-----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, BTNSmNJEA0uhFTBVLyc9yid/T6kkUg1l8gjQ/exM5Ufe+VvCEXuPTzj0MRrhqdxZ 2l0BHOOAnzG+l+cIPt5/qQ== /in/edgar/work/0000950124-00-007031/0000950124-00-007031.txt : 20001116 0000950124-00-007031.hdr.sgml : 20001116 ACCESSION NUMBER: 0000950124-00-007031 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001001 FILED AS OF DATE: 20001115 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: 770618 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 c58302e10qsb.txt FORM 10-QSB 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 OCTOBER 1, 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. (Exact Name of Small Business Issuer as specified 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 November 1, 2000, there were 4,747,052 shares of common stock, $.01 par value, outstanding. Transitional Small Business Disclosure Format (check One): Yes [ ] No [X] 1 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 OCTOBER 1, 2000 Page ---- PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets - As of October 1, 2000 and January 2, 2000 4 Condensed Consolidated Statements of Operations - For the thirteen weeks and thirty-nine weeks ended October 1, 2000 and October 3, 1999 5 Condensed Consolidated Statements of Cash Flows - For the thirty-nine weeks ended October 1, 2000 and October 3, 1999 6 Notes to the Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 PART II OTHER INFORMATION ITEM 1. Legal Proceedings 28 ITEM 2. Changes in Securities and Use of Proceeds 28 ITEM 6. Exhibits and Reports on Form 8-K 29 Signatures 30 3 4 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS POPMAIL.COM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
October 1, 2000 January 2, 2000 ------------------ ------------------ ASSETS CURRENT ASSETS Cash and equivalents $ 322,514 $ 1,136,137 Restricted cash 2,000,000 -- Accounts receivable, net 656,350 270,558 Notes receivable 315,000 -- Inventories 76,602 -- Other current assets 813,097 450,015 ------------------ ------------------ Total current assets 4,183,563 1,856,710 PROPERTY AND EQUIPMENT, net 3,257,435 2,946,584 ASSETS HELD FOR SALE, net 3,000,000 7,549,644 GOODWILL, net 74,796,430 36,277,346 OTHER ASSETS 2,982,695 7,312 ------------------ ------------------ $88,220,123 $ 48,637,596 ================== ================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 343,952 $ 6,037,518 Convertible promissory notes payable 1,500,000 1,460,417 Accounts payable 2,041,444 1,329,222 Due to affiliates -- 120,000 Accrued expenses 3,362,600 1,111,204 ------------------ ------------------ Total current liabilities 7,247,996 10,058,361 LONG-TERM OBLIGATIONS, less current maturities -- 1,321,643 ------------------ ------------------ Total liabilities 7,247,996 11,380,004 ------------------ ------------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock, $.01 par value, 100,000,000 shares authorized; 46,196,044 and 24,695,872 shares issued and outstanding 461,960 246,958 Series C 8% convertible preferred stock -- 693,000 Series D 8% convertible preferred stock -- 2,288,000 Series E convertible preferred stock 386,366 350,000 Series F preferred stock 48,640,477 -- Series G 10% convertible redeemable preferred stock 6,000,000 -- Additional paid-in capital 110,470,734 74,901,160 Less common stock subscribed and notes receivable from affiliates (3,386,000) (2,850,000) Accumulated deficit (81,601,410) (38,371,526) ------------------ ------------------ Total shareholders' equity 80,972,127 37,257,592 ------------------ ------------------ $88,220,123 $ 48,637,596 ================== ==================
The accompanying condensed notes are an integral part of these financial statements. 4 5 POPMAIL.COM, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Thirteen weeks ended Thirty-nine weeks ended October 1, 2000 October 3, 1999 October 1, 2000 October 3, 1999 ------------------- -------------------- ------------------- -------------------- REVENUES Internet marketing services, net $ 1,008,831 $ 2,910 $ 2,194,792 $ 2,910 COSTS AND EXPENSES: General, administrative & develop. 5,247,755 1,827,570 12,777,765 2,788,346 Amortization of goodwill 9,788,488 885,844 22,302,813 885,844 ------------------- -------------------- ------------------- -------------------- Total costs and expenses 15,036,243 2,713,414 35,080,578 3,674,190 ------------------- -------------------- ------------------- -------------------- LOSS FROM OPERATIONS (14,027,412) (2,710,504) (32,885,786) (3,671,280) OTHER INCOME (EXPENSE) Interest expense (280,095) (372,165) (1,820,731) (759,497) Interest income -- 1,567 83,355 4,754 Debt guarantee costs -- -- (155,000) -- Financial advisory services (380,215) -- (2,565,359) -- Loss on sale of assets -- -- (761,707) -- ------------------- -------------------- ------------------- -------------------- (660,310) (370,598) (5,219,442) (754,743) ------------------- -------------------- ---------------------------------------- NET LOSS FROM CONTINUING OPERATIONS (14,687,722) (3,081,102) (38,105,228) (4,426,023) DISCONTINUED OPERATIONS Loss from operations of discontinued restaurant division (188,256) (88,674) (816,213) (1,119,457) Loss on disposal of restaurant division including provision of $200,000 for operating losses during Phase-out period (4,058,443) -- (4,058,443) -- ------------------- -------------------- ------------------- -------------------- NET LOSS $ (18,934,421) $(3,169,776) $(42,979,884) $ (5,545,480) PREFERRED STOCK DIVIDENDS AND ACCRETION 150,000 3,146,232 250,000 3,338,461 ------------------- -------------------- ------------------- -------------------- LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (19,084,421) $(6,316,008) $(43,229,884) $ (8,883,941) =================== ==================== =================== ==================== BASIC AND DILUTED LOSS PER COMMON SHARE: Continuing operations $ (0.34) $ (0.25) $ (1.03) $ (0.46) Discontinued operations (0.10) (0.01) (0.13) (0.12) ------------------- -------------------- ------------------- -------------------- Net loss $ (0.44) $ (0.26) $ (1.16) $ (0.58) =================== ==================== =================== ==================== BASIC AND DILUTED NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS PER COMMON SHARE $ (0.45) $ (0.51) $ (1.16) $ (0.93) =================== ==================== =================== ==================== BASIC AND DILUTED WEIGHTED AVERAGE OUTSTANDING SHARES 42,736,862 12,423,730 37,206,305 9,601,808 =================== ==================== =================== ====================
The accompanying condensed notes are an integral part of these financial statements. 5 6 POPMAIL.COM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Thirty-nine weeks ended October 1, 2000 October 3, 1999 ------------------ ------------------ OPERATING ACTIVITIES: Net cash used in operating activities (11,269,967) (3,182,982) INVESTING ACTIVITIES: Purchases of property and equipment (2,328,206) (4,504,680) FINANCING ACTIVITIES: Proceeds from issuance of stock 10,603,252 -- Proceeds from issuance of preferred stock, net 4,100,000 6,200,000 Proceeds from exercise of options and warrants 7,938,545 262,420 Proceeds from short-term notes payable -- 1,435,000 Proceeds from long-term debt -- 1,000,000 Proceeds from convertible notes payable -- 2,000,000 Tenant allowance collected -- 1,962,500 Advances from shareholder -- (100,000) Cash restricted during the period (2,000,000) -- Payments on advances from shareholders and officers (120,000) -- Payments on convertible notes payable (500,000) -- Payments on short-term notes payable (7,109,291) (4,738,756) Payments on long-term debt (127,956) (127,938) ------------------ ------------------ Net cash provided by financing activities 12,784,550 7,893,226 ------------------ ------------------ INCREASE (DECREASE) IN CASH EQUIVALENTS (813,623) 205,564 CASH AND EQUIVALENTS, Beginning of period 1,136,137 106,247 ------------------ ------------------ CASH AND EQUIVALENTS, end of period $ 322,514 $ 311,811 ================== ================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 268,504 $ 380,523
The accompanying condensed notes are an integral part of these financial statements. 6 7 POPMAIL.COM, INC. CONDENSED NOTES TO THE FINANCIAL STATEMENTS OCTOBER 1, 2000 (UNAUDITED) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed consolidated financial statements have been prepared by PopMail.com, inc. ("the Company" or "PopMail"), 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 thirty-nine weeks ended October 1, 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 US GAAP 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. 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 October 1, 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. Restricted Cash Restricted cash represents cash and certificates of deposit maturing within one year that are restricted in use by the Company. As of October 1, 2000, the restricted cash balance represents a deposit reserved to satisfy the Company's obligation in connection with the acquisition of Fan Asylum. See Note H for further discussion regarding Fan Asylum. Other Assets The Company has made investments in other entities through common stock swaps. Since the investments have less than 20% ownership rights in the entities, the Company has recorded these investments at cost in Other Assets on the balance sheet. 7 8 NOTE B - NATURE OF THE BUSINESS PopMail is an online fan club marketing company, connecting people with their passions. PopMail accomplishes this by providing official fan clubs and fan club services for recording artists, sports teams, and clients in the broadcast and entertainment industry. These marketing services include access to preferred tickets, merchandise, exclusive news, chat, discussion, permission marketing and vanity web based email, official fan sites and access to discounted products related to the artist, sports team and/or personality. The Company had a working capital deficit of $3,064,433 at October 1, 2000, (net of any assets held for sale) compared to working capital deficit of $8,696,477 on January 2, 2000, prior to any discontinued operation reclassifications. Cash and equivalents were $322,514 at October 1, 2000, representing a decrease of $813,623 from the cash and 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 raise additional capital and increase our revenues and ultimately attain and sustain profitable operations. Without immediate additional financing, the cash generated from our current operations will not be adequate to fund operations and service our indebtedness during the remainder of 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 we are unable to fund our operations and our business plan, we will be unable to continue as a going concern. PopMail consists of two divisions, an Internet marketing division and a restaurant division. Our Internet marketing division is in the business of connecting entertainment and media brands with their fans through the use of e-mail and fan club sites. The Internet division consists of three companies. PopMail Network, Inc. ("PopMail Network"), based in Irving, Texas, is a provider of permission and vanity web based e-mail services to broadcast stations, professional sports teams and other brand name clients in the media and entertainment industries. Fan Asylum, Inc. ("Fan Asylum"), based in San Francisco, California, is a provider of official online and offline fan club sites for recording artists in the music industry. IZ.com, Inc. ("IZ"), based in Bellevue, Washington, is a provider of digital publishing services, newsletters and technology for high-end brands. See Note J for further discussion regarding IZ. The restaurant division develops, owns and operates upscale casual restaurants with multiple themed dining rooms. The Company has two "Cafe Odyssey" restaurants, one at the Mall of America in Bloomington, Minnesota, which opened in June 1998 and one at the Denver Pavilions, in Denver, Colorado, which opened in March 1999. The accompanying unaudited condensed consolidated financial statements have been prepared to reflect the restaurant division as a discontinued operation. See Note C for further discussion regarding the Company's announcement to divest its restaurant division. NOTE C - DISCONTINUED OPERATIONS 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 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 8 9 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, which 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. In September 2000, the Company developed a formal plan for the divestiture of the restaurant division and has executed a letter of intent to sell the net assets to the Management Company's executive team. A definitive purchase agreement has not yet been executed. The Company has made an estimate of the realizable net value, should a sale occur, of approximately $3 million. Pursuant to Accounting Principles Board opinion ("APB") No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the accompanying unaudited condensed consolidated financial statements have been reclassified to reflect the proposed sale of the restaurant division. The net assets of the restaurant division have been reported as Net Assets Held for Sale; the net operating results of the restaurant division have been reported as Loss from operations of discontinued restaurant division; and an estimated loss was recorded in the current period based on the Company's best estimate of the amount expected to be realized on the sale of the division, including a provision for an estimated loss from discontinued operations during the phase-out period. Summarized financial information for the discontinued operations are as follows: At October 1, 2000 At January 2, 2000 Current Assets $ 97,013 $ 150,385 Property and Equipment, net 11,017,513 11,920,218 Other Assets 306,887 336,809 ----------------- ----------------- Total Assets $ 11,421,413 $ 12,407,412 Current Liabilities $ 692,550 $ 645,211 Long-Term Liabilities 3,870,420 4,212,557 ----------------- ----------------- Total Liabilities $ 4,562,970 $ 4,857,768 ----------------- ----------------- Net Assets Held for Sale $ 6,858,443 $ 7,549,644 ----------------- ----------------- Write down of Assets to realizable value $ 3,858,443 $ -- ----------------- -----------------
- -------------------------------------------------------------------------------- For the thirteen weeks ended October 1, 2000 October 3, 1999 - -------------------------------------------------------------------------------- Restaurant Revenues $ 2,637,747 $ 3,545,782 Total Restaurant Expenses 2,826,003 3,634,456 --------------- ------------- Loss from Discontinued Operations $ (188,256) $ (88,674) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- For the thirty-nine weeks ended October 1, 2000 October 3, 1999 - -------------------------------------------------------------------------------- Restaurant Revenues $ 7,439,508 $ 9,439,437 Total Restaurant Expenses 8,255,721 10,558,894 --------------- ------------- Loss from Discontinued Operations $ (816,213) $ (1,119,457) - --------------------------------------------------------------------------------
9 10 NOTE D - REVERSE STOCK SPLIT In September 2000, the Company received a notice from The Nasdaq Stock Market indicating that the Company's common stock had failed to maintain a minimum bid price greater than or equal to $1.00 over the preceding thirty consecutive trading days as required under Marketplace Rule 4310(c)(4). Should the Company's common stock fail to achieve and maintain a bid price equal to or greater than $1.00 for a minimum of ten consecutive trading days anytime before December 12, 2000, the Company's common stock will be delisted from the Nasdaq SmallCap Market. On October 12, 2000, the Company implemented a 10-for-1 reverse stock split. As of November 1, 2000, the Company had 4,747,052 post-split shares of common stock, $.01 par value, outstanding. Unless otherwise noted, all references within this 10-QSB refer to the Company's pre-split common stock numbers. NOTE E - NOTES PAYABLE In July 2000, the Company paid the remaining $1,000,000 balance due on a $3,000,000 revolving line of credit with a financial institution collateralized by a leasehold mortgage, security agreement and assignment of rents and income of the Company's Cincinnati restaurant. The Company also converted the remaining balance of a senior convertible promissory note, $1,003,334, plus accrued interest of $21,307, into 1,024,642 shares of the Company's common stock. NOTE F - CONVERTIBLE PROMISSORY NOTE PAYABLE The Company executed a senior convertible note for $2,000,000 in August 1999. The note had an original maturity date of August 2000, and the Company received an extension until October 30, 2000, by making a partial payment of $500,000. The Company has received a letter of intent from the lender with an offer to re-negotiate the note payable. The new terms would allow for monthly principal and interest payments of $100,000 begin January 1, 2001 and continuing through May 2002 at an interest rate of 14%. Under the proposed letter of intent, approximately $35,000 of interest would accrued in the fourth quarter of 2000 and the future maturities would be $1,031,000 and 469,000 for years 2001 and 2002. NOTE G - 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. NOTE H - 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 10 11 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 2,200 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. The Company has completed its issuance and has issued a total of 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. During the quarter ended October 1, 2000, 31,817 shares of Series E were converted into 125,000 shares of common stock. Series F - In connection with the IZ.com merger in February 2000, 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 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 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 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. As of October 1, 2000, no Series G have been converted. 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. 11 12 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. On August 24, 2000, the Company purchased a $240,000 demand promissory note, the maker of whom is a significant shareholder, director and executive officer from an unaffiliated party, in exchange for 240,000 shares of the Company's common stock. The demand promissory note, dated February 14, 2000, bears an interest rate of 6.21% per year, with principal and accrued interest payable the earlier of (1) the third anniversary of the date of the note, or (2) within 30 days of written demand for repayment by the lender. Re-negotiation of Fan Asylum Acquisition The Company re-negotiated some of the terms pertaining to its acquisition of Fan Asylum. On June 14, 2000, the Company purchased 100% of the common stock of Fan Asylum from its sole shareholder ("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 were 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. Under the terms of the acquisition, the earn-out shares were to 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. Also, 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 ability to fulfill the put obligation with a $2 million cash deposit, which is recorded as restricted cash on the accompanying October 1, 2000 balance sheet. In September 2000, the Company renegotiated the terms of the Fan Asylum acquisition and agreed to (i) accelerate the time period in which the Seller could put the initial shares to the Company, (ii) remove the earn-out provisions as a condition of Seller receiving the earn-out shares, and (iii) immediately retire a $200,000 debt obligation that was assumed in conjunction with the Fan Asylum acquisition. In consideration of the forgoing, the Seller agreed to complete a $400,000 private common stock placement with the Company at $0.46 per share, resulting in net proceeds to the Company, in October 2000, of approximately $186,000 after the aforementioned $200,000 retirement of debt was completed. As a result of the release of the Seller from the earn-out provisions, the Company's $7 million earn-out liability was released and is accounted for as additional paid in capital in the accompanying balance sheet as of October 1, 2000. 12 13 In conjunction with the Fan Asylum acquisition, the Company had also originally 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 14, 2000. With the agreement to accelerate the put of the initial shares, the Company and the Seller have agreed to reduce the Artist Options from 4 million options down to 500,000 options (before the 10-for-1 reverse stock split). As of October 1, 2000, no Artist Options have been issued. The Company expects to grant most if not all of the Artist Options over the next 8 months. NOTE I - 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 the third quarter of 2000, the Company's restaurant operations have been reported as discontinued operations. See Note C for further discussion of the restaurant segment. NOTE J - SUBSEQUENT EVENTS IZ.com, Inc. On October 31, 2000, PopMail announced its intent to explore several divestiture options for its digital publishing company IZ.com. The Company stated that IZ.com does not fit its business model and that it will no longer support business opportunities that are still in development. The Company will be considering all offers including an offer from the current management team of IZ.com. Providing suitable terms are negotiated, the Company anticipates it will accelerate amortization of all remaining goodwill related to IZ.com during the fourth quarter of fiscal 2000. Secured Promissory Note On October 6, 2000, the Company entered into a secured promissory note payable for $600,000. The Company received net proceeds of $450,000 after discount and finders fees. The note is payable within 30 days and is collateralized by specific computer equipment located in Dallas, Texas. In connection with the loan the Company issued a 200,000 share five-year warrant with an exercise price of $0.375 to the lender. As of November 13, 2000, the Company is in payment default and may be required to pay an additional fee of $60,000, plus $3,000 for each complete day thereafter commencing 10 days after the default. The Company is re-negotiating the terms of this note, and no assurance can be given that any reductions will be attained. 13 14 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. (All share numbers are pre-split values and do not take into account the 10-for-1 reverse stock split.) OVERVIEW PopMail.com, inc. ("the Company" or "PopMail") is an online fan club marketing company, connecting people with their passions. PopMail accomplishes this by providing official fan clubs and fan club services for recording artists, sports teams, and clients in the broadcast and entertainment industry. These marketing services include access to preferred tickets, merchandise, exclusive news, chat, discussion, permission marketing and vanity web based email, official fan sites and access to discounted products related to the artist, sport team and/or personality. PopMail consists of two divisions, the Internet marketing services division and the restaurant division. Our Internet division is in the business of connecting entertainment and media brands with their fans through the use of e-mail and fan club sites. The Internet division consists of three companies: PopMail Network, Inc. ("PopMail Network"), based in Irving, Texas, is a provider of permission and vanity web based e-mail services to broadcast stations, professional sports teams and other brand name clients in the media and entertainment industries. Fan Asylum, Inc. ("Fan Asylum"), based in San Francisco, California, is a provider of official online and offline fan club sites for recording artists in the music industry. IZ.com, Inc. ("IZ"), based in Bellevue, Washington, is a provider of digital publishing services, newsletters and technology for high-end brands. See the accompanying notes to the condensed consolidated financial statements for further discussion regarding the Company's announcement to divest IZ.com. The restaurant division develops, owns and operates upscale casual restaurants with multiple themed dining rooms. The Company has two "Cafe Odyssey" restaurants, one at the Mall of America in Bloomington, Minnesota, which opened in June 1998 and one at the Denver Pavilions, in Denver, Colorado, which opened in March 1999. See the accompanying notes to the condensed consolidated financial statements for further discussion regarding the Company's announcement to divest its restaurant division and the classification of the restaurant division as a discontinued operation in the accompanying financial statements. The Company closed its first restaurant operation, which was located in Cincinnati, Ohio, in August 1999. The Company finalized the sale of this property during the second quarter of 2000. The Company continues to have some associated expenses for this location in 2000 and such expenses are recorded with all restaurant expenses as discontinued operations. Management's primary focus is to place all resources behind its fan club marketing business, consolidate its Internet platforms across the business and develop its fan club marketing business by exploring additional revenue sources and complementary services through marketing initiatives, partnerships and joint ventures. The Company targets four main vertical markets: music, sports, broadcast and entertainment. The Company is exploring other markets that are conducive to fan club marketing. The Company will continue to look for and explore business acquisitions for the Internet marketing division. However, no assurance can be given that other partnerships or acquisitions will be completed and or desired results achieved. Future revenue and profits, if any, will depend upon various factors, including the rapidly changing marketing and e-commerce community of the Internet and general economic conditions. Currently, the Company's primary source of 14 15 revenue results from preferred ticket and merchandise sales through Fan Asylum and annual license and hosting fees through its email division in Irving, Texas. 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 debt and equity financing alternatives. 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. RESULTS OF OPERATIONS FOR THE THIRTEEN WEEKS AND THIRTY-NINE WEEKS ENDED OCTOBER 1, 2000 AND OCTOBER 3, 1999 Net Revenues Net revenues for the Internet marketing division, which was launched with the Company's first acquisition on August 19, 1999, were $1,008,831 and $2,910 for the thirteen weeks ended October 1, 2000 and October 3, 1999. This represents sales generated primarily by set-up, hosting, and license fees of PopMail Network, subscription, ticket and retail sales of Fan Asylum, and outsourced publishing fees of IZ.com. The Company's sales for the Internet marketing division for the thirty-nine weeks ended October 1, 2000 and October 3, 1999 were $2,194,792 and $2,910. 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 and 2001. Costs and Expenses The Company had general, administrative and development expenses for the thirteen weeks ended October 1, 2000, of $5,247,755 compared to $1,827,570 for the thirteen weeks ended October 3, 1999, an increase of $3,420,185. The Company's general, administrative and development expenses for the thirty-nine weeks ended October 1, 2000, were $12,777,765 compared to $2,788,346 for the thirty-nine weeks ended October 3, 1999, an increase of $9,989,419. These increases reflect the results of the acquisitions of popmail.com, inc, ROI Interactive, LLC, IZ.com and Fan Asylum, and the related additions of the sales, publishing and development expenses related to those operations. The Company has had to address the numerous executive and administrative staffing requirements from its mergers and acquisitions, shareowner relationships and development costs associated with the build-out of the Internet marketing software. The Company will be seeking additional senior management personnel as well as support staff, which will also have an associated impact on future earnings. The Company expects to continue to incur operating losses throughout 2000. Goodwill amortization expense for the thirteen weeks ended October 1, 2000, was $9,788,488 compared to $885,844 for the thirteen weeks ended October 3, 1999, an increase of $8,902,644. Goodwill amortization expense for the thirty-nine weeks ended October 1, 2000, was $22,302,813 compared to $885,844 for the thirty-nine weeks ended October 3, 1999, an increase of $21,416,969. This represents the excess of the purchase price and related costs over the fair value of the net assets the Company acquired through its mergers and acquisitions. The Company amortizes goodwill on a straight-line basis over a three-year period. The Company's other income and expense consists primarily of interest expense and financial advisory services. The interest expense for thirteen weeks ended October 1, 2000 was $280,095 as compared to 15 16 $372,165 for thirteen weeks ended October 3, 1999, a decrease of $92,070. The interest expense for the thirty-nine weeks ended October 1, 2000 amounted to $1,820,731 compared to $759,497 for the thirty-nine weeks ended October 3, 1999, an increase of $1,061,234. The increase for the thirty-nine week period ended October 1, 2000 over the complementary period in 1999 relates primarily to the increased levels of debt outstanding during 2000 and the amortization of financing fees capitalized in raising debt. Of the $280,095 of interest expense reported for the thirteen weeks ended October 1, 2000 and the $1,820,731 of interest expense reported for the thirty-nine week period ended October 1, 2000, $58,176 and $268,504, respectively, was paid in cash. The Company's continuing business focus is to concentrate on only those portions of its business that generate positive cash flow. The Company's financial advisory services are costs associated with services provided by third party financial advisors for the thirteen and thirty-nine weeks ended October 1, 2000, the Company recorded $380,215 and $2,565,359, of financial advisory service fees. These costs were paid with cash and through the issuance of new common stock and warrants. The loss on the sale of assets of $761,707 recorded during the thirty-nine weeks ended October 1, 2000 represents the loss on the sale of the assets of its Cincinnati, Ohio restaurant during the second quarter. Liquidity and Capital Resources The Company had a working capital deficit of $3,064,433 at October 1, 2000, (net of any assets held for sale) compared to working capital deficit of $8,696,477 on January 2, 2000, prior to any discontinued operation reclassifications. Cash and equivalents were $322,514 at October 1, 2000, representing a decrease of $813,623 from the cash and 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 raise additional capital and increase our revenues and ultimately attain and sustain profitable operations. Without immediate additional financing, the cash generated from our current operations will not be adequate to fund operations and service our indebtedness during the remainder of 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 we are unable to fund our operations and our business plan, we will be unable to continue as a going concern. 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 $10,600,000. 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. During the quarter ended October 1, 2000, the Company completed the following financial arrangements: In July 2000, the Company completed a factoring agreement, in which specific accounts receivables were assigned to an investor. The Company assigned the principal sum of $223,000 in exchange for $200,000 in cash. In addition, the investor received a five-year warrant to purchase 25,000 shares of the Company's common stock, par value $.01 per share, at an exercise price of $0.75 per share. This receivable assignment was re-paid in August 2000. In August 2000, the Company completed a second factoring agreement, in which specific accounts receivables were assigned to the same investor. The Company assigned the principal sum of $334,000 in exchange for $250,000 in cash. The Investor has full recourse towards the Company for the entire principal sum. In addition, the investor received another five-year warrant to purchase 25,000 shares of the Company's common stock, par value $.01 per share, at an exercise price of $0.75 per share. This receivable assignment had a balance of approximately $152,000 still due the investor as of October 1, 2000. In the thirteen week period ended October 1, 2000, the Company raised cash proceeds of approximately $1,833,000 16 17 from the exercise of 2,866,639 warrants. In order to induce the warrant holders to exercise their warrants, the Company amended their warrants (originally with exercisable prices generally ranging from $2.00 to $3.00 per share) by re-pricing the warrant to exercise prices ranging from $0.625 to $0.75 per share and generally issuing a replacement warrant with an exercise price of $0.625 to $1.00 per share for each original warrant exercised, provided that the investor completed the transaction within a specified time frame determined by the Company. One of the investors immediately exercised 400,000 of the replacement warrants for additional proceeds of $250,000. The Company intends to fund the operations of the Internet marketing services division 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 modifying 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 the accompanying unaudited condensed consolidated financial statements and related notes included elsewhere in this report, the audited financial statements and notes included in the Company's Form 10-KSB for the fiscal year ended January 2, 2000, and consider the following risk factors (all share amounts are pre-split values and do not account for the 10-for-1 reverse stock split): 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 $43.2 million in the first nine months of 2000, $24.2 million in 1999, $6.7 million in 1998 and $4.0 million in 1997 and had a working capital deficit of approximately $3.1 million as of October 1, 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. In September 2000, the Company received a notice from The Nasdaq Stock Market indicating that the Company's common stock had failed to maintain a minimum bid price greater than or equal to $1.00 over the preceding thirty consecutive trading days as required under Marketplace Rule 4310(c)(4). Should the Company's common stock fail to achieve and maintain a bid price equal to or greater than $1.00 for a minimum of ten consecutive trading days anytime before December 12, 2000, the Company's common stock will be delisted from the Nasdaq SmallCap Market. To satisfy this objective, the Company chose to implement a reverse stock split. In such event, there is a risk that the Company's stock price will not rise fully in proportion to the reverse split, resulting in a material loss in market value for the Company's shareholders. In addition, 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 or (5) the discretion of the Nasdaq SmallCap Market. 17 18 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 Gary Schneider, our Chief Executive 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 hire additional corporate level and management employees to help implement and operate our plans for expansion of our Internet marketing services division. 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. On September 1, 1999, we completed a merger with popmail.com, inc. ("Old Popmail"). Old Popmail was a provider of Internet email services to radio stations across the country. On December 3, 1999, we acquired ROI Interactive, LLC ("ROI"). ROI 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. On February 9, 2000, we acquired IZ.com Incorporated ("IZ.com"). IZ.com is a provider of digital publishing services, newsletters and technology for high-end brands. On June 15, 2000, we acquired Fan Asylum, Inc. ("Fan Asylum"). Fan Asylum is a provider of official online and offline fan club sites for recording artists in the music industry. 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 Old Popmail 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 18 19 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 October 1, 2000, Mr. Anderson indirectly or directly controlled approximately 21.5 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. As of October 1, 2000, we have a total of 40,653,594 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 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 19 20 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 October 11, 2000, we have 47,470,871 shares of common stock issued and outstanding, 193,183 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 October 1, 2000, a further 40,653,594 shares of common stock have been reserved as follows: a maximum of 792,849 shares of common stock reserved for issuance upon exercise of the Series E Preferred Shares, 193,183 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 6,724,282 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; 16,062,568 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 2,627,660 shares are currently outstanding; 750,000 shares for issuance under our 1998 Director Stock Option Plan, of which options relating to 398,333 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 20 21 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 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 21 22 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. 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 400 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; 22 23 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 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, 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 23 24 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. 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 service. 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 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 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 Websites 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. 25 26 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 WE HAVE DEVELOPED A FORMAL PLAN FOR THE DIVESTITURE OF THE RESTAURANT DIVISION AND HAVE RECLASSIFIED THE DIVISION AS DISCONTINUED OPERATIONS. There is no guarantee that the Company will be able to complete the sale of the Restaurants, as contemplated, or upon the terms acceptable to the Company. Accordingly, the Company is still subject to certain risks associated with the 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 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. 26 27 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: 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. 27 28 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 OF AMOUNT OF CONSIDERATION DATE SECURITIES SECURITIES * ISSUED TO RECEIVED - ---------------------------------------------------------------------------------------------------------------------------- 6/5/2000 Common Stock 800,000 Shares Tim McQuaid As consideration in a merger transaction 6/13/2000 Common Stock 450,706 Shares CraftClick.com As consideration for an investment 7/19/2000 Warrants to Purchase Warrants to purchase 50,000 Cam Birge In consideration for Common Stock shares at an exercise price of financial services $0.75 7/26/2000 Warrants to Purchase Previously issued Warrants to Maris Kott and In consideration for Common Stock purchase 100,000 shares at an Dara Podber financial services exercise price of $1.625 were repriced to $0.75 per share 7/26/2000 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 repriced to purchase Capital, arrangements 200,000 shares at an exercise Metropolitan price of $0.75 Capital Partners, Inc. 7/28/2000 Warrants to Purchase Warrants to purchase 25,000 Andrew Green In connection with Common Stock shares at an exercise price of certain financing $0.75 arrangements 8/2/2000 Common Stock 300,000 Shares Phil Bane Pursuant to a Restricted Stock Purchase Agreement 8/15/2000 Common Stock 60,000 Shares Metropolitan In consideration for Capital Partners, financial services Inc. 8/18/2000 Warrants to Purchase Warrants to purchase an Certain Accredited In connection with Common Stock aggregate of 2,000,000 shares at Investors an agreement to an exercise price of $0.625 immediately exercise previously outstanding warrants 8/25/2000 Common Stock 240,000 Shares Wayne Mills In consideration of purchase of Promissory Note of Officer and Director of the Company - ----------------------------------------------------------------------------------------------------------------------------
28 29 - ------------------------------------------------------------------------------------------------------------------------- TITLE AND CASH OR DESCRIPTION OF AMOUNT OF CONSIDERATION DATE SECURITIES SECURITIES * ISSUED TO RECEIVED - ------------------------------------------------------------------------------------------------------------------------- 08/28/2000 Warrants to Purchase Warrants to purchase 25,000 Andrew Green In connection with Common Stock shares at an exercise price of certain financing $0.75 arrangements 9/14/2000 Warrants to Purchase Warrants to purchase 200,000 Apache Bluff Corp. In consideration for Common Stock shares at an exercise price of financial consulting $0.50 services 9/14 and Warrants to Purchase Warrants to purchase an Certain Accredited In connection with 9/15/2000 Common Stock aggregate of 618,626 shares at Investors an agreement to an exercise price of $1.00 immediately exercise previously outstanding warrants - -------------------------------------------------------------------------------------------------------------------------
*All share amounts and exercise prices are pre-split values and do not take into account the 10-for-1 reverse stock split. 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 issued to Cam Birge. 4.2 Form of Warrant to Purchase Shares of Common Stock of the Company (R Series). 4.3 Schedule identifying material details of warrants issued by the Company substantially identical to the warrant filed as Exhibit 4.2. 4.4 Form of Warrant to Purchase Shares of Common Stock of the Company issued to Apache Bluffs. 4.5 Form of Warrant to Purchase Shares of Common Stock of the Company (RW Series). 4.6 Schedule identifying material details of warrants issued by the Company substantially identical to the warrant filed as Exhibit 4.5. 10.1 Amendment to Stock Purchase Agreement dated as of October 11, 2000 by and among PopMail.com, inc., Fan Asylum, Inc. and Tim McQuaid. 10.2 Stock Purchase Agreement dated June 7, 2000 by and among CraftClick.com, Inc. and PopMail.com, inc. 27 Financial Data Schedule (B) REPORTS ON FORM 8-K On September 20, 2000, the Company filed a Current Report on Form 8-K dated September 15, 2000, under Items 5 and 7, announcing that it had signed a letter of intent to sell its Cafe Odyssey restaurant division to the restaurant division's executive management team. 29 30 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: November 14, 2000 30 EX-4.1 2 c58302ex4-1.txt FORM OF WARRANT TO PURCHASE SHARES OF COMMON 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. CB-1 Irving, Texas July 19, 2000 This certifies that, for value received, CAM BIRGE or his successors or assigns ("Holder") is entitled to purchase from PopMail.com, inc. (the "Company") Fifty Thousand (50,000) fully paid and nonassessable shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common Stock") at any time and from time to time from the date hereof until July 19, 2005, at an exercise price of $.75 per share (the "Exercise Price"), subject to adjustment as herein provided. This Warrant is subject to the following provisions, terms and conditions: 1. Vesting of Warrant Shares. Holder's rights to purchase the Shares under this Warrant are only exercisable in the event the closing sale price of the Company's Common Stock, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("Nasdaq") SmallCap Market, has been at least One Dollar ($1.00) for five (5) consecutive trading days. 2. Exercise of Warrant. a. Exercise for Cash. Subject to Section 1 hereof, 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 b. Cashless Exercise. Subject to Section 1 hereof, upon receipt of a notice of cashless exercise, the Company shall deliver to the Holder (without payment by the Holder of any exercise price) that number of Shares that is equal to the quotient obtained by dividing (x) the value of the Warrant on the date that the Warrant shall have been surrendered (determined by subtracting the aggregate exercise price for the Shares in effect on the Exercise Date from the aggregate Fair Market Value (hereinafter defined) for the Shares by (y) the Fair Market Value of one share of Common Stock. A notice of "cashless exercise" shall state the number of Shares as to which the Warrant is being exercised. "Fair Market Value" for purposes of this Section (b) shall mean the average of the Common Stock closing prices reported by the principal exchange on which the Common Stock is traded, or the last sale prices as reported by the Nasdaq National Market or SmallCap Market, as the case may be, for the ten (10) business days immediately preceding the Exercise Date or, in the event no public market shall exist for the Common Stock at the time of such cashless exercise, Fair Market Value shall mean the fair market value of the Common Stock as the same shall be determined in the good faith discretion of the Board of Directors, after full consideration of all factors then deemed relevant by such Board in establishing such value, including by way of illustration and not limitation, the per share purchase price of Common Stock or per security convertible into one share of Common Stock of the most recent sale of shares of Common Stock or securities convertible into Common Stock by the Company after the date hereof all as evidenced by the vote of a majority of the directors then in office. 3. 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. 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 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. 4. 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 2 3 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. 5. 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 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. 3 4 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. 6. Registration Rights. If at any time, the Company shall propose to file any registration statement (other than any registration on Form S-4, S-8 or any other similarly inappropriate form, or any successor forms thereto) under the 1933 Act covering a public offering of the Company's Common Stock, it will notify the Holder hereof at least thirty (30) days prior to each such filing and will use its best efforts to include in the Registration Statement (to the extent permitted by applicable regulation), the Shares purchased or purchasable by the Holder upon the exercise of the Warrant to the extent requested by the Holder hereof within twenty (20) days after receipt of notice of such filing (which request shall specify the interest in this Warrant or the Shares intended to be sold or disposed of by such Holder and describe the nature of any proposed sale or other disposition thereof); provided, however, that if a greater number of Warrants and Shares is offered for participation in the proposed offering than in the reasonable opinion of the managing underwriter of the proposed offering can be accommodated without adversely affecting the proposed offering, then the amount of Warrant and Shares proposed to be offered by such Holders for registration, as well as the number of 4 5 securities of any other selling shareholders participating in the registration, shall be proportionately reduced to a number deemed satisfactory by the managing underwriter. The Company shall bear all expenses and fees incurred in connection with the preparation, filing, and amendment of the Registration Statement with the Commission, except that the Holder shall pay all fees, disbursements and expenses of any counsel or expert retained by the Holder and all underwriting discounts and commissions, filing fees and any transfer or other taxes relating to the Shares included in the Registration Statement. The Holder of this Warrant agrees to cooperate with the Company in the preparation and filing of any Registration Statement, and in the furnishing of information concerning the Holder for inclusion therein, or in any efforts by the Company to establish that the proposed sale is exempt under the 1933 Act as to any proposed distribution. 7. 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. 8. Company Redemption Option. Notwithstanding anything to the contrary contained in this Warrant, following the effectiveness of the Registration Statement, the Company's Board of Directors shall have the right to redeem the Warrant at a redemption price of $.01 per Share if the average closing price of the Company's Common Stock for any ten (10) consecutive trading days is at least $6.00 per share (as appropriately adjusted for stock splits, stock dividends and combinations). Notice of redemption to the Holder shall be given by mailing via first class mail a notice of such redemption not less than thirty (30) days prior to the date fixed for redemption. Any notice given in the manner described above shall be conclusively presumed to have been given whether or not the Holder receives the notice. 9. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Minnesota. 10. 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. 11. 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. 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: -------------------------------------------- 5 6 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] ----------------------------------------- [Printed] ----------------------------------------- ----------------------------------------- [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] ----------------------------------------- [Printed] ----------------------------------------- ----------------------------------------- [Address] 6 EX-4.2 3 c58302ex4-2.txt FORM OF WARRANT TO PURCHASE SHARES OF COMMON STOCK 1 EXHIBIT 4.2 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. R-# Irving, Texas August 18, 2000 This certifies that, for value received, XXXXXXXXXXXXXXXXXXXXXXX, or its successors or assigns ("Holder") is entitled to purchase from PopMail.com, inc. (the "Company") Eight Hundred Thousand (800,000) fully paid and nonassessable shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common Stock"), at any time from the date hereof until August 18, 2005 (the "Warrant Exercise Period"), at an exercise price of $0.625 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), 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 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. 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. 2 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 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 2 3 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. 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. If at any during the Warrant Exercise Period, the Company shall propose to file any registration statement (other than any registration on Form S-4, S-8 or any other similarly inappropriate form, or any successor forms thereto) under the 1933 Act covering a public offering of the Company's Common Stock, it will notify the Holder hereof at least thirty (30) days prior to each such filing and will use its best efforts to include in the Registration Statement (to the extent permitted by applicable regulation), the Common Stock purchased or purchasable by the Holder upon 3 4 the exercise of the Warrant to the extent requested by the Holder hereof within twenty (20) days after receipt of notice of such filing (which request shall specify the interest in this Warrant or the Warrant Shares intended to be sold or disposed of by such Holder and describe the nature of any proposed sale or other disposition thereof); provided, however, that if a greater number of Warrants and Warrant Shares is offered for participation in the proposed offering than in the reasonable opinion of the managing underwriter of the proposed offering can be accommodated without adversely affecting the proposed offering, then the amount of Warrant and Warrant Shares proposed to be offered by such Holders for registration, as well as the number of securities of any other selling shareholders participating in the registration, shall be proportionately reduced to a number deemed satisfactory by the managing underwriter. The Company shall bear all expenses and fees incurred in connection with the preparation, filing, and amendment of the Registration Statement with the Commission, except that the Holder shall pay all fees, disbursements and expenses of any counsel or expert retained by the Holder and all underwriting discounts and commissions, filing fees and any transfer or other taxes relating to the Shares included in the Registration Statement. The Holder of this Warrant agrees to cooperate with the Company in the preparation and filing of any Registration Statement, and in the furnishing of information concerning the Holder for inclusion therein, or in any efforts by the Company to establish that the proposed sale is exempt under the 1933 Act as to any proposed distribution. 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 Holders. 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, 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-4.3 4 c58302ex4-3.txt SCHEDULE IDENTIFYING MATERIAL DETAILS OF WARRANT 1 EXHIBIT 4.3 Schedule of Warrants Issued (R Series)
DATE OF WARRANT NUMBER EXERCISE PRICE ISSUE NAME NO. OF SHARES EXPIRATION DATE =============== ========================================== ============= =============== ========================= 8/18/2000 The Shaar Fund Ltd. R-1 800,000 Exercise Price: $0.625 Expires: 8/18/2005 8/18/2000 Gulfstream Financial Partners, LLC R-2 800,000 Exercise Price: $0.625 Expires: 8/18/2005 8/18/2000 Blake Capital Partners, LLC R-3 400,000 Exercise Price: $0.625 Expires: 8/18/2005
EX-4.4 5 c58302ex4-4.txt FORM OF WARRANT TO PURCHASE SHARES OF COMMON STOCK 1 EXHIBIT 4.4 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. AP-1 Irving, Texas September 14, 2000 This certifies that, for value received, APACHE BLUFFS CORP., or its successors or assigns ("Holder") is entitled to purchase from PopMail.com, inc. (the "Company") Two Hundred Thousand (200,000) fully paid and nonassessable shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common Stock"), at any time from the date hereof until September 14, 2005 (the "Warrant Exercise Period"), at an exercise price of Fifty Cents ($0.50) 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), 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 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. (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. 2 (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 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 2 3 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. 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. If at any during the Warrant Exercise Period, the Company shall propose to file any registration statement (other than any registration on Form S-4, S-8 or any other similarly inappropriate form, or any successor forms thereto) under the 1933 Act covering a public offering of the Company's Common Stock, it will notify the Holder hereof at least thirty (30) days prior to each such filing and will use its best efforts to include in the Registration Statement (to the extent permitted by applicable regulation), the Common Stock purchased or purchasable by the Holder upon 3 4 the exercise of the Warrant to the extent requested by the Holder hereof within twenty (20) days after receipt of notice of such filing (which request shall specify the interest in this Warrant or the Warrant Shares intended to be sold or disposed of by such Holder and describe the nature of any proposed sale or other disposition thereof); provided, however, that if a greater number of Warrants and Warrant Shares is offered for participation in the proposed offering than in the reasonable opinion of the managing underwriter of the proposed offering can be accommodated without adversely affecting the proposed offering, then the amount of Warrant and Warrant Shares proposed to be offered by such Holders for registration, as well as the number of securities of any other selling shareholders participating in the registration, shall be proportionately reduced to a number deemed satisfactory by the managing underwriter. The Company shall bear all expenses and fees incurred in connection with the preparation, filing, and amendment of the Registration Statement with the Commission, except that the Holder shall pay all fees, disbursements and expenses of any counsel or expert retained by the Holder and all underwriting discounts and commissions, filing fees and any transfer or other taxes relating to the Shares included in the Registration Statement. The Holder of this Warrant agrees to cooperate with the Company in the preparation and filing of any Registration Statement, and in the furnishing of information concerning the Holder for inclusion therein, or in any efforts by the Company to establish that the proposed sale is exempt under the 1933 Act as to any proposed distribution. 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 Holders. 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, 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: -------------------------------------- Stephen J. Spohn Chief Financial Officer 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-4.5 6 c58302ex4-5.txt FORM OF WARRANT TO PURCHASE SHARES OF COMMON STOCK 1 EXHIBIT 4.5 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. RW-____ Irving, Texas _____________, 2000 This certifies that, for value received, ___________________________, or its successors or assigns ("Holder") is entitled to purchase from PopMail.com, inc. (the "Company") _______________ _________________ (________) fully paid and nonassessable shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common Stock"), at any time from the date hereof until _________, 2005 (the "Warrant Exercise Period"), at an exercise price of $1.00 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), 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 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. 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. 2 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 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 2 3 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. 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. If at any during the Warrant Exercise Period, the Company shall propose to file any registration statement (other than any registration on Form S-4, S-8 or any other similarly inappropriate form, or any successor forms thereto) under the 1933 Act covering a public offering of the Company's Common Stock, it will notify the Holder hereof at least thirty (30) days prior to each such filing and will use its best efforts to include in the Registration Statement (to the extent permitted by applicable regulation), the Common Stock purchased or purchasable by the Holder upon 3 4 the exercise of the Warrant to the extent requested by the Holder hereof within twenty (20) days after receipt of notice of such filing (which request shall specify the interest in this Warrant or the Warrant Shares intended to be sold or disposed of by such Holder and describe the nature of any proposed sale or other disposition thereof); provided, however, that if a greater number of Warrants and Warrant Shares is offered for participation in the proposed offering than in the reasonable opinion of the managing underwriter of the proposed offering can be accommodated without adversely affecting the proposed offering, then the amount of Warrant and Warrant Shares proposed to be offered by such Holders for registration, as well as the number of securities of any other selling shareholders participating in the registration, shall be proportionately reduced to a number deemed satisfactory by the managing underwriter. The Company shall bear all expenses and fees incurred in connection with the preparation, filing, and amendment of the Registration Statement with the Commission, except that the Holder shall pay all fees, disbursements and expenses of any counsel or expert retained by the Holder and all underwriting discounts and commissions, filing fees and any transfer or other taxes relating to the Shares included in the Registration Statement. The Holder of this Warrant agrees to cooperate with the Company in the preparation and filing of any Registration Statement, and in the furnishing of information concerning the Holder for inclusion therein, or in any efforts by the Company to establish that the proposed sale is exempt under the 1933 Act as to any proposed distribution. 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 Holders. 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, 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-4.6 7 c58302ex4-6.txt SCHEDULE IDENTIFYING MATERIAL DETAILS OF WARRANT 1 Schedule 4.6 Schedule of Warrants Issued (RW Series)
DATE OF WARRANT NUMBER EXERCISE PRICE ISSUE NAME NO. OF SHARES EXPIRATION DATE =============== ========================================== ============= =============== ========================= 9/14/2000 The Homer Fund, Ltd. BN-2 400,000 Exercise Price: $1.00 Expires: 9/14/2005 9/15/2000 Robert Deutschman as Trustee of the RW-1 3,750 Exercise Price: $1.00 Robert & Ellen Deutschman Family Expires: 9/15/2005 Trust 1905 Westridge Terrace Los Angeles, CA 90049 9/15/2000 CLB Investment RW-2 6,250 Exercise Price: $1.00 11 Oxford Drive, Lincolnshire, IL Expires: 9/15/2005 60069 9/15/2000 Timothy I. Maudlin RW-3 33,334 Exercise Price: $1.00 8833 Hidden Oaks Drive, Eden Prairie, Expires: 9/15/2005 MN 55344 9/15/2000 Steven Garshell RW-4 11,111 Exercise Price: $1.00 13820 Parc Drive, Palm Beach Expires: 9/15/2005 Gardens, FL 33410 9/15/2000 Herbert I. Byer RW-5 25,000 Exercise Price: $1.00 200 W. North Bend Road, Cincinnati, Expires: 9/15/2005 OH 45216 9/15/2000 Mark Kroeger RW-6 14,500 Exercise Price: $1.00 18028 Sparrows Nest Drive, Lutz, FL Expires: 9/15/2005 33544 9/15/2000 U.S. Bank, NA, Trustee FBO Bruce D. RW-7 6,250 Exercise Price: $1.00 Leduc SEP/IRA No. 352130-4." Expires: 9/15/2005 c/o RJ Steichen 120 S 6th Street, Suite 100, Mpls, MN 55402 9/15/2000 Richard C. Lockwood RW-8 50,000 Exercise Price: $1.00 336 - 124th Lane NW Expires: 9/15/2005 Coon Rapids, MN 55448 9/15/2000 Christopher D. Miller RW-9 12,500 Exercise Price: $1.00 4601 Nicklaus Drive Expires: 9/15/2005 Lawrence, KS 66047 9/15/2000 Thomas L. Goila Profit Sharing Trust RW-10 12,500 Exercise Price: $1.00 U/A 12/1/92 Expires: 9/15/2005 (Thomas L. Goila, Trustee) 7880 Ivygate Lane, Cincinnati, Ohio 45242
2 Schedule 4.6 Schedule of Warrants Issued (RW Series)
DATE OF WARRANT NUMBER EXERCISE PRICE ISSUE NAME NO. OF SHARES EXPIRATION DATE =============== ========================================== ============= =============== ========================= 9/15/2000 Bruce Le Duc RW-11 3,125 Exercise Price: $1.00 14400 Rocksborough Road, Expires: 9/15/2005 Minnetonka, MN 55345 10/4/2000 Mark Kroeger RW-12 40,306 Exercise Price: $1.00 c/o PaineWebber Incorporated Expires: 10/4/2005 Attn: Darren Jordan--Reorganization Dept., 1000 Harbor Blvd., 6th Floor, PO Box 3324, Weehawken, NJ 07087
EX-10.1 8 c58302ex10-1.txt AMENDMENT TO STOCK PURCHASE AGREEMENT 1 Exhibit 10.1 AMENDMENT TO STOCK PURCHASE AGREEMENT This Amendment is made as of October 11, 2000 by and among PopMail.com, inc., a Minnesota corporation ("Popmail"), Fan Asylum Inc., a California corporation ("Fan Asylum") and Tim McQuaid ("Shareholder"). WHEREAS, Popmail, Shareholder and Fan Asylum are parties to a Stock Purchase Agreement dated as of June 14, 2000 (the "Purchase Agreement"); and WHEREAS, the parties desire to amend the Purchase Agreement. NOW, THEREFORE, in consideration of the covenants and agreements contained herein, the parties hereto agree to amend the Purchase Agreement as follows: 1. Capitalized terms used in this Amendment and not defined will have the same meanings as in the Purchase Agreement. 2. Popmail and Shareholder hereby agree to accelerate Shareholder's rights pursuant to Section 5.04 of the Purchase Agreement as described in this paragraph. On October 11, 2000 or a date mutually acceptable to Popmail and Shareholder (the "Closing Date"), Shareholder will be authorized to exercise his right, subject to the other terms and conditions of this Amendment. On the Closing Date, Shareholder will put to Popmail the 800,000 Initial Shares at a Put Price of $2.50 per share, payable in cash. Popmail and Shareholder agree to take any and all actions necessary and appropriate to facilitate this transaction by instructing the Bank to draw down an the Letter of Credit, and send the proceeds (subject to the provisions of Paragraph 3 hereunder) to Shareholder and causing the Escrow Agent to release the collateral securing the Letter of Credit. 3. On the Closing Date, Shareholder agrees to purchase from Popmail, and Popmail agrees to sell to Shareholder, that number of shares of the Popmail's common stock (the "New Shares") that can be purchased for $400,000 at a per share price equal to the Fair Market Value of the common stock. The "Fair Market Value" of the common stock will be the average closing share price for the five (5) trading days prior to the Closing Date (adjusted, if appropriate, for the effects of a one-for-ten reverse stock split effective October 12, 2000). On the Closing Date, Shareholder will pay $400,000 in cash to Popmail by wire transfer, and Popmail will cause to be issued a certificate for the New Shares. Popmail and Shareholder mutually agree that this $400,000 will be paid by the bank's delivery of said sum out of the $2,000,000 described in paragraph 2. The New Shares will be validly issued, fully paid and non-assessable shares of common stock of Popmail. Shareholder acknowledges that, if the certificate for the New Shares is issued on or before October 11, 2000, the number New Shares will be further adjusted for a one-for-ten reverse stock split effective October 12, 2000. 4. Shareholder and Purchaser agree that the certificate for the New Shares will be delivered to the Escrow Agent on the Closing Date and will held pursuant to the terms of the Escrow Agreement as if they were part of the Purchase Price Shares. Shareholder and Popmail agree to execute any amendment to the Escrow Agreement necessary for these purposes. In addition to other restrictions imposed by law and the restrictions and rights set forth in the Escrow Agreement, the New Shares shall be subject to lock-up and restricted pursuant to Section 5.05 of the Purchase Agreement as if they were part of the Purchase Price Shares. Further, the parties agree that the 2 New Shares will be treated as though they were Purchase Price Shares under all other provisions of the Stock Purchase Agreement, the Escrow Agreement and the Registration Rights Agreement. 5. Popmail agrees that on the Closing Date it will use $206,000 of the purchase price paid for the New Shares to pay the George and Maire McKeever Revocable Trust (the "Trust") in satisfaction of all amounts owed by Fan Asylum to the Trust as referred to in Schedule 4.17 and 4.32 of the Purchase Agreement. Popmail agrees that within five (5) business days after the Closing Date it will use $80,000 of the purchase price paid for the New Shares to repay Tim McQuaid a portion of the obligation of Fan Asylum to Tim McQuaid as referred to in the Schedules to the Purchase Agreement; provided, that this payment will not be due until the -------- closing date of a private placement of equity securities with gross proceeds of at least $4,000,000 (a "Qualifying Private Placement"). 6. Shareholder agrees that Section 5.07 of the Purchase Agreement is hereby amended so that the final $200,000 Working Capital installment due on September 1, 2000 shall be due as follows. Working Capital payments of $50,000, $100,000 and $50,000 will be due on October 15, 2000, November 15, 2000 and December 15, 2000, respectively; provided, that no Working Capital payments will be due until the closing date of a Qualifying Private Placement; and provided further, that any unpaid balance of such $200,000 in payments will be due and payable in full on the closing date of a Qualifying Private Placement. 7. Shareholder acknowledges that Popmail is amending the Strategic Artists Incentive Plan established under Section 5.06 of the Purchase Agreement to reduce the number of shares reserved for issuance under the Plan to 500,000 shares. Shareholder agrees that Popmail shall have no obligation to increase the number of shares issuable under this Plan to more than 500,000 (appropriately adjusted for stock splits, share combinations and similar events). 8. Section 1.09 of the Purchase Agreement is hereby amended to read in its entirety as follows: "1 .09 Earn Out Shares. Notwithstanding the amount of the Purchase Price, Shareholder shall have no rights to or in the Earn Out Shares until such Earn Out Shares, if any, become "Vested Earn Out Shares" as defined below. On June 14, 2001, Popmail shall contribute the Vested Earn Out Shares to the Escrow Agent to be deposited in the Earn out Shares Account (as defined in the Escrow Agreement) to be distributed as set forth in the Escrow Agreement. One-third (1/3) of the Earn Out Shares shall become vested ("Vested Earn Out Shares") on each of the dates June 14, 2001, June 14, 2002 and June 14, 2003. Popmail and Shareholder acknowledge that Shareholder may, by letter to Escrow Agent, designate any portion of the Earn Out Shares to be distributed to certain employees of Fan Asylum (subject to all the terms and conditions of the Purchase Agreement and the Escrow Agreement). Except as expressly provided herein, the Purchase Agreement will remain effective in all respects. 3 IN WITNESS WHEREOF, this Amendment has been signed by the parties hereto as of October 11, 2000. POP.MAIL.COM, INC. By /s/ Steve Spohn /s/ Tim McQuaid ----------------------------------- ----------------------------------- Its CFO ----------------------------------- FAN ASYLUM, INC. By /s/ Tim McQuaid ----------------------------------- Its President ----------------------------------- 110562 EX-10.2 9 c58302ex10-2.txt STOCK PURCHASE AGREEMENT DATED JUNE 7, 2000 1 Exhibit 10.2 CRAFTCLICK.COM, INC. STOCK PURCHASE AGREEMENT DATE: JUNE 7, 2000 2 STOCK PURCHASE AGREEMENT TABLE OF CONTENTS SECTION 1 - PURCHASE AND SALE OF STOCK........................................1 1.1 Agreement to Sell and Purchase................................1 SECTION 2 - CLOSINGS, DELIVERY AND PAYMENT ...................................2 2.1 Closing.......................................................2 SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................2 3.1 Incorporation, Good Standing and Qualification................2 3.2 Capitalization................................................2 3.3 Voting and Registration Rights................................2 3.4 Authorization.................................................2 3.5 Agreement Not in Breach of Other Instruments..................3 3.6 SEC Filings...................................................3 3.7 Absence of Certain Changes....................................3 3.8 No Undisclosed Liabilities....................................3 3.9 Other Information.............................................4 3.10 Valid Issuance of Common Stock................................4 3.11 Governmental Consents.........................................4 3.12 Offering......................................................4 3.13 Purchase Entirely for Own Account.............................4 3.14 Disclosure of Information.....................................4 SECTION 4 - REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE INVESTOR......4 4.1 Incorporation, Good Standing and Qualification................4 4.2 Capitalization................................................4 4.3 Voting and Registration Rights................................5 4.4 Authorization.................................................5 4.5 Agreement Not in Breach of Other Instruments..................5 4.6 SEC Filings...................................................5 4.7 Absence of Certain Changes....................................5 4.8 No Undisclosed Liabilities....................................6 4.9 Other Information.............................................6 4.10 Valid Issuance of Common Stock................................6 4.11 Governmental Consents.........................................6 4.12 Offering......................................................6 4.13 Purchase Entirely for Own Account.............................6 4.14 Disclosure of Information.....................................7 SECTION 5 - CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING...................7 5.1 Closing.......................................................7 SECTION 6 - CONDITIONS OF COMPANY'S OBLIGATIONS AT CLOSING....................8 6.1 Closing.......................................................8 SECTION 7 - MISCELLANEOUS.....................................................9 7.1 Survival of Warranties........................................9 i 3 7.2 Successors and Assigns........................................ 9 7.3 Governing Law.................................................10 7.4 Counterparts..................................................10 7.5 Titles and Subtitles..........................................10 7.6 Notices.......................................................10 7.7 Finder's Fee..................................................10 7.8 Expenses......................................................10 7.9 Amendments and Waivers........................................10 7.10 Severability..................................................10 7.11 Entire Agreement..............................................11 ii 4 LIST OF SCHEDULES AND EXHIBITS Schedules SCHEDULE A: Company Capital Stock SCHEDULE B: Investor Capital Stock Exhibits EXHIBIT A: Number of Shares EXHIBIT B: Compliance Certificate EXHIBIT C: Services Agreement EXHIBIT D: Compliance Certificate iii 5 CRAFTCLICK.COM, INC. STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT is made as of June 7, 2000, by and among CraftClick.com, Inc., a Utah corporation (the "COMPANY"), and Popmail.com, inc., a Minnesota corporation (the "INVESTOR"). In consideration of the mutual promises hereinafter set forth, the parties hereto agree as follows: SECTION 1 PURCHASE AND SALE OF STOCK 1.1 Agreement to Sell and Purchase (a) Authorization of Shares. On or prior to the Closing (as defined in Section 2 below), the Company shall have authorized the sale and issuance to the Investor of shares of its common stock, par value $.0001 per share (the "CRAFTCLICK.COM, INC. STOCK"). (b) Sale and Purchase. Subject to the terms and conditions hereof and in reliance on the representations and warranties set forth herein, including, without limitation, the satisfaction by the Company of the conditions set forth in Section 5.1 hereof with respect to the Closing, the Company hereby agrees to issue and sell to Investor and the Investor agrees to purchase from the Company, the number of shares of CraftClick.com, Inc. Stock (the "CRAFTCLICK SHARES") having a value of Five Hundred Thousand Dollars ($500,000), with the value per share of CraftClick.com, Inc. Stock equal to the average of the closing price of a share of CraftClick.com, Inc. Stock as listed on the NASD's OTC Bulletin Board for the ten (10) day period prior to the date of this Agreement, for the consideration stated in section 1.1(c) (the "PURCHASE PRICE"). The number of CraftClick Shares shall be set forth on EXHIBIT A on the Closing Date. (c) Consideration for Purchase. The consideration for the CraftClick Shares shall be the number of shares (the "INVESTOR SHARES") of Investor's common stock (the "INVESTOR STOCK") having a value of Five Hundred Thousand Dollars ($500,000), with the value per share of the Investor Stock equal to the average of the closing price of a share of the Investor Stock as listed on the Nasdaq Stock Market for the ten (10) day period prior to the date of this Agreement. The number of shares of Investor Stock shall be set forth on EXHIBIT A on the Closing Date. (d) Registration Rights. The holders of the CraftClick Shares and the Investor Shares shall not have any registration rights, including but not limited to rights to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended (the "Act"). (e) Lock-up. The Company shall not be permitted to sell, assign, convey or otherwise transfer the Investor Shares and the Investor will not be permitted to sell, assign, convey or otherwise transfer the CraftClick Shares until the one (1) year anniversary date of the Closing. The parties agree that the certificates representing the CraftClick Shares and the Investor Shares shall contain an appropriate legend restricting transfer during such one-year period. 1 6 SECTION 2 CLOSINGS, DELIVERY AND PAYMENT 2.1 Closing. The closing of the sale and purchase of the CraftClick Shares under this Agreement (the "CLOSING") shall take place at 10:00 a.m. on the date agreed to by the parties, at the offices of Maslon Edelman Borman & Brand, LLP, 3300 Norwest Center, 90 So. Seventh Street, Minneapolis, MN 55402 or at such other time or place as the Company and Investor may mutually agree (such date is hereinafter referred to as the "CLOSING DATE"). At the Closing, subject to the terms and conditions hereof, the Company will issue, sell and deliver to the Investor, certificates representing the CraftClick Shares as set forth in EXHIBIT A to be issued at the Closing to the Investor. Subject to the terms and conditions hereof, the Investor will issue, sell and deliver to the Company, certificates representing the Investor Shares as set forth in EXHIBIT A which shall be the Purchase Price, to be issued at the Closing to the Company. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby makes the following representations and warranties to the Investor as of the date of the Closing. 3.1 Incorporation, Good Standing and Qualification. The Company is duly formed, incorporated, registered, or otherwise validly existing and in good standing under the laws of the state of Utah and has all requisite power and authority to carry on its business as now conducted and as proposed to be conducted. All subsidiaries of the Company are set forth in SCHEDULE A. 3.2 Capitalization. (a) The Company is authorized to issue 100,000,000 shares of capital stock. SCHEDULE A includes a complete and accurate list of all of the Company's outstanding securities as of the date hereof (including all outstanding instruments which are convertible or exchangeable to ownership in the Company, including all shares of any preferred stock, common stock, warrants, options, and all other securities convertible into or exchangeable for shares of the Company's capital stock). (b) The outstanding shares of the Company's capital stock are duly and validly authorized and issued, fully paid and nonassessable, and were issued in accordance with the securities laws of the state of incorporation and the United States. (c) Except for the options and warrants disclosed in SCHEDULE A, there are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock. 3.3 Voting Rights. The Company is not a party or subject to any agreement or understanding and there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any of the Company's securities or by a director of the Company. 3.4 Authorization. All corporate and other action (including shareholder approval) necessary for the authorization, execution and delivery of this Agreement and all agreements contemplated hereby, the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance, sale and delivery of the CraftClick.com, Inc. Stock being sold hereunder will be taken prior to the Closing. This Agreement, and all agreements contemplated hereby, constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors' rights generally and to general equitable principles. 2 7 3.5 Agreement Not in Breach of Other Instruments. Neither the execution nor the delivery of this Agreement or the other agreements contemplated herein or hereby (the "Other Agreements"), nor the consummation of the transactions contemplated hereby or thereby, nor the fulfillment of the terms hereof or thereof, will (a) violate, or result in a breach of, any of the terms and provisions of, or constitute a default under, or conflict with (i) any agreement, contract, commitment, permit, indenture or other instrument to which the Company is a party or by which the Company or any of its assets, are bound, or give rise to any right of termination, cancellation or acceleration under any such agreement, contract, commitment, permit, indenture or other instrument by any party thereto, (ii) the bylaws, certificate of incorporation or shareholder agreements of the Company or (iii) any law, statute or regulation, or any judgment, decree, order or award of any court, governmental body or arbitrator applicable to the Company; or (b) result in the creation or imposition of any lien, charge, pledge, security interest or encumbrance of any kind on any asset of the Company. 3.6 SEC Filings. All filings the Company has made with the Securities and Exchange Commission ("SEC") are true and correct in every material respect. 3.7 Absence of Certain Changes. Since the date of the Company's most recently filed 10-QSB with the SEC, the Company has conducted its business in the ordinary course of business substantially consistent with past practice and there has not been (i) any declaration or payment of distributions or dividends; (ii) any transaction not in the ordinary course of business (for purposes of this Agreement, "ORDINARY COURSE OF BUSINESS" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency)); (iii) any change in the business, results of operations, condition (financial or otherwise), assets, liabilities (whether absolute, accrued, contingent or otherwise) or business of the Company that has had or is reasonably likely to have, with the passage of time or otherwise, a Material Adverse Effect; (iv) any damage, destruction or loss, whether or not covered by insurance, which has had or is reasonably likely to have, with the passage of time or otherwise, a Material Adverse Effect; (v) any alteration in the manner of keeping the books, accounts or records of the Company, or in the accounting practices therein reflected; (vi) any issuance or sale of any interests, including but not limited to equity and debt, in or of the Company, or any issuance or sale of securities convertible into, or options with respect to, or warrants to purchase or rights to subscribe to, any interests in or of the Company, or any agreements entered into obligating the Company to issue, sell, redeem, repurchase or acquire any such interests; (vii) any notice from any customer or customers or supplier or suppliers, as to such customer or supplier's intention not to conduct business with the Company, the results of which loss or losses of business or supplies, individually or in the aggregate, has had, or may reasonably be expected to have, with the passage of time or otherwise, a Material Adverse Effect; or (viii) any other event or condition of any character which has had or may reasonably be expected to have, with the passage of time or otherwise, a Material Adverse Effect. 3.8 No Undisclosed Liabilities. The Company has no liabilities or obligations of any nature or kind whatsoever, liquidated or unliquidated, absolute, accrued, contingent or otherwise, and whether due or to become due (including, without limitation, any liability for taxes and interest, penalties and other charges payable with respect to any such liability or obligation) ("COMPANY LIABILITIES"), other than (i) liabilities or obligations reflected or reserved against in the most recent financial statements; and (ii) liabilities or obligations incurred in the ordinary course of business consistent with past practice since the most recent financial statement date, which individually or in the aggregate will not have a Material Adverse Effect. To the knowledge of the Company, there is no existing condition, situation or set of circumstances which could reasonably be expected to result in Company Liabilities. "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the CraftClick.com, Inc. Stock or the assets, business, financial condition, results of operations or prospects of the Company or any of its subsidiaries 3 8 3.9 Other Information. No representations or warranties by the Company, whether made on behalf of the Company in this Agreement, the Other Agreements, any document, exhibit, statement, certificate or schedule furnished or to be furnished to Investor pursuant hereto, nor any other information provided to Investor by or on behalf of the Company, contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact necessary to make the statements or facts contained therein not misleading. There is no material fact that has not been disclosed in writing to Investor which has a Material Adverse Effect or could reasonably be anticipated to have a Material Adverse Effect. 3.10 Valid Issuance of Common Stock. The CraftClick.com, Inc. Stock being purchased by the Investor hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions pursuant to applicable United States state and federal securities laws. 3.11 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority in the United States on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement except for filings under applicable United States federal and state securities laws which may be made after the Closing. 3.12 Offering. The offer, sale and issuance of the CraftClick.com, Inc. Stock as contemplated by this Agreement are exempt from the registration requirements of the Act and applicable state securities laws. 3.13 Purchase Entirely for Own Account. The Investor Stock will be acquired for investment for the Company's own account and not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. The Company does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Investor Stock. 3.14 Disclosure of Information. The Company further represents that it has had an opportunity to ask questions and receive answers from the Investor regarding the terms and conditions of the sale of the Investor Stock. Company acknowledges that it has reviewed all Investor reports filed with the SEC during the past 12 months. SECTION 4 REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE INVESTOR The Investor hereby represents and warrants to the Company that: 4.1 Incorporation, Good Standing and Qualification. The Investor is duly formed, incorporated, registered, or otherwise validly existing and in good standing under the laws of the state of Minnesota and has all requisite power and authority to carry on its business as now conducted and as proposed to be conducted. 4.2 Capitalization. (a) The Investor is authorized to issue 100,000,000 shares of capital stock. SCHEDULE B includes a complete and accurate list of all of the Investor's outstanding securities as of the date hereof (including all outstanding instruments which are convertible or exchangeable to ownership in the 4 9 Investor, including all shares of any preferred stock, common stock, warrants, options, and all other securities convertible into or exchangeable for shares of the Investor's capital stock). (b) The outstanding shares of the Investor's capital stock are duly and validly authorized and issued, fully paid and nonassessable, and were issued in accordance with the securities laws of the state of incorporation and the United States. (c) Except for the options and warrants disclosed in SCHEDULE B, there are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Investor of any shares of its capital stock. 4.3 Voting Rights. The Investor is not a party or subject to any agreement or understanding and there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any of the Investor's securities or by a director of the Investor. 4.4 Authorization. The Investor has full power and authority to enter into this Agreement and the Other Agreements; and each of this Agreement and the Other Agreements, when executed by all Parties thereto, will constitute a valid and legally binding obligation of the Investor, enforceable in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors' rights generally and to general equitable principles. 4.5 Agreement Not in Breach of Other Instruments. Neither the execution nor the delivery of this Agreement or the other agreements contemplated herein or hereby (the "Other Agreements"), nor the consummation of the transactions contemplated hereby or thereby, nor the fulfillment of the terms hereof or thereof, will (a) violate, or result in a breach of, any of the terms and provisions of, or constitute a default under, or conflict with (i) any agreement, contract, commitment, permit, indenture or other instrument to which the Investor is a party or by which the Investor or any of its assets, are bound, or give rise to any right of termination, cancellation or acceleration under any such agreement, contract, commitment, permit, indenture or other instrument by any party thereto, (ii) the bylaws, certificate of incorporation or shareholder agreements of the Investor or (iii) any law, statute or regulation, or any judgment, decree, order or award of any court, governmental body or arbitrator applicable to the Investor; or (b) result in the creation or imposition of any lien, charge, pledge, security interest or encumbrance of any kind on any asset of the Investor. 4.6 SEC Filings. All filings the Investor has made with the Securities and Exchange Commission ("SEC") are true and correct in every material respect. 4.7 Absence of Certain Changes. Since the date of the Investor's most recently filed 10-QSB with the SEC, the Investor has conducted its business in the ordinary course of business substantially consistent with past practice and there has not been (i) any declaration or payment of distributions or dividends; (ii) any transaction not in the ordinary course of business (for purposes of this Agreement, "ORDINARY COURSE OF BUSINESS" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency)); (iii) any change in the business, results of operations, condition (financial or otherwise), assets, liabilities (whether absolute, accrued, contingent or otherwise) or business of the Investor that has had or is reasonably likely to have, with the passage of time or otherwise, a Material Adverse Effect; (iv) any damage, destruction or loss, whether or not covered by insurance, which has had or is reasonably likely to have, with the passage of time or otherwise, a Material Adverse Effect; (v) any alteration in the manner of keeping the books, accounts or records of the Investor, or in the accounting practices therein reflected; (vi) any issuance or sale of any interests, including but not limited to equity and debt, in or of the Investor, or any issuance or sale of securities 5 10 convertible into, or options with respect to, or warrants to purchase or rights to subscribe to, any interests in or of the Investor, or any agreements entered into obligating the Investor to issue, sell, redeem, repurchase or acquire any such interests; (vii) any notice from any customer or customers or supplier or suppliers, as to such customer or supplier's intention not to conduct business with the Investor, the results of which loss or losses of business or supplies, individually or in the aggregate, has had, or may reasonably be expected to have, with the passage of time or otherwise, a Material Adverse Effect; or (viii) any other event or condition of any character which has had or may reasonably be expected to have, with the passage of time or otherwise, a Material Adverse Effect. 4.8 No Undisclosed Liabilities. The Investor has no liabilities or obligations of any nature or kind whatsoever, liquidated or unliquidated, absolute, accrued, contingent or otherwise, and whether due or to become due (including, without limitation, any liability for taxes and interest, penalties and other charges payable with respect to any such liability or obligation) ("INVESTOR LIABILITIES"), other than (i) liabilities or obligations reflected or reserved against in the most recent financial statements; and (ii) liabilities or obligations incurred in the ordinary course of business consistent with past practice since the most recent financial statement date, which individually or in the aggregate will not have a Material Adverse Effect. To the knowledge of the Investor, there is no existing condition, situation or set of circumstances which could reasonably be expected to result in Investor Liabilities. "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the Investor Shares or the assets, business, financial condition, results of operations or prospects of the Investor or any of its subsidiaries 4.9 Other Information. No representations or warranties by the Investor, whether made on behalf of the Investor in this Agreement, the Other Agreements, any document, exhibit, statement, certificate or schedule furnished or to be furnished to Company pursuant hereto, nor any other information provided to Investor by or on behalf of the Investor, contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact necessary to make the statements or facts contained therein not misleading. There is no material fact that has not been disclosed in writing to Investor which has a Material Adverse Effect or could reasonably be anticipated to have a Material Adverse Effect. 4.10 Valid Issuance of Common Stock. The Investor Shares being purchased by the Company hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions pursuant to applicable United States state and federal securities laws. 4.11 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority in the United States on the part of the Investor is required in connection with the consummation of the transactions contemplated by this Agreement except for filings under applicable United States federal and state securities laws which may be made after the Closing. 4.12 Offering. The offer, sale and issuance of the Investor Shares as contemplated by this Agreement are exempt from the registration requirements of the Act and applicable state securities laws. 4.13 Purchase Entirely for Own Account. The CraftClick Shares will be acquired for investment for the Investor's own account and not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. The Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the CraftClick Shares. 6 11 4.14 Disclosure of Information. The Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the sale of the CraftClick.com, Inc. Stock. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 3 of this Agreement, nor the right of the Investor to rely thereon. Investor acknowledges that it has reviewed all Company reports filed with the SEC during the past 12 months. SECTION 5 CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING 5.1 Closing. The obligation of Investor to purchase and pay for the CraftClick Shares to be delivered to it at the Closing shall be subject to the satisfaction of the following conditions as of the Closing Date: (a) The representations and warranties of the Company contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing. (b) The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. (c) The Company shall deliver to Investor at the Closing a certificate, in the form attached hereto as EXHIBIT B, stating, among other things, that the Company has satisfied the conditions specified in (a) and (b) above and stating that there has been no material adverse change in the business, affairs, operations, properties, assets or condition of the Company. (d) All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state or country that are required in connection with the lawful issuance and sale of the CraftClick.com, Inc. Stock pursuant to this Agreement shall have been duly obtained and shall be effective as of the Closing. (e) All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Investor and its legal counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. (f) The Investor shall have received from counsel for the Company, a legal opinion addressed to the Investor and dated as of the Closing, in form reasonably acceptable to the legal counsel for the Investor. (g) A Services Agreement between the Company and the Investor shall have been fully executed in the form attached hereto as EXHIBIT C. (h) The Company or any subsidiary before Closing did not, except as otherwise permitted or contemplated under this Agreement, (i) discontinue its business, (ii) undergo an event of dissolution, (iii) fail to keep in full force and effect its existence as a corporation, limited liability company, limited partnership, or other relevant business entity; and shall not have (i) applied for or consented to the appointment of a receiver, trustee, custodian or liquidator of it or any of its property, (ii) admitted in writing its inability to pay its debts as they mature, (iii) made a general assignment for the benefit of creditors, (iv) been adjudicated bankrupt or insolvent or be the subject of an order for relief under United States state or federal law or (v) filed a voluntary petition in bankruptcy, or a petition or an answer 7 12 seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or corporate action shall be taken for the purpose of effecting any of the foregoing; (i) There shall not have been filed against the Company or any subsidiary an involuntary petition seeking reorganization of the Company or any subsidiary or the appointment of a receiver, trustee, custodian or liquidator of the Company, any subsidiary or a substantial part of the Company's or any Subsidiary's assets, or an involuntary petition under any bankruptcy, reorganization or insolvency law of any jurisdiction, whether now or hereafter in effect, any of the above of which has not been dismissed or vacated by the earlier of within ninety (90) days thereafter; (j) The purchase of the CraftClick Shares by the Investor shall not be prohibited by any law or governmental order or regulation, and shall not subject the Investor to any penalty or special tax against which the Investor shall have not been indemnified by the Company, or other substantial and onerous condition. All consents, approvals, licenses, permits, orders and authorizations of, or registrations, declarations and filings with, any governmental or administrative agency or with any other person, with respect to any of the transactions contemplated by this Agreement (including Hart-Scott-Rodino filings), shall have been duly obtained or made and shall be in full force and effect; and (k) The Investor shall have received from the Company certificates evidencing the CraftClick Shares to be issued and sold to the Investor as of the Closing and registered in the name of the Investor. SECTION 6 CONDITIONS OF COMPANY'S OBLIGATIONS AT CLOSING 6.1 Closing. The obligation of Company to sell the Investor Shares to be delivered to it at the Closing shall be subject to the satisfaction of the following conditions as of the Closing Date: (a) The representations and warranties of the Investor contained in Section 4 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing. (b) The Investor shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. (c) The Investor shall deliver to the Company at the Closing a certificate, in the form attached hereto as EXHIBIT D, stating, among other things, that the Investor has satisfied the conditions specified in (a) and (b) above and stating that there has been no material adverse change in the business, affairs, operations, properties, assets or condition of the Investor. (d) All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state or country that are required in connection with the lawful issuance and sale of the Investor Shares pursuant to this Agreement shall have been duly obtained and shall be effective as of the Closing. (e) All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to 8 13 the Investor and its legal counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. (f) A Services Agreement between the Investor and the Company shall have been fully executed in the form attached hereto as EXHIBIT C. (g) The Investor or any subsidiary before Closing did not, except as otherwise permitted or contemplated under this Agreement, (i) discontinue its business, (ii) undergo an event of dissolution, (iii) fail to keep in full force and effect its existence as a corporation, limited liability company, limited partnership, or other relevant business entity; and shall not have (i) applied for or consented to the appointment of a receiver, trustee, custodian or liquidator of it or any of its property, (ii) admitted in writing its inability to pay its debts as they mature, (iii) made a general assignment for the benefit of creditors, (iv) been adjudicated bankrupt or insolvent or be the subject of an order for relief under United States state or federal law or (v) filed a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or corporate action shall be taken for the purpose of effecting any of the foregoing; (h) There shall not have been filed against the Investor or any subsidiary an involuntary petition seeking reorganization of the Investor or any Subsidiary or the appointment of a receiver, trustee, custodian or liquidator of the Investor, any Subsidiary or a substantial part of the Investor's or any Subsidiary's assets, or an involuntary petition under any bankruptcy, reorganization or insolvency law of any jurisdiction, whether now or hereafter in effect, any of the above of which has not been dismissed or vacated by the earlier of within ninety (90) days thereafter; (i) The purchase of the Investor Shares by the Company shall not be prohibited by any law or governmental order or regulation, and shall not subject the Company to any penalty or special tax against which the Company shall have not been indemnified by the Investor, or other substantial and onerous condition. All consents, approvals, licenses, permits, orders and authorizations of, or registrations, declarations and filings with, any governmental or administrative agency or with any other person, with respect to any of the transactions contemplated by this Agreement (including Hart-Scott-Rodino filings), shall have been duly obtained or made and shall be in full force and effect; and (j) The Company shall have received from the Investor certificates evidencing the Investor Shares to be issued and sold to the Company as of the Closing and registered in the name of the Company. SECTION 7 MISCELLANEOUS 7.1 Survival of Warranties. The warranties, representations and covenants of the Company and Investor contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing, and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investor or the Company. 7.2 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares). Nothing in this Agreement, expressed or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns 9 14 any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 7.3 Governing Law. This Agreement shall be governed by and construed under the internal laws of the State of Minnesota as applied to agreements among Minnesota residents entered into and to be performed entirely within Minnesota, without regard to its choice of law rules. 7.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signature pages from the facsimile transmission are deemed acceptable. 7.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 7.6 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified; (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) business day after deposit with a internationally recognized overnight courier, special next day delivery, with verification of receipt. All communications shall be sent to the Company at 432 Culver Blvd., Playa Del Rey,. CA 90293, and to the Investor at 1333 Corporate Drive, Suite 350, Irving, TX 75038, Facsimile (972) 550-5501 or at such other address as the Company or Investor may designate by ten (10) days advance written notice to the other parties hereto. 7.7 Finder's Fee. Each party represents that it neither is nor will be obligated for any finder's fee or commission in connection with this transaction. The Investor agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses (including legal fees) of defending against such liability or asserted liability) for which such Investor or any of its officers, partners, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless the Investor from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses (including legal fees) of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 7.8 Expenses. Each party shall pay all of its own expenses in connection with this transaction. If after the Closing, any litigation, contest, dispute, suit, proceeding or action is instituted between or among any of the parties hereto regarding the enforcement or interpretation of this Agreement or the exhibits attached hereto, the prevailing party shall be entitled to reimbursement from the other party or parties of all reasonable expenses, costs, charges and other fees, including legal fees, incurred in connection with or related to such dispute. 7.9 Amendments and Waivers. Any term of this Agreement may only be amended and the observance of any term of this Agreement may only be waived, either generally or in a particular instance and either retroactively or prospectively, only with the written consent of the Company and the Investor. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any shares at the time outstanding, each future holder of all such shares, and the Company. 7.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement 10 15 shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms. 7.11 Entire Agreement. This Agreement and the documents referred to herein, including all Exhibits and Schedules, constitute the entire agreement among the parties in connection with the matters addressed herein and therein and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. The undersigned has duly executed this Agreement as of the date indicated in the preamble to this Agreement. CRAFTCLICK.COM, INC POPMAIL.COM, INC. By: s/ Peter A. Yollin By: s/ Gary Schneider ---------------------------- --------------------- Name: Peter A. Yollin.. Name: Gary Schneider ---------------------------- --------------------- Title: C.E.O. Title: President - Development ---------------------------- ----------------------- 11 16 SCHEDULE A COMPANY CAPITAL STOCK --------------------- CAPITAL STOCK - ------------- Common Stock: 17,423,110 Series A Convertible Preferred Stock (1) 129,000 Common Stock Warrants (2) 645,000 Stock Options to Purchase Common Stock 2,461,000 (1) Each Share of Series A Preferred Stock is convertable into 10 shares of Common Stock (2) Each Warrant is exercisable to purchase 1 share of Common Stock for $1.00 SUBSIDIARIES - ------------ None. 1 17 SCHEDULE B INVESTOR CAPITAL STOCK ---------------------- CAPITAL STOCK - ------------- Common Stock(1): 36,723,960 Series E Convertible Preferred Stock: 275,000 Series F Convertible Preferred Stock: 266,231 Series G Convertible Preferred Stock 600,000 - -------- (1) Represents the outstanding number of shares as of June 6, 2000. Does not include shares of Common Stock that are (a) reserved for issuance upon conversion of outstanding Series E Preferred Shares; (b) reserved for issuance upon conversion of the outstanding Series F Convertible Preferred Stock (the "Series F Preferred Shares"); (c) issuable upon exercise of the Class A Warrants issued as part of Investor's initial public offering, which are exercisable into an aggregate of 2,600,000 shares (for which Investor would receive approximately $16,900,000 if all were exercised); (d) issuable upon exercise of certain other warrants covering an aggregate of 15,335,778 shares (for which Investor would receive approximately $30,830,000 if all were exercised); (e) reserved for issuance upon conversion of the $2,000,0001 of 4% convertible debentures issued November 30, 1999, or (f) reserved for issuance under various stock option agreements, including those issued under the 1997 Stock Option and Compensation Plan, 1998 Director Stock Option Plan and those issued to certain directors. 2 18 EXHIBIT A NUMBER OF SHARES ---------------- Total number of CraftClick Shares to be purchased by Investor: 234,603 Total number of Investor Shares making up the Purchase Price: 450,706 1 19 EXHIBIT B COMPLIANCE CERTIFICATE ---------------------- The undersigned officers of CraftClick.com, Inc., a Utah company (the "Company"), hereby certify that: 1. The representations and warranties of the Company contained in Section 3 of the Stock Purchase Agreement dated on or about June 7, 2000 (the "Stock Purchase Agreement"), by and between the Company and Popmail.com, inc. are true and correct, as if made on or as of this date, and the Company has performed and complied with all agreements, obligations and conditions contained in the Stock Purchase Agreement that it is required to comply with or perform on or prior to the date of this Compliance Certificate. 2. No material breach or default of any of the Company's agreements or obligations under the Stock Purchase Agreement, has occurred or is continuing. 3. Before the date of signing of this Certificate, no occurrence or development has occurred which has or might reasonably be expected to result in a material adverse effect to the Company. 4. The Company or any subsidiary has not: (i) discontinued its business; (ii) undergone an event of dissolution; (iii) failed to keep in full force and effect its existence as a corporation, limited liability company, limited partnership or other relevant business entity and has not (i) applied for or consented to the appointment of a receiver, trustee, custodian or liquidator of it or any of its property, (ii) admitted in writing its inability to pay its debts as they mature, (iii) made a general assignment for the benefit of creditors, (iv) been adjudicated bankrupt or insolvent or be the subject of an order for relief under Title 11 of the United States Code or (v) filed a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or corporate action for the purpose of effecting any of the foregoing; 5. There has not been filed against the Company or any subsidiary an involuntary petition seeking reorganization of the Company or any subsidiary or the appointment of a receiver, trustee, custodian or liquidator of the Company, any subsidiary or a substantial part of the Company's or any subsidiary's assets, or an involuntary petition under any bankruptcy, reorganization or insolvency law of any jurisdiction. This Certificate is made pursuant to Section 5 of the Stock Purchase Agreement. IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand as of the date written below. Date: June 15, 2000 By: By: --------------------------- --------------------------- Name: Name: --------------------------- --------------------------- Title: Title: --------------------------- --------------------------- By: --------------------------- Name: --------------------------- Title: --------------------------- 2 20 EXHIBIT C SERVICES AGREEMENT ------------------ See Attached. 3 21 EXHIBIT D COMPLIANCE CERTIFICATE ---------------------- The undersigned officers of Popmail.com, inc., a Minnesota corporation (the "Investor"), hereby certify that: 1. The representations and warranties of the Investor contained in Section 4 of the Stock Purchase Agreement dated on or about June 7, 2000 (the "Stock Purchase Agreement"), by and between the Investor and CraftClick.com, Inc. are true and correct, as if made on or as of this date, and the Investor has performed and complied with all agreements, obligations and conditions contained in the Stock Purchase Agreement that it is required to comply with or perform on or prior to the date of this Compliance Certificate. 2. No material breach or default of any of the Investor's agreements or obligations under the Stock Purchase Agreement, has occurred or is continuing. 3. Before the date of signing of this Certificate, no occurrence or development has occurred which has or might reasonably be expected to result in a material adverse effect to the Investor. 4. The Investor or any subsidiary has not: (i) discontinued its business; (ii) undergone an event of dissolution; (iii) failed to keep in full force and effect its existence as a corporation, limited liability company, limited partnership or other relevant business entity and has not (i) applied for or consented to the appointment of a receiver, trustee, custodian or liquidator of it or any of its property, (ii) admitted in writing its inability to pay its debts as they mature, (iii) made a general assignment for the benefit of creditors, (iv) been adjudicated bankrupt or insolvent or be the subject of an order for relief under Title 11 of the United States Code or (v) filed a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or corporate action for the purpose of effecting any of the foregoing; 5. There has not been filed against the Investor or any subsidiary an involuntary petition seeking reorganization of the Investor or any subsidiary or the appointment of a receiver, trustee, custodian or liquidator of the Investor, any subsidiary or a substantial part of the Investor's or any subsidiary's assets, or an involuntary petition under any bankruptcy, reorganization or insolvency law of any jurisdiction. This Certificate is made pursuant to Section 6 of the Stock Purchase Agreement. IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand as of the date written below. Date: June 15, 2000 By: By: ---------------------------- ---------------------------- Name: Name: ---------------------------- ---------------------------- Title: Title: ---------------------------- ---------------------------- By: ---------------------------- Name: ---------------------------- Title: ---------------------------- 4 EX-27 10 c58302ex27.txt FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-2000 JAN-02-2000 OCT-01-2000 322,514 0 789,688 133,338 76,602 4,183,563 4,071,727 814,292 88,220,123 7,247,996 0 0 55,026,843 461,960 25,483,324 88,220,123 2,194,792 2,194,792 0 0 0 133,338 1,820,731 (38,105,228) 0 (38,105,228) (4,874,656) 0 0 (42,979,884) (1.16) (1.16)
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