-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nh9sEHmt6vVPF+ieFjys3VHsxvBnid8kcCmZrETmlH8eS222Y59bIunNBzFRVIds 32eMBjAUIfbErYf7l7nvWA== /in/edgar/work/20000816/0000950124-00-005157/0000950124-00-005157.txt : 20000922 0000950124-00-005157.hdr.sgml : 20000922 ACCESSION NUMBER: 0000950124-00-005157 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20000702 FILED AS OF DATE: 20000816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POPMAIL COM INC CENTRAL INDEX KEY: 0001044738 STANDARD INDUSTRIAL CLASSIFICATION: [5812 ] IRS NUMBER: 311487885 STATE OF INCORPORATION: MN FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-23243 FILM NUMBER: 704294 BUSINESS ADDRESS: STREET 1: 1331 CORPORATE DR STREET 2: SUITE 350 CITY: IRVING STATE: TX ZIP: 75038 BUSINESS PHONE: 9725505500 MAIL ADDRESS: STREET 1: 1331 CORPORATE DR STREET 2: STE 350 CITY: IRVING STATE: TX ZIP: 75038 FORMER COMPANY: FORMER CONFORMED NAME: CAFE ODYSSEY INC DATE OF NAME CHANGE: 19980526 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL DISCOVERY INC DATE OF NAME CHANGE: 19970821 10QSB 1 e10qsb.txt QUARTERLY REPORT ENDED 7/02/00 1 U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 2, 2000 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO -------- -------- COMMISSION FILE NUMBER 0-23243 - -------------------------------------------------------------------------------- POPMAIL.COM, INC. (Name of Small Business Issuer in Its Charter) MINNESOTA 31-1487885 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 1333 CORPORATE DRIVE, SUITE 350, IRVING, TX. 75038 (Address of Principal Executive Offices) 972-550-5500 (Issuer's Telephone Number, Including Area Code) (Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of August 14, 2000, there were 40,273,933 shares of common stock, $.01 par value, outstanding. Transitional Small Business Disclosure Format (check One): Yes [ ] No [X] 2 FORWARD-LOOKING STATEMENTS Certain of the matters discussed in the following pages constitute "forward-looking statements" within the meaning of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended. Forward-looking statements involve a number of risks and uncertainties, and, in addition to the factors discussed in this Form 10-QSB, other factors that could cause actual results to differ materially are the following: the economic conditions in the new markets into which the Company expands and the possible uncertainties in the customer base in these areas; competitive pressures from other providers of Internet marketing services and other restaurant companies; ability to raise additional capital required to support the Company's operations and enable the Company to pursue its business plan; government regulation of the Internet; business conditions, such as inflation or a recession, and growth in the general economy; changes in monetary and fiscal policies, other risks identified from time to time in the Company's SEC reports, registration statements and public announcements. 2 3 POPMAIL.COM, INC. FORM 10-QSB INDEX JULY 2, 2000
Page ---- PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets - As of July 2, 2000 (unaudited) and January 2, 2000 4 Consolidated Statements of Operations - For the thirteen weeks and twenty-six weeks ended July 2, 2000 and July 4, 1999 (unaudited) 5 Condensed Consolidated Statements of Cash Flows - For the twenty-six weeks ended July 2, 2000 and July 4, 1999 (unaudited) 6 Condensed Notes to the Financial Statements (unaudited) 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II OTHER INFORMATION ITEM 1. Legal Proceedings 29 ITEM 2. Changes in Securities and Use of Proceeds 29 ITEM 4. Submission of Matters to a Vote of Security Holders 30 ITEM 6. Exhibits and Reports on Form 8-K 30 Signatures 32
3 4 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS POPMAIL.COM, INC. CONSOLIDATED BALANCE SHEETS
July 2, 2000 January 2, 2000 ------------ --------------- (Unaudited) ASSETS CURRENT ASSETS Cash and equivalents $ 1,685,795 $ 1,136,137 Restricted cash 2,000,000 -- Accounts receivable, net 694,150 275,655 Notes receivable 94,000 -- Inventories 97,133 111,807 Other current assets 710,678 483,496 ------------ ------------ Total current assets 5,281,756 2,007,095 PROPERTY AND EQUIPMENT, net 15,001,167 14,866,802 GOODWILL, net 84,355,554 36,277,346 OTHER ASSETS 2,469,732 344,121 ------------ ------------ $107,108,209 $ 53,495,364 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 2,079,596 $ 6,037,518 Convertible promissory notes payable 2,849,167 1,460,417 Current maturities of long-term debt 176,468 193,833 Accounts payable 1,924,432 1,604,952 Due to affiliates 152,700 120,000 Accrued expenses 1,456,884 1,286,852 Earn Out Shares Liability 7,000,000 -- ------------ ------------ Total current liabilities 15,639,247 10,703,572 DEFERRED RENT CREDITS 3,531,778 3,650,512 LONG-TERM OBLIGATIONS, less current maturities 484,370 1,883,688 ------------ ------------ Total liabilities 19,655,395 16,237,772 ------------ ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock, $.01 par value, 100,000,000 shares authorized; 39,945,306 and 24,695,872 shares issued and outstanding 399,453 246,958 Series C 8% convertible preferred stock -- 693,000 Series D 8% convertible preferred stock -- 2,288,000 Series E convertible preferred stock 450,000 350,000 Series F preferred stock 48,640,477 -- Series G 10% convertible redeemable preferred stock 6,000,000 -- Additional paid-in capital 97,673,303 74,901,160 Less common stock subscribed and notes receivable from affiliates (3,193,430) (2,850,000) Accumulated deficit (62,516,989) (38,371,526) ------------- ----------- Total shareholders' equity 87,452,814 37,257,592 ------------- ----------- $ 107,108,209 $53,495,364 ============= ===========
The accompanying condensed notes are an integral part of these financial statements. 4 5 POPMAIL.COM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Thirteen weeks ended Twenty-six weeks ended July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999 ---------------------------------- ------------------------------- REVENUES Restaurant sales, net $ 2,355,563 $ 3,561,023 $ 4,801,761 $ 5,893,655 Internet marketing services, net 808,556 -- 1,185,961 -- ------------ ------------ ------------ ------------ 3,164,119 3,561,023 5,987,722 5,893,655 COSTS AND EXPENSES: Restaurant food, beverage and retail 633,984 919,446 1,257,645 1,526,033 Restaurant operating expenses 1,856,440 2,498,330 3,546,505 4,214,633 Restaurant depreciation 312,774 352,672 625,568 610,840 Amortization of goodwill 7,057,721 -- 12,514,325 -- Pre-opening expenses -- -- -- 572,932 General, administrative & development 4,086,714 480,530 7,530,010 960,776 ------------ ------------ ------------ ------------ Total costs and expenses 13,947,633 4,250,978 25,474,053 7,885,214 ------------ ------------ ------------ ------------ LOSS FROM OPERATIONS (10,783,514) (689,955) (19,486,331) (1,991,559) OTHER INCOME (EXPENSE) Interest expense (992,121) (245,283) (1,581,081) (387,332) Interest income 63,069 3,149 123,800 3,187 Debt guarantee costs -- -- (155,000) -- Financial advisory services (958,066) -- (2,185,144) -- Loss on sale of assets (761,707) -- (761,707) -- ------------ ------------ ------------ ------------ (2,648,825) (242,134) (4,559,132) (384,145) ------------ ------------ ------------ ------------ NET LOSS (13,432,339) (932,089) (24,045,463) (2,375,704) PREFERRED STOCK DIVIDENDS AND ACCRETION 100,000 192,229 100,000 192,229 ------------ ------------ ------------ ------------ LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $(13,532,339) $ (1,124,318) $(24,145,463) $ (2,567,933) ============ ============ ============ ============ BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.36) $ (0.11) $ (0.70) $ (0.29) ============ ============ ============ ============ BASIC AND DILUTED NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS PER COMMON SHARE $ (0.36) $ (0.13) $ (0.70) $ (0.31) ============ ============ ============ ============ BASIC AND DILUTED WEIGHTED AVERAGE OUTSTANDING SHARES 37,311,939 8,332,239 34,441,027 8,193,858 ============ ============ ============ ============
The accompanying condensed notes are an integral part of these financial statements. 5 6 POPMAIL.COM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Twenty-six weeks ended July 2, 2000 July 4, 1999 ------------------ ------------------ OPERATING ACTIVITIES: Net cash used in operating activities (10,149,373) (1,802,141) INVESTING ACTIVITIES: Purchases of property and equipment (2,424,976) (4,206,236) ----------- ---------- FINANCING ACTIVITIES: Proceeds from issuance of stock 10,603,252 -- Proceeds from issuance of preferred stock, net 4,100,000 2,000,000 Proceeds from exercise of options and warrants 5,848,125 74,249 Proceeds from short-term notes payable -- 1,315,000 Proceeds from long-term debt -- 1,000,000 Tenant allowance collected -- 1,962,500 Advances from shareholder -- 50,000 Cash restricted during the period (2,000,000) -- Payments on advances from shareholders and officers (120,000) -- Payments on short-term notes payable (5,229,695) (113,384) Payments on long-term debt (77,675) (74,316) ----------- ---------- Net cash provided by financing activities 13,124,007 6,214,049 ----------- ---------- INCREASE IN CASH AND CASH EQUIVALENTS 549,658 205,672 CASH AND EQUIVALENTS, Beginning of period 1,136,137 106,247 ----------- ---------- CASH AND EQUIVALENTS, end of period $ 1,685,795 $ 311,919 =========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 210,328 $ 236,145
The accompanying condensed notes are an integral part of these financial statements 6 7 POPMAIL.COM, INC. CONDENSED NOTES TO THE FINANCIAL STATEMENTS JULY 2, 2000 (UNAUDITED) NOTE A - NATURE OF THE BUSINESS PopMail.com, inc. ("the Company" or "PopMail") consists of two divisions, an Internet marketing division and a restaurant division. The Internet division consists of three companies. PopMail Network, Inc. ("PopMail Network"), based in Dallas, Texas, is a provider of permission and affinity based e-mail services to broadcast stations, professional sports teams and other brand name clients in the media and entertainment industries which creates an affinity network of high profile brands. IZ.com, Inc. ("IZ"), based in Bellevue, Washington, is a provider of digital publishing services, newsletters and technology for high-end brands. Fan Asylum, Inc., based in San Francisco, California ("Fan Asylum") is a provider of official online and offline fan club sites for recording artists in the music industry. Our Internet division is in the business of connecting entertainment and media brands with their fans through the use of e-mail, fan club sites and high-end publishing tools. The restaurant division develops, owns and operates upscale casual restaurants with multiple themed dining rooms. The Company has "Cafe Odyssey" restaurants at the Mall of America in Bloomington, Minnesota, which opened in June 1998 and at the Denver Pavilions, in Denver, Colorado, which opened in March 1999. The Company closed its Cincinnati, Ohio location in August 1999 and has finalized the sale of this property. See Note G - Business Segments for further discussion. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"), for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the thirteen weeks and twenty-six weeks ended July 2, 2000 are not necessarily indicative of the results that may be expected for the year as a whole. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended January 2, 2000. Net Loss Per Common Share Basic and diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the periods presented. The impact of common stock equivalents has been excluded from the computation of weighted average common shares outstanding, as the net effect would be antidilutive. Use of Estimates Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 7 8 POPMAIL.COM, INC. CONDENSED NOTES TO THE FINANCIAL STATEMENTS (CONT.) JULY 2, 2000 (UNAUDITED) Income Taxes The Company accounts for income taxes using the liability method to recognize deferred income tax assets and liabilities. Deferred income taxes are provided for differences between the financial reporting and tax bases of the Company's assets and liabilities at currently enacted tax rates. As of July 2, 2000 and January 2, 2000, the Company's deferred taxes consisted primarily of net operating loss carryforwards, pre-opening costs not currently deductible and accelerated methods of depreciation. The Company has recorded a full valuation allowance against the net deferred tax asset due to the uncertainty of realizing the related benefits. Cash Flows Non-cash financing activities included the receipt of a note receivable for the sale of the Cincinnati, Ohio, restaurant location of approximately $1,290,000. Restricted Cash Restricted cash represents cash and certificates of deposit maturing within one year that are restricted in use by the Company. As of July 2, 2000, the restricted cash balance represents a deposit earmarked to satisfy the Company's obligation to guarantee payment of the Fan Asylum Seller should the Seller choose to exercise his put option as part of the Fan Asylum acquisition. The Fan Asylum acquisition and the Seller's put right are more fully described below in Note C. NOTE C - BUSINESS COMBINATION On June 14, 2000, the Company completed its acquisition of Fan Asylum, Inc. ("Fan Asylum"). Fan Asylum manages the official fan club web sites and fan clubs for many recording artists and musical groups. Through its web site management services, Fan Asylum designs the fan club site graphics, creates the content, manages the on-line stores, provides travel packages, provides preferred tickets, sends out weekly email newsletters under the artists brand and hosts the web site for each of its Artists. The acquisition was accounted for under the purchase method of accounting with the operations of Fan Asylum included in the Company's consolidated financial statements as of that date. The Company purchased 100% of the common stock of Fan Asylum from the sole shareholder of Fan Asylum ("the Seller") in exchange for up to 3.6 million shares of the Company's common stock ("the Purchase Price Shares"), valued at $9,000,000 per the agreement, subject to adjustments based on certain earn out and reset provisions. The Purchase Price Shares are divided into 800,000 fully vested initial shares and 2.8 million earn-out shares. At closing, the initial shares, were delivered into an escrow account for the possible use to satisfy any indemnification obligations of the Seller. The earn-out shares vest with the Seller according to the number of artists with which Fan Asylum executes a fan club management agreement prior to July 14, 2001. Twenty-five percent (25%) of the then-vested earn-out shares and twenty-five percent (25%) of the initial shares will be released to Seller on March 31, 2001 and on each of the three consecutive nine-month anniversary dates thereof. Seller is also entitled to certain price reset provisions on the earn-out shares. If the average per share closing price of the Company's common stock during the five days prior to March 14, 2001 and the next three consecutive nine-month anniversaries thereafter does not equal or exceed $2.50, then Seller is entitled to receive additional earn-out shares to bring the aggregate value of the earn-out shares received on each reset date to an equivalent price of $2.50 per share. The reset provisions expire when the Company's common stock maintains a price of $3.50 per share for 20 consecutive trading days. Finally, the initial shares are subject to a put right pursuant to which Seller has a one-time right to "put" the initial shares to the Company during the period between January 2, 2001 and January 31, 2001 at a price per share equal to the greater of $1.0625, or (ii) the average closing price of the Company's common stock over the five business days prior to the notice of exercise of the put. Pursuant to the terms of the acquisition, the Company has secured its 8 9 POPMAIL.COM, INC. CONDENSED NOTES TO THE FINANCIAL STATEMENTS (CONT.) JULY 2, 2000 (UNAUDITED) ability to fulfill the put obligation with a $2 million cash deposit, which is recorded as restricted cash on the accompanying July 2, 2000 balance sheet. The total consideration, less the net asset value of the assets acquired and liabilities assumed, resulted in approximately $9.4 million of goodwill generated in the acquisition, which will be amortized on a straight-line basis over 3 years. $7 million of the consideration, representing the total value of the earn-out shares, has been recorded as a current liability in the accompanying July 2, 2000 balance sheet until such time as the Seller earns the shares. In conjunction with the Fan Asylum acquisition, the Company agreed to grant up to 4 million options to purchase common stock (the "Artist Options") to the music artists with which Fan Asylum executes fan club agreements subsequent to June 14th, 2000. As of August 15th, 2000, no Artist Options have been issued. The Company expects to grant most if not all of the Artist Options over the next 12 months. NOTE D - SHAREHOLDERS' EQUITY Preferred Stock Series C - In July 1999, the Company issued 2,000 shares of Series C 8% convertible preferred stock with a stated value of $1,000 per share in a private placement. In addition, the Company issued warrants for the purchase of 300,000 shares of common stock at $3.00 per share to the investor. The Series C shares were convertible into the Company's common stock at a price equal to 65% of the market value at the time of conversion. During the quarter ended July 2, 2000, the remaining 30 shares of Series C were converted into 19,032 shares of common stock. Series D - In August 1999, the Company issued 2,200 shares of Series D 8% convertible preferred stock with a stated value of $1,000 per share in a private placement. In addition, the Company issued warrants for the purchase of 300,000 shares of common stock at $3.00 per share to the investor. The Series D shares were convertible into the Company's common stock at a price equal to 65% of the market value at the time of conversion. During the quarter ended April 2, 2000, all 2200 shares of Series D were converted into 965,647 shares of common stock. Series E - In October 1999, the Company began issuing shares of Series E convertible preferred stock with a stated value of $2.00 per share in a private placement. As of July 2, 2000, the Company has issued 225,000 Series E shares. For each Series E share issued, a warrant was also issued for the purchase of a share of common stock at $3.00 per share. Each Series E share is convertible into one share of common stock by dividing $2.00 by the lesser of (i) $2.00, or (ii) 70 percent of the average market price per share of our common stock for the ten days preceding the filing of a registration statement covering the resale of the shares issuable upon conversion of the Series E Preferred Shares. Series E shares are not entitled to dividends. Series F - In connection with the IZ.com merger, 287,408 shares of Series F convertible preferred stock were issued to the former stockholders of IZ.com, with an additional 130,508 shares issuable upon the exercise of IZ.com options assumed by PopMail. The Series F shares are currently convertible into shares of the Company's common stock at a rate of 25.66 shares for each share of Series F preferred stock. The Series F preferred stock (including shares issuable upon exercise of IZ.com options) will convert into approximately 10,725,000 shares of the Company's common stock and carries a liquidation preference of $28 million until the Company's market capitalization reaches $100 million or the Series F shareholders convert their shares to common stock. Series G - In May 2000, the Company raised gross proceeds of $4.0 million from the private placement of Series G 10% convertible preferred stock with an aggregate stated value of $6 million. The purchaser of the Series G stock also received a warrant to purchase up to 500,000 shares of our common stock at an exercise price of $2.51 per share for no additional consideration. The Series G stock may not be converted before October 9, 2000. From October 10, 2000 to November 9, 2000, the conversion price will be equal to 97% of the adjusted market price of the common stock; from November 10, 2000 to January 7, 2001 the conversion price will be equal to 94% of the adjusted market price of the common stock; after January 8, 2001, the conversion price will be equal to 91% of the adjusted market price of the common stock; and if the common stock is delisted from Nasdaq, the conversion price 9 10 POPMAIL.COM, INC. CONDENSED NOTES TO THE FINANCIAL STATEMENTS (CONT.) JULY 2, 2000 (UNAUDITED) will be equal to 75% of the adjusted market price of the common stock. The number of shares of common stock issuable upon conversion of the Series G stock is limited to approximately 7.2 million shares. The Company will redeem for cash, at 105 percent of stated value, any Series G stock that is not convertible into shares of common stock as a result of the foregoing limitation. Private Placements During the quarter ended April 2, 2000, the Company completed a private placement offering of 2,350,000 units priced at $1.00 per unit. Each unit consisted of one share of the Company's common stock and one five-year warrant to purchase one share of the Company's common stock with an exercise price of $2.00. Also during the quarter ended April 2, 2000, the Company completed a second private placement offering of 2,666,667 units priced at $2.25 per unit. Each unit consisted of one share of the Company's common stock and one five-year warrant to purchase one share of the Company's common stock with an exercise price of $3.00. The proceeds from these private placements were used to repay the Company's obligations to affiliates and all but $1,000,000 of the Company's $6,037,518 notes payable outstanding at January 2, 2000. Such proceeds were also used to fund the continuing operating needs of the Company. During the quarter ended July 2, 2000, the Company completed a private placement offering of 1,000,000 shares of common stock at a purchase price of $3.00 per share to private investors, resulting in net proceeds to the Company of approximately $2.7 million. At the time of the closing, the investors received (a) five-year warrants to purchase 300,000 shares of common stock at an exercise price of $1.00 per share and (b) warrants to purchase additional shares of common stock (the Adjustable Warrants) at a nominal exercise price (one-thousandth of a cent per share). The Adjustable Warrants are intended to allow the investors to receive additional shares of common stock in future periods to bring the effective price per share of the investment to a percentage of the market value of the common stock on the date of adjustment. In general, the Adjustable Warrants (a) become exercisable during certain periods beginning October, 2000, (b) are exercisable only if the Company's common stock is below $4.00 per share during the exercise period, (c) and are issuable in an amount sufficient to adjust the effective purchase price for the investment to a level equal to 75% of the average market price during the period. Related Party Transaction In April 2000, the Company entered into a promissory note receivable of $245,000 with a partnership controlled by a significant shareholder, director and executive officer of the Company. The principal plus interest of 5.74% is due to the Company in March 2002. The Partnership has pledged 122,500 shares of the Company's common stock as security for the note. Proceeds of this note were used to purchase additional shares of the Company's stock issued in connection with the ROI acquisition. Accordingly, this note is classified as a reduction of shareholders' equity in the accompanying financial statements. NOTE E - CONTINGENCIES The Company is involved in various legal actions rising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position or the results of its operations. 10 11 POPMAIL.COM, INC. CONDENSED NOTES TO THE FINANCIAL STATEMENTS (CONT.) JULY 2, 2000 (UNAUDITED) Investment Banker Agreement In April 2000, the Company entered into a two-year investment banking agreement with Sands Brothers & Co., LTD. of New York. Sands Brothers will advise the Company on merger and acquisition strategies, capital raising activities and corporate development opportunities. In connection with this agreement, the Company issued Sands Brothers 1,000,000 warrants to purchase the Company's common stock, of which 500,000 warrants have an exercise price of $1.625 per share (250,000 of which vested immediately) and 500,000 have an exercise price of $4.00 per share. The remainder of these warrants vest upon Sands Brothers successful completion of certain financing transactions. NOTE F - NOTES PAYABLE Notes payable consists of the following:
July 2, 2000 January 2, 2000 Short-term revolving line of credit (a) $ 1,000,000 $ 3,000,000 Short-term revolving loan -- 825,000 Short-term promissory notes, net of discount -- 2,082,823 Other (b) 1,079,596 129,695 ----------- ------------ $ 2,079,596 $ 6,037,518 =========== ============
(a) The July 2, 2000 balance is contractually secured by a $1 million certificate of deposit included in the accompanying balance sheets as cash and equivalents. (b) The July 2, 2000 balance represents short term notes assumed from both the IZ.com and the Fan Asylum acquisitions. NOTE G - BUSINESS SEGMENTS The Company operates in two reportable segments, Internet marketing services and restaurant operations. The Internet marketing services segment began in the third quarter of 1999. Beginning in 2000, the Company's general, administrative and development expenses are included in the Internet marketing services segment, with the exception of those expenses directly attributable to the restaurant division. Information relating to these segments for the twenty-six weeks ended July 2, 2000 are as follows:
Restaurant Internet operations services Total ---------- -------- ----- Net revenues $ 4,801,761 $ 1,185,961 $ 5,987,722 Loss from operations (627,957) (18,858,374) (19,486,331) Total assets 11,976,520 95,131,689 107,108,209
Sale of Cincinnati, Ohio restaurant property In April 2000, the Company finalized the sale of the equipment, leasehold improvements, lease rights and certain other contractual rights of its Cincinnati, Ohio location in exchange for a 21-year, non-interest bearing promissory note receivable. The approximate $1.27 million present value of the future minimum cash receipts provided for under the promissory note is recorded with other assets in the accompanying balance sheet as of July 2, 2000. The promissory note also provides for additional payments, up to $100,000 per year, based on either net 11 12 POPMAIL.COM, INC. CONDENSED NOTES TO THE FINANCIAL STATEMENTS (CONT.) JULY 2, 2000 (UNAUDITED) cash flows or gross sales from the Cincinnati location (the "Additional Payments"). If the Cincinnati location generates the required cash flow or sales to provide for the maximum Additional Payments, the promissory note will be paid down in approximately 15 years. The sale resulted in a loss of approximately $762,000 and is included in the accompanying statements of operations for the twenty-six weeks ended July 2, 2000. The promissory note receivable is secured primarily by a mortgage interest in the real property at the Cincinnati location. Restaurant Management Agreement On May 31, 2000, the Company entered into an agreement (the "Management Services Agreement") with an officer of the Company (the "Manager") to manage substantially all the operations of the Cafe Odyssey restaurant segment (the "Management Services") under the auspices of an independent management company (the "Management Company"). On May 31, 2000, the Manager resigned from the Company to fulfill his obligation to the Management Company and under the Management Services Agreement. In exchange for the Management Services, the Company agreed to pay the Management Company approximately $452,000 per year for the Management Services. On July 1, 2000, a second officer of the Company resigned and became employed by the Management Company, at which point the annual Management Services fee increased to $675,000. The term of the Management Services Agreement is three years, but may be terminated during the term with 30 days advance notice. If terminated by the Company without cause prior to the second anniversary date of the Management Services Agreement, the Company is obligated to pay the Management Company (a) $1,474 per day for each day remaining in the first year of the term and (b) $1,063 per day for each day remaining in the second year of the term. Concurrent with the execution of the Management Services Agreement, the Company entered into a license agreement granting the Management Company certain development and intellectual property rights associated with the Cafe Odyssey restaurants (the "License Agreement"). The Company granted the Management Company the right to develop up to four more Cafe Odyssey restaurants and the right to develop an unlimited number of additional Cafe Odyssey restaurants with the Company's approval that shall not be unreasonably withheld (the "Development Rights"). In conjunction with the Development Rights, the Company agreed to (a) guarantee the leases for the first four Cafe Odyssey restaurants developed by the Management Company, (b) loan the Management Company up to $500,000 for the development of a new Cafe Odyssey restaurant located at a specific location defined in the License Agreement (the "New Location"), and (c) pledge the cash flows of the two Company owned Cafe Odyssey restaurants to secure up to $1.3 million in Management Company loans drawn to develop the New Location. The Company also granted the Management Company a perpetual, nonexclusive right to all intellectual property owned by the Company associated with the Cafe Odyssey restaurants. NOTE H - SUBSEQUENT EVENTS In July 2000, the short-term line of credit of $1,000,000 was paid with the surrender of the certificate of deposit. In July 2000, approximately $1,000,000 of additional convertible promissory notes payable were converted into shares of common stock. In August 2000, the Company acquired a minority interest in NC, Inc., a privately held business to business Internet services company in exchange for $1,000,000 of the Company's common stock. 12 13 ITEM 2. POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management's discussion and analysis of financial condition and results of operations should be read in connection with the accompanying unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this report, and the audited financial statements and notes thereto included in the Company's Form 10-KSB for the fiscal year ended January 2, 2000. OVERVIEW PopMail.com, inc. ("the Company" or "PopMail") consists of two divisions, the Internet marketing services division and the restaurant division. The Internet marketing division consists of three companies. PopMail Network, Inc. ("PopMail Network"), based in Dallas, Texas, is a provider of permission and affinity based e-mail services to broadcast stations, professional sports teams and other brand name clients in the media and entertainment industries which creates an affinity network of high profile brands. IZ.com, Inc. ("IZ"), based in Bellevue, Washington, is a provider of digital publishing services, newsletters and technology for high-end brands. Fan Asylum, Inc., based in San Francisco, California ("Fan Asylum") is a provider of official online and offline fan club sites for recording artists in the music industry. This division connects entertainment and media brands with their fans through the use of e-mail, fan club sites and high-end publishing tools. The Internet marketing division positions itself as an online fan club services and content provider by connecting people with their passions. The Company serves affinity type clients/brands (the "Affiliates") that desire to interact with listeners, viewers, readers, subscribers and customers (the "fans") on their passions and interests and to enrich that experience. It targets and serves over 500 clients in four affinity-based industries: sports, entertainment, music and television through its subsidiaries, PopMail Network, IZ.com and Fan Asylum. PopMail helps brand target interests, not demographics. Our online fan club, email and content service and marketing model connects the brand with the fan and the fan with the brand, not a third party's brand. The restaurant division develops, owns and operates upscale casual restaurants with multiple themed dining rooms. The Company has "Cafe Odyssey" restaurants at the Mall of America in Bloomington, Minnesota, which opened in June 1998 and at the Denver Pavilions, in Denver, Colorado, which opened in March 1999. Future revenue and profits, if any, will depend upon various factors, including the evolution of the Internet, the market acceptance of the Company's current restaurant concept, the quality of restaurant operations, and general economic conditions. Currently, the Company's primary source of revenue results from its restaurant division. However, the Company is becoming less dependent on the restaurant division with the Internet marketing division revenue increasing over the last past three quarters. There can be no assurances the Company will successfully implement its expansion plans of the Internet marketing services, in which case, it will continue to be dependent on the revenues from the existing restaurants. The Company also faces all of the risks, expenses and difficulties frequently encountered in connection with the expansion and development of a new and expanding business. With the growth of the Internet marketing services division, the Company will continue to hire senior management to operate that division. There can be no assurance of the Company's capacity to achieve and sustain profitable operations, and without additional financing (of which there can be no assurance), the Company may not have sufficient funds to support its operations, retire its indebtedness in the ordinary course of business and pursue its business plan. The Company has adopted a 52-53-week year ending on the Sunday nearest December 31 of each year. 13 14 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) RESULTS OF OPERATIONS FOR THE THIRTEEN WEEKS AND TWENTY-SIX WEEKS ENDED JULY 2, 2000 AND JULY 4, 1999 REVENUES Net sales for the Internet marketing division, which was launched with the Company's first acquisition on August 19, 1999, were $808,556 for the thirteen weeks ended July 2, 2000. This represents sales generated primarily by set-up, hosting, and license fees through the sales of PopMail Network's fan club email services, and outsourced publishing fees of IZ.com. Only two weeks of the quarter reflected revenue resulting from the Fan Asylum acquisition on June 14, 2000. The Company's sales for the Internet marketing division for the twenty-six weeks ended July 2, 2000 were $1,185,961. The Company's restaurant division had net sales for the thirteen weeks ended July 2, 2000 and July 4, 1999 of $2,355,563 and $3,561,023, or a 34% decrease of $1,205,460. The net sales for the twenty-six weeks ended July 2, 2000 and July 4, 1999 were $4,801,761 and $5,893,655, or a 19% decrease of $1,091,894. These decreases in sales are attributable to three factors. First, the closing of the Cincinnati, Ohio, Kenwood Restaurant on August 29, 1999, resulted in only two restaurants in operation during the respective 2000 periods versus three restaurants in operation during 1999. In April 2000, the Company finalized the sale of its Cincinnati, Ohio location, which resulted in a non-operating loss of approximately $762,000. Second, the period following the 1999 grand opening of the Denver Pavilions location on March 15, 1999 resulted in increased sales in 1999 versus 2000. Many new restaurant locations go through a "honeymoon" period of relatively high sales. Same store sales comparisons generally may not be accurate until 18 months of operations. Finally, same store sales for the Mall of America Restaurant decreased by $208,957 or 14% to $1,287,487 for the thirteen weeks ended July 2, 2000 from $1,496,444 for the thirteen weeks ended July 4, 1999. Same store sales for the Mall of America Restaurant decreased by $405,262 or 14% to $2,534,891 for the twenty-six weeks ended July 2, 2000 from $2,940,153 for the twenty-six weeks ended July 4, 1999. Because the Mall of America Restaurant is located on the third floor of a mall, it may not truly be a destination driven location, but more dependent on the overall mall traffic throughout the year. Our ability to continue our present operations and successfully implement our expansion plans is contingent upon our ability to increase our revenues and ultimately attain and sustain profitable operations. Without additional financing, the cash generated from our current operations will not be adequate to fund operations and service our indebtedness during 2000. COSTS AND EXPENSES The food, beverage, retail costs and other unit operating expenses related to the operation of the Restaurants for the thirteen weeks ended July 2, 2000 were $2,490,424 or a 27% decrease of $927,352 from $3,417,776 for the thirteen weeks ended July 4, 1999. The food, beverage, retail costs and other unit operating expenses related to the operation of the Restaurants for the twenty-six weeks ended July 2, 2000 were $4,804,150 or a 16% decrease of $936,516 from $5,740,666 for the twenty-six weeks ended July 4, 1999. The expenses generally decreased because of the same factors that caused the decrease in revenues, most significantly the closing of the Kenwood location. Some of the reduced costs were offset by management fees payable under the Restaurant Management Agreement with a company controlled by former officers of the Company. Depreciation expenses of the Restaurants for the thirteen weeks ended July 2, 2000 were $312,774 or a 11% decrease of $39,898 from $352,672 for the thirteen weeks ended July 4, 1999. Restaurant depreciation expenses for the twenty-six weeks ended July 2, 2000 were $625,568 or a 2% increase of $14,728 from $610,840 for the twenty-six weeks ended July 4, 1999. 14 15 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) Goodwill amortization expense for the thirteen weeks ended July 2, 2000 was $7,057,721. Goodwill amortization expense for the twenty-six weeks ended July 2, 2000 was $12,514,325. This represents the excess of the purchase price and related costs over the fair value of the net assets that the Company acquired through its mergers and acquisitions. The Company amortizes acquired goodwill on a straight-line basis over a three-year period. There was no goodwill amortization expense for the 1999 periods, as no acquisitions were completed prior to July 4, 1999. The Company had general, administrative and development expenses for the thirteen weeks ended July 2, 2000, of $4,086,714 compared to $480,530 for the thirteen weeks ended July 4, 1999, an increase of $3,606,184. The Company's general, administrative and development expenses for the twenty-six weeks ended July 2, 2000, were $7,530,010 compared to $960,776 for the twenty-six weeks ended July 4, 1999, an increase of $6,569,236. These increases reflect the results of the acquisitions of Popmail, ROI, IZ.com and Fan Asylum, and the related additions of the sales, publishing and development expenses related to those operations. The Company has relocated all of the Restaurant management services to the Denver Pavilions location and all of the corporate Internet marketing service functions to the corporate headquarters located in Dallas, Texas. The Company has had to address numerous nonrecurring merger and acquisitions related costs, specifically of IZ.com and Fan Asylum, shareowner relationship costs, etc. and development costs associated with the build-out of the Internet marketing software. The Company expects to continue to incur operating losses throughout 2000. The Company's other income and expense consists primarily of interest expense, financial advisory services and loss on sale of assets. The interest expense for thirteen weeks ended July 2, 2000 was $992,121 as compared to $245,283 for thirteen weeks ended July 4, 1999, an increase of $746,838. The interest expense for the twenty-six weeks ended July 2, 2000 amounted to $1,581,081 compared to $387,332 for the twenty-six weeks ended July 4, 1999, an increase of $1,193,749. The increases for both the thirteen and twenty-six week periods ended July 2, 2000 over the complementary periods in 1999 relate primarily to the increased levels of debt outstanding during 2000 and the amortization of financing fees capitalized in raising debt. Of the $992,121 of interest expense reported for the thirteen weeks ended July 2, 2000 and the $1,581,081 of interest expense reported for the twenty-six week period ended July 2, 2000, $93,776 and $210,328, respectively, was paid in cash. The Company's financial advisory services are costs associated with services provided by third party financial advisors for the thirteen and twenty-six weeks ended July 2, 2000. For those periods, the Company recorded $958,066 and $2,185,144, respectively of financial advisory service fees. These costs were paid with cash and through the issuance of new common stock and warrants. The Company recorded a loss on the sale of assets of $761,707 during the thirteen weeks ended July 2, 2000. This represents the loss on the sale of the assets of its Cincinnati, Ohio restaurant. LIQUIDITY AND CAPITAL RESOURCES The Company had a working capital deficit of $10,357,491 at July 2, 2000, compared to working capital deficit of $8,696,477 on January 2, 2000. Cash and cash equivalents were $1,685,795 at July 2, 2000, representing an increase of $549,658 from the cash and cash equivalents of $1,136,137 at January 2, 2000. Our ability to continue our present operations and successfully implement our expansion plans is contingent upon our ability to increase our revenues and ultimately attain and sustain profitable operations. Without additional financing, the cash generated from our current operations will not be adequate to fund operations and service our indebtedness during 2000. There can be no assurance that additional financing will be available on terms acceptable to the Company or on any terms whatsoever. In the event that we are unable to fund our operations and our business plan, we will be unable to continue as a going concern. 15 16 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) During the twenty-six week period ended July 2, 2000, the Company completed four private placements of equity instruments resulting in cash proceeds to the Company of approximately $13,200,000. During the thirteen weeks ended April 2, 2000, the Company completed a private placement of 2,350,000 units valued at $1.00 per unit resulting in cash proceeds to the Company of approximately $2,000,000. Each unit consisted of one share of the Company's common stock and one five-year warrant to purchase one share of the Company's common stock with an exercise price of $2.00. Also during the thirteen weeks ended April 2, 2000, the Company completed a second private placement of 2,666,667 units valued at $2.25 per unit resulting in cash proceeds to the Company of approximately $4,500,000. Each unit consisted of one share of the Company's common stock and one five-year warrant to purchase one share of the Company's common stock with an exercise price of $3.00. In May 2000, the Company raised cash proceeds of approximately $4,000,000 from the private placement of Series G 10% convertible preferred stock which had an aggregate stated value of $6,000,000. The purchaser of the Series G stock also received a warrant to purchase up to 500,000 shares of our common stock at an exercise price of $2.51 per share. In June 2000, the Company raised cash proceeds of approximately $2,700,000 from the private placement of 1,000,000 shares of common stock at a purchase price of $3.00 per share. At the time of the closing, the investors also received a proportionate share of (a) five-year warrants to purchase 300,000 shares of common stock at an exercise price of $1.00 per share and (b) warrants to purchase additional shares of common stock at a nominal exercise price with the intention of providing the investors the ability to bring their investment value over the life of the investment to at least $4.00 per share. The proceeds from these private placements were primarily used to (a) pay various acquisition related costs, including amounts owed to affiliates, of approximately $2,500,000, (b) repay approximately $5,000,000 of notes payable outstanding at January 2, 2000, (c) invest approximately $2,500,000 in hardware and software related infrastructure, and (d) fund the continuing operating needs of the Company. The Company has no current plans to expand the restaurant division directly. It will do so through licensing or other arrangements where the Company does not invest directly into the business. The Company intends to fund operations, the expansion of the Internet marketing services division and debt service through equity and debt transactions, such as proceeds available from the exercise of stock options and warrants, and/or additional equity and debt financing for the Company or its subsidiaries. However, there can be no assurance such financing will be available on acceptable terms. If adequate financing is not available, the Company may consider restructuring its operations or selling selected assets to reduce operating costs, increase efficiencies or raise cash. RISK FACTORS An investment in our common stock is very risky. You may lose the entire amount of your investment. Prior to making an investment decision, you should carefully review this entire prospectus and consider the following risk factors: WE HAVE INCURRED LOSSES TO DATE AND WILL NEED ADDITIONAL FINANCING IN ORDER TO CONTINUE OPERATIONS AND PURSUE OUR BUSINESS PLAN. We incurred net losses of approximately $24.1 million in the first six months of 2000, $24.2 million in 1999, $6.7 16 17 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) million in 1998 and $4.0 million in 1997 and had a working capital deficit of approximately $10.4 million as of July 2, 2000. Our ability to continue our present operations and successfully implement our expansion plans is contingent upon our ability to increase our revenues and ultimately attain and sustain profitable operations. Without additional financing, the cash generated from our current operations will not be adequate to fund operations and service our indebtedness during 2000. There can be no assurance that additional financing will be available on terms acceptable to the Company or on any terms whatsoever. In the event that we are unable to fund our operations and our business plan, we will be unable to continue as a going concern. OUR COMMON STOCK COULD BE DELISTED FROM THE NASDAQ SMALLCAP MARKET, WHICH DELISTING COULD HINDER YOUR ABILITY TO OBTAIN ACCURATE QUOTATIONS AS TO THE PRICE OF OUR COMMON STOCK, OR DISPOSE OF OUR COMMON STOCK IN THE SECONDARY MARKET. Although our common stock is currently listed on the Nasdaq SmallCap Market, we cannot guarantee that an active public market for our common stock will continue to exist. We have responded to numerous inquiries from Nasdaq expressing concern over various matters, including but not limited to a "going concern" qualification expressed by our former independent auditors as of January 3, 1999. Accordingly, our securities may be delisted from the Nasdaq SmallCap Market or be required to reapply for listing meeting the Nasdaq initial listing requirements, which are generally more stringent than the requirements currently governing the Company's listing. Additional factors giving rise to such delisting could include, but are not be limited to: (1) a reduction of our net tangible assets to below $2,000,000, (2) a reduction to one active market maker, (3) a reduction in the market value of the public float of our securities to less than $1,000,000, (4) a reduction of the trading price of our Common Stock to less than $1.00 per share for a period of thirty consecutive trading days or (5) the discretion of the Nasdaq SmallCap Market. In the event our securities are delisted from the Nasdaq SmallCap Market, trading, if any, in our common stock would thereafter be conducted in the over-the-counter markets in the so-called "pink sheets" or the National Association of Securities Dealer's "Electronic Bulletin Board." Consequently, the liquidity of our common stock would likely be impaired, not only in the number of shares which could be bought and sold, but also through delays in the timing of the transactions, reduction in the coverage of our securities by security analysts and the news media, and lower prices for our securities than might otherwise prevail. In addition, our common stock would become subject to certain rules of the Securities and Exchange Commission relating to "penny stocks." These rules require broker-dealers to make special suitability determinations for purchasers other than established customers and certain institutional investors and to receive the purchasers' prior written consent for a purchase transaction prior to sale. Consequently, these "penny stock rules" may adversely affect the ability of broker-dealers to sell our common stock and may adversely affect your ability to sell shares of our common stock in the secondary market. WE ARE DEPENDENT ON THE ONGOING SERVICES OF CERTAIN OF OUR EXECUTIVES, THE LOSS OF WHICH COULD HAVE A DETRIMENTAL EFFECT ON OUR PROFITABILITY AND THE MARKET PRICE OF OUR STOCK. Our plan of business development and our day-to-day operations rely heavily on the experience of Stephen D. King, our Chairman, Gary Schneider, our Chief Executive Officer, Jesse Berst, the Chief Operating Officer, and Stephen Spohn, our Chief Financial Officer. The loss of any of them could adversely affect the success of our operations and strategic plans and, consequently, have a detrimental effect on the market price of our stock. WE MAY BE UNABLE TO HIRE QUALIFIED EMPLOYEES TO HELP IMPLEMENT AND MANAGE OUR EXPANSION PLANS, WHICH INABILITY COULD BE DETRIMENTAL TO THE VALUE OF YOUR INVESTMENT. Our success will depend in large part upon our ability to supplement our existing management team. We will need to 17 18 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) hire additional corporate level and management employees to help implement and operate our plans for expansion of our Internet and restaurant divisions. The demand for individuals with management skills is high and many other businesses, most of which have greater name recognition and resources than the Company, compete for their services. Any inability or delay in obtaining additional key employees could have a material adverse effect on our expansion plans and, consequently, the market value of our stock. DUE TO OUR LIMITED OPERATING HISTORY, YOU MAY FIND IT DIFFICULT TO ASSESS OUR ABILITY TO OPERATE PROFITABLY. We have only been operating our Mall of America restaurant since June 1998 and our Denver restaurant since March 1999. In addition, Old PopMail was founded in December 1997, and ROI commenced operations in June 1998, while IZ.com Incorporated was incorporated in February 1999. Consequently, we face the added risks, expenses and difficulties related to developing and operating a new business enterprise. Given our lack of significant operating history, investors may have difficulty assessing the many factors which will determine our ability to generate future profits. ONE INDIVIDUAL CONTROLS A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK AND MAY INFLUENCE OUR AFFAIRS. Following our merger with popmail.com, inc. on September 1, 1999, James L. Anderson was elected to our Board of Directors and served as its Chairman until his resignation on January 24, 2000. Effective February 1, 2000, Mr. Anderson resigned from our Board. Based upon a Schedule 13D filed with the Securities and Exchange Commission on September 13, 1999, Mr. Anderson controlled indirectly or directly, as of that date, approximately 59.6 percent of our outstanding common stock. As of August 4, 2000, Mr. Anderson indirectly or directly controlled approximately 22.6 percent of our outstanding common stock. Accordingly, he may have the ability to determine the election of members of the Board of Directors and determine the approval of corporate transactions and other matters requiring shareholder approval. Unless and until Mr. Anderson substantially decreases his percentage beneficial ownership in our common stock, he will continue to have significant influence over our affairs. DUE TO THE LARGE NUMBER OF OUTSTANDING OPTIONS AND WARRANTS, OUR SHAREHOLDERS FACE A RISK OF SUBSTANTIAL FUTURE DILUTION AND DOWNWARD PRESSURE ON THE TRADING PRICE OF OUR COMMON STOCK. We have a total of 42,649,174 shares of our common stock reserved for issuance pursuant to our stock options plans, outstanding preferred stock and common purchase warrants. Most of these shares have either been registered for resale or are subject to agreements providing for their registration for resale under certain circumstances. Accordingly, our existing shareholders face a substantial risk of dilution and the trading price of our common stock may decrease as these convertible securities are exercised or converted into shares of common stock and subsequently offered for sale through the Nasdaq SmallCap Market. THERE IS A RISK THAT DUE TO THE LIMITATIONS PLACED ON THE CONVERSION OF THE SERIES G PREFERRED SHARES, THE PREFERRED SHAREHOLDER'S INVESTMENT MAY NOT BE CONVERTED INTO COMMON STOCK AND WOULD HAVE TO BE REDEEMED IN CASH. The total number of shares of Common Stock issuable upon conversion of the Series G Preferred Stock and upon exercise of the Series G Warrant cannot exceed 20 percent of the number of shares of Common Stock of the Company issued and outstanding on May 2, 2000. In the event the holders of the Series G Preferred Stock and Warrant are unable to convert preferred shares into common stock because these limitations have been reached, we would be required to redeem the Series G Preferred Shares in cash at 105 percent of the stated value plus any accrued and unpaid dividends. It is possible that in such case we may not have sufficient cash and cash equivalents necessary 18 19 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) to redeem the Series G Preferred Shares in cash. WE RELY HEAVILY ON OUR INTELLECTUAL PROPERTY RIGHTS AND OTHER PROPRIETARY INFORMATION; FAILURE TO PROTECT AND MAINTAIN THESE RIGHTS AND INFORMATION COULD PREVENT US FROM COMPETING EFFECTIVELY. Our success and ability to compete are substantially dependent on our internally developed technologies and trademarks, which we seek to protect through a combination of trade secret and trademark law, as well as confidentiality or license agreements with our employees, consultants, and corporate and strategic partners. If we are unable to prevent the unauthorized use of our proprietary information or if our competitors are able to develop similar technologies independently, the competitive benefits of our technologies, intellectual property rights and proprietary information will be diminished. WE MAY NOT PAY DIVIDENDS ON OUR COMMON STOCK, IN WHICH EVENT YOUR ONLY RETURN ON INVESTMENT, IF ANY, WILL OCCUR ON THE SALE OF OUR STOCK. To date, we have not paid any cash dividends on our common stock, and we do not intend to do so in the foreseeable future. Rather, we intend to use any future earnings to fund our operations and the growth of our business. Accordingly, the only return on an investment in our common stock will occur upon its sale. PURSUANT TO ITS AUTHORITY TO DESIGNATE AND ISSUE SHARES OF OUR STOCK AS IT DEEMS APPROPRIATE, OUR BOARD OF DIRECTORS MAY ASSIGN RIGHTS AND PRIVILEGES TO CURRENTLY UNDESIGNATED SHARES WHICH COULD ADVERSELY AFFECT YOUR RIGHTS AS A COMMON SHAREHOLDER. Our authorized capital consists of 100,000,000 shares of capital stock. Our Board of Directors, without any action by the shareholders, may designate and issue shares in such classes or series (including classes or series of preferred stock) as it deems appropriate and establish the rights, preferences and privileges of such shares, including dividends, liquidation and voting rights. As of July 28, 2000, we have 40,273,932 shares of common stock, 225,000 shares of Series E Convertible Preferred Stock, 287,408 shares of Series F Convertible Preferred Stock outstanding and 600,000 shares of Series G 10% Convertible Preferred Stock. As of July 28, 2000, a further 42,649,174 shares of common stock have been reserved as follows: a maximum of 750,000 shares of common stock reserved for issuance upon exercise of the Series E Preferred Shares, 225,000 shares of which are currently outstanding; a maximum of 7,375,000 shares of common stock reserved for issuance upon conversion of Series F Convertible Preferred Stock; a maximum of 7,224,282 shares of common stock reserved for issuance in connection with the Series G 10% Convertible Preferred Stock and upon exercise of certain warrants issued in connection with the Series G Preferred Stock; 3,348,895 shares of common stock issuable upon exercise of options granted under the IZ.com Incorporated stock option plan assumed by the Company; 2,600,000 shares issuable upon the exercise of the Class A Warrants issued as part of our initial public offering and the partial exercise of the underwriter's over-allotment; 19 20 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) 17,600,997 shares issuable upon the exercise of outstanding warrants (excluding the warrants issued in connection with the sale of the Series G Preferred Stock); 3,000,000 shares reserved for issuance under our 1997 Stock Option and Compensation Plan, of which options reverting to 2,033,333 shares are currently outstanding; 750,000 shares for issuance under our 1998 Director Stock Option Plan, of which options relating to 290,000 shares are currently outstanding. The rights of holders of preferred stock and other classes of common stock that may be issued could be superior to the rights granted to holders of the Units issued in our initial public offering. Our Board's ability to designate and issue such undesignated shares could impede or deter an unsolicited tender offer or takeover proposal. Further, the issuance of additional shares having preferential rights could adversely affect the voting power and other rights of holders of common stock. MINNESOTA LAW MAY INHIBIT OR DISCOURAGE TAKEOVERS, WHICH COULD REDUCE THE MARKET VALUE OF OUR STOCK. As a corporation organized under Minnesota law, we are subject to certain Minnesota statutes which regulate business combinations and restrict the voting rights of certain persons acquiring shares of its stock. By impeding a merger, consolidation, takeover or other business combination involving the Company or discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of the Company, these regulations could adversely affect the market value of our stock. THE LIMITATIONS ON DIRECTOR LIABILITY CONTAINED IN OUR ARTICLES OF INCORPORATION AND BYLAWS MAY DISCOURAGE SUITS AGAINST DIRECTORS FOR BREACH OF FIDUCIARY DUTY. As permitted by Minnesota law, our Amended and Restated Articles of Incorporation provide that members of our Board of Directors are not personally liable to you or the Company for monetary damages resulting from a breach of their fiduciary duties. These limitations on director liability may discourage shareholders from suing directors for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought against a director by shareholders on the Company's behalf. Furthermore, our Bylaws provide for mandatory indemnification of directors and officers to the fullest extent permitted by Minnesota law. All of these provisions limit the extent to which the threat of legal action against our directors for any breach of their fiduciary duties will prevent such breach from occurring in the first instance. PURSUING AND COMPLETING POTENTIAL ACQUISITIONS COULD DIVERT MANAGEMENT ATTENTION AND FINANCIAL RESOURCES AND MAY NOT PRODUCE THE DESIRED BUSINESS RESULTS. We do not have specific personnel dedicated solely to pursuing and completing acquisitions. As a result, if we pursue any acquisition, our management, in addition to fulfilling their operational responsibilities, could spend significant time, management resources and financial resources to pursue and complete the acquisition and integrate the acquired business with our existing business. To finance any acquisition, we may use capital stock or cash or a combination of both. Alternatively, we may borrow money from a bank or other lender. If we use capital stock, our shareholders may experience dilution. If we use cash or debt financing, our financial liquidity would be reduced. In addition, acquisitions may result in nonrecurring charges or the amortization of significant goodwill that could adversely affect our ability to achieve and maintain 20 21 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) profitability. Despite the investment of these management and financial resources and completion of due diligence with respect to these efforts, an acquisition may fail to produce the expected revenues, earnings or business and an acquired service or technology may not perform as expected for a variety of reasons, including: Difficulties in the assimilation of the operations, technologies, products and personnel of the acquired company; Risks of entering markets in which we have no or limited prior experience; Expenses of any undisclosed or potential legal liabilities of the acquired company; The applicability of rules and regulations that might restrict our ability to operate; and The potential loss of key employees of the acquired company. If we make acquisitions in the future and the acquired businesses fail to perform as expected, our business operating results and financial condition may be materially adversely affected. FAILURE TO MANAGE OUR GROWTH MAY ADVERSELY AFFECT OUR BUSINESS. We have grown rapidly and expect to continue the growth both by hiring new employees and serving new business and markets. Our growth has placed, and will continue to place, a significant strain on our management and our operating and financial systems. Our personnel, systems, procedures and controls may be inadequate to support our future operations. In order to accommodate the increased size of our operations, we will need to hire, train and retain the appropriate personnel to manage our operations. We will also need to improve our financial and management controls, reporting systems and operating systems, all of which will require significant ongoing investments of the efforts of key personnel. IF WE FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE MARKET PRICE OF OUR COMMON STOCK MAY FALL SIGNIFICANTLY. The market price of publicly traded securities generally reflects, to a large degree, the expectations of industry analysts and significant investors with respect to the short and long-term operating results of the issuers. When issuers fail to meet such expectations, the market price of their publicly traded securities usually decreases, sometimes significantly, and may not recover. There can be no assurance that we will be able to satisfy the expectations of market analysts and investors to avoid a precipitous drop in the market price of our common stock. Internet Division WE HAVE ENTERED INTO NEW BUSINESS VENTURES IN AN EVOLVING INDUSTRY IN WHICH THERE REMAIN UNPROVEN BUSINESS AND REVENUE MODELS. The Internet, music and e-mail industry is rapidly evolving, extremely competitive, and the market place for internet-related shares has been very volatile. Furthermore, the music and e-mail business continues to indicate changing revenue models in the market place. Consequently, there can be no assurance that sufficient revenues will be generated to support our current operations and other capital requirements. 21 22 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) IN LIGHT OF RECENT CONSOLIDATION IN THE BROADCAST INDUSTRY AND RECENT DEVELOPMENTS IN THE MUSIC INDUSTRY, THE LOSS OF ANY SIGNIFICANT AFFILIATE OR ARTIST CONTRACTS WOULD NEGATIVELY IMPACT OUR OPERATIONS. The last few years have brought substantial concentration of power among a few players in the broadcast industry. Consequently, significant portions of the industry are controlled by relatively few organizations. We currently have over 500 clients. As consolidation increases, these contracts may be merged or lost due to the landscape of the industry. In light of such consolidation, however, the loss of any of these significant affiliation contracts or our inability to enter into contracts with other clients in the broadcast industry would negatively impact our operations. The reduction of artists touring and releasing new recording can significantly impact the level of activity on the fan club sites, membership and potential advertising associated with such. OUR E-MAIL BASED PRODUCTS AND FAN CLUB SERVICES ARE DEPENDENT UPON THE INTERNET. The success of our services and products will depend in large part upon the continued development and expansion of the Internet. The Internet has experienced, and is expected to continue to experience, significant and geometric growth in the number of users and the amount of traffic. There can be no assurance that the Internet infrastructure will continue to be able to support the demands placed on it by this continued growth. In addition, the Internet could lose its viability due to delays in the development or adoption of new standards and protocols (for example, the next-generation Internet Protocol) to handle increased levels of Internet activity, or due to increased governmental regulation. There can be no assurance that the infrastructure or complementary services necessary to make the Internet a viable commercial marketplace will be developed, or, if developed, that the Internet will become a viable commercial marketplace for services and products such as those we offer. If the necessary infrastructure or complementary services or facilities are not developed, or if the Internet does not become a viable commercial marketplace, our business, results of operations, and financial condition will be materially adversely affected. OUR FUTURE SUCCESS WILL DEPEND ON INCREASED ACCEPTANCE OF THE INTERNET AS A MEDIUM OF COMMERCE. The market for Internet e-mail, fan club sites, private label newsletters and other services is relatively new and evolving rapidly. Our future success will depend, in part, upon our ability to provide services that are accepted by our existing and future clients as an integral part of their business model in providing content and information to their fans and viewers. The level of demand for Internet e-mail, fan club sites, private label newsletters and other services will depend upon a number of factors, including the following: the growth in consumer access to, and acceptance of, new interactive technologies such as the Internet; the adoption of Internet-based business models; the development of technologies that facilitate two-way communications between companies and target audiences; and acquiring members to the brands services. Significant issues concerning the commercial use of Internet technologies, including security, reliability, privacy, cost, ease of use and quality of service, may inhibit the growth of services that use these technologies. Our future success will depend, in part, on our ability to meet these challenges, which must be met in a timely and cost-effective manner. We cannot be sure that we will succeed in effectively meeting these challenges, and our failure to do so 22 23 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) could materially and adversely affect our business. Industry analysts and others have made many predictions concerning the growth of the Internet as a business medium. Many of these historical predictions have overstated the growth of the Internet. These predictions should not be relied upon as conclusive. The market for our Internet e-mail and fan club services may not continue to grow, our services may not be adopted and individual personal computer users in business or at home may not use the Internet or other interactive media for commerce, interaction and communication. If the market for Internet e-mail, fan club sites and other services fails to sustain growth, or develops more slowly than expected, or if our services do not achieve market acceptance, our business would be materially and adversely affected. INTERNET STOCKS ARE SUBJECT TO MARKET VOLATILITY. The stock market in general, and the market prices for Internet-related companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of such companies. These fluctuations may adversely affect our stock price. If Internet usage does not continue to grow or its infrastructure fails, our business will suffer. If the Internet does not gain increased acceptance for business-to-consumer electronic commerce, our business will not grow or become profitable. We cannot be certain that the infrastructure or complementary services necessary to maintain the Internet as a useful and easy means of transferring documents and data will continue to develop. The Internet infrastructure may not support the demands that growth may place on it and the performance and reliability of the Internet may decline. INCREASED COMPETITION RESULTING FROM AN INCREASE IN THE NUMBER OF E-MAIL FAN CLUB AND BRANDED LABEL NEWSLETTERS PROVIDERS MAY HAVE AN ADVERSE EFFECT ON POPMAIL'S FUTURE BUSINESS OPERATIONS. Currently there are a growing number of e-mail providers, artist web sites, newsletters providers and competitors to our business. To the extent we can execute our plan and are successful within the current target vertical markets in which we compete (i.e., broadcast, media, sports, music and entertainment), we anticipate continued growth of clients and members to our e-mail services, newsletters and artist fan club sites. Others currently are competing and will attempt to compete in these Affinity vertical markets, which may have an adverse affect on our future business operations. THERE IS A RISK THAT GOVERNMENT REGULATION OF THE INTERNET COULD BECOME MORE EXTENSIVE. There are currently few laws or regulations directly applicable to access to or commerce on the Internet. However, due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to the Internet, covering issues such as user privacy, pricing, characteristics, and quality of products and service. The Telecommunications Reform Act of 1996 imposes criminal penalties on anyone who distributes obscene, indecent, or patently offensive communications on the Internet. Other nations, including Germany, have taken actions to restrict the free flow of material deemed to be objectionable on the Internet. The adoption of any additional laws or regulations may decrease the growth of the Internet, which could in turn decrease the demand for our services and products, and increase our cost of doing business or otherwise have an adverse effect on our business, results of operations and financial condition. Moreover, the applicability to the Internet of existing laws in various jurisdictions governing issues such as property ownership, libel, and personal privacy is uncertain and will take years to resolve. Any such new legislation or regulation could have a material adverse effect on our business, results of operations, and financial condition. 23 24 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) WE MAY NOT BE ABLE TO GENERATE SUFFICIENT REVENUE IF THE ACCEPTANCE OF ONLINE ADVERTISING, WHICH IS NEW AND UNPREDICTABLE, DOES NOT DEVELOP AND EXPAND AS WE ANTICIPATE. We plan to derive a substantial portion of our future revenues from online advertising and direct marketing in our branded e-mail, fan club newsletters, artist web sites and Web-based programs. If these services do not continue to achieve market acceptance, we may not generate sufficient revenue to support our continued operations. The Internet has not existed long enough as an advertising medium to demonstrate its effectiveness relative to traditional advertising. Advertisers and advertising agencies that have historically relied on traditional advertising remain slow to adopt online advertising. Many potential advertisers have limited or no experience using e-mail or the Web as an advertising medium. They may have allocated only a limited portion of their advertising budgets to online advertising, or may find online advertising to be less effective for promoting their products and services than traditional advertising media. If the market for online advertising fails to develop or develops more slowly than we expect, we may not sustain revenue growth or achieve or sustain profitability. The market for e-mail advertising in general is vulnerable to the negative public perception associated with unsolicited e-mail, known as "spam." Public perception, press reports or governmental action related to spam could reduce the overall demand for e-mail advertising in general, which could reduce our revenue and prevent us from achieving or sustaining profitability. IF WE DO NOT MAINTAIN AND EXPAND OUR CLIENT AND MEMBER BASE WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY FOR ADVERTISERS. Our revenue has been derived primarily from the licensing of our e-mail services, set up and hosting fees through PopMail Network, creating content through IZ.com for specific brands and from management fees, ticket fees, commerce fees and artist travel packages through Fan Asylum. All three companies are seeking to provide timely and relevant information to their clients customers, fans and viewers with personalized content and information that is of most interest to the opt-in member or fan, through targeted e-mail, personalized newsletters and fan club sites. If we are unable to maintain and expand our affinity brand member base and add clients to our "affinity brand network," advertisers could find our audience less attractive and effective for promoting their products and services and we could experience difficulty retaining our existing advertisers and attracting additional advertisers. To date, we have relied on referral-based marketing activities to attract a portion of our members and will continue to do so for the foreseeable future. This type of marketing is largely outside of our control and there can be no assurance that it will generate rates of growth in our member base comparable to what we have experienced to date. We would also be unable to grow our member base if a significant number of our current members and clients stopped using our services. Members may discontinue using our service if they object to having their online activities tracked or they do not find our content useful. In addition, our service allows our members to easily unsubscribe at any time by clicking through a link appearing at the bottom of our e-mail messages and selecting the particular categories from which they want to unsubscribe. OUR BUSINESS DEPENDS ON OUR ABILITY TO PROVIDE SERVICES THAT CREATE, DELIVER AND DISTRIBUTE RELEVANT AND APPEALING CONTENT FROM AND FOR OUR CLIENTS THROUGH OUR AFFINITY E-MAIL SERVICES, PUBLISHING TOOLS AND FAN CLUB SITES; IF WE ARE NOT ABLE TO CONTINUE TO DELIVER SUCH CONTENT OR TO PROVIDE SUCH SERVICES, WE MAY BE NOT ABLE TO MAINTAIN AND EXPAND OUR MEMBER AND FAN BASE, WHICH COULD NEGATIVELY AFFECT OUR ABILITY TO RETAIN AND ATTRACT THE ADVERTISERS WE NEED TO GENERATE ADDITIONAL REVENUES. 24 25 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) Through IZ.com and Fan Asylum, we have relied on our editorial staff to identify and develop substantially all of our content utilizing content derived from other parties and from our clients. Because our members' preferences are constantly evolving, our editorial staff may be unable to accurately and effectively identify and develop content that is relevant and appealing to our members. As a result, we may have difficulty maintaining and expanding our member base, which could negatively affect our ability to retain and attract advertisers. If we are unable to retain and attract advertisers our revenue will decrease. Additionally, we license a small percentage of our content from third parties. The loss, or increase in cost, of our licensed content may impair our ability to assimilate and maintain consistent, appealing content in our e-mail messages or maintain and improve the services we offer to consumers. We intend to continue to strategically license a portion of our content for our e-mails from third parties, including content that is integrated with internally developed content. These third-party content licenses may be unavailable to us on commercially reasonable terms, and we may be unable to integrate third-party content successfully. The inability to obtain any of these licenses could result in delays in product development or services until equivalent content can be identified, licensed and integrated. Any delays in product development or services could negatively affect our ability to maintain and expand our member base. IF WE DO NOT RESPOND TO OUR COMPETITION EFFECTIVELY, WE MAY LOSE CURRENT CLIENTS AND MEMBERS AND FAIL TO ATTRACT NEW ADVERTISERS, REDUCING OUR REVENUES AND HARMING OUR FINANCIAL RESULTS. We face intense competition from both traditional and online advertising and direct marketing businesses. If we do not respond to this competition effectively, we may not be able to retain current advertisers or attract new advertisers, which would reduce our revenue and harm our financial results. Currently, several companies offer competitive e-mail direct marketing services, such as coolsavings.com, MyPoints.com, NetCreations, YesMail.com, Digital Impact and Exactis. We also expect to face competition from online content providers, list aggregators as well as established online portals and community Web sites that engage in direct marketing programs. Additionally, we may face competition from traditional advertising agencies and direct marketing companies that may seek to offer online products or services. We also compete in high profile industries where our e-mail services, publishing tools and fan club site offerings must meet the demands of our fans and clients. It is imperative that we continue to make enhancements to the e-mail services, publishing tool and fan club site offerings if we are to continue growing our client and member base. Failure to make service and product enhancements could significantly impact our financial results. WE DEPEND HEAVILY ON OUR NETWORK INFRASTRUCTURE AND IF THIS FAILS IT COULD RESULT IN UNANTICIPATED EXPENSES AND PREVENT OUR MEMBERS FROM EFFECTIVELY UTILIZING OUR SERVICES, WHICH COULD NEGATIVELY IMPACT OUR ABILITY TO ATTRACT AND RETAIN MEMBERS AND ADVERTISERS. Our ability to successfully create and deliver our e-mail messages and private label newsletters and to keep fan club sites current depends in large part on the capacity, reliability and security of our networking hardware, software and telecommunications infrastructure. Failures within our network infrastructure could result in unanticipated expenses to address such failures and could prevent our members from effectively utilizing our services, which could prevent us from retaining and attracting members and advertisers. While our technology platform is considered state of the art, we do not currently have fully redundant systems or a formal disaster recovery plan in place for all companies. Our system is susceptible to natural and man-made disasters, including earthquakes, fires, floods, power loss and vandalism. Further, telecommunications failures, computer viruses, electronic break-ins or other similar disruptive problems could adversely affect the operation of our systems. Our insurance policies may not adequately compensate us for any losses that may occur due to any damages or interruptions in our systems. Accordingly, we could be 25 26 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) required to make capital expenditures in the event of unanticipated damage. In addition, our members depend on Internet service providers, or ISPs, for access to our Web site. Due to the rapid growth of the Internet, ISPs and Web sites have experienced significant system failures and could experience outages, delays and other difficulties due to system failures unrelated to our systems. These problems could harm our business by preventing our members from effectively utilizing our services. OUR FUTURE SUCCESS WILL DEPEND ON INCREASED ACCEPTANCE OF THE INTERNET AS A MEDIUM OF COMMERCE. The market for Internet e-mail and other services is relatively new and evolving rapidly. Our future success will depend, in part, upon our ability to provide services that are accepted by our existing and future members as an integral part of their business model. The level of demand for Internet e-mail and other services will depend upon a number of factors, including the following: the growth in consumer access to, and acceptance of, new interactive technologies such as the Internet; the adoption of Internet-based business models; and the development of technologies that facilitate two-way communication between companies and target audiences. Significant issues concerning the commercial use of Internet technologies, including security, reliability, cost, ease of use and quality of service, remain unresolved and may inhibit the growth of services that use these technologies. Our future success will depend, in part, on our ability to meet these challenges, which must be met in a timely and cost-effective manner. We cannot be sure that we will succeed in effectively meeting these challenges, and our failure to do so could materially and adversely affect our business. Industry analysts and others have made many predictions concerning the growth of the Internet as a business medium. Many of these historical predictions have overstated the growth of the Internet. These predictions should not be relied upon as conclusive. The market for our Internet e-mail services may not develop, our services may not be adopted and individual personal computer users in business or at home may not use the Internet or other interactive media for commerce and communication. If the market for Internet e-mail and other services fails to develop, or develops more slowly than expected, or if our services do not achieve market acceptance, our business would be materially and adversely affected. WE MAY INCUR LIABILITY FOR THE INVASION OF PRIVACY. The Federal Trade Commission has investigated businesses that have used personally identifiable information without permission or in violation of a stated privacy policy. We have established and communicated to our members a privacy policy. In the event that we convey personally identifiable information to our corporate customers without permission or in violation of our stated privacy policy, we may incur liability for the unlawful invasion of privacy. Restaurant Division OUR ABILITY, OR INABILITY, TO RESPOND TO VARIOUS COMPETITIVE FACTORS AFFECTING THE RESTAURANT INDUSTRY MAY AFFECT THE MARKET PRICE OF OUR COMMON STOCK. The restaurant industry is highly competitive and is affected by changes in consumer preferences, as well as by national, regional and local economic conditions, and demographic trends. Discretionary spending priorities, traffic 26 27 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) patterns, tourist travel, weather conditions, employee availability and the type, number and location of competing restaurants, among other factors, will also directly affect the performance of our restaurants. Changes in any of these factors in the markets where we currently operate our restaurants could adversely affect the results of our operations. Furthermore, the restaurant industry in general is highly competitive based on the type, quality and selection of the food offered, price, service, location and other factors and, as a result, has a high failure rate. The themed restaurant industry is relatively young, is particularly dependent on tourism and has seen the emergence of a number of new competitors. We compete with numerous well-established competitors, including national, regional and local restaurant chains, many of which have greater financial, marketing, personnel and other resources and longer operating histories than us. As a result, we may be unable to respond to the various competitive factors affecting the restaurant industry. WE HAVE ENTERED INTO NON-CANCELABLE LEASES UNDER WHICH WE ARE OBLIGATED TO MAKE PAYMENTS FOR TERMS OF 12 TO 15 YEARS. We have entered into long-term leases relating to the Kenwood, Mall of America and Denver restaurants. These leases are non-cancelable by us (except in limited circumstances) and range in term from 12 to 15 years. Although we have closed the Kenwood restaurant and assigned the related lease to an unrelated third party who is currently making the required lease payments, we remain the primary obligor under the lease. If we decide to close any of our existing restaurants, we may nonetheless be committed to perform our obligations under the applicable lease, which would include, among other things, payment of the applicable base rent for the balance of the respective lease term. Such continued obligations increase our chances of closing a restaurant without receiving an adequate return on our investment. AMONG OTHER ECONOMIC FACTORS OVER WHICH WE HAVE NO CONTROL, THE SUCCESS OF OUR RESTAURANTS WILL DEPEND ON CONSUMER PREFERENCES AND THE PREVAILING LEVEL OF DISCRETIONARY CONSUMER SPENDING. The success of our restaurant division depends to a significant degree on a number of economic conditions over which we have no control, including: discretionary consumer spending; the overall success of the malls, entertainment centers and other venues where Cafe Odyssey restaurants are or will be located; economic conditions affecting disposable consumer income; and the continued popularity of themed restaurants in general and the Cafe Odyssey concept in particular. Furthermore, most themed restaurants are especially susceptible to shifts in consumer preferences because they open at or near capacity and frequently respond to such shifts by experiencing a decline in revenue growth or of actual revenues. An adverse change in any or all of these conditions would have a negative effect on our operations and the market value of our common stock. OUR RESTAURANT DIVISION IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION WHICH COULD HAVE A NEGATIVE EFFECT ON OUR BUSINESS. The restaurant industry, and to a lesser extent, the retail merchandising industry, are subject to numerous federal, state, and local government regulations, including those relating to: 27 28 POPMAIL.COM, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) the preparation and sale of food; building and zoning requirements; environmental protections; minimum wage requirements; overtime; working and safety conditions; the sale of alcoholic beverages; sanitation; relationships with employees; unemployment; workers compensation; and citizenship requirements. Any change in the current status of such regulations, including an increase in employee benefits costs, workers' compensation insurance rates, or other costs associated with employees, could substantially increase our compliance and labor costs. Because we pay many of our restaurant-level personnel rates based on either the federal or the state minimum wage, increases in the minimum wage would lead to increased labor costs. In addition, our operating results would be adversely affected in the event we fail to maintain our food and liquor licenses. Furthermore, restaurant operating costs are affected by increases in unemployment tax rates, sales taxes and similar costs over which we have no control. 28 29 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in routine legal actions in the ordinary course of its business. Although outcomes of any such legal actions cannot be predicted, in the opinion of management there is no legal proceeding pending against or involving the Company for which the outcome is likely to have a material adverse effect upon the financial position or results of operations of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The following table lists recent sales of unregistered securities by the Company:
- ------------------------------------------------------------------------------------------------------------------------- TITLE AND CASH OR DESCRIPTION AMOUNT OF CONSIDERATION DATE OF SECURITIES SECURITIES ISSUED TO RECEIVED - ------------------------------------------------------------------------------------------------------------------------- 4/17/2000 Warrants to Purchase Warrants to purchase 550,000 Black Brook In consideration for Common Stock shares at an exercise price of Capital LLC, and financial services $1.625 Sands Brothers & Co., Ltd - ------------------------------------------------------------------------------------------------------------------------- 4/18/2000 Warrants to Purchase Warrant to purchase 250,000 Blake Capital In connection with Common Stock (BCP shares at an exercise price of Partners, LLC certain financing Series) $2.00 - ------------------------------------------------------------------------------------------------------------------------- 4/26/2000 Warrants to Purchase Warrants to purchase 100,000 Maris Kott and In consideration for Common Stock shares at an exercise price of Dara Podber financial services $1.625 - ------------------------------------------------------------------------------------------------------------------------- 5/2/2000 Series G Convertible 600,000 shares of Series G The Shaar Fund, $4,000,000 Preferred Stock Convertible Preferred Stock Ltd. and a Warrant to purchase 500,000 shares at an exercise price of $2.51 - ------------------------------------------------------------------------------------------------------------------------- 5/15/2000 Warrants to Purchase Warrant to purchase 80,000 Fairview Partners In consideration for Common Stock shares at an exercise price of financial services $2.00 - ------------------------------------------------------------------------------------------------------------------------- 6/14/2000 Common Stock, Warrants Common Stock, Warrants to Certain Accredited $2,700,000 to Common Stock, and purchase 300,000 shares at an Investors certain Adjustable exercise price of $1.00 per Warrants to purchase shares, and certain Adjustable Common Stock Warrants to purchase Common Stock at a nominal exercise price - ------------------------------------------------------------------------------------------------------------------------- 6/15/2000 Warrants to Purchase Warrants to purchase 300,000 J.P. Carey In connection with Common Stock shares at an exercise price of Securities, Fiji certain financing $1.00 Capital, Metropolitan Capital Partners, Inc. - -------------------------------------------------------------------------------------------------------------------------
29 30 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On June 13, 2000, the Annual Meeting of Shareholders of PopMail.com, inc. ("Annual Meeting") was held. There were 36,272,928 shares of Common Stock entitled to vote at the meeting, 225,000 shares of Series E Preferred Stock and 3,729,694 Series F Preferred Stock. A total of 32,624,807 shares were represented at the meeting. The following matters were voted:
(A) To ratify the acquisition of IZ.com, Incorporated and the issuance of up to 10,725,000 shares of PopMial common stock in connection therewith: Shares Voted For Against Abstain Broker Non-Vote ---------------- ------- ------- --------------- 21,753,244 750,541 442,730 9,678,292 (B) Vote to approve an amendment to PopMail's 1997 Stock Option and Compensation Plan to increase the number of shares of common stock issuable thereunder from 1,250,000 to 3,000,000 shares: Shares Voted For Against Abstain Broker Non-Vote ---------------- ------- ------- --------------- 21,297,538 1,196,762 451,215 9,678,292 (C) Vote to approve an amendment to the 1998 Director Stock Option Plan to increase the number of shares of common stock issuable thereunder from 250,000 to 750,000 shares: Shares Voted For Against Abstain Broker Non-Vote ---------------- ------- ------- --------------- 21,742,632 741,078 462,805 9,678,292
(D) To elect five directors. All of the management's nominees for directors as listed in the proxy statement were elected with the following: Shares Voted For Withheld ---------------- -------- Stephen D. King 31,351,310 1,273,497 Jesse Berst 31,362,810 1,261,997 Thomas W. Orr 31,444,758 1,180,049 Michael L. Krienik 31,444,758 1,180,049 Gary Schneider 31,356,460 1,268,347
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 4.1 Form of Warrant to Purchase Shares of Common Stock of the Company (PP Series). 4.2 Schedule identifying material details of warrants issued by the Company substantially identical to the warrant filed as Exhibit 4.1. 30 31 4.3 Form of Warrant to Purchase Shares of Common Stock of the Company issued to Black Brook Capital LLC. 4.4 Form of Warrant to Purchase Shares of Common Stock of the Company (SB Series). 4.5 Schedule identifying material details of warrants issued by the Company substantially identical to the warrant filed as Exhibit 4.4. 4.6 Form of Warrant to Purchase Shares of Common Stock of the Company issued to Fairview Partners. 4.7 Form of Agents Warrant to Purchase Common Stock (issued in connection with a private placement. 4.8 Schedule identifying material details of warrants issued by the Company substantially identical to the warrant filed as Exhibit 4.7. 4.9 Form of Warrant Agreement dated June 12, 2000 (issued to Investors in connection with a private placement) 4.10 Schedule identifying material details of warrants issued by the Company substantially identical to the warrant filed as Exhibit 4.9. 4.11 Form of Adjustable Warrant dated as of June 12, 2000 (issued to Thompson Kernahan & Co., Inc. on behalf of investors in connection with a private placement) 10.1.1 Promissory Note dated March 30, 2000 from King Family Partners, in favor of the Company. 10.1.2 Management Agreement between Cafe Odyssey, LLC and H D Spirits, Inc. and Odyssey Restaurants, LLC dated May 2000. 10.1.3 License and Credit Enhancement Agreement effective as of May 2000, between Cafe Odyssey, LLC and Odyssey Restaurants, LLC. 27 Financial Data Schedule (b) REPORTS ON FORM 8-K On April 24, 2000, the Company filed a Current Report on Form 8-K/A dated February 9, 2000, under Item 7, filing the financial statements of IZ.com and the pro forma financial statements of the Company. On May 8, 2000, the Company filed a Current Report on Form 8-K dated May 2, 2000, under Item 5, announcing that it had completed an equity financing in the amount of $6,000,000. On June 30, 2000, the Company filed a Current Report on Form 8-K dated June 14, 2000 under Items 5 and 7 announcing the purchase of all of the outstanding common stock of Fan Asylum, Inc. 31 32 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. POPMAIL.COM, INC. By: /s/ Stephen J. Spohn --------------------- Stephen J. Spohn Chief Financial Officer Date: August 16, 2000 32 EX-4.1 2 ex4-1.txt FORM OF WARRANTS TO PURCHASE SHARES OF COMM. STOCK 1 EXHIBIT 4.1 THE WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS ("BLUE SKY LAWS"). NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS WARRANT OR THE SECURITIES OR ANY INTEREST THEREIN MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE BLUE SKY LAWS OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH BOTH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT NO REGISTRATION IS REQUIRED BECAUSE OF THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE BLUE SKY LAWS, AND ASSURANCES THAT THE TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION WILL BE MADE ONLY IN COMPLIANCE WITH THE CONDITIONS OF ANY SUCH REGISTRATION OR EXEMPTION. WARRANT TO PURCHASE SHARES OF COMMON STOCK OF POPMAIL.COM, INC. WARRANT NO. PP-1 Irving, Texas April 26, 2000 This certifies that, for value received, DARA PODBER, or her successors or assigns ("Holder") is entitled to purchase from PopMail.com, inc. (the "Company") Twenty-Five Thousand (25,000) fully paid and nonassessable shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common Stock"), at any time from May 1, 2000 until May 1, 2005 (the "Warrant Exercise Period"), at an exercise price of $1.625 per share (the "Exercise Price"), subject to adjustment as herein provided. This Warrant is subject to the following provisions, terms and conditions: 1. Exercise of Warrant. The rights represented by this Warrant may be exercised by the Holder, in whole or in part (but not as to a fractional share of Common Stock), during the Warrant Exercise Period by the surrender of this Warrant (properly endorsed, if required, at the Company's principal office in Bloomington, Minnesota, or such other office or agency of the Company as the Company may designate by notice in writing to the Holder at the address of such Holder appearing on the books of the Company at any time within the period above named), and upon payment to it by certified check, bank draft or cash of the purchase price for such Shares. The Company agrees that the Shares so purchased shall have and are deemed to be issued to the Holder as the record owner of such Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such Shares as aforesaid. Certificates for the Shares of Common Stock so purchased shall be delivered to the Holder within a reasonable time, not exceeding ten (10) days, after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the number of Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be delivered to the Holder within such time. The Company may require that any such new Warrant or any certificate for Shares purchased upon the exercise hereof bear a legend substantially similar to that which is contained on the face of this Warrant. 2. Transferability of this Warrant. This Warrant is issued upon the following terms, to which each Holder consents and agrees: (a) Until this Warrant is transferred on the books of the Company, the Company will treat the Holder of this Warrant registered as such on the books of the Company as the absolute owner hereof for all purposes without being affected by any notice to the contrary. 2 (b) This Warrant may not be exercised, and this Warrant and the Shares underlying this Warrant shall not be transferable, except in compliance with all applicable state and federal securities laws, regulations and orders, and with all other applicable laws, regulations and orders. (c) Prior to making any disposition of this Warrant or of any of the Shares underlying this Warrant, the Holder will give written notice to the Company describing the manner of any such proposed disposition. The Warrant may not be transferred, and the Shares may not be transferred, without the Holder obtaining an opinion of counsel satisfactory in form and substance to the Company's counsel stating that the proposed transaction will not result in a prohibited transaction under the Securities Act, and applicable Blue Sky laws. By accepting this Warrant, the Holder agrees to act in accordance with any conditions reasonably imposed on such transfer by such opinion of counsel. (d) Neither this issuance of this Warrant nor the issuance of the Shares underlying this Warrant have been registered under the Securities Act. 3. Certain Covenants of the Company. The Company covenants and agrees that all Shares which may be issued upon the exercise of the rights represented by this Warrant, upon issuance and full payment for the Shares so purchased, will be duly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue hereof, except those that may be created by or imposed upon the Holder or its property, and without limiting the generality of the foregoing, the Company covenants and agrees that it will from time to time take all such actions as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the effective purchase price per share of the Common Stock issuable pursuant to this Warrant. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved free of preemptive or other rights for the exclusive purpose of issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. 4. Adjustment of Exercise Price and Number of Shares. The Exercise Price and number of Shares are subject to the following adjustments: (a) Adjustment of Exercise Price for Stock Dividend, Stock Split or Stock Combination. In the event that (i) any dividends on any class of stock of the Company payable in Common Stock or securities convertible into or exercisable for Common Stock ("Common Stock Equivalents") shall be paid by the Company, (ii) the Company shall subdivide its then outstanding shares of Common Stock into a greater number of shares, or (iii) the Company shall combine its outstanding shares of Common Stock, by reclassification or otherwise, then, in any such event, the Exercise Price in effect immediately prior to such event shall (until adjusted again pursuant hereto) be adjusted immediately after such event to a price (calculated to the nearest full cent) determined by dividing (a) the number of shares of Common Stock outstanding immediately prior to such event, multiplied by the then existing Exercise Price, by (b) the total number of shares of Common Stock outstanding immediately after such event, and the resulting quotient shall be the adjusted Exercise Price per share. No adjustment of the Exercise Price shall be made if the amount of such adjustment shall be less than $.05 per share, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time and together with the next subsequent adjustment 2 3 which, together with any adjustment or adjustments so carried forward, shall amount to not less than $.05 per share. (b) Adjustment of Number of Shares Purchasable on Exercise of Warrants. Upon each adjustment of the Exercise Price pursuant to this Section, the Holder shall thereafter (until another such adjustment) be entitled to purchase at the adjusted Exercise Price the number of shares, calculated to the nearest full share, obtained by multiplying the number of shares specified in such Warrant (as adjusted as a result of all adjustments in the Exercise Price in effect prior to such adjustment) by the Exercise Price in effect prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (c) Notice as to Adjustment. Upon any adjustment of the Exercise Price and any increase or decrease in the number of shares of Common Stock purchasable upon the exercise of the Warrant, then, and in each such case, the Company within thirty (30) days thereafter shall give written notice thereof, by first class mail, postage prepaid, addressed to each Holder as shown on the books of the Company, which notice shall state the adjusted Exercise Price and the increased or decreased number of shares purchasable upon the exercise of the Warrants, and shall set forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (d) Effect of Reorganization, Reclassification, Merger, etc. If at any time while any Warrant is outstanding there should be any capital reorganization of the capital stock of the Company (other than the issuance of any shares of Common Stock in subdivision of outstanding shares of Common Stock by reclassification or otherwise and other than a combination of shares provided for in Section 4(a) hereof), or any consolidation or merger of the Company with another corporation, or any sale, conveyance, lease or other transfer by the Company of all or substantially all of its property to any other corporation, which is effected in such a manner that the holders of Common Stock shall be entitled to receive cash, stock, securities, or assets with respect to or in exchange for Common Stock, then, as a part of such transaction, lawful provision shall be made so that each Holder shall have the right thereafter to receive, upon the exercise hereof, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such consolidation or merger, or of the corporation to which the property of the Company has been sold, conveyed, leased or otherwise transferred, as the case may be, which the Holder would have been entitled to receive upon such capital reorganization, reclassification of capital stock, consolidation, merger, sale, conveyance, lease or other transfer, if such Warrant had been exercised immediately prior to such capital reorganization, reclassification of capital stock, consolidation, merger, sale, conveyance, lease or other transfer. In any such case, appropriate adjustments (as determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth in this Warrant (including the adjustment of the Exercise Price and the number of Shares issuable upon the exercise of the Warrants) to the end that the provisions set forth herein shall thereafter be applicable, as near as reasonably may be, in relation to any shares or other property thereafter deliverable upon the exercise of the Warrants as if the Warrants had been exercised immediately prior to such capital reorganization, reclassification of capital stock, such consolidation, merger, sale, conveyance, lease or other transfer and the Warrant Holders had carried out the terms of the exchange as provided for by such capital reorganization, consolidation or merger. The Company shall not effect any such capital reorganization, consolidation, merger or transfer unless, upon or prior to the consummation thereof, the successor corporation or the corporation to which the property of the Company has been sold, conveyed, leased or otherwise transferred shall assume by written instrument the obligation to deliver to each Holder such shares of stock, securities, cash or property as in accordance with the foregoing provisions such Holder shall be entitled to purchase. 3 4 5. No Rights as Shareholders. This Warrant shall not entitle the Holder as such to any voting rights or other rights as a stockholder of the Company. 6. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Minnesota. 7. Amendments and Waivers. The provisions of this Warrant may not be amended, modified or supplemented, and waiver or consents to departures from the provisions hereof may not be given, unless the Company agrees in writing and has obtained the written consent of the Holders. 8. Notices. All notices or communications hereunder, except as herein otherwise specifically provided, shall be in writing and if sent to the Holder shall be mailed, delivered, or telefaxed and confirmed to the Holder at his or her address set forth on the records of the Company; or if sent to the Company shall be mailed, delivered, or telefaxed and confirmed to PopMail.com, inc., 1331 Corporate Drive, Suite 350, Irving, TX 75038 or to such other address as the Company or the Holder shall notify the other as provided in this Section. IN WITNESS WHEREOF, PopMail.com, inc. has caused this Warrant to be signed by its duly authorized officer in the date set forth above. POPMAIL.COM, INC. By: ------------------------------------ Its: -------------------------------- 4 5 SUBSCRIPTION FORM To be signed only upon exercise of Warrant. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, of the shares of Common Stock of PopMail.com, inc. (the "Shares") to which such Warrant relates and herewith makes payment of $ therefor in cash, certified check or bank draft and requests that a certificate evidencing the Shares be delivered to, , the address for whom is set forth below the signature of the undersigned: Dated: ---------------------- -------------------------------------------- (Signature) -------------------------------------------- -------------------------------------------- (Address) * * * ASSIGNMENT FORM To be signed only upon authorized transfer of Warrant. FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto the right to purchase shares of Common Stock of PopMail.com, inc. to which the within Warrant relates and appoints attorney, to transfer said right on the books of with full power of substitution in the premises. Dated: ---------------------- -------------------------------------------- (Signature) -------------------------------------------- -------------------------------------------- (Address) 5 EX-4.2 3 ex4-2.txt SCHEDULE IDENTIFYING MATERIAL DETAILS OF WARRANT 1 EXHIBIT 4.2 SCHEDULE OF WARRANTS ISSUED (PP SERIES)
DATE OF NAME OF WARRANT RECIPIENT WARRANT NUMBER OF EXERCISE PRICE ISSUANCE NO. SHARES OF EXERCIABLE PERIOD COMMON STOCK - ----------------- -------------------------------- --------------- ----------------- ------------------------ 4/26/2000 Dara Podber PP-1 25,000 Exercise Price: $1.625 Exercisable from 5/1/2000 to 5/1/2005 4/26/2000 Maris Kott PP-2 25,000 Exercise Price: $1.625 Exercisable from 5/1/2000 to 5/1/2005 4/26/2000 Dara Podber PP-3 25,000 Exercise Price: $1.625 Exercisable from 8/1/2000 to 8/1/2005 4/26/2000 Maris Kott PP-4 25,000 Exercise Price: $1.625 Exercisable from 8/1/2000 to 8/1/2005
EX-4.3 4 ex4-3.txt FORM OF WARRANT TO PURCHASE SHARES OF COMM. STOCK 1 EXHIBIT 4.3 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT"), UNDER CHAPTER 80A OF THE MINNESOTA SECURITIES LAWS OR UNDER THE SECURITIES LAWS OF ANY OTHER STATE AND MAY NOT BE TRANSFERRED WITHOUT: (I) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE 1933 ACT; MINNESOTA SECURITIES LAWS OR THE SECURITIES LAWS OF ANY OTHER APPLICABLE STATE; OR (II) SUCH REGISTRATION. STOCK PURCHASE WARRANT To Acquire 300,000 Shares of Common Stock of POPMAIL.COM, INC. WARRANT NO. BBC-1 April 17, 2000 WITNESSETH: WHEREAS, PopMail.com, inc. and Black Brook Capital LLC have entered into that certain financial advisory agreement of even date herewith (the "Agreement"); and WHEREAS, the Agreement provides that PopMail.com, inc. shall grant to Black Brook Capital LLC a warrant (the "Warrant") to purchase up to 300,000 shares of PopMail.com, inc. common stock, $.01 par value per share (the "Warrant Shares"). NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: AGREEMENT: 1. Definitions. For purposes of this Warrant, the following terms shall have the following meanings: 1 2 "Commission" shall mean the Securities and Exchange Commission, or any other federal agency then administering the Securities Act. "Company" shall mean PopMail.com, inc., a Minnesota corporation, and any corporation which shall succeed to, or assume, the rights and obligations of said corporation hereunder. "Holder" shall mean Black Brook Capital LLC, a limited liability company organized under the laws of the State of Delaware, and any entity which shall succeed to, or assume, that rights and obligations of said company. "Other Securities" shall mean any stock (other than common stock) or other securities of the Company or any other person, (corporate or otherwise) which the Holder at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to common stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of common stock or Other Securities. "Purchase Price" shall mean $1.625 per share of common stock, subject to adjustment pursuant to Section 6 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, as in effect at the time. "Subscription Form" shall mean the subscription forms attached hereto or incorporated herein by reference. "Transfer" shall mean any sale, assignment, pledge or other imposition of any warrants and/or Warrant Shares, or of any interest in either thereof, which would constitute a sale thereof within the meaning of Section 2(3) of the Securities Act. "Warrant Shares" shall mean the shares of common stock purchase or purchasable by the Holder upon the exercise of the Warrants pursuant to Section 2 hereof. "Warrants" shall mean the Warrants (including this Warrant), identical as to terms and conditions and date, except as to the number of shares of common stock for which they may be exercised, evidencing the right to purchase initially an aggregate of 300,000 shares of common stock, and all Warrants issued in exchange, transfer or replacement thereof. All terms used in this Warrant which are not defined in Section 1 hereof have the meanings respectively set forth elsewhere in this Warrant. 2 3 2. Exercise of Warrant; Issuance of Certificate and Payment for Warrant Shares. (a) The Warrant shall vest and become exercisable in accordance with the following schedule; provided, however, that the Warrant shall terminate and become null and void on the Expiration Date: (i) Fifty percent of the Warrant (150,000 shares) shall vest and become exercisable by the Holder on the Date of Grant; and (ii) Fifty percent of the Warrant (150,000 shares) shall vest and become exercisable by the Holder on the date the Company has received a minimum of $2.5 million in gross proceeds from the sale of equity securities subsequent to May 12, 2000. (b) Subject to the provisions of subsection (a) above, the rights represented by this Warrant may be exercised at any time on or after the date hereof, and from time to time, prior to five years form the Date of Grant (the "Expiration Date"), by the Holder, in whole or in part (but not as to less than 10,000 shares of the Company's common stock or as to any fractional share of common stock), by: (a) delivery to the Company of a completed Subscription Form; (b) surrender to the Company of this Warrant properly endorsed and signature guaranteed; and (c) delivery to the Company, or its counsel, of a certified or cashier's check made payable to the Company in an amount equal to the aggregate Purchase Price of the shares of common stock being purchased, at its office in Irving, Texas (or the office of its counsel or such other office or agency of the Company as the Company may designate by notice to the holder hereof). The Company agrees and acknowledges that the shares of common stock so purchased shall be deemed to be issued to the presenting Holder as the record owner of such shares as of the close of business on the date on which this Warrant, properly endorsed, and the Subscription Form shall have been surrendered and payment made for such shares. Upon receipt thereof, the Company shall, as promptly as practicable, execute or cause to be executed and deliver to the Holder, a certificate or certificates representing the aggregate number of shares of common stock specified in said Subscription Form. Each stock certificate so delivered shall be in such denomination as may be requested by the Holder and shall be registered in the name of the Holder. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of said stock certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of such holder to purchase the remaining shares of common stock covered by this Warrant. The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, execution and delivery of stock certificates pursuant to this Section 2, except that, in case any such stock certificate or certificates shall be registered in a name or names other than the name of the Holder, funds sufficient to pay all stock transfer taxes which shall be payable upon the execution and 3 4 delivery of such stock certificate or certificates shall be paid by the Holder to the Company at the time of delivering this Warrant to the Company as mentioned above. (b) In lieu of payment of the Purchase Price in cash, the Holder may deliver the Purchase Price in the form of a portion of this Warrant (the "Cashless Exercise Value") determined as the product of (a) the number of Warrant Shares to be exchanged (including the number of Warrant Shares to be purchased upon exercise of the Warrant) and (b) the excess of (i) the closing market price of the Company's common stock on the trading day immediately preceding the exercise date as reported by The Nasdaq Stock Market over (ii) the Purchase Price. In the event the Purchase Price is delivered in the form of Cashless Exercise Value, the number of Warrant Shares purchasable under the Warrant thereafter shall be reduced by the amount of Warrant Shares exchanged in connection therewith; provided, however, that regardless of the form of payment used to deliver the Purchase Price upon any exercise of the Warrant the number of Warrant Shares purchasable under the Warrant shall not exceed 300,000, subject to the provisions of Section 6. 3. Ownership of this Warrant. The Company may deem and treat the registered Holder as the holder and owner hereof (notwithstanding any notations of ownership or writing made hereon by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for transfer as provided herein and then only if such transfer meets the requirements of Section 5 hereof 4. Exchange, Transfer and Replacement. Subject to Section 5 hereof, this Warrant is exchangeable upon the surrender hereof by the Holder to the Company at its office or agency described in Section 2 hereof for new Warrants of like tenor and date representing in the aggregate the right to purchase the number of shares purchasable hereunder, each of such new Warrants to represent the right to purchase such number of shares (not to exceed the aggregate total number purchasable hereunder) as shall be designated by the Holder at the time of such surrender. Subject to Section 5 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, upon the books of the Company by the Holder in person or by duly authorized attorney, and a new Warrant of the same tenor and date as this Warrant, but registered in the name of the transferee, shall be executed and delivered by the Company upon surrender of this Warrant, duly endorsed, at said office or agency of the Company. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction, or mutilation of this Warrant, and, in case of loss, theft, or destruction, of indemnity or security reasonably satisfactory to it, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor, in lieu of this Warrant. This Warrant shall be promptly canceled by the Company upon the surrender hereof in connection with any exchange, transfer or replacement. The Company shall pay all expenses, taxes (other than 4 5 stock transfer taxes), and other charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Section 4. 5. Restrictions on Transfer. Neither this Warrant, nor the Warrant Shares, shall be transferable except upon the conditions specified in this Section 5, which conditions are intended, among other things, to ensure compliance with the provisions of the Securities Act in respect of the transfer of this Warrant or such Warrant Shares. The holder of this Warrant agrees that such holder will not transfer this Warrant, nor the related Warrant Shares: (a) prior to delivery to the Company of an opinion of counsel satisfactory to the Company and its counsel stating that such transfer is exempt from registration under the Securities Act and applicable state securities laws; or (b) until registration of such Warrants and/or Warrant Shares under the Securities Act has become effective and continues to be effective at the time of such transfer. An appropriate legend may be endorsed on the Warrants and the certificates representing the Warrant Shares evidencing these restrictions, and a stop order may be placed on the Company's transfer records. All or a portion of this Warrant or the Warrant Shares may be transferred to a member of Black Brook Capital LLC, a charity designed by Black Brook Capital LLC, or a charity designed by a member of Black Brook Capital LLC. 6. Antidilution Provisions. The rights granted hereunder are subject to the following: (a) Adjustment of Purchase Price. The Purchase Price shall be subject to adjustment from time to time as hereinafter provided. Upon each adjustment of the Purchase Price, the Holder shall thereafter be entitled to purchase, at the Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Purchase Price resulting from such adjustment; (b) Stock Split, Stock Dividends and Reverse Splits. In case the Company shall at any time divide the outstanding shares of its common stock into a greater number of shares (whether pursuant to a stock split, stock dividend or otherwise), and conversely, in case the outstanding shares of its common stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such division or combination shall be proportionately adjusted to reflect the reduction or increase in the value of each such share of common stock; (c) Reorganization, Consolidation, Merger or Sale of Assets. If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or 5 6 substantially all of its assets to another corporation shall be effected in such a way that holders of the Company's common stock shall be entitled to receive stock, securities or assets with respect to or in exchange for such common shares, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, the holder of this Warrant shall have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant, and in lieu of the shares of the common stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such shares of stock, other securities or assets as would have been issued or delivered to the holder of this Warrant if it had exercised this Warrant and had received such shares of common stock prior to such reorganization, reclassification, consolidation, merger or sale. The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and mailed to the registered holder of this Warrant at the last address of such holder appearing on the books of the Company, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase; provided, however, that the issuance of additional capital stock of the Company to persons other than the Holder in a manner not discussed in this Section 6 shall not result in any adjustment in the Purchase Price or increase in the number of shares subject to this Warrant; and (d) Notice. Upon any adjustment of the Purchase Price, the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered Holder at the address of such holder as shown on the books of the Company, which notice shall state the Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the acts upon which such calculation is based. 7. Registration of Warrant Shares. On or before the 30th day following the Date of Grant, the Company will prepare and file a registration statement on Form S-3 or S-8 (the "Registration Statement") covering the offer and sale of the Warrant Shares with the Securities and Exchange Commission (the "SEC") pursuant to Rule 415 of the Securities Act. The Company will use its commercially reasonable best efforts to have the Registration Statement become effective under the Securties Act within 120 days of the Data of Grant and maintain the effectiveness of the Registration Statement pursuant to Rule 415 at all times until the earlier of (a) the second anniversary of the Date of Grant and (b) such time as Holder has disposed of the Warrant Shares under the Registration Statement (the "Registration Period"). The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration 6 7 Statement as may be necessary to keep the Registration Statement effective at all times through the Registration Period and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Warrant Shares covered by the Registration Statement until such time as all of the Warrant Shares have been disposed of in accordance with the intended methods of disposition by Holder as set forth in the Registration Statement or prospectus supplement. All expenses (other than fees and expenses of investment bankers retained by Holder, if any, and brokerage commissions) incurred in connection with registrations, filings or qualifications pursuant to this Section 7, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees and the fees and disbursements of counsel for the Company, shall be borne by the Company; provided, however, that Holder shall bear the fees and out-of-pocket expenses of its own legal counsel and any accountants and agents engaged by Holder. (a) Failure to Satisfy Registration Requirements. In the event that the Company fails to file the Registration Statement, or to cause the Registration Statement to be made effective under the Securities Act, within the relevant time periods prescribed above, the Company shall issue to Holder a warrant in the form hereof to purchase an additional 75,000 shares of the Company's common stock at an exercise price of $1.625 per share, subject to adjustment pursuant to Section 6. 8. Indemnification. (a) Indemnification of Holder. To the extent permitted by law, the Company (in such capacity an "Indemnifying Party") shall indemnify and hold Holder (in such capacity an "Indemnified Person") harmless against any losses, claims, damages, expenses or liabilities (collectively the "Claims") to which Holder becomes subject under the Securities Act insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any of the following statements, omissions or violations in the Registration Statement, or any post-effective amendment thereof, or any prospectus included therein: (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or 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, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading or (iii) any violation or alleged violation by the Company of the Securities Act or any state securities law or any rule or regulation (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations"). Notwithstanding 7 8 anything to the contrary contained herein, the indemnification agreement contained in this Section 8(a) shall not apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by Holder expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Person. (b) Indemnification of the Company. In connection with any Registration Statement in which Holder is participating, Holder (in such capacity an "Indemnifying Party"), agrees to indemnify and hold harmless, to the same extent and in the same manner set forth in Section 8(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, and any other shareholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such shareholder within the meaning of the Securities Act or the Exchange Act (each an "Indemnified Party"), against any Claim to which any of them may become subject, under the Securities Act insofar as such Claim arises out of or is based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by Holder expressly for use in connection with such Registration Statement; provided, however, that the indemnity agreement contained in this Section 8(b) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of Holder, which consent shall not be unreasonably withheld; provided, further, however, that Holder shall be liable under this Section 8(b) for only that amount of a Claim as does not exceed the net proceeds to Holder as a result of the sale of the Warrant Shares pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party. (c) Indemnification Procedures. Promptly after receipt by the Indemnified Person or any Indemnified Party under this Section 8 of notice of the commencement of any action (including any governmental action), the Indemnified Person or such Indemnified Party shall, if a Claim in respect thereof is to made against any Indemnifying Party under this Section 8, deliver to the Indemnifying Party a written notice of the commencement thereof and the Indemnifying Party shall have the right to participate in, and, to the extent the Indemnifying Party so desires, jointly with any other Indemnifying Party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the Indemnifying Parties; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnifying Party, if, in the reasonable opinion of counsel retained by the Indemnifying Party, the representation by such counsel of the Indemnified Person or 8 9 Indemnified Party and the Indemnifying Party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and other party represented by such counsel in such proceeding. The failure to deliver written notice to the Indemnifying Party within a reasonable time of the commencement of any such action shall not relieve such Indemnifying Party of any liability to the Indemnified Person or Indemnified Party under this Section 8, except to the extent that the Indemnifying Party is prejudiced in its ability to defend such action. The indemnification required by this Section 8 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. 9. Contribution. To the extent any indemnification provided for herein is prohibited or limited by law, the Indemnifying Party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 8 to the fullest extent permitted by law; provided, however, that (a) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 8, (b) 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 and (c) contribution by Holder shall be limited in amount to the net amount of proceeds received by Holder from the sale of the Warrant Shares. 10. Special Agreements of the Company. The Company covenants and agrees that: (a) Will Reserve Shares. The Company will reserve and set apart and have at all times, free from preemptive rights, the number of shares of authorized but unissued common stock deliverable upon the exercise of the Warrants, and it will have at all times any other rights or privileges provided for herein sufficient to enable it at any time to fulfill all of its obligations hereunder; (b) Will Secure Governmental Approvals. If any shares of common stock required to be reserved for the purposes of exercise of the Warrants require registration with or approval of any governmental authority under any federal law (other than the Securities Act) or under any state law before such shares may be issued upon exercise of the Warrants, the Company, will, at its exercise of the Warrants, the Company will, at its expense, as expeditiously as possible, use its best efforts to cause such shares to be duly registered or approved, as the case may be; (c) Will Open Books. The Company will keep its books open for transfer of any Warrant and/or Warrant Shares except as otherwise provided by law; and 9 10 11. Notices. Any notice or other document required or permitted to be given or delivered to Holders shall be delivered or sent by certified mail to Holder at 89 Highwood Avenue, Tenafly, NJ 07670. Any notice or other document required or permitted to be given or delivered to the Company shall be delivered or sent by certified mail to the principal office of the Company located at 1331 Corporate Drive, Suite 350, Irving, TX 75038, or such other address as shall have been furnished to the Holder by the Company. 12. No Rights as Shareholders: Limitation of Liability. This Warrant shall not entitle Holder to any of the rights of a shareholder of the Company. No provision hereof, in the absence of affirmative action by the holder hereof to purchase shares of common stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Purchase Price or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 13. Governing Law. This Warrant shall be governed by, and construed under and in accordance with, the laws of the State of Minnesota. 14. Miscellaneous. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party (or any predecessor in interest thereof) against which enforcement of the same is sought. The headings in this Warrant are for purposes of reference only and shall not affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by a duly authorized officer and attested effective the 17th day of April, 2000. POPMAIL.COM, INC. By:________________________________ Its:________________________________ 10 11 FULL SUBSCRIPTION FORM TO BE EXECUTED BY THE REGISTERED HOLDER IF IT DESIRES TO EXERCISE IN FULL THE WITHIN WARRANT The undersigned hereby exercises the right to purchase the ______________ shares of common stock covered by the within Warrant at the date of this subscription and herewith makes payment of the sum of $_____________ representing the Purchase Price of $6.56 per share in effect at that date. Certificates for such shares shall be issued in the name of and delivered to the undersigned, unless otherwise specified by written instructions, signed by the undersigned and accompanying this subscription. I realize that this is a speculative venture and that earnings therefrom are uncertain, if they shall exist at all. I understand that the Company is issuing these shares to me in accordance with the exemption from registration under Section 4(2), 4(6) or (3)b of the Securities Act of 1933 ("Act") afforded to transactions not involving any public offering and that the aforesaid exemption from registration is not available if I acquire the shares with a view to distribution of said shares in a manner prohibited by the provisions of the Act. I represent to the Company and its counsel that I am a resident of the State of _____________________________, that I am acquiring said shares for my own account, and not as nominee for any other person or entity, for investment and not for distribution. I also acknowledge receipt of all the detailed information concerning the Company, including information regarding risks related to the Company, and the Company's capitalization, properties, management and contracts, that I have considered necessary to make a fully informed investment decision. 12 I understand and agree that the stock certificate(s) evidencing the shares will be stamped with the following legend and that I will comply with the terms of said legend: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), BUT HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION THERETO. THE REGISTERED HOLDER OF SUCH SHARES HAS AGREED NOT TO EFFECT A DISPOSITION OF SUCH SHARES UNTIL EITHER: (1) THE HOLDER HAS RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED; OR (2) A REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SHARES AND SUCH DISPOSITION HAS BECOME EFFECTIVE UNDER THE ACT. Signature: ___________________________ Address: _____________________________ _____________________________ _____________________________ SSN or Federal I.D. Number: __________ Phone No.:____________________________ Facsimile No.:________________________ 13 PARTIAL SUBSCRIPTION FORM TO BE EXECUTED BY THE REGISTERED HOLDER IF IT DESIRES TO EXERCISE, IN PART, THE WITHIN WARRANT The undersigned hereby exercises the right to purchase _____________ of the total shares of common stock covered by the within Warrant at the date of this subscription and herewith makes payment of the sum of $_______ representing the Purchase Price of $6.56 per share in effect at this date. Certificates for such shares and a new Warrant of like tenor and date for the balance of the shares not subscribed for shall be issued in the name of and delivered to the undersigned, unless otherwise specified by written instructions, signed by the undersigned and accompanying this subscription. I realize that this is a speculative venture and that earnings therefrom are uncertain. (THE FOLLOWING PARAGRAPH NEEDS BE COMPLETED ONLY IF THE PURCHASE PRICE AND NUMBER OF SHARES OF COMMON STOCK SPECIFIED IN THE WITHIN WARRANT HAVE BEEN ADJUSTED PURSUANT TO SECTION 6.) The shares hereby subscribed for constitute shares of common stock (to the nearest whole share) resulting from adjustment of __________ shares of the total of______ shares of common stock covered by the within Warrant, as said shares were constituted at the date of the Warrant. I understand that the Company is issuing these shares to me in accordance with the exemption from registration under Section 4(2), 4(6) or 3(b) of the Securities Act of 1933 ("Act") afforded to transactions not involving any public offering and that the aforesaid exemption from registration is not available if I acquire the shares with a view to distribution of said shares in a manner prohibited by the provisions of the Act. I represent to the Company and its counsel that I am a resident of the State of __________________, that I am acquiring said shares for my own account, and not as nominee for any other person or entity, for investment and not for distribution. I acknowledge receipt of all the detailed information concerning the Company, including information regarding risks related to the Company, and the Company's capitalization, properties, management and contracts, that I have considered necessary to make an informed investment decision. B-1 14 I understand and agree that the stock certificate(s) evidencing the shares will be stamped with the following legend and that I will comply with the terms of said legend: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), BUT HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION THERETO. THE REGISTERED HOLDER OF SUCH SHARES HAS AGREED NOT TO EFFECT A DISPOSITION OF SUCH SHARES UNTIL EITHER: (1) THE HOLDER HAS RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED; OR (2) A REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SHARES AND SUCH DISPOSITION HAS BECOME EFFECTIVE UNDER THE ACT. Signature: _____________________________ Address: _______________________________ _______________________________ _______________________________ SSN or Federal I.D. Number: ____________ Phone No.:______________________________ Facsimile No.:__________________________ B-2 EX-4.4 5 ex4-4.txt FORM OF WARRANT TO PURCHASE SHARES OF COMM. STOCK 1 EXHIBIT 4.4 THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:30 P.M., NEW YORK TIME, APRIL 17, 2005 No. SB-1 125,000 Warrants WARRANT CERTIFICATE This Warrant Certificate certifies that Sands Brothers & Co., Ltd., or registered assigns, is the registered holder of 125,000 Warrants, to purchase from the period commencing on the date hereof and expiring at 5:30 p.m. New York time on the date that is the fifth year anniversary of the date hereof ("Expiration Date"), up to 125,000 fully-paid and non-assessable shares of common stock, $.0001 par value per share ("Common Stock") of POPMAIL.COM, INC., a Minnesota corporation (the "Company"), at an initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $1.625 per share upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, or by surrender of this Warrant Certificate in lieu of cash payment, but subject to the conditions set forth herein and in the Warrant Agreement dated April 17, 2000 between the Company and Sands Brothers & Co., Ltd. (the "Warrant Agreement"). Payment of the Exercise Price shall be made by certified or official bank check in New York Clearing House funds payable to the order of the Company. No Warrant may be exercised after 5:30 p.m., New York time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, hereby shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. 2 The Warrant Agreement provides that upon the occurrence of certain events the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax in other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such numbered unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings to them in the Warrant Agreement. 3 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated as of April 17, 2000. Popmail.com, Inc. By: --------------------------------- Name: ------------------------------- Title: ------------------------------ Attest: - ----------------------------- Secretary 4 [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase shares of Common Stock at an exercise price of $ per share and herewith tenders in payment for such Securities a certified or official bank check payable in New York Clearing House Funds to the order of in the amount of $ , all in accordance with the terms hereof. The undersigned requests that a certificate for such Securities be registered in the name of whose address is and that such Certificate be delivered to whose address is . Signature ---------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ------------------------------------- (Insert Social Security or Other Identifying Number of Holder) 5 [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase shares of Common Stock in accordance with the terms of Section 3.2 of that certain Warrant Agreement dated as of April 17, 2000 between POPMAIL.COM, INC. and SANDS BROTHERS & CO., LTD. The Undersigned requests that a certificate for such Securities be registered in the name of whose address is and that such Certificate be delivered to whose address is . Signature ---------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ------------------------------------- (Insert Social Security or Other Identifying Number of Holder) 6 [FORM OF ASSIGNMENT] (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED here sells, assigns and transfers unto (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: Signature ---------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ------------------------------------- (Insert Social Security or Other Identifying Number of Holder) EX-4.5 6 ex4-5.txt SCHEDULE IDENTIFYING MATERIAL DETAILS OF WARRANTS 1 EXHIBIT 4.5 SCHEDULE OF WARRANTS ISSUED (SB SERIES)
DATE OF NAME OF WARRANT RECIPIENT WARRANT NUMBER OF EXERCISE PRICE ISSUANCE NO. SHARES OF EXPIRES COMMON STOCK - ----------------- -------------------------------- --------------- ----------------- ------------------------ 4/17/2000 Sand Brothers & Co., Ltd. SB-1 125,000 Exercise Price: $1.625 Expires 4/17/2005 4/17/2000 Lloyd H. Saunders SB-2 75,000 Exercise Price: $1.625 Expires 4/17/2005 4/17/2000 James Kellog SB-3 50,000 Exercise Price: $1.625 Expires 4/17/2005
EX-4.6 7 ex4-6.txt FORM OF WARRANTS TO PURCHASE SHARES OF COMM. STOCK 1 EXHIBIT 4.6 The Warrant and the securities issuable upon exercise of this Warrant (the "Securities") have not been registered under the Securities Act of 1933 (the "Securities Act") or under any state securities or Blue Sky laws ("Blue Sky Laws"). No transfer, sale, assignment, pledge, hypothecation or other disposition of this Warrant or the Securities or any interest therein may be made except (a) pursuant to an effective registration statement under the Securities Act and any applicable Blue Sky Laws or (b) if the Company has been furnished with both an opinion of counsel for the holder, which opinion and counsel shall be reasonably satisfactory to the Company, to the effect that no registration is required because of the availability of an exemption from registration under the Securities Act and applicable Blue Sky Laws, and assurances that the transfer, sale, assignment, pledge, hypothecation or other disposition will be made only in compliance with the conditions of any such registration or exemption. WARRANT TO PURCHASE SHARES OF COMMON STOCK OF POPMAIL.COM, INC. WARRANT NO. FP-2 Irving, Texas May 15, 2000 This certifies that, for value received, FAIRVIEW PARTNERS, or its successors or assigns (the "Holder") is entitled to purchase from Popmail.com, Inc. (the "Company") Eighty Thousand (80,000) fully paid and nonassessable shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common Stock") at an exercise price of $2.50 per share (the "Exercise Price"), subject to adjustment as herein provided. This Warrant may be exercised by Holder at any time after the date hereof; provided that, Holder shall in no event have the right to exercise this Warrant or any portion thereof later than August 24, 2004. This Warrant is subject to the following provisions, terms and conditions: 1. Exercise of Warrant. The rights represented by this Warrant may be exercised by the Holder, in whole or in part (but not as to a fractional share of Common Stock), by the surrender of this Warrant (properly endorsed, if required, at the Company's principal office in Irving, Texas, or such other office or agency of the Company as the Company may designate by notice in writing to the Holder at the address of such Holder appearing on the books of the Company at any time within the period above named), and upon payment to it by certified check, bank draft or cash of the purchase price for such Shares. The Company agrees that the Shares so purchased shall have and are deemed to be issued to the Holder as the record owner of such Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such Shares as aforesaid. Certificates for the Shares of Common Stock so purchased shall be delivered to the Holder within a reasonable time, not exceeding ten (10) days, after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the number of Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be delivered to the Holder within such time. The Company may require that any such new Warrant or any certificate for Shares purchased upon the exercise hereof bear a legend substantially similar to that which is contained on the face of this Warrant. 2. Transferability of this Warrant. This Warrant is issued upon the following terms, to which Holder consents and agrees: 2 a. Until this Warrant is transferred on the books of the Company, the Company will treat the Holder of this Warrant registered as such on the books of the Company as the absolute owner hereof for all purposes without being affected by any notice to the contrary. b. This Warrant may not be exercised, and this Warrant and the Shares underlying this Warrant shall not be transferable, except in compliance with all applicable state and federal securities laws, regulations and orders, and with all other applicable laws, regulations and orders. c. The Warrant may not be transferred, and the Shares underlying this Warrant may not be transferred, without the Holder obtaining an opinion of counsel satisfactory in form and substance to the Company's counsel stating that the proposed transaction will not result in a prohibited transaction under the Securities Act of 1933, as amended ("Securities Act"), and applicable Blue Sky laws. By accepting this Warrant, the Holder agrees to act in accordance with any conditions reasonably imposed on such transfer by such opinion of counsel. d. Neither this issuance of this Warrant nor the issuance of the Shares underlying this Warrant have been registered under the Securities Act. 3. Certain Covenants of the Company. The Company covenants and agrees that all Shares which may be issued upon the exercise of the rights represented by this Warrant, upon issuance and full payment for the Shares so purchased, will be duly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue hereof, except those that may be created by or imposed upon the Holder or its property, and without limiting the generality of the foregoing, the Company covenants and agrees that it will from time to time take all such actions as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the effective purchase price per share of the Common Stock issuable pursuant to this Warrant. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved free of preemptive or other rights for the exclusive purpose of issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. 4. Adjustment of Exercise Price and Number of Shares. The Exercise Price and number of Shares are subject to the following adjustments: a. Adjustment of Exercise Price for Stock Dividend, Stock Split or Stock Combination. In the event that (i) any dividends on any class of stock of the Company payable in Common Stock or securities convertible into or exercisable for Common Stock ("Common Stock Equivalents") shall be paid by the Company, (ii) the Company shall subdivide its then outstanding shares of Common Stock into a greater number of shares, or (iii) the Company shall combine its outstanding shares of Common Stock, by reclassification or otherwise, then, in any such event, the Exercise Price in effect immediately prior to such event shall (until adjusted again pursuant hereto) be adjusted immediately after such event to a price (calculated to the nearest full cent) determined by dividing (a) the number of shares of Common Stock outstanding immediately prior to such event, multiplied by the then existing Exercise Price, by (b) the total number of shares of Common Stock outstanding immediately after such event, and the resulting quotient shall be the adjusted Exercise Price per share. No adjustment of the Exercise Price 2 3 shall be made if the amount of such adjustment shall be less than $.05 per share, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to not less than $.05 per share. b. Adjustment of Number of Shares Purchasable on Exercise of Warrants. Upon each adjustment of the Exercise Price pursuant to this Section, the Holder shall thereafter (until another such adjustment) be entitled to purchase at the adjusted Exercise Price the number of shares, calculated to the nearest full share, obtained by multiplying the number of shares specified in such Warrant (as adjusted as a result of all adjustments in the Exercise Price in effect prior to such adjustment) by the Exercise Price in effect prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. c. Notice as to Adjustment. Upon any adjustment of the Exercise Price and any increase or decrease in the number of shares of Common Stock purchasable upon the exercise of the Warrant, then, and in each such case, the Company within thirty (30) days thereafter shall give written notice thereof, by first class mail, postage prepaid, addressed to each Holder as shown on the books of the Company, which notice shall state the adjusted Exercise Price and the increased or decreased number of shares purchasable upon the exercise of the Warrants, and shall set forth in reasonable detail the method of calculation and the facts upon which such calculation is based. d. Effect of Reorganization, Reclassification, Merger, etc. If at any time while this Warrant is outstanding there should be (i) any capital reorganization of the capital stock of the Company (other than the issuance of any shares of Common Stock in subdivision of outstanding shares of Common Stock by reclassification or otherwise and other than a combination of shares provided for in Section 4(a) hereof), (ii) any consolidation or merger of the Company with another corporation, or any sale, conveyance, lease or other transfer by the Company of all or substantially all of its property to any other corporation, which is effected in such a manner that the holders of Common Stock shall be entitled to receive cash, stock, securities, or assets with respect to or in exchange for Common Stock, or (iii) any dividend or any other distribution upon any class of stock of the Company payable in stock of the Company of a different class, other securities of the Company, or other property of the Company (other than cash), then, as a part of such transaction, lawful provision shall be made so that Holder shall have the right thereafter to receive, upon the exercise hereof, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such consolidation or merger, or of the corporation to which the property of the Company has been sold, conveyed, leased or otherwise transferred, as the case may be, which the Holder would have been entitled to receive upon such capital reorganization, reclassification of capital stock, consolidation, merger, sale, conveyance, lease or other transfer, if this Warrant had been exercised immediately prior to such capital reorganization, reclassification of capital stock, consolidation, merger, sale, conveyance, lease or other transfer. In any such case, appropriate adjustments (as determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth in this Warrant (including the adjustment of the Exercise Price and the number of Shares issuable upon the exercise of the Warrant) to the end that the provisions set forth herein shall thereafter be applicable, as near as reasonably may be, in relation to any shares or other property thereafter deliverable upon the exercise of the Warrant as if the Warrant had been exercised immediately 3 4 prior to such capital reorganization, reclassification of capital stock, such consolidation, merger, sale, conveyance, lease or other transfer and the Holder had carried out the terms of the exchange as provided for by such capital reorganization, consolidation or merger. The Company shall not effect any such capital reorganization, consolidation, merger or transfer unless, upon or prior to the consummation thereof, the successor corporation or the corporation to which the property of the Company has been sold, conveyed, leased or otherwise transferred shall assume by written instrument the obligation to deliver to the Holder such shares of stock, securities, cash or property as in accordance with the foregoing provisions such Holder shall be entitled to purchase. 5. No Rights as Stockholders. This Warrant shall not entitle the Holder as such to any voting rights or other rights as a stockholder of the Company. 6. Registration Rights. a. Piggyback Registration Rights. Provided that the Shares are not then included in a current registration statement of the Company, if the Company, at any time before the fifth anniversary of the issuance of this Warrant, shall file a registration statement with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended, for the purpose of registering shares of Common Stock for sale to the public, the Company shall give to the Holder at least twenty (20) days advance written notice of its intention to file such registration statement and Holder shall have the right to have included in such registration statement such number of the Shares as it shall designate to the Company within ten (10) days after the date of such notice, provided that the number of Shares to be included in such registration statement, when added to all the other shares to be included therein, does not exceed the number of shares which the Company and its underwriters, if any, reasonably fix for inclusion. If the number of Shares to be included in such registration statement is less than the total number of Shares which the Holder has requested to be included, then the Holder and other holders of shares of Common Stock or other securities of the Company entitled to include shares of Common Stock in such registration shall participate in the underwriting pro rata based upon the total number of shares of Common Stock requested to be registered by all of such holders. The Holder shall furnish the Company with such information as may be required in connection with such registration statement and will cooperate to cause such registration to become effective at the earliest practicable time. If the shares to which such registration relates are to be sold in an underwritten offering, the Holder, as a condition to the inclusion of the shares in the registration statement, shall agree that its Shares will be sold only as a part of such underwritten offering and at the price and upon the terms fixed by the Company and its underwriters, subject to the right of the Holder to withdraw the Shares therefrom. b. Demand Registration Rights. On a one-time basis only, during the three year period commencing two years after the date of this Warrant, upon request by the Holder or Holders of a majority in interest of this Warrant, and of any Shares, the Company will promptly take all necessary steps to register or qualify, under the 1933 Act and the securities laws of such states as the holders may reasonably request, such number of Shares issued and to be issued upon conversion of the Warrants and shares of common stock of the Company 4 5 owned at such time by such holders pursuant to the conversion of that certain $2,000,000 Senior Convertible Note issued as of the date of this Warrant requested by such holders in their request to the Company. The Company shall keep effective and maintain any registration, qualification, notification, or approval specified in this section for such period as may be reasonably necessary for such Holder or Holders of this Warrant and/or such Shares to dispose thereof and from time to time shall amend or supplement the prospectus used in connection therewith to the extent necessary in order to comply with applicable law. 7. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Minnesota. 8. Amendments and Waivers. The provisions of this Warrant may not be amended, modified or supplemented, and waiver or consents to departures from the provisions hereof may not be given, unless the Company agrees in writing and has obtained the written consent of the Holder. 9. Notices. All notices or communications hereunder, except as herein otherwise specifically provided, shall be in writing and if sent to the Holder shall be mailed, delivered, or telefaxed and confirmed to the Holder at his or her address set forth on the records of the Company; or if sent to the Company shall be mailed, delivered, or telefaxed and confirmed to PopMail.com, Inc., 1333 Corporate Drive, Suite 350, Irving, Texas 75038 or to such other address as the Company or the Holder shall notify the other as provided in this Section. [The remainder of this page has been intentionally left blank.] 5 6 IN WITNESS WHEREOF, PopMail.com, Inc. has caused this Warrant to be signed by its duly authorized officer in the date set forth above. POPMAIL.COM, INC. By ---------------------------------- Its --------------------------------- 7 SUBSCRIPTION FORM To be signed only upon exercise of Warrant. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, of the shares of Common Stock of PopMail.com, Inc. (the "Shares") to which such Warrant relates and herewith makes payment of $ therefor in cash, certified check or bank draft and requests that a certificate evidencing the Shares be delivered to, , the address for whom is set forth below the signature of the undersigned: Dated: -------------------- -------------------------------------------- (Signature) -------------------------------------------- -------------------------------------------- (Address) * * * ASSIGNMENT FORM To be signed only upon authorized transfer of Warrant. FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto the right to purchase shares of Common Stock of PopMail.com, Inc. to which the within Warrant relates and appoints attorney, to transfer said right on the books of with full power of substitution in the premises. Dated: -------------------- -------------------------------------------- (Signature) -------------------------------------------- -------------------------------------------- (Address) 7 EX-4.7 8 ex4-7.txt FORM OF AGENTS WARRANT TO PURCHASE COMMON STOCK 1 EXHIBIT 4.7 THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. POPMAIL.COM, INC. WARRANT TO PURCHASE COMMON STOCK Warrant No.: JPC-6 Number of Shares: 150,000 Date of Issuance: As of June 12, 2000 Popmail.com, Inc., a Minnesota corporation (the "COMPANY"), hereby certifies that, for value received, J.P. Carey Securities, Inc., the registered holder hereof or its assigns, is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant, at any time or times on or after the date hereof, but not after 5:00 P.M. Eastern Standard Time on the Expiration Date (as defined herein) up to 150,000 fully paid nonassessable shares of Common Stock (as defined herein) of the Company (the "WARRANT SHARES") at the purchase price per share provided in Section 1(b) below (the "WARRANT EXERCISE PRICE"); provided, however, that in no event shall the holder be entitled to exercise this Warrant for a number of Warrant Shares in excess of that number of Warrant Shares which would cause the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates to exceed 4.9% of the outstanding shares of the Common Stock following such exercise. For purposes of the foregoing proviso the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such proviso is being made, but shall exclude shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised Share Warrants (as defined below) beneficially owned by the holder and its affiliates, and (ii) exercise of the remaining, outstanding Adjustable Warrants (as defined herein) beneficially owned by the holder and its affiliates. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. Section 1. General Provisions (a) Securities Purchase Agreement. This Warrant is one of the warrants (the "COMMON STOCK WARRANTS") issued pursuant to that certain Placement Agency Agreement dated as of June 12, 2000, among the Company and the J.P. Carey Securities, Inc. referred to therein (the "SECURITIES PURCHASE AGREEMENT"). (b) Definitions. The following words and terms as used in this Warrant shall have the following meanings: 2 "AVERAGE MARKET PRICE" means, with respect to any security for any period, that price which shall be computed as the arithmetic average of the last closing bid prices for such security for each trading day in such period on the principal securities exchange or trading market for such security where such security is listed or traded as reported by Bloomberg Financial Markets ("BLOOMBERG"), or if the market value cannot be calculated for such period on the foregoing bases, the last closing bid price of such security in the over-the-counter market on the pink sheets or bulletin board for such security as reported by Bloomberg, or, if no closing bid price is reported for such security by Bloomberg, the last closing trade price of such security as reported by Bloomberg. If the market value cannot be calculated for such period on any of the foregoing bases, the Average Market Price shall be the average fair market value during such period as reasonably determined in good faith by the Board of Directors of the Company (all as appropriately adjusted for any stock dividend, stock, split or other similar transaction during such period). "CLOSING BID PRICE" shall have the meaning as defined in the Adjustable Warrant, dated of even date herewith. "COMMON STOCK" means (i) the Company's common stock, par value $0.001 per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock. "EXPIRATION DATE" means the date five (5) years from the date of this Warrant or, if such date falls on a Saturday, Sunday or other day on which banks are required or authorized to be closed in the City of New York or the State of New York (a "HOLIDAY"), the next preceding date that is not a Holiday. "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "SECURITIES ACT" means the Securities Act of 1933, as amended. "WARRANT" shall mean this warrant and all warrants issued in exchange, transfer or replacement of any thereof. "WARRANT EXERCISE PRICE" shall be equal to 1.00 per share, subject to adjustment as hereinafter provided. (c) Other Definitional Provisions. (i) Except as otherwise specified herein, all references herein (A) to the Company shall be deemed to include the Company's successors and (B) to any applicable law defined or referred to herein, shall be deemed references to such applicable law as the same may have been or may be amended or supplemented from time to time. (ii) When used in this Warrant, the words "HEREIN," "HEREOF," and "HEREUNDER," and words of similar import, shall refer to this Warrant as a whole and not 3 to any provision of this Warrant, and the words "SECTION," "SCHEDULE," and "EXHIBIT" shall refer to Sections of, and Schedules and Exhibits to, this Warrant unless otherwise specified. (iii) Whenever the context so requires, the neuter gender includes the masculine or feminine, and the singular number includes the plural, and vice versa. Section 2. Exercise of Warrant. (a) Subject to the terms and conditions hereof, this Warrant may be exercised by the holder hereof then registered on the books of the Company, in whole or in part, at any time during normal business hours on any business day on or after the opening of business on the date hereof and prior to 5:00 P.M. Eastern Standard Time on the Expiration Date by (i) delivery of a written notice, in the form of the subscription notice attached as Exhibit A hereto, of such holder's election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which the Warrant is being exercised (plus any applicable issue or transfer taxes) (the "AGGREGATE EXERCISE PRICE") in cash or by check or wire transfer, and (iii) the surrender of this Warrant, at the principal office of the Company; provided, that if such Warrant Shares are to be issued in any name other than that of the registered holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable. (b) This Warrant may also be exercised on a cashless basis, by submitting the Warrant as described above with an indication of election to use cashless exercise. The number of shares of Common Stock to be issued on cashless exercise shall be determined as follows: X = Y (A-B) A where "X" equals the number of shares of Common Stock to be received on cashless exercise, "Y" equals the number of Warrants so exercised, "A" equals the Average Market Price of the Common Stock for the period of five (5) trading days immediately preceding the date of exercise, and "B" equals the Warrant Exercise Price. For purposes of Rule 144(d)3(iii), it is understood that the Common Stock issuable on exercise of this Warrant in a cashless exercise transaction shall be deemed to have been acquired, and the holding period applicable thereto shall have commenced, on the date this Warrant was issued. (c) In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), a certificate or certificates for the Warrant Shares so purchased, in such denominations as may be requested by the holder hereof and registered in the name of, or as directed by, the holder, shall be delivered at the Company's expense to, or as directed by, such holder as soon as practicable after such rights shall have been so exercised, and in any event no later than five (5) business days after such exercise. In the case of a dispute as to the determination of the Warrant Exercise Price or the Average Market Price of a security or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via facsimile within one (1) day of receipt of the holder's subscription notice. If the holder and the Company are unable to agree upon the determination of the Warrant Exercise Price or Average Market Price or arithmetic calculation of 4 the Warrant Shares within one (1) business day of such disputed determination or arithmetic calculation being submitted to the holder, then the Company shall immediately submit via facsimile (i) the disputed determination of the Warrant Exercise Price or the Average Market Price to an independent, reputable investment banking firm or (ii) the disputed arithmetic calculation of the Warrant Shares to its independent, outside accountant. The Company shall cause the investment banking firm or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be deemed conclusive absent manifest error. (d) Unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in any event no later than five (5) business days after any exercise and at its own expense, issue a new Warrant identical in all respects to the Warrant exercised except (i) it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under the Warrant exercised, less the number of Warrant Shares with respect to which such Warrant is exercised, and (ii) the holder thereof shall be deemed for all corporate purposes to have become the holder of record of such Warrant Shares immediately prior to the close of business on the date on which the Warrant is surrendered and payment of the amount due in respect of such exercise and any applicable taxes is made, irrespective of the date of delivery of certificates evidencing such Warrant Shares, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are properly closed, such person shall be deemed to have become the holder of such Warrant Shares at the opening of business on the next succeeding date on which the stock transfer books are open. (e) No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number. (f) If the Company shall fail for any reason or for no reason to issue to a holder within five (5) business days after the time required hereunder, a certificate for the number of shares of Common Stock to which the holder is entitled upon the holder's exercise of this Warrant or a new Warrant for the number of shares of Common Stock to which such holder is entitled pursuant to Section 2(b) hereof, the Company shall, in addition to any other remedies under this Agreement or otherwise available to such holder including any indemnification pursuant to Section 8 of Securities Purchase Agreement, pay as additional damages in cash to such holder for each day such issuance is not timely effected after the fifth (5th) business day following the time required under this Section 2, an amount equal to 0.1% of the product of (x) the number of shares of Common Stock not issued to the holder and the number of shares of Common Stock represented by the new Warrant not issued to the holder, on a timely basis and to which such holder is entitled hereunder and (y) the Closing Bid Price (as defined in the Adjustable Warrant) of the Common Stock on the last possible date which the Company could have issued such new Warrant or shares of Common Stock to such holder without violating this Section 2. Section 3. Covenants as to Common Stock. The Company hereby covenants and agrees as follows: (a) This Warrant is, and any Share Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued. 5 (b) All Warrant Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. (c) During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant and the par value of said shares will at all times be less than or equal to the applicable Warrant Exercise Price. (d) The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of this Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. (e) The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. (f) This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. Section 4. Taxes. The Company shall not be required to pay any tax or taxes attributable to the initial issuance of the Warrant Shares or any permitted transfer involved in the issue or delivery of any certificates for Warrant Shares in a name other than that of the registered holder hereof or upon any permitted transfer of this Warrant. Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise specifically provided herein, no holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the holder of this 6 Warrant of the Warrant Shares which he or she is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on such holder to purchase any securities or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide the holder of this Warrant with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders. Section 6. Representations of Holder. The holder of this Warrant, by the acceptance hereof, represents that it is acquiring this Warrant and the Warrant Shares for its own account for investment and not with a view to, or for sale in connection with, any distribution hereof or of any of the shares of Common Stock or other securities issuable upon the exercise thereof, and not with any present intention of distributing any of the same. The holder of this Warrant further represents, by acceptance hereof, that, as of this date, such holder is an "ACCREDITED INVESTOR" as such term is defined in Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act (an "ACCREDITED INVESTOR"). Upon exercise of this Warrant, the holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the Warrant Shares so purchased are being acquired solely for the holder's own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale and that such holder is an Accredited Investor. If such holder cannot make such representations because they would be factually incorrect, it shall be a condition to such holder's exercise of the Warrant that the Company receive such other representations as the Company considers reasonably necessary to assure the Company that the issuance of its securities upon exercise of the Warrant shall not violate any United States or state securities laws. Section 7. Ownership and Transfer. (a) The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant. (b) This Warrant and the rights granted to the holder hereof are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed warrant power in the form of Exhibit B attached hereto; provided, however, that any transfer or assignment shall be subject to the conditions set forth in Section 7(c) below. (c) The holder of this Warrant understands that this Warrant has not been and is not expected to be, registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (a) subsequently registered thereunder, or (b) such holder shall have delivered to the Company an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company, to the effect that the securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration; (i) any sale of such securities made in reliance on Rule 144 promulgated under the Securities Act may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the Securities and Exchange Commission thereunder; and (ii) 7 neither the Company nor any other person is under any obligation to register the Deebenture Share Warrants under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. (d) The Company is obligated to register the Warrant Shares for resale under the Securities Act pursuant to the Placement Agency Agreement dated as of June 12, 2000, between the Company and the Agent. The initial Holder of this Warrant (and certain assignees thereof) shall be entitled to the rights and remedies of the Registration Rights Agreement for the inclusion of such Warrant Shares in the Registration Statement to be filed by the Company pursuant to the Registration Rights Agreement dated as of June 12, 2000, between and among the Company and the Buyers listed in the signature page hereto (the "REGISTRATION RIGHTS AGREEMENT"). Section 8. Adjustment of Warrant Exercise Price. In order to prevent dilution of the rights granted under this Warrant, the Warrant Exercise Price shall be adjusted from time to time as follows: (a) Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock. If the Company at any time after the date of issuance of this Warrant, subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately decreased. (b) Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person (as defined below) or other similar transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to the consummation of any Organic Change, the Company will make appropriate provision (in form and substance satisfactory to the holders of the Share Warrants representing a majority of the shares of Common Stock issuable upon exercise of such Share Warrants then outstanding) to insure that each of the holders of the Share Warrants will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of such holder's Share Warrants, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of such holder's Share Warrants had such Organic Change not taken place. In any such case, the Company will make appropriate provision (in form and substance satisfactory to the holders of the Share Warrants representing a majority of the shares of Common Stock issuable upon exercise of such Share Warrants then outstanding) with respect to such holders' rights and interests to insure that the provisions of this Section 8 and Section 9 below will thereafter be applicable to the Share Warrants. The Company will not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Company) resulting from consolidation or merger or the entity purchasing such assets assumes, 8 by written instrument (in form and substance satisfactory to the holders of Share Warrants representing a majority of shares of Common Stock issuable upon exercise of the Share Warrants then outstanding), the obligation to deliver to each holder of Share Warrants such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. (c) Notices. (i) Immediately upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the holder of this Warrant, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Company will give written notice to the holder of this Warrant at least twenty (20) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change, dissolution or liquidation, except that in no event shall such notice be provided to such holder prior to such information being made known to the public. (iii) The Company will also give written notice to the holder of this Warrant at least twenty (20) days prior to the date on which any Organic Change, dissolution or liquidation will take place. Section 9. Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an indemnification undertaking, issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Section 11. Notice. Any notices, consents, waivers, or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days after being sent by U.S. certified mail, return receipt requested; or (iv) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: Popmail.com, Inc. Suite 350 1333 Corporate Drive 9 Irving, Texas 75038 Facsimile Number: (972) 550-5581 If to a holder of this Warrant, to it at the address set forth below such holder's signature on the signature page hereof. Each party shall provide five (5) days' prior written notice to the other party of any change in address or facsimile number. Section 12. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged, or terminated only by an instrument in writing signed by the party or holder hereof against which enforcement of such change, waiver, discharge or termination is sought. The headings in this Warrant are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. This Warrant shall be governed by and interpreted under the laws of the State of New York. Section 13. Date. The date of this Warrant is as of June 12, 2000. This Warrant, in all events, shall be wholly void and of no effect after the close of business on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 7 shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant. * * * * POPMAIL.COM, INC. By: -------------------------------------------- Name: ------------------------------------------ President and Chief Executive Officer ACCEPTED: J.P. CAREY SECURITIES, INC. By: -------------------------- Name: ------------------------ Title: ----------------------- 10 EXHIBIT A TO WARRANT SUBSCRIPTION FORM TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT POPMAIL.COM, INC. The undersigned hereby exercises the right to purchase the number of Warrant Shares covered by this Warrant specified below according to the conditions thereof and herewith makes payment therefor in the amount of $ , the Aggregate Exercise Price of such Warrant Shares in full, and requests that such Warrant Shares be issued in the name of: [HOLDER] Dated: ------------------ By: ----------------------------------------- Name: ----------------------------------------- Title: ----------------------------------------- Address ---------------------------------- ----------------------------------------- Number of Warrant Shares Being Purchased: ----------------------- 11 EXHIBIT B TO WARRANT FORM OF WARRANT POWER FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to Federal Identification No. , a warrant to purchase shares of the capital stock of POPMAIL.COM, INC., a Nevada corporation, represented by warrant certificate No. , standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint , attorney to transfer the warrants of said corporation, with full power of substitution in the premises. Dated: -------------------------------- ------------------------------------- By: ---------------------------------- Its: -------------------------------- 12 EXHIBIT C FORM OF COMPANY COUNSEL OPINION Attached hereto. EX-4.8 9 ex4-8.txt SCHEDULE IDENTIFYING MATERIAL DETAILS OF WARRANTS 1 EXHIBIT 4.8 SCHEDULE OF WARRANTS ISSUED (Private Placement - Agent's Warrants)
DATE OF NAME OF WARRANT RECIPIENT WARRANT NUMBER OF EXERCISE PRICE ISSUANCE NO. SHARES OF EXPIRES COMMON STOCK - ----------------- -------------------------------- --------------- ----------------- ------------------------ 6/12/2000 J.P. Carey Securities, Inc. JPC-6 150,000 Exercise Price: $1.00 Expires 6/12/2005 6/12/2000 Fiji Capital JPC-7 110,000 Exercise Price: $1.00 Expires 6/12/2005 6/12/2000 Metropolitan Capital Partners, JPC-8 210,000 Exercise Price: $1.00 Inc. Expires 6/12/2005
EX-4.9 10 ex4-9.txt FORM OF WARRANT AGREEMENT DATED JUNE 12, 2000 1 EXHIBIT 4.9 WARRANT AGREEMENT WARRANT AGREEMENT dated as of June 12, 2000, between PopMail.com, Inc., a Minnesota corporation (the "COMPANY"), and Atlantis Capital Fund, Ltd. (hereinafter referred to as "INVESTOR"). W I T N E S S E T H: WHEREAS, Investor has participated as an Investor in connection with the Company's offering (the "Offering") of up to $3,000,000 of the Company's common stock, par value $0.01 per share (the "COMMON STOCK"); and WHEREAS, the Warrants issued pursuant to this Agreement are being issued by the Company to Investor and/or its designees, in consideration for, and as part of the investment by Investor in connection with the Offering; NOW, THEREFORE, in consideration of the premises, the agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Grant. Investor and/or its designees are hereby granted the right to purchase, at any time from the date of issuance of the aforementioned Debentures until 5:00 P.M., Eastern Standard Time, on June 12, 2005 (the "WARRANT EXERCISE TERM"), 100,000 shares of common stock , par value $0.01, at an exercise price (subject to adjustment as provided in Article 7 hereof) of $1.00 per share (the "INITIAL EXERCISE PRICE"). 2. Warrant Certificates. The warrant certificates (the "WARRANT CERTIFICATES") delivered and to be delivered pursuant to this Agreement shall be in the form set forth as Exhibit A, attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions and other variations as required or permitted by this Agreement. 3. Exercise of Warrants. 3.1 Cash Exercise. The Exercise Price may be paid in cash or by check to the order of the Company, or any combination of cash or check, subject to adjustment as provided in Article 7 hereof. Upon surrender of the Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the Shares purchased, at the Company's executive offices currently located at Suite 350, Corporate Drive, Irving, Texas 75038 the registered holder of a Warrant Certificate ("HOLDER" or "HOLDERS") shall be entitled to receive a certificate or certificates for the Shares so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder hereof, in whole or in part (but not as to fractional shares of the Common Stock). In the case of the purchase of less than all the Shares purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Shares purchasable thereunder. 3.2 Cashless Exercise. At any time during the Warrant Exercise Term, the Holder may, at its option, exchange this Warrant, in whole or in part (a "WARRANT EXCHANGE"), into the number 1 2 of Shares determined in accordance with this Section 3.2, by surrendering this Warrant at the principal office of the company or at the office of its transfer agent, accompanied by a notice stating such Holder's intent to effect such exchange, the number of Shares to be exchanged and the date on which the Holder requests that such Warrant Exchange occur (the "NOTICE OF EXCHANGE"). The Warrant Exchange shall take place on the date specified in the Notice of Exchange or, if later, the date the Notice of Exchange is received by the Company (the "EXCHANGE DATE"). Certificates for the Shares issuable upon such Warrant Exchange and, if applicable, a new warrant of like tenor evidencing the balance of the Shares remaining subject to this Warrant, shall be issued as of the Exchange Date and delivered to the Holder within seven (7) business days following the Exchange Date. In connection with any Warrant Exchange, this Warrant shall represent the right to subscribe for and acquire the number of Shares (rounded to the next highest integer) equal to (i) the number of Shares specified by the Holder in its Notice of Exchange (the "TOTAL NUMBER") less (ii) the number of Shares equal to the quotient obtained by dividing (A) the product of the Total Number and the then existing Exercise Price by (B) the current market value of a share of Common Stock. 4. Issuance of Certificates. Upon the exercise of the Warrants, the issuance of certificates for the Shares shall be made forthwith (and in any event within five business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to satisfaction of the Company that such tax has been paid. The Warrant Certificates and the certificates representing the Shares shall be executed on behalf of the Company by the manual or facsimile signature of the present or any future Chairman or Vice Chairman of the Board of Directors, Chief Executive officer or President or Vice President of the Company under its corporate seal reproduced thereon, attested to by the manual or facsimile signature of the present or any future Secretary or Assistant Secretary of the Company. Warrant Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. The Warrant Certificates and, upon exercise of the Warrants, in part or in whole, certificates representing the Shares shall bear a legend substantially similar to the following: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "ACT"), and may not be offered or sold except (i) pursuant to an effective registration statement under the Act, (ii) to the extent applicable, pursuant to Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) upon the delivery by the holder to the Company of an opinion of counsel, reasonably satisfactory to counsel to the issuer, stating that an exemption from registration under such Act is available. 2 3 5. Price. 5.1 Adjusted Exercise Price. The adjusted Exercise Price shall be the price which shall result from time to time from any and all adjustments of the Initial Exercise Price in accordance with the provisions of Article 7 hereof. 5.2 Exercise Price. The term "EXERCISE PRICE" herein shall mean the Initial Exercise Price or the adjusted Exercise Price, depending upon the context. 6. Registration Rights. The Investor shall have registration rights with respect to the shares issuable pursuant to this Warrant as provided by the Registration Rights Agreement by the Company and the Investors, dated of even date herewith. 7. Adjustments of Exercise Price and Number of Shares. 7.1 Subdivision and Combination. In case the Company shall at any time subdivide or combine the outstanding shares of Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. 7.2 Adjustment in Number of Shares. Upon each adjustment of the Exercise Price pursuant to the provisions of this Article 7, the number of Shares issuable upon the exercise of each Warrant shall be adjusted to the nearest full Share by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 7.3 Reclassification, Consolidation, Merger, etc. In case of any reclassification or change of the outstanding shares of Common Stock (other than a change in par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in the case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding shares of Common Stock, except a change as a result of a subdivision or combination of such shares or a change in par value, as aforesaid), or in the case of a sale or conveyance to another corporation of the property of the Company as an entirety, the Holders shall thereafter have the right to purchase the kind and number of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance as if the Holders were the owners of the shares of Common Stock underlying the Warrants immediately prior to any such events at a price equal to the product of (x) the number of shares issuable upon exercise of the Warrants and (y) the Exercise Price in effect immediately prior to the record date for such reclassification, change, consolidation, merger, sale or conveyance as if such Holders had exercised the Warrants. 7.4 No Adjustment of Exercise Price in Certain Cases. No adjustment of the Exercise Price shall be made: (a) Upon the issuance or sale of shares of Common Stock upon the exercise of the Warrants; or (b) Upon (i) the issuance of options pursuant to the Company's employee stock option plan in effect on the date hereof or the issuance or sale by the Company of any shares of Common Stock pursuant to the exercise of any such options, or (ii) the 3 4 issuance or sale by the Company of any shares of Common Stock pursuant to the exercise of any options or warrants previously issued and outstanding on the date hereof; or (c) Upon the issuance of shares of Common Stock pursuant to contractual obligations existing on the date hereof; or (d) If the amount of said adjustment shall be less than 2 cents (2(cent)) per Share, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least 2 cents (2(cent)) per Share. 7.5 Dividends and Other Distributions with Respect to Outstanding Securities. In the event that the Company shall at any time prior to the exercise of all Warrants declare a dividend (other than a dividend consisting solely of shares of Common Stock or a cash dividend or distribution payable out of current or retained earnings) or otherwise distribute to its shareholders any monies, assets, property, rights, evidences of indebtedness, securities (other than shares of Common Stock), whether issued by the Company or by another person or entity, or any other thing of value, the Holder or Holders of the unexercised Warrants shall thereafter be entitled, in addition to the shares of Common Stock or other securities receivable upon the exercise thereof, to receive, upon the exercise of such Warrants, the same monies, property, assets, rights, evidences of indebtedness, securities or any other thing of value that they would have been entitled to receive at the time of such dividend or distribution. At the time of any such dividend or distribution, the Company shall make appropriate reserves to ensure the timely performance of the provisions of this Subsection 7.5. 8. Exchange and Replacement of Warrant Certificates. Each Warrant Certificate is exchangeable without expense, upon the surrender hereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Shares in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 9. Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of shares of Common Stock and shall not be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock. 10. Reservation and Listing of Securities. The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all shares of Common Stock issuable upon such exercise shall be duly and validly issued, fully paid, nonassessable and not subject to the preemptive rights of any shareholder. As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrants to be listed on or quoted on the electronic bulletin board, by NASDAQ or listed on such national securities exchanges. 4 5 11. Notices to Warrant Holders. Nothing contained in this Agreement shall be construed as conferring upon the Holder or Holders the right to vote or to consent or to receive notice as a shareholder in respect of any meetings of shareholders for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, options or warrants, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend or distribution, or any proposed dissolution, liquidation, winding up or sale. 12. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered, or mailed by registered or certified mail, return receipt requested: (a) If to a registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or (b) If to the Company, to the address set forth in Section 3 of this Agreement or to such other address as the Company may designate by notice to the Holders. 13. Supplements and Amendments. The Company and the Placement Agent may from time to time supplement or amend this Agreement without the approval of any Holders of Warrant Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Placement Agent may deem necessary or desirable and which the Company and the Placement Agent deem not to adversely affect the interests of the Holders of Warrant Certificates. 14. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company and the Holders inure to the benefit of their respective successors and assigns hereunder. 5 6 15. Termination. This Agreement shall terminate at the close of business on June 12, 2005. Notwithstanding the foregoing, this Agreement will terminate on any earlier date when all Warrants have been exercised and all the Shares issuable upon exercise of the Warrants have been resold to the public; provided, however, that the provisions of Article 6 shall survive such termination until the close of business on June 12, 2005. 16. Governing Law. This Agreement and each Warrant Certificate hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in Atlanta, Georgia, and expressly consent to the jurisdiction and venue of the Superior Court of Fulton County, Georgia, and the United States District Court for the Northern District of Georgia, Atlanta Division for the adjudication of any civil action asserted pursuant to this Paragraph. 17. Benefits of This Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and the Investor and any other registered holder or holders of the Warrant Certificates, Warrants or the Shares any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and the Investor and any other holder or holders of the Warrant Certificates, Warrants or the Shares. 18. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 6 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. POPMAIL.COM, INC. By: -------------------------------- Name: ----------------------------- Title: ----------------------------- Attest: --------------------------- Name: ------------------------------ Title: ------------------------------ INVESTOR ATLANTIS CAPITAL FUND, LTD. By: -------------------------------- Name: ----------------------------- Title: ---------------------------- Attest: --------------------------- Name: --------------------------- Title: ------------------------------ 7 8 EXHIBIT A THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:00 P.M., EASTERN STANDARD TIME, JUNE 12, 2005 No. 100,000 Shares ------------------------ WARRANT CERTIFICATE This Warrant Certificate certifies that Atlantis Capital Fund, Ltd., Inc. ("INVESTOR") or registered assigns, is the registered holder of one Warrant to purchase, at any time from June 12, 2000, until 5:00 P.M. Eastern Standard Time on June 12, 2005 ("EXPIRATION DATE"), up to 100,000 shares of common stock, par value $0.01 ("SHARES"), of fully-paid and non-assessable common stock, no par value ("COMMON STOCK"), of PopMail.com, Inc., a Minnnesota corporation (the "COMPANY"), at the Initial Exercise Price, subject to adjustment in certain events (the "EXERCISE PRICE"), of $1.00 per Share upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the warrant agreement dated as of June 12, 2000, between the Company and Investor (the "WARRANT AGREEMENT"). Payment of the Exercise Price may be made in cash, or by certified or official bank check in New York Clearing House funds payable to the order of the Company, or any combination of cash or check. No Warrant may be exercised after 5:00 P.M., Eastern Standard Time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to in a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "HOLDERS" or "HOLDER" meaning the registered holders or registered holder) of the Warrants. The Warrant Agreement provides that upon the occurrence of certain events, the Exercise Price and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the, request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant 8 9 Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferees) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax, or other governmental charge imposed in connection therewith. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. 9 10 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated: , 2000 POPMAIL.COM, INC. --------------- By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- Attest: ---------------------------- Name: ------------------------------ Title: ----------------------------- 10 11 [FORM OF ELECTION TO PURCHASE] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase Shares and herewith tenders in payment for such Shares cash or a certified or official bank check payable in New York Clearing House Funds to the order of in the amount of $ , all in accordance with the terms hereof. The undersigned requests that a certificate for such Shares be registered in the name of whose address is , and that such Certificate be delivered to , whose address is - ---------------------------------------------------------------. Dated: , 200 Signature: --------------- - --------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) - ------------------------------------ - ------------------------------------ (Insert Social Security or Other Identifying Number of Holder) 12 [FORM OF ASSIGNMENT] (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED hereby sells, assigns --------------------------- and transfers unto - -------------------------------------------------------------------------------- (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint , Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: , 200 Signature: --------------- - --------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate) - ------------------------------------- - ------------------------------------- (Insert Social Security or Other Identifying Number of Assignee) EX-4.10 11 ex4-10.txt SCHEDULE IDENTIFYING MATERIAL DETAILS OF WARRANTS 1 EXHIBIT 4.10 SCHEDULE OF WARRANTS ISSUED (Private Placement - Investor Warrants)
DATE OF NAME OF WARRANT RECIPIENT NUMBER OF EXERCISE PRICE ISSUANCE SHARES OF EXPIRES COMMON STOCK - ----------------- -------------------------------- ----------------- ------------------------ 6/12/2000 Atlantis Capital Fund LTD 100,000 Exercise Price: $1.00 Expires 6/12/2005 6/12/2000 CALP II LP 50,000 Exercise Price: $1.00 Expires 6/12/2005 6/12/2000 Cache Capital "USA" LP 139,500 Exercise Price: $1.00 Expires 6/12/2005 6/12/2000 Arab Commerce Bank 10,500 Exercise Price: $1.00 Expires 6/12/2005
EX-4.11 12 ex4-11.txt FORM OF ADJUSTABLE WARRANT DATED AS OF 6/12/00 1 EXHIBIT 4.11 POPMAIL.COM, INC. ADJUSTABLE WARRANT Warrant No. [ ] Dated: As of June 12, 2000 PopMail.com, Inc., a Minnesota corporation (the "Company"), hereby certifies that, for value received, Thompson Kernahan & Co., Inc., or its registered assigns ("Holder"), is entitled, subject to the terms set forth below, to purchase from the Company up to the total number of shares of Common Stock, $.01 par value per share (the "Common Stock"), of the Company (each such share, a "Warrant Share" and all such shares, the "Warrant Shares") calculated pursuant to Section 3 of this Warrant at an exercise price equal to $0.00001 per share (as adjusted from time to time as provided herein, the "Exercise Price"), at the times set forth herein through and including a period ending ten (10) Trading Days following the Annual Look Back Period (as defined herein) (the "Expiration Date"), and subject to the following terms and conditions: 1. REGISTRATION OF WARRANT. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, and the Company shall not be affected by notice to the contrary. 2. REGISTRATION OF TRANSFERS AND EXCHANGES. (a) The Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Transfer Agent or to the Company at the address specified in Section 13. Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance of such transferee of all of the rights and obligations of a holder of a Warrant. (b) This Warrant is exchangeable, upon the surrender hereof by the Holder to the office of the Company at the address specified in Section 12 for one or more New Warrants, evidencing in the aggregate the right to purchase the number of Warrant Shares which may then be purchased hereunder. Any such New Warrant will be dated the date of such exchange. 3. DURATION, VESTING AND EXERCISE OF WARRANT. (a) Warrant Shares to be Issued. If the Average Market Price for lowest ten (10) Trading Days of any Look Back Period should be less than $ 4.00 per share, the Holder shall have the right to receive from the Company within three days of a written request (the "Warrant Request") sent to the Company within ten (10) Trading Days after the end of each Look Back Period (the "Warrant Request Date) Warrant Shares, which have been, in each case, registered with the U.S. 2 Securities and Exchange Commission (the "SEC"), without any further payment or consideration based upon the following formula: N X (K-B)/B In addition, if (a) the Average Market Price for any Monthly Look Back Period is less than $4.00 per share and Holder does not submit a Warrant Request for that period or (ii) Holder submits a Warrant Request for any Monthly Look Back Period and the number of Warrant Shares is limited by the 47% Limitation and if (b) the Average Market Price for the Trading Days within the Annual Look Back Period is less than $4.00 per share, then the Holder shall have the right to submit another Warrant Request for Warrant Shares which shall collectively include each such Monthly Look Back Period within ten (10) business days after the end of the Annual Look Back Period. In this event, Holder shall have the right to receive within three days of the Warrant Request additional Warrant Shares for each such Monthly Look Back Period which have been in each case registered with the SEC from the Company without any further payment or consideration based upon the formula set forth above, with the number of Warrant Shares to be reduced by the number of Warrant Shares previously received with respect to the applicable Monthly Look Back Periods. (b) For purposes of this Agreement the following terms shall have the meanings set forth below: N = 333,333 for each Monthly Look Back Period and in the case of the Annual Look Back Period 333,333 for each Monthly Look Back Period for which the Holder is submitting another Warrant Request, in each case as adjusted for stock dividends, stock splits, recapitalizations or similar transactions; K = $ 4.00 per share, as adjusted for stock dividends, stock splits, recapitalizations or similar transactions; B = the average of the five lowest Closing Bid Prices during each Look Back Period; CLOSING BID PRICE means, for any security as of any date, the last closing bid price on the Nasdaq Small Cap Market (the "NASDAQ-SC") as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if the Nasdaq-SC is not the principal trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price of such security in the over-the-counter market on the pink sheets or bulletin board for such security as reported by Bloomberg, or, if no closing bid price is reported for such security by Bloomberg, the last closing trade price of such security as reported by Bloomberg (the "Principal Trading Market"). If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as reasonably determined in good faith by the Board of Directors of the Company (all as appropriately adjusted for any stock dividend, stock split or other similar transaction during such period); AVERAGE MARKET PRICE means, with respect to any security for any period, that price which shall be computed as the arithmetic average of the Closing Bid Prices (as defined above) for such security for each trading day in such period; 2 3 LOOK BACK PERIOD shall mean (i) the first three (3) thirty (30) consecutive Trading Days each commencing on the first Trading Day immediately following the Effective Date ("each a Monthly Look Back Period") and (ii) the first thirty (30) consecutive Trading Days immediately following the first anniversary of the date of this Agreement ("Annual Look Back Period"); TRADING DAY shall mean each day that quotations are reported on the Company's Common Stock on the Principal Trading Market; EFFECTIVE DATE shall mean the date that the SEC declares the Registration Statement (as defined in the Registration Rights Agreement) registering the Common Stock and the Warrant Shares to be effective. It is the intent of the foregoing formula to (i) facilitate the adjustment to a total of 1,000,000 shares of Common Stock issued in connection with the Securities Purchase Agreement, dated of even date herewith, over each applicable Look Back Period in accordance with the terms of this Agreement and (ii) to provide an adjustment opportunity to the Holder to receive Warrant Shares following the first anniversary of the date of this Agreement in the event that (a) Holder elects not to submit a Warrant Request in connection with a Monthly Look Back Period or (b) if the Holder is unable to receive additional Warrant Shares due to the 47% Limitation described herein. Notwithstanding this provision, until after the thirty Trading Days following the first anniversary of the date of this Agreement, (the purchase price per share of Common Stock required to be delivered to the Holder in accordance with this Agreement ($3,000,000 divided by the total shares of Common Stock issued (including Warrant Shares) shall not be less than 47% (the "47% Limitation") of the Closing Bid Price on the Closing Date (the Floor Price Per Share"))). The following example is offered as an example of the foregoing calculations. Example: If on the Closing Date, the Closing Bid Price is $1.00 then the Floor Price Per Share would be $0.47 (47% of $1.00). Using this $0.47 Floor Price Per Share and assuming the average of the 5 lowest Closing Bid Prices during the applicable Look Back Period is $0.25 cents then the number of Warrant Shares to be issued to the Holder would be calculated as follows: 333,333 shares * ($4.00-$0.47) divided by $0.47. which equals 2,503,545 shares. Conversely, if at the time of Warrant the average of the five lowest Closing Bid Prices during the applicable Look Back Period is $3.00 then the number of Warrant Shares to be delivered to the Holder would be calculated as follows. 333,333 * ($4.00-$3.00) divided by $3.00 which equals 111,111 shares. It is expressly understood that the 47% Limitation does not apply, however to any Warrant Request of Warrant Shares made pursuant to the Annual Look Back Period. (c) Dispute Resolution. In the case of a dispute as to the determination of the number of Warrant Shares, Average Market Price, Closing Price, Look Back Period, Trading Day, or any other calculation (the "Calculations"), the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via facsimile within three (3) business days of receipt of such holder's Warrant Request. If such holder and the Company are unable to agree upon the 3 4 determination of the Calculations within two (2) business days of such disputed determination or arithmetic calculation being submitted to the holder, then the Company shall within one (1) business day submit via facsimile (A) the disputed determination of the Calculations to an independent, reputable investment bank or (B) the disputed arithmetic calculation of the Calculations to its independent, outside accountant. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent manifest error. (i) Record Holder. The person or persons entitled to receive the Warrant Shares shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Warrant Request Date. (ii) Company's Failure to Timely Deliver Warrant Shares. If the Company shall fail to issue to a holder within five (5) business days following the Warrant Request Date, a certificate for the number of shares of Common Stock to which such holder is entitled which are in each case registered with the SEC, in addition to all other available remedies which such holder may pursue hereunder, the Company shall pay additional damages to such holder on each day after the fifth (5th) business day following the date of receipt by the Company of the Warrant Request Date, for which such delivery is not timely effected, an amount calculated in accordance with the following schedule:
LATE PAYMENT FOR EACH BUSINESS DAYS LATE $10,000 OF WARRANT SHARES (measured on the applicable Warrant Request Date) 1 $100 2 $200 3 $300 4 $400 5 $500 6 $600 7 $700 8 $800 9 $900 10 $1,000 11 $1,000 + $200 for each Business Days Late Beyond 10 days
In addition to the foregoing damages payable, in the event that any of the Warrant Shares are not registered with the SEC when delivered to the Holder, Holder shall also be entitled to receive as additional damages in cash of an amount equal to the lost benefit of the bargain with respect to such unregistered Warrant Shares delivered. The lost benefit of the bargain shall mean the difference between the Closing Price of the Warrant Shares on the day they were first required to be delivered hereunder and the prices under which the Holder is finally able to sell the Warrant Shares. (d) The Company's obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any 4 5 judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. If the Company breaches its obligations under this Warrant, then, in addition to any other liabilities the Company may have hereunder and under applicable law, the Company shall pay or reimburse the Holder on demand for all costs of collection and enforcement (including reasonable attorneys fees and expenses). 4. PIGGYBACK REGISTRATION RIGHTS. The Holder shall be entitled to the piggyback registration rights afforded to a holder pursuant to that certain Registration Rights Agreement dated as of the date hereof, among the Company and the signatories thereto. 5. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes attributable to the issuance of Warrant Shares upon the exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder and the Company shall not be required to issue or cause to be issued or deliver or cause to be delivered the certificates for Warrant Shares unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the reasonable satisfaction of the Company that such tax has been paid. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof. 6. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable charges as the Company may prescribe. 7. RESERVATION OF WARRANT SHARES. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares that shall be so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. 5 6 8. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 8. Upon each such adjustment of the Exercise Price pursuant to this Section 8, the Holder shall thereafter prior to the Expiration Date be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of Warrant Shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (a) If the Company, at any time while this Warrant is outstanding, (i) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or on any other class of capital stock payable in shares of Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger number of shares, or (iii) combine outstanding shares of Common Stock into a smaller number of shares, the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination, and shall apply to successive subdivisions and combinations. (b) In case of any reclassification of the Common Stock, or any compulsory share exchange pursuant to which the Common Stock is converted into other securities, cash or property, the Holder shall have the right thereafter to exercise this Warrant only for the shares of stock and other securities, cash and property receivable upon or deemed to be held by holders of Common Stock following such reclassification or share exchange, and the Holder shall be entitled upon such event to receive such amount of securities, cash or property as equals the number of Warrant Shares such Holder would have been entitled to had the Holder exercised this Warrant in full immediately prior to such reclassification or share exchange. This provision shall similarly apply to successive reclassifications or share exchanges. (c) If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to holders of this Warrant) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security (excluding those referred to in Sections 8(a), (b) and (d)) (collectively, "Assets"), then in each such case, the Holder shall be entitled to receive, for each Warrant Share with respect to which this Warrant is exercised after the record date fixed for determination of stockholders entitled to receive such distribution, the Assets received by all holders of Common Stock with respect to one share of Common Stock. (d) If, within 90 Trading Days of any Look Back Period, the Company or any subsidiary thereof shall issue or cause to be issued rights, warrants, debt or other securities entitling the holder thereof to acquire, or shall otherwise sell or distribute shares of Common Stock or other securities, other than (i) issuances pursuant to any exercise or conversion of any warrants, options, subscriptions, convertible notes, convertible debentures, convertible preferred stock or other convertible securities issued and outstanding on the Closing Date (as defined in the Purchase Agreement) and set forth on Schedule 2.1(c) to the Purchase Agreement in accordance with the terms of such securities as of such date; (ii) issuances pursuant to any grant or exercise of any stock or options which may hereafter be granted or exercised under any employee benefit plan of the Company now existing or to be implemented in the future, or upon grant or exercise 6 7 of any stock or options to or by any officer, director or employee, whether or not under a plan, so long as the issuance of such stock or options is approved by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose; (iii) issuances pursuant to any Closing Warrants (as defined in the Securities Purchase Agreement) issued pursuant to the Securities Purchase Agreement; (iv) securities issued in connection with an underwritten public offering of the Company; (v) securities issued in connection with any merger, acquisition or consolidation, or purchase of assets or business from another person, so long as the Company is the surviving corporation and that such transaction is not primarily for the purpose of raising capital, or (vi) in connection with the issuance of Common Stock, not in excess of 1% of the Common Stock issued and outstanding on the original issue date of this Warrant, upon the exercise of warrants or other rights granted to any bank other commercial financing institution, for a consideration per share less than both (x) the market price at the time of such issuance or distribution and (y) an Adjustment Price previously used in calculating the vesting of Warrant Shares on previous Look Back Period (such an issuance, a "Discounted Issuance"), then the Adjustment Price previously used in calculating the vesting of Warrant Shares on any previous Look Back Period (if greater than such issuance price) shall equal the consideration per share at which such Discounted Issuance was made and the Company shall, within ten (10) Trading Days of such Discounted Issuance, issue to the Holder a number of shares of Common Stock equal to the difference between the number of Warrant Shares vested on any previous applicable Look Back Period based on the Adjusted Price then in effect and the number of Warrant Shares which would have vested on such previous Vesting Dates based on the imputed Adjustment Price pursuant to the Discounted Issuance. Such adjustment shall be made successively whenever such an issuance is made. (e) In case of any (1) merger or consolidation of the Company with or into another Person, or (2) sale by the Company of more than one-half of the assets of the Company (on a book value basis) in one or a series of related transactions, or (3) tender or other offer or exchange (whether by the Company or another Person) pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, stock, cash or property of the Company or another Person; then the Holder shall have the right thereafter to (A) exercise this Warrant for the shares of stock and other securities, cash and property receivable upon or deemed to be held by holders of Common Stock following such merger, consolidation or sale, and the Holder shall be entitled upon such event or series of related events to receive such amount of securities, cash and property as the shares of Common Stock for which this Warrant could have been exercised immediately prior to such merger, consolidation or sales would have been entitled, (B) in the case of a merger or consolidation, require the surviving entity to issue to the Holder a warrant entitling the Holder to acquire shares of such entity's common stock, which warrant shall have terms identical (including with respect to exercise) to the terms of this Warrant and shall be entitled to all of the rights and privileges set forth herein and the agreements pursuant to which this Warrant was issued (including, without limitation, as such rights relate to the acquisition, transferability, registration and listing of such shares of stock other securities issuable upon exercise thereof), or (C) in the event of an exchange or tender offer or other transaction contemplated by clause (3) of this Section, tender or exchange this Warrant for such securities, stock, cash and other property receivable upon or deemed to be held by holders of Common Stock that have tendered or exchanged their shares of Common Stock following such tender or exchange, and the Holder shall be entitled upon such exchange or tender to receive such amount of securities, cash and property as the shares of Common Stock for which this Warrant could have been exercised immediately prior to such tender or exchange would have been entitled as would have been issued. In the case of clause (B), the exercise price applicable for the newly issued warrant shall be based upon the amount of securities, cash and property that each share of 7 8 Common Stock would receive in such transaction and the Exercise Price immediately prior to the effectiveness or closing date for such transaction. The terms of any such merger, sale, consolidation, tender or exchange shall include such terms so as continue to give the Holder the right to receive the securities, cash and property set forth in this Section upon any conversion or redemption following such event. This provision shall similarly apply to successive such events. (f) For the purposes of this Section 8, the following clauses shall also be applicable: (i) Record Date. In case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock or in securities convertible or exchangeable into shares of Common Stock, or (B) to subscribe for or purchase Common Stock or securities convertible or exchangeable into shares of Common Stock, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (ii) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock. (g) All calculations under this Section shall be made to the nearest 1/100th of a share. (h) If: (i) the Company shall declare a dividend (or any other distribution) on its Common Stock; or (ii) the Company shall declare a special nonrecurring cash dividend on or a redemption of its Common Stock; or (iii) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; or (iv) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or (v) the Company shall authorize the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall cause to be mailed to each Holder at their last addresses as they shall appear upon the Warrant Register, at least 30 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which 8 9 such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of ommon Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up; provided, however, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. 9. PAYMENT OF EXERCISE PRICE. The Holder shall pay the Exercise Price in one of the following manners: (a) Cash Exercise. The Holder shall deliver immediately available funds; or (b) Cashless Exercise. The Holder shall surrender this Warrant to the Company together with a notice of cashless exercise, in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows: X = Y (A-B)/A where: X = the number of Warrant Shares to be issued to the Holder. Y = the number of Warrant Shares with respect to which this Warrant is being exercised. A = the average of the closing sale prices of the Common Stock on the Principal Trading Market for the five (5) trading days immediately prior to (but not including) the Warrant Request Date. B = the Exercise Price. For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have been commenced, on the issue date. 10. CERTAIN EXERCISE RESTRICTIONS. (a) A Holder may not exercise this Warrant to the extent such exercise would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act of 1934 (the "Exchange Act") and the rules promulgated thereunder) in excess of 4.999% of the then issued and outstanding shares of Common Stock, including shares of Common Stock issuable upon such exercise and held by such Holder after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of an exercise hereunder, unless the exercise at issue would result in the issuance of shares of Common Stock in excess of 4.999% of the then outstanding shares of Common Stock without regard to any other shares of Common Stock which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular exercise hereunder and to the extent that the 9 10 Holder determines that the limitation contained in this Section applies, the determination of which portion of this Warrant is exercisable shall be the responsibility and obligation of the Holder. If the Holder has delivered a Form of Election to Purchase for a number of Warrant Shares that would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the exercise for the maximum portion of this Warrant permitted to be exercised on such Date of Exercise in accordance with the periods described herein and disregard the balance of such Form of Election to Purchase, as if never delivered The provisions of this Section may be waived by a Holder (but only as to itself and not to any other Holder) upon not less than 61 days' prior notice to the Company. Other Holders shall be unaffected by any such waiver. (b) A Holder may not exercise this Warrant to the extent such exercise would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the then issued and outstanding shares of Common Stock, including shares of Common Stock issuable upon such exercise and held by such Holder after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of an exercise hereunder, unless the exercise at issue would result in the issuance of shares of Common Stock in excess of 9.999% of the then outstanding shares of Common Stock without regard to any other shares of Common Stock which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular exercise hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of this Warrant is exercisable shall be the responsibility and obligation of the Holder. If the Holder has delivered a Form of Election to Purchase for a number of Warrant Shares that would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the exercise for the maximum portion of this Warrant permitted to be exercised on such Date of Exercise in accordance with the periods described herein and disregard the balance of such Form of Election to Purchase, as if never delivered. The provisions of this Section may be waived by a Holder (but only as to itself and not to any other Holder) upon not less than 61 days' prior notice to the Company. Other Holders shall be unaffected by any such waiver. 11. FRACTIONAL SHARES. The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant. The number of full Warrant Shares which shall be issuable upon the exercise of this Warrant shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of this Warrant so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 11, be issuable on the exercise of this Warrant, the Company shall pay an amount in cash equal to the Exercise Price multiplied by such fraction. 12. NOTICES. Any and all notices or other communications or deliveries hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York City time) on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section later than 6:30 p.m. (New York City time) on any date and earlier than 10 11 11:59 p.m. (New York City time) on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service with next day delivery specified thereon, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be: (i) if to the Company, to 1333 Corporate Drive, Suite 350, Irving, Texas 75038, facsimile number (972) 550-5581, Attention: Stephen D. King, or (ii) if to the Holder, to the Holder at the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section 12. 13. WARRANT AGENT. (a) The Company shall serve as warrant agent under this Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a new warrant agent. (b) Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register. 14. MISCELLANEOUS. (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Warrant may be amended only in writing signed by the Company and the Holder and their successors and assigns. (b) Subject to Section 14(a), above, nothing in this Warrant shall be construed to give to any person or corporation other than the Company and the Holder any legal or equitable right, remedy or cause under this Warrant. This Warrant shall inure to the sole and exclusive benefit of the Company and the Holder. (c) This Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York without regard to the principles of conflicts of law thereof. (d) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof. (e) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant. 15. GOVERNING LAW. This Agreement and each Warrant Certificate hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in 11 12 Atlanta, Georgia, and expressly consent to the jurisdiction and venue of the Superior Court of Fulton County, Georgia, and the United States District Court for the Northern District of Georgia, Atlanta Division for the adjudication of any civil action asserted pursuant to this Paragraph. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS] 12 13 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above. POPMAIL.COM, INC. By: ----------------------------------- Name: -------------------------------- Title: -------------------------------- THOMSON KERNAGHAN & CO., LTD. By: ----------------------------------- Name: -------------------------------- Title: -------------------------------- 13 EX-10.1 13 ex10-1.txt PROMISSORY NOTE 1 EXHIBIT 10.1 PROMISSORY NOTE Bloomington, Minnesota $245,000.00 March 30, 2000 FOR VALUE RECEIVED, KING FAMILY PARTNERS, an Ohio limited partnership (the "Maker"), hereby unconditionally promises to pay to POPMAIL.COM, INC., a Minnesota corporation, or its successors and assigns (the "Payee"), at Bloomington, Minnesota or at such other place or places as may be designated by Payee from time to time, the sum of Two Hundred Forty-Five Thousand Dollars ($245,000.00) (the "Principal Sum"). The Principal Sum, plus interest thereon from the date hereof at the rate of 5.74 percent per annum, shall be due and payable by Maker to Payee on March 30, 2003 (the "Maturity Date") in any coin or currency of the United States of America which, at the time of payment, is legal tender for the payment of public and private debts. All payments on account of this Note, when paid, shall be applied first to the payment of all interest then due on the unpaid balance of this Note and the balance, if any, shall be applied to reduction of the unpaid balance of the Principal Sum. This Note may be prepaid in full or in part at any time without premium. Maker agrees to immediately pay to Holder hereof, upon demand, all losses, costs and expenses (including attorneys' fees) incurred by Holder for collection and enforcement of this Note in the event of default or otherwise. Maker waives presentment, protest and demand, notice of protest, notice of dishonor and non-payment of this Note, and expressly agrees that this Note, or any payment hereunder, may be extended from time to time without in any way affecting the liability of Maker. The terms, conditions and provisions of this Note shall be construed and enforced according to the laws of the State of Minnesota. Notwithstanding any of the provisions of this Note, Payee shall look solely to the Collateral (as defined in that certain Pledge Agreement between Maker and PopMail.com, inc. dated December 3, 1999, and amended as of even date herewith) for the satisfaction of the obligations of this Note or any obligation in any other instrument securing payment hereof and shall not seek a personal judgment against Maker except to the extent the laws of the State of Minnesota make a judgment against Maker 2 necessary in order to enforce the terms of such instruments. In no event shall the Payee seek to enforce or collect a deficiency judgment with respect to this Note against Maker. IN WITNESS WHEREOF, the duly authorized officer of Maker has caused this Note to be executed on the date first above written. King Family Partners, an Ohio limited partnership By: SDK Investments, Inc., its General Partner By: /s/ Stephen D. King ------------------------------------------ Stephen D. King President 75267 EX-10.2 14 ex10-2.txt MANAGEMENT AGREEMENT 1 EXHIBIT 10.2 MANAGEMENT AGREEMENT BETWEEN CAFE ODYSSEY, LLC AND H D SPIRITS, INC. ("OWNER") AND ODYSSEY RESTAURANTS, LLC ("MANAGER") 2 TABLE OF CONTENTS PAGE ARTICLE 1 - Appointment; Resignation and Stock Options................... 1 1.1 Appointment.................................................. 1 1.2 Resignation and Waiver....................................... 2 1.3 Stock Options................................................ 2 1.4 Stock Restrictions........................................... 2 ARTICLE 2 - Term......................................................... 2 2.1 Term......................................................... 2 2.2 Termination by Owner......................................... 2 2.3 Termination by Manager....................................... 3 2.4 Final Accounting............................................. 3 ARTICLE 3 - Manager's Responsibility..................................... 4 3.1 Management................................................... 4 3.2 Employees; Independent Contractor............................ 4 3.3 Agreement on Annual Plan..................................... 4 3.4 Implementation of Annual Plan................................ 4 3.5 Operating Account............................................ 5 3.6 Management; Supervision of Restaurants....................... 5 3.7 Operating Expenses........................................... 5 3.8 Payroll Records.............................................. 6 3.9 General Record Keeping....................................... 6 3.10 Communication with Owner..................................... 6 3.11 Compliance with Laws and Loan Documents...................... 6 3.12 Manager's Responsibility to Provide Information.............. 6 ARTICLE 4 - Management Authority......................................... 6 4.1 Manager's Authority.......................................... 6 4.2 Contracts.................................................... 6 ARTICLE 5 - Insurance.................................................... 7 5.1 Insurance.................................................... 7 ARTICLE 6 - Financial Reporting.......................................... 7 6.1 Revenue and Expense Records.................................. 7 6.2 Monthly and Quarterly Reports................................ 7 6.3 Additional Financial Information............................. 7 6.4 Accounting Principles........................................ 8 ARTICLE 7 - Owner's Right to Audit....................................... 8 7.1 Audit By Owner............................................... 8 i 3 ARTICLE 8 - Bank Accounts............................................... 8 ARTICLE 9 - Payment of Expenses......................................... 10 9.1 Owner's Responsibility for Expenses......................... 10 9.2 Non-reimbursable and Reimbursable Expenses.................. 10 ARTICLE 10 - Insufficient Income........................................ 10 10.1 Priorities................................................. 10 ARTICLE 11 - Owner's Obligation......................................... 11 11.1 Obligations Under Contracts................................ 11 11.2 Management Office.......................................... 11 11.3 Response to Manager's Inquiries............................ 11 ARTICLE 12 - Manager's Liability........................................ 11 12.1 Limitation on Manager's Liability.......................... 11 12.2 Indemnity of Manager....................................... 11 ARTICLE 13 - Compensation............................................... 12 13.1 Management Fee............................................. 12 13.2 Payment Schedule........................................... 13 13.3 Payment Reconciliation..................................... 13 13.4 Payments to Accounts of Manager............................ 13 ARTICLE 14 - Right of First Refusal..................................... 13 14.1 Right of First Refusal..................................... 13 ARTICLE 15 - Assignment................................................. 14 15.1 Assignment by Manager...................................... 14 ARTICLE 16 - Cooperation................................................ 14 16.1 Listing Broker............................................. 14 ARTICLE 17 - Legal Proceedings.......................................... 14 17.1 Legal Proceedings.......................................... 14 ARTICLE 18 - Notices: Authorized Representatives........................ 15 18.1 Notices.................................................... 15 18.2 Authorized Representatives................................. 15 ARTICLE 19 - Miscellaneous.............................................. 15 19.1 Manager's Rights........................................... 15 ii 4 19.2 Independent Contractor...................................... 16 19.3 Disclaimer of Relationship.................................. 16 19.4 Severability................................................ 16 19.5 Counterparts................................................ 16 19.6 No Blanket Waiver........................................... 16 19.7 Arbitration................................................. 17 19.8 Waiver of Jury Trial........................................ 17 19.9 Attorneys' Fees............................................. 18 19.10 Further Assurances.......................................... 18 19.11 Pronouns.................................................... 18 19.12 Amendments.................................................. 18 19.13 Headings.................................................... 18 19.14 Succession.................................................. 18 19.15 Entire Agreement............................................ 18 19.16 Governing Law............................................... 18 Exhibit A - ITEMS TO BE INCLUDED IN ANNUAL PLAN Exhibit B - INSURANCE REQUIREMENTS iii 5 MANAGEMENT AGREEMENT THIS MANAGEMENT AGREEMENT ("Agreement") is entered into effective as of the _____ day of May, 2000, between Cafe Odyssey, LLC, a Minnesota limited liability company ("CO"), H D Spirits, Inc., a Minnesota corporation ("HD") (CO and HD are hereinafter collectively called "Owner"), and Odyssey Restaurants, LLC, a Minnesota limited liability company, (hereinafter called "Manager"): WITNESSETH: WHEREAS, CO expects to acquire from PopMail.com, Inc. ("PopMail") the Cafe Odyssey Restaurant located in the Mall of America in Bloomington, Minnesota which is leased from Mall of America Company pursuant to a Lease dated August 4, 1997 (the "MOA Lease") and CO expects to acquire from PopMail the Cafe Odyssey Restaurant located in the Denver Pavilions Shopping Center in Denver, Colorado which is leased from Denver Pavilions, L.P. pursuant to a Lease dated May 12, 1998 (the "Denver Lease") (the MOA Lease and the Denver Lease are individually referred to herein as a "Lease" and collectively referred to herein as the "Leases") (such restaurants are individually referred to herein as "Restaurant" and collectively referred to herein as the "Restaurants"); and, WHEREAS, HD is the holder of the liquor license which permits the sale of liquor for consumption on the premises demised under the MOA Lease; and WHEREAS, Owner, if it acquires the Restaurants, wishes to obtain the benefits of Manager's expertise in managing restaurant operations by contracting with Manager to manage the Restaurants, subject to the terms and provisions of this Agreement; and Manager, for a fee and pursuant to the terms and provisions of this Agreement, agrees to manage the Restaurants on behalf of Owner; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the parties hereto agree as follows: ARTICLE 1 APPOINTMENT; RESIGNATION AND STOCK OPTIONS 1.1 APPOINTMENT. Owner appoints Manager to manage the Restaurants on behalf and at the expense of Owner and to provide the services required under this Agreement. Manager accepts such appointment and undertakes to perform such services during the term of this Agreement on the terms and conditions set forth herein. Notwithstanding anything to the contrary in this Agreement, Owner's appointment of Manager to manage the Cafe Odyssey Restaurant located in the Denver Pavilions Shopping Center shall not become effective unless and until Owner has obtained 6 all consents and approvals which are necessary for PopMail to assign and transfer to Owner the tenant's rights under the Denver Lease and all assets used in connection with the Cafe Odyssey Restaurant located in the Denver Pavilions Shopping Center including the approval of the Denver Department of Excise and License to the transfer of the liquor license for the premises from PopMail to Owner. Any delay in obtaining, or any failure to obtain, all of such consents and approvals shall not, however, affect Owner's obligation to pay Manager the Management Fee in accordance with and subject to the terms and conditions of this Agreement. 1.2 RESIGNATION AND WAIVER. By his signature below, Ronald K. Fuller, hereby resigns from each of his positions as an officer and employee of Owner and PopMail (and each of its subsidiaries) effective as of the date of this Agreement and waives any and all rights which he might otherwise have under any employment agreements with Owner or PopMail including, without limitation, any rights under that certain Employment Agreement dated as of March 17, 1997 with Cafe Odyssey, Inc., as amended by an Amendment dated July 27, 1999. 1.3 STOCK OPTIONS. Notwithstanding anything to the contrary in any agreement between Ronald K. Fuller or Thomas W. Orr and PopMail, Ronald K. Fuller and Thomas W. Orr shall each have two (2) years from the date of this Agreement to exercise any rights which they now have to acquire stock of PopMail or any successor thereto pursuant to the exercise of stock options of PopMail, to the extent vested on the date hereof. 1.4 STOCK RESTRICTIONS. By its signature below, PopMail hereby waives and forever releases any lockup rights or other restrictions that would preclude Ronald K. Fuller or Thomas W. Orr from disposing of any stock, warrants or other equity interests in PopMail or any successor thereto. In addition, PopMail agrees to provide reasonable assistance to Ronald K. Fuller to obtain release of Ronald K. Fuller's shares of PopMail stock from escrow with the State of Minnesota. ARTICLE 2 TERM 2.1 TERM. The term of this Agreement shall commence as of the date hereof, and, unless sooner terminated pursuant to Section 2.2, 2.3 or 2.4, shall continue until the earlier of (i) the day prior to the third anniversary of this Agreement, or (ii) the date on which both of the Restaurants are sold or substantially all of the stock or assets of Owner are sold, or (iii) the date on which both of the Restaurants are closed, or (iv) the date on which Ronald K. Fuller is not providing a substantial portion of the essential management services to be performed by Manager under this Agreement. 2.2 TERMINATION FOR CAUSE BY OWNER. Owner shall have the right to terminate this Agreement at any time by giving five (5) days' prior written notice of such termination to Manager upon the occurrence of any of the following events ("Events of Default"): -2- 7 (a) Manager willfully fails to perform its material obligations or is grossly negligent in such performance hereunder in any material respect if such failure or negligence continues for a period of thirty (30) days after Manager receives written notice of such failure to perform from Owner; (b) The commission of a felony by Ronald K. Fuller; (c) The theft or embezzlement of Company property by Manager or any of its governors, managers, members or employees or similar acts by Ronald K. Fuller involving moral turpitude; or (d) The abuse of drugs or alcohol by Ronald K. Fuller which, in the judgment of Owner, has rendered him incapable of carrying out his duties on behalf of Manager. 2.3 TERMINATION BY MANAGER. Manager shall have the right to terminate this Agreement at any time by giving five (5) days' prior written notice of such termination to Owner if Owner fails to perform any of its obligations under this Agreement in any material respect and such failure continues for a period of thirty (30) days after Owner receives written notice of such failure to perform from Manager. 2.4 TERMINATION WITHOUT CAUSE. Either party shall have the right to terminate this Agreement at any time and for any reason by giving thirty (30) day's prior written notice of such termination to the other party. 2.5 FINAL ACCOUNTING. Upon termination of this Agreement for any reason, Manager shall deliver to Owner the following: (a) a final accounting, reflecting the balance of the Operating Account (as hereinafter defined), as of the date of termination, to be delivered within sixty (60) days after such termination; (b) any monies of Owner held by Manager with respect to the Restaurants to be delivered within three (3) business days after termination; and, (c) all records, contracts, unpaid bills and other papers or documents which pertain to the Restaurants, to be delivered within three (3) business days after such termination. -3- 8 ARTICLE 3 MANAGER'S RESPONSIBILITY 3.1 MANAGEMENT. Manager shall manage the Restaurants in a manner commensurate with that of first-class managers of restaurants of a size, character and quality comparable to the Restaurants. Manager shall comply with all licensing and similar requirements of the applicable governmental authorities relating to performance by Manager of its duties hereunder. 3.2 EMPLOYEES; INDEPENDENT CONTRACTOR. Manager shall, on behalf of Owner, employ at all times a sufficient number of capable employees to enable it to properly, adequately, safely and economically manage, operate, maintain and account for the Restaurants. All matters pertaining to the employment, supervision, compensation, promotion and discharge of such employees are the responsibility of Manager; provided that Manager shall have no authority to enter into any employment contract on behalf of Owner that provides for annual compensation in excess of $75,000 or which will not be terminable on thirty (30) days' prior written notice unless Manager obtains Owner's prior written consent thereto. If Manager requests Owner's consent to any such contract, Owner shall respond to such request within ten (10) days after receiving such request. Manager shall fully comply with all applicable laws and regulations having to do with worker's compensation, social security, unemployment insurance, hours of labor, wages, working conditions, and other employer/employee related subjects. This Agreement is not one of general agency between Manager and Owner, but one in which Manager is engaged independently in the business of managing Restaurants on behalf of Owner as an independent contractor, and in that respect has only limited agency as specifically set forth in this Agreement. 3.3 AGREEMENT ON ANNUAL PLAN. On or before November 1 of each calendar year, Manager shall prepare and submit to Owner for Owner's approval, an annual plan ("Annual Plan") for the Restaurants for the ensuing calendar year, which Annual Plan shall include the items set forth in Exhibit A attached hereto and made a part hereof. Owner shall have a period of thirty (30) days in which to approve the Annual Plan or to notify Manager in writing of the reasons for Owner's disapproval thereof. Owner shall have the right from time to time during each calendar year to revise the Annual Plan. In addition, Manager shall have the right to submit a revised Annual Plan to Owner for Owner's approval during any calendar year if Manager deems revisions to the Annual Plan necessary. Owner shall have a period of fifteen (15) days after receipt of any such revised Annual Plan from Manager in which to notify Manager of Owner's approval of the revised Annual Plan or the reasons for Owner's disapproval thereof. 3.4 IMPLEMENTATION OF ANNUAL PLAN. When approved by Owner, Manager shall implement the Annual Plan and shall be authorized, without the need of further approval by the Owner, to make the expenditures and incur the obligations provided for in the budget included as part of the Annual Plan (the "Budget"). Except as otherwise provided below, Manager shall not, without the prior written consent of Owner, make any expenditure on behalf of Owner for a budgeted -4- 9 item in excess of five (5) percent more than the amount set forth for such item in the most recent Annual Plan that has been approved for the period in question by Owner. Notwithstanding the foregoing, if an emergency involving manifest danger to life or property exists with respect to which expenditures are necessary for the preservation or the safety of the Restaurants, for the safety of customers of the Restaurants, or to avoid the suspension of any necessary service to the Restaurants, such expenditures may be made by Manager without the prior approval of Owner; provided that Manager shall promptly notify Owner of any such expenditures. 3.5 OPERATING ACCOUNT. All revenues of the Restaurants shall be deposited in the Operating Account (hereinafter defined). 3.6 MANAGEMENT; SUPERVISION OF RESTAURANTS. Manager shall, at Owner's expense, institute, contract for or on behalf of Owner, and supervise all repairs, decorations and alterations, including the administration of a preventive maintenance program for all mechanical, electrical and plumbing systems and equipment in the Restaurants; provided that such (unless the same relate to emergencies) are included in an approved Annual Plan or in an authorization by Owner pursuant to Section 4.2. Manager shall, at Owner's expense, institute and supervise all operational and accounting activities of the Restaurants including, but not limited to, the following: (a) the provision of all restaurant services to the public; (b) advertising; (c) cleaning; (d) security service; (e) all plumbing, electrical, HVAC and other systems servicing the Restaurants; (f) a preventive maintenance program; (g) necessary repairs to the Restaurants; and (h) administration and reporting of financial activities related to the Restaurants. 3.7 OPERATING EXPENSES. Manager shall obtain and verify bills for operating expenses (including all amounts payable to the landlords under the Leases) and pay from funds in the Operating Account (as hereinafter defined) such operating expenses on behalf of Owner and at Owner's expense. Manager shall, on behalf of Owner, contest any such operating expenses which Owner requests Manager to contest and shall pursue any such contest diligently. In the event Manager believes that any operating expenses should be contested, Manager may request Owner's consent to contest such operating expenses, which consent shall not be unreasonably withheld, conditioned or delayed. -5- 10 3.8 PAYROLL RECORDS. Manager shall, at Owner's expense, prepare all payrolls and maintain comprehensive payroll records. 3.9 GENERAL RECORD KEEPING. Manager shall maintain complete and readily identifiable records and files on all matters pertaining to the Restaurants including, without limitation, all revenues and expenditures, service contracts and any records required to be maintained by Owner under the Leases. Such records and files shall be maintained at the respective Restaurants and/or at the offices of Manager. 3.10 COMMUNICATION WITH OWNER. Manager shall be available for communications with Owner and will keep Owner advised of all material items affecting the Restaurants. 3.11 COMPLIANCE WITH LAWS AND LOAN DOCUMENTS. Manager shall use all reasonable efforts to assure compliance with federal, state and municipal laws, ordinances, regulations and orders relating to the use, operation, repair and maintenance of the Restaurants and with the rules, regulations or orders of the local board of fire underwriters or other similar body. Manager shall promptly notify Owner of any violation of any such law, ordinance, rule, regulation or order which comes to its attention and, at Owner's request, will remedy the same at Owner's expense. Manager shall also comply with all of the requirements of the Leases and the provisions of any loan documents encumbering the Restaurants (provided copies are supplied by Owner to Manager) to the extent the same relate to matters for which Manager is responsible pursuant to the terms hereof. 3.12 MANAGER'S RESPONSIBILITY TO PROVIDE INFORMATION. Manager specifically agrees to furnish any and all other information reasonably requested by Owner after reasonable notice from Owner and within a reasonable time after such notice. ARTICLE 4 MANAGEMENT AUTHORITY 4.1 MANAGER'S AUTHORITY. Manager's authority is expressly limited to the provisions set forth in this Agreement as the same may be amended in writing from time to time by Owner and mutually agreed to and accepted by Manager in writing. 4.2 CONTRACTS. Manager shall direct and supervise the maintenance and operation of the Restaurants as approved by Owner in the approved Annual Plan, and in connection therewith may, on Owner's behalf and at Owner's expense, enter into contracts for services including, but not limited to, cleaning, security, pest control, labor, supplies and utility services. Copies of such contracts shall be delivered to Owner by Manager promptly following execution. Subject to compliance with the Annual Plan, such contracts shall contain terms and provisions reasonably deemed by Manager to be appropriate and in the interests of Owner, and shall be negotiated and -6- 11 entered into by Manager for the account of Owner and in the name of Owner. In the alternative and at Manager's discretion, Manager may present such contracts to Owner for signature and Owner agrees to sign and return such contracts to Manager promptly so long as such contracts comply with the requirements hereof. All service contracts shall be terminable by Owner on thirty (30) days' notice, unless such requirement is waived by Owner. Owner agrees that Manager may enter into contracts for services for the Restaurants with persons that are affiliated with Manager; provided that such agreements do not result in expenditures or concessions by Owner in excess of the amount or terms that would be paid or agreed to by Owner in arm's length agreements with unrelated parties in the same geographic area as the respective Restaurants. Manager shall provide fifteen (15) days' prior written notice to Owner before entering into any agreement between Owner and Manager or any affiliate thereof and Manager shall provide fifteen (15) days' prior written notice to Owner of any payment (except for the Management Fee, the Reimbursable Expenses and payments pursuant to agreements referred to in the preceding sentence) made between Owner and Manager or any affiliate thereof. ARTICLE 5 INSURANCE 5.1 INSURANCE. Owner, at Owner's expense, shall cause to be obtained and maintained in full force and effect the types and amounts of insurance described in Exhibit B attached hereto and made a part hereof. ARTICLE 6 FINANCIAL REPORTING 6.1 REVENUE AND EXPENSE RECORDS. Manager, in the discharge of its duties hereunder, shall maintain adequate revenue and expense records for the Restaurants, which shall be supported by sufficient documentation to ascertain that entries are properly and accurately recorded. 6.2 MONTHLY AND QUARTERLY REPORTS. No later than ten (10) days after the end of each calendar month, Manager shall deliver to Owner a statement of the operating income or loss for such month for each of the Restaurants. No later than twenty (20) days after the end of each calendar quarter, Manager shall deliver to Owner an explanation of the nature and extent of any variations between the estimated revenues and expenses for such quarter, as projected in the Annual Plan, and the actual revenues and expenses for such quarter. Owner may, upon five (5) days' prior notice, require the aforementioned quarterly reports to be provided on a monthly basis. 6.3 ADDITIONAL FINANCIAL INFORMATION. Manager shall maintain the originals or copies of the following for at least two calendar years: (a) all bank statements, bank deposit slips, and bank reconciliations; -7- 12 (b) detailed cash receipts and disbursements records; (c) detailed trial balance; (d) paid invoices; (e) summaries of adjusting journal entries; (f) supporting documentation for payroll, payroll taxes, and employee benefits; and (g) any other records which Owner is required to maintain under the Leases. 6.4 ACCOUNTING PRINCIPLES. All financial statements and reports shall be prepared in accordance with generally accepted accounting principles. ARTICLE 7 OWNER'S RIGHT TO AUDIT 7.1 AUDIT BY OWNER. Upon reasonable notice and during regular business hours, Owner may conduct examinations of the books and records maintained for Owner by Manager no matter where such books and records are maintained by Manager. Owner also reserves the right to perform any and all additional audit tests relating to Manager's activities either at the Restaurants or at any office of Manager; provided such audit tests are related to those activities performed by Manager for Owner. Should Owner discover either material deficiencies in internal controls or error in record keeping, Manager shall correct such discrepancies within a reasonable period of time, at Manager's expense. Manager shall inform Owner in writing of the action taken to correct such audit discrepancies. ARTICLE 8 BANK ACCOUNTS Manager shall open and maintain in such banks as the Owner may from time to time direct, and at the Owner's expense, at least one account for each of the Restaurants (herein collectively called the "Operating Account"), in the name of the Owner (so that at all times the funds deposited therein shall be the sole and exclusive property of the Owner), and shall deposit in such account all sums collected or otherwise received by Manager for or on behalf of the Owner and pay to the Owner so much thereof as may be requested by the Owner from time to time so long as sufficient funds remain in the Operating Account at all times to operate the Restaurants in accordance with the Annual Plan. The Manager is authorized, as the agent of the Owner, to draw -8- 13 on such account for payment, on behalf and in the name of the Owner and when required in connection with the operation or maintenance of the Restaurants, of the following expenses to the extent included in the approved Budget or Annual Plan (herein called "Operating Expenses"): (a) cost of the gross salary, bonuses and other types of compensation, or pro rata share thereof, to include payroll taxes, insurance, worker's compensation and other benefits, of employees and related staff; (b) cost of general accounting, financial and tax reporting services which are within the reasonable scope of Manager's responsibility to Owner and all other financial reporting requested by Owner; (c) costs of supplies and food; (d) costs of smallwares; (e) costs of furniture, fixtures and equipment; (f) cost of forms, paper, ledgers and other supplies and equipment used in the Manager's office; (g) cost of insurance permitted or required to be maintained by Manager pursuant to the provisions of this Agreement; (h) cost to correct any violation of federal, state and municipal laws, ordinances, regulations and orders relative to the use, repair and maintenance of the Restaurants, or related to the rules, regulations or order of the local board of fire underwriters or other similar body; (i) cost of legal fees of attorneys, provided such attorneys have been designated by Owner; (j) cost of service contracts and cost of on-site utilities; (k) cost of capital expenditures; (l) cost of advertising; (m) Management Fee (payable as provided in Article 13 whether or not included in the Budget); (n) Expense Reimbursements (as provided in Article 9 whether or not included in the Budget); -9- 14 (o) cost of audits as required by Owner; (p) any and all other costs necessary to the management, operation and maintenance of the Restaurants which are within the approved Budget; (q) the cost of any extraordinary expenses as provided in Section 3.4 (whether or not included in the Budget); and (r) any other costs approved by Owner (whether or not included in the Budget). ARTICLE 9 PAYMENT OF EXPENSES 9.1 OWNER'S RESPONSIBILITY FOR EXPENSES. Owner shall be responsible for, and Manager shall pay directly from the Operating Account, those Operating Expenses as defined in Article 8 which are incurred by Manager in managing and operating the Restaurants. 9.2 NON-REIMBURSABLE AND REIMBURSABLE EXPENSES. Cost of gross salaries and wages, payroll taxes, insurance, worker's compensation and other benefits of Manager's officers shall be at the sole cost and expense of Manager and shall not be reimbursed by Owner unless otherwise approved by Owner in an approved Budget. Any expenses for travel, food and lodging incurred by Manager's officers and employees in connection with travel to and from the Restaurants shall be paid for by Manager and shall not be reimbursed by Owner. All other reasonable and out of pocket expenses for travel, food and lodging (the "Reimbursable Expenses") incurred by Managers' officers and employees in performing services pursuant to this Agreement shall be paid by Owner as an Operating Expense, but only if approved in advance in writing by Owner. ARTICLE 10 INSUFFICIENT INCOME 10.1 PRIORITIES. If at any time, the cash in the Operating Account shall not be sufficient to pay the bills and charges which may be incurred with respect to the Restaurants, Manager shall not be obligated to pay said expenses and charges from its own account. Manager shall notify Owner upon awareness of a cash shortage or pending cash shortage and Owner shall determine payment priority. After Manager has paid, to the extent of available cash, all bills and charges based upon the priorities established by Owner, Manager shall submit to Owner a statement of all remaining unpaid bills. Owner shall thereafter and without undue delay provide sufficient monies to pay any unpaid expenses properly payable by Owner. -10- 15 ARTICLE 11 OWNER'S OBLIGATION 11.1 OBLIGATIONS UNDER CONTRACTS. Owner hereby assumes all obligations under any contract which Manager shall execute on behalf of Owner under the terms of this Agreement, and shall indemnify and hold Manager harmless from all liabilities, costs, and expenses arising in connection with such contracts. 11.2 MANAGEMENT OFFICE. Owner shall provide Manager with a management office at the Restaurants. All costs incurred by Manager in connection with such office shall be paid by Owner; provided, however, that such costs shall be in accordance with the limitations set forth in the approved Budget or otherwise in this Agreement and provided further that if more than one project is managed from the management office in a Restaurant, costs associated therewith shall be equitably allocated among the projects managed therefrom. 11.3 RESPONSE TO MANAGER'S INQUIRIES. Owner shall use all reasonable efforts to respond promptly to all inquiries and requests for Owner's consent made by Manager pursuant to this Agreement, but Owner shall, in any event, be obligated to respond within ten (10) days after such inquiry or request except to the extent a different time period for response is specified in this Agreement. ARTICLE 12 MANAGER'S LIABILITY 12.1 LIMITATION ON MANAGER'S LIABILITY. Manager shall not be liable or accountable, in damages or otherwise, to Owner for any act performed or failure to act by it in good faith, unless such act or failure to act is attributable to fraud, gross negligence, willful misconduct, or material breach of the terms and provisions of this Agreement; provided, however, that Manager shall not be liable or accountable, in damages or otherwise, to Owner for any breach of the terms and provisions of this Agreement with respect to which Manager can establish that (i) such act or failure to act was undertaken with due regard for the terms and provisions of this Agreement and (ii) in the reasonable good faith judgment of Manager, such act or failure to act was not a material violation of the terms and provisions of this Agreement. 12.2 INDEMNITY OF MANAGER. Owner agrees to indemnify and save harmless Manager, its governors, members, officers and employees and each of them (individually and collectively the "Indemnitees"), from and against any and all claims made or asserted for any losses, claims, damages or injury of any kind or nature whatsoever (including death resulting therefrom) in connection with Manager's management and operation of the Restaurants; provided that such indemnification shall not extend to claims attributable to Manager's fraud, gross negligence, willful misconduct, or material breach of the terms and provisions of this Agreement, but only to the extent such claims are based on Manager's fraud, gross negligence, willful misconduct or material breach -11- 16 of the terms of this Agreement. Notwithstanding the foregoing, such indemnification shall extend to claims resulting from breach of the terms and provisions of this Agreement if Manager can establish that (i) such act or failure to act was undertaken with due regard for terms and provisions of this Agreement and (ii) in the reasonable good faith judgment of Manager, such act or failure to act was not a material violation of the terms and provisions of this Agreement. Owner agrees to and does hereby assume on behalf of the Indemnitees, the defense of any action at law or in equity which may be brought against the Indemnitees, based on a claim for which indemnification is permitted pursuant to the terms hereof. ARTICLE 13 COMPENSATION 13.1 MANAGEMENT FEE. Owner shall pay to Manager, as remuneration for its services in accordance with the terms of this Agreement, an annual management fee ("Management Fee") during the term of this Agreement, as set forth herein. For so long as Thomas W. Orr remains employed by PopMail in his current position, the Management Fee shall be equal to $451,836.00 per year or a pro rata portion thereof for any partial year. If Thomas W. Orr is no longer employed by PopMail in his current position, the Management Fee shall, after the end of such employment, be equal to $675,000 per year or a pro rata portion thereof for any partial year. Notwithstanding anything to the contrary in this Agreement, if Thomas W. Orr is not providing a significant portion of the essential management services to be performed by Manager under this Agreement, the annual Management Fee as described in either of the preceding two sentences shall be reduced by Two Hundred Twenty-Three Thousand One Hundred Sixty-Four Dollars ($223,164) per year. Owner's obligation to pay the Management Fee shall continued unabated notwithstanding the termination of this Agreement in accordance with Article 2 hereof, except that Owner's obligation to pay the Management Fee shall terminate simultaneously with the termination of this Agreement if this Agreement is terminated for any reason after the second anniversary of this Agreement and Owner's obligation to pay the Management Fee shall terminate simultaneously with the termination of this Agreement if this Agreement is terminated prior to the second anniversary of this Agreement pursuant to (a) Section 2.1(ii) (but only if both of the Restaurants or substantially all of either the stock or assets of Owner are sold to Manager), (b) Section 2.1(iii) (but only if the closure of the Restaurants results from casualty or condemnation), (c) Section 2.1(iv), (d) Section 2.2, or (e) Section 2.4 (but only if this Agreement is terminated by Manager pursuant to Section 2.4). If this Agreement is terminated prior to the second anniversary of this Agreement for any reason other than the reasons specified in the preceding sentence, then Owner shall be obligated to pay Manager a Termination Fee which shall be based upon the number of days remaining (from and after the effective date of such termination) during the first two years of the term of this Agreement. The Termination Fee shall be equal to the sum of (a) the product arrived at by multiplying the number of days remaining in the first year of this Agreement by $1,473.97 per day, plus (b) the product arrived at by multiplying the number of days remaining in the second year of this Agreement by $1,063.01. For example, if there are 400 days remaining (from and after the effective date of such termination) during the first two years of the term of this Agreement, the Termination Fee shall be -12- 17 $439,588.95 (i.e. (35 x $1,473.97) plus (365 x $1,063.01)). Any such Termination Fee shall be payable in equal monthly installments on the first and fifteenth day of each month beginning immediately after the effective date of such termination and continuing until the second anniversary of this Agreement. 13.2 PAYMENT SCHEDULE. Notwithstanding that the Management Fee shall be determined and reconciled as an annual fee, it shall be payable in equal installments on the first and fifteenth day of each month, commencing on the date of this Agreement; provided that the Management Fee shall be prorated for any partial month within the term of this Agreement. For so long as Thomas W. Orr remains employed by PopMail in his current position, the installment payable on the first and fifteenth day of each month shall be $18,826.50. If Thomas W. Orr is no longer employed by PopMail in his current position, the installment payable thereafter on the first and fifteenth day of each month shall be $28,125. Notwithstanding anything to the contrary in this Agreement, each of the bi-monthly installments of the Management Fee as described in the preceding two sentences shall be reduced by Nine Thousand Two Hundred Ninety-Eight and 50/xx Dollars ($9,298.50) if Thomas W. Orr is no longer providing a significant portion of the essential management services to be performed by Manager under this Agreement. 13.3 PAYMENT RECONCILIATION. Within sixty (60) days after the end of each calendar year, or sixty (60) days after the earlier termination of this Agreement, there shall be an adjustment prepared by Manager between Owner and Manager, with payment to Manager or repayment by Manager to Owner, as appropriate, so that Manager receives the Management Fee provided for herein and calculated as stated above. The Management Fee provided for herein, and the installment payments on account of such Management Fee, shall be adjusted on a proportionate basis for any partial month or partial half month installment period during the term of this Agreement. 13.4 PAYMENTS TO ACCOUNTS OF MANAGER. The Management Fee and any reimbursements to be made to Manager pursuant to the terms of this Agreement shall be transferred by Manager from the Operating Account into such accounts as may be designated by Manager from time to time or may be paid directly to Manager at Manager's option. ARTICLE 14 RIGHT OF FIRST REFUSAL 14.1 RIGHT OF FIRST REFUSAL. Owner hereby grants to Manager during the term of this Agreement a right of first refusal to purchase either or both of the Restaurants or all or substantially all of the assets of, or the equity interests in, Owner upon the same terms and conditions as are offered for any of the foregoing by any third party purchaser and which are acceptable to Owner. If Owner should receive any such acceptable offer, Owner shall give Manager written notice (the "Notice") of all of the terms and conditions thereof and Manager shall have thirty (30) days after the date on which Manager receives such notice (the "Notice Date") in which to exercise its right of -13- 18 first refusal by giving its written notice of acceptance to Owner. Manager must consummate such purchase within one hundred twenty (120) days after the Notice Date upon the same terms and conditions as set forth in the Notice. If Manager fails to exercise its right of first refusal within thirty (30) days after the Notice Date, then Owner shall be permitted to consummate the sale to the third party so long as the closing is completed within one hundred twenty (120) days after the Notice Date upon the same terms and conditions as set forth in the Notice. If the sale is not consummated within one hundred twenty (120) days after the Notice Date upon the same terms and conditions as set forth in the Notice, then Owner must once again comply with all of the notice provisions contained in this Section before consummating any such sale to a third party. ARTICLE 15 ASSIGNMENT 15.1 ASSIGNMENT BY MANAGER. Manager shall not transfer or assign this Agreement or any part thereof or any of its rights or obligations hereunder without the prior written consent of Owner. The consent of Owner to one or more assignments of this Agreement shall not be construed as, or result in, the consent by Owner to any further or future assignment or assignments. Any assignment or attempted assignment not made strictly in accordance with the foregoing shall be void. ARTICLE 16 COOPERATION 16.1 LISTING BROKER. If Owner executes a listing agreement with a broker for the sale by the Owner of either of or both of the Restaurants, Manager shall cooperate with such broker to the end that the respective activities of Manager and broker may be carried on without friction and without interference to the conduct of business at the Restaurants. Manager shall permit the broker to exhibit the Restaurants during reasonable business hours after reasonable notice to Manager. Manager shall not be entitled to any portion of the commission or other compensation payable to any such broker. ARTICLE 17 LEGAL PROCEEDINGS 17.1 LEGAL PROCEEDINGS. If any claims, demands, suits or other legal proceedings are instituted by any person against Owner or the title holder of the Restaurants which arise out of any of the matters relating to this Agreement, Manager shall (without expense to Manager, but without any charge to Owner for any time devoted thereto by Manager's governors, officers, managers or employees) give Owner all pertinent information and reasonable assistance in the defense or other disposition thereof. -14- 19 ARTICLE 18 NOTICES: AUTHORIZED REPRESENTATIVES 18.1 NOTICES. Any notice or report provided for or permitted under this Agreement shall be personally served, telecopied or sent by overnight courier or U.S. Mail and shall be deemed given: (a) if served in person, when served; (b) if telecopied, on the date of transmission if before 3:00 p.m. (Minnesota time) on a business day; provided that a hard copy of such notice is also sent pursuant to (c) or (d) below; (c) if by overnight courier, on the first business day after delivery to the courier; or (d) if by U.S. Mail, certified or registered mail, return receipt requested on the third (3rd) day after deposit in the mail postage prepaid, if properly addressed (i) if to Owner, to PopMail.com, Inc., c/o BaryCenter Capital Management, 8260 NorthCreek Drive, Suite 140, Cincinnati, OH 45236, Attention: Stephen D. King, with a copy to Maslon Edelman Borman & Brand, LLP, 3300 Norwest Center, Minneapolis, MN 55402, Attention: Counsel for PopMail.com, Inc., or (ii) if to Manager, to Odyssey Restaurants, LLC, a Minnesota limited liability company, Attention: 500 16th Street, Suite 350, Denver, CO 80202, Attention: Thomas W. Orr, with a copy to Senn Lewis & Visciano, 1801 California Street, Suite 4300, Denver, CO 80202, Attention: Mark A. Senn; or to such other address as Owner may specify in a written notice to Manager or Manager may specify in a written notice to Owner in accordance with this Section 18.1. 18.2 AUTHORIZED REPRESENTATIVES. Subject to the other requirements of this Agreement, Owner and Manager agree that the following persons on behalf of each such party are entitled to act on its behalf in dealing with the other party and such other party shall be entitled to rely thereon: On behalf of Owner: Stephen D. King On behalf of Manager: Thomas W. Orr Ronald K. Fuller Manager and Owner shall each have the right to designate additional or substitute persons as authorized representatives by written notice to the other. ARTICLE 19 MISCELLANEOUS 19.1 MANAGER'S RIGHTS. Manager shall not be required to work exclusively for Owner during the term of this Agreement, but may set its own schedule and working hours sufficient to permit satisfactory performance under this Agreement. Manager is free to devote its time and attention to such other activities as it deems appropriate, including other consulting and management -15- 20 work (including management of other restaurants, including but not limited to other Cafe Odyssey Restaurants), so long as its services to Owner are not comprised thereby. In particular, and without limiting the generality of the foregoing, Manager shall be entitled to negotiate for and consummate the purchase of either or both of the Restaurants, the purchase of all or substantially all of the assets or stock of Owner, and be involved in the ownership and management of other restaurants, including, but not limited to, the ownership and management of Cafe Odyssey Restaurants as contemplated in that certain License and Credit Enhancement Agreement of even date herewith between Manager and Owner. 19.2 INDEPENDENT CONTRACTOR. Manager shall perform the services set forth herein as an independent contractor and not as a servant, employee, or partner of Owner. The parties hereby make explicit their intention that Manager shall in all respects operate as an independent contractor and shall not be deemed an employee of Owner for any purpose whatsoever. Manager shall not be treated as an employee of Owner for federal income tax purposes or otherwise, and no compensation under this Agreement shall be subject to FICA taxes or federal or state income tax withholding; Manager will be responsible for payment of federal and state income tax on all compensation earned pursuant to this Agreement. 19.3 DISCLAIMER OF RELATIONSHIP. The relationship between Owner and Manager shall be that of owner and manager only. No term in this Agreement and no course of dealing between the parties shall be deemed to create any relationship of agency, partnership, joint venture or franchisor-franchisee, nor to create any relationship of parent-subsidiary or any other affiliation between the parties. 19.4 SEVERABILITY. Wherever possible, each provision of this Agreement shall be interpreted so as to be effective and valid under applicable law, but if any provision hereof shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 19.5 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be effective only upon delivery and thereafter shall be deemed an original, and all of which shall be taken to be one and the same instrument to the same effect as if all parties hereto had signed the same signature page. Any signature page of this Agreement may be detached from any counterpart of this Agreement without impairing the legal effect of any signatures thereon and may be attached to another identical counterpart of this Agreement, but having attached to it one or more additional signature pages. 19.6 NO BLANKET WAIVER. In the event of a waiver of a default by either party under this Agreement, such waiver shall not operate as a waiver of any subsequent default. -16- 21 19.7 ARBITRATION. Any disputes that may arise between the parties under this Agreement, or with respect to or arising out of subject matter hereof, shall be submitted to arbitration in the state of, and pursuant to the laws of, Minnesota under the following procedure: (1) Any party hereto (the "Initiating Party") can declare a dispute to be irreconcilable, thereby invoking binding arbitration, by giving notice thereof in accordance with the provisions of Section 10 hereof. Such notice shall identify the Initiating Party's designated independent arbitrator. Each arbitrator appoint pursuant to this Section 19.6 shall have at least ten (10) years of experience in the field of restaurant operations and management. (2) The party so notified (the "Responding Party") shall then have twenty (20) days to identify the Responding Party's designated independent arbitrator by notice to the Initiating Party and by having the Responding Party's designated arbitrator contact the Initiating Party's designated arbitrator within said twenty (20) days. If the Responding Party fails to do so, the Initiating Party may designate the Responding Party's arbitrator. (3) The two arbitrators shall, within twenty (20) days of the date they initially make contact, designate a third arbitrator. If the two arbitrators cannot agree within said twenty (20) days on a third arbitrator, then the two arbitrators shall petition the District Court of Hennepin County, Minnesota, to appoint the third arbitrator. (4) Notwithstanding anything herein to the contrary, at the time an Initiating Party invokes binding arbitration, the Initiating Party may request that the Responding Party agree upon a single arbitrator to determine the matter, in which event the arbitration shall proceed before, and be determined by, the single arbitrator agreed upon by the parties. (5) The arbitrators, using procedures of the American Arbitration Association or any like organization acceptable to the arbitrators, shall determine liability and damages, if any, to be awarded. The parties shall each advance their proportionate share of any advance fees required to be paid to the arbitrators. The losing party shall pay all arbitration fees and shall also be liable for attorneys' fees incurred by the successful party. Should the arbitrators determine that both parties bear some liability in connection with the dispute, then the arbitrators shall assess arbitration and attorneys' fees as they deem appropriate under the circumstances. (6) The award of the arbitrators shall be final and binding and may be enforced by the District Court of Hennepin County, Minnesota. 19.8 WAIVER OF JURY TRIAL. NOTWITHSTANDING THE PROVISIONS OF THE PRECEDING SECTION, SHOULD ANY PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT OR THE SUBJECT MATTER HEREOF BE CONDUCTED IN THE COURTS OF MINNESOTA, OR ANY OTHER JURISDICTION, THE PARTIES EACH WAIVE TRIAL BY JURY TO THE FULLEST EXTENT PERMITTED BY LAW. -17- 22 19.9 ATTORNEYS' FEES. If any action (including a lawsuit, arbitration, mediation, or administrative proceeding) is brought for or on account of any breach of this Agreement, or to enforce or interpret any of the terms, covenants or conditions of this Agreement, the substantially prevailing party shall be entitled to receive from the other party attorneys' fees and costs (including without limitation expert witness and consulting fees) incurred in the action. 19.10 FURTHER ASSURANCES. Each party agrees to do such things, perform such acts and make, execute acknowledge and deliver such documents as may be reasonably necessary or proper to insure that the purpose and intent of this Agreement are accomplished. 19.11 PRONOUNS. The pronouns used in this Agreement referring to Manager or Owner shall be understood and construed to apply whether Manager or Owner is an individual, partnership, corporation or an individual or individuals doing business under a firm or trade name, and the masculine, feminine and neuter pronouns shall each include the others and may be used interchangeably with the same meaning. 19.12 AMENDMENTS. Any and all amendments to this Agreement shall be null and void unless approved by the parties in writing. 19.13 HEADINGS. All headings herein are inserted only for convenience and ease of reference and are not to be considered in the construction or interpretation of any provision of this Agreement. 19.14 SUCCESSION. This Agreement shall be binding upon and inure to the benefit of Owner, its successors and assigns, and shall be binding upon and inure to the benefit of Manager, its successors and permitted assigns. 19.15 ENTIRE AGREEMENT. This Agreement hereto constitutes the entire Agreement between Owner and Manager. 19.16 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Minnesota. -18- 23 IN WITNESS WHEREOF, Owner and Manager have executed this Agreement effective as of the date first set forth above. MANAGER ODYSSEY RESTAURANTS, LLC By: /s/ R.K. Fuller -------------------------------------- Name: Ronald K. Fuller ------------------------------------- Title: Chief Operating Manager ----------------------------------- OWNER CAFE ODYSSEY, LLC By: /s/Stephen D. King -------------------------------------- Name: Stephen D. King ------------------------------------- Title: Chief Operating Manager ----------------------------------- H D SPIRITS, INC. By: /s/Stephen D. King -------------------------------------- Name: Stephen D. King ------------------------------------- Title: Secretary ----------------------------------- POP.MAIL.COM, INC. By: /s/Stephen D. King -------------------------------------- Name: Stephen D. King ------------------------------------- Title: Chief Executive Officer ----------------------------------- /s/ R.K. Fuller ------------------------------------------ Ronald K. Fuller, Individually -19- 24 ITEMS TO BE INCLUDED IN ANNUAL PLAN (i) a detailed estimate of the gross projected revenues for the forthcoming fiscal year; (ii) a detailed estimate of the Operating Expenses; (iii) a statement as to the projected balances of the working capital and any replacement reserve accounts as of the first day of the forthcoming fiscal year; (iv) a statement as to the projected additions to or disbursements from any such reserve accounts for the forthcoming fiscal year; (v) an estimate of the projected net cash flow for the forthcoming fiscal year; (vi) a detailed description of the renovations or other capital improvements, if any, proposed to be undertaken during the forthcoming fiscal year; (vii) an estimate of the total costs of the renovations or other capital improvements, if any, proposed to be undertaken during the forthcoming fiscal year; and (viii) a description of the minimum insurance coverage to be maintained for the forthcoming fiscal year. Owner will provide Manager with the costs of insurance to be included in the Annual Plan at least forty-five (45) days prior to the date the Annual Plan is required to be submitted to Owner by Manager hereunder. -1- 25 INSURANCE REQUIREMENTS 1. PROPERTY INSURANCE. Coverage shall be on a comprehensive all risk basis and shall not exclude the following: fire, lightning, extended coverage, vandalism, electrical short circuit, flood, water damage, collapse, earthquake, debris removal, demolition, increased cost of construction (at commercially reasonable rates and limits) and the value of the undamaged portion. The amount of such insurance shall not be less than the full replacement cost (and a replacement cost endorsement shall be provided for these purposes permitting payment of the loss without a requirement to rebuild) as determined by an insurance appraisal or such other valuation. The Policy shall contain an endorsement called an "Agreed Amount Endorsement" which shall waive any and all co-insurance provisions under the Policy as it applies to the coverage. The Policy shall waive all of the insurer's rights of subrogation against Manager. Boiler & Machinery Insurance on a comprehensive form in an amount that is adequate to provide protection against the maximum amount of damage possible to buildings, improvements and contents resulting from a boiler, machinery or electrical incident that are sudden in nature. Earthquake Insurance will be required for each property unless waived by Owner. 2. BUSINESS INTERRUPTION INSURANCE. Coverage shall include all of the risks referred to in subsection (1) above (Property Insurance). The amount of insurance shall not be less than the 100% of the estimated annual profits for each of the Restaurants. The Policy shall contain an agreed amount endorsement waiving all co-insurance provisions. 3. COMMERCIAL LIABILITY INSURANCE. This Policy shall include coverage for claims arising from bodily injury, personal injury and property damage occurring upon, in or about each property. The coverage shall be on an occurrence basis and the minimum limits shall be not less than $ 1,000,000. Each policy shall cover the following hazards: Premises and operations, contractual liability, personal injury, incidental malpractice and liquor related liability for a non-operator. 4. COMPREHENSIVE AUTOMOBILE LIABILITY INSURANCE. This Policy shall include coverage for claims arising from bodily injury, and property damage occurring from -2- 26 use of owned and non-owned auto, and coverage of hired vehicles on an "if any" basis. Coverage should be on an occurrence basis with limits of not less than $1,000,000. 5. UMBRELLA/EXCESS LIABILITY INSURANCE. This Policy (or Policies) shall provide limits of no less than $50,000,000 per occurrence and annual aggregate in excess of the policies described under Items 3. and 4. above. Manager shall also be a Named Insured on the policies described under 3, 4, and 5. 6. WORKERS' COMPENSATION AND EMPLOYERS LIABILITY INSURANCE. This Policy shall include Voluntary Compensation and All States other than Monopolistic State Fund States and provide for a limit of not less than $100,000 for Employers Liability protection. 7. GENERAL. All insurance shall be evidenced by valid and enforceable policies, issued by financially sound and responsible insurance companies having a Best Policyholder Rating of not less than A- XIV, and authorized to do business in the state in which each property is located. -3- EX-10.3 15 ex10-3.txt LICENSE AND CREDIT ENHANCEMENT AGREEMENT 1 EXHIBIT 10.3 LICENSE AND CREDIT ENHANCEMENT AGREEMENT THIS LICENSE AND CREDIT ENHANCEMENT AGREEMENT ("Agreement") is entered into effective as of the ____ day of May, 2000, between Cafe Odyssey, LLC, a Minnesota limited liability company ("Licensor"), and Odyssey Restaurants, LLC, a Minnesota limited liability company ("Licensee"): WITNESSETH: WHEREAS, Licensor expects to acquire from PopMail.com, Inc. ("PopMail") the Cafe Odyssey Restaurant located in the Mall of America in Bloomington, Minnesota and the Cafe Odyssey Restaurant located in the Denver Pavilions Shopping Center in Denver, Colorado (the "Existing Cafe Odyssey Restaurants"); and WHEREAS, Licensor also expects to acquire from PopMail certain intellectual property rights which are used in connection with the Existing Cafe Odyssey Restaurants; and WHEREAS, Licensee desires to obtain the right to develop new Cafe Odyssey Restaurants and, in connection therewith, Licensee desires to obtain a perpetual nonexclusive license to use such intellectual property rights; and WHEREAS, Licensee also wants Licensor to provide certain financial assistance and credit enhancements in connection with Licensee's development of new Cafe Odyssey Restaurants; and WHEREAS, Licensor and Licensee have entered into a Management Agreement effective as of even date herewith, pursuant to which Licensee will manage the Existing Cafe Odyssey Restaurants on behalf of Licensor upon the terms and subject to the conditions thereof (the "Management Agreement"); and WHEREAS, as a condition to entering into the Management Agreement, Licensee has required Licensor to enter into this Agreement; NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF LICENSE. Licensor hereby grants unto Licensee a perpetual nonexclusive right, upon the terms and subject to the conditions hereinafter set forth, to use all intellectual property rights including, without limitation, all trade names and trademarks which are developed for use in connection with Cafe Odyssey Restaurants and which are now or hereafter owned by 2 Licensor (the "Intellectual Property Rights"), but only in connection with any Cafe Odyssey Restaurants owned by Licensee. This license is coupled with an interest and is irrevocable and nonterminable except in accordance with the terms hereof. Licensor makes no representation or warranty to Licensee with respect to the validity, or any other aspect, of the Intellectual Property Rights and Licensor shall have no obligation to register, take any actions to obtain registration of, or continue registration of any Intellectual Property Rights under applicable law. In addition, Licensor shall not be required to defend Licensee against any infringement, unfair competition or other claim respecting Licensee's use of any Intellectual Property Rights. Licensee agrees not to contest Licensor's sole right to register, use or to license the Intellectual Property Rights to others except to the extent necessary to protect Licensee's rights under this Agreement. Upon any termination of this Agreement, Licensee shall execute such documents and perform such acts as may be reasonably necessary to evidence Licensee's disassociation from Licensor and the fact that Licensee has ceased using any of the Intellectual Property Rights and that Licensee has no further interest or right thereto. 2. LIMITATIONS ON LICENSE. Notwithstanding anything to the contrary in this Agreement, Licensee shall have no right to assign the license rights granted in Section 1 above without first obtaining the written consent of Licensor, which consent shall be granted only if the proposed assignee is acquiring a Cafe Odyssey Restaurant owned by Licensee and such proposed assignee agrees in a writing reasonably acceptable to Licensor to be bound by such limitations as are reasonably necessary to protect the Intellectual Property Rights. The license of rights granted to Licensee in Section 1 above shall terminate and may no longer be used by Licensee on the date on which Licensee no longer owns any Cafe Odyssey Restaurant. 3. MODIFICATIONS TO RESTAURANT CONCEPT. Although Licensee shall have the right, in connection with its operation of any new Cafe Odyssey Restaurants, to modify the concepts used in connection with and the ambiance of the Existing Cafe Odyssey Restaurants, Licensee shall not have the right to modify such concepts or ambiance in a manner that would materially adversely affect the value of the Existing Cafe Odyssey Restaurants or the Intellectual Property Rights. 4. DEVELOPMENT RIGHTS. Licensor hereby grants Licensee the exclusive right prior to the third anniversary of the Management Agreement (the "Exclusive Development Rights Expiration Date"), to develop, own and operate the next four (4) Cafe Odyssey Restaurants in any location (other than the Twin Cities and the Denver metropolitan areas). In addition, Licensee shall have the right to develop, own and operate a total of four (4) new Cafe Odyssey Restaurants (including among such four (4) restaurants any new Cafe Odyssey Restaurants which are opened prior to the Exclusive Development Rights Expiration Date) whether or not any of such restaurants are opened prior to the Exclusive Development Rights Expiration Date. Further, if, after Licensee has developed the four (4) new Cafe Odyssey Restaurants provided for in this Section, Licensee desires to develop, own and operate additional new Cafe Odyssey Restaurants (the "Additional New Cafe Odyssey Restaurants"), Licensee shall request Licensor's approval therefor, which approval shall not be unreasonably withheld, conditioned or delayed. Notwithstanding anything herein to the contrary, Licensor shall not be obligated to guarantee a lease for any such Additional New Cafe Odyssey Restaurant. 2 3 5. LICENSOR'S APPROVAL RIGHTS. Notwithstanding anything to the contrary in this Agreement, Licensee's right to develop new Cafe Odyssey Restaurants shall be conditioned upon Licensee's obtaining Licensor's prior written approval of the proposed location and the terms and conditions of any lease for such site, which approval will not be unreasonably withheld, conditioned or delayed. 6. GUARANTEES OF LICENSOR. Licensor hereby agrees to execute and deliver a full, unconditional guarantee of any lease for a new Cafe Odyssey Restaurant (including the Dearborn Lease as described in Section 13 of this Agreement) which is entered into prior to the Exclusive Development Rights Termination Date, but only if Licensor has approved such lease agreement, which approval will not be unreasonably withheld, conditioned or delayed; provided that, in no event, shall Licensor be required to guarantee more than four (4) leases for new Cafe Odyssey Restaurants pursuant to this Section. Notwithstanding the foregoing, Licensor's obligation to enter into such guarantees shall terminate and have no further force and effect on the date the Management Agreement expires or is terminated for any reason other than because of Licensor's default in the performance of its obligations under the Management Agreement or because the Existing Cafe Odyssey Restaurants are closed by reason of casualty or condemnation or are sold, whether through a sale of assets or equity interests, or the date on which substantially all of the assets of, or the equity interests in Licensor are sold. 7. NONCOMPETITION COVENANT. Licensor agrees that it shall not, either directly or indirectly, develop, or license or grant to any other entity the right to develop any Cafe Odyssey Restaurant in any resort, theme park or metropolitan area in which Licensee owns or is developing a Cafe Odyssey Restaurant. Further, Licensor shall not develop, directly or indirectly, or license or grant to any other entity the right to develop, any Cafe Odyssey Restaurant in any location until the earlier of (i) the Exclusive Development Rights Expiration Date, or (ii) the date on which Licensee has developed four (4) new Cafe Odyssey Restaurants. 8. BRIDGE LOAN AND PLEDGE. If Licensee proceeds with the development and construction of the proposed Cafe Odyssey Restaurant pursuant to the Dearborn Lease (as defined in Section 13 of this Agreement) Licensor agrees, if requested by Licensee, to loan Licensee up to Five Hundred Thousand Dollars ($500,000.00) to pay for the cost of leasehold improvements for such restaurant; provided that (i) such loan proceeds shall be disbursed in a manner reasonably acceptable to Licensor and shall be used only to pay up to the last $500,000.00 in leasehold improvement construction costs, (ii) such loan shall be documented (at the time the first of such loan proceeds are to be drawn) in a manner reasonably satisfactory to Licensor, which documentation shall include, but not be limited to, a negotiable promissory note from Licensee to Licensor which will provide for interest to accrue at a rate of nine percent (9%) per annum and a maturity date of December 31, 2000, and a collateral pledge of options (which have an aggregate value equal to 150% of the amount of such loan on the date the loan documents are executed) to acquire stock in PopMail.com, Inc. held by Ronald K. Fuller or Thomas W. Orr to secure such loan, and (iii) no portion of the loan proceeds shall be disbursed prior to July 15, 2000. If Licensee enters into the Dearborn Lease, Licensor also agrees to pledge as collateral the cash flow from the Existing Cafe 3 4 Odyssey Restaurants in order to secure repayment of up to but not more than $1,300,000 in loans which are used to pay for any leasehold improvements to the premises to be demised under the Dearborn Lease; provided that any such security interest in such cash flow shall be subordinate in all respects to any of Licensor's existing credit facilities and any refinancings thereof. 9. LEGAL PROCEEDINGS. If any claims, demands, suits or other legal proceedings are instituted by any person against Licensor or Licensee with respect to the subject matter of this Agreement, each of the parties hereto shall cooperate with each other and provide reasonable assistance in the defense or other disposition thereof. 10. NOTICES: AUTHORIZED REPRESENTATIVES. 10.1 NOTICES. Any notice or report provided for or permitted under this Agreement shall be personally served, telecopied or sent by overnight courier or U.S. Mail and shall be deemed given: (a) if served in person, when served; (b) if telecopied, on the date of transmission if before 3:00 p.m. (Minnesota time) on a business day; provided that a hard copy of such notice is also sent pursuant to (c) or (d) below; (c) if by overnight courier, on the first business day after delivery to the courier; or (d) if by U.S. Mail, certified or registered mail, return receipt requested on the third (3rd) day after deposit in the mail postage prepaid, if properly addressed (i) if to Licensor, to PopMail.com, Inc., c/o BaryCenter Capital Management,8260 NorthCreek Drive, Suite 140, Cincinnati, OH 45236, Attention: Stephen D. King, President, with a copy to Maslon Edelman Borman & Brand, LLP, 3300 Norwest Center, Minneapolis, MN 55402, Attention: Counsel for PopMail.com, Inc. or (ii) if to Licensee, to Odyssey Restaurants, LLC, a Minnesota limited liability company, Attention: Thomas W. Orr, 500 16th Street, Suite 350, Denver, CO 80202, with a copy to Senn Lewis & Visciano, 1801 California Street, Suite 4300, Denver, CO 80202, Attention: Mark A. Senn, Esq., or to such other address as Licensor may specify in a written notice to Licensee or Licensee may specify in a written notice to Licensor in accordance with this Section 10.1. 10.2 AUTHORIZED REPRESENTATIVES. Subject to the other requirements of this Agreement, Licensor and Licensee agree that the following persons are entitled to act on its behalf in dealing with the other party and such other party shall be entitled to rely thereon: On behalf of Licensor: Steven D. King On behalf of Licensee: Thomas W. Orr Ronald K. Fuller Licensor and Licensee shall each have the right to designate additional or substitute persons as authorized representatives by written notice to the other. 11. NO FRANCHISE. It is the intention of the parties hereto that this Agreement does not constitute a franchise agreement and that the relationship between them shall not be deemed to be 4 5 that of franchisor and franchisee. Each party agrees to do such things, perform such acts, and make, execute, acknowledge and deliver such documents as may be reasonably necessary or proper to insure that this Agreement will not be deemed to be or treated as a franchise agreement, and that the relationship between the parties will not be deemed to be or treated as a franchisor-franchisee relationship, by any person, entity, court or any governmental or quasi-governmental agency. 12. DISCLAIMER OF RELATIONSHIP. The relationship between Licensor and Licensee shall be that of licensor-licensee only. No term in this Agreement and no course of dealing between the parties shall be deemed to create any relationship of agency, partnership, joint venture or franchisor-franchisee, nor to create any relationship of parent-subsidiary or any other affiliation between the parties. 13. DEARBORN LEASE. Prior to the date of this Agreement, Maslon Edelman Borman & Brand, the attorneys for PopMail, have been negotiating a lease for a new Cafe Odyssey Restaurant for premises to be located in the Fairlane Town Center in Dearborn, Michigan (the "Dearborn Lease"). Contemporaneously with the execution of this Agreement, PopMail is assigning to Licensee any and all rights which PopMail may have with respect to the Dearborn Lease. Licensee hereby acknowledges that if Licensee enters into the Dearborn Lease, Licensee shall not be relying in any manner upon the advice or counsel of Maslon Edelman Borman & Brand with respect to the Dearborn Lease. Licensee further acknowledges that it is experienced in the acquisition, development, leasing, ownership and management of restaurants; that to the extent that Licensee's own expertise or experience with respect to any aspect of the Dearborn Lease or the location to be demised thereunder is insufficient to enable Licensee to reach an informed conclusion with respect to the desirability of entering into the Dearborn Lease, Licensee will have had the opportunity to engage, prior to the execution of the Dearborn Lease, the services of persons qualified to advise Licensee with respect to such matters including legal counsel of Licensee's choosing. 14. MISCELLANEOUS. 14.1 SEVERABILITY. Wherever possible, each provision of this Agreement shall be interpreted so as to be effective and valid under applicable law, but if any provision hereof shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 14.2 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be effective only upon delivery and thereafter shall be deemed an original, and all of which shall be taken to be one and the same instrument to the same effect as if all parties hereto had signed the same signature page. Any signature page of this Agreement may be detached from any counterpart of this Agreement without impairing the legal effect of any signatures thereon and may be attached to another identical counterpart of this Agreement, but having attached to it one or more additional signature pages. 5 6 14.3 NO BLANKET WAIVER. In the event of a waiver of a default by either party under this Agreement, such waiver shall not operate as a waiver of any subsequent default. 14.4 ARBITRATION. Any disputes that may arise between the parties under this Agreement, or with respect to or arising out of subject matter hereof, shall be submitted to arbitration in the state of, and pursuant to the laws of, Minnesota under the following procedure: (1) Any party hereto (the "Initiating Party") can declare a dispute to be irreconcilable, thereby invoking binding arbitration, by giving notice thereof in accordance with the provisions of Section 10 hereof. Such notice shall identify the Initiating Party's designated independent arbitrator. Each arbitrator appoint pursuant to this Section 14.5 shall have at least ten (10) years of experience in the field of restaurant operations and management. (2) The party so notified (the "Responding Party") shall then have twenty (20) days to identify the Responding Party's designated independent arbitrator by notice to the Initiating Party and by having the Responding Party's designated arbitrator contact the Initiating Party's designated arbitrator within said twenty (20) days. If the Responding Party fails to do so, the Initiating Party may designate the Responding Party's arbitrator. (3) The two arbitrators shall, within twenty (20) days of the date they initially make contact, designate a third arbitrator. If the two arbitrators cannot agree within said twenty (20) days on a third arbitrator, then the two arbitrators shall petition the District Court of Hennepin County, Minnesota, to appoint the third arbitrator. (4) Notwithstanding anything herein to the contrary, at the time an Initiating Party invokes binding arbitration, the Initiating Party may request that the Responding Party agree upon a single arbitrator to determine the matter, in which event the arbitration shall proceed before, and be determined by, the single arbitrator agreed upon by the parties. (5) The arbitrators, using procedures of the American Arbitration Association or any like organization acceptable to the arbitrators, shall determine liability and damages, if any, to be awarded. The parties shall each advance their proportionate share of any advance fees required to be paid to the arbitrators. The losing party shall pay all arbitration fees and shall also be liable for attorneys' fees incurred by the successful party. Should the arbitrators determine that both parties bear some liability in connection with the dispute, then the arbitrators shall assess arbitration and attorneys' fees as they deem appropriate under the circumstances. (6) The award of the arbitrators shall be final and binding and may be enforced by the District Court of Hennepin County, Minnesota. 14.5 WAIVER OF JURY TRIAL. NOTWITHSTANDING THE PROVISIONS OF THE PRECEDING SECTION, SHOULD ANY PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT OR THE SUBJECT MATTER HEREOF BE CONDUCTED IN THE COURTS OF MINNESOTA, OR ANY OTHER JURISDICTION, THE PARTIES EACH WAIVE TRIAL BY JURY TO THE FULLEST EXTENT PERMITTED BY LAW. 14.6 ATTORNEYS' FEES. If any action (including a lawsuit, arbitration, mediation, or administrative proceeding) is brought for or on account of any breach of this Agreement, or to enforce or interpret any of the terms, covenants or conditions of this Agreement, the substantially prevailing party shall be entitled to receive from the other party attorneys' fees and costs (including without limitation expert witness and consulting fees) incurred in the action. 6 7 14.7 FURTHER ASSURANCES. Each party agrees to do such things, perform such acts and make, execute acknowledge and deliver such documents as may be reasonably necessary or proper to insure that the purpose and intent of this Agreement are accomplished. 14.8 AMENDMENTS. Any and all amendments to this Agreement shall be null and void unless approved by the parties in writing. 14.9 HEADINGS. All headings in this Agreement are inserted only for convenience and ease of reference and are not to be considered in the construction or interpretation of any provision of this Agreement. 14.10 BINDING EFFECT. This Agreement shall be binding upon and be enforceable by Licensor, its successors and assigns, and shall be binding upon and be enforceable by Licensee, its successors and permitted assigns. 14.11 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between Licensor and Licensee with respect to the subject matter hereof. 14.13 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Minnesota. IN WITNESS WHEREOF, Licensor and Licensee have executed this Agreement effective as of the date first set forth above. LICENSEE ODYSSEY RESTAURANTS, LLC By: /s/ RK Fuller ---------------------------------- Name: Ronald K. Fuller -------------------------------- Title: Chief Operating Manager ------------------------------- LICENSOR CAFE ODYSSEY, LLC By: /s/ Mark D. Dacko ---------------------------------- Name: Mark D. Dacko -------------------------------- Title: Vice President -------------------------------- 7 EX-27 16 ex27.txt FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-2000 JAN-02-2000 JUL-02-2000 3,685,795 0 760,819 66,669 97,133 5,281,756 17,641,014 2,639,847 107,108,209 15,639,247 484,370 0 55,090,477 399,453 31,962,884 107,108,209 4,801,761 5,987,722 5,429,718 5,429,718 0 66,669 1,581,081 (24,145,463) 0 (24,145,463) 0 0 0 (24,145,463) (0.70) (0.70)
-----END PRIVACY-ENHANCED MESSAGE-----