt of any notice from the Company of the happening of any event of the kind described in subdivision (vi) of Section 3(a), the Selling Holders will forthwith discontinue their disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until the Selling Holders' receipt of the copies of the supplemented or amended prospectus contemplated by subdivision (vi) of Section 3(a) and, if so directed by the Company, will deliver to the Company all copies, other than permanent file copies, then in the Selling Holders' possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice and (B) that they will immediately notify the Company, at any time when a prospectus relating to the registration of such Registrable Securities is required to be delivered under the Securities Act, of the happening of any event as a result of which information previously furnished by the Selling Holders to the Company for inclusion in such prospectus contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made.
(d) Notwithstanding anything in this Agreement to the contrary, the Company will not be required to file any registration statement hereunder if it receives an opinion of counsel in form and substance reasonably satisfactory to the Selling Holders, or counsel to the Selling Holders, to the effect that the sale of the Registrable Securities in the manner contemplated by the Selling Holders may be effected without registration regardless of the identity or status of the buyer(s) of such Registrable Securities. Also, the Company will not be required to file any registration statement to cover Registrable Securities that are already registered pursuant to a previous registration statement that is effective and available for use by the Holders of such Registrable Securities to effect sales thereof at such time.
In connection with the preparation and filing of each registration statement under the Securities Act, the Company will give the Selling Holders, the underwriters, if any, and their respective counsel and accountants, the reasonable opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission and each amendment thereof or supplement thereto, and will give each of them such reasonable access to its books and records and such reasonable opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary to conduct a reasonable investigation within the meaning of the Securities Act.
(a) To the extent permitted by applicable law, the Company shall indemnify and hold harmless each Selling Holder, each Person, if any, who controls such Selling Holder within the meaning of the Securities Act, and each officer, director, partner, and employee of such Selling Holder and such controlling Person, against any and all losses, claims, damages, liabilities and expenses (joint or several), including reasonable attorneys' fees and disbursements and expenses of investigation, incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may become subject under the Securities Act, the Exchange Act or any other federal or state laws, insofar as such losses, claims, damages, liabilities and expenses arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"):
(i) Any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein, or any amendments or supplements thereto;
(ii) The omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or
agreement contained in this Section 6 shall not apply to any underwriter to the extent that any such loss is based on or arises out of an untrue statement or alleged untrue statement of a material fact, or an omission or alleged omission to state a material fact, contained in or omitted from any preliminary prospectus if the final prospectus shall correct such untrue statement or alleged untrue statement, or such omission or alleged omission, and a copy of the final prospectus has not been sent or given to such person at or prior to the confirmation of sale to such person if such underwriter was under an obligation to deliver such final prospectus and failed to do so. The Company shall also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers, directors, agents and employees and each person who controls such persons (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same extent as provided above with respect to the indemnification of the Selling Holders.
shall relieve such indemnifying party of any liability to the indemnified party under this Section 6 but shall not relieve the indemnifying party of any liability that it may have to any indemnified party otherwise than pursuant to this Section 6. Any fees and expenses incurred by the indemnified party (including any fees and expenses incurred in connection with investigating or preparing to defend such action or proceeding) shall be paid to the indemnified party, as incurred, within sixty (60) days of written notice thereof to the indemnifying party (regardless of whether it is ultimately determined that an indemnified party is not entitled to indemnification hereunder, but in such event such amounts shall be refunded). Any such indemnified party shall have the right to employ separate counsel in any such action, claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be the expenses of such indemnified party unless (i) the indemnifying party has agreed to pay such fees and expenses or (ii) the indemnifying party shall have failed to promptly assume the defense of such action, claim or proceeding or (iii) the named parties to any such action, claim or proceeding (including any impleaded parties) include both such indemnified party and the indemnifying party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or in addition to those available to the indemnifying party and that the assertion of such defenses would create a conflict of interest such that counsel employed by the indemnifying party could not faithfully represent the indemnified party (in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action, claim or proceeding on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action, claim or proceeding or separate but substantially similar or related actions, claims or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all such indemnified parties, unless in the reasonable judgment of such indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such action, claim or proceeding, in which event the indemnifying party shall be obligated to pay the reasonable fees and expenses of such additional counsel or counsels). No indemnifying party shall be liable to an indemnified party for any settlement of any action, proceeding or claim without the written consent of the indemnifying party, which consent shall not be unreasonably withheld.
(d) If the indemnification required by this Section 6 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to in this
Section 6:
(i) The indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any Violation has been committed by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such Violation. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 6(a) and Section 6(b), any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding.
(ii) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in Section 6(d)(i). No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
(e) If indemnification is available under this Section 6, the indemnifying parties shall indemnify each indemnified party to the full extent provided in this Section 6 without regard to the relative fault of such indemnifying party or indemnified party or any other equitable consideration referred to in Section 6(d).
(f) The obligations of the Company and the Selling Holders of Registrable Securities under this Section 6 shall survive the completion of any offering of Registrable Securities pursuant to a registration statement under this Agreement, and otherwise.
The Company shall file as and when applicable, on a timely basis, all reports required to be filed by it under the Exchange Act. If, after the Company has first become a reporting company under the Exchange Act, thereafter the Company is not required to file reports pursuant to the Exchange Act, thereupon the request of any Holder of Registrable Securities, the Company shall make publicly available the information specified in subparagraph (c)(2) of Rule 144 of the Securities Act, and take such further action as may be reasonably required from time to time and as may be within the reasonable control of the Company, to enable the Holders to transfer Registrable Securities to a Transferee without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Securities Act or any similar rule or regulation hereafter adopted by the Commission.
of its Registrable Securities, in a private transaction or transactions
involving negotiation with a discreet number of parties, then Orchard L.L.C.
shall use its reasonable efforts to include the Registrable Securities of LLC
and its Affiliates in such transaction, on the same or substantially the same
terms as are available to Orchard L.L.C., and so that, if the amount of
securities to be disposed of must be limited, LLC and its Affiliates shall be
permitted to dispose of the same proportion of their Registrable Securities as
the proportion being disposed of by Orchard L.L.C. In order to effectuate this
provision, Orchard L.L.C. shall give prior written notice thereof to LLC and its
Affiliates who are parties to this Agreement, and they (in coordination with
LLC) shall be given a period of ten (10) business days after such notice to
advise Orchard L.L.C. as to their interest in disposing of their Registrable
Securities on the terms proposed. This provision shall cease to be applicable
when the Company has effected its initial public offering and shall further not
be applicable to any disposition or dispositions by Orchard L.L.C. amounting
cumulatively to less than 15% of the total number of outstanding shares of the
Common Stock of the Company. This provision shall not give LLC or its Affiliates
any rights to participate in the negotiations by Orchard L.L.C. of any such
transaction, their sole rights being to participate on the same or substantially
the same terms, if they choose to do so, as negotiated by Orchard L.L.C. For
purposes of this provision, any disposition of Registrable Securities by Orchard
L.L.C. shall include dispositions by its Affiliates other than the Company and
its subsidiaries.
(a) The Holders at the addresses indicated on the signature page hereof.
(b) The Company at:
JFAX Communications, Inc. 225 Lafayette Street, Suite 501 New York, NY 10012 Attention: Chief Executive Officer Facsimile Number: (212) 253-4321
or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
JFAX COMMUNICATIONS, INC.
By: /s/ Jens Muller
-------------------
Name: Jens Muller
Title: President
HOLDERS:
Orchard/JFAX Investors, L.L.C. Address:
c/o Orchard Capital Corp.
By: /s/ Richard S. Ressler 10960 Wilshire Blvd., Suite 500
--------------------------------- Los Angeles, CA 90024
Name: Richard S. Ressler Fax: (310) 201-4351
Title: Manager
Boardrush LLC Address:
244 Madison Avenue, Suite 191
New York, NY 10016
By: /s/ Jens Muller Attn: Mr. Jaye Muller
--------------------------------- Fax: (212) 253-4123
Name: Jens Muller
Title: Manager
c/o Boardrush LLC
/s/ Jens Muller
---------------------------------------
Jens Muller
c/o Boardrush LLC
/s/ John F. Rieley
---------------------------------------
John F. Rieley
-16-
|
c/o JFAX Communications, Inc
/s/ Nehemia Zucker
----------------------------------------
Nehemia Zucker
c/o JFAX Communications, Inc.
/s/ Anand Narasimhan
-----------------------------------------
Anand Narasimhan
The address of JFAX Communications,
Inc. currently set forth in Section
9.2 hereof.
|
JFAX.COM Europe, Ltd.
The Board of Directors
JFAX. COM, Inc.
We consent to the use of our report included herein and to the reference to our firm under the headings "Selected Consolidated Financial Data" and "Experts" in the prospectus.
Los Angeles, California
April 16, 1999 /s/ KPMG LLP |
| ARTICLE 5 |
| PERIOD TYPE | YEAR | YEAR |
| FISCAL YEAR END | DEC 31 1997 | DEC 31 1998 |
| PERIOD START | JAN 01 1997 | JAN 01 1998 |
| PERIOD END | DEC 31 1997 | DEC 31 1998 |
| CASH | 23,039 | 7,278,873 |
| SECURITIES | 0 | 0 |
| RECEIVABLES | 15,413 | 289,910 |
| ALLOWANCES | 0 | 0 |
| INVENTORY | 0 | 0 |
| CURRENT ASSETS | 1,052,552 | 8,650,671 |
| PP&E | 1,845,618 | 2,668,646 |
| DEPRECIATION | 285,473 | 891,000 |
| TOTAL ASSETS | 2,612,697 | 10,512,689 |
| CURRENT LIABILITIES | 994,348 | 1,915,903 |
| BONDS | 0 | 0 |
| PREFERRED MANDATORY | 0 | 4,070,671 |
| PREFERRED | 0 | 0 |
| COMMON | 145,480 | 176,215 |
| OTHER SE | 1,472,869 | (7,923,193) |
| TOTAL LIABILITY AND EQUITY | 2,612,697 | 10,512,689 |
| SALES | 685,465 | 3,519,836 |
| TOTAL REVENUES | 685,465 | 3,519,836 |
| CGS | 857,924 | 3,398,243 |
| TOTAL COSTS | 5,561,909 | 14,494,827 |
| OTHER EXPENSES | 0 | 0 |
| LOSS PROVISION | 0 | 0 |
| INTEREST EXPENSE | 0 | 1,353,751 |
| INCOME PRETAX | (4,661,781) | (11,908,316) |
| INCOME TAX | 1,640 | 1,500 |
| INCOME CONTINUING | (4,663,421) | (11,909,816) |
| DISCONTINUED | 0 | 0 |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | (4,663,421) | (11,909,816) |
| EPS PRIMARY | .37 | .73 |
| EPS DILUTED | .37 | .73 |