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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) January 15, 1998
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TOUCH TONE AMERICA, INC.
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(Exact name of registrant as specified in its charter)
California 0-240058 33---0424087
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(State or other jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1771 E. Flamingo Road, Building B, Suite 200, Las Vegas, NV 89119
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(Address of principal executive offices)
Registrant's telephone number, including area code: (702) 792-2500
3300 N. Central Avenue, Suite 1155, Phoenix, Arizona 85012
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(Former name or former address, if changed since last report)
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ITEM 1 AND 2. CHANGE OF CONTROL OF REGISTRANT AND ACQUISITION OR DISPOSITION OF
ASSETS
On December 31, 1997, Touch Tone America, Inc. (the "Registrant") acquired all
the issued and outstanding shares of Orix Global Communications, Inc., a Nevada
corporation ("Orix") in accordance with the terms of an Agreement and Plan of
Reorganization among the Registrant, Orix and the stockholders of Orix (the
"Acquisition"). The acquisition was consummated by the issuance of 33,732,980
shares of the Registrant's Common Stock to the stockholders of Orix. Immediately
after the acquisition there were approximately 42,166,225 shares of the
Registrant's Common Stock issued and outstanding.
Orix operates as a reseller of communication network equipment and circuits, and
provides voice, data, video and wireless services in the U.S. and international
markets.
All of Orix's outstanding common stock had been held of record and beneficially
by seven shareholders. The Registrant has been advised that none of the former
Orix stockholders is acting as a group with respect to the Orix common stock,
nor do any of the former Orix stockholders share any dispositive or voting
powers with respect to their shares of Orix.
In connection with the transaction, Messrs. Kerry L. Rogers, Robert A. Michel,
W. Bruce Voss, and Eckley .M. Keach were nominated to the Registrant's Board of
Directors. They join Messrs. Larry Cornwell, Bruce Walko, and Dr. Edward D.
Wirth. The new Board of Directors has elected the following officers: President
and Chief Executive Officer - Kerry L. Rogers, Executive Vice-President,
Secretary and Chief Financial Officer -Robert A. Michel, and Vice-President -W.
Bruce Voss. Bruce Walko, and Dr. Edward D. Wirth agreed to resign as Directors
of the Registrant following stockholder ratification of the Acquisition.
The Acquisition remains subject to the ratification by a majority of the
shareholders of the Registrant, excluding the former stockholders of Orix.
Should the stockholders of the Registrant not ratify the Acquisition, the Orix
stockholders have the right under the Agreement and Plan of Reorganization to
cause the Registrant to undo the Acquisition and to make the parties whole and
in the same position they were in prior to the closing of the Acquisition.
The following table sets forth certain information as of December 31, 1997 with
respect to the shares of the Registrant's Common Stock owned by (i) each
director and officer of the Registrant and (ii) each person known by the
Registrant to own beneficially more than 5% of the Registrant's Common Stock (
the only class of stock outstanding ):
Name of Number of Shares Percent
Beneficial Owner Beneficially Owned of Class
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Kerry L. Rogers (1) 18,272,031 43.3%
John Higgins 8,573,799 20.3%
Robert A. Michel (2) 2,811,082 6.67%
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Eckley .M. Keach (3) 1,405,541 3.34%
W. Bruce Voss (4) 1,405,541 3.34%
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(1) Kerry L. Rogers is President, Chief Executive Officer and Director of the
Registrant
(2) Robert A. Michel is Executive Vice-President, Secretary, Chief Financial
Officer and Director of the Registrant
(3) Eckley .M. Keach is a Director of the Registrant
(4) W. Bruce Voss is Vice-President and Director of the Registrant
Kerry L. Rogers and John Higgins, the two principal shareholders of the
Registrant, agreed to not sell, transfer or dispose of any of their shares
prior to January 1, 1998, unless such disposition occurs as a selling
shareholder pursuant to an underwritten offering of at least $2,500,000 gross
proceeds by the Registrant of its Common Stock.
The basis upon which shares of Orix's Common Stock were exchanged for the shares
of Common Stock of the Registrant was established through arm's length
negotiations between the Registrant and Orix. There was no relationship between
Orix or its stockholders, on the one hand, and the Registrant, on the other
hand, prior to entering into the Acquisition Agreement, except for the
consulting agreement entered into in August 1997 with Kerry Rogers, the
President of Orix, to serve as a consultant to the Board of Directors of the
Registrant on a month to month basis until shareholder approval of the
Acquisition.
The Registrant has begun to relocate its principal executive offices to Orix's
corporate office at 1771 E. Flamingo Road, Building B, Suite 200, Las Vegas, NV.
The Registrant's phone is 702.792.2500.
ITEM 5. OTHER EVENTS
(I) On December 16, 1997, the Registrant announced that the NASDAQ
notified the Registrant that as a result of its failure to satisfy the
listing requirements for continued listing on the NASDAQ Small/Cap
Market the Registrant's Common Stock was delisted. This determination
was made by the Listing Qualification Panel following a verbal hearing
before the Panel on December 4, 1997 in connection with the
Registrant's request for the continued inclusion on the Nasdaq
Small\Cap Market notwithstanding its failure to meet the total assets
and capital surplus requirements that are set forth in the NASD
Marketplace Rules. Based on the contemplated acquisition of Orix and
an envisaged private placement, the Panel was of the opinion that the
proposed transactions would result in a change of control, financial
structure and business, and that the NASD Marketplace Rules for
initial inclusion requirements are applicable.
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(ii) On December 18, 1997, GetNet International, Inc., the
Registrant's wholly owned subsidiary, filed a Voluntary Petition
for Chapter 11 Reorganization with the United States Bankruptcy
Court, District of Arizona - Phoenix Division. Management of
GetNet International, Inc., believes that the reorganization will
give it the ability to refashion its relationship with its
primary carrier, protect its customers and execute its business
plan.
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ITEM 7. FINANCIAL STATEMENTS, PROFORMA FINANCIAL INFORMATION AND EXHIBITS
(a) and (b) The required financial statements and proforma financial
information is unavailable as of the date hereof and will be
filed by the Registrant pursuant to the requirements of the
Securities Exchange Act under the rules and regulations
promulgated thereunder within 60 days after the date on
which this report must be filed.
(c) Exhibits
2.1 Agreement and Plan of Reorganization dated November 7, 1997 among
the Registrant, Orix and the stockholders of Orix.
2.2 Amendment to the Agreement and Plan of Reorganization dated
December 18, 1997 among the Registrant, Orix and the stockholders
of Orix.
2.3 Amendment to the Agreement and Plan of Reorganization dated
December 31, 1997 among the Registrant, Orix and the stockholders
of Orix.
3.1 Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock
3.2 Certificate of Designation, Preferences and Rights of Series C
Convertible Preferred Stock
4.1 8% Convertible Debenture dated December 31, 1997 in the amount of
$2,500,000 issued in the name of Infinity Investors Limited
4.2 8% Convertible Debenture dated December 31, 1997 in the amount of
$11,000,000 issued in the name of Infinity Investors Limited
10.1 Securities Purchase Agreement dated December 31, 1997 among the
Registrant and Infinity Investors limited
10.2 Common Stock Purchase Warrant for the purchase of 400,000 shares
of the Common Stock of the Registrant
10.3 Registration Rights Agreement dated December 31, 1997 among the
Registrant and Infinity Investors Limited
10.4 Put and Call Agreement dated December 31, 1997 among the
Registrant and Infinity Investors Limited
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10.5 Option Agreement dated December 31, 1997 among the Registrant and
Infinity Investors Limited
10.6 Security Agreement dated December 31, 1997 among the Registrant
and Infinity Investors Limited
10.7 Stock Pledge Agreement dated December 31, 1997 among the
Registrant, Infinity Investors Limited and the Orix shareholders
10.8 Lock Up Letter dated December 31, 1997 executed by Kerry L.
Rogers and John Higgins
10.9 Escrow Agreement among the Registrant, Orix Global
Communications, Inc., Infinity Investors Limited and Arter &
Hadden, LLP, as escrow agent
99.1 Press Release dated December 16, 1997.
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S
On December 31, 1997, the Registrant entered into a Securities Purchase
Agreement with Infinity Investors Limited, a Nevis West Indies corporation
("Infinity"), pursuant to which the Registrant agreed to issue and sell to
Infinity $2,500,000 principal amount of 8% Convertible Exchangeable Debentures
due December 31, 1999.(the "Debentures").
Effective on the first business day following the ratification by a majority of
the Registrant's shareholders of the acquisition of all the issued and
outstanding shares of Orix ("Shareholder Ratification"), the outstanding
principal balance (together with accrued and unpaid interest ) of the Debentures
shall be automatically exchanged for an equal stated amount of the Registrant's
Series B Preferred Shares. The Registrant agreed to use its best lawful efforts
to obtain such shareholder ratification as soon as practicable following the
closing and in all events by June 30, 1998. In the event Shareholder
Ratification is not obtained by then, Infinity may require the Registrant and
Orix, jointly and severally, to repay the Debentures. This obligation is secured
by a pledge to Infinity (x) by the Registrant and each Orix shareholder of all
outstanding capital stock of Orix pursuant to a certain Stock Pledge Agreement,
and (y) by Orix of all of its assets pursuant to a certain Asset Pledge
Agreement (collectively the "Pledge Agreements"). Infinity agreed to refrain
from exercising these remedies for a period of thirty (30) days following such
event during which period Orix shall in good faith seek to repay the Debenture.
Moreover, the Registrant further agreed to submit to the Registrant's
shareholders the reincorporation of the Registrant from the State of California
to the State of Delaware
The proceeds of the private placement, after satisfaction of the settlement
agreement with AT&T in the amount of $150,000 and payment of the expenses of the
transaction, were advanced by the
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Registrant to Orix (the "Orix Advance"). The funds will be used to expand
the Mexican network and the LatinGate, and for general working and growth
capital requirements. An amount of $420,000 was retained by the escrow agent
until consummation of the acquisition of all the issued and outstanding
shares of UCI Teleport, Inc., a Florida corporation which holds the rights to
acquire an earth satellite station in Florida. Orix agreed to reimburse the
Orix Advance to Registrant no later than December 31, 1999, except in the
event Shareholder Ratification is not obtained and Infinity exercises its
remedies under the Pledge Agreements.
The Series B Preferred Shares consists of 10,000 shares of Preferred Stock and
the stated value shall be $1,000 per share. The Series B Preferred Stock shall
rank prior to the Registrant's common stock, and to any class or series of
capital stock of the Registrant. The Series B Preferred Shares shall pay a
cumulative dividend of 8% per year. The holders of Series B Preferred Shares are
entitled to liquidation preference upon liquidation, dissolution or winding up
of the Registrant in an amount equal to $1,000) per share plus all accrued and
unpaid dividends. In certain events, including the change of control of the
Registrant, the Registrant may be required to redeem the Series B Preferred
Stock. The Registrant agreed to file with the Secretary of State of California
the Series B Preferred Shares Certificate of Designation as soon as practicable
after the Closing.
The Series B Preferred Stock may be concerted into shares of the Registrant's
common stock. The "Conversion Price" shall be $1.46. During each of the
calendar months of March through July, 1998 the Conversion Price shall be reset
at the lower of $1.46. and the then applicable Reset Price. The Reset Price
shall be the daily-weighted average sales price on the principal securities
exchange for the immediately preceding calendar month. In no event shall a
holder of the Convertible Debenture be entitled to convert any portion of the
Debenture and the Option Debentures in excess of that number of shares upon
conversion of which the sum of the number of shares of Common Stock beneficially
owned would result in beneficial ownership by a holder of more than 4.9% of the
outstanding shares of Common Stock.
On December 31, 1997, the Registrant entered into an Option Agreement with
Infinity pursuant to which the Registrant agreed to grant to Infinity an option
to assign and convey to the Registrant debentures, preferred shares and\or
commons shares of United Petroleum Corporation, a Delaware corporation (the "UPC
Securities") with an Exchange Amount not to exceed in the aggregate for all such
assignments $11,000,000 (the "Maximum Exchange Amount"). The Option may be
exercised at any time prior to the second anniversary date of the Option
Agreement. Upon exercise of the Option, the escrow agent will issue to Infinity
either 8% convertible exchangeable debentures due December 31, 1999 (if the
Shareholder Ratification has not occurred) (the "Option Debentures") or Series C
Preferred Shares (if the Shareholder Ratification has occurred).
The Registrant agreed to file with the Secretary of State of California the
Series C Preferred Shares Certificate of Designation and deposited in escrow
pursuant to the terms of the Escrow Agreement the Option Debenture in the
aggregate principal balance of the Maximum Exchange Amount.
Effective on the first business day following the ratification by a majority of
the Registrant's shareholders of the Acquisition of all the issued and
outstanding shares of Orix, the outstanding
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principal balance ( together with accrued and unpaid interest ) of the Option
Debentures shall be automatically exchanged for an equal stated amount of the
Registrant's Series C Preferred Shares.
The Series C Preferred Shares consists of 10,000 shares of Preferred Stock and
the stated value shall be $1,000 per share. The Series C Preferred Stock shall
rank prior to the Registrant's common stock, and to any class or series of
capital stock of the Registrant except the Series B Preferred Stock. The Series
C Preferred Shares shall pay a cumulative dividend of 8% per year. The holders
of Series C Preferred Shares are entitled to liquidation preference upon
liquidation, dissolution or winding up of the Registrant in an amount equal to
$1,000 per share plus all accrued and unpaid dividends.
In certain events, including the change of control of the Registrant, the
Registrant may be required to redeem the Series C Preferred Stock
The Series C Preferred Stock may be converted into shares of the Registrant's
common stock. The "Conversion Price" shall be $2.92. On the first day of each
of the calendar months of March through July, 1998 (each such date being a
"Reset Date") the Conversion Price shall be reset at the lower of $2.92 and
two (2) times the then applicable Reset Price. The Reset Price shall be the
daily-weighted average sales price on the principal securities exchange for
the immediately preceding calendar month.
The Debenture, the Option Debentures, and the Warrant have been, and the Series
B and C Preferred Shares issued in exchange therefor shall be, issued by the
Registrant in a private placement pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended ("Regulation S"). The Registrant relied on a
number of facts and representations made by Infinity in the Securities Purchase
Agreement and the Option Agreement to make the exemption available. The private
placement constitutes an offshore transaction, and did not involve any directed
selling efforts in the U.S. as such terms are defined under Regulation S.
The Registrant entered into a Registration Rights Agreement dated as of December
31, 1997 affording Infinity the right to cause the Registrant to prepare and
file a registration statement to effect the registration under the Securities
Act of all, but not less than all, of the number of shares of Common Stock
issued upon conversion of the Debentures, the Series B or C Preferred Shares,
and the Common Shares issued upon exercise of the Warrants, in the event
Regulation S is amended or modified either (x) to increase to more than 40 the
number of days contained in the Restricted Period or (y) so that the Conversion
Shares or Warrant Shares would be deemed "restricted securities" pursuant to the
Securities Act.
As long as Infinity owns, in the aggregate, not less than 25% of the Debenture
(or an equivalent amount of Common Stock issued upon conversion of the
Debentures or the Option Debentures), a representative of Infinity will have all
the rights of a director (exclusive of payment of director fees) but will not
attend meetings of the Board of Directors and will not be entitled to vote on
matters submitted for the Board's approval.
The Registrant agreed to take all actions necessary such that the Registrant's
Common Stock will
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be eligible for quotation on the OTC Market unless it becomes listed on a
national exchange, and that at least ten members of the NASD continue to be
registered as market makers with respect to the Registrant's shares of Common
Stock
On December 31, 1997, a Put and Call Agreement was executed among the Registrant
and Infinity pursuant to which the Registrant has the right to require that
Infinity repurchase on December 31, 1999 all (but not less than all) of the UPC
Securities then owned by the Registrant at a purchase price equal to the product
of thirty percent (30%) multiplied by the aggregate Exchange Amount of all UPC
Securities being repurchased on the Put date. Under the Put and Call Agreement
Infinity shall have the right, but not the obligation, for a period of thirty
(30) days from December 31, 1999, to purchase from the Registrant any or all of
the UPC Securities then owned by the Registrant at a call price of one hundred
and ten percent (110%) of the aggregate Exchange Amount of the UPC Securities
then owned by the Registrant. Such "Exchange Amount" means (i) with respect to
debentures, the outstanding principal balance thereof, together with accrued and
unpaid interest, (ii) with respect to preferred shares, the aggregate stated
value thereof, together with accrued and unpaid dividends, and (iii) with
respect to common shares, such amount will be determined on the basis of the
average closing bid price.
Commencing July 1, 1998 and continuing through December 1, 1998, the
Registrant may request that Infinity provide either (x) a structured equity
funding line with a maximum commitment of $2,500,000 (the "Equity Line") or
(y) a commitment to acquire an additional $2,500,000 stated value of
Registrant's Series B Shares containing terms (including the conversion
price) identical to those provided in the Securities Purchase Agreement and
in the Series B Certificate of Designation (the "Additional Series B Share
Acquisition"). The terms of Equity Line provides that the Registrant will
issue Common Stock at a purchase price equal to 85% of the then applicable
market price of the Common Stock.
Infinity was granted a warrant to purchase 400,000 shares of Common Stock in
the event the Registrant fails to notify Infinity by July 31, 1998 that it
desires Infinity to provide either the Equity Line or Additional Series B
Share Acquisition. The purchase price per share of Common Stock issuable upon
exercise of the warrant shall be $1.46. During each of the calendar months of
March through July, 1998 the warrant purchase price shall be reset at the
lower of $1.46 and the then applicable Reset Price. The Reset Price shall be
the daily-weighted average sales price on the principal securities exchange
for the immediately preceding calendar month.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: January __, 1998 TOUCH TONE AMERICA, INC.
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By: /s/ Kerry Rogers
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Kerry Rogers
President and Chief Executive Officer
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AMENDED AGREEMENT AND PLAN OF REORGANIZATION
Agreement made as of the 7th day of November, 1997 by and among Touch Tone
America, Inc., a California corporation, ("Buyer"), ORIX Global Communications,
Inc., a Nevada corporation (the "Company" or "Seller") and the Shareholders of
the Company whose names and addresses are set forth on the signature page
hereof, (the "Shareholders"). Buyer, Seller, Company and Shareholders are
sometimes referred to as "party" or "parties."
The parties entered into an Agreement and Plan of Reorganization dated
August 11, 1997 (the "Agreement") pursuant to which the Shareholders agreed to
sell 1,200 shares of common stock, no par value per share, of the Company,
constituting all the issued and outstanding common stock of the Company (the
"Shares").
The parties have agreed to amend the Agreement in order to substitute the
consideration given by the Buyer for the Shares, as well as condition the
closing of the transaction upon certain terms. Buyer agrees to acquire all the
Shares in exchange for certain shares of the Common Stock of Buyer (the "Buyer's
Stock") and the Seller and Shareholders desire to exchange the Shares for
Buyer's Stock on the terms and conditions set forth herein. In consideration of
the mutual agreements contained herein, the parties agree as follows:
1. ACQUISITION AND EXCHANGE OF SHARES.
1.01 ACQUISITION. Buyer will acquire Seller pursuant to a
reorganization whereby Seller will become a wholly owned subsidiary of Buyer.
1.02. SHARES BEING EXCHANGED. Subject to the terms and conditions of
this Agreement, at the Closing, provided for in Section 2.01 hereof (the
"Closing"), Shareholders are assigning and delivering to Buyer the Shares and
Buyer is acquiring such Shares, free and clear of all liens, claims, options,
charges and encumbrances whatsoever in exchange for such number of Common Shares
of the Buyer's Common Stock to represent after issuance 65% of all issued and
outstanding shares of the Buyer's Common Stock after giving effect to all
options, warrants or other rights calling for issuances of Common Shares of the
Buyer's Common Stock. As of the date hereof, 4,561,245 shares of Buyer's Common
Stock are issued and outstanding, and options, warrants or other rights calling
for issuances of 3,393,400 Common Shares of the Buyer's Common Stock are
outstanding.
Accordingly, as of the date hereof, and before giving effect to any
adjustments contemplated under Paragraph 1.04 below, the number of Common Shares
of the Buyer's Common stock which represent, after issuance, 65% of all issued
and outstanding shares of the Buyer's Common Stock after giving effect to all
options, warrants or other rights calling for issuances of Common Shares of the
Company currently outstanding, is 14,772,912..
1.03. SHAREHOLDERS' REPRESENTATIVE. For this transaction, the
Shareholders hereby irrevocably designate and appoint Kerry Rogers as their
representative and attorney in fact, ("Orix Shareholders' Representative"), with
full power and authority until the Closing to execute, deliver and receive on
their behalf all notices, requests, certificates and other communications
hereunder;
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to, fix and alter on their behalf the date, time and place of the Closing; to
waive, amend or modify any provisions of this Agreement and to take such
other action on their behalf in connection with this Agreement, the Closing
and the transactions contemplated hereby as such agent or agents deem
appropriate; provided, however, that no such waiver, amendment or
modification may be made if it would decrease the number of shares to be
issued to the Sellers under Section 1.02 hereof or increase the extent of
their obligation to indemnify Buyer under Section 8.02 hereof.
1.04. ADJUSTMENTS TO NUMBER OF SHARES. In the event that, prior to
any issuance and delivery of shares of Buyer's Common Stock to the Shareholders
at Closing pursuant hereto, the outstanding shares of Buyer's Common Stock shall
have been, with or without new consideration, increased, decreased, changed into
or exchanged for a different number or kind of shares or securities through
reorganization, recapitalization, reclassification, stock dividend, stock split,
or other like changes in Buyer's capitalization, then an appropriate and
proportionate adjustment shall be made in the number of the Buyer's Common Stock
to be thereafter issued and delivered hereunder to the Shareholders at Closing
in order for the Shareholders to acquire the proportion of the Buyer's equity
contemplated under Paragraph 1.02 above, namely 65% of all issued and
outstanding shares of the Buyer's Common Stock after giving effect to all
options, warrants or other rights calling for issuances of Common Shares of the
Buyer's Common Stock then outstanding.
2. THE CLOSING.
2.01. TIME AND PLACE. The Closing hereunder shall occur at 10:00
a.m. at the offices of Seller, or at such other time and location as may be
mutually agreed upon by Buyer and Seller, but which date shall be no later than
January 31, 1998, or 24 hours after Shareholder approval.
2.02. DELIVERIES BY THE SELLER. At the Closing, the Seller shall
deliver to Buyer, (unless previously delivered or waived), the following:
a. Certificates representing the Company Shares, duly endorsed or
accompanied by stock powers, duly endorsed, duly executed in blank, (with
signatures guaranteed by a national bank or a member firm of the New York Stock
Exchange), and otherwise in form acceptable for transfer on the books of the
Company, with all requisite stock transfer stamps attached.
b. Certificates from appropriate authorities as to the good
standing of, and payment of taxes by, the Company in the State in which it is
incorporated and each jurisdiction in which it is qualified to do business as a
foreign corporation, dated as of the most recent practicable date.
c. The opinion of the Seller's counsel referred to in Section
7.c hereof.
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d. A general release from Shareholders of all claims
Shareholders may have, as of the date of the Closing, against the Company,
Buyer, and their subsidiaries or affiliates, or directors, officers, employees
or agents of the Company, Buyer, or their subsidiaries or affiliates, except for
such rights or claims arising under this Agreement and those listed in Exhibit
2.02(d).
e. All other previously undelivered items required to be
delivered by the Seller to Buyer at or prior to the Closing.
2.03 DELIVERIES BY BUYER. At the Closing, Buyer shall deliver to the
Sellers certificates of the appropriate number of Buyers Stock.
a. Certificates representing the Company Shares, duly endorsed
or accompanied by stock powers, duly endorsed, duly executed in blank, (with
signatures guaranteed by a national bank or member firm of the New York Stock
Exchange), and otherwise in form acceptable for transfer on the books of the
Company, with all requisite stock transfer stamps attached.
b. Certificates from appropriate authorities as to the good
standing of, and payment of taxes by, the Buyer in the State in which it is
incorporated and each jurisdiction in which it is qualified to do business as a
foreign corporation, dated as of the most recent practicable date.
c. An opinion of the Buyer's counsel as referred to in Section
7.8 hereof.
d. All other previously undelivered items required to be
delivered by the Buyer to Seller at or prior to the Closing.
3. SECURITIES ACT.
3.01 INVESTMENT REPRESENTATION. Each Seller acknowledges that the
Buyer's Stock issuable pursuant to this Agreement will not have been registered
under the Securities Act of 1933 (the Securities Act") and that Seller's Buyer
Stock must be held indefinitely unless subsequently registered thereunder or an
exemption from registration is available. Seller represents and warrants to
Buyer that (i) Seller will acquire such Buyer Stock for investment, and not with
a view to the distribution thereof within the meaning of the Securities Act,
(ii) such Seller will acquire such Buyer Stock for his or her own account and
has not offered, and as of the Closing Date will not have offered and does not
intend, and as of the Closing Date will not intend, to transfer, any
participation or interest of any kind in such Buyer Stock to any other person,
and (iii) the exchange of Buyer Stock for the Shares constitutes an investment
decision of an amount and type consistent with such Seller's investment
practices and objectives. Seller and Buyer each acknowledges that each party
has been offered access to information, financial
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and otherwise, regarding each party which is deemed relevant by each party in
this investment decision, and an opportunity to discuss such information with
officers and employees of each party, and to examine each parties' books and
records. In addition, until the Closing Date hereunder, Buyer shall deliver
to Seller all filings made under the Securities Exchange Act of 1934 by Buyer.
3.02 LEGENDING OF BUYER STOCK. The shares of Buyer stock issuable
hereunder shall not be transferable except upon the conditions specified in this
Section 3, which conditions are intended to insure compliance with the
provisions of the Securities Act in respect of the transfer of any such shares
of Stock.
Each certificate for Buyer Stock issued to Seller, and each certificate for
Buyer Stock issued to subsequent transferees of Seller, shall (unless otherwise
permitted by this Section 3) be stamped or otherwise imprinted in substantially
the following form:
"The transfer of the shares represented by this certificate is subject to
compliance with the conditions specified in an Agreement, a copy of which is on
file at the office of the Corporation, and no transfer of such shares shall be
valid or effective until such conditions have been fulfilled."
3.03 RESTRICTIONS ON TRANSFERABILITY. Each Shareholder, and any
subsequent holder of a certificate of Buyer Stock bearing the restrictive legend
set forth in Section 3.02, (hereinafter in this Section 3 called the "Holder")
by acceptance thereof agrees, prior to any transfer or attempted transfer of
such Buyer Stock, to give written notice to Buyer of such Holder's intention to
effect such transfer. Each such notice shall describe the manner and
circumstances of the proposed transfer in reasonable detail, and shall contain
an undertaking by the person giving such notice to furnish an opinion of counsel
for the Holder with respect to the proposed sale, and such further information
as may reasonably be required by Buyer or counsel referred to below. Promptly
upon receiving any such notice, Buyer shall submit copies thereof to its
counsel, and the following provisions shall apply:
(i) If, in the opinion of such counsel, the proposed transfer of such
Buyer Stock may be effected without registration under the Securities Act,
Buyer shall as promptly as is practicable so notify the Holder of such
Stock, and such Holder shall thereupon be entitled to transfer such Stock
in accordance with the terms of the notice delivered by such Holder to
Buyer. Each certificate of Buyer Stock issued upon the transfer of any
such Stock shall bear the restrictive legend set forth above if in the
opinion of such counsel such legend is required in order to insure
compliance with the applicable provisions of the Securities Act;
(ii) If, in the opinion of such counsel, the proposed transfer of such
Buyer Stock may not be effected without registration under the Securities
Act of such Stock, Buyer shall
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as promptly as is practicable so notify the Holder. The Holder thereof,
agrees, as to such Stock, by acceptance thereof, that if the proposed
transfer by him cannot, in the opinion of such counsel, be effected
without such Stock under the Securities Act, such Holder will not
transfer such securities unless they have been registered under the
Securities Act by Buyer, as hereinafter provided, or unless the staff of
the Securities and Exchange Commission has stated in writing that it
would raise no objection with respect to the proposed transfer. The
restrictions imposed by this Section 3 upon the transferability of any
particular share or shares of Buyer Stock shall cease and terminate
concurrently with the sale or other disposition thereof pursuant to and
in the manner contemplated by an effective registration statement under
the Securities Act, or pursuant to and in accordance with Rule 144
promulgated under the Securities Act, (or any similar rule or regulation
hereafter promulgated). Whenever the restrictions imposed by the
Section 3 shall terminate, as hereinabove provided, the Holder of any
Buyer Stock as to which such restrictions shall have terminated shall
be entitled to receive from Buyer one or more new certificates of Buyer
Stock not bearing the restrictive legend set forth above, and not
containing any other reference to the restrictions imposed by this
Section 3.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller hereby
represents and warrants to Buyer as follows (for the purposes of this Section 4,
the Company shall include any subsidiaries of the Company). The Company
represents and warrants:
4.01. TITLE TO THE SHARES. Each Shareholder owns, and is
transferring to Buyer at the Closing, good, valid and marketable title to the
number of Shares set forth opposite his name on the signature page hereof, free
and clear of all liens, claims, options, charges and encumbrances whatsoever.
Such shares in the aggregate represents, and will as of the Closing represent,
100% of the issued and outstanding capital stock of the Company. There are no
outstanding options, warrants, or rights to purchase or acquire any of the
Shares of the Seller.
4.02. VALID AND BINDING AGREEMENTS. As to each Shareholder, this
Agreement constitutes the valid and binding agreement of each Shareholder,
enforceable in accordance with its terms, and, as to Seller, neither the
execution and delivery of this Agreement nor the consummation by Seller of the
transaction contemplated hereby (a) violates or will violate any statute or law,
or any rule, regulation or order of any court or governmental authority; or (b)
violates or will violate, or conflicts with or will conflict with, or
constitutes a default under or will constitute a default under, any contract,
commitment, agreement, understanding, arrangement, or restriction of any kind to
which Seller is a party or by which Seller is bound.
4.03. ORGANIZATION. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Nevada,
and has corporate power and authority to own, lease, license and operate its
business and assets. The Company is duly qualified to transact business as a
foreign corporation in the State of California, and is in good standing in each
jurisdiction where the nature of its business makes such qualification necessary
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or the failure to so qualify would have a material adverse effect on its
business.
4.04. ARTICLES AND BY-LAWS. The copies of the Articles of
Incorporation and all amendments thereto of the Company, as certified by the
Secretary of the Company and of the By-Laws, as amended to the date hereof, of
the Company, as certified by its Secretary, which have heretofore been delivered
to Buyer are complete and correct copies of the Articles of Incorporation and
By-Laws of the Company as amended and in effect on the date of the Closing. All
minutes of the Company are contained in minute books of the Company heretofore
furnished to Buyer for examination and are being delivered to Buyer at the
Closing, and no minutes have been included in such minute books since such
examination by the Buyer that have not also been furnished to Buyer.
4.05. CAPITALIZATION. The total number of shares of stock which
the Company is authorized to issue is 2,500 shares of common stock of no par
value per share, of which 1,200 shares are validly issued, fully paid and
non-assessable. There is no option, warrant, agreement or understanding
pursuant to which any person or entity has or may have the right to acquire
any equity interest in the Company, or any other security convertible into
any equity interest in the Company.
4.06. FINANCIAL STATEMENTS. The Seller will deliver to Buyer balance
sheets of the Company as of May 31, 1997, and statements of operations for the
Company for the period then ending, and the report of Hein & Co., John
Steinbeck, C.P.A. pertaining thereto. These financial statements have been
prepared from the books and records of the Company, represent fairly the
financial position of the Company as of the dates appearing thereon, and the
results of operation of the Company for the period then ended, and have been
prepared in accordance with generally accepted accounting principles
consistently applied with those used in preparing financial statements of the
Company during prior fiscal periods. Except as provided for or reserved against
in the Balance Sheet dated May 31, 1997, (the "Balance Sheet") and except for
liabilities incurred in the ordinary course of the business of the Company after
the date of the balance sheet, and liabilities set forth on any of the exhibits
delivered in connection herewith, there are no liabilities of any kind, whether
accrued, absolute, contingent or otherwise, and whether or not determined or
determinable.
4.07. TAXES. The amount of the provision for liability for taxes on
the Balance Sheet is sufficient for the payment of all unpaid federal, state and
local income, franchise and property taxes of the Company accrued for or
applicable to the period ended on the date of said Balance Sheet, and all years
and periods prior thereto. The Company has collected or paid all applicable
local tax returns, intangible tax returns and other tax returns which are
required to be filed by it, and such returns and reports are true and correct.
The Company has prepared and filed all Federal, State and County and local
income, excise and other tax returns required to be filed by it, and all such
returns are true and correct. The Company has paid all taxes which have become
due pursuant to such returns, or pursuant to any assessment received by it. The
Federal income
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tax returns of the Company have not been examined by the Internal Revenue
Service. The Company has not incurred any tax liabilities other than in the
ordinary course of business; there are no tax liens upon any of the
properties or assets, real, personal or mixed, tangible or intangible, of the
Company, (except for liens of taxes not yet due); and, except as reflected in
the Balance Sheet, there are no pending questions relating to, or claims
asserted for, taxes or assessments against the Company, and there is no basis
for any such question or claim.
4.08. PATENTS, TRADEMARKS, TRADE NAMES, PROGRAMS, ETC. Exhibit 4.08
hereto contains an accurate and complete description of all patents, trademarks,
trade names, assumed names, computer programs, licenses, franchises and
copyrights, and any applications therefore, presently owned, held by, or used by
the Company, or under which the Company owns or holds any license. No products
or services of the Company, nor any patents, formula, processes, know-how, trade
secrets, trademarks, trade names, assumed names, copyrights or designations used
in the business of the Company infringe on any patents, trademarks, copyrights
or any other rights of any person. The Company has the right to market its
products and services and conduct its business as currently being conducted.
Neither the Company nor any Seller knows or has any reason to believe that there
are any claims or rights of any third parties of infringement, or any conflict
with the rights of third parties, and the Company is not in receipt of any
notice or complaint of any infringement or conflict with the rights of others in
any patents, copyrights, trademarks or trade names, or computer programs, trade
secrets or any other proprietary rights. No claims have been made by the
Company of any infringement or conflicts by others with the rights of the
Company with respect to any patents, copyrights, trademarks, computer programs,
formulations, trade names, trade secrets or proprietary information used in the
Company's business. Neither the Company nor any Seller knows of any basis for
the making of any such claim. No Seller, officer, director, employee or
consultant of the Company owns, directly or indirectly, in whole or in part, any
patents, copyrights, trademarks, trade names, computer programs, or any trade
secrets or proprietary information which are presently being used in the
Company's business.
4.09. INSURANCE. The Company has in force and effect and is covered
under policies of insurance covering such risks, and in amounts adequate for the
size and scope of its business. A description of its insurance policies is set
forth in Exhibit 4.09.
4.10. ASSETS. The Company has good and marketable title to all of
its properties, free and clear of all liens and encumbrances except as noted in
the Balance Sheet, and set forth in detail in Exhibit 4.10 hereto. The
properties and assets of the Company are in good repair and condition, and are
adequate for the conduct of the business of the Company as now being conducted,
and for the anticipated growth of the Company's business. The assets of the
Company will include those operations and investments set forth in detail in
Exhibit 4.10. In the event the Company is required to pay additional
consideration to acquire such rights, operations or investments, such payments
shall reduce the Company shares due Sellers herein by the same amount.
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4.11. BANKING ARRANGEMENTS. Set forth as Exhibit 4.11 hereto and
delivered to Buyer is a complete list of each bank in which the Company has an
account, line of credit, or other banking arrangement, and the account number,
balance and signatories of each such account, line of credit and loan.
4.12. EMPLOYEES. Set forth in Exhibit 4.12 hereto and delivered to
Buyer is a complete list setting forth the name, current annual salaries of all
officers, directors and employees of the Company, together with copies of any
employment agreements or other employment commitments of the Company.
4.13. PURCHASE COMMITMENTS. The Company has performed, in all
material respects, all of the obligations required to be performed by it to date
under all purchase agreements and purchase orders as conditions precedent to the
delivery of the items called for therein. No such purchase commitment is in
excess of the ordinary, common and usual requirements of the business of the
Company.
4.14. COMMITMENTS. The Company has performed, in all material
respects, all of the obligations required to be performed by it to date under
all of its sales, rental, service and franchise agreements and commitments. No
information has come to the attention of the Company or any Seller which would
tend to indicate that any of the customers of the Company are currently, or are
likely to become, unable to perform under the terms of any agreement or
commitment entered into with it. All leases entered into by the Company
involving remaining aggregate rentals in excess of $5,000 are set forth in
Exhibit 4.14 and have been delivered to Buyer.
4.15. AGENCY AGREEMENTS. Set forth in Exhibit 4.15 hereto and
delivered to Buyer are copies of all agreements and other commitments with
franchisees, distributors, dealers, sales representatives, consultants and other
agencies and entities engaged or utilized by the Company.
4.16. LABOR AGREEMENTS AND POLICIES. The Company is not a party to or
bound by any collective bargaining agreement, and the Company or any Seller is
not aware of any attempt to organize any of the employees of the Company. There
are no strikes or other labor disputes pending, or to the knowledge of the
Company or any of the Sellers, threatened against the Company. The Company has
complied in all material respects with the Fair Labor Standards Act,
Occupational Safety and Health Act, Equal Employment Opportunity and all other
applicable Federal and State laws regarding employment, and in respect to hours
worked by and payments made to the employees of the Company.
4.17. EMPLOYMENT BENEFIT PLANS. Set forth in Exhibit 4.17 hereto and
delivered to Buyer are copies of all pension, retirement, profit-sharing, bonus,
deferred compensation, stock option, stock purchase, severance pay, vacation
policy and pay, medical, dental, life insurance, death benefit and other plans
or agreements providing benefits to employees of the Company.
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There are no unfunded liabilities attributed to any employee benefit plans
providing benefits to employees of the Company, and none will arise upon the
termination of any such plans. The Company is in full compliance with all
laws, rules and regulations governing employee benefits. The Company has an
established policy that its employees may not accrue vacation time beyond the
period of 12 months.
4.18. OTHER MATERIAL CONTRACTS AND COMMITMENTS. Set forth in Exhibit
4.18 and delivered to Buyer are copies of all material contracts, agreements,
instruments and other commitments to which the Company or the Seller is a party
and which are not included in other exhibits hereto. Except as included in said
Exhibit 4.18 and such other exhibits to this Agreement, the Company is not a
party to or bound by any written or oral (a) material contract, agreement or
other instrument or understanding creating a liability; (b) material lease,
mortgage, pledge, conditional sales contract, security agreement, factoring
agreement or other similar agreement with respect to any real or personal
property, whether as lessor or lessee or otherwise; (c) material agreement or
arrangement for the borrowing of money or for a line of credit; (d) agreement or
arrangement for the sale of the assets of the Company or for the grant of any
preferential rights to purchase any of the assets, property or rights of the
Company or for the transfer or the assignment thereof other than the ordinary
course of business of the Company; (e) guarantee, surety, subordination or other
agreement for related type of agreement or arrangement; (f) agreement of any
kind with any director or officer or with any associate of any such person; (g)
material agreement or commitment for capital expenditures or for the acquisition
of fixed assets. As used in this Section 4.18, the term "material" refers to
any contract, agreement, commitment, instrument or understanding involving a
liability, actual or potential, in excess of $5,000.
4.19. PERFORMANCE OF OBLIGATIONS. The Company has performed all of
the material obligations required to be performed by it and is not in material
default under any of the agreements, leases, contracts, or other documents to
which it is a party. No party with whom the Company has an agreement or
commitment is in material default thereof. As used in this Section 4.19, the
term "material" refers to a default involving more than $500 or which, when
aggregated with other defaults, would exceed $2,000, or which would give the
nondefaulting party a right to cancel or terminate such defaulted agreement or
obligation.
4.20. CONFLICT. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will conflict with or
result in a breach of, or give rise to, or termination of, or accelerate the
maturity of or the performance required by any terms of the Articles of
Incorporation or By-laws, or any indenture, loan agreement, lease or other
agreement or arrangement of the Company or any Seller, or constitute a default
thereunder, or result in the creation of any lien, charge or encumbrance upon
any of the assets or properties of the Company.
4.21. LITIGATION, ETC. Except as set forth in Exhibit 4.21 hereto
and delivered to Buyer, there is no investigation by any governmental agency or
any legal proceedings pending,
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or to the best knowledge of the Seller, threatened against the Company, or
the property, assets or good will thereof, and there is no outstanding order,
writ, injunction or decree of any court or governmental agency against or
affecting the Company, or against or affecting its business, property,
assets, good will or common stock.
4.22. COMPLIANCE WITH LAWS. The Company has complied in all material
respects with all laws, regulations and orders applicable to the conduct of its
business, and the Company possesses all permits, licenses and other approvals
and authorizations of all governmental agencies which are necessary to the
conduct of its business, and all said permits, licenses and other approvals and
authorizations are in full force and effect. The Company has not received any
notice of, and is not aware of any material violation of, any zoning regulation
or ordinance or of any law, order, regulation or requirement relating to the
operation of its business which remains uncured or which has not been dismissed.
4.23. RECENT TRANSACTIONS. Except as shown on the Exhibits delivered
in connection herewith, the business of the Company has been conducted
diligently and only in the ordinary course and the Company has not (a) incurred
or become subject to any obligation or liability, (absolute or contingent),
except current liabilities incurred in the ordinary course of business of the
Company, and under contracts entered into in the ordinary course of business of
the Company, none of which involves potential liability in excess of $5,000 or
is not cancelable in thirty (30) days or less notice without penalty or
liquidated damages; (b) discharged or satisfied any lien or encumbrance, or paid
any obligation, (tangible or intangible), other than liabilities shown on the
Balance Sheet and current liabilities incurred since the date of the said
Balance Sheet in the ordinary course of business of the Company; (c) mortgaged,
pledged or subjected to lien, charge or any other encumbrance, any of its
assets, real or personal, tangible or intangible; (d) sold or transferred any of
its assets, property or rights, or canceled any debts or claims except in each
case in the ordinary course of business of the Company, or entered into any
agreement or arrangement granting any preferential rights to purchase any of its
assets, property or rights or which requires consent of any third party to the
transfer and assignment of any of its assets, property or rights; (e) suffered
any extraordinary losses, (whether or not covered by insurance), or waived any
rights of substantial value; (f) made or permitted any amendment or termination
of any contract, agreement or license to which it is a party, otherwise than in
the ordinary course of business; (g) through negotiation or otherwise, made any
commitment or incurred any liability to any labor organization; (h) made capital
expenditures or entered into agreements therefor aggregating more than $5,000;
(i) issued any stock, bonds or any other corporate securities or granted any
options, warrants or other rights calling for the issuance thereof; (j) amended
its Articles of Incorporation or By-Laws.
4.24. WARRANTIES. There are no pending claims against the Company or
its insurers for breach of any warranty, or with respect to liability for
defective products or services.
4.25. BROKERS AND FINDER. Seller has not entered into an agreement
with any person,
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firm or corporation, or become indirectly a party to any such agreement, nor
has he taken any action or is he aware of any facts which would result in the
assertion of any liability or claim for the payment of any commission,
brokerage or finder's fee in connection with his execution of this Agreement
or the consummation of transactions contemplated herein.
4.26. ACCOUNTS RECEIVABLE. Marked as Schedule 4.26 hereto and
delivered to Buyer is a complete list, appropriately aged, of the accounts
receivable of the Company as a date within ten (10) days of the date hereof.
Such accounts receivable of Company are valid and collectible in full and are
not subject to defense, set-off or counterclaim on the part of the account
debtor or any known assignee of any of such accounts except for the amount of
the allowance for uncollectible accounts shown on the Schedule.
4.27. DISCLOSURE. All material facts regarding the assets, business,
operations, financial condition and prospects of the Company are reflected in
the Balance Sheet, or have been disclosed herein, or have been disclosed to
Buyer in writing set forth as Exhibit 4.27 hereto. No representation or
warranty by the Seller contained in this agreement, and no statement contained
in any certificate, schedule, exhibit, list or other writing furnished to Buyer
pursuant to the provisions hereof or in connection with the negotiation hereof,
contains any untrue statement of any material fact or omits to state a material
fact necessary in order to make the statements herein not misleading.
4.28. UPDATE. The Seller will promptly advise the Buyer in writing
of any changes in any of the representations, warranties or Exhibits herein and
these representations and warranties shall be true and correct as of the date of
the Closing as well as the date hereof, and Seller will provide Buyer with
quarterly and annual balance sheets and income statements of the Company from
the date hereof through the Closing Date.
5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer warrants and
represents to the Seller and Shareholders as follows:
5.01. ORGANIZATION. With the exception of items in Exhibit 5.0l, the
Buyer is a corporation duly organized, validly existing and in good standing
under the laws of the State of California and has corporate power and authority
to own, lease, license and operate its business and assets. The Buyer is duly
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction where the nature of its business makes such qualification
necessary or the failure to so qualify would have a material adverse effect on
its business.
5.02. CAPITAL. The authorized capital stock of Buyer consists of
100,000,000 shares of Common Stock of which 4,568,245 shares of Common Stock are
currently issued and outstanding and 100,000,000 shares of Preferred Stock of
which no shares are issued and outstanding. All of the issued and out-standing
shares are duly and validly issued, fully paid and nonassessable. There are no
outstanding subscriptions, options, rights, warrants, convertible
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securities, or other agreements or commitments obligating Buyer to issue or
to transfer from treasury any additional shares of its capital stock of any
class, except as set forth in Exhibit 5.02 hereto.
5.03. SUBSIDIARIES. Buyer does not have any subsidiaries or own any
interest in any other enterprise (whether or not such enterprise is a
corporation) except as set forth in Exhibit 5.03.
5.04. FINANCIAL STATEMENTS. The balance sheets of Buyer and the
financial statements set forth in Buyer's reports to the U.S. Securities and
Exchange Commission have been prepared in accordance with generally accepted
accounting principles and practices consistently followed by Buyer throughout
the periods indicated, and fairly present the financial position of Buyer as of
the dates of the balance sheets included in the financial statements, and the
results of operations for the period indicated. Except as provided for or
reserved against in the Balance Sheet dated May 31, 1997, (the "Balance
Sheet"), and except for liabilities incurred in the ordinary course of the
business of the Company after the date of the balance sheet and liabilities set
forth on any of the exhibits delivered in connection herewith, there are no
liabilities of any kind, whether accrued, absolute, contingent or otherwise and
whether or not determined or determinable.
5.05. ABSENCE OF CHANGES. Except as set forth in the Exhibits
herein, there has not been any change in the financial condition or operations
of Buyer, except for changes in the ordinary course of business, which changes
have not in the aggregate been materially adverse.
5.06. INVESTIGATION OF FINANCIAL CONDITION. Without in any manner
reducing or otherwise mitigating the representations contained herein, Sellers
shall have the opportunity to meet with Buyer's accountants and attorneys to
discuss the operation and financial condition of Buyer. Buyer shall make
available to Seller all books and records of Buyer.
5.07. LITIGATION. Except as set forth in Exhibit 5.07, Buyer is not
a party to any suit, action, arbitration, or legal, administrative, or other
proceeding, or governmental investigation pending or, to the best knowledge of
Buyer, threatened against or affecting Buyer or its business, assets, or
financial condition. Buyer is not in default with respect to any order, writ,
injunction, or decree of any federal, state, local, or foreign court, department
agency, or instrumentality.
5.08. AUTHORITY. The Board of Directors of Buyer has authorized the
execution of this Agreement and the transactions contemplated herein, and Buyer
has full power and authority to execute, deliver and perform this Agreement and
this Agreement is the legal, valid and binding obligation of Buyer, is
enforceable in accordance with its terms and conditions, except as may be
limited by bankruptcy and insolvency laws and by other laws affecting the rights
of creditors generally.
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5.09. ABILITY TO CARRY OUT OBLIGATIONS. The execution and delivery
of this Agreement by Buyer and the performance by Buyer will not conflict with
or result in (a) any breach or violation of any of the provisions of or
constitute a default under any license, indenture, mortgage, charter,
instrument, certificate of incorporation, bylaw, or other agreement or
instrument to which Buyer is a party, or by which it may be bound, nor will any
consents or authorizations of any party other than those hereto be required, (b)
an event that would permit any party to any agreement or instrument to terminate
it or to accelerate the maturity of any indebtedness or other obligation of
Buyer, or 8 an event that would result in the creation or imposition of any
lien, charge, or encumbrance on any asset of Buyer.
5.10. VALIDITY OF BUYER'S SHARES. The shares of Buyer's Common Stock
to be delivered pursuant to this Agreement, when issued in accordance with the
provisions of this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable.
5.11. ARTICLES AND BY-LAWS. The copies of the Articles of
Incorporation and all amendments thereto of the Buyer, as certified by the
Secretary of the Buyer and of the By-Laws, as amended to the date hereof, of
the Buyer, as certified by its Secretary, which have heretofore been
delivered to Seller are complete and correct copies of the Articles of
Incorporation and By-Laws of the Buyer as amended and in effect on the date
of the Closing. All minutes of the Buyer are contained in minute books of
the Buyer heretofore furnished to Seller for examination and are being
delivered to Seller at the Closing, and no minutes have been included in such
minute books since such examination by the Seller that have not also been
furnished to Seller.
5.12. TAXES. The amount of the provision for liability for taxes on
the Balance Sheet is sufficient for the payment of all unpaid federal, state and
local income, franchise and property taxes of the Buyer accrued for or
applicable to the period ended on the date of said Balance Sheet and all years
and periods prior thereto. The Buyer has collected or paid all applicable local
tax returns, intangible tax returns and other tax returns which are required to
be filed by it, and such returns and reports are true and correct. The Buyer
has prepared and filed all Federal, State and County and local income, excise
and other tax returns required to be filed by it and all such returns are true
and correct. The Buyer has paid all taxes which have become due pursuant to
such returns or pursuant to any assessment received by it. The Federal income
tax returns of the Buyer have not been examined by the Internal Revenue Service.
The Buyer has not incurred any tax liabilities other than in the ordinary course
of business; there are no tax liens upon any of the properties or assets, real,
personal or mixed, tangible or intangible, of the Buyer, (except for liens of
taxes not yet due); and, except as reflected in the Balance Sheet, there are no
pending questions relating to, or claims asserted for, taxes or assessments
against the Buyer, and there is no basis for any such question or claim. Seller
is aware there is a need to amend the payroll tax. As of this date it has not
been determined how much. Buyer will notify Seller of final result.
5.13. PATENTS, TRADEMARKS, TRADE NAMES, PROGRAMS, ETC. Exhibit 4.08
hereto contains an accurate and complete description of all patents, trademarks,
trade names, assumed names,
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computer programs, licenses, franchises and copyrights, and any applications
therefore, presently owned, held by, or used by the Buyer, or under which the
Buyer owns or holds any license. No products or services of the Buyer, nor
any patents, formula, processes, know-how, trade secrets, trademarks, trade
names, assumed names, copyrights or designations used in the business of the
Buyer infringe on any patents, trademarks, copyrights or any other rights of
any person. The Buyer has the right to market its products and services and
conduct its business as currently being conducted. The Buyer does not know
or has any reason to believe that there are any claims or rights of any third
parties of infringement or any conflict with the rights of third parties and
the Buyer is not in receipt of any notice or complaint of any infringement or
conflict with the rights of others in any patents, copyrights, trademarks or
trade names, or computer programs, trade secrets or any other proprietary
rights. No claims have been made by the Buyer of any infringement or
conflicts by others with the rights of the Buyer with respect to any patents,
copyrights, trademarks, computer programs, formulations, trade names, trade
secrets or proprietary information used in the Buyer's business. The Buyer
does not know of any basis for the making of any such claim. No officer,
director, employee or consultant of the Buyer owns, directly or indirectly,
in whole or in part, any patents, copyrights, trademarks, trade names,
computer programs, or any trade secrets or proprietary information which are
presently being used in the Buyer's business.
5.14. INSURANCE. The Buyer has in force and effect and is covered
under policies of insurance covering such risks and in amounts adequate for the
size and scope of its business. Until such time as new management can review
such policies, Touch Tone America, Inc. is required to keep all insurance
policies, (liability and otherwise), in full force and effect. A description of
its insurance policies is set forth in Exhibit 5.14.
5.15. ASSETS. The Buyer has good and marketable title to all of its
properties, free and clear of all liens and encumbrances except as noted in the
Balance Sheet and set forth in detail in Exhibit 5.15. hereto. The properties
and assets of the Buyer are in good repair and condition and are adequate for
the conduct of the business of the Buyer as now being conducted and for the
anticipated growth of the Buyer's business. The assets of the Buyer will
include those operations and investments set forth in detail in Exhibit 5.15.
In the event Buyer is required to pay additional consideration to acquire such
rights, operations or investments, such payments shall reduce the Buyer shares
due Sellers herein by the same amount.
5.16. BANKING ARRANGEMENTS. Set forth as Exhibit 5.16 hereto and
delivered to Seller is a complete list of each bank in which the Buyer has an
account, line of credit, or other banking arrangement and the account number,
balance and signatories of each such account, line of credit and loan.
5.17. EMPLOYEES. Set forth in Exhibit 5.17 hereto and delivered to
Seller is a complete list setting forth the name, current annual salaries of all
officers, directors and employees of the Buyer, together with copies of any
employment agreements or other
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employment commitments of the Buyer.
5.18. PURCHASE COMMITMENTS. The Buyer has performed, in all
material respects, all of the obligations required to be performed by it to
date under all purchase agreements and purchase orders as conditions
precedent to the delivery of the items called for therein. No such purchase
commitment is in excess of the ordinary, common and usual requirements of the
business of the Buyer.
5.19. COMMITMENTS. The Buyer has performed, in all material
respects, all of the obligations required to be performed by it to date under
all of its sales, rental, service and franchise agreements and commitments. No
information has come to the attention of the Buyer which would tend to indicate
that any of the customers of the Buyer are currently, or are likely to become,
unable to perform under the terms of any agreement or commitment entered into
with it. All leases entered into by the Buyer involving aggregate rentals in
excess of $5,000 are set forth in Exhibit 5.19 and have been delivered to
Seller.
5.20. AGENCY AGREEMENTS. Set forth in Exhibit 4.15 hereto and
delivered to Seller are copies of all agreements and other commitments with
franchisees, distributors, dealers, sales representatives, consultants and other
agencies and entities engaged or utilized by the Buyer.
5.21. LABOR AGREEMENTS AND POLICIES. The Buyer is not a party to or
bound by any collective bargaining agreement and the Buyer is not aware of any
attempt to organize any of the employees of the Buyer. There are no strikes or
other labor disputes pending, or to the knowledge of the Buyer, threatened
against the Buyer. The Buyer has complied in all material respects with the
Fair Labor Standards Act, Occupational Safety and Health Act, Equal Employment
Opportunity and all other applicable Federal and State laws regarding employment
and in respect to hours worked by and payments made to the employees of the
Buyer.
5.22. EMPLOYMENT BENEFIT PLANS. Set forth in Exhibit 5.22 hereto
and delivered to Seller are copies of all pension, retirement, profit-sharing,
bonus, deferred compensation, stock option, stock purchase, severance pay,
vacation policy and pay, medical, dental, life insurance, death benefit and
other plans or agreements providing benefits to employees of the Buyer. There
are no unfunded liabilities attributed to any employee benefit plans providing
benefits to employees of the Buyer, and none will arise upon the termination of
any such plans. The Buyer is in full compliance with all laws, rules and
regulations governing employee benefits. The Buyer has an established policy
that its employees may not accrue vacation time beyond the period of 12 months.
5.23. OTHER MATERIAL CONTRACTS AND COMMITMENTS. Set forth in
Exhibit 5.23 and delivered to Seller are copies of all material contracts,
agreements, instruments and other commitments to which the Buyer is a party and
which are not included in other exhibits hereto. Except as included in said
Exhibit 4.18 and such other exhibits to this Agreement, the Buyer is
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not a party to or bound by any written or oral (a) material contract,
agreement or other instrument or understanding creating a liability; (b)
material lease, mortgage, pledge, conditional sales contract, security
agreement, factoring agreement or other similar agreement with respect to any
real or personal property, whether as lessor or lessee or otherwise; (c)
material agreement or arrangement for the borrowing of money or for a line of
credit; (d) agreement or arrangement any for the sale of the assets of the
Buyer or for the grant of any preferential rights to purchase any of the
assets, property or rights of the Buyer or for the transfer or the assignment
thereof other than the ordinary course of business of the Buyer; (e)
guarantee, surety, subordination or other agreement for related type of
agreement or arrangement; (f) agreement of any kind with any director or
officer or with any associate of any such person; (g) material agreement or
commitment for capital expenditures or for the acquisition of fixed assets.
As used in this Section 4.18, the term "material" refers to any contract,
agreement, commitment, instrument or understanding involving a liability,
actual or potential, in excess of $5,000.
5.24. PERFORMANCE OF OBLIGATIONS. The Buyer has performed all of
the material obligations required to be performed by it and is not in material
default under any of the agreements, leases, contracts, or other documents to
which it is a party. No party with whom the Buyer has an agreement or
commitment is in material default thereof. As used in this Section 4.19, the
term "material" refers to a default involving more than $500 or which, when
aggregated with other defaults, would exceed $2,000, or which would give the
nondefaulting party a right to cancel or terminate such defaulted agreement or
obligation.
5.25. CONFLICT. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will conflict with or
result in a breach of, or give rise to, or termination of, or accelerate the
maturity of or the performance required by any terms of the Articles of
Incorporation or By-laws or any indenture, loan agreement, lease or other
agreement or arrangement of the Buyer, or constitute a default thereunder, or
result in the creation of any lien, charge or encumbrance upon any of the assets
or properties of the Buyer.
5.26. LITIGATION, ETC. Except as set forth in Exhibit 5.26 hereto
and delivered to Seller, there is no investigation by any governmental agency or
any legal proceedings pending, or to the best knowledge of the Buyer, threatened
against the Buyer, or the property, assets or good will thereof, and there is no
out-standing order, writ, injunction or decree of any court or governmental
agency against or affecting the Buyer, or against or affecting its business,
property, assets, good will or common stock.
5.27. COMPLIANCE WITH LAWS. The Buyer has complied in all material
respects with all laws, regulations and orders applicable to the conduct of its
business, and the Buyer possesses all permits, licenses and other approvals and
authorizations of all governmental agencies which are necessary to the conduct
of its business and all said permits, licenses and other approvals and
authorizations are in full force and effect. The Buyer has not received any
notice of, and is not aware of any material violation of, any zoning regulation
or ordinance or of any law, order,
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regulation or requirement relating to the operation of its business which
remains uncured or which has not been dismissed.
5.28. RECENT TRANSACTIONS. Except as shown on the Exhibits
delivered in connection herewith, the business of the Buyer has been conducted
diligently and only in the ordinary course and the Buyer has not (a) incurred or
become subject to any obligation or liability (absolute or contingent) except
current liabilities incurred in the ordinary course of business of the Buyer and
under contracts entered into in the ordinary course of business of the Buyer,
none of which involves potential liability in excess of $5,000 or is not
cancelable in thirty days or less notice without penalty or liquidated damages;
(b) discharged or satisfied any lien or encumbrance or paid any obligation
(tangible or intangible) other than liabilities shown on the Balance Sheet and
current liabilities incurred since the date of the said Balance Sheet in the
ordinary course of business of the Buyer; (c) mortgaged, pledged or subjected to
lien, charge or any other encumbrance, any of its assets, real or personal
tangible or intangible; (d) sold or transferred any of its assets, property or
rights or canceled any debts or claims except in each case in the ordinary
course of business of the Buyer, or entered into any agreement or arrangement
granting any preferential rights to purchase any of its assets, property or
rights or which requires consent of any third party to the transfer and
assignment of any of its assets, property or rights; (e) suffered any
extraordinary losses (whether or not covered by insurance) or waived any rights
of substantial value; (f) made or permitted any amendment or termination of any
contract, agreement or license to which it is a party, otherwise than in the
ordinary course of business; (g) through negotiation or otherwise, made any
commitment or incurred any liability to any labor organization; (h) made capital
expenditures or entered into agreements therefor aggregating more than $5,000;
(i) issued any stock, bonds or any other corporate securities or granted any
options, warrants or other rights calling for the issuance thereof; (j) amended
its Articles of Incorporation or By-Laws.
5.29. WARRANTIES. There are no pending claims against the Buyer or
its insurers for breach of any warranty or with respect to liability for
defective products or services.
5.30. BROKERS AND FINDER. Buyer has not entered into an agreement
with any person, firm or corporation, or become indirectly a party to any such
agreement nor has he taken any action or is he aware of any facts which would
result in the assertion of any liability or claim for the payment of any
commission, brokerage or finder's fee in connection with his execution of this
Agreement or the consummation of transactions contemplated herein.
5.31. ACCOUNTS RECEIVABLE. Marked as Schedule 5.31 hereto and
delivered to Seller is a complete list, appropriately aged, of the accounts
receivable of the Buyer as a date within ten (10) days of the date hereof. Such
accounts receivable of Buyer are valid and collectible in full and are not
subject to defense, set-off or counterclaim on the part of the account debtor or
any known assignee of any of such accounts except for the amount of the
allowance for uncollectible accounts shown on the Schedule.
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5.32. DISCLOSURE. All material facts regarding the assets,
business, operations, financial condition and prospects of the Buyer are
reflected in the Balance Sheet, or have been disclosed herein, or have been
disclosed to Buyer in writing set forth as Exhibit 5.32 hereto. No
representation or warranty by the Buyer contained in this agreement and no
statement contained in any certificate, schedule, exhibit, list or other writing
furnished to Seller pursuant to the provisions hereof or in connection with the
negotiation hereof, contains any untrue statement of any material fact or omits
to state a material fact necessary in order to make the statements herein not
misleading.
5.33. UPDATE. The Buyer will promptly advise the Seller in writing
of any changes in any of the representations, warranties or Exhibits herein and
these representations and warranties shall be true and correct as of the date of
the Closing as well as the date hereof, and Buyer will provide Seller with
quarterly and annual balance sheets and income statements of the Buyer from the
date hereof through the Closing Date.
6. OBLIGATIONS OF BOTH PARTIES PRIOR TO CLOSING DATE. During the period
from the date hereof to the Closing date, both parties shall cause the
following:
6.01. Refrain from doing any of the types of acts described in
paragraph 4.23 hereof, or entering into any of the types of contracts,
agreements, instruments or other commitments of the nature described or referred
to in paragraph 4.18 hereof, without the prior written consent of the other
party.
6.02. Give each party's representative full access, during normal
business hours and upon reasonable notice, to all of the assets, properties,
books, financial records, accounts and sales records of each party, working
papers of its accountants, agreements and commitments of each party, and furnish
each parties' representatives all such information concerning the business of
each party, as each party may request, including copies of all the documents
described in this Agreement and the exhibits hereto; provided, however, that any
furnishing of such information to each party for investigation by each party
shall not affect the right of each party to rely upon the representations and
warranties made by each party in this Agreement; and provided, further, that
each party will hold in strictest confidence all documents and information
concerning the other party, and, if the transactions contemplated in this
Agreement shall not be consummated, shall maintain such confidence and
immediately thereafter return all such documents to the other party.
6.03. Conduct its business and operations in the manner in which the
same had heretofore been conducted, except as other-wise consented to by each
party and in conformity with all applicable laws, maintain its properties in
good repair and operating condition, and maintain its books of accounts in a
manner which accurately reflects all items of its income, expenses and
liabilities, in accordance with generally accepted accounting principles
consistently
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applied.
6.04. Use its best efforts to maintain and preserve its business
organization and to preserve its relationships with its customers, suppliers,
employees and others having business relations with it, to the extent that the
going business of each party shall be unimpaired at the Closing.
6.05. Not to merge or consolidate with, or agree to sell any of the
operations being conducted by it, or (otherwise than in the ordinary course of
business) any of its assets necessary to or utilized in connection with such
operations to any other organization, or enter into any agreement to do any of
the foregoing, in each case without the prior consent of the other party..
6.06. Deliver to each party promptly after they become available
balance sheet and income statement and its subsidiaries, certified by the
Company's accountants for the fiscal period ending September 30, 1997, and
copies of all communications to its Stockholders.
6.07. Not to take any action or omit to take any action if the effect
thereof is or may be to cause any of the representations or warranties of either
party to be inaccurate or incomplete in any respect as if such representations
or warranties were made at and as of the Closing.
6.08. Not to declare or pay any dividend or other distributions of
any shares of its capital stock or issue any capital stock or any security
convertible into its capital stock or options to purchase its capital stock
except in any transactions disclosed in Exhibit 6.08 hereto.
From and after the date of this Agreement and until the Closing Date (the
"Interim Period"):
6.09. Each Party's OPERATION OF BUSINESS. Each party shall operate
its business only in the usual, regular and ordinary manner and, to the extent
consistent with such operation, keep the business organization intact and
preserve the present business relationships with customers, suppliers and others
having business dealings with each party.
6.10. CERTAIN TRANSACTIONS. Neither party shall enter into any
transaction, take any action nor fail to take any action which would result in,
or could reasonably be expected to result in or cause, any of the
representations, warranties, disclosures, agreements or covenants of either
party contained in this Agreement, the exhibits hereto or any document delivered
pursuant to this Agreement or in connection with the consummation of the
transactions contemplated hereby, not being true and complete at and as of the
time immediately after the occurrence of such transaction or the action is taken
or failed to be taken and also on the Closing Date. Notwithstanding anything to
the contrary herein, each party shall be entitled to split its stock, increase
its authorized shares and issue shares of its common and preferred stock.
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6.11. CORPORATE ACTION; APPROVALS AND CONSENTS. Each party shall
take or cause to be taken all action and will use its best efforts to obtain in
writing as promptly as possible all approvals and consents required to be
obtained in order to effectuate the consummation of the transactions
contemplated hereby.
6.12. ADVICE OF CHANGES. During the Interim Period, each party shall
promptly advise the other party in writing of any fact which, if existing or
known at the date of this Agreement, would have been required to be set forth in
or disclosed pursuant to this Agreement.
6.13. ACCESS TO PROPERTIES AND RECORDS. Each party and their
counsel, accountants and other representatives shall be given full access during
normal business hours to all of the properties, personnel, books, tax returns,
contracts, commitments and records of their other party and shall be furnished
with all such documents and information with respect to the affairs of the other
party or their counsel or accountants may from time to time reasonably request.
6.14. CARRY ON IN REGULAR COURSE. Each party shall carry on its
business diligently and substantially in the same manner as heretobefore with
such changes as agreed upon by its Board of Directors..
6.15. CONTRACTS AND COMMITMENTS. Except as otherwise provided
herein, neither party shall enter into any contract or commitment or engage in
any transaction not in the usual and ordinary course of business and consistent
with past practices without the written consent of the other party..
6.16. COMPLIANCE WITH LAWS. Each party will duly comply with all
applicable laws as may be required for the valid and effective consummation of
the transactions contemplated by this Agreement.
7. CONDITIONS TO OBLIGATIONS OF EACH PARTY.
Each party's obligations under this Agreement are subject to the
satisfaction at or prior to the Closing of each of the following conditions (all
or any of which may be waived in writing in full or in part by each party):
(a) The representations and the warranties of each party set forth in
this Agreement shall be true and complete in all material respects as of the
Closing date. All of the terms, provisions and conditions of this Agreement to
be performed or complied with by each party before the Closing shall have duly
been complied with and performed;
(b) Each party shall receive at the Closing legal title to all of the
certificates representing the Shares, free and clear of all liens, pledges,
encumbrances of any kind, nature or description, with exception of legends
referenced in Section 3.
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(c) Each party shall have received an opinion of counsel dated the
Closing and addressed to the other party to the same effect of Sections 4.03 and
4.05 of this Agreement, and to the further effect that (i) this Agreement has
been duly executed by, and is a valid and binding obligation, except that such
counsel may assume, unless having reason to believe otherwise, the legal
capacity and genuineness of all signatures; (ii) based on statements and
representations to such counsel, which such counsel has no reason to believe are
inaccurate, and the share certificates relating to the Shares and books of the
Company which such counsel has examined, each party owns and is transferring at
the Closing, good, valid and marketable title to the number of shares set forth
in Section 1.01 hereof free and clear of all liens, options, charges and
encumbrances whatsoever; (iii) to the best knowledge of such counsel, each party
has good and marketable title to all of its properties and assets, subject to no
mortgage, pledge, lien, conditional sale agreement, encumbrance, or charge,
other than encumbrances reflected on the balance sheet dated May 31, 1997; (iv)
except as may be specified by such counsel such counsel does not know of any
action, proceeding, or investigation pending or threatened against, or relating
to it, its properties or business, the Shares, the capital stock, or the
transactions contemplated by this Agreement; (v) neither the execution or
delivery of this Agreement nor the consummation of the transactions contemplated
hereby: (a) violates or will violate or conflicts or will conflict with, or
constitutes a default under or will constitute a default under, any term or
provision of the Articles of Incorporation or the By-Laws, as amended, to the
best knowledge of such counsel, of any contract, commitment or other agreement,
understanding, arrangement, restriction of which either party is bound; (b) will
cause, or give any person grounds to cause (with or without notice the passage
of time or both) the maturity of any liability or obligation to be accelerated,
or will increase any such liability or obligation; or will give any person, firm
or corporation with which a party has any contractual relations the right to
cancel or amend such contractual relations, or (c) violates or will violate any
statute, law or any rule, regulation or order of any court or other governmental
authority.
(d) Each party shall have received the audited balance sheet as of May
31, 1997 and Statement of Income for the period then ending and completed its
due diligence investigation , which shall disclose no adverse trend in the
financial condition, business, operations, prospects, properties or assets of
the other party in the other party's sole opinion.
(e) Company has entered into an employment agreement with Kerry Rogers
for his employment by the company after the Closing on such terms that are
acceptable to Buyer and Rogers.
8. INDEMNIFICATION.
8.01. SURVIVAL. All agreements, representations, statements and
warranties contained herein or in any certificate, schedule, list, document, or
other writing, delivered pursuant hereto or in connection with the transactions
contemplated herein shall survive the execution and delivery of this Agreement,
the Closing of the transactions contemplated herein and any
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investigation made at any time with respect to any of the foregoing or any
information the parties may have in respect thereto.
8.02. SELLER HOLD HARMLESS. Seller covenants and agrees with Buyer
that it will hold Buyer harmless from and hereby indemnify Buyer against any
and all damages, costs, expenses or other liabilities, including reasonable
attorney's fees (herein called "Damages") resulting to Buyer or the Company and
arising from the inaccuracy or the breach of any one or more of the
representations, warranties, covenants, statements or agreements made by Seller
in this Agreement or in connection with the transactions contemplated herein.
8.03. BUYER'S NOTICE. If at any time after the Closing Buyer has
reason to believe that it is entitled to indemnification under Section 8.02, or
any claim or dispute exists that could, unless successfully defended, entitle
Buyer to indemnification under Section 8.02, Buyer shall give notice to Seller
of the facts entitling Buyer to indemnification or the nature of the claim or
dispute. The Seller shall have the right to defend, settle or compromise any
third party claim or dispute that would entitle Buyer to indemnification at the
Seller's own expense using counsel of their choice which counsel shall be
reasonably acceptable to Buyer. If the Seller refuses or fails promptly to
defend or compromise any such claim or dispute, or in the event Seller's defense
of such claim or dispute is not successful, or if Buyer is otherwise entitled to
indemnification under Section 8.02, the Seller will promptly pay or reimburse
Buyer in the full amount of any Damages which Buyer becomes obligated to pay or
pays or suffers at any time as a result of any of the matters specified in
Section 8.02.
8.04. COMPANY AND BUYER'S HOLD HARMLESS. Buyer covenants and agrees
with Seller that it will hold Seller harmless from and hereby indemnifies Seller
against any and all damages, costs, expenses or other liabilities, including
reasonable attorney's fees (herein called "Damages") resulting to Seller and
arising from the inaccuracy or the breach of any one or more of the
representations, warranties, covenants, statements or agreements made by Buyer
in this Agreement or in connection with the transactions contemplated herein.
8.05. NOTICE. If at any time after the Closing Seller has reason to
believe that he is entitled to indemnification under Section 8.04, or any claim
or dispute exists that could, unless successfully defended, entitle Seller to
indemnification under Section 8.04, Seller shall give notice to Buyer of the
facts entitling Seller to indemnification or the nature of the claim or dispute.
Buyer shall have the right to defend, settle or compromise any third party claim
or dispute that would entitle Seller to indemnification at the Buyer's own
expense through counsel of its choice. If the Buyer refuses or fails promptly to
defend or compromise any such claim or dispute, or in the event Buyer's defense
of such claim or dispute is not successful, or if Seller is otherwise entitled
to indemnification under Section 8.04, the Buyer will promptly pay or reimburse
Seller in the full amount of any Damages which Seller becomes obligated to pay
or pays or suffers at any time as a result of any of the matters specified in
Section 8.04.
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9. TERMINATION.
This agreement may be terminated prior to the Closing as follows:
9.01. TERMINATION WITHOUT LIABILITY. Buyer may terminate this
Agreement by giving written notice to the Seller without conferring liability,
in the event that the conditions specified in Section 7 of this Agreement are
not satisfied or waived at the Closing.
9.02. TERMINATION WITHOUT LIABILITY. Seller may terminate this
Agreement by giving written notice to Buyer without conferring liability, in the
event that the conditions specified in Section 8 of this Agreement are not
satisfied or waived at the Closing.
9.03. TERMINATION WITHOUT EFFECT ON LIABILITY. Buyer or Seller may
terminate this Agreement by giving written notice to the other party at or prior
to the Closing, without prejudice to any rights it or they may have if the other
party has failed in the observance or in the due and timely performance of any
of its material covenants or agreements contained herein, and such failure is
due to the fault of the other party, or if there shall have been a material
breach of the other party's warranties and representations herein contained.
9.04. EXHIBITS. At the time of execution hereof all Exhibits
required herein may not have been completed. The parties agree to use their
best efforts to complete the Exhibits as soon as practicable. If such Exhibits
are not completed on or prior to September 15, 1997, or the information
contained therein is deemed by a party to be unsatisfactory, and such party
gives notice to the other party within ten (10) days of receipt of such Exhibit,
this Agreement shall be null and void and have no further effect.
10. MISCELLANEOUS.
10.01. NOTICES. All notices, requests, demands, or other
communications hereunder shall be in writing and shall be deemed to have been
duly given when sent by certified mail, return receipt requested:
(I) If to Buyer, addressed to:
Touch Tone America, Inc.
4110 North Scottsdale Road Suite 170
Scottsdale, Arizona 85251
With a copy to:
Gary Blume
11807 Tatum Blvd Suite 108
Pheonix, AZ 85028
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(ii) If to Sellers, addressed to:
Orix Global Communications, Inc.
1771 E. Flamingo Road., Suite #B-200
Las Vegas, Nevada 89119
With a copy to:
Bruce Voss, Esquire
General Counsel
or such other address as Buyer or Sellers shall designate by notice given as
provided herein.
10.02. PUBLIC ANNOUNCEMENTS. No public announcement of the
transactions provided for herein shall be made by the Seller unless the same
shall be approved in advance in writing by Buyer.
10.03. EXPENSES. Except as otherwise expressly provided herein, each
of the parties hereto shall pay its or his own fees and expenses incident to the
negotiation, preparation, execution and consummation of this Agreement,
including all fees and expenses of their respective counsel and accountants
incurred in connection with this Agreement and all other agreements, documents,
certificates, applications and other instruments prepared in connection
herewith.
10.04. SUCCESSORS. This Agreement shall inure to the benefit of and
be binding upon the Seller and its heirs, legal representatives and successors
and permitted assigns, and Buyer and its respective successors and permitted
assigns.
10.05. LAW TO APPLY. This Agreement shall be construed and enforced
in accordance with the laws of the State of Nevada. The parties hereby agree
that dispute concerning this Agreement or the construction or enforcement
thereof shall be resolved by binding arbitration before the American Arbitration
Association.
10.06. ASSIGNMENT. This Agreement shall not be assignable by any
party hereto without the prior written consent of the other parties hereto.
10.07. ENTIRE AGREEMENT. This Agreement contains the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersedes any and all prior arrangements, proposals or understandings, written
or oral, by or among any of the parties hereto with respect to such purchase and
sale or other transactions, which arrangements, proposals and under-standings
shall be of no further force and effect. No amendment or modification of this
Agreement shall be effective for any purpose unless the same shall be in writing
signed by all
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of the parties hereto or their successors in interest.
10.08. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10.09. SECTION HEADINGS. The section headings herein are for
convenience only and shall not affect the construction hereof.
10.10. SUBSEQUENT ACQUISITIONS AND MERGERS.
(a) The parties acknowledge that Buyer has embarked on a program
of acquisition and merger in order to grow its business. Notwithstanding any
contrary provision in this Agreement, any such transaction is expressly
permitted hereby and shall not constitute a breach of any representation,
warranty, term or condition in this Agreement.
(b) During the period from the date of this Agreement to the
Closing date, the Seller shall bring all acquisition candidates to the attention
of Buyer and the Seller shall cause the Company to, refrain from taking any
action to, directly or indirectly, encourage, initiate or engage in discussions
or negotiations with, or provide any information to, any other person, firm,
corporation or other entity or group, other than Buyer concerning any
acquisition candidates.
11.0 CONDITION TO PERFORMANCE.
11.1 CONDITIONS PRECEDENT TO PERFORMANCE. This Agreement, and any
performance hereunder, is specifically subject to, as the following express
conditions precedent,
a. The Buyer and Seller shall have received all permits, authorizations,
regulatory approvals and third party consents necessary for the consummation of
the acquisition, and all applicable legal requirements shall have been
satisfied.
a. All of Seller's shareholders shall have approved this Agreement. Buyer and
Seller shall have the corporate authority to enter into this Agreement.
c. Each party and its agents, attorneys and representatives shall have full
and free access to the properties, book and records of the other party (the
confidentiality of which the investigating party agrees to retain) for purposes
of conducting investigations of the other party.
d. Proper and legal approval of the shareholders of Touch Tone America, Inc.,
as required and necessary in conformity with all requirements of the By-Laws of
Touch Tone America, Inc., and the Corporation Law of the State of California of
the transaction contemplated under this
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Agreement as well as all other matters necessary to give effect to this
transaction determined in the sole discretion of Orix Global Communications,
Inc. This approval must be by December 15,1997 unless mutually extended, or
this Agreement is null and void. All expenses relating to seeking and
obtaining Shareholder approval are to be borne by Touch Tone America, Inc.,
whether such approval is successful or not.
e. Seller will not have a net worth less than $500,000.
f. Buyer shall have filed all reports required under Section 13(a) or 15(d) of
the Securities Exchange Act of 1934.
g. The Buyer will be in good standing and in full compliance with the NASDAQ
rules and regulations, and the common stock of the Buyer will be listed with the
NASDAQ SmallCap Market, and will remain listed with such Market following any
decision and action taken by NASDAQ concerning Buyer's compliance with NASDAQ
rules and regulations whether or not such decision or action follows a review or
hearing. Buyer must also satisfy any and all conditions established by the
NASDAQ for the Buyer to maintain its listed status, and perform any and all
representations and undertakings made to the NASDAQ.
11.2 CONDITION SUBSEQUENT TO PERFORMANCE. This Agreement, and any
performance hereunder, is specifically subject to, as an express condition
subsequent, namely that the Buyer will be in good standing and in full
compliance with the NASDAQ rules and regulations, and the common stock of the
Buyer will be listed with the NASDAQ SmallCap Market, and will remain listed
with such Market following any decision and action taken by NASDAQ concerning
Buyer's compliance with NASDAQ rules and regulations whether or not such
decision or action follows a review or hearing, in no event for a period of no
less than 150 days from the date of Closing. Buyer must also satisfy any and
all conditions established during such period by the NASDAQ for the Buyer to
maintain its listed status, and perform any and all representations and
undertakings made to the NASDAQ.
11.3 FAILURE TO SATISFY CONDITIONS. Should Buyer fail to satisfy any of
the conditions precedent set out under paragraph 11.1 above or the conditions
subsequent set out under paragraph 11.2 above, the Seller and the Shareholders
may at their discretion and without liability, terminate this Agreement, in
which case the Agreement between the parties would be null, void, unenforceable
and without effect. In the event the Seller and the Shareholders terminate this
Agreement pursuant to a failure by Buyer to satisfy the conditions subsequent
set out under paragraph 11.2 above, the parties agree to do all things necessary
and useful to undo the transaction contemplated under this Agreement and the
make the parties whole and in the same position they were in prior to the
closing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
26
<PAGE>
TOUCH TONE AMERICA, INC.
By: /s/ Dr. Edward D. Wirth
---------------------------------
Acting President
ORIX GLOBAL COMMUNICATIONS,
INC.
By: /s/ Kerry Rogers
---------------------------------
President
27
<PAGE>
Shares of
Company Stock Shares of
Delivered Buyer To
To Buyer Be Received
The Shareholders At Closing At Closing Signature
- ---------------- ---------- ---------- ----------
28
<PAGE>
AMENDED AGREEMENT AND PLAN OF REORGANIZATION
Agreement made as of the 18th day of December, 1997 by and among Touch
Tone America, Inc., a California corporation, ("Buyer"), ORIX Global
Communications, Inc., a Nevada corporation (the "Company" or "Seller") and
the Shareholders of the Company whose names and addresses are set forth on
the signature page hereof, (the "Shareholders"). Buyer, Seller, Company and
Shareholders are sometimes referred to as "party" or "parties."
The parties entered into an Agreement and Plan of Reorganization dated
August 11, 1997 (the "Agreement") pursuant to which the Shareholders agreed
to sell 1,200 shares of common stock, no par value per share, of the Company,
constituting all the issued and outstanding common stock of the Company (the
"Shares"). The Agreement and Plan of Reorganization was further amended on
November 7, 1997 (the "November 7, 1997 Agreement") in order to substitute
the consideration given by the Buyer for the Shares, as well as condition the
closing of the transaction upon certain terms.
As a result of the Company common stock being delisted from the NASDAQ
SmallCap Market on December 17, 1997, the parties agreed to amend the
November 7, 1997 Agreement as provided below.
NOW THEREFORE, for good and valuable consideration, the parties hereby agree
as follows:
1. Section 1.2 of the November 7, 1997 Agreement is modified to read
henceforth as follows:
" 1.02. SHARES BEING EXCHANGED. Subject to the terms and
conditions of this Agreement, at the Closing, provided for
in Section 2.01 hereof (the "Closing"), Shareholders are
assigning and delivering to Buyer the Shares and Buyer is
acquiring such Shares, free and clear of all liens, claims,
options, charges and encumbrances whatsoever in exchange for
such number of Common Shares of the Buyer's Common Stock to
represent after issuance 80% of all issued and outstanding
shares of the Buyer's Common Stock after giving effect to
all options, warrants or other rights calling for issuances
of Common Shares of the Buyer's Common Stock. As of the date
hereof, 4,561,245 shares of Buyer's Common Stock are issued
and outstanding, and options, warrants or other rights
calling for issuances of 3,265,000 Common Shares of the
Buyer's Common Stock are outstanding.
Accordingly, as of the date hereof, and before giving effect
to any adjustments contemplated under Paragraph 1.04 below,
the number of Common Shares of the Buyer's Common stock
which represent,
<PAGE>
after issuance, 80% of all issued and outstanding shares of the
Buyer's Common Stock after giving effect to all options, warrants
or other rights calling for issuances of Common Shares of the
Company currently outstanding, is 31,304,980."
2. All other provisions of the Agreement remain in effect and binding on the
parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
TOUCH TONE AMERICA, INC.
By: /s/ Dr. Edward D. Wirth
--------------------------------
Acting President
ORIX GLOBAL COMMUNICATIONS, INC.
By: /s/ Kerry Rogers
--------------------------------
Kerry Rogers, President
<PAGE>
AMENDED AGREEMENT AND PLAN OF REORGANIZATION
Agreement made as of the 31st day of December, 1997 by and among Touch
Tone America, Inc., a California corporation, ("Buyer"), ORIX Global
Communications, Inc., a Nevada corporation (the "Company" or "Seller") and
the Shareholders of the Company whose names and addresses are set forth on
the signature page hereof, (the "Shareholders"). Buyer, Seller, Company and
Shareholders are sometimes referred to as "party" or "parties."
The parties entered into an Agreement and Plan of Reorganization dated
August 11, 1997 , which was subsequently amended on November 7, 1997 and
December 18, 1997 (the "Agreement") to condition the Agreement on new terms
and conditions and to afford the Seller and the Shareholders additional
consideration for the acquisition of the Shares in light of certain material
events which include the financial condition of the Buyer and its subsidiary,
the Buyer's common stock being delisted from the NASDAQ SmallCap Market on
December 17, 1997 and the structure and conditions attaching to that certain
private placement by a foreign institutional investor in convertible
securities of the Buyer closing concurrently with the execution of this
amendment.
As a result of, the parties agreed to amend Agreement as provided below.
NOW THEREFORE, for good and valuable consideration, the parties hereby agree as
follows:
1. Section 1.2 of the November 7, 1997 Agreement is modified to read
henceforth as follows:
"1.02. SHARES BEING EXCHANGED. Subject to the terms and
conditions of this Agreement, at the Closing, provided for
in Section 2.01 hereof (the "Closing"), Shareholders are
assigning and delivering to Buyer the Shares and Buyer is
acquiring such Shares, free and clear of all liens, claims,
options, charges and encumbrances whatsoever in exchange for
such number of Common Shares of the Buyer's Common Stock to
represent after issuance 80% of all issued and outstanding
shares of the Buyer's Common Stock after giving effect to
all options, warrants or other rights calling for issuances
of Common Shares of the Buyer's Common Stock (except for
issuances pursuant to a Securities Purchase Agreement and an
Option Agreement with certain offshaore investment funds
dated on even date hereof (the "Contemperaneous Issuances").
As of the date hereof, 4,561,245 shares of Buyer's Common
Stock are issued and outstanding, and options, warrants or
other rights calling for issuances of 3,865,000 Common
Shares of the Buyer's Common Stock are outstanding,
<PAGE>
except for the Contemperaneous Issuances.
Accordingly, as of the date hereof, and before giving effect
to any adjustments contemplated under Paragraph 1.04 below,
the number of Common Shares of the Buyer's Common stock
which represent, after issuance, 80% of all issued and
outstanding shares of the Buyer's Common Stock after giving
effect to all options, warrants or other rights calling for
issuances of Common Shares of the Company currently
outstanding, is 33,732,9800, except for the Contemperaneous
Issuances."
2. Upon Closing, Buyer agrees to execute the Stock Pledge Agreement and remit
to Infinity Investors Limited, under the Stock Pledge Agreement the Shares,
who will hold the Shares in accordance with the terms of such Stock Pledge
Agreement.
3. The parties agree that Section 11.1(d) of the Agreement is amended to make
such condition precedent a condition subsequent to performance under the
Agreement. As a result Section 11.1(d) of the Agreement is purged and the
Agreement is further amended by adding a new Section 11.2(b) which would
read as follows:
Proper and legal approval of the shareholders of Touch Tone
America, Inc., as required and necessary in conformity with
all requirements of the By-Laws of Touch Tone America, Inc.,
and the Corporation Law of the State of California of the
transaction contemplated under this Agreement as well as all
other matters necessary to give effect to this transaction
determined in the sole discretion of Orix Global
Communications, Inc. This approval must be by June 30,1998
unless mutually extended, or this Agreement is null and
void. All expenses relating to seeking and obtaining
Shareholder approval are to be borne by Touch Tone America,
Inc., whether such approval is successful or not.
4. Buyer and Orix hereby covenant and agree to operate the Buyer and Orix
preceding the consummation of the Shareholders ratification as if the
Reorganization has occurred, provided however, the separate corporate
existence of Orix shall be maintained, and Buyer will not commingle the
assets and liabilities of Orix with the assets and liabilities of Buyer or
any other subsidiary.
5. Section 11.1(g) and 11.2 of the Agreement are hereby modified by
substituting all references to listing obligations with the NASDAQ
SmallCap Market to "the electronic quotation medium known as the OTC
Bulletin Board". The additional proviso will be added to Section 11.1(g)
and 11.2 of the Agreement, namely: "Buyer will take all actions necessary
such that the Buyer's Common Stock will be eligible for quotation on the
OTC Market and "active" securities (as such term is defined by NASD
regulations) satisfying the frequency of quotation requirement and traded
on the OTC market. "Section 11.2 of the Agreement will henceforth be
referred to as Section 11.2(a).
<PAGE>
6. Section 11.3 of the Agreement is hereby modified by prefacing said Section
with the following
"Subject to the Stock Pledge Agreement,"
7. The Shareholders agree that they shall not sell, transfer or otherwise
dispose of any of the shares of Common Stock of the Corporation received by
them under the Agreement or otherwise prior to January 1, 1999, unless such
sale, transfer or other disposition occurs as a selling shareholder
pursuant to an underwriter offering of no less than $2.5 million by the
Corporation of its Common Stock.
8. All other provisions of the Agreement remain in effect and binding on the
parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
TOUCH TONE AMERICA, INC.
By: /s/ Dr. Edward D. Wirth
---------------------------------
Acting President
ORIX GLOBAL COMMUNICATIONS,
INC.
By: /s/ Kerry Rogers
---------------------------------
President
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
TOUCH TONE AMERICA, INC.
(Pursuant to General Corporation Law
of the State of California)
Touch Tone America, Inc., a corporation organized and existing under the
General Corporation Law of the State of California (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation on December 31, 1997 pursuant to authority of the Board of
Directors as required by the General Corporation Law of the State of
California:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the
"Board") in accordance with the provisions of its Certificate of Incorporation,
the Board of Directors hereby authorizes a series of the Corporation's
previously authorized Preferred Stock (the "Preferred Stock"), and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:
SERIES B CONVERTIBLE PREFERRED STOCK:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 10,000 shares of
Preferred Stock, is Series B Convertible Preferred Stock (the "Series B
Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "Stated Value").
II. RANK
The Series B Preferred Stock shall rank (i) prior to the Corporation's
common stock, no par value (the "Common Stock"); (ii) prior to any class or
series of capital stock of the Corporation hereafter created (unless, with the
consent of the holders of Series B Preferred Stock obtained in accordance with
Article IX hereof, such class or series of capital stock specifically, by its
terms, ranks senior to or PARI PASSU with the Series B Preferred Stock)
(collectively, with the Common Stock, "Junior Securities"); (iii) PARI PASSU
with any class or series of capital stock of the Corporation hereafter created
(with the consent of the holders of Series B Preferred Stock
- -------------------------------------------------------------------------------
CERTIFICATE OF DESIGNATION - Page 1
<PAGE>
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, on parity with the Series B Convertible Preferred Stock of the
Corporation ("Pari Passu Securities"); and (iv) junior to any class or series
of capital stock of the Corporation hereafter created (with the consent of
the holders of Series B Preferred Stock obtained in accordance with Article
IX hereof) ("Senior Securities"), in each case as to distribution of assets
upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
III. DIVIDENDS
A. The holders of record of the shares of Series B Preferred Stock as of
the Record Date (as hereinafter defined) shall be entitled to receive, when, as
and if declared by the Board of Directors of the Corporation or a duly
authorized committee thereof, cumulative dividends per share of Series B
Preferred Stock (the "Dividends") in an amount equal to the Dividend Rate (as
hereinafter defined) multiplied by the Liquidation Preference (as hereinafter
defined and adjusted), per share for each Quarterly Payment Period (as
hereinafter defined) or portion thereof that such Series B Preferred Stock is
outstanding. To the extent permitted by applicable law and not prohibited
pursuant to the terms of applicable credit instruments, Senior Securities or
this Certificate of Designation, the Board of Directors shall declare Dividends
to be paid on the last day of each Quarterly Payment Period (each, a "Dividend
Payment Date") (or, if such day is not a business day, on the next business day
thereafter).
B. A Quarterly Payment Period shall mean the three-month period ending
on March 31, June 30, September 30 and December 31 of each year.
C. The Dividend Rate shall mean an annual dividend rate of 8% (i.e., a
quarterly dividend rate of 2%).
D. Dividends shall accrue (whether or not paid) at the Dividend Rate
during each Quarterly Payment Period from the Dividend Payment Date immediately
preceding such Quarterly Payment Period to the earlier to occur of a conversion
event specified in Article VI hereof or the last day of such Quarterly Payment
Period, provided that, for the first Quarterly Payment Period, Dividends shall
accrue commencing as of the date of initial issuance of the Series B Preferred
Stock and shall be payable for the Quarterly Payment Period ending March 31,
1998. Dividends shall be calculated on the basis of a 90-day Quarterly Payment
Period and the actual number of days elapsed. The holder of any shares of
Series B Preferred Stock which are the subject of a conversion pursuant to
Article VI shall, on the Conversion Date (as hereinafter defined), be entitled
to receive accrued Dividends on such Series B Preferred Stock which have not
been declared and paid on or before such Conversion Date. In addition, in the
event a conversion of the Series B Preferred Stock is effected after a
Mandatory Redemption Notice (as hereinafter defined) is delivered but prior to
a Mandatory Redemption Date (as hereinafter defined), then, to the extent
lawful, the Corporation
Page 2
<PAGE>
shall pay or issue to such holder of Series B Preferred Stock all accrued and
unpaid Dividends (whether or not declared) from the last Dividend Payment
Date until the date the converting holder delivered its Notice of Conversion
(as hereinafter defined) pursuant to Article VI hereof. Dividends shall be
paid in cash, provided the Corporation has assets legally available therefor
("Available Surplus"). If the Corporation either (x) does not have Available
Surplus on any date Dividends are payable hereunder or (y) Dividends are not
paid in cash on the required dates specified herein, as set forth in
Paragraph E. below, such accrued but unpaid Dividends shall be added to the
Liquidation Preference of the Series B Preferred Stock effective at the
beginning of the period next succeeding the period as to which such Dividends
were not paid, and shall thereafter accrue additional Dividends at the
Dividend Rate. Any Dividend payment made on Series B Preferred Stock shall
be credited against the earliest accrued but unpaid Dividend which has been
added to the Liquidation Preference of the Series B Preferred Stocks pursuant
to this Paragraph D. and shall reduce the Liquidation Preference by the
amount of the Dividend paid.
E. Dividends, if and when declared on each share of Series B Preferred
Stock, shall, to the extent permitted by applicable law, be declared at least
twenty (20) business days prior to the next Dividend Payment Date for payment
on the next Dividend Payment Date to the holders of record on the date
determined in such declaration, which date shall in no event be more than
fifteen (15) business days after the date of such declaration (the "Record
Date"). Dividends shall be payable on the earlier to occur of (i) a conversion
event specified in Article VI hereof, (ii) a redemption transaction referenced
in Article V hereof or (iii) each Dividend Payment Date (or if any such day is
not a business day, the next succeeding business day).
F. So long as any shares of Series B Preferred Stock are outstanding,
the Corporation shall not declare, pay or set aside for payment any dividend
(other than in shares of Junior Securities) or other distribution in respect of
its Junior Securities, or call for redemption, redeem, purchase or otherwise
acquire for any consideration (other than shares of its Junior Securities) any
shares of its Junior Securities, any warrants, rights, calls or options
exercisable for any shares of Junior Securities.
G. Each holder of Series B Preferred Stock shall be entitled to
participate with the holders of Common Stock equally and ratably (on the basis
of the number of shares of Common Stock such holder would then own if it then
converted its shares of Series B Preferred Stock pursuant to Article VI) in any
subscription rights or other similar rights to acquire securities or property
of the Corporation granted to any holder of Common Stock.
IV. LIQUIDATION PREFERENCE
If the Corporation shall commence a voluntary case under the federal
bankruptcy laws or any other applicable federal or state bankruptcy, insolvency
or similar law, or consent to the
Page 3
<PAGE>
entry of an order for relief in an involuntary case under any law or to the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit of
its creditors, or admit in writing its inability to pay its debts generally
as they become due, or if a decree or order for relief in respect of the
Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the federal bankruptcy laws or any other
applicable federal or state bankruptcy, insolvency or similar law resulting
in the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation
of its affairs, and any such decree or order shall be unstayed and in effect
for a period of thirty (30) consecutive days and, on account of any such
event, the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up (each such event
being considered a "Liquidation Event"), no distribution shall be made to the
holders of any shares of capital stock of the Corporation (other than Senior
Securities) upon liquidation, dissolution or winding up unless prior thereto,
the holders of shares of Series B Preferred Stock, subject to Article VI,
shall have received cash or any other assets of the Corporation in an amount
(or having a fair market value) equal to One Thousand Dollars $1,000) per
share plus all accrued and unpaid Dividends (the "Liquidation Preference").
If upon the occurrence of a Liquidation Event, the assets and funds available
for distribution among the holders of the Series B Preferred Stock and
holders of Pari Passu Securities shall be insufficient to permit the payment
to such holders of the preferential amounts payable thereon, then the entire
assets and funds of the Corporation legally available for distribution to the
Series B Preferred Stock and the Pari Passu Securities shall be distributed
ratably among such shares in proportion to the ratio that the Liquidation
Preference payable on each such share bears to the aggregate liquidation
preference payable on all such shares. The fair market value of any assets
of the Corporation and the proportion of cash and other assets distributed by
the Corporation to the holders of the Series B Preferred Stock shall be
reasonably determined in good faith by the Board of Directors.
V. REDEMPTION
A. If any of the following events (each, a "Mandatory Redemption Event")
shall occur:
(1) The Corporation (i) fails to (or makes any announcement that it
does not intend to) issue without restrictive legend (or to withdraw any stop
transfer instructions in respect thereof) any shares of Common Stock issued to
the holders of Series B Preferred Stock upon conversion of the Series B
Preferred Stock as and when required by this Certificate of Designation or the
Securities Purchase Agreement dated as of December 31, 1997, by and among the
Corporation and the other signatories thereto (the "Securities Purchase
Agreement"), which failure continues uncured for a period of three (3) business
days or (ii) breaches any of its other
Page 4
<PAGE>
obligations and/or covenants set forth in the Securities Purchase Agreement
(or makes any announcement that it does not intend to honor the obligations
described therein) and, in any case, such failure shall continue uncured (or
any announcement not to honor its obligations shall not be rescinded) for
thirty (30) business days;
(2) A Liquidation Event shall occur;
(3) The trading in the Common Stock shall have been suspended by the
Securities and Exchange Commission (except for any suspension of trading of
limited duration not to exceed two (2) business days solely to permit
dissemination of material information regarding the Corporation);
(4) The Corporation shall have its Common Stock delisted from the
electronic quotation medium known as the OTC Bulletin Board by which members of
the National Association of Securities Dealers, Inc. enter, update and display
quotations and other information regarding eligible securities (except if, at
the time there is any delisting on the OTC Market, the Common Stock has been
listed and approved for trading on either the New York Stock Exchange, the
American Stock Exchange, the Nasdaq Stock Market's National Market, or the
Nasdaq Stock Market's SmallCap Market within 10 days thereof); or
(5) Upon (i) the occurrence of a Change of Control (as defined in
the Option Agreement) of the Corporation, (ii) a transfer of all or
substantially all of the assets of the Corporation to any Person in a single
transaction or series of related transactions, or (iii) a consolidation or
merger of the Corporation with or into another Person (other than a merger (x)
which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock or in which the Corporation
is the surviving entity, or (y) which is effected solely to change the
jurisdiction of incorporation of the Corporation and results in a
reclassification, conversion or exchange of outstanding shares of Common Stock
solely into shares of Common Stock) (items (ii) and (iii) being referred to as
"Sale Events");
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (1), (3), (4) or (5), at the option
of the holders of more than 50% of the then outstanding shares of Series B
Preferred Stock by written notice (the "Mandatory Redemption Notice") to the
Corporation of such Mandatory Redemption Event, or upon the occurrence of any
Mandatory Redemption Event specified in subparagraph (2), the Corporation shall
purchase each holder's shares of Series B Preferred Stock for an amount per
share equal to the sum of (i) the Liquidation Preference of the shares of
Series B Preferred Stock outstanding (including any Dividends added thereon in
accordance with the provisions hereof for the period beginning on the issuance
of such shares of Series B Preferred Stock and ending on the date of payment of
the Mandatory Redemption Amount) (the "Mandatory Redemption Date")
Page 5
<PAGE>
and (ii) if a positive number, the Premium Amount, where Premium Amount means
the difference, if a positive number, between (I) the product of (x) the
number of shares of Common Stock issuable upon conversion of such shares of
Series B Preferred Stock in accordance with Article VI below (treating the
Trading Day (as hereinafter defined) immediately preceding the Mandatory
Redemption Date as the Conversion Date (unless the Mandatory Redemption Event
arises as a result of a breach in respect of a specific Conversion Date in
which case such Conversion Date shall be the Conversion Date), multiplied by
(y) the Closing Bid Price for the Common Stock on such Conversion Date and
(II) the Stated Value of the shares of Series B Preferred Stock outstanding
(the sum of such amounts being referred to as the "Mandatory Redemption
Amount").
"Closing Bid Price" shall mean for any security as of any date, the
lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the
principal securities exchange or trading market where such security is listed
or traded or, if the foregoing does not apply, the lowest closing bid price of
such security in the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg, or, if no lowest trading price is
reported for such security by Bloomberg, then the average of the bid prices of
any market-makers for such securities as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the lowest closing bid price cannot be
calculated for such security on such date on any of the foregoing bases, the
lowest closing bid price of such security on such date shall be the fair market
value as mutually determined by the holders of the Series B Preferred Stock and
the Corporation for which the calculation of the closing bid price requires,
and in the absence of such mutual determination, as determined by the Board of
Directors of the Corporation in good faith.
"Trading Day" shall mean any business day in which at least 1,000
shares of Common Stock are traded on the OTC Market, or any business day in
which any other automated quotation system or exchange on which the Common
Stock is then traded is open for trading for at least four (4) hours, as
applicable.
B. In the case of a Mandatory Redemption Event, if the Corporation fails
to pay the Mandatory Redemption Amount for the Series B Preferred Stock within
two (2) business days of written notice that such amount is due and payable,
then (assuming there are sufficient authorized shares) in addition to all other
available remedies, each holder of Series B Preferred Stock shall have the
right (but not the obligation) at any time, so long as the Mandatory Redemption
Event continues, to require the Corporation, upon written notice, to
immediately issue (in accordance with and subject to the terms of Article VI
below), in lieu of the Mandatory Redemption Amount, with respect to each
outstanding share of Series B Preferred Stock held by such holder, the number
of shares of Common Stock of the Corporation equal to the Mandatory Redemption
Amount divided by the Conversion Price then in effect.
Page 6
<PAGE>
C. The Corporation may, at its option, voluntarily redeem the Series B
Preferred Stock at the Mandatory Redemption Amount following twenty (20)
business days prior written notice to the holders.
VI. CONVERSION AT THE OPTION OF THE HOLDER
A. CONVERSION AMOUNT. Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time commencing February 16, 1998, into that certain number of fully paid and
nonassessable shares of Common Stock as is determined by dividing (i) the
Liquidation Preference (including any Dividends added thereon in accordance
with the provisions hereof) by (ii) the effective Conversion Price (an
"Optional Conversion"). Notwithstanding the foregoing, unless the holder
delivers a waiver in accordance with the immediately following sentence, in no
event (other than as provided below) shall a holder of shares of Series B
Preferred Stock be entitled to convert any such shares of Series B Preferred
Stock in excess of that number of shares upon conversion of which the sum of
(x) the number of shares of Common Stock beneficially owned by the holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
shares of Series B Preferred Stock) and (y) the number of shares of Common
Stock issuable upon the conversion of the shares of Series B Preferred Stock
with respect to which the determination of this proviso is being made, would
result in beneficial ownership by a holder and such holder's affiliates of more
than 4.9% of the outstanding shares of Common Stock (the "Limitation on
Conversion"). For purposes of the proviso to the immediately preceding
sentence, (i) beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13D-G thereunder, except as otherwise provided in clause (x) of such
proviso and (ii) a holder may waive the limitations set forth therein by
written notice to the Corporation upon not less than sixty-one (61) days prior
written notice (with such waiver taking effect only upon the expiration of such
sixty-one (61) day notice period). Upon delivery of written notice by the
holder of Series B Preferred Stock to the Corporation, the Limitation on
Conversion shall not apply and shall be of no further force and effect
following the occurrence of any Mandatory Redemption Event.
B. CONVERSION PRICE.
(1) Subject to subparagraph (2) below, the "Conversion Price" shall
be $1.46 provided, on and following each Reset Date, the Conversion Price shall
be the lower of $1.46 and the then applicable Reset Price. The Reset Price
shall be calculated on the first day of each of the calendar months of March
through July, 1998 (each such date being a "Reset Date") as the Monthly WASP
(as herein defined) for the immediately preceding calendar month (each a
"Preceding Month"). The "Monthly WASP" means the daily-weighted average sales
price on the principal securities exchange or trading market where such
security is listed or traded as
Page 7
<PAGE>
reported by Bloomberg, or if the foregoing do not apply, the daily-weighted
average sales price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if
no daily-weighted average sales price is reported for such security by
Bloomberg, then the average of the bid prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau,
Inc., in each case for all Trading Days during each Previous Month. If the
Monthly WASP cannot be calculated for such security on such date on any of
the foregoing bases, the Monthly WASP of such security on such date shall be
the fair market value as mutually determined by the Corporation and the
holders of a majority in interest of Series B Preferred Stock being converted
for which the calculation of the Monthly WASP is required in order to
determine the Conversion Price of such Series B Preferred Stock.
(2) Notwithstanding anything contained in subparagraph (1) above to
the contrary, in the event the Corporation (i) makes a public announcement that
it intends to consummate a Sale Event or (ii) any person, group or entity
(including the Corporation) publicly announces a tender offer to purchase 50%
or more of the Corporation's Common Stock (the date of the announcement
referred to in clause (i) or (ii) is hereinafter referred to as the
"Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as hereinafter defined), be equal to the lower of (x) the
Conversion Price which would have been applicable for an Optional Conversion
occurring on the Announcement Date and (y) the Conversion Price that would
otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in
subparagraph (1) of this Article VI.B. For purposes hereof, "Adjusted
Conversion Price Termination Date" shall mean, with respect to any proposed
transaction or tender offer for which a public announcement as contemplated by
this subparagraph (2) has been made, the date upon which the Corporation (in
the case of clause (i) above) or the person, group or entity (in the case of
clause (ii) above) publicly announces the termination or abandonment of the
proposed transaction or tender offer which caused this subparagraph (2) to
become operative.
C. ADJUSTMENTS. The Conversion Price shall be subject to adjustment
from time to time as follows:
(1) SHARE REORGANIZATION. If and whenever the Corporation shall:
(i) subdivide the outstanding shares of Common Stock into a
greater number of shares;
(ii) consolidate the outstanding shares of Common Stock into a
smaller number of shares;
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(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all
or substantially all the holders of Common Stock payable in Common
Stock or securities convertible into or exchangeable for Common
Stock;
(any of such events being herein called a "Share Reorganization"), then in each
such case the Conversion Price shall be adjusted, effective immediately after
the record date at which the holders of Common Stock are determined for the
purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable
Conversion Price in effect on such record or effective date, as the case may
be, by a fraction of which:
(i) the numerator shall be the number of shares of Common
Stock outstanding on such record or effective date (without giving
effect to the transaction); and
(ii) the denominator shall be the number of shares of Common
Stock outstanding after giving effect to such Share Reorganization,
including, in the case of a distribution of securities convertible
into or exchangeable for shares of Common Stock, the number of shares
of Common Stock that would have been outstanding if such securities
had been converted into or exchanged for Common Stock on such record
or effective date.
(2) RIGHTS OFFERING. If and whenever the Corporation shall issue to
all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than forty-five (45) days after the record date of such issue, to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable or exercisable for equity securities (collectively, the
"Derivative Securities")), at a price per share (or, in the case of Derivative
Securities, at an exchange or conversion price per share at the date of issue
of such securities) of less than 95% of the Market Price of the Common Stock on
such record date (any such event being herein called a "Rights Offering"), then
in each such case the Conversion Price shall be adjusted, effective immediately
after the record date at which holders of Common Stock are determined for the
purposes of the Rights Offering, by multiplying the Conversion Price in effect
on such record date by a fraction of which:
(i) the numerator shall be the sum of:
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(a) the number of shares of Common Stock outstanding on
such record date; and
(b) a number obtained by dividing:
(I) either,
(x) the product of the total number of shares of
Common Stock so offered for subscription or purchase and the
price at which such shares are so offered, or
(y) the product of the maximum number of shares of
Common Stock into or for which the convertible or exchangeable
securities so offered for subscription or purchase may be
converted or exchanged and the conversion or exchange price of
such securities,
or, as the case may be, by
(II) the Market Price of the Common Stock on such
record date; and
(ii) the denominator shall be the sum of:
(a) the number of shares of Common Stock outstanding on
such record date; and
(b) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of Derivative
Securities), the maximum number of shares of Common Stock for or
into which the securities so offered for subscription or
purchase may be converted or exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the Conversion Price shall be readjusted effective
immediately after such expiry time to the Conversion Price which would then
have been in effect upon the number of shares of Common Stock (or Derivative
Securities) actually delivered upon the exercise of such rights, options or
warrants. For purposes of this Paragraph, "Market Price" shall mean the lowest
Closing Bid Price of the Common Stock during the twenty (20) Trading Day period
ending one (1) Trading Day prior to the applicable date.
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(3) SPECIAL DISTRIBUTION. If and whenever the Corporation shall
issue or distribute to all or substantially all the holders of Common Stock:
(i) shares of the Corporation of any class, other than Common
Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and
equivalent dividends in shares paid in lieu of cash dividends in the
ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the Conversion Price shall be adjusted,
effective immediately after the record date at which the holders of Common
Stock are determined for purposes of the Special Distribution, by multiplying
the Conversion Price in effect on such record date by a fraction of which:
(i) the numerator shall be the difference between:
(a) the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the
Common Stock on such date; and
(b) the fair market value, as determined by the Directors
(whose determination shall be conclusive), to the holders of
Common Stock of the shares, rights, options, warrants, evidences
of indebtedness or other assets issued or distributed in the
Special Distribution (net of any consideration paid therefor by
the holders of Common Stock), and
(ii) the denominator shall be the product of the number of
shares of Common Stock outstanding on such record date and the Market
Price of the Common Stock on such date.
(4) CAPITAL REORGANIZATION. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of
Common Stock or any change of the shares of Common Stock into other
shares, other than in a Share Reorganization;
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(ii) a consolidation, merger or amalgamation of the Corporation
with, or into another body corporate; or
(iii) the transfer of all or substantially all of the assets
of the Corporation to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert the shares of Series B
Preferred Stock after the effective date of such Capital Reorganization shall
be entitled to receive and shall accept, upon the exercise of such right, in
lieu of the number of shares of Common Stock to which such holder was
theretofore entitled upon the exercise of the conversion privilege, the
aggregate number of shares or other securities or property of the Corporation
or of the body corporate resulting from such Capital Reorganization that such
holder would have been entitled to receive as a result of such Capital
Reorganization if, on the effective date thereof, such holders had been the
holder of the number of shares of Common Stock to which such holder was
theretofore entitled upon conversion of the Series B Preferred Stock; PROVIDED,
HOWEVER, that no such Capital Reorganization shall be consummated in effect
unless all necessary steps shall have been taken so that such holders of the
Series B Preferred Stock shall thereafter be entitled to receive such number of
shares or other securities of the Corporation or of the body corporate
resulting from such Capital Reorganization, subject to adjustment thereafter in
accordance with provisions the same, as nearly as may be possible, as those
contained above.
(5) ADJUSTMENT RULES. The following rules and procedures shall be
applicable to adjustments made in this Article VI:
(i) no adjustment in the Conversion Price shall be required
unless such adjustment would result in a change of at least 1% in the
Conversion Price then in effect; PROVIDED, HOWEVER, that any
adjustments which, but for the provisions of this clause would
otherwise have been required to be made, shall be carried forward and
taken into account in any subsequent adjustment;
(ii) no adjustment in the Conversion Price shall be made
pursuant to this Article VI in respect of the issue from time to time
of Common Stock to holders of Common Stock who exercise an option to
receive substantially equivalent dividends in Common Stock in lieu of
receiving cash dividends in the ordinary course; and
(iii) if a dispute shall at any time arise with respect to
any adjustment of the Conversion Price, such dispute shall be
conclusively determined by the auditors of the Corporation or, if
they are unable or unwilling to act, by a firm of
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independent chartered accountants selected by the Directors of the
Corporation and any such determination shall be binding upon the
Corporation and the holders of Series B Preferred Stock.
(6) CERTIFICATE AS TO ADJUSTMENT. The Corporation shall from time
to time promptly after the occurrence of any event which requires an adjustment
in the Conversion Price deliver to the holders of Series B Preferred Stock a
certificate specifying the nature of the event requiring the adjustment, the
amount of the adjustment necessitated thereby, the Conversion Price after
giving effect to such adjustment and setting forth, in reasonable detail, the
method of calculation and the facts upon which such calculation is based.
(7) NOTICE TO HOLDERS. If the Corporation shall fix a record date
for:
(i) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of
shares),
(ii) any Rights Offering,
(iii) any Special Distribution,
(iv) any Capital Reorganization (other than a reclassification
or redesignation of the Common Stock into other shares), or
(v) any cash dividend,
the Corporation shall, not less than 10 days prior to such record date or, if
no record date is fixed, prior to the effective date of such event, give to the
Purchasers notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
D. CONVERSION METHOD.
(1) NOTICE OF CONVERSION. In order to convert Series B Preferred
Stock into full shares of Common Stock, a holder of Series B Preferred Stock
shall submit a copy of the fully executed notice of conversion in the form
attached to the Option Agreement ("Notice of Conversion") to the Corporation by
facsimile dispatched on the Conversion Date (or by other means resulting in
notice to the Corporation on the Conversion Date) at the office of the
Corporation or, at the option of such holder, the Corporation's designated
transfer agent for the Series B Preferred Stock, which notice shall specify (w)
the names and addresses of the Persons
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to whom certificates for shares of Common Stock shall be issued, (x) the
number of shares of Series B Preferred Stock to be converted, (y) the
applicable Conversion Price and (z) a calculation of the number of shares of
Common Stock issuable upon such conversion (together with a copy of the first
page of each certificate to be converted) prior to Midnight, New York City
time (the "Conversion Notice Deadline") on the date of conversion specified
on the Notice of Conversion. In the case of a dispute as to the calculation
of the Conversion Price, the Corporation shall promptly issue such number of
shares of Common Stock that are not disputed in accordance with subparagraph
(3) below. The Corporation shall submit the disputed calculations to its
outside accountant via facsimile within two (2) business days of receipt of
the Notice of Conversion. The accountant shall audit the calculations and
notify the Corporation and the holder of the Series B Preferred Stock to be
converted of the results no later than 48 hours from the time it receives the
disputed calculations. The accountant's calculation shall be deemed
conclusive absent manifest error.
(2) LOST OR STOLEN CERTIFICATES. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series B Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity reasonably satisfactory to the
Corporation, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Corporation shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date.
(3) DELIVERY OF COMMON STOCK UPON CONVERSION. The Corporation shall
issue and deliver, within five (5) business days after the delivery of a Notice
of Conversion (the "Delivery Period") (or cause its transfer agent to so issue
and deliver) to or upon the order of the holder that number of shares of Common
Stock for the portion of the shares of Series B Preferred Stock converted as
shall be determined in accordance herewith. In addition to any other remedies
available to the holder, including actual damages and/or equitable relief, the
Corporation shall pay to a holder $1,000 per day in cash for each of the first
five (5) business days following the Delivery Period and $2,500 per day in cash
for each day thereafter that the Corporation fails to deliver Common Stock
issuable upon surrender of shares of Series B Preferred Stock with a Notice of
Conversion until such time as the Corporation has delivered all such Common
Stock. Such cash amount shall be paid to such holder by the last business day
of the week in which it has accrued or, at the option of the holder (by written
notice to the Corporation by the first day of the week following the week in
which it has accrued), shall be convertible into shares of Common Stock in
accordance with the terms of this Article VI. The Corporation agrees that, in
addition to any other remedies which may be available to the holders,
including, but not limited to, the remedies set forth herein, in the event the
Corporation fails for any reason to effect delivery to a holder of certificates
as contemplated herein representing the shares of Common Stock on or prior to
the Delivery Period, it will be entitled, if prior to the delivery of such
certificates, to revoke the Notice of Conversion by delivering a notice to such
effect to the
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Corporation whereupon the Corporation and the holder shall each be restored
to their respective positions immediately prior to delivery of such Notice of
Conversion.
(4) FAST AUTOMATED SECURITIES TRANSFER. Provided the Corporation's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, in lieu of delivering physical
certificates representing the Common Stock issuable upon conversion, upon
request of the holder and its compliance with the provisions contained herein,
the Corporation shall use its best efforts to cause its transfer agent to
electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
(5) ACCOUNTING MECHANISM. If the Corporation's transfer agent is
not participating in the DTC Fast program, notwithstanding anything to the
contrary set forth herein, upon conversion of the Series B Preferred Stock in
accordance with the terms hereof, the holder shall not be required to
physically surrender to the Corporation a stock certificate representing the
Series B Preferred Stock being converted. Rather, records showing the
Liquidation Preference converted (or otherwise redeemed) and the date of each
such conversion or redemption shall be maintained on a ledger (the "Ledger")
substantially in the form attached to the Notice of Conversion (a copy of which
shall be delivered to the Corporation or transfer agent). In the event of any
dispute or discrepancy, the provisions of Paragraph D(1) above shall control.
The holder and any assignee, by acceptance of the Series B Preferred Stock,
acknowledge and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of the Series B Preferred Stock, the
Liquidation Preference represented by any stock certificate representing the
Series B Preferred Stock will be the amount indicated in the Ledger (which may
be less than the amount stated on the face thereof). It is specifically
contemplated that the holder hereof shall act as the calculation agent for
conversions and redemptions.
(6) NO FRACTIONAL SHARES. If any conversion of Series B Preferred
Stock would result in a fractional share of Common Stock or the right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion
of the Series B Preferred Stock shall be the next higher number of shares.
(7) CONVERSION DATE. The "Conversion Date" shall be the date
specified in the Notice of Conversion, PROVIDED that the Notice of Conversion
is submitted by facsimile (or by other means resulting in notice) to the
Corporation or its transfer agent before the Conversion Deadline Notice. The
Person or Persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such securities
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as of the Conversion Date and all rights with respect to the shares of Series
B Preferred Stock surrendered shall forthwith terminate except the right to
receive the shares of Common Stock or other securities or property issuable
on such conversion and except that the holders preferential rights as a
holder of Series B Preferred Stock shall survive to the extent the
Corporation fails to deliver such securities. If the stock transfer books of
the Corporation are closed on the Conversion Date, the Conversion Date for
purposes of determining record ownership shall be the next succeeding day on
which the stock transfer books are open (and the conversion shall be deemed
to have been effected immediately prior to the close of business on that
day), but in all cases the conversion shall be at the Conversion Price in
effect on the Conversion Date specified in the Notice of Conversion.
E. RESERVATION OF COMMON STOCK. A number of shares of the authorized
but unissued Common Stock sufficient to provide for the conversion of the
Series B Preferred Stock outstanding at the then current Conversion Price shall
at all times be reserved by the Corporation, free from preemptive rights, for
such conversion or exercise. As of the date of issuance of the Series B
Preferred Stock, 6,000,000 authorized and unissued shares of Common Stock have
been duly reserved for issuance upon conversion of the Series B Preferred Stock
(the "Reserved Amount"). The Reserved Amount shall be increased, if necessary,
from time to time in accordance with the Corporation's obligations hereunder.
In addition, if the Corporation shall issue any securities or make any change
in its capital structure which would change the number of shares of Common
Stock into which each share of the Series B Preferred Stock shall be
convertible at the then current Conversion Price, the Corporation shall at the
same time also make proper provision so that thereafter there shall be a
sufficient number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Series B Preferred Stock.
If at any time a holder of shares of Series B Preferred Stock submits a
Notice of Conversion, and the Corporation does not have sufficient authorized
but unissued shares of Common Stock available to effect such conversion in
accordance with the provisions of this Article VI (a "Conversion Default"), the
Corporation shall issue to the holder (or holders, if more than one holder
submits a Notice of Conversion in respect of the same Conversion Date, pro rata
based on the ratio that the number of shares of Series B Preferred Stock then
held by each such holder bears to the aggregate number of such shares held by
such holders) all of the shares of Common Stock which are available to effect
such conversion. The number of shares of Series B Preferred Stock included in
the Notice of Conversion which exceeds the amount which is then convertible
into available shares of Common Stock (the "Excess Amount") shall,
notwithstanding anything to the contrary contained herein, not be convertible
into Common Stock in accordance with the terms hereof until (and at the
holder's option at any time after) the date additional shares of Common Stock
are authorized by the Corporation to permit such conversion, at which time the
Conversion Price in respect thereof shall be the lesser of (i) the
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Conversion Price on the Conversion Default Date (as hereinafter defined) and
(ii) the Conversion Price on the Conversion Date elected by the holder in
respect thereof. The Corporation shall use its best efforts to effect an
increase in the authorized number of shares of Common Stock as soon as
possible following a Conversion Default. In addition, the Corporation shall
pay to the holder of any Excess Amount payments ("Conversion Default
Payments") for a Conversion Default in the amount of (i) (N/365), multiplied
by (ii) the Stated Value multiplied by (iii) the Excess Amount on the day the
holder submits a Notice of Conversion giving rise to a Conversion Default
(the "Conversion Default Date"), multiplied by (iv) .24, where (i) N = the
number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Corporation authorizes a sufficient number of
shares of Common Stock to effect conversion of the full number of shares of
Series B Preferred Stock. The Corporation shall send notice to the holder of
the authorization of additional shares of Common Stock, the Authorization
Date and the amount of holder's accrued Conversion Default Payments. The
accrued Conversion Default Payment for each calendar month shall be paid in
cash or shall be convertible into Common Stock at the Conversion Price, at
the holder's option, as follows:
(1) In the event the holder elects to take such payment in cash,
cash payment shall be made to holder by the fifth day of the month following
the month in which it has accrued; and
(2) In the event the holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time after the
fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article VI (so long as there is then a
sufficient number of authorized shares).
Nothing herein shall limit the holder's right to pursue actual
damages for the Corporation's failure to maintain a sufficient number of
authorized shares of Common Stock, and each holder shall have the right to
pursue all remedies available at law or in equity (including a decree of
specific performance and/or injunctive relief).
VII. PAYMENT OF ADDITIONAL AMOUNTS
A. Any and all payments by the Corporation hereunder to any holder of
Series B Preferred Stock and each "qualified assignee" thereof shall be made
free and clear of and without deduction or withholding for any and all present
or future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto (all such taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes")
unless such Taxes are required by law or the administration thereof to be
deducted or withheld. If the Corporation shall be required by law or the
administration thereof to deduct or withhold any
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Taxes from or in respect of any sum payable with respect to the Series B
Preferred Stock (i) the sum payable shall be increased as may be necessary so
that after making all required deductions or withholdings (including
deductions or withholdings applicable to additional amounts paid under this
Paragraph) such holder of Series B Preferred Stock receives an amount equal
to the sum it would have received if no such deduction or withholding had
been made; (ii) the Corporation shall make such deductions or withholdings;
and (iii) the Corporation shall forthwith pay the full amount deducted or
withheld to the relevant taxation or other authority in accordance with
applicable law. A "qualified assignee" of a holder of Series B Preferred
Stock is a person that is organized under the laws of (I) the United States
or (II) any jurisdiction other than the United States or any political
subdivision thereof and that (y) represents and warrants to the Corporation
that payments of the Corporation to such assignee under applicable law would
not be subject to any Taxes and (z) from time to time, as and when requested
by the Corporation, executes and delivers to the Corporation and the Internal
Revenue Service forms, and provides the Corporation with any information,
necessary to establish such assignee's continued exemption from Taxes under
applicable law.
B. The Corporation shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as "Other
Taxes") which arise from any payment made under this Certificate of Designation
or the transactions contemplated hereby.
C. The Corporation shall indemnify each holder of Series B Preferred
Stock, or qualified assignee, for the full amount of Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Paragraph) paid by each holder of
Series B Preferred Stock, or qualified assignee, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Payment under this indemnification shall be made within 30 days from the date
such holder of Series B Preferred Stock or assignee makes written demand
therefor. A certificate as to the amount of such Taxes or Other Taxes submitted
to the Corporation by such holder of Series B Preferred Stock or assignee shall
be conclusive evidence of the amount due from the Corporation to such party.
D. Within 30 days after the date of any payment of Taxes, the
Corporation will furnish to each holder of Series B Preferred Stock the
original or a certified copy of a receipt evidencing payment thereof.
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VIII. VOTING RIGHTS
A. The holders of the Series B Preferred Stock have no voting power
whatsoever, except as otherwise provided by the General Corporation Law of the
State of California ("CGCL"), in this Article VIII, and in Article IX below.
B. Notwithstanding the above, the Corporation shall provide each holder
of Series B Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of
its shareholders for the purpose of determining shareholders who are entitled
to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed Sale Event, or any proposed liquidation, dissolution or winding up of
the Corporation, the Corporation shall mail a notice to each holder, at least
five (5) days prior to the record date specified therein (or twenty (20)
Trading Days prior to the consummation of the transaction or event, whichever
is earlier), of the date on which any such record is to be taken for the
purpose of such dividend, distribution, right or other event, and a brief
statement regarding the amount and character of such dividend, distribution,
right or other event to the extent known at such time.
C. To the extent that under the CGCL the vote of the holders of the
Series B Preferred Stock, voting separately as a class or Series Bs applicable,
is required to authorize a given action of the Corporation, the affirmative
vote or consent of the holders of at least a majority of the shares of the
Series B Preferred Stock represented at a duly held meeting at which a quorum
is present or by written consent of a majority of the shares of Series B
Preferred Stock (except as otherwise may be required under the CGCL) shall
constitute the approval of such action by the class. To the extent that under
the CGCL holders of the Series B Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share
of Series B Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. holders of the Series B Preferred Stock
shall be entitled to notice of all shareholder meetings or written consents
(and copies of proxy materials and other information sent to shareholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the CGCL.
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IX. PROTECTIVE PROVISIONS
So long as shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the CGCL) of the holders of at least 80% of the then
outstanding shares of Series B Preferred Stock:
(1) alter or change the rights, preferences or privileges of the
Series B Preferred Stock or any Senior Securities so as to affect adversely the
Series B Preferred Stock:
(2) create any new class or series of Senior Securities having a
preference over the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation;
(3) create any new class or series of Pari Passu Securities ranking
pari passu with the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation;
(4) increase the authorized number of shares of Series B Preferred
Stock; or
(5) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series B Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended).
In the event holders of at least 80% of the then outstanding shares
of Series B Preferred Stock agree to allow the Corporation to alter or change
the rights, preferences or privileges of the shares of Series B Preferred
Stock, pursuant to subsection (1) above, so as to affect the Series B Preferred
Stock, then the Corporation will deliver notice of such approved change to the
holders of the Series B Preferred Stock that did not agree to such alteration
or change (the "Dissenting Holders") and Dissenting Holders shall have the
right for a period of ten (10) Trading Days to convert pursuant to the terms of
this Certificate of Designation as they exist prior to such alteration or
change or continue to hold their shares of Series B Preferred Stock.
X. PRO RATA ALLOCATIONS
The Reserved Amount (including any increases thereto) shall be allocated
by the Corporation pro rata among the holders of Series B Preferred Stock based
on the number of shares of Series B Preferred Stock then held by each holder
relative to the total aggregate number of shares of Series B Preferred Stock
then outstanding.
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IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation this 31st day of December, 1997.
TOUCH TONE AMERICA, INC.
By: /s/ Kerry Rogers
---------------------------------------
Its: President and Chief Executive Officer
--------------------------------------
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EXHIBIT A
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER
IN ORDER TO CONVERT THE SERIES B PREFERRED STOCK)
The undersigned hereby irrevocably elects to convert _______ shares of
Series B Preferred Stock, represented by stock certificate No(s). _________(the
"Preferred Stock Certificates") into shares of common stock ("Common Stock") of
Touch Tone America, Inc. (the "Corporation") according to the conditions of the
Certificate of Designation of Series B Preferred Stock, as of the date written
below. If securities are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates. No fee will be charged
to the Holder for any conversion, except for transfer taxes, if any.
Date of Conversion:
-------------------------------
Applicable Conversion Price:
----------------------
Number of Shares of
Common Stock to be Issued:
------------------------
Signature:
----------------------------------------
Name:
---------------------------------------------
Address:
------------------------------------------
Solo Page
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CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
TOUCH TONE AMERICA, INC.
(Pursuant to General Corporation Law
of the State of California)
Touch Tone America, Inc., a corporation organized and existing under the
General Corporation Law of the State of California (the "Corporation"),
hereby certifies that the following resolutions were adopted by the Board of
Directors of the Corporation on December 31, 1997 pursuant to authority of
the Board of Directors as required by the General Corporation Law of the
State of California:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the
"Board") in accordance with the provisions of its Certificate of
Incorporation, the Board of Directors hereby authorizes a series of the
Corporation's previously authorized Preferred Stock (the "Preferred Stock"),
and hereby states the designation and number of shares, and fixes the
relative rights, preferences, privileges, powers and restrictions thereof as
follows:
SERIES C CONVERTIBLE PREFERRED STOCK:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 20,000 shares of
Preferred Stock, is Series C Convertible Preferred Stock (the "Series C
Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "Stated Value").
II. RANK
The Series C Preferred Stock shall rank (i) prior to the Corporation's
common stock, no par value (the "Common Stock"); (ii) prior to any class or
series of capital stock of the Corporation hereafter created (unless, with
the consent of the holders of Series C Preferred Stock obtained in accordance
with Article IX hereof, such class or series of capital stock specifically,
by its terms, ranks senior to or PARI PASSU with the Series C Preferred
Stock) (collectively, with the Common Stock, "Junior Securities"); (iii) PARI
PASSU with any class or series of capital stock of the Corporation hereafter
created (with the consent of the holders of Series C Preferred Stock
- -------------------------------------------------------------------------------
CERTIFICATE OF DESIGNATION - Page 1
<PAGE>
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, on parity with the Series C Convertible Preferred Stock of the
Corporation ("Pari Passu Securities"); and (iv) junior to any class or series
of capital stock of the Corporation hereafter created (with the consent of
the holders of Series C Preferred Stock obtained in accordance with Article
IX hereof) ("Senior Securities"), in each case as to distribution of assets
upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
III. DIVIDENDS
A. The holders of record of the shares of Series C Preferred Stock as
of the Record Date (as hereinafter defined) shall be entitled to receive,
when, as and if declared by the Board of Directors of the Corporation or a
duly authorized committee thereof, cumulative dividends per share of Series C
Preferred Stock (the "Dividends") in an amount equal to the Dividend Rate (as
hereinafter defined) multiplied by the Liquidation Preference (as hereinafter
defined and adjusted), per share for each Quarterly Payment Period (as
hereinafter defined) or portion thereof that such Series C Preferred Stock is
outstanding. To the extent permitted by applicable law and not prohibited
pursuant to the terms of applicable credit instruments, Senior Securities or
this Certificate of Designation, the Board of Directors shall declare
Dividends to be paid on the last day of each Quarterly Payment Period (each,
a "Dividend Payment Date") (or, if such day is not a business day, on the
next business day thereafter).
B. A Quarterly Payment Period shall mean the three-month period ending
on March 31, June 30, September 30 and December 31 of each year.
C. The Dividend Rate shall mean an annual dividend rate of 8% (i.e., a
quarterly dividend rate of 2%).
D. Dividends shall accrue (whether or not paid) at the Dividend Rate
during each Quarterly Payment Period from the Dividend Payment Date
immediately preceding such Quarterly Payment Period to the earlier to occur
of a conversion event specified in Article VI hereof or the last day of such
Quarterly Payment Period, provided that, for the first Quarterly Payment
Period, Dividends shall accrue commencing as of the date of initial issuance
of the Series C Preferred Stock and shall be payable for the Quarterly
Payment Period ending March 31, 1998. Dividends shall be calculated on the
basis of a 90-day Quarterly Payment Period and the actual number of days
elapsed. The holder of any shares of Series C Preferred Stock which are the
subject of a conversion pursuant to Article VI shall, on the Conversion Date
(as hereinafter defined), be entitled to receive accrued Dividends on such
Series C Preferred Stock which have not been declared and paid on or before
such Conversion Date. In addition, in the event a conversion of the Series C
Preferred Stock is effected after a Mandatory Redemption Notice (as
hereinafter defined) is delivered but prior to a Mandatory Redemption Date
(as hereinafter defined), then, to the extent lawful, the Corporation
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<PAGE>
shall pay or issue to such holder of Series C Preferred Stock all accrued and
unpaid Dividends (whether or not declared) from the last Dividend Payment
Date until the date the converting holder delivered its Notice of Conversion
(as hereinafter defined) pursuant to Article VI hereof. Dividends shall be
paid in cash, provided the Corporation has assets legally available therefor
("Available Surplus"). If the Corporation either (x) does not have Available
Surplus on any date Dividends are payable hereunder or (y) Dividends are not
paid in cash on the required dates specified herein, as set forth in
Paragraph E. below, such accrued but unpaid Dividends shall be added to the
Liquidation Preference of the Series C Preferred Stock effective at the
beginning of the period next succeeding the period as to which such Dividends
were not paid, and shall thereafter accrue additional Dividends at the
Dividend Rate. Any Dividend payment made on Series C Preferred Stock shall
be credited against the earliest accrued but unpaid Dividend which has been
added to the Liquidation Preference of the Series C Preferred Stocks pursuant
to this Paragraph D. and shall reduce the Liquidation Preference by the
amount of the Dividend paid.
E. Dividends, if and when declared on each share of Series C Preferred
Stock, shall, to the extent permitted by applicable law, be declared at least
twenty (20) business days prior to the next Dividend Payment Date for payment
on the next Dividend Payment Date to the holders of record on the date
determined in such declaration, which date shall in no event be more than
fifteen (15) business days after the date of such declaration (the "Record
Date"). Dividends shall be payable on the earlier to occur of (i) a
conversion event specified in Article VI hereof, (ii) a redemption
transaction referenced in Article V hereof or (iii) each Dividend Payment
Date (or if any such day is not a business day, the next succeeding business
day).
F. So long as any shares of Series C Preferred Stock are outstanding,
the Corporation shall not declare, pay or set aside for payment any dividend
(other than in shares of Junior Securities) or other distribution in respect
of its Junior Securities, or call for redemption, redeem, purchase or
otherwise acquire for any consideration (other than shares of its Junior
Securities) any shares of its Junior Securities, any warrants, rights, calls
or options exercisable for any shares of Junior Securities.
G. Each holder of Series C Preferred Stock shall be entitled to
participate with the holders of Common Stock equally and ratably (on the
basis of the number of shares of Common Stock such holder would then own if
it then converted its shares of Series C Preferred Stock pursuant to Article
VI) in any subscription rights or other similar rights to acquire securities
or property of the Corporation granted to any holder of Common Stock.
IV. LIQUIDATION PREFERENCE
If the Corporation shall commence a voluntary case under the federal
bankruptcy laws or any other applicable federal or state bankruptcy,
insolvency or similar law, or consent to the
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entry of an order for relief in an involuntary case under any law or to the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit of
its creditors, or admit in writing its inability to pay its debts generally
as they become due, or if a decree or order for relief in respect of the
Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the federal bankruptcy laws or any other
applicable federal or state bankruptcy, insolvency or similar law resulting
in the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation
of its affairs, and any such decree or order shall be unstayed and in effect
for a period of thirty (30) consecutive days and, on account of any such
event, the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up (each such event
being considered a "Liquidation Event"), no distribution shall be made to the
holders of any shares of capital stock of the Corporation (other than Senior
Securities) upon liquidation, dissolution or winding up unless prior thereto,
the holders of shares of Series C Preferred Stock, subject to Article VI,
shall have received cash or any other assets of the Corporation in an amount
(or having a fair market value) equal to One Thousand Dollars $1,000) per
share plus all accrued and unpaid Dividends (the "Liquidation Preference").
If upon the occurrence of a Liquidation Event, the assets and funds available
for distribution among the holders of the Series C Preferred Stock and
holders of Pari Passu Securities shall be insufficient to permit the payment
to such holders of the preferential amounts payable thereon, then the entire
assets and funds of the Corporation legally available for distribution to the
Series C Preferred Stock and the Pari Passu Securities shall be distributed
ratably among such shares in proportion to the ratio that the Liquidation
Preference payable on each such share bears to the aggregate liquidation
preference payable on all such shares. The fair market value of any assets
of the Corporation and the proportion of cash and other assets distributed by
the Corporation to the holders of the Series C Preferred Stock shall be
reasonably determined in good faith by the Board of Directors.
V. REDEMPTION
A. If any of the following events (each, a "Mandatory Redemption
Event") shall occur:
(1) The Corporation (i) fails to (or makes any announcement that
it does not intend to) issue without restrictive legend (or to withdraw any
stop transfer instructions in respect thereof) any shares of Common Stock
issued to the holders of Series C Preferred Stock upon conversion of the
Series C Preferred Stock as and when required by this Certificate of
Designation or the Option Agreement dated as of December 31, 1997, by and
among the Corporation and the other signatories thereto (the "Option
Agreement"), which failure continues uncured for a period of three (3)
business days or (ii) breaches any of its other obligations and/or
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covenants set forth in the Option Agreement (or makes any announcement that
it does not intend to honor the obligations described therein) and, in any
case, such failure shall continue uncured (or any announcement not to honor
its obligations shall not be rescinded) for thirty (30) business days;
(2) A Liquidation Event shall occur;
(3) The trading in the Common Stock shall have been suspended by
the Securities and Exchange Commission (except for any suspension of trading
of limited duration not to exceed two (2) business days solely to permit
dissemination of material information regarding the Corporation);
(4) The Corporation shall have its Common Stock delisted from the
electronic quotation medium known as the OTC Bulletin Board by which members
of the National Association of Securities Dealers, Inc. enter, update and
display quotations and other information regarding eligible securities
(except if, at the time there is any delisting on the OTC Market, the Common
Stock has been listed and approved for trading on either the New York Stock
Exchange, the American Stock Exchange, the Nasdaq Stock Market's National
Market, or the Nasdaq Stock Market's SmallCap Market within 10 days thereof);
or
(5) Upon (i) the occurrence of a Change of Control (as defined in
the Option Agreement) of the Corporation, (ii) a transfer of all or
substantially all of the assets of the Corporation to any Person in a single
transaction or series of related transactions, or (iii) a consolidation or
merger of the Corporation with or into another Person (other than a merger
(x) which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock or in which the
Corporation is the surviving entity, or (y) which is effected solely to
change the jurisdiction of incorporation of the Corporation and results in a
reclassification, conversion or exchange of outstanding shares of Common
Stock solely into shares of Common Stock) (items (ii) and (iii) being
referred to as "Sale Events");
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (1), (3), (4) or (5), at the
option of the holders of more than 50% of the then outstanding shares of
Series C Preferred Stock by written notice (the "Mandatory Redemption
Notice") to the Corporation of such Mandatory Redemption Event, or upon the
occurrence of any Mandatory Redemption Event specified in subparagraph (2),
the Corporation shall purchase each holder's shares of Series C Preferred
Stock for an amount per share equal to the sum of (i) the Liquidation
Preference of the shares of Series C Preferred Stock outstanding (including
any Dividends added thereon in accordance with the provisions hereof for the
period beginning on the issuance of such shares of Series C Preferred Stock
and ending on the date of payment of the Mandatory Redemption Amount) (the
"Mandatory Redemption Date") and (ii) if
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a positive number, the Premium Amount, where Premium Amount means the
difference, if a positive number, between (I) the product of (x) the number
of shares of Common Stock issuable upon conversion of such shares of Series C
Preferred Stock in accordance with Article VI below (treating the Trading Day
(as hereinafter defined) immediately preceding the Mandatory Redemption Date
as the Conversion Date (unless the Mandatory Redemption Event arises as a
result of a breach in respect of a specific Conversion Date in which case
such Conversion Date shall be the Conversion Date), multiplied by (y) the
Closing Bid Price for the Common Stock on such Conversion Date and (II) the
Stated Value of the shares of Series C Preferred Stock outstanding (the sum
of such amounts being referred to as the "Mandatory Redemption Amount").
"Closing Bid Price" shall mean for any security as of any date, the
lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the
principal securities exchange or trading market where such security is listed
or traded or, if the foregoing does not apply, the lowest closing bid price
of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no lowest trading
price is reported for such security by Bloomberg, then the average of the bid
prices of any market-makers for such securities as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the lowest closing bid
price cannot be calculated for such security on such date on any of the
foregoing bases, the lowest closing bid price of such security on such date
shall be the fair market value as mutually determined by the holders of the
Series C Preferred Stock and the Corporation for which the calculation of the
closing bid price requires, and in the absence of such mutual determination,
as determined by the Board of Directors of the Corporation in good faith.
"Trading Day" shall mean any business day in which at least 1,000
shares of Common Stock are traded on the OTC Market, or any business day in
which any other automated quotation system or exchange on which the Common
Stock is then traded is open for trading for at least four (4) hours, as
applicable.
B. In the case of a Mandatory Redemption Event, if the Corporation
fails to pay the Mandatory Redemption Amount for the Series C Preferred Stock
within two (2) business days of written notice that such amount is due and
payable, then (assuming there are sufficient authorized shares) in addition
to all other available remedies, each holder of Series C Preferred Stock
shall have the right (but not the obligation) at any time, so long as the
Mandatory Redemption Event continues, to require the Corporation, upon
written notice, to immediately issue (in accordance with and subject to the
terms of Article VI below), in lieu of the Mandatory Redemption Amount, with
respect to each outstanding share of Series C Preferred Stock held by such
holder, the number of shares of Common Stock of the Corporation equal to the
Mandatory Redemption Amount divided by the Conversion Price then in effect.
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C. The Corporation may, at its option, voluntarily redeem the Series C
Preferred Stock at the Mandatory Redemption Amount following twenty (20)
business days prior written notice to the holders.
VI. CONVERSION AT THE OPTION OF THE HOLDER
A. CONVERSION AMOUNT. Each share of Series C Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time
to time commencing on the forty-first (41st) day following the issuance of
the Series C Preferred Stock, into that certain number of fully paid and
nonassessable shares of Common Stock as is determined by dividing (i) the
Liquidation Preference (including any Dividends added thereon in accordance
with the provisions hereof) by (ii) the effective Conversion Price (an
"Optional Conversion"). Notwithstanding the foregoing, unless the holder
delivers a waiver in accordance with the immediately following sentence, in
no event (other than as provided below) shall a holder of shares of Series C
Preferred Stock be entitled to convert any such shares of Series C Preferred
Stock in excess of that number of shares upon conversion of which the sum of
(x) the number of shares of Common Stock beneficially owned by the holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
shares of Series C Preferred Stock) and (y) the number of shares of Common
Stock issuable upon the conversion of the shares of Series C Preferred Stock
with respect to which the determination of this proviso is being made, would
result in beneficial ownership by a holder and such holder's affiliates of
more than 4.9% of the outstanding shares of Common Stock (the "Limitation on
Conversion"). For purposes of the proviso to the immediately preceding
sentence, (i) beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13D-G thereunder, except as otherwise provided in clause (x) of
such proviso and (ii) a holder may waive the limitations set forth therein by
written notice to the Corporation upon not less than sixty-one (61) days
prior written notice (with such waiver taking effect only upon the expiration
of such sixty-one (61) day notice period). Upon delivery of written notice by
the holder of Series C Preferred Stock to the Corporation, the Limitation on
Conversion shall not apply and shall be of no further force and effect
following the occurrence of any Mandatory Redemption Event.
B. CONVERSION PRICE.
(1) Subject to subparagraph (2) below, the "Conversion Price"
shall be $2.92 provided, on and following each Reset Date, the Conversion
Price shall be the lower of $2.92 and two (2) times the then applicable Reset
Price. The Reset Price shall be calculated on the first day of each of the
calendar months of March through July, 1998 (each such date being a "Reset
Date") as the Monthly WASP (as herein defined) for the immediately preceding
calendar month (each a "Preceding Month"). The "Monthly WASP" means the
daily-weighted average sales
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price on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the daily-weighted average sales price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no daily-weighted average sales price is
reported for such security by Bloomberg, then the average of the bid prices
of any market makers for such security as reported in the "pink sheets" by
the National Quotation Bureau, Inc., in each case for all Trading Days during
each Previous Month. If the Monthly WASP cannot be calculated for such
security on such date on any of the foregoing bases, the Monthly WASP of such
security on such date shall be the fair market value as mutually determined
by the Corporation and the holders of a majority in interest of Series C
Preferred Stock being converted for which the calculation of the Monthly WASP
is required in order to determine the Conversion Price of such Series C
Preferred Stock.
(2) Notwithstanding anything contained in subparagraph (1) above
to the contrary, in the event the Corporation (i) makes a public announcement
that it intends to consummate a Sale Event or (ii) any person, group or
entity (including the Corporation) publicly announces a tender offer to
purchase 50% or more of the Corporation's Common Stock (the date of the
announcement referred to in clause (i) or (ii) is hereinafter referred to as
the "Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as hereinafter defined), be equal to the lower of (x) the
Conversion Price which would have been applicable for an Optional Conversion
occurring on the Announcement Date and (y) the Conversion Price that would
otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in
subparagraph (1) of this Article VI.B. For purposes hereof, "Adjusted
Conversion Price Termination Date" shall mean, with respect to any proposed
transaction or tender offer for which a public announcement as contemplated
by this subparagraph (2) has been made, the date upon which the Corporation
(in the case of clause (i) above) or the person, group or entity (in the case
of clause (ii) above) publicly announces the termination or abandonment of
the proposed transaction or tender offer which caused this subparagraph (2)
to become operative.
C. ADJUSTMENTS. The Conversion Price shall be subject to adjustment
from time to time as follows:
(1) SHARE REORGANIZATION. If and whenever the Corporation shall:
(i) subdivide the outstanding shares of Common Stock into a
greater number of shares;
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(ii) consolidate the outstanding shares of Common Stock into a
smaller number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all
or substantially all the holders of Common Stock payable in Common
Stock or securities convertible into or exchangeable for Common
Stock;
(any of such events being herein called a "Share Reorganization"), then in
each such case the Conversion Price shall be adjusted, effective immediately
after the record date at which the holders of Common Stock are determined for
the purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable
Conversion Price in effect on such record or effective date, as the case may
be, by a fraction of which:
(i) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect
to the transaction); and
(ii) the denominator shall be the number of shares of Common
Stock outstanding after giving effect to such Share Reorganization,
including, in the case of a distribution of securities convertible
into or exchangeable for shares of Common Stock, the number of shares
of Common Stock that would have been outstanding if such securities
had been converted into or exchanged for Common Stock on such record
or effective date.
(2) RIGHTS OFFERING. If and whenever the Corporation shall issue
to all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than forty-five (45) days after the record date of such issue, to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable or exercisable for equity securities (collectively, the
"Derivative Securities")), at a price per share (or, in the case of
Derivative Securities, at an exchange or conversion price per share at the
date of issue of such securities) of less than 95% of the Market Price of the
Common Stock on such record date (any such event being herein called a
"Rights Offering"), then in each such case the Conversion Price shall be
adjusted, effective immediately after the record date at which holders of
Common Stock are determined for the purposes of the Rights Offering, by
multiplying the Conversion Price in effect on such record date by a fraction
of which:
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(i) the numerator shall be the sum of:
(a) the number of shares of Common Stock outstanding on
such record date; and
(b) a number obtained by dividing:
(I) either,
(x) the product of the total number of shares of
Common Stock so offered for subscription or purchase and the
price at which such shares are so offered, or
(y) the product of the maximum number of shares of
Common Stock into or for which the convertible or exchangeable
securities so offered for subscription or purchase may be
converted or exchanged and the conversion or exchange price of
such securities,
or, as the case may be, by
(II) the Market Price of the Common Stock on such
record date; and
(ii) the denominator shall be the sum of:
(a) the number of shares of Common Stock outstanding on
such record date; and
(b) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of Derivative
Securities), the maximum number of shares of Common Stock for or
into which the securities so offered for subscription or
purchase may be converted or exchanged).
To the extent that such rights, options or warrants are not exercised prior
to the expiry time thereof, the Conversion Price shall be readjusted
effective immediately after such expiry time to the Conversion Price which
would then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants. For purposes of this Paragraph, "Market Price" shall
mean the lowest
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Closing Bid Price of the Common Stock during the twenty (20) Trading Day
period ending one (1) Trading Day prior to the applicable date.
(3) SPECIAL DISTRIBUTION. If and whenever the Corporation shall
issue or distribute to all or substantially all the holders of Common Stock:
(i) shares of the Corporation of any class, other than Common
Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and
equivalent dividends in shares paid in lieu of cash dividends in the
ordinary course);
and if such issuance or distribution does not constitute a Share
Reorganization or a Rights Offering (any such event being herein called a
"Special Distribution"), then in each such case the Conversion Price shall
be adjusted, effective immediately after the record date at which the holders
of Common Stock are determined for purposes of the Special Distribution, by
multiplying the Conversion Price in effect on such record date by a fraction
of which:
(i) the numerator shall be the difference between:
(a) the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the
Common Stock on such date; and
(b) the fair market value, as determined by the Directors
(whose determination shall be conclusive), to the holders of
Common Stock of the shares, rights, options, warrants, evidences
of indebtedness or other assets issued or distributed in the
Special Distribution (net of any consideration paid therefor by
the holders of Common Stock), and
(ii) the denominator shall be the product of the number of
shares of Common Stock outstanding on such record date and the Market
Price of the Common Stock on such date.
(4) CAPITAL REORGANIZATION. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of Common
Stock or any change of the shares of Common Stock into other shares,
other than in a Share Reorganization;
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(ii) a consolidation, merger or amalgamation of the Corporation
with, or into another body corporate; or
(iii) the transfer of all or substantially all of the assets
of the Corporation to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert the shares of Series
C Preferred Stock after the effective date of such Capital Reorganization
shall be entitled to receive and shall accept, upon the exercise of such
right, in lieu of the number of shares of Common Stock to which such holder
was theretofore entitled upon the exercise of the conversion privilege, the
aggregate number of shares or other securities or property of the Corporation
or of the body corporate resulting from such Capital Reorganization that such
holder would have been entitled to receive as a result of such Capital
Reorganization if, on the effective date thereof, such holders had been the
holder of the number of shares of Common Stock to which such holder was
theretofore entitled upon conversion of the Series C Preferred Stock;
PROVIDED, HOWEVER, that no such Capital Reorganization shall be consummated
in effect unless all necessary steps shall have been taken so that such
holders of the Series C Preferred Stock shall thereafter be entitled to
receive such number of shares or other securities of the Corporation or of
the body corporate resulting from such Capital Reorganization, subject to
adjustment thereafter in accordance with provisions the same, as nearly as
may be possible, as those contained above.
(5) ADJUSTMENT RULES. The following rules and procedures shall be
applicable to adjustments made in this Article VI:
(i) no adjustment in the Conversion Price shall be required
unless such adjustment would result in a change of at least 1% in the
Conversion Price then in effect; PROVIDED, HOWEVER, that any
adjustments which, but for the provisions of this clause would
otherwise have been required to be made, shall be carried forward and
taken into account in any subsequent adjustment;
(ii) no adjustment in the Conversion Price shall be made
pursuant to this Article VI in respect of the issue from time to time
of Common Stock to holders of Common Stock who exercise an option to
receive substantially equivalent dividends in Common Stock in lieu of
receiving cash dividends in the ordinary course; and
(iii) if a dispute shall at any time arise with respect to any
adjustment of the Conversion Price, such dispute shall be
conclusively determined by the
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auditors of the Corporation or, if they are unable or unwilling to
act, by a firm of independent chartered accountants selected by the
Directors of the Corporation and any such determination shall be
binding upon the Corporation and the holders of Series C Preferred
Stock.
(6) CERTIFICATE AS TO ADJUSTMENT. The Corporation shall from time
to time promptly after the occurrence of any event which requires an
adjustment in the Conversion Price deliver to the holders of Series C
Preferred Stock a certificate specifying the nature of the event requiring
the adjustment, the amount of the adjustment necessitated thereby, the
Conversion Price after giving effect to such adjustment and setting forth, in
reasonable detail, the method of calculation and the facts upon which such
calculation is based.
(7) NOTICE TO HOLDERS. If the Corporation shall fix a record date
for:
(i) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of
shares),
(ii) any Rights Offering,
(iii) any Special Distribution,
(iv) any Capital Reorganization (other than a reclassification
or redesignation of the Common Stock into other shares), or
(v) any cash dividend,
the Corporation shall, not less than 10 days prior to such record date or, if
no record date is fixed, prior to the effective date of such event, give to
the Purchasers notice of the particulars of the proposed event or the extent
that such particulars have been determined at the time of giving the notice.
D. CONVERSION METHOD.
(1) NOTICE OF CONVERSION. In order to convert Series C Preferred
Stock into full shares of Common Stock, a holder of Series C Preferred Stock
shall submit a copy of the fully executed notice of conversion in the form
attached to the Option Agreement ("Notice of Conversion") to the Corporation by
facsimile dispatched on the Conversion Date (or by other means resulting in
notice to the Corporation on the Conversion Date) at the office of the
Corporation or, at the option of such holder, the Corporation's designated
transfer agent for the
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<PAGE>
Series C Preferred Stock, which notice shall specify (w) the names and
addresses of the Persons to whom certificates for shares of Common Stock
shall be issued, (x) the number of shares of Series C Preferred Stock to be
converted, (y) the applicable Conversion Price and (z) a calculation of the
number of shares of Common Stock issuable upon such conversion (together with
a copy of the first page of each certificate to be converted) prior to
Midnight, New York City time (the "Conversion Notice Deadline") on the date
of conversion specified on the Notice of Conversion. In the case of a dispute
as to the calculation of the Conversion Price, the Corporation shall promptly
issue such number of shares of Common Stock that are not disputed in
accordance with subparagraph (3) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall
audit the calculations and notify the Corporation and the holder of the
Series C Preferred Stock to be converted of the results no later than 48
hours from the time it receives the disputed calculations. The accountant's
calculation shall be deemed conclusive absent manifest error.
(2) LOST OR STOLEN CERTIFICATES. Upon receipt by the Corporation
of evidence of the loss, theft, destruction or mutilation of any Preferred
Stock Certificates representing shares of Series C Preferred Stock, and (in
the case of loss, theft or destruction) of indemnity reasonably satisfactory
to the Corporation, and upon surrender and cancellation of the Preferred
Stock Certificate(s), if mutilated, the Corporation shall execute and deliver
new Preferred Stock Certificate(s) of like tenor and date.
(3) DELIVERY OF COMMON STOCK UPON CONVERSION. The Corporation
shall issue and deliver, within five (5) business days after the delivery of
a Notice of Conversion (the "Delivery Period") (or cause its transfer agent
to so issue and deliver) to or upon the order of the holder that number of
shares of Common Stock for the portion of the shares of Series C Preferred
Stock converted as shall be determined in accordance herewith. In addition to
any other remedies available to the holder, including actual damages and/or
equitable relief, the Corporation shall pay to a holder $1,000 per day in
cash for each of the first five (5) business days following the Delivery
Period and $2,500 per day in cash for each day thereafter that the
Corporation fails to deliver Common Stock issuable upon surrender of shares
of Series C Preferred Stock with a Notice of Conversion until such time as
the Corporation has delivered all such Common Stock. Such cash amount shall
be paid to such holder by the last business day of the week in which it has
accrued or, at the option of the holder (by written notice to the Corporation
by the first day of the week following the week in which it has accrued),
shall be convertible into shares of Common Stock in accordance with the terms
of this Article VI. The Corporation agrees that, in addition to any other
remedies which may be available to the holders, including, but not limited
to, the remedies set forth herein, in the event the Corporation fails for any
reason to effect delivery to a holder of certificates as contemplated herein
representing the shares of Common Stock on or prior to the Delivery Period,
it will be entitled, if prior to the delivery of such
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<PAGE>
certificates, to revoke the Notice of Conversion by delivering a notice to
such effect to the Corporation whereupon the Corporation and the holder shall
each be restored to their respective positions immediately prior to delivery
of such Notice of Conversion.
(4) FAST AUTOMATED SECURITIES TRANSFER. Provided the
Corporation's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, in lieu of
delivering physical certificates representing the Common Stock issuable upon
conversion, upon request of the holder and its compliance with the provisions
contained herein, the Corporation shall use its best efforts to cause its
transfer agent to electronically transmit the Common Stock issuable upon
conversion to the holder by crediting the account of holder's Prime Broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system.
The time periods for delivery and penalties described in the immediately
preceding paragraph shall apply to the electronic transmittals described
herein.
(5) ACCOUNTING MECHANISM. If the Corporation's transfer agent is
not participating in the DTC Fast program, notwithstanding anything to the
contrary set forth herein, upon conversion of the Series C Preferred Stock in
accordance with the terms hereof, the holder shall not be required to
physically surrender to the Corporation a stock certificate representing the
Series C Preferred Stock being converted. Rather, records showing the
Liquidation Preference converted (or otherwise redeemed) and the date of each
such conversion or redemption shall be maintained on a ledger (the "Ledger")
substantially in the form attached to the Notice of Conversion (a copy of
which shall be delivered to the Corporation or transfer agent). In the event
of any dispute or discrepancy, the provisions of Paragraph D(1) above shall
control. The holder and any assignee, by acceptance of the Series C Preferred
Stock, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of the Series C Preferred Stock,
the Liquidation Preference represented by any stock certificate representing
the Series C Preferred Stock will be the amount indicated in the Ledger
(which may be less than the amount stated on the face thereof). It is
specifically contemplated that the holder hereof shall act as the calculation
agent for conversions and redemptions.
(6) NO FRACTIONAL SHARES. If any conversion of Series C Preferred
Stock would result in a fractional share of Common Stock or the right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion
of the Series C Preferred Stock shall be the next higher number of shares.
(7) CONVERSION DATE. The "Conversion Date" shall be the date
specified in the Notice of Conversion, PROVIDED that the Notice of Conversion
is submitted by facsimile (or by other means resulting in notice) to the
Corporation or its transfer agent before the Conversion Deadline Notice. The
Person or Persons entitled to receive the shares of Common Stock issuable
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<PAGE>
upon conversion shall be treated for all purposes as the record holder or
holders of such securities as of the Conversion Date and all rights with
respect to the shares of Series C Preferred Stock surrendered shall forthwith
terminate except the right to receive the shares of Common Stock or other
securities or property issuable on such conversion and except that the
holders preferential rights as a holder of Series C Preferred Stock shall
survive to the extent the Corporation fails to deliver such securities. If
the stock transfer books of the Corporation are closed on the Conversion
Date, the Conversion Date for purposes of determining record ownership shall
be the next succeeding day on which the stock transfer books are open (and
the conversion shall be deemed to have been effected immediately prior to the
close of business on that day), but in all cases the conversion shall be at
the Conversion Price in effect on the Conversion Date specified in the Notice
of Conversion.
E. RESERVATION OF COMMON STOCK. A number of shares of the authorized
but unissued Common Stock sufficient to provide for the conversion of the
Series C Preferred Stock outstanding at the then current Conversion Price
shall at all times be reserved by the Corporation, free from preemptive
rights, for such conversion or exercise. As of the date of issuance of the
Series C Preferred Stock, 14,000,000 authorized and unissued shares of Common
Stock have been duly reserved for issuance upon conversion of the Series C
Preferred Stock (the "Reserved Amount"). The Reserved Amount shall be
increased, if necessary, from time to time in accordance with the
Corporation's obligations hereunder. In addition, if the Corporation shall
issue any securities or make any change in its capital structure which would
change the number of shares of Common Stock into which each share of the
Series C Preferred Stock shall be convertible at the then current Conversion
Price, the Corporation shall at the same time also make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Series C Preferred Stock.
If at any time a holder of shares of Series C Preferred Stock submits a
Notice of Conversion, and the Corporation does not have sufficient authorized
but unissued shares of Common Stock available to effect such conversion in
accordance with the provisions of this Article VI (a "Conversion Default"),
the Corporation shall issue to the holder (or holders, if more than one
holder submits a Notice of Conversion in respect of the same Conversion Date,
pro rata based on the ratio that the number of shares of Series C Preferred
Stock then held by each such holder bears to the aggregate number of such
shares held by such holders) all of the shares of Common Stock which are
available to effect such conversion. The number of shares of Series C
Preferred Stock included in the Notice of Conversion which exceeds the amount
which is then convertible into available shares of Common Stock (the "Excess
Amount") shall, notwithstanding anything to the contrary contained herein,
not be convertible into Common Stock in accordance with the terms hereof
until (and at the holder's option at any time after) the date additional
shares of Common Stock are authorized by the Corporation to permit such
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<PAGE>
conversion, at which time the Conversion Price in respect thereof shall be
the lesser of (i) the Conversion Price on the Conversion Default Date (as
hereinafter defined) and (ii) the Conversion Price on the Conversion Date
elected by the holder in respect thereof. The Corporation shall use its best
efforts to effect an increase in the authorized number of shares of Common
Stock as soon as possible following a Conversion Default. In addition, the
Corporation shall pay to the holder of any Excess Amount payments
("Conversion Default Payments") for a Conversion Default in the amount of (i)
(N/365), multiplied by (ii) the Stated Value multiplied by (iii) the Excess
Amount on the day the holder submits a Notice of Conversion giving rise to a
Conversion Default (the "Conversion Default Date"), multiplied by (iv) .24,
where (i) N = the number of days from the Conversion Default Date to the date
(the "Authorization Date") that the Corporation authorizes a sufficient
number of shares of Common Stock to effect conversion of the full number of
shares of Series C Preferred Stock. The Corporation shall send notice to the
holder of the authorization of additional shares of Common Stock, the
Authorization Date and the amount of holder's accrued Conversion Default
Payments. The accrued Conversion Default Payment for each calendar month
shall be paid in cash or shall be convertible into Common Stock at the
Conversion Price, at the holder's option, as follows:
(1) In the event the holder elects to take such payment in cash,
cash payment shall be made to holder by the fifth day of the month following
the month in which it has accrued; and
(2) In the event the holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article VI (so long as there is then a
sufficient number of authorized shares).
Nothing herein shall limit the holder's right to pursue actual
damages for the Corporation's failure to maintain a sufficient number of
authorized shares of Common Stock, and each holder shall have the right to
pursue all remedies available at law or in equity (including a decree of
specific performance and/or injunctive relief).
VII. PAYMENT OF ADDITIONAL AMOUNTS
A. Any and all payments by the Corporation hereunder to any holder of
Series C Preferred Stock and each "qualified assignee" thereof shall be made
free and clear of and without deduction or withholding for any and all
present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto (all such taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes") unless such Taxes are required by law or
the administration thereof to be deducted or withheld. If the
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<PAGE>
Corporation shall be required by law or the administration thereof to deduct
or withhold any Taxes from or in respect of any sum payable with respect to
the Series C Preferred Stock (i) the sum payable shall be increased as may be
necessary so that after making all required deductions or withholdings
(including deductions or withholdings applicable to additional amounts paid
under this Paragraph) such holder of Series C Preferred Stock receives an
amount equal to the sum it would have received if no such deduction or
withholding had been made; (ii) the Corporation shall make such deductions or
withholdings; and (iii) the Corporation shall forthwith pay the full amount
deducted or withheld to the relevant taxation or other authority in
accordance with applicable law. A "qualified assignee" of a holder of Series
C Preferred Stock is a person that is organized under the laws of (I) the
United States or (II) any jurisdiction other than the United States or any
political subdivision thereof and that (y) represents and warrants to the
Corporation that payments of the Corporation to such assignee under
applicable law would not be subject to any Taxes and (z) from time to time,
as and when requested by the Corporation, executes and delivers to the
Corporation and the Internal Revenue Service forms, and provides the
Corporation with any information, necessary to establish such assignee's
continued exemption from Taxes under applicable law.
B. The Corporation shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as "Other
Taxes") which arise from any payment made under this Certificate of
Designation or the transactions contemplated hereby.
C. The Corporation shall indemnify each holder of Series C Preferred
Stock, or qualified assignee, for the full amount of Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Paragraph) paid by each holder of
Series C Preferred Stock, or qualified assignee, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Payment under this indemnification shall be made within 30 days from the date
such holder of Series C Preferred Stock or assignee makes written demand
therefor. A certificate as to the amount of such Taxes or Other Taxes
submitted to the Corporation by such holder of Series C Preferred Stock or
assignee shall be conclusive evidence of the amount due from the Corporation
to such party.
D. Within 30 days after the date of any payment of Taxes, the
Corporation will furnish to each holder of Series C Preferred Stock the
original or a certified copy of a receipt evidencing payment thereof.
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<PAGE>
VIII. VOTING RIGHTS
A. The holders of the Series C Preferred Stock have no voting power
whatsoever, except as otherwise provided by the General Corporation Law of
the State of California ("CGCL"), in this Article VIII, and in Article IX
below.
B. Notwithstanding the above, the Corporation shall provide each
holder of Series C Preferred Stock with prior notification of any meeting of
the shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of
its shareholders for the purpose of determining shareholders who are entitled
to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed Sale Event, or any proposed liquidation, dissolution or winding up
of the Corporation, the Corporation shall mail a notice to each holder, at
least five (5) days prior to the record date specified therein (or twenty
(20) Trading Days prior to the consummation of the transaction or event,
whichever is earlier), of the date on which any such record is to be taken
for the purpose of such dividend, distribution, right or other event, and a
brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
C. To the extent that under the CGCL the vote of the holders of the
Series C Preferred Stock, voting separately as a class or Series Cs
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the
shares of the Series C Preferred Stock represented at a duly held meeting at
which a quorum is present or by written consent of a majority of the shares
of Series C Preferred Stock (except as otherwise may be required under the
CGCL) shall constitute the approval of such action by the class. To the
extent that under the CGCL holders of the Series C Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series C Preferred Stock shall be entitled to a
number of votes equal to the number of shares of Common Stock into which it
is then convertible using the record date for the taking of such vote of
shareholders as the date as of which the Conversion Price is calculated.
holders of the Series C Preferred Stock shall be entitled to notice of all
shareholder meetings or written consents (and copies of proxy materials and
other information sent to shareholders) with respect to which they would be
entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the CGCL.
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<PAGE>
IX. PROTECTIVE PROVISIONS
So long as shares of Series C Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the CGCL) of the holders of at least 80% of
the then outstanding shares of Series C Preferred Stock:
A. alter or change the rights, preferences or privileges of the Series
C Preferred Stock or any Senior Securities so as to affect adversely the
Series C Preferred Stock:
B. create any new class or series of Senior Securities having a
preference over the Series C Preferred Stock as to distribution of assets
upon liquidation, dissolution or winding up of the Corporation;
C. create any new class or series of Pari Passu Securities ranking
pari passu with the Series C Preferred Stock as to distribution of assets
upon liquidation, dissolution or winding up of the Corporation;
D. increase the authorized number of shares of Series C Preferred
Stock; or
E. do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series C Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended).
In the event holders of at least 80% of the then outstanding shares of
Series C Preferred Stock agree to allow the Corporation to alter or change
the rights, preferences or privileges of the shares of Series C Preferred
Stock, pursuant to subsection A. above, so as to affect the Series C
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series C Preferred Stock that did not agree to
such alteration or change (the "Dissenting Holders") and Dissenting Holders
shall have the right for a period of ten (10) Trading Days to convert
pursuant to the terms of this Certificate of Designation as they exist prior
to such alteration or change or continue to hold their shares of Series C
Preferred Stock.
X. PRO RATA ALLOCATIONS
The Reserved Amount (including any increases thereto) shall be allocated
by the Corporation pro rata among the holders of Series C Preferred Stock
based on the number of shares of Series C Preferred Stock then held by each
holder relative to the total aggregate number of shares of Series C Preferred
Stock then outstanding.
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[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation this 31st day of December, 1997.
TOUCH TONE AMERICA, INC.
By: /s/ Kerry Rogers
---------------------------------------
Its: President and Chief Executive Officer
--------------------------------------
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER
IN ORDER TO CONVERT THE SERIES C PREFERRED STOCK)
The undersigned hereby irrevocably elects to convert _______ shares of
Series C Preferred Stock, represented by stock certificate No(s).
_________(the "Preferred Stock Certificates") into shares of common stock
("Common Stock") of Touch Tone America, Inc. (the "Corporation") according to
the conditions of the Certificate of Designation of Series C Preferred Stock,
as of the date written below. If securities are to be issued in the name of
a person other than the undersigned, the undersigned will pay all transfer
taxes payable with respect thereto and is delivering herewith such
certificates. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any.
Date of Conversion:
--------------------------------
Applicable Conversion Price:
-----------------------
Number of Shares of
Common Stock to be Issued:
-------------------------
Signature:
-----------------------------------------
Name:
----------------------------------------------
Address:
-------------------------------------------
<PAGE>
THIS CONVERTIBLE DEBENTURE HAS BEEN ISSUED PURSUANT TO REGULATION S
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY APPLICABLE
STATE SECURITIES LAWS. THIS CONVERTIBLE DEBENTURE MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OF A "U.S. PERSON" AS THAT
TERM IS DEFINED IN REGULATION S DURING THE PERIOD COMMENCING ON THE SALE OF
THIS CONVERTIBLE DEBENTURE AND ENDING ON THE 40TH DAY FOLLOWING THE DATE
THIS NOTE HAS BEEN ISSUED (THE "RESTRICTED PERIODIC).
$2,500,000 DATE OF ISSUANCE: December 31, 1997.
TOUCH TONE AMERICA, INC.
8% CONVERTIBLE DEBENTURE
TOUCH TONE AMERICA, INC., a California corporation (together with its
successors, the "Corporation"), for value received hereby promises to pay to:
INFINITY INVESTORS LIMITED
38 Hertford Street
London, England WIY 7TG
(Fax): 01 1-44-171-355-4975
(the "Holdee') and registered assigns, the principal sum of Two Million Five
Hundred Thousand Dollars ($2,500,000), or such lower amount then outstanding
as shown on ANNEX A hereto on December 31, 1999 (the "Maturity Date") and to
pay interest at such times and on such terms and conditions as specified
herein.
1. CERTAIN DEFINITIONS.
In addition to the defined terms included elsewhere herein, the
following terms as used herein shall have the following meanings:
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by
law to close.
"Closing Bid Price" shall mean for any security as of any date, the
lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the
principal securities exchange or trading market where such security is listed
or traded or, if the foregoing does not apply, the lowest closing bid price
of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no lowest trading
price is reported for such security by Bloomberg, then the average of the bid
prices of any market-makers for such securities as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the lowest closing bid
price cannot be calculated for such security on such date on any of the
foregoing bases, the lowest closing bid price of such security on such date
shall be the fair market value as mutually determined by the holders of this
Convertible Debenture and the Corporation for which the calculation of the
closing bid price requires, and in the absence of such mutual determination,
as determined by the Board of Directors of the Corporation in good faith.
<PAGE>
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material flmctions.
"Common Stock" means the common stock, no par value, of the Corporation.
"Majority Holders" means the holders of more than 50% in aggregate
principal amount of the substantially similar Convertible Debentures issued
contemporaneously with the issuance of this Convertible Debenture.
"OTC Market" means the electronic quotation medium known as the OTC
Bulletin Board by which members of the National Association of Securities
Dealers, Inc. enter, update and display quotations and other information
regarding eligible securities.
"Person" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
Corporation, government (or any agency or political subdivision thereon or
other entity of any kind.
"Securities Purchase Agreement" means that Securities Purchase Agreement
dated as of December 31, 1997 by and among the Corporation, Infinity
Investors Limited and Infinity Emerging Opportunities Limited.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person. Unless specified to the contrary,
"Subsidiary" means a Subsidiary of the Corporation.
"Trading Day " shall mean any business day in which at least 1,000
shares of Common Stock are traded on the OTC Market, or any business day in
which any other automated quotation system or exchange on which the Common
Stock is then traded is open for trading for at least four (4) hours, as
applicable.
"Transaction Agreements" has the meaning specified in the Securities
Purchase Agreement.
2. INTEREST AND PRINCIPAL.
2.1 INTEREST RATE AND CALCULATION.
(a) The Corporation promises to pay interest on the
outstanding principal amount of this Convertible Debenture at the rate of
Eight Percent (8%) per annum (the "Interest Rate") or, if less, the maximum
rate permitted by applicable law. Past due amounts (including interest, to
the extent permitted by law) will also accrue interest at the Interest Rate
plus three percent (3%) per annum or, if less, the maximum rate permitted by
applicable law, and will be payable on demand. Interest on this Convertible
Debenture will be calculated on the basis of a 360-day year of twelve 30 day
months. The Corporation will pay interest in cash quarterly in arrears, on
(i) the last day of March, June, September and December of each year (each,
an "Interest Payment Date") until the Maturity Date, commencing on the first
Interest Payment Date immediately subsequent to the date of issuance hereof
<PAGE>
(unless such day is not a Business Day, in which event, on the next
succeeding Business Day), (ii) the Maturity Date, (iii) each Conversion Date
(as hereafter defined), and (iv) the date the principal amount of this
Convertible Debenture shall be declared to be or shall automatically become
due and payable, on the principal sum hereof outstanding, from the most
recent Interest Payment Date to which interest has been paid on this
Convertible Debenture, or if no interest has been paid on this Convertible
Debenture, from the date of this Convertible Debenture, until payment in full
of the principal sum hereof has been made.
(b) For any period with RESPECT to which interest is not fully paid in
cash as described herein, such accrued but unpaid interest shall be added to
the principal balance of this Convertible Debenture effective at the
beginning of the period next succeeding the period as to which such interest
was not paid, and shall thereafter accrue additional interest at the interest
rate specified herein. Any interest payment made on this Convertible
Debenture shall be credited against the earliest accrued but unpaid interest
which has been added to the principal balance of this Convertible Debenture
and shall reduce the principal balance of such interest paid.
2.2 PAYMENT OF PRINCIPAL. The Corporation shall repay the remaining
unpaid balance on this, Convertible Debenture at the Repayment Price on the
Maturity Date. The Corporation shall be obligated to prepay all or a portion
of this Convertible Debenture on the terms specified herein. The Corporation
may, at its option, voluntarily prepay this Convertible Debenture at the
Repayment Price (as defined in Section 5.1) following twenty (20) Business
Days prior written notice to the Purchasers.
2.3 METHOD OF PAYMENT. The Corporation will pay in cash all sums
becoming due on this Convertible Debenture for principal, interest or
otherwise by wire transfer of immediately available funds to the Holder of
this Convertible Debenture in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts at the address specified for such purpose below the
Holder's name above, or by such other method or at such other address as such
Holder shall have from time to time specified to the Corporation in writing
for such purpose, without the presentation or surrender of this Convertible
Debenture.
2.4 EXCHANGE. This Convertible Debenture is one of the Debentures
specified in the Securities Purchase Agreement. This Convertible Debenture
shall be exchanged for Series B Preferred Stock of the Corporation upon the
occurrence of the Recapitalization Event specified in the Securities Purchase
Agreement.
3. REGISTRATION.
3.1 RECORD OWNERSHIP. The Corporation shall maintain a register of the
Holder of this Convertible Debenture (the "Register") showing its name and
address and the serial number and principal amount of Convertible Debenture.
issued to or transferred of record by it from time to time. The Register may
be maintained in electronic, magnetic or other computerized form. The
Corporation may treat the Person named as the Holder of this Convertible
Debenture in the Register as the sole owner of this Convertible Debenture.
The Holder of this Convertible Debenture (as properly noted in the Register)
is the Person exclusively entitled to receive payments on this Convertible
Debenture, receive notifications with respect to this Convertible Debenture,
convert it into Common Stock and otherwise exercise all of the rights and
powers as
<PAGE>
the absolute owner hereof.
3.2 REGISTRATION OF TRANSFER. Transfers of this Convertible Debenture
may BE registered on the Register. Transfers shall be registered when this
Convertible Debenture is presented to the Corporation with a request to
register the transfer hereof and the Convertible Debenture is accompanied by
a written instrument of transfer in form reasonably satisfactory to the
Corporation, duly executed by the Holder thereof or his attorney duly
authorized in writing, reasonable assurances are given that the endorsements
are genuine and effective, and the Corporation has received evidence
reasonably satisfactory to it that such transfer is rightful and in
compliance with this Convertible Debenture and all applicable laws, including
state and Federal securities laws. When this Convertible Debenture is
presented for transfer and duly transferred hereunder, it shall be canceled
and a new Convertible Debenture showing the name of the transferee as the
record holder thereof shall be issued in lieu hereof. When this Convertible
Debenture is presented to the Corporation with a reasonable request to
exchange it for an equal principal amount of Convertible Debentures of other
denominations, the Corporation shall make such exchange and shall cancel this
Convertible Debenture and issue in lieu thereof Convertible Debentures having
a total principal amount equal to the outstanding principal amount of this
Convertible Debenture in the denominations requested by the Holder.
3.3 WORN AND LOST SECURITIES. If this Convertible Debenture becomes
worn, defaced or mutilated but is still substantially intact and
recognizable, the Corporation or its agent may issue a new Convertible
Debenture in lieu hereof upon its surrender bearing a number not
contemporaneously outstanding. Where the Holder of this Convertible
Debenture claims that the Convertible Debenture has been lost, destroyed or
wrongfully taken, the Corporation shall issue a new Convertible Debenture in
place of the original Convertible Debenture bearing a number not
contemporaneously outstanding if the Holder so requests by written notice to
the Corporation actually received by the Corporation before it is notified
that the Convertible Debenture has been acquired by a bona fide purchaser and
the Holder has delivered to the Corporation an indemnity bond in such amount
and issued by such surety as the Corporation deems reasonably satisfactory
together with an affidavit of the Holder setting forth the facts concerning
such loss, destruction or wrongful taking and such other information in such
form with such proof or verification as the Corporation may reasonably
request.
4. CONVERSION AT THE OPTION OF THE HOLDER
4.1. CONVERSION AMOUNT All or any portion of this Convertible Debenture
shall be convertible, at the option of the holder thereof, at any time and
from time to time after February 16, 1998, into that certain number of fully
paid and nonassessable shares of Common Stock as is determined by dividing
(i) the outstanding principal balance of this Convertible Debenture
(including any interest added thereon in accordance with the provisions
hereof) by (ii) the effective Conversion Price (an "Optional Conversion").
Notwithstanding the foregoing, unless the holder delivers a waiver in
accordance with the immediately following sentence, in no event (other than
as provided below) shall a holder of this Convertible Debenture be entitled
to convert any portion of this Convertible Debenture in excess of that number
of shares upon conversion of which the sum of (x) the number of shares of
Common Stock beneficially owned by the holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned
<PAGE>
through the ownership of the unconverted portion of this Convertible
Debenture) and (y) the number of shares of Common Stock issuable upon the
conversion of this Convertible Debenture with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by a holder and such holder's affiliates of more than 4.9% of the
outstanding shares of Common Stock (the "Limitation on Conversion"). For
purposes of the proviso to the immediately preceding sentence, (i) beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder,
except as otherwise provided in clause (x) of such proviso and (ii) a holder
may waive the limitations set forth therein by written notice to the
Corporation upon not less than sixty-one (61) days prior written notice (with
such waiver taking effect only upon the expiration of such sixty-one (61) day
notice period). Upon delivery of written notice by the holder of this
Convertible Debenture to the Corporation, the Limitation on Conversion shall
not apply and shall be of no further force and effect following the
occurrence of any Event of Default.
4.2 CONVERSION PRICE.
(a) Subject to subparagraph (b) below, the "Conversion Price" shall be
$1.46; provided, on and following each Reset Date, the Conversion Price shall
be the lower of $1.46 and the then applicable Reset Price. The Reset Price
shall be calculated on the first day of each of the calendar months of March
through July, 1998 (each such date being a "Reset Date") as the Monthly WASP
(as herein defined) for the immediately preceding calendar month (each a
"Preceding Month"). The "Monthly WASP" means the daily-weighted average
sales price on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the daily-weighted average sales price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no daily-weighted average sales price is
reported for such security by Bloomberg, then the average of the bid prices
of any market makers for such security as reported in the "pink sheets" by
the National Quotation Bureau, Inc., in each case for all Trading Days during
each Previous Month. If the Monthly WASP cannot be calculated for such
security on such date on any of the foregoing bases, the Monthly WASP of such
security on such date shall be the fair market value as mutually determined
by the Corporation and the holders of a majority in interest of Convertible
Debentures being converted for which the calculation of the Monthly WASP is
required in order to determine the Conversion Price of such Convertible
Debentures.
(b) Notwithstanding anything contained in subparagraph (a) above to the
contrary, in the event the Corporation (i) makes a public announcement that
it intends to consummate a transfer of all or substantially all of the assets
of the Corporation to any Person in a single transaction or series of related
transactions, or (iii) a. consolidation or merger of the Corporation with or
into another Person (other than a merger (x) which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares
of Common Stock or in which the Corporation is the surviving entity, or (y)
which is effected solely to change the jurisdiction of incorporation of the
Corporation and results in a reclassification, conversion or exchange of
outstanding shares of Common Stock solely into shares of Common Stock) or
(iv) any person, group or entity (including the Corporation) publicly
announces a tender offer to purchase 50% or more of the Corporation's Common
Stock (the date of the announcement referred to in clause (i) or (ii) is
hereinafter referred to as the "Announcement Date"), then the Conversion
Price shall, effective upon the Announcement Date and continuing through the
Adjusted Conversion Price Termination Date (as hereinafter defined), be equal
to the lower of (x) the Conversion Price which would have been applicable for
an Optional Conversion occurring on the Announcement Date and (y) the Conversion
Price that would otherwise be in effect. From and after the Adjusted
Conversion Price
<PAGE>
Termination Date, the Conversion Price shall be determined as set forth
herein. For purposes hereof, "Adjusted Conversion Price Termination Date"
shall mean, with respect to any proposed transaction or tender offer for
which a public announcement as contemplated by this subparagraph (b) has been
made, the date upon which the Corporation (in the case of clause (i) above)
or the person, group or entity (in the case of clause (ii) above) publicly
announces the termination or abandonment of the proposed transaction or
tender offer which caused this subparagraph (b) to become operative.
4.3. CONVERSION METHOD.
(a) NOTICE OF CONVERSION. In order to convert all or a portion of this
Convertible Debenture into full shares of Common Stock, the holder hereof
shall submit a copy of the fully executed notice of conversion in the form
attached to the Securities Purchase Agreement ("Notice of Conversion") to the
Corporation by facsimile dispatched on the Conversion Date (or by other means
resulting in notice to the Corporation on the Conversion Date) at the office
of the Corporation or, at the option of such holder, the Corporation's
designated transfer agent for the Corporation, which notice shall specify (w)
the names and addresses of the Persons to whom certificates for shares of
Common Stock shall be issued, (x) the portion of the Convertible Debenture to
be converted, (y) the applicable Conversion Price and (z) a calculation of
the number of shares of Common Stock issuable upon such conversion (together
with a copy of the first page of each certificate to be converted) prior to
Midnight, New York City time (the "Conversion Notice Deadline') on the date
of conversion specified on the Notice of Conversion. In the case of a
dispute as to the calculation of the Conversion Price, the Corporation shall
promptly issue such number of shares of Common Stock that are not disputed in
accordance with subparagraph (b) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall
audit the calculations and notify the Corporation and the holder of this
Convertible Note to be converted of the results no later than 48 hours from
the time it receives the disputed calculations. The accountant's calculation
shall be deemed conclusive absent manifest error.
(b) DELIVERY OF COMMON STOCK UPON CONVERSION. The Corporation shall
issue and deliver, within five (5) Business Days after the delivery of a
Notice of Conversion (the "Delivery Period") (or cause its transfer agent to
so issue and deliver) to or upon the order of the holder that number of
shares of Common Stock for the portion of the Convertible Debenture converted
as shall be determined in accordance with Section 4.1 and 4.3(a) hereof. In
addition to any other remedies available to the holder, including actual
damages and/or equitable relief, the Corporation shall pay to a holder $1,000
per day in cash for each of the first five (5) Business Days following the
Delivery Period and $2,500 per day in cash for each day thereafter that the
Corporation fails to deliver Common Stock issuable with a Notice of
Conversion until such time as the Corporation has delivered all such Common
Stock. Such cash amount shall be paid to such holder by the last business
day of the week in which it has accrued or, at the option of the holder (by
written notice to the Corporation by the first day of the week following the
week in which it has accrued), shall be convertible into shares of Common
Stock in accordance with the terms hereof. The Corporation agrees that, in
addition to any other remedies which may be available to the holders,
including, but not limited to, the remedies set forth herein, in the event
the Corporation fails for any reason to effect delivery to a holder of
certificates as contemplated herein representing the
<PAGE>
shares of Common Stock on or prior to the Delivery Period, it will be
entitled, if prior to the delivery of such certificates, to revoke the Notice
of Conversion by delivering a notice to such effect to the Corporation
whereupon the Corporation and the holder shall each be restored to their
respective positions immediately prior to delivery of such Notice of
Conversion.
(c) FAST AUTOMATED SECURITIES TRANSFER. Provided the Corporation's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, in lieu of delivering
physical certificates representing the Common Stock issuable upon conversion,
upon request of the holder and its compliance with the provisions contained
herein, the Corporation shall use its best efforts to cause its transfer
agent to electronically transmit the Common Stock issuable upon conversion to
the holder by crediting the account of holder's Prime Broker with DTC through
its Deposit Withdrawal Agent Commission ("DWAC") system. The time periods
for delivery and penalties described in the immediately preceding paragraph
shall apply to the electronic transmittals described herein,
(d) ACCOUNTING MECHANISM. If the Corporation's transfer agent is not
participating in the DTC Fast program, notwithstanding anything to the
contrary set forth herein, upon conversion of all or a portion of this
Convertible Debenture in accordance with the terms hereof, the holder shall
not be required to physically surrender to the Corporation this Convertible
Debenture. Rather, records showing the principal amount converted (or
otherwise repaid) and the date of each such conversion or payment shall be
maintained on a ledger substantially in the form of ANNEX A attached hereto
(a copy of which shall be delivered to the Corporation or transfer agent with
each Notice of Conversion). It is specifically contemplated that the holder
hereof shall act as the calculation agent for conversions and repayments. In
the event of any dispute or discrepancy, the provisions of Section 4.3(a)
shall control. The holder and any assignee, by acceptance of this
Convertible Debenture, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of a portion of this
Convertible Debenture, the principal amount represented by this Convertible
Debenture will be the amount indicated on ANNEX A attached hereto (which may
be less than the amount stated on the face thereof). It is specifically
contemplated that the holder hereof shall act as calculation agent for
conversions and repayments.
(e) NO FRACTIONAL SHARES. If any conversion of all or a portion of
this Convertible Debenture would result in a fractional share of Common Stock
or the right to acquire a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares of Common Stock issuable
upon conversion of all or a portion of this Convertible Debenture shall be
the next higher number of shares.
(f) CONVERSION DATE. The "Conversion Date" shall be the date specified
in the Notice of Conversion, PROVIDED that the Notice of Conversion is
submitted by facsimile (or by other means resulting in notice) to the
Corporation or its transfer agent before the Conversion Notice Deadline. The
Person or Persons entitled to receive the shares of Common Stock issuable
upon conversion shall be treated for all purposes as the record holder or
holders of such securities as of the Conversion Date and all rights with
respect to this Convertible Debenture shall forthwith terminate except the
right to receive the shares of Common Stock or other securities or property
issuable on such conversion and except that the holders rights as a creditor
of the Corporation
<PAGE>
shall survive to the extent the Corporation fails to deliver such securities.
If the stock transfer books of the Corporation are closed on the Conversion
Date, the Conversion Date for purposes of deter-mining record ownership shall
be the next succeeding day on which the stock transfer books are open (and
the conversion shall be deemed to have been effected immediately prior to the
close of business on that day), but in all cases the conversion shall be at
the Conversion Price in effect on the Conversion Date specified in the Notice
of Conversion.
4.4 RESERVATION OF COMMON STOCK.
(a) A number of shares of the authorized but unissued Common Stock
sufficient to provide for the conversion of all Convertible Debentures
outstanding at the then current Conversion Price shall at all times be
reserved by the Corporation, free from preemptive rights, for such conversion
or exercise. As of the date of issuance of this Convertible Debenture,
6,000,000 authorized and unissued shares of Common Stock have been duly
reserved for issuance upon conversion of this Convertible Debenture (the
"Reserved Amount"). The Reserved Amount shall be increased, if necessary,
from time to time in accordance with the Corporation's obligations hereunder.
In addition, if the Corporation shall issue any securities or make any
change in its capital structure which would change the number of shares of
Common Stock into which this Convertible Debenture shall be convertible at
the then current Conversion Price, the Corporation shall at the same time
also make proper provision so that thereafter there shall be a sufficient
number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of this Convertible Debenture.
(b) If at any time a holder of shares of this Convertible Debenture
submits a Notice of Conversion, and the Corporation does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in accordance with the provisions set forth herein (a "Conversion
Default"), the Corporation shall issue to the holder (or holders, if more
than one holder submits a Notice of Conversion in respect of the same
Conversion Date, pro rata based on the ratio that the principal amount of
Convertible Debentures then held by each such holder bears to the aggregate
number of such shares held by such holders) all of the shares of Common Stock
which are available to effect such conversion. The principal amount of
Convertible Debentures included in the Notice of Conversion which exceeds the
amount which is then convertible into available shares of Common Stock (the
"Excess Amount") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the terms
hereof until (and at the holder's option at any time after) the date
additional shares of Common Stock are authorized by the Corporation to permit
such conversion, at which time the Conversion Price in respect thereof shall
be the lesser of (i) the Conversion Price on the Conversion Default Date (as
hereinafter defined) and (ii) the Conversion Price on the Conversion Date
elected by the holder in respect thereof. The Corporation shall use its best
efforts to effect an increase in the authorized number of shares of Common
Stock as soon as possible following a Conversion Default. In addition, the
Corporation shall pay to the holder of any Excess Amount payments
("Conversion Default Payments") for a Conversion Default in the amount of (i)
(N/365), multiplied by (ii) the principal balance of this Convertible
Debenture multiplied by (iii) the Excess Amount on the day the holder submits
a Notice of Conversion giving rise to a Conversion Default (the "Conversion
Default Date"), multiplied by (iv) .24, where (i) N = the number of days from
the Conversion Default Date to the date (the "Authorization
<PAGE>
Date") that the Corporation authorizes a sufficient number of shares of
Common Stock to effect conversion of the full number of this Convertible
Debenture. The Corporation shall send notice to the holder of the
authorization of additional shares of Common Stock, the Authorization Date
and the amount of holder's accrued Conversion Default Payments. The accrued
Conversion Default Payment for each calendar month shall be paid in cash or
shall be convertible into Common Stock at the Conversion Price, at the
holder's option, as follows:
(i) In the event the holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth day of the month following the
month in which it has accrued; and
(ii) In the event the holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock at the
Conversion Price (as, in effect at the time of Conversion) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms hereof (so long as there is then a sufficient
number of authorized shares).
(c) Nothing herein shall limit the holder's right to pursue actual
damages for the Corporation's failure to maintain a sufficient number of
authorized shares of Common Stock, and each holder shall have the right to
pursue all remedies available at law or in equity (including a decree of
specific performance and/or injunctive relief).
(d) The Reserved Amount (include any increases thereto) shall be
allocated by the Corporation pro rata among the holders of the Convertible
Debentures based upon the principal amount of the Convertible Debentures then
held by each holder relative to the aggregate principal amount of the
Convertible Debentures then outstanding.
5. EVENTS OF DEFAULT.
5.1 EVENTS OF DEFAULT. If one or more of the following events (each an
"Event of Default") shall have occurred and be continuing:
(a) failure by the Corporation to pay when due, all or any part of the
principal on this Convertible Debenture or any other Convertible Debentures
or related indebtedness then owed by the Corporation to such Holder,
provided, however, exercise by the Corporation of its option to not pay
interest on the Convertible Debentures prior to January 1, 1999 (whereby the
amount of unpaid interest shall be added to the principal balance of the
Convertible Debentures as specified herein) shall not constitute an Event of
Default;
(b) failure by the Corporation to pay (i) within five (5) Business Days
of the due date thereof any interest on this Convertible Debenture or any
other Convertible Debentures or related indebtedness then owed by the
Corporation to such Holder or (ii) within five (5) Business Days following
the delivery of notice to the Corporation of any fees or any other amount
payable (not otherwise referred to in (a) above or this clause (b)) by the
Corporation under this Convertible Debenture;
(c) any representation, warranty, certification or statement made by
the Corporation
<PAGE>
or Orix in any Transaction Agreement or which is contained in any
certificate, document or financial or other statement furnished at any time
under or in connection with any Transaction Agreement shall prove to have
been untrue in any material respect when made;
(d) failure by the Corporation to timely comply with the requirements
of Section 4.7(a) hereof, which failure is not cured within seven (7) days of
such failure;
(e) failure on the part of the Corporation or Orix to observe or
perform any covenant contained in any Transaction Document (other than those
covered by clauses (a) through (d) above), which failure is not cured within
thirty (30) days of such failure;
(f) any of the Company, Orix or the Orix stockholders shall fail to
perform, in any material respect, any of their respective obligations under,
or shall have breached any material item of, any Transaction Agreement
(provided that all cure periods as specified in such Transaction Agreements
shall have elapsed).
(g) the Corporation shall declare, pay or set aside for payment any
dividend or other distribution in respect of its capital stock, or call for
redemption, redeem, purchase or otherwise acquire for any consideration any
shares of its capital stock, any wan-ants, rights, calls or options
exercisable for any shares of capital stock;
(h) the trading in the Common Stock shall have been suspended by the
Securities and Exchange Commission (except for any suspension of trading of
limited duration not to exceed two (2) business days solely to permit
dissemination of material information regarding the Corporation);
(i) the Corporation shall have its Common Stock delisted from the OTC
Market (except if, at the time there is any delisting on the OTC Market, the
Common Stock has been listed and approved for trading on either the New York
Stock Exchange, the American Stock Exchange, the Nasdaq Stock Market's
National Market, or the Nasdaq Stock Market's SmallCap Market within 10 days
thereof);
(j) the Corporation or any Subsidiary (other than Get Net
International, Inc.) has commenced a voluntary case or other proceeding
seeking liquidation, winding-up, reorganization or other relief with respect
to itself or its debts under any bankruptcy, insolvency, moratorium or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, or has consented to any such relief or
to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or has made a
general assignment for the benefit of creditors, or has failed generally to
pay its debts as they become due, or has taken any corporate action to
authorize any of the foregoing;
(k) an involuntary case or other proceeding has been commenced against
the Corporation or any Subsidiary, seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency, moratorium or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or
<PAGE>
other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 days, or an order for relief has been entered
against the Corporation or any Subsidiary under the federal bankruptcy laws
as now or hereafter in effect;
(1) judgments or orders for the payment of money which in the aggregate
at any one time exceed $100,000 and are not covered by insurance have been
rendered against the Corporation or any Subsidiary by a court of competent
jurisdiction and such judgments or orders shall continue unsatisfied and
unstayed for a period of 60 days;
then, and in every such occurrence, the Holder may, by notice to the
Corporation, declare this Convertible Debenture to be, and the Convertible
Debenture shall thereon become immediately due and payable at the Repayment
Price (as hereafter defined); PROVIDED that in the case of any of the Events
of Default specified in paragraph 0) or (k) above with respect the
Corporation or any Subsidiary, then, without any notice to the Corporation or
any other act by Holder, the entire amount of the Convertible Debenture shall
become immediately due and payable at the Repayment Price; PROVIDED FURTHER,
if any Event of Default has occurred and is continuing, and irrespective of
whether this or any other Convertible Debenture has been declared immediately
due and payable hereunder, the Holder of this Convertible Debenture may
proceed to protect and enforce the rights of such Holder by an action at law,
suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein, or for an injunction against a
violation of any of the terms hereof, or in aid of the exercise of any power
granted hereby or by law or otherwise. The Repayment Price shall mean the
sum of (i) the principal amount of the Convertible Debentures outstanding
(including any interest added thereon in accordance with the provisions
hereof for the period beginning on the issuance of such Convertible
Debentures and ending on the date of payment of the Repayment Price) (the
"Mandatory Repayment Date") and (ii) if a positive number, the Premium
Amount, where Premium Amount means the difference, if a positive number,
between the product of (x) the number of shares of Common Stock issuable upon
conversion of such Convertible Debentures in accordance with the terms hereof
(treating the Trading Day immediately preceding the Mandatory Repayment Date
as the Conversion Date), multiplied by (y) the Closing Bid Price for the
Common Stock on such Conversion Date and (II) the principal amount of the
Convertible Debentures outstanding (the sum of such amounts being referred to
as the "Repayment Price").
5.2. POWERS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to Holder is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by this Convertible Debenture
or by law may be exercised from time to time, and as often as shall be deemed
expedient, by the Holder.
<PAGE>
6. ADDITIONAL AGREEMENTS.
6.1 ADJUSTMENTS. The Conversion Price shall be subject to adjustment
from time to time as follows:
(a) SHARE REORGANIZATION. If and whenever the Corporation shall:
(i) subdivide the outstanding shares of Common Stock into a greater
number of shares;
(ii) consolidate the outstanding shares of Common Stock into a smaller
number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock or
securities convertible into or exchangeable for Common Stock;
(any of such events being herein called a "Share Reorganization"), then in
each such case the Conversion Price shall be adjusted, effective immediately
after the record date at which the holders of Common Stock are determined for
the purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable
Conversion Price in effect on such record or effective date, as the case may
be, by a fraction of which:
(i) the numerator shall be the number of shares of Common Stock outstanding
on such record or effective date (without giving effect to the transaction);
and
(ii) the denominator shall be the number of shares of Common Stock
outstanding after giving effect to such Share Reorganization, including, in
the case of a distribution of securities convertible into or exchangeable for
shares of Common Stock, the number of shares of Common Stock that would have
been outstanding if such securities had been converted into or exchanged for
Common Stock on such record or effective date.
(b) RIGHTS OFFERING. If and whenever the Corporation shall issue to
all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than forty-five (45) days after the record date of such issue, to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable or exercisable for equity securities (collectively, the
"Derivative Securities")), at a price per share (or, in the case of
Derivative Securities, at an exchange or conversion price per share at the
date of issue of such securities) of less than 95% of the Market Price of the
Common Stock on such record date (any such event being herein called a
"Rights Offering"), then in each such case the Conversion Price shall be
adjusted, effective immediately after the record date at which holders
<PAGE>
of Common Stock are determined for the purposes of the Rights Offering, by
multiplying the Conversion Price in effect on such record date by a fraction
of which:
(i) the numerator shall be the sum of:
(A) the number of shares of Common Stock outstanding on such
record date; and
(B) a number obtained by dividing:
(I) either,
(x) the product of the total number of shares of
Common Stock so offered for subscription or purchase and the
price at which such shares are so offered, or
(y) the product of the maximum number of shares of
Common Stock into or for which the convertible or
exchangeable securities so offered for subscription or
purchase may be converted or exchanged and the conversion or
exchange price of such securities,
or, as the case may be, by
(II) the Market Price of the Common Stock on such record
date; and
(ii) the denominator shall be the sum of-
(A) the number of shares of Common Stock
outstanding on such record date; and
(B) the number of shares of Common Stock so
offered for subscription or purchase (or, in the case
of Derivative Securities), the maximum number of shares
of Common Stock for or into which the securities so
offered for subscription or purchase may be converted
or exchanged).
To the extent that such rights, options or warrants are not exercised prior
to the expiry time thereof, the Conversion Price shall be readjusted
effective immediately after such expiry time to the Conversion Price which
would then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants. For purposes of this Paragraph C, "Market Price" shall
mean the lowest closing bid price of the Common Stock as reported by
Bloomberg L.P. on the SmallCap Market or, if not reported by Bloomberg, L.P.
on the SmallCap Market, as reported by such other
<PAGE>
securities exchange or securities market where the Common Stock is then
traded, during the twenty (20) Trading Day period ending one (1) Trading Day
prior to the applicable date.
(c) SPECIAL DISTRIBUTION. If and whenever the Corporation shall issue
or distribute to all or substantially all the holders of Common Stock:
(i) shares of the Corporation of any class, other than Common Stock;
(ii) rights, options or wan-ants; or
(iii) any other assets (excluding cash dividends and equivalent
dividends in shares paid in lieu of cash dividends in the ordinary
course);
and if such issuance or distribution does not constitute a Share
Reorganization or a Rights Offering (any such event being herein called a
"Special Distribution"), then in each such case the Conversion Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the Conversion Price in effect on such record date by a fraction
of which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the Common
Stock on such date; and
(B) the fair market value, as determined by the Directors (whose
determination shall be conclusive), to the holders of Common Stock of
the shares, rights, options, warrants, evidences of indebtedness or
other assets issued or distributed in the Special Distribution (net of
any consideration paid therefor by the holders of Common Stock), and
(ii) the denominator shall be the product of the number of shares of
Common Stock outstanding on such record date and the Market Price of
the Common Stock on such date.
(d) CAPITAL REORGANIZATION. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of Common
Stock or any change of the shares of Common Stock. into other
shares, other than in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Corporation with,
or into another body corporate; or
(iii) the transfer of all or substantially all of the assets of
the Corporation to another body corporate;
<PAGE>
(any such event being herein called a "Capital Reorganization"), then in each
such case ' the holder who exercises the right to convert the shares of
Series B Preferred Stock after the effective date of such Capital
Reorganization shall be entitled to receive and shall accept, upon the
exercise of such right, in lieu of the number of shares of Common Stock to
which such holder was theretofore entitled upon the exercise of the
conversion privilege, the aggregate number of shares or other securities or
property of the Corporation or of the body corporate resulting from such
Capital Reorganization that such holder would have been entitled to receive
as a result of such Capital Reorganization if, on the effective date thereof,
such holders had been the holder of the number of shares of Common Stock to
which such holder was theretofore entitled upon conversion of this
Convertible Debenture; PROVIDED, HOWEVER, that no such Capital Reorganization
shall be consummated in effect unless all necessary steps shall have been
taken so that such holders of this Convertible Debenture shall thereafter be
entitled to receive such number of shares or other securities of the
Corporation or of the body corporate resulting from such Capital
Reorganization, subject to adjustment thereafter in accordance with
provisions the same, as nearly as may be possible, as those contained above.
(e) ADJUSTMENT RULES. The following rules and procedures shall be
applicable to adjustments made pursuant to the provisions contained herein:
(i) no adjustment in the Conversion Price shall be required unless
such adjustment would result in a change of at least 1% in the
Conversion Price then in effect; PROVIDED, HOWEVER, that any
adjustments which, but for the provisions of this clause would
otherwise have been required to be made, shall be carried forward and
taken into account in any subsequent adjustment;
(ii) no adjustment in the Conversion Price shall be made pursuant to
the provisions contained herein in respect of the issue from time to
time of Common Stock to holders of Common Stock who exercise an option
to receive substantially equivalent dividends in Common Stock in lieu
of receiving cash dividends in the ordinary course; and
(iii) if a dispute shall at any time arise with respect to any
adjustment of the Conversion Price, such dispute shall be conclusively
determined by the auditors of the Corporation or, if they are unable
or unwilling to act, by a firm of independent chartered accountants
selected by the Directors of the Corporation and any such
determination shall be binding upon the Corporation and the holders of
this Convertible Debenture.
(f) CERTIFICATE AS TO ADJUSTMENT. The Corporation shall from time to
time promptly after the occurrence of any event which requires an adjustment
in the Conversion Price deliver to the Purchasers a certificate specifying
the nature of the event requiring the adjustment, the amount of the
adjustment necessitated thereby, the Conversion Price after giving effect to
such adjustment and setting forth, in reasonable detail, the method of
calculation and the facts upon which such calculation is based.
(g) NOTICE TO HOLDERS. If the Corporation shall fix a record date for:
<PAGE>
(i) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of
shares),
(ii) any Rights Offering,
(iii) any Special Distribution,
(iv) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares), or
(v) any cash dividend,
the Corporation shall, not less than 10 days prior to such record date or, if
no record date is fixed, prior to the effective date of such event, give to
the Purchasers notice of the particulars of the proposed event or the extent
that such particulars have been determined at the time of giving the notice.
6.2 PAYMENT OF ADDITIONAL AMOUNTS.
A. Any and all payments by the Corporation hereunder to any holder of
Convertible Debentures and each "qualified assignee" thereof shall be made
free and clear of and without deduction or withholding for any and all
present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto (all such taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes") unless such Taxes are required by law or
the administration thereof to be deducted or withheld. If the Corporation
shall be required by law or the administration thereof to deduct or withhold
any Taxes from or in respect of any sum payable with respect to the
Convertible Debentures (i) the sum payable shall be increased as may be
necessary so that after making all required deductions or withholdings
(including deductions or withholdings applicable to additional amounts paid
under this Paragraph) such holder of Convertible Debentures receives an
amount equal to the sum it would have received if no such deduction or
withholding had been made; (ii) the Corporation shall make such deductions or
withholdings; and (iii) the Corporation shall forthwith pay the full amount
deducted or withheld to the relevant taxation or other authority in
accordance with applicable law. A "qualified assignee" of a holder of
Convertible Debentures is a person that is organized under the laws of (1)
the United States or (II) any jurisdiction other than the United States or
any political subdivision thereof and that (y). represents and warrants to
the Corporation that payments of the Corporation to such assignee under
applicable law would not be subject to any Taxes and (z) from time to time,
as and when requested by the Corporation, executes and delivers to the
Corporation and the Internal Revenue Service forms, and provides the
Corporation with any information, necessary to establish such assignee's
continued exemption from Taxes under applicable law.
B. The Corporation shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such
<PAGE>
taxes, charges and levies hereinafter referred to as "Other Taxes") which
arise from any payment made under this Convertible Debentures or the
transactions contemplated hereby.
C. The Corporation shall indemnify each holder of Convertible Debentures,
or qualified assignee, for the full amount of Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Paragraph) paid by each holder of
this Convertible Debenture, or qualified assignee, and any liability
(including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Payment under this indemnification shall be made within 30
days from the date such holder of Convertible Debentures or assignee makes
written demand therefor. A certificate as to the amount of such Taxes or
Other Taxes submitted to the Corporation by such holder of Convertible
Debentures or assignee shall be conclusive evidence of the amount due from
the Corporation to such party.
D. Within 30 days after the date of any payment of Taxes, the
Corporation will furnish to each holder of Convertible Debentures the
original or a certified copy of a receipt evidencing payment thereof.
6.3 MODIFICATION OF CONVERTIBLE DEBENTURE. This Convertible Debenture
may be modified without prior notice to the Holder but with the written
consent of the Majority Holders and the Corporation. However, without the
consent of each Holder affected, an amendment, supplement or waiver may not
(1) reduce the principal amount of Convertible Debentures whose Holders must
consent to an amendment, supplement or waiver, (2) reduce the rate or extend
the time for payment of interest on the Convertible Debenture, (3) reduce the
principal amount of or extend the fixed maturity of the Convertible Debenture
or alter the conversion provisions with respect thereto or (4) make the
Convertible Debenture payable in money or property other than as stated in
the Convertible Debenture.
6.4 NOTICES. Any notice or communication to the Corporation shall be
duly given if in writing and delivered in the manner and at the addresses
specified in the Securities purchase Agreement.
6.5 SUCCESSORS. All agreements of the Corporation in this Convertible
Debenture shall bind its successors.
6.6 SEVERABILITY. In case any provision in this Convertible Debenture
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby, and a Holder shall have no claim therefor against any
party hereto.
6.7 MISCELLANEOUS. This Convertible Debenture shall be deemed to be a
contract made under the laws of the State of Nevada and for all purposes
shall be governed by and construed in accordance with the laws of said State.
The parties hereto, including all guarantors or endorsers, hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Convertible
<PAGE>
Debenture, except as specifically provided herein, and assent to extensions
of the time of payment, or forbearance or other indulgence without notice.
The Corporation hereby submits to the exclusive jurisdiction of the United
States District Court for Clark County and of any Nevada state court sitting
in Nevada for purposes of all legal proceedings arising out of or relating to
this Convertible Debenture. The Corporation irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a
court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum. The Corporation hereby irrevocably waives
any and all right to trial by jury in any legal proceeding arising out of or
relating to this Convertible Debenture.
The holder of this Convertible Debenture by acceptance of this
Convertible Debenture agrees to be bound by the provisions of this
Convertible Debenture which are expressly binding on such holder.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly
executed.
Dated: December 31, 1997
TOUCH TONE AMERICA, INC.
By: /s/ Kerry Rogers
Name: Kerry Rogers
Title: President and Chief Executive Officer
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly
executed.
Dated: December 31, 1997
TOUCH TONE AMERICA, INC.
By:
Name:
Title:
<PAGE>
ANNEX A
CONVERSION AND REPAYMENT LEDGER
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
INTEREST PRINCIPAL NEW
DATE PRINCIPAL CONVERTED CONVERTED PRINCIPAL ISSUERS HOLDERS
BALANCE OR PAID OR PAID BALANCE INITIALS INITIALS
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly
executed.
Dated: December 31, 1997
TOUCH TONE AMERICA, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
<PAGE>
Exhibit 4.2
Document 8
THIS CONVERTIBLE DEBENTURE HAS BEEN ISSUED PURSUANT TO REGULATION S
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY APPLICABLE
STATE SECURITIES LAWS. THIS CONVERTIBLE DEBENTURE MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OF A "U.S. PERSON" AS THAT
TERM IS DEFINED IN REGULATION S DURING THE PERIOD COMMENCING ON THE SALE OF
THIS CONVERTIBLE DEBENTURE AND ENDING ON THE 40TH DAY FOLLOWING THE DATE THIS
NOTE HAS BEEN ISSUED (THE "RESTRICTED PERIOD").
$11,000,000
DATE OF ISSUANCE: _______________, 199__.
TOUCH TONE AMERICA, INC.
8% CONVERTIBLE DEBENTURE
TOUCH TONE AMERICA, INC., a California corporation (together with its
successors, the "Corporation"), for value received hereby promises to pay to:
INFINITY INVESTORS LIMITED
38 Hertford Street
London, England WIY 7TG
(Fax): 011-44-171-355-4975
(the "Holder") and registered assigns, the principal sum of Eleven Million
Dollars ($11,000,000), or such lower amount then outstanding as shown on
ANNEX A hereto on December 31, 1999 (the "Maturity Date") and to pay interest
at such times and on such terms and conditions as specified herein.
1. CERTAIN DEFINITIONS.
In addition to the defined terms included elsewhere herein, the
following terms as used herein shall have the following meanings:
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by
law to close.
"Closing Bid Price" shall mean for any security as of any date, the
lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the
principal securities exchange or trading market where such security is listed
or traded or, if the foregoing does not apply, the
- -------------------------------------------------------------------------------
CONVERTIBLE NOTE - Page 1
<PAGE>
lowest closing bid price of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or,
if no lowest trading price is reported for such security by Bloomberg, then
the average of the bid prices of any market-makers for such securities as
reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
lowest closing bid price cannot be calculated for such security on such date
on any of the foregoing bases, the lowest closing bid price of such security
on such date shall be the fair market value as mutually determined by the
holders of this Convertible Debenture and the Corporation for which the
calculation of the closing bid price requires, and in the absence of such
mutual determination, as determined by the Board of Directors of the
Corporation in good faith.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the common stock, no par value, of the Corporation.
"Majority Holders" means the holders of more than 50% in aggregate
principal amount of the substantially similar Convertible Debentures issued
contemporaneously with the issuance of this Convertible Debenture.
"Option Agreement" means that Option Agreement dated as of December 31,
1997 by and among the Corporation and Infinity Investors Limited.
"OTC Market" means the electronic quotation medium known as the OTC
Bulletin Board-Registered Trademark- by which members of the National
Association of Securities Dealers, Inc. enter, update and display quotations
and other information regarding eligible securities.
"Person" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
Corporation, government (or any agency or political subdivision thereof) or
other entity of any kind.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person. Unless specified to the contrary,
"Subsidiary" means a Subsidiary of the Corporation.
"Trading Day" shall mean any business day in which at least 1,000 shares
of Common Stock are traded on the OTC Market, or any business day in which
any other automated quotation system or exchange on which the Common Stock is
then traded is open for trading for at least four (4) hours, as applicable.
"Transaction Agreements" has the meaning specified in the Option
Agreement.
Page 2
<PAGE>
2. INTEREST AND PRINCIPAL.
2.1 INTEREST RATE AND CALCULATION.
(a) The Corporation promises to pay interest on the
outstanding principal amount of this Convertible Debenture at the rate of
Eight Percent (8%) per annum (the "Interest Rate") or, if less, the maximum
rate permitted by applicable law. Past due amounts (including interest, to
the extent permitted by law) will also accrue interest at the Interest Rate
plus three percent (3%) per annum or, if less, the maximum rate permitted by
applicable law, and will be payable on demand. Interest on this Convertible
Debenture will be calculated on the basis of a 360-day year of twelve 30 day
months. The Corporation will pay interest in cash quarterly in arrears, on
(i) the last day of March, June, September and December of each year (each,
an "Interest Payment Date") until the Maturity Date, commencing on the first
Interest Payment Date immediately subsequent to the date of issuance hereof
(unless such day is not a Business Day, in which event, on the next
succeeding Business Day), (ii) the Maturity Date, (iii) each Conversion Date
(as hereafter defined), and (iv) the date the principal amount of this
Convertible Debenture shall be declared to be or shall automatically become
due and payable, on the principal sum hereof outstanding, from the most
recent Interest Payment Date to which interest has been paid on this
Convertible Debenture, or if no interest has been paid on this Convertible
Debenture, from the date of this Convertible Debenture, until payment in full
of the principal sum hereof has been made.
(b) For any period with respect to which interest is not
fully paid in cash as described herein, such accrued but unpaid interest
shall be added to the principal balance of this Convertible Debenture
effective at the beginning of the period next succeeding the period as to
which such interest was not paid, and shall thereafter accrue additional
interest at the interest rate specified herein. Any interest payment made on
this Convertible Debenture shall be credited against the earliest accrued but
unpaid interest which has been added to the principal balance of this
Convertible Debenture and shall reduce the principal balance of such interest
paid.
2.2 PAYMENT OF PRINCIPAL. The Corporation shall repay the
remaining unpaid balance on this Convertible Debenture at the Prepayment
Price on the Maturity Date. The Corporation shall be obligated to prepay all
or a portion of this Convertible Debenture on the terms specified herein. The
Corporation may, at its option, voluntarily prepay this Convertible Debenture
at the Repayment Price (as defined in Section 5.1) following twenty (20)
Business Days prior written notice to the Purchasers.
2.3 METHOD OF PAYMENT. The Corporation will pay in cash all sums
becoming due on this Convertible Debenture for principal, interest or
otherwise by wire transfer of immediately available funds to the Holder of
this Convertible Debenture in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts at the address specified for such purpose below the
Holder's name above, or by such other method or at such other address as such
Holder shall have from
Page 3
<PAGE>
time to time specified to the Corporation in writing for such purpose,
without the presentation or surrender of this Convertible Debenture.
2.4 EXCHANGE. This Convertible Debenture is one of the Debentures
specified in the Securities Purchase Agreement. This Convertible Debenture
shall be exchanged for Series C Preferred Stock of the Corporation upon the
occurrence of the Recapitalization Event specified in the Securities Purchase
Agreement.
3. REGISTRATION.
3.1 RECORD OWNERSHIP. The Corporation shall maintain a register of
the Holder of this Convertible Debenture (the "Register") showing its name
and address and the serial number and principal amount of Convertible
Debenture issued to or transferred of record by it from time to time. The
Register may be maintained in electronic, magnetic or other computerized
form. The Corporation may treat the Person named as the Holder of this
Convertible Debenture in the Register as the sole owner of this Convertible
Debenture. The Holder of this Convertible Debenture (as properly noted in the
Register) is the Person exclusively entitled to receive payments on this
Convertible Debenture, receive notifications with respect to this Convertible
Debenture, convert it into Common Stock and otherwise exercise all of the
rights and powers as the absolute owner hereof.
3.2 REGISTRATION OF TRANSFER. Transfers of this Convertible
Debenture may be registered on the Register. Transfers shall be registered
when this Convertible Debenture is presented to the Corporation with a
request to register the transfer hereof and the Convertible Debenture is
accompanied by a written instrument of transfer in form reasonably
satisfactory to the Corporation, duly executed by the Holder thereof or his
attorney duly authorized in writing, reasonable assurances are given that the
endorsements are genuine and effective, and the Corporation has received
evidence reasonably satisfactory to it that such transfer is rightful and in
compliance with this Convertible Debenture and all applicable laws, including
state and Federal securities laws. When this Convertible Debenture is
presented for transfer and duly transferred hereunder, it shall be canceled
and a new Convertible Debenture showing the name of the transferee as the
record holder thereof shall be issued in lieu hereof. When this Convertible
Debenture is presented to the Corporation with a reasonable request to
exchange it for an equal principal amount of Convertible Debentures of other
denominations, the Corporation shall make such exchange and shall cancel this
Convertible Debenture and issue in lieu thereof Convertible Debentures having
a total principal amount equal to the outstanding principal amount of this
Convertible Debenture in the denominations requested by the Holder.
3.3 WORN AND LOST SECURITIES. If this Convertible Debenture becomes
worn, defaced or mutilated but is still substantially intact and recognizable,
the Corporation or its agent may issue a new Convertible Debenture in lieu
hereof upon its surrender bearing a number not contemporaneously outstanding.
Where the Holder of this Convertible Debenture claims that the Convertible
Debenture has been lost, destroyed or wrongfully taken, the Corporation shall
issue a
Page 4
<PAGE>
new Convertible Debenture in place of the original Convertible Debenture
bearing a number not contemporaneously outstanding if the Holder so requests
by written notice to the Corporation actually received by the Corporation
before it is notified that the Convertible Debenture has been acquired by a
bona fide purchaser and the Holder has delivered to the Corporation an
indemnity bond in such amount and issued by such surety as the Corporation
deems reasonably satisfactory together with an affidavit of the Holder
setting forth the facts concerning such loss, destruction or wrongful taking
and such other information in such form with such proof or verification as
the Corporation may reasonably request.
4. CONVERSION AT THE OPTION OF THE HOLDER
4.1. CONVERSION AMOUNT. All or any portion of this Convertible
Debenture shall be convertible, at the option of the holder thereof, at
any time and from time to time commencing on the forty-first (41st) day
following the date of issuance of the applicable portion of the principal
balance of this Convertible Debenture, into that certain number of fully
paid and nonassessable shares of Common Stock as is determined by dividing
(i) the outstanding principal balance of this Convertible Debenture
(including any interest added thereon in accordance with the provisions
hereof) by (ii) the effective Conversion Price (an "Optional Conversion").
Notwithstanding the foregoing, unless the holder delivers a waiver in
accordance with the immediately following sentence, in no event (other
than as provided below) shall a holder of this Convertible Debenture be
entitled to convert any portion of this Convertible Debenture in excess of
that number of shares upon conversion of which the sum of (x) the number
of shares of Common Stock beneficially owned by the holder and its
affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of
this Convertible Debenture) and (y) the number of shares of Common Stock
issuable upon the conversion of this Convertible Debenture with respect to
which the determination of this proviso is being made, would result in
beneficial ownership by a holder and such holder's affiliates of more than
4.9% of the outstanding shares of Common Stock (the "Limitation on
Conversion"). For purposes of the proviso to the immediately preceding
sentence, (i) beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13D-G thereunder, except as otherwise provided in clause (x) of
such proviso and (ii) a holder may waive the limitations set forth therein
by written notice to the Corporation upon not less than sixty-one (61)
days prior written notice (with such waiver taking effect only upon the
expiration of such sixty-one (61) day notice period). Upon delivery of
written notice by the holder of this Convertible Debenture to the
Corporation, the Limitation on Conversion shall not apply and shall be of
no further force and effect following the occurrence of any Event of
Default.
4.2 CONVERSION PRICE.
(a) Subject to subparagraph (b) below, the "Conversion Price"
shall be $2.92; provided, on and following each Reset Date, the Conversion
Price shall be the lower of
Page 5
<PAGE>
$2.92 and two (2) times the then applicable Reset Price. The Reset Price
shall be calculated on the first day of each of the calendar months of March
through July, 1998 (each such date being a "Reset Date") as the Monthly WASP
(as herein defined) for the immediately preceding calendar month (each a
"Preceding Month"). The "Monthly WASP" means the daily-weighted average
sales price on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the daily-weighted average sales price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no daily-weighted average sales price is
reported for such security by Bloomberg, then the average of the bid prices
of any market makers for such security as reported in the "pink sheets" by
the National Quotation Bureau, Inc., in each case for all Trading Days during
each Previous Month. If the Monthly WASP cannot be calculated for such
security on such date on any of the foregoing bases, the Monthly WASP of such
security on such date shall be the fair market value as mutually determined
by the Corporation and the holders of a majority in interest of Convertible
Debentures being converted for which the calculation of the Monthly WASP is
required in order to determine the Conversion Price of such Convertible
Debentures.
(b) Notwithstanding anything contained in subparagraph (a)
above to the contrary, in the event the Corporation (i) makes a public
announcement that it intends to consummate a transfer of all or substantially
all of the assets of the Corporation to any Person in a single transaction or
series of related transactions, or (iii) a consolidation or merger of the
Corporation with or into another Person (other than a merger (x) which does
not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock or in which the Corporation is the
surviving entity, or (y) which is effected solely to change the jurisdiction
of incorporation of the Corporation and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock solely into
shares of Common Stock) or (iv) any person, group or entity (including the
Corporation) publicly announces a tender offer to purchase 50% or more of the
Corporation's Common Stock (the date of the announcement referred to in
clause (i) or (ii) is hereinafter referred to as the "Announcement Date"),
then the Conversion Price shall, effective upon the Announcement Date and
continuing through the Adjusted Conversion Price Termination Date (as
hereinafter defined), be equal to the lower of (x) the Conversion Price which
would have been applicable for an Optional Conversion occurring on the
Announcement Date and (y) the Conversion Price that would otherwise be in
effect. From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth herein. For purposes
hereof, "Adjusted Conversion Price Termination Date" shall mean, with respect
to any proposed transaction or tender offer for which a public announcement
as contemplated by this subparagraph (b) has been made, the date upon which
the Corporation (in the case of clause (i) above) or the person, group or
entity (in the case of clause (ii) above) publicly announces the termination
or abandonment of the proposed transaction or tender offer which caused this
subparagraph (b) to become operative.
Page 6
<PAGE>
4.3. CONVERSION METHOD.
(a) NOTICE OF CONVERSION. In order to convert all or a portion
of this Convertible Debenture into full shares of Common Stock, the holder
hereof shall submit a copy of the fully executed notice of conversion in the
form attached to the Securities Purchase Agreement ("Notice of Conversion") to
the Corporation by facsimile dispatched on the Conversion Date (or by other
means resulting in notice to the Corporation on the Conversion Date) at the
office of the Corporation or, at the option of such holder, the Corporation's
designated transfer agent for the Corporation, which notice shall specify (w)
the names and addresses of the Persons to whom certificates for shares of
Common Stock shall be issued, (x) the portion of the Convertible Debenture to
be converted, (y) the applicable Conversion Price and (z) a calculation of the
number of shares of Common Stock issuable upon such conversion (together with a
copy of the first page of each certificate to be converted) prior to Midnight,
New York City time (the "Conversion Notice Deadline") on the date of conversion
specified on the Notice of Conversion. In the case of a dispute as to the
calculation of the Conversion Price, the Corporation shall promptly issue such
number of shares of Common Stock that are not disputed in accordance with
subparagraph (b) below. The Corporation shall submit the disputed calculations
to its outside accountant via facsimile within two (2) business days of receipt
of the Notice of Conversion. The accountant shall audit the calculations and
notify the Corporation and the holder of this Convertible Note to be converted
of the results no later than 48 hours from the time it receives the disputed
calculations. The accountant's calculation shall be deemed conclusive absent
manifest error.
(b) DELIVERY OF COMMON STOCK UPON CONVERSION. The Corporation
shall issue and deliver, within five (5) Business Days after the delivery of a
Notice of Conversion (the "Delivery Period") (or cause its transfer agent to so
issue and deliver) to or upon the order of the holder that number of shares of
Common Stock for the portion of the Convertible Debenture converted as shall be
determined in accordance with Section 4.1 and 4.3(a) hereof. In addition to
any other remedies available to the holder, including actual damages and/or
equitable relief, the Corporation shall pay to a holder $1,000 per day in cash
for each of the first five (5) Business Days following the Delivery Period and
$2,500 per day in cash for each day thereafter that the Corporation fails to
deliver Common Stock issuable with a Notice of Conversion until such time as
the Corporation has delivered all such Common Stock. Such cash amount shall be
paid to such holder by the last business day of the week in which it has
accrued or, at the option of the holder (by written notice to the Corporation
by the first day of the week following the week in which it has accrued), shall
be convertible into shares of Common Stock in accordance with the terms hereof.
The Corporation agrees that, in addition to any other remedies which may be
available to the holders, including, but not limited to, the remedies set forth
herein, in the event the Corporation fails for any reason to effect delivery to
a holder of certificates as contemplated herein representing the shares of
Common Stock on or prior to the Delivery Period, it will be entitled, if prior
to the delivery of such certificates, to revoke the Notice of Conversion by
delivering a notice to such effect to the Corporation whereupon the Corporation
and the holder shall each be restored to their respective positions immediately
prior to delivery of such Notice of Conversion.
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(c) FAST AUTOMATED SECURITIES TRANSFER. Provided the
Corporation's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, in lieu of
delivering physical certificates representing the Common Stock issuable upon
conversion, upon request of the holder and its compliance with the provisions
contained herein, the Corporation shall use its best efforts to cause its
transfer agent to electronically transmit the Common Stock issuable upon
conversion to the holder by crediting the account of holder's Prime Broker with
DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. The time
periods for delivery and penalties described in the immediately preceding
paragraph shall apply to the electronic transmittals described herein.
(d) ACCOUNTING MECHANISM. If the Corporation's transfer agent
is not participating in the DTC Fast program, notwithstanding anything to the
contrary set forth herein, upon conversion of all or a portion of this
Convertible Debenture in accordance with the terms hereof, the holder shall not
be required to physically surrender to the Corporation this Convertible
Debenture. Rather, records showing the principal amount converted (or
otherwise repaid) and the date of each such conversion or payment shall be
maintained on a ledger substantially in the form of ANNEX A attached hereto (a
copy of which shall be delivered to the Corporation or transfer agent with each
Notice of Conversion). It is specifically contemplated that the holder hereof
shall act as the calculation agent for conversions and repayments. In the
event of any dispute or discrepancy, the provisions of Section 4.3(a) shall
control. The holder and any assignee, by acceptance of this Convertible
Debenture, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Convertible Debenture, the
principal amount represented by this Convertible Debenture will be the amount
indicated on ANNEX A attached hereto (which may be less than the amount stated
on the face thereof). It is specifically contemplated that the holder hereof
shall act as calculation agent for conversions and repayments.
(e) NO FRACTIONAL SHARES. If any conversion of all or a
portion of this Convertible Debenture would result in a fractional share of
Common Stock or the right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon conversion of all or a portion of this Convertible Debenture
shall be the next higher number of shares.
(f) CONVERSION DATE. The "Conversion Date" shall be the date
specified in the Notice of Conversion, PROVIDED that the Notice of Conversion
is submitted by facsimile (or by other means resulting in notice) to the
Corporation or its transfer agent before the Conversion Notice Deadline. The
Person or Persons entitled to receive the shares of Common Stock issuable
upon conversion shall be treated for all purposes as the record holder or
holders of such securities as of the Conversion Date and all rights with
respect to this Convertible Debenture shall forthwith terminate except the
right to receive the shares of Common Stock or other securities or property
issuable on such conversion and except that the holders rights as a creditor
of the Corporation shall survive to the extent the Corporation fails to
deliver such securities. If the stock transfer books of the Corporation are
closed on the
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Conversion Date, the Conversion Date for purposes of determining record
ownership shall be the next succeeding day on which the stock transfer books
are open (and the conversion shall be deemed to have been effected
immediately prior to the close of business on that day), but in all cases the
conversion shall be at the Conversion Price in effect on the Conversion Date
specified in the Notice of Conversion.
4.4 RESERVATION OF COMMON STOCK.
(a) A number of shares of the authorized but unissued Common
Stock sufficient to provide for the conversion of all Convertible Debentures
outstanding at the then current Conversion Price shall at all times be reserved
by the Corporation, free from preemptive rights, for such conversion or
exercise. As of the date of issuance of this Convertible Debenture, 14,000,000
authorized and unissued shares of Common Stock have been duly reserved for
issuance upon conversion of this Convertible Debenture (the "Reserved Amount").
The Reserved Amount shall be increased, if necessary, from time to time in
accordance with the Corporation's obligations hereunder. In addition, if the
Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
this Convertible Debenture shall be convertible at the then current Conversion
Price, the Corporation shall at the same time also make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of this
Convertible Debenture.
(b) If at any time a holder of shares of this Convertible
Debenture submits a Notice of Conversion, and the Corporation does not have
sufficient authorized but unissued shares of Common Stock available to effect
such conversion in accordance with the provisions set forth herein (a
"Conversion Default"), the Corporation shall issue to the holder (or holders,
if more than one holder submits a Notice of Conversion in respect of the same
Conversion Date, pro rata based on the ratio that the principal amount of
Convertible Debentures then held by each such holder bears to the aggregate
number of such shares held by such holders) all of the shares of Common Stock
which are available to effect such conversion. The principal amount of
Convertible Debentures included in the Notice of Conversion which exceeds the
amount which is then convertible into available shares of Common Stock (the
"Excess Amount") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the terms
hereof until (and at the holder's option at any time after) the date additional
shares of Common Stock are authorized by the Corporation to permit such
conversion, at which time the Conversion Price in respect thereof shall be the
lesser of (i) the Conversion Price on the Conversion Default Date (as
hereinafter defined) and (ii) the Conversion Price on the Conversion Date
elected by the holder in respect thereof. The Corporation shall use its best
efforts to effect an increase in the authorized number of shares of Common
Stock as soon as possible following a Conversion Default. In addition, the
Corporation shall pay to the holder of any Excess Amount payments ("Conversion
Default Payments") for a Conversion Default in the amount of (i) (N/365),
multiplied by (ii) the principal balance of this Convertible Debenture
multiplied by (iii) the Excess Amount on the day the holder submits a Notice of
Conversion giving rise to a Conversion Default (the "Conversion Default Date"),
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multiplied by (iv) .24, where (i) N = the number of days from the Conversion
Default Date to the date (the "Authorization Date") that the Corporation
authorizes a sufficient number of shares of Common Stock to effect conversion
of the full number of this Convertible Debenture. The Corporation shall send
notice to the holder of the authorization of additional shares of Common Stock,
the Authorization Date and the amount of holder's accrued Conversion Default
Payments. The accrued Conversion Default Payment for each calendar month shall
be paid in cash or shall be convertible into Common Stock at the Conversion
Price, at the holder's option, as follows:
(i) In the event the holder elects to take such payment in
cash, cash payment shall be made to holder by the fifth day of the month
following the month in which it has accrued; and
(ii) In the event the holder elects to take such payment in
Common Stock, the holder may convert such payment amount into Common Stock at
the Conversion Price (as in effect at the time of Conversion) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms hereof (so long as there is then a sufficient number
of authorized shares).
(c) Nothing herein shall limit the holder's right to pursue
actual damages for the Corporation's failure to maintain a sufficient number of
authorized shares of Common Stock, and each holder shall have the right to
pursue all remedies available at law or in equity (including a decree of
specific performance and/or injunctive relief).
(d) The Reserved Amount (including any increases thereto) shall
be allocated by the Corporation pro rata among the holders of the Convertible
Debentures based upon the principal amount of the Convertible Debentures then
held by each holder relative to the aggregate principal amount of the
Convertible Debentures then outstanding.
5. EVENTS OF DEFAULT.
5.1 EVENTS OF DEFAULT. If one or more of the following events (each
an "Event of Default") shall have occurred and be continuing:
(a) failure by the Corporation to pay when due, all or any part
of the principal on this Convertible Debenture or any other Convertible
Debentures or related indebtedness then owed by the Corporation to such Holder,
provided, however, exercise by the Corporation of its option to not pay
interest on the Convertible Debentures prior to January 1, 1999 (whereby the
amount of unpaid interest shall be added to the principal balance of the
Convertible Debentures as specified herein) shall not constitute an Event of
Default;
(b) failure by the Corporation to pay (i) within five (5)
Business Days of the due date thereof any interest on this Convertible
Debenture or any other Convertible Debentures or related indebtedness then owed
by the Corporation to such Holder or (ii) within five (5) Business Days
following the delivery of notice to the Corporation of any fees or any
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other amount payable (not otherwise referred to in (a) above or this clause
(b)) by the Corporation under this Convertible Debenture;
(c) any representation, warranty, certification or statement
made by the Corporation or Orix in any Transaction Agreement or which is
contained in any certificate, document or financial or other statement
furnished at any time under or in connection with any Transaction Agreement
shall prove to have been untrue in any material respect when made;
(d) failure by the Corporation to timely comply with the
requirements of Section 4.7(a) hereof, which failure is not cured within
seven (7) days of such failure;
(e) failure on the part of the Corporation or Orix to observe
or perform any covenant contained in any Transaction Document (other than
those covered by clauses (a) through (d) above), which failure is not cured
within thirty (30) days of such failure;
(f) any of the Company, Orix or the Orix stockholders shall
fail to perform, in any material respect, any of their respective obligations
under, or shall have breached any material item of, any Transaction Agreement
(provided that all cure periods as specified in such Transaction Agreements
shall have elapsed).
(g) the Corporation shall declare, pay or set aside for
payment any dividend or other distribution in respect of its capital stock,
or call for redemption, redeem, purchase or otherwise acquire for any
consideration any shares of its capital stock, any warrants, rights, calls or
options exercisable for any shares of capital stock;
(h) the trading in the Common Stock shall have been suspended
by the Securities and Exchange Commission (except for any suspension of trading
of limited duration not to exceed two (2) business days solely to permit
dissemination of material information regarding the Corporation);
(i) the Corporation shall have its Common Stock delisted from
the OTC Market (except if, at the time there is any delisting on the OTC
Market, the Common Stock has been listed and approved for trading on either the
New York Stock Exchange, the American Stock Exchange, the Nasdaq Stock Market's
National Market, or the Nasdaq Stock Market's SmallCap Market within 10 days
thereof);
(j) the Corporation or any Subsidiary (other than Get Net
International, Inc.) has commenced a voluntary case or other proceeding seeking
liquidation, winding-up, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency, moratorium or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part
of its property, or has consented to any such relief or to the appointment of
or taking possession by any such official in an involuntary case or other
proceeding commenced against it, or has made a general assignment for the
benefit of creditors, or has failed generally to
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pay its debts as they become due, or has taken any corporate action to
authorize any of the foregoing;
(k) an involuntary case or other proceeding has been commenced
against the Corporation or any Subsidiary, seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency, moratorium or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and unstayed
for a period of 60 days, or an order for relief has been entered against the
Corporation or any Subsidiary under the federal bankruptcy laws as now or
hereafter in effect;
(l) judgments or orders for the payment of money which in the
aggregate at any one time exceed $100,000 and are not covered by insurance have
been rendered against the Corporation or any Subsidiary by a court of competent
jurisdiction and such judgments or orders shall continue unsatisfied and
unstayed for a period of 60 days;
then, and in every such occurrence, the Holder may, by notice to
the Corporation, declare this Convertible Debenture to be, and the Convertible
Debenture shall thereon become immediately due and payable at the Repayment
Price (as hereafter defined); PROVIDED that in the case of any of the Events of
Default specified in paragraph (j) or (k) above with respect the Corporation or
any Subsidiary, then, without any notice to the Corporation or any other act by
Holder, the entire amount of the Convertible Debenture shall become immediately
due and payable at the Repayment Price; PROVIDED FURTHER, if any Event of
Default has occurred and is continuing, and irrespective of whether this or any
other Convertible Debenture has been declared immediately due and payable
hereunder, the Holder of this Convertible Debenture may proceed to protect and
enforce the rights of such Holder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein, or for an injunction against a violation of any of the terms
hereof, or in aid of the exercise of any power granted hereby or by law or
otherwise. The Repayment Price shall mean the sum of (i) the principal amount
of the Convertible Debentures outstanding (including any interest added thereon
in accordance with the provisions hereof for the period beginning on the
issuance of such Convertible Debentures and ending on the date of payment of
the Repayment Price) (the "Mandatory Repayment Date") and (ii) if a positive
number, the Premium Amount, where Premium Amount means the difference, if a
positive number, between (I) the product of (x) the number of shares of Common
Stock issuable upon conversion of such Convertible Debentures in accordance
with the terms hereof (treating the Trading Day immediately preceding the
Mandatory Repayment Date as the Conversion Date), multiplied by (y) the Closing
Bid Price for the Common Stock on such Conversion Date and (II) the principal
amount of the Convertible Debentures outstanding (the sum of such amounts being
referred to as the "Repayment Price").
5.2. POWERS AND REMEDIES CUMULATIVE. No right or remedy herein conferred
upon or reserved to Holder is intended to be exclusive of any other right or
remedy, and every right
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and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of
any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy. Every
power and remedy given by this Convertible Debenture or by law may be
exercised from time to time, and as often as shall be deemed expedient, by
the Holder.
6. ADDITIONAL AGREEMENTS.
6.1 ADJUSTMENTS. The Conversion Price shall be subject to adjustment
from time to time as follows:
(a) SHARE REORGANIZATION. If and whenever the Corporation shall:
(i) subdivide the outstanding shares of Common Stock into a
greater number of shares;
(ii) consolidate the outstanding shares of Common Stock into a
smaller number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all
or substantially all the holders of Common Stock payable in Common
Stock or securities convertible into or exchangeable for Common
Stock;
(any of such events being herein called a "Share Reorganization"), then in each
such case the Conversion Price shall be adjusted, effective immediately after
the record date at which the holders of Common Stock are determined for the
purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable
Conversion Price in effect on such record or effective date, as the case may
be, by a fraction of which:
(i) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect
to the transaction); and
(ii) the denominator shall be the number of shares of Common
Stock outstanding after giving effect to such Share Reorganization,
including, in the case of a distribution of securities convertible
into or exchangeable for shares of Common Stock, the number of shares
of Common Stock that would have been
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outstanding if such securities had been converted into or exchanged
for Common Stock on such record or effective date.
(b) RIGHTS OFFERING. If and whenever the Corporation shall issue to
all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than forty-five (45) days after the record date of such issue, to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable or exercisable for equity securities (collectively, the
"Derivative Securities")), at a price per share (or, in the case of Derivative
Securities, at an exchange or conversion price per share at the date of issue
of such securities) of less than 95% of the Market Price of the Common Stock on
such record date (any such event being herein called a "Rights Offering"), then
in each such case the Conversion Price shall be adjusted, effective immediately
after the record date at which holders of Common Stock are determined for the
purposes of the Rights Offering, by multiplying the Conversion Price in effect
on such record date by a fraction of which:
(i) the numerator shall be the sum of:
(A) the number of shares of Common Stock outstanding on
such record date; and
(B) a number obtained by dividing:
(I) either,
(x) the product of the total number of shares of
Common Stock so offered for subscription or purchase and the
price at which such shares are so offered, or
(y) the product of the maximum number of shares of
Common Stock into or for which the convertible or exchangeable
securities so offered for subscription or purchase may be
converted or exchanged and the conversion or exchange price of
such securities,
or, as the case may be, by
(II) the Market Price of the Common Stock on such
record date; and
(ii) the denominator shall be the sum of:
(A) the number of shares of Common Stock outstanding on
such record date; and
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(B) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of Derivative
Securities), the maximum number of shares of Common Stock for or
into which the securities so offered for subscription or
purchase may be converted or exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the Conversion Price shall be readjusted effective
immediately after such expiry time to the Conversion Price which would then
have been in effect upon the number of shares of Common Stock (or Derivative
Securities) actually delivered upon the exercise of such rights, options or
warrants. For purposes of this Paragraph C, "Market Price" shall mean the
lowest closing bid price of the Common Stock as reported by Bloomberg L.P. on
the SmallCap Market or, if not reported by Bloomberg, L.P. on the SmallCap
Market, as reported by such other securities exchange or securities market
where the Common Stock is then traded, during the twenty (20) Trading Day
period ending one (1) Trading Day prior to the applicable date.
(c) SPECIAL DISTRIBUTION. If and whenever the Corporation shall
issue or distribute to all or substantially all the holders of Common Stock:
(i) shares of the Corporation of any class, other than Common
Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and
equivalent dividends in shares paid in lieu of cash dividends in the
ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the Conversion Price shall be adjusted,
effective immediately after the record date at which the holders of Common
Stock are determined for purposes of the Special Distribution, by multiplying
the Conversion Price in effect on such record date by a fraction of which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the
Common Stock on such date; and
(B) the fair market value, as determined by the Directors
(whose determination shall be conclusive), to the holders of
Common Stock of the shares, rights, options, warrants, evidences
of indebtedness or other assets issued or distributed in the
Special Distribution (net of any consideration paid therefor by
the holders of Common Stock), and
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(ii) the denominator shall be the product of the number of
shares of Common Stock outstanding on such record date and the Market
Price of the Common Stock on such date.
(d) CAPITAL REORGANIZATION. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of Common
Stock or any change of the shares of Common Stock into other shares,
other than in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Corporation
with, or into another body corporate; or
(iii) the transfer of all or substantially all of the assets
of the Corporation to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert the shares of Series
C Preferred Stock after the effective date of such Capital Reorganization
shall be entitled to receive and shall accept, upon the exercise of such
right, in lieu of the number of shares of Common Stock to which such holder
was theretofore entitled upon the exercise of the conversion privilege, the
aggregate number of shares or other securities or property of the Corporation
or of the body corporate resulting from such Capital Reorganization that such
holder would have been entitled to receive as a result of such Capital
Reorganization if, on the effective date thereof, such holders had been the
holder of the number of shares of Common Stock to which such holder was
theretofore entitled upon conversion of this Convertible Debenture; PROVIDED,
HOWEVER, that no such Capital Reorganization shall be consummated in effect
unless all necessary steps shall have been taken so that such holders of this
Convertible Debenture shall thereafter be entitled to receive such number of
shares or other securities of the Corporation or of the body corporate
resulting from such Capital Reorganization, subject to adjustment thereafter
in accordance with provisions the same, as nearly as may be possible, as
those contained above.
(e) ADJUSTMENT RULES. The following rules and procedures shall be
applicable to adjustments made pursuant to the provisions contained herein:
(i) no adjustment in the Conversion Price shall be required
unless such adjustment would result in a change of at least 1% in the
Conversion Price then in effect; PROVIDED, HOWEVER, that any
adjustments which, but for the provisions of this clause would
otherwise have been required to be made, shall be carried forward and
taken into account in any subsequent adjustment;
(ii) no adjustment in the Conversion Price shall be made
pursuant to the provisions contained herein in respect of the issue
from time to time of Common Stock to holders of Common Stock who
exercise an option to receive
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substantially equivalent dividends in Common Stock in lieu of
receiving cash dividends in the ordinary course; and
(iii) if a dispute shall at any time arise with respect to any
adjustment of the Conversion Price, such dispute shall be
conclusively determined by the auditors of the Corporation or, if
they are unable or unwilling to act, by a firm of independent
chartered accountants selected by the Directors of the Corporation
and any such determination shall be binding upon the Corporation and
the holders of this Convertible Debenture.
(f) CERTIFICATE AS TO ADJUSTMENT. The Corporation shall from time
to time promptly after the occurrence of any event which requires an
adjustment in the Conversion Price deliver to the Purchasers a certificate
specifying the nature of the event requiring the adjustment, the amount of
the adjustment necessitated thereby, the Conversion Price after giving effect
to such adjustment and setting forth, in reasonable detail, the method of
calculation and the facts upon which such calculation is based.
(g) NOTICE TO HOLDERS. If the Corporation shall fix a record date
for:
(i) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of
shares),
(ii) any Rights Offering,
(iii) any Special Distribution,
(iv) any Capital Reorganization (other than a reclassification
or redesignation of the Common Stock into other shares), or
(v) any cash dividend,
the Corporation shall, not less than 10 days prior to such record date or, if
no record date is fixed, prior to the effective date of such event, give to
the Purchasers notice of the particulars of the proposed event or the extent
that such particulars have been determined at the time of giving the notice.
6.2 PAYMENT OF ADDITIONAL AMOUNTS.
A. Any and all payments by the Corporation hereunder to any holder of
Convertible Debentures and each "qualified assignee" thereof shall be made
free and clear of and without deduction or withholding for any and all
present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto (all such taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes") unless
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such Taxes are required by law or the administration thereof to be deducted
or withheld. If the Corporation shall be required by law or the
administration thereof to deduct or withhold any Taxes from or in respect of
any sum payable with respect to the Convertible Debentures (i) the sum
payable shall be increased as may be necessary so that after making all
required deductions or withholdings (including deductions or withholdings
applicable to additional amounts paid under this Paragraph) such holder of
Convertible Debentures receives an amount equal to the sum it would have
received if no such deduction or withholding had been made; (ii) the
Corporation shall make such deductions or withholdings; and (iii) the
Corporation shall forthwith pay the full amount deducted or withheld to the
relevant taxation or other authority in accordance with applicable law. A
"qualified assignee" of a holder of Convertible Debentures is a person that
is organized under the laws of (I) the United States or (II) any jurisdiction
other than the United States or any political subdivision thereof and that
(y) represents and warrants to the Corporation that payments of the
Corporation to such assignee under applicable law would not be subject to any
Taxes and (z) from time to time, as and when requested by the Corporation,
executes and delivers to the Corporation and the Internal Revenue Service
forms, and provides the Corporation with any information, necessary to
establish such assignee's continued exemption from Taxes under applicable law.
B. The Corporation shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as "Other
Taxes") which arise from any payment made under this Convertible Debentures
or the transactions contemplated hereby.
C. The Corporation shall indemnify each holder of Convertible
Debentures, or qualified assignee, for the full amount of Taxes or Other
Taxes (including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Paragraph) paid by each holder of
this Convertible Debenture, or qualified assignee, and any liability
(including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Payment under this indemnification shall be made within 30
days from the date such holder of Convertible Debentures or assignee makes
written demand therefor. A certificate as to the amount of such Taxes or
Other Taxes submitted to the Corporation by such holder of Convertible
Debentures or assignee shall be conclusive evidence of the amount due from
the Corporation to such party.
D. Within 30 days after the date of any payment of Taxes, the
Corporation will furnish to each holder of Convertible Debentures the
original or a certified copy of a receipt evidencing payment thereof.
6.3 MODIFICATION OF CONVERTIBLE DEBENTURE. This Convertible
Debenture may be modified without prior notice to the Holder but with the
written consent of the Majority Holders and the Corporation. However, without
the consent of each Holder affected, an amendment, supplement or waiver may
not (1) reduce the principal amount of Convertible Debentures whose Holders
must consent to an amendment, supplement or waiver, (2) reduce the rate or
extend the time for payment of interest on the Convertible Debenture, (3)
reduce the
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principal amount of or extend the fixed maturity of the Convertible Debenture
or alter the conversion provisions with respect thereto or (4) make the
Convertible Debenture payable in money or property other than as stated in
the Convertible Debenture.
6.4 NOTICES. Any notice or communication to the Corporation shall
be duly given if in writing and delivered in the manner and at the addresses
specified in the Securities Purchase Agreement.
6.5 SUCCESSORS. All agreements of the Corporation in this
Convertible Debenture shall bind its successors.
6.6 SEVERABILITY. In case any provision in this Convertible
Debenture shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and a Holder shall have no claim therefor
against any party hereto.
6.7 MISCELLANEOUS. This Convertible Debenture shall be deemed to
be a contract made under the laws of the State of Nevada and for all purposes
shall be governed by and construed in accordance with the laws of said State.
The parties hereto, including all guarantors or endorsers, hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Convertible Debenture, except as specifically provided herein, and assent to
extensions of the time of payment, or forbearance or other indulgence without
notice. The Corporation hereby submits to the exclusive jurisdiction of the
United States District Court for Clark County and of any Nevada state court
sitting in Nevada for purposes of all legal proceedings arising out of or
relating to this Convertible Debenture. The Corporation irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court
has been brought in an inconvenient forum. The Corporation hereby irrevocably
waives any and all right to trial by jury in any legal proceeding arising out
of or relating to this Convertible Debenture.
The holder of this Convertible Debenture by acceptance of this
Convertible Debenture agrees to be bound by the provisions of this
Convertible Debenture which are expressly binding on such holder.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Corporation has caused this instrument to be
duly executed.
Dated: December 31, 1997
------------ -
TOUCH TONE AMERICA, INC.
By: /s/ Kerry Rogers
---------------------------
Name: Kerry Rogers
---------------------------
Title: President
---------------------------
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SECURITIES PURCHASE AGREEMENT
DATED AS OF
DECEMBER 31, 1997
BY AND AMONG
TOUCH TONE AMERICA, INC.,
AS THE ISSUER,
THE PURCHASERS LISTED ON SCHEDULE 2.1 ATTACHED HERETO,
AS THE PURCHASERS
<PAGE>
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of December 31, 1997, among Touch Tone America, Inc.
(the "Company") and the Purchasers listed on SCHEDULE 2.1 attached hereto
(each a "Purchaser" and collectively, the "Purchasers").
R E C I T A L S:
WHEREAS, the Company has entered into that certain Amended Agreement and
Plan of Reorganization in the forms attached hereto as EXHIBIT A (the
"Reorganization Agreement") between the Company and Orix Global
Communications, Inc. ("Orix"), pursuant to which the Company shall acquire
all of the issued and outstanding capital stock of Orix in exchange for the
issuance to the shareholders of Orix (the "Orix Shareholders") of 33,732,980
shares of the Company's common stock, no par value (the "Common Stock") (the
"Reorganization"); and
WHEREAS, the Company desires to sell and issue to the Purchasers, and
the Purchasers desire to purchase from the Company, $2,500,000 aggregate
principal amount of Convertible Exchangeable Debentures in the form attached
hereto as EXHIBIT B (the "Debentures"), which, upon the occurrence of certain
events described herein, shall be exchangeable for that certain number of
shares (the "Series B Shares") of Series B Convertible Preferred Stock of the
Company (the "Series B Preferred Stock"), with an aggregate stated value of
$2,500,000, the rights and preferences of which are more fully described in
the Series B Certificate of Designations, Preferences and Rights in the form
attached hereto as EXHIBIT C (the "Series B Certificate of Designation"); and
WHEREAS, contemporaneous herewith the Company and Infinity Investors
Limited have executed and delivered that certain Option Agreement in the form
attached hereto as EXHIBIT D (the "Option Agreement"); and
WHEREAS, the Debentures and the Series B Shares issued in exchange
therefor (collectively, the "Convertible Instruments") shall be issued by the
Company in a private placement pursuant to Regulation S ("Regulation S")
promulgated under the Securities Act of 1933, as amended (the "Securities
Act"); and
WHEREAS, the Convertible Instruments will be convertible into shares of
Common Stock on the terms described therein.
- -------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT - Page 1
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
I. DEFINITIONS
SECTION Definitions. The following terms, as used herein, have the
following meanings:
"ADDITIONAL SERIES B SHARE ACQUISITION" has the meaning set forth in
Section 10.2.
"AFFILIATE" means, with respect to any Person (the "Subject Person"),
(i) any other Person (a "Controlling Person") that directly or indirectly
through one or more intermediaries, Controls the Subject Person or (ii) any
other Person (other than the Subject Person or a Consolidated Subsidiary of
the Subject Person) which is Controlled by or is under common Control with a
Controlling Person.
"AGREEMENT" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"ASSET SALE" has the meaning set forth in Section 8.1.
"AT&T SETTLEMENT" means that certain settlement and release between the
Company and AT&T Corp. as contemplated by the AT&T Settlement Agreement.
"AT&T SETTLEMENT AGREEMENT" means that certain Release and Settlement
Agreement between AT&T Corp. and the Company in the form attached hereto as
EXHIBIT E.
"BALANCE SHEET DATE" has the meaning set forth in Section 4.7.
"BENEFIT ARRANGEMENT" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer
Plan and which is maintained or otherwise contributed to by the Company.
"BENEFIT PLANS" has the meaning set forth in Section 4.9(b).
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York and Miami, Florida are
authorized or required by law to close.
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"CHANGE OF CONTROL" means (i) after the date of this Agreement any
person or group of persons (within the meaning of Sections 13 and 14 of the
Exchange Act and the rules and regulations of the Commission relating to such
Sections) other than the Purchasers shall have acquired beneficial ownership
(within the meaning of Rules 13d-3 and 13d-5 promulgated by the Commission
pursuant to the Exchange Act) of 33-1/3% or more of the outstanding shares of
Common Stock of the Company, (ii) any sale or other disposition (other than
by reason of death or disability) to any Person of any Common Stock of the
Company owned by Kerry Rogers or Jack Higgins resulting in such Persons
owning, in the aggregate, less than 95% of the outstanding voting shares of
Common Stock of the Company received by them in the Reorganization; or (iii)
individuals constituting the Board of Directors of the Company on the date
hereof (together with any new Directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of at least 50.1% of the Directors then still in
office who were either Directors immediately following the Reorganization or
whose election or nomination for election was previously so approved), cease
for any reason to constitute at least two-thirds of the Board of Directors of
the Company then in office.
"CLOSING BID PRICE" shall mean for any security as of any date, the
lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the
principal securities exchange or trading market where such security is listed
or traded or, if the foregoing does not apply, the lowest closing bid price
of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no lowest trading
price is reported for such security by Bloomberg, then the average of the bid
prices of any market-makers for such securities as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the lowest closing bid
price cannot be calculated for such security on such date on any of the
foregoing bases, the lowest closing bid price of such security on such date
shall be the fair market value as mutually determined by the Purchasers and
the Company for which the calculation of the closing bid price requires, and
in the absence of such mutual determination, as determined by the Board of
Directors of the Company in good faith.
"CLOSING DATE" means the date of consummation of the transactions
contemplated by this Agreement and the issuance of the Debentures to the
Purchasers.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"COMMON STOCK" has the meaning set forth in the Recitals.
Page 3
<PAGE>
"COMPANY" means Touch Tone America, Inc., a California corporation, and
its successors.
"COMPANY CORPORATE DOCUMENTS" means the certificate of incorporation and
by-laws of the Company.
"CONSOLIDATED SUBSIDIARY" means at any date with respect to any Person
any Subsidiary or other entity, the accounts of which would be consolidated
with those of such Person in its consolidated financial statements if such
statements were prepared as of such date.
"CONTROL" (including, with correlative meanings, the terms
"Controlling," "Controlled by" and under "common Control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities, by contract or
otherwise .
"CONVERSION DATE" shall mean the date of delivery (including delivery
via telecopy) of a Notice of Conversion for all or a portion of the
Convertible Instruments by the holder thereof to the Company.
"CONVERSION PRICE" has the meaning set forth in the Debentures or Series
B Certificate of Designation, as applicable.
"CONVERSION SHARES" has the meaning set forth in Section 4.5.
"CONVERTIBLE INSTRUMENTS" has the meaning set forth in the Recitals.
"DEBENTURES" has the meaning set forth in the Recitals.
"DEBT" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which
(y) are capitalized in accordance with GAAP or (z) arise pursuant to
sale-leaseback transactions, (iv) all reimbursement obligations of such
Person in respect of letters of credit or other similar instruments, (v) all
Debt of others secured by a Lien on any asset of such Person, whether or not
such Debt is otherwise an obligation of such Person and (vi) all Debt of
others Guaranteed by such Person.
Page 4
<PAGE>
"DEFAULT" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DERIVATIVE SECURITIES" has the meaning set forth in Section 8.4.
"DISCOUNTED EQUITY OFFERINGS" has the meaning set forth in Section 8.4.
"DIRECTORS" means the individuals then serving on the Board of Directors
or similar such management council of the Company.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes
into the environment, including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, petroleum or petroleum products,
chemicals or industrial, toxic or hazardous substances or wastes or the
cleanup or other remediation thereof.
"EQUITY LINE" has the meaning set forth in Section 10.2.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA GROUP" means the Company and each Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
"EVENT OF DEFAULT" has the meaning set forth in the Debentures and in
Section 3.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXPENSE REIMBURSEMENT FEE" has the meaning set forth in Section 11.5.
"FUNDS FLOW MEMORANDUM" has the meaning set forth in Section 2.2.
"GAAP" has the meaning set forth in Section 1.2.
Page 5
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"GUARANTEE" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain a minimum net
worth, financial ratio or similar requirements, or otherwise) any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or (ii) entered into for the purpose of assuring in any other
manner the holder of such Debt of the payment thereof or to protect such
holder against loss in respect thereof (in whole or in part); provided that
the term Guarantee shall not include endorsements for collection or deposit
in the ordinary course of business. The term Guarantee used as a verb has a
corresponding meaning.
"HAZARDOUS MATERIALS" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 4.20.
"INVESTMENT" means any investment in any Person, whether by means of
share purchase, partnership interest, capital contributions, loan, time
deposit or otherwise.
"KEY MAN POLICY" has the meaning set forth in Section 7.15.
"LIEN" means, any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction,
security interest or other adverse claim, whether arising by contract or
under law or otherwise (including, without limitation, any financing lease
having substantially the same economic effect as any of the foregoing, and
the filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in respect of any of the foregoing).
"MARKET PRICE" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"MATERIAL ADVERSE EFFECT" has the meaning set forth in Section 4.1.
"MATERIAL PLAN" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $50,000.
Page 6
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"MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group
during such five year period.
"NOTICE OF CONVERSION" means the form to be delivered by a holder of the
Convertible Instruments upon conversion of all or a portion thereof to the
Company substantially in the form attached to the Debentures.
"OBSERVER" has the meaning set forth in Section 7.12.
"OFFICER'S CERTIFICATE" shall mean a certificate executed by the
President, chief executive officer or chief financial officer of the Company
substantially in the form of EXHIBIT F attached hereto.
"OPTION AGREEMENT" has the meaning set forth in the Recitals.
"ORIX" means Orix Global Communications, Inc., a Nevada corporation.
"ORIX OBLIGATION" has the meaning set forth in Section 10.3.
"ORIX ASSET PLEDGE AGREEMENT" has the meaning set forth in Section 10.3.
"ORIX STOCK PLEDGE AGREEMENT" has the meaning set forth in Section 10.3.
"OTC MARKET" means the electronic quotation medium known as the OTC
Bulletin Board-Registered Trademark- by which members of the National
Association of Securities Dealers, Inc. enter, update and display quotations
and other information regarding eligible securities.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERMITS" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the
Subsidiaries.
Page 7
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"PERSON" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, government (or any agency or political subdivision thereof) or other
entity of any kind.
"PLAN" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under the Code and either (i) is maintained, or
contributed to, by any member of the ERISA Group for employees of any member
of the ERISA Group or (ii) has at any time within the preceding five years
been maintained, or contributed to, by any Person which was at such time a
member of the ERISA Group for employees of any Person which was at such time
a member of the ERISA Group.
"PURCHASE PRICE" means the purchase price for the Debentures set forth
in Section 2.1 hereof.
"PURCHASERS" means, collectively, those entities listed in SCHEDULE 2.1
attached hereto and their successors and assigns, including holders from time
to time of the Convertible Instruments.
"RECAPITALIZATION EVENT" has the meaning set forth in Section 3.1.
"RECISSION DATE" means June 30, 1998.
"RECISSION PRICE" has the meaning set forth in Section 10.3.
"RECISSION RIGHT" has the meaning set forth in Section 10.3.
"REGISTRATION RIGHTS AGREEMENT" means the agreement between the Company
and the Purchasers dated the Closing Date substantially in the form set forth
in EXHIBIT G attached hereto.
"RESTRICTED PERIOD" means the period from the funding of the Purchase
Price of the Debentures through and including the fortieth (40th) day
thereafter.
"REINCORPORATION" has the meaning set forth in Section 3.3.
"REORGANIZATION" has the meaning set forth in the Recitals.
"REORGANIZATION AGREEMENT" has the meaning set forth in the Recitals.
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"SEC REPORTS" shall have the meaning set forth in Section 4.7.
"SECURITIES" means the Debentures, the Series B Shares, the Warrants,
the Conversion Shares and the Warrant Shares.
"SERIES B CERTIFICATE OF DESIGNATION" has the meaning set forth in the
Recitals.
"SERIES B PREFERRED STOCK" has the meaning set forth in the Recitals.
"SERIES B SHARES" has the meaning set forth in the Recitals.
"SECURITIES ACT" has the meaning set forth in the Recitals.
"SHAREHOLDER RATIFICATION" has the meaning set forth in Section 3.2.
"SHAREHOLDER RATIFICATION EVENT" shall mean the later to occur of (x)
the Shareholder Ratification and (y) the date of final determination that the
Company is not obligated to pay more than $250,000 to existing shareholders
of the Company who properly exercise dissenters rights under applicable
California law arising as a result of the Shareholder Ratification.
"SOLVENCY CERTIFICATE" shall mean a certificate executed by the chief
financial officer of the Company as to the solvency of the Company, the
adequacy of its capital and its ability to pay its debts, all after giving
effect to the issuance and sale of the Convertible Instruments, which such
Solvency Certificate shall be in the form of EXHIBIT H attached hereto.
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity of which a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person. Unless specified to the contrary,
"Subsidiary" means a Subsidiary of the Company. Unless specified to the
contrary, all references to a Subsidiary of the Company shall be deemed to
include Orix after giving effect to the Reorganization.
"SUBSIDIARY CORPORATE DOCUMENTS" means the certificates of incorporation
and by-laws of each Subsidiary.
"TRADING DAY" shall mean any Business Day in which at least 1,000 shares
of Common Stock are traded on the OTC Market, or any Business Day in which
any other automated quotation system or exchange on which the Common Stock is
then traded is open for trading for at least four (4) hours, as applicable.
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"TRANSACTION AGREEMENTS" means this Agreement, the Debentures, the
Registration Rights Agreement, the Orix Stock Pledge Agreement, Orix Asset
Pledge Agreement, the Reorganization Agreement, the Warrants and the Series B
Certificate of Designation.
"UCI TELEPORT ACQUISITION" means the acquisition by Orix of all of the
issued and outstanding capital stock of UCI Teleport, Inc., a Florida
corporation, pursuant to the terms of the UCI Teleport Agreement for cash
consideration paid as of the Closing Date of $420,000, of which $150,000
(together with accrued and unpaid dividends thereon) shall be paid to
Infinity Investors Limited as the Preferred Stockholder thereof.
"UCI TELEPORT AGREEMENT" means that certain Agreement between Orix and
UPC in the form attached hereto as EXHIBIT I pursuant to which the UCI
Teleport Acquisition shall be consummated as of the Closing Date.
"UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such
Plan exceeds (ii) the fair market value of all Plan assets allocable to such
benefits (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA
Group to the PBGC or any other Person under Title IV of ERISA.
"UPC" shall mean United Petroleum Corporation, a Delaware corporation
and its successors and assigns.
"WARRANTS" means the Warrants issued to the Purchasers in accordance
with the provisions of Section 10.3 hereof in the form of EXHIBIT J hereto to
purchase 400,000 shares of Common Stock in the aggregate (subject to
adjustment as set forth herein).
"WARRANT SHARES" means the shares of Common Stock issued upon exercise
of the Warrants.
"WARRANT VESTING EVENTS" has the meaning set forth in Section 10.2.
SECTION 1. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared, in
accordance with generally accepted accounting principles as in effect from
time to time, applied on a consistent basis (except for changes concurred in
by the Company's independent public accountants) ("GAAP"). All references to
"dollars," "Dollars" or
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"$" are to United States dollars unless otherwise indicated. All references
to the "Company and its Subsidiaries" shall include references to Orix as a
Subsidiary of the Company after giving effect to the consummation of the
Reorganization, unless otherwise indicated.
ARTICLE II
PURCHASE, EXCHANGE AND SALE OF DEBENTURES
SECTION 2.1. PURCHASE AND SALE OF DEBENTURES. Subject to the terms
and conditions set forth herein, the Company agrees to issue and sell to each
Purchaser, and each Purchaser severally agrees to purchase from the Company,
the principal amount of Debentures set forth opposite each Purchaser's
respective name on SCHEDULE 2.1 attached hereto for an aggregate purchase
price of $2,500,000 (the "Purchase Price").
SECTION 2.2 CLOSING AND MECHANICS OF PAYMENT.
(A) On the Closing Date, subject to the satisfaction of all terms
and conditions set forth herein, each of the Purchasers shall deliver by
wire transfer to the Company in immediately available funds the portion of
the Purchase Price of the Debentures to be purchased by such Purchaser on
the Closing Date, in the proportions as set forth on SCHEDULE 2.1 attached
hereto.
(B) On the Closing Date, against payment as set forth in subsection
2.2(a) above, the Company shall deliver to each Purchaser a single
Debenture representing the principal amount of the Debentures to be issued
to such Purchaser on the Closing Date.
(C) The Purchasers may withhold from the Purchase Price paid to the
Company an estimate of the Expense Reimbursement Fee. In addition, to
facilitate satisfaction of certain of the conditions precedent to the
Closing Date described in Section 6.1 hereof, the Company hereby
irrevocable directs and authorizes the Purchasers to pay the proceeds of
the Purchase Price in accordance with the Funds Flow Memorandum attached
hereto at EXHIBIT K (the "Funds Flow Memorandum").
(D) Within ten (10) days of the receipt of notice from the
Purchasers, the Company shall pay any funds due and owing as the Expense
Reimbursement Fee in excess of the estimated Expense Reimbursement Fee
withheld from the Purchase Price as described in Section 2.2(c).
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ARTICLE III
EXCHANGE OF DEBENTURES FOR SERIES B SHARES
SECTION 3.1. EXCHANGE OF DEBENTURES FOR SERIES B SHARES. Effective on
the first Business Day following the consummation of the Shareholder
Ratification Event, the aggregate outstanding principal balance, together
with accrued and unpaid interest thereon, of the Debentures shall be
automatically exchanged for an equal stated amount of Series B Shares (based
on the liquidation preference per share as provided in the Series B
Certificate of Designation) (the "Recapitalization Event"); provided,
however, the Recapitalization Event shall not occur if, as of the date of
consummation of the Shareholder Ratification Event, an Event of Default then
exists. In connection therewith, the Company shall issue effective as of the
first Business Day following the Shareholder Ratification Event the
appropriate number of Series B Shares in the name of each Purchaser (based on
the portion of Debentures exchanged therefore), and each Purchaser shall
submit to the Company the original Debentures for cancellation. Following the
Recapitalization Event, all references in this Agreement to Event of Default
(including, without limitation, the references set forth in Articles Seven
and Eight hereof), shall be construed to mean the occurrence of a Mandatory
Redemption Event as specified in the Series B Certificate of Designation.
SECTION 3.2 SHAREHOLDER RATIFICATION. The Company has disclosed that
the Reorganization will require the ratification and/or approval by the
shareholders of the Company holding at least 50.1% of the Common Stock
outstanding immediately preceding the Reorganization (the "Shareholder
Ratification"). The Company and Orix hereby covenant and agree to operate the
Company and Orix preceding the consummation of the Shareholder Ratification
as if the Reorganization has occurred; PROVIDED, HOWEVER, the separate
corporate existence of Orix shall be maintained, and the Company shall not
comingle the assets and liabilities of Orix with the assets and liabilities
of the Company or any other Subsidiary. The Company hereby agrees to use its
best lawful efforts to obtain such Shareholder Ratification as soon as
practicable following the Closing Date. The items which the Shareholder
Ratification shall cover shall include, among other items requested by the
Company and approved by the Purchasers, the following:
(a) Approval of the Reorganization; and
(b) The reincorporation of the Company from the State of California
to the State of Delaware (the "Reincorporation").
The Company acknowledges and agrees that the failure to obtain the
Shareholder Ratification on the terms set forth above on or before the
Recission Date shall result in the remedies available to the Purchasers as
described in Section 10.3 below.
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SECTION 3.3 REINCORPORATION. In the event the Company obtains the
Shareholder Ratification on the terms set forth above on or before the
Recission Date, then (x) the Recapitalization Event shall occur following the
Shareholder Ratification Event (assuming there then exists no Event of Default
under the Debentures) and (y) the Series B Shares shall remain as issued and
outstanding securities of the Company following the Reincorporation, and the
Series B Certificate of Designation shall thereafter be governed by the laws of
the State of Delaware.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and Orix, jointly and severally, represent and warrant to the
Purchasers, and each of them, as of the Closing Date the following:
SECTION 4.1. ORGANIZATION AND QUALIFICATION. The Company and each
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation (or organization), with full power and authority to own, lease,
use and operate its properties and to carry on its business as and where now
owned, leased, used, operated and conducted. SCHEDULE 4.1 sets forth a list of
all Subsidiaries and the jurisdiction in which each is incorporated (or
organized). The Company and each of its Subsidiaries is duly qualified to
conduct business as a foreign corporation and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary, except where such failure would not have a Material
Adverse Effect. A "Material Adverse Effect" means any material adverse effect
on the operations, results of operations, properties, assets, condition
(financial or otherwise) or prospects of the Company or the Company and its
Subsidiaries, taken as a whole, or on the transactions contemplated hereby or
by the agreements or instruments to be entered into in connection herewith.
SECTION 4.2. AUTHORIZATION AND EXECUTION.
(A) Each of the Company and Orix have all requisite corporate power
and authority to enter into and perform each of the Transaction Agreements
to which it is a party and to consummate the transactions contemplated
hereby and thereby and (with respect to the Company) to issue the
Convertible Instruments in accordance with the terms hereof and thereof.
(B) The execution, delivery and performance by the Company and Orix
of each Transaction Agreement to which it is a party and the issuance by
the Company of the Convertible Instruments have been duly and validly
authorized and no further consent
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or authorization of the Company or Orix, or their respective Boards of
Directors or shareholders is required.
(C) This Agreement has been duly executed and delivered by the
Company and Orix.
(D) This Agreement constitutes, and upon execution and delivery
thereof by the Company and Orix, each of the Transaction Agreements will
constitute, a valid and binding agreement of the Company and Orix, in each
case enforceable against the Company and Orix in accordance with its
respective terms.
(E) All representations and warranties of each party to the
Reorganization Agreement are true and correct.
(F) All representations and warranties of the Company and Orix in
the Option Agreement are true and correct.
SECTION 4.3. CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company and Orix is as set forth on SCHEDULE 4.3A hereto
and no other shares of capital stock of the Company or Orix will be outstanding
as of the Closing Date. SCHEDULE 4.3B sets forth a true and correct list of
the shareholders of Orix. Orix was formerly known as Orix Leasing, Inc.
Following the Reorganization, Orix shall be a wholly-owned Subsidiary of the
Company, and the capitalization of the Company shall be as set forth on
SCHEDULE 4.3C hereto. All of such outstanding shares of capital stock are, and
upon issuance of the Series B Shares will be, duly authorized, validly issued,
fully paid and non-assessable. No shares of capital stock of the Company are
subject to preemptive rights of the stockholders of the Company or any Liens or
encumbrances imposed through the actions or failure to act of the Company.
Other than as set forth on SCHEDULE 4.3A, B OR C hereto, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other
commitments or rights of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for any shares of capital stock of the
Company or any of its Subsidiaries, or arrangements by which the Company or any
of its Subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its Subsidiaries, and (ii) there are no
agreements or arrangements under which the Company or any of its Subsidiaries
are obligated to register the sale of any of its or their securities under the
Securities Act (except pursuant to the Registration Rights Agreement) and (iii)
there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to
security holders) that will be triggered by the issuance of the Convertible
Instruments or the Conversion Shares. The Company has furnished to the
Purchasers' true and correct copies of the Company's Corporate Documents and
Subsidiary Corporate Documents, and the terms of all
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securities convertible into or exercisable for Common Stock and the material
rights of the holders thereof in respect thereto.
SECTION 4.4. GOVERNMENTAL AUTHORIZATION. The execution and delivery by
the Company and Orix of the Transaction Agreements does not and will not, the
issuance and sale by the Company of the Convertible Instruments does not and
will not, and the consummation of the transactions contemplated hereby and by
the other Transaction Agreements will not, require any action by or in respect
of, or filing with, any governmental body, agency or governmental official
except (a) such actions or filings that have been undertaken or made prior to
the date hereof and that will be in full force and effect (or as to which all
applicable waiting periods have expired) on and as of the date hereof or which
are not required to be filed on or prior to the Closing Date, and (b) such
actions or filings that, if not obtained, would not result in a Material
Adverse Effect.
SECTION 4.5. ISSUANCE OF SHARES. Upon conversion in accordance with the
terms of the Debentures or the Series B Certificate of Designation, the shares
of Common Stock issued upon conversion thereof (the "Conversion Shares") shall
be duly and validly issued and outstanding, fully paid and nonassessable, free
and clear of any taxes, Liens and charges with respect to issuance and shall
not be subject to preemptive rights or similar rights of any other stockholders
of the Company. Assuming the representations and warranties of the Purchasers
herein are true and correct in all material respects, each of the Securities
will have been issued in material compliance with all applicable United States
federal securities laws. The Company understands and acknowledges that, in
certain circumstances, the issuance of the Conversion Shares could dilute the
ownership interests of other stockholders of the Company. The Company further
acknowledges that its obligation to issue the Conversion Shares upon conversion
of the Shares in accordance with this Agreement, the Debentures and the Series
B Certificate of Designation is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
SECTION 4.6. NO CONFLICTS. The execution and delivery by the Company and
Orix of the Transaction Agreements to which each is a party did not and will
not, the issuance and sale by the Company of the Securities did not and will
not and the consummation of the transactions contemplated hereby and by the
other Transaction Agreements will not, as of the date hereof, contravene or
constitute a default under or violation of (i) any provision of applicable law
or regulation, (ii) the Company Corporate Documents or Subsidiary Corporate
Documents, (iii) any material agreement, judgment, injunction, order, decree or
other material instrument binding upon the Company or any Subsidiary or any of
their respective assets, or result in the creation or imposition of any Lien on
any asset of the Company or any Subsidiary. The Company and each Subsidiary is
in compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the
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conduct of its businesses or the ownership of its properties, except in each
case where such failure would not have a Material Adverse Effect.
SECTION 4.7. FINANCIAL INFORMATION AND SEC REPORTS.
(A) References in this Section 4.7(a) to the Company shall mean Touch
Tone America, Inc. without giving effect to the Reorganization. Except as set
forth on SCHEDULE 4.7(A), Since May 31, 1997, the Company has timely filed all
forms, reports and documents with the Commission required to be filed by it
under the Exchange Act through the date hereof (all of the foregoing filed
prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being referred to herein collectively as the
"SEC Reports"). The Company has delivered to each Purchaser true and complete
copies of the SEC Reports, except for such exhibits and incorporated documents.
Such SEC Reports, at the time filed, complied with the requirements of the
Exchange Act and the rules and regulations of the Commission thereunder
applicable to such SEC Reports. None of the SEC Reports, including without
limitation, any financial statements or schedules included therein, contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading. There have been no material
adverse changes in the Company's business, properties, results of operations or
financial condition since the date of the Company's most recent Report on Form
10-KSB for the year ended May 31, 1997, which have not been disclosed to the
Purchasers in writing or as set forth in the SEC Reports. The audited and
unaudited consolidated balance sheets of the Company and its Subsidiaries
contained in the SEC Reports, and the related consolidated statements of
income, changes in stockholders' equity and changes in cash flows for the
periods then ended, including the footnotes thereto, except as indicated
therein, (i) complied in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto and (ii) have been prepared in accordance with GAAP
consistently applied throughout the periods indicated, except that the
unaudited financial statements do not contain notes and may be subject to
normal audit adjustments and normal annual adjustments. Such financial
statements fairly present the financial condition of the Company and its
Subsidiaries at the dates indicated and the consolidated results of their
operations and cash flows for the periods then ended and, except as indicated
therein, reflect all claims against and all Debts and liabilities of the
Company and its Subsidiaries, fixed or contingent. Since May 31, 1997 (the
"Balance Sheet Date"), except as disclosed in the SEC Reports, there has been
(i) no material adverse change in the assets or liabilities, or in the business
or financial condition, or in the results of operations, of the Company and its
Subsidiaries, whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation, act of God,
public force or otherwise and (ii) no material adverse change in the assets or
liabilities, or in the business or
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financial condition, or in the results of operations of the Company and its
Subsidiaries except in the ordinary course of business.
(B) The audited consolidated balance sheets of Orix and its subsidiaries
contained in the consolidated statements of income, change in stockholders'
equity and changes in cash flows for the period ended May 31, 1997, and the
unaudited consolidated balance sheets of Orix and its subsidiaries contained in
the consolidated statement of income, change in stockholder's equity and
changes in cash flows for the period ended May 31, 1997 including the footnotes
thereto, except as indicated therein, (i) complied in all material respects
with applicable accounting requirements and (ii) have been prepared in
accordance with GAAP consistently applied throughout the periods indicated,
except that the unaudited financial statements do not contain notes and may be
subject to normal audit adjustments and normal annual adjustments. Such
financial statements fairly present the financial condition of Orix and its
subsidiaries at the dates indicated and the consolidated results of their
operations and cash flows for the period then ended and, except as indicated
therein, reflect all claims against and all Debts and liabilities of Orix and
its subsidiaries, fixed or contingent. There have been no material adverse
changes in Orix's business, properties, or results of operations since May 31,
1997 which have not been disclosed to the Purchasers in writing.
(C) Attached hereto as SCHEDULE 4.7(C) is a pro forma consolidated
balance sheet of the Company consisting of the Company's unaudited estimated
consolidated balance sheet as of August 31, 1997, adjusted to give effect to
(i) the results of operations of the Company and Orix through August 31, 1997,
(ii) the consummation of the Reorganization and (iii) consummation of the
transactions contemplated herein. Such pro forma consolidated balance sheet
has been prepared in accordance with GAAP and is accurate and complete in all
material respects.
SECTION 4.8. LITIGATION. Except as set forth on SCHEDULE 4.8, there is
no action, suit or proceeding pending or, to the knowledge of the Company or
Orix, threatened against the Company or any Subsidiary, before any court or
arbitrator or any governmental body, agency or official in which, if adversely
determined, could materially adversely affect the business, financial
condition, operations, performance or properties of the Company or any
Subsidiary or which challenges the validity of any Transaction Agreement.
SECTION 4.9. COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS.
(A) Each member of the ERISA Group has fulfilled its obligations under
the minimum funding standards of ERISA and the Code with respect to each Plan
and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan, (ii) failed to
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make any required contribution or payment to any Plan or Multiemployer Plan
or in respect of any Benefit Arrangement, or made any amendment to any Plan
or Benefit Arrangement, which has resulted or could result in the imposition
of a Lien or the posting of a bond or other security under ERISA or the Code
or (iii) incurred any liability under Title IV of ERISA other than a
liability to the PBGC for premiums under Section 4007 of ERISA.
(B) The benefit plans not covered under clause (a) above (including
profit sharing, deferred compensation, stock option, employee stock purchase,
bonus, retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company and each Subsidiary are duly
registered where required by, and are in good standing in all material respects
under, all applicable laws. All required employer and employee contributions
and premiums under the Benefit Plans to the date hereof have been made, the
respective fund or funds established under the Benefit Plans are funded in
accordance with applicable laws, and no past service funding liabilities exist
thereunder.
(C) No Benefit Plans have any Unfunded Liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
SECTION 4.10. ENVIRONMENTAL MATTERS. The costs and liabilities associated
with Environmental Laws (including the cost of compliance therewith) are
unlikely to have a material adverse effect on the business, financial
condition, operations, performance or properties of the Company or any
Subsidiary. Each of the Company and the Subsidiaries conducts its businesses
in compliance in all material respects with all applicable Environmental Laws.
SECTION 4.11. TAXES. Except as set forth on SCHEDULE 4.11, All United
States federal, state, county, municipality local or foreign income tax returns
and all other material tax returns (including foreign tax returns) which are
required to be filed by or on behalf of the Company and each Subsidiary have
been filed and all material taxes due pursuant to such returns or pursuant to
any assessment received by the Company and each Subsidiary have been paid
except those being disputed in good faith and for which adequate reserves have
been established. The charges, accruals and reserves on the books of the
Company and each Subsidiary in respect of taxes or other governmental charges
have been established in accordance with GAAP.
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SECTION 4.12. INVESTMENTS, JOINT VENTURES. Except for Orix following
the Reorganization, the Company has no Subsidiaries or other direct or
indirect Investment in any Person, and the Company is not a party to any
partnership, management, shareholders' or joint venture or similar agreement,
other than as set forth on SCHEDULE 4.12 hereto.
SECTION 4.13. NOT AN INVESTMENT COMPANY. Neither the Company nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 4.14. FULL DISCLOSURE. The information heretofore furnished by
the Company and Orix to the Purchasers for purposes of or in connection with
this Agreement or any transaction contemplated hereby does not, and all such
information hereafter furnished by the Company or any Subsidiary to the
Purchasers will not (in each case taken together and on the date as of which
such information is furnished), contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements contained therein, in the light of the circumstances under which
they are made, not misleading.
SECTION 4.15. INTERNAL ACCOUNTING CONTROLS. The Company, Orix and each
of the Company's other Subsidiaries maintain a system of internal accounting
controls sufficient, in the judgment of the Company's Board of Directors, to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
SECTION 4.16. PERMITS. (a) Each of the Company and its Subsidiaries
has all material Permits; (b) all such Permits are in full force and effect,
and each of the Company and its Subsidiaries has fulfilled and performed all
material obligations with respect to such Permits; and (c) no event has
occurred which allows, or after notice or lapse of time would allow,
revocation or termination by the issuer thereof or which results in any other
material impairment of the rights of the holder of any such Permit.
SECTION 4.17. LEASES. Except as disclosed on SCHEDULE 4.17 hereto,
neither the Company nor any Subsidiary is a party to any capital lease
obligation with a value greater than $50,000 or to any operating lease with
an aggregate annual rental greater than $50,000 during the life of such lease.
SECTION 4.18. ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS.
There are no liabilities of the Company or any Subsidiary (including Orix) of
any kind whatsoever,
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whether accrued, contingent, absolute, determined, determinable or otherwise,
and to the Company's or Orix's knowledge, there is no existing condition,
situation or set of circumstances which could reasonably be expected to
result in such a liability, other than (i) those liabilities provided for in
the financial statements delivered pursuant to Section 4.7 hereof and (ii)
other undisclosed liabilities which, individually or in the aggregate, would
not have a Material Adverse Effect.
SECTION 4.19. PUBLIC UTILITY HOLDING COMPANY. Neither the Company nor
any Subsidiary is, or will be, upon the issuance and sale of the Securities
and the use of the proceeds described herein, subject to regulation under the
Public Utility Holding Company Act of 1935, as amended, the Federal Power
Act, the Interstate Commerce Act or to any federal or state statute or
regulation limiting its ability to issue and perform its obligations under
any Transaction Agreement.
SECTION 4.20. INTELLECTUAL PROPERTY RIGHTS. Each of the Company and
its Subsidiaries owns, or is licensed under, and has the rights to use, all
material patents (if any), trademarks, trade names, copyrights, technology,
know-how and processes (collectively, "Intellectual Property") used in, or
necessary for the conduct of its business; no claims have been asserted by
any Person to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement related
thereto. To the best of the Company's and its Subsidiaries' knowledge, there
is no valid basis for any such claim and the use of such Intellectual
Property by the Company and its Subsidiaries will not infringe upon the
rights of any Person.
SECTION 4.21. INSURANCE. The Company and its Subsidiaries maintain
insurance in the amounts set forth on SCHEDULE 4.21, which the Company
believes are in at least such amounts and cover such risks such that any
uninsured loss would not have a Material Adverse Effect. All insurance
coverages of the Company and its Subsidiaries are in full force and effect
and there are no past due premiums in respect of any such insurance.
SECTION 4.22. TITLE TO PROPERTIES. The Company and its Subsidiaries
have good and marketable title to all their respective properties reflected
on the financial statements referred to in Section 4.7.
SECTION 4.23. CURRENT PUBLIC INFORMATION. The Company is a "reporting
issuer" as defined in Rule 902(l) of Regulation S and it has a class of
securities (Common Stock) registered under Section 12(b) or 12(g) of the
Exchange Act.
SECTION 4.24. NO DIRECTED SELLING EFFORTS IN REGARD TO THIS
TRANSACTION; COMPLIANCE WITH REGULATION S. The Company has not and no
Purchaser nor any distributor, if
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any, participating in the offering of the Securities nor any of their
respective affiliates nor any Person acting for the Company or any such
distributor has conducted any "directed selling efforts" in connection with
the offering described in this Agreement as that term is defined in Rule 902
of Regulation S. The Company has not offered the Securities to the
Purchasers in the United States or to any Person in the United States or any
U.S. person (as defined in Regulation S). The Company represents and warrants
that the offering by the Company of the Securities to the Purchasers as
contemplated in this Agreement is not part of a plan or scheme to evade the
registration provisions of the Securities Act.
SECTION 4.25. PURCHASE PRICE. The Board of Directors of the Company
has concluded that the Purchase Price of the Debentures and the Conversion
Price correspond to the fair market value of such Securities and that to the
extent the Conversion price includes any discount to the Market Price, such
discount is not excessive.
SECTION 4.26. NO ACTION. The Company has not taken and will not take
any action that will affect in any way the running of the Restricted Period
or the ability of any Purchaser to resell freely, without restrictive legend
following the running of the Restricted Period, the Convertible Instruments
and/or Conversion Shares in accordance with applicable securities laws and
this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 5.1. PURCHASERS. Each Purchaser severally (but not jointly)
hereby represents and warrants to the Company solely as to such Purchaser that:
(a) the Purchaser is not a "U.S. person" as that term is defined in
Rule 902(o) of Regulation S (a copy of which definition is attached hereto
as SCHEDULE 5.1(a), and such Purchaser is not an entity organized or
incorporated under the laws of any foreign jurisdiction by any U.S. person
principally for the purpose of investing in securities not registered
under the Securities Act, unless the Purchaser is or was organized or
incorporated by "U.S. persons" who are accredited investors (as defined in
Rule 501(a) under the Securities Act) and who are not natural persons,
estates or trusts;
(b) the Convertible Instruments were not offered to the Purchaser in
the United States and at the time of execution of this Agreement and at
the time the buy order was originated, and of any offer to such Purchaser
to purchase the Convertible Instruments hereunder, such Purchaser was
outside the United States;
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(c) the Purchaser is purchasing the Convertible Instruments for its
own account and not on behalf of or for the benefit of any U.S. person and
the resale of the Convertible Instruments and Conversion Shares has not
been prearranged with any buyer in the United States, and that any sale of
the Convertible Instruments or Conversion Shares following the expiration
of the Restricted Period may be made only pursuant to the registration of
such Securities or an applicable exemption therefrom;
(d) the Purchaser agrees that all offers and sales of the
Convertible Instruments prior to the expiration of the Restricted Period
shall not be made to U.S. persons or for the account or benefit of U.S.
persons or within the United States and shall otherwise be made in
compliance with the provisions of Regulation S;
(e) the Purchaser has not been engaged or acted as or on behalf of a
distributor or dealer (and is not an affiliate of a distributor or dealer)
with respect to the offering of the Convertible Instruments;
(f) the Purchaser shall take all reasonable steps to ensure its
compliance with Regulation S and shall promptly send to each Person who
acts as a distributor, dealer or a Person receiving a selling concession,
fee or other remuneration in respect of any of the Convertible
Instruments, who purchases prior to the expiration of the Restricted
Period a confirmation or other notice to the Person stating that the
Person is subject to the same restrictions on offers and sales as the
Person pursuant to Section 901(c)(2)(iv) of Regulation S;
(g) the Purchaser has not engaged in any "direct selling efforts"
(as such term is defined in Regulation S) and has no present plan or
intention of selling the Securities in the United States, has made no
predetermined arrangements to sell the Securities (other than the
registration provisions contained in the Registration Rights Agreement,
which pertain only to a potential method of disposing of the shares of
Common Stock) and that the offering of the Securities, together with any
subsequent resale by any Purchaser of the Securities, is not part of a
plan or scheme on the part of Purchaser to evade the registration
provisions of the Securities Act;
(h) the Purchaser currently does not have a short position in the
Company's Common Stock, including any short call position or any long put
position or any contract or arrangement that has the effect of eliminating
or substantially diminishing the risk of ownership of the Convertible
Instruments, nor has any Purchaser engaged in any hedging transaction with
respect to the Convertible Instruments (or the Common Stock of the
Company);
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(i) The Purchaser is not an officer, director or "affiliate" (as
that term is defined in Rule 405 under the Securities Act) of the company
or an "underwriter" or "dealer" (as such terms are defined in the federal
securities law of the United States). If the Purchaser becomes an
affiliate of the Company at any time after purchasing the Debentures, the
Purchaser understands and agrees that every sale made by it thereafter
must be made in compliance with the provisions of Rule 144 of the Act
(except for the four (4) year holding period requirement), including the
filing of Form 144 with the Commission at the time of the sale, as
required under Rule 144. The Purchaser understands and agrees that the
provisions of Rule 144, if at any time applicable to it, are separate and
apart from and independent of any restrictions imposed by Regulation S and
will apply even after the expiration oft he applicable restricted period
under Regulation S.
(j) If at any time after the expiration of the restricted period the
Purchaser wishes to transfer or attempts to transfer the Debentures to a
U.S. Person, Purchaser agrees to notify the Company if at such time it is
an "affiliate" of the Company or is then acting as an "underwriter",
"dealer" or "distributor" as to such Debentures (as such terms are defined
in the federal securities laws of the United States or the regulations
promulgated thereunder, including, but not limited to, Regulation S), or
if such transfer is being made as apart of a plan or scheme to evade the
registration provisions of the Securities Act.
(k) this Agreement and the remaining Transaction Agreements to which
it is a party have been duly executed and delivered in London, England by
the Purchaser.
(l) the Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act and the Securities to be acquired by
it pursuant to this Agreement are being acquired for its own account and,
as of the date hereof, not with a view toward, or for sale in connection
with, any distribution thereof except in compliance with applicable United
States federal and state securities law; provided that the disposition of
the Purchaser's property (including the Conversion Shares) shall at all
times be and remain within its control;
(m) the execution, delivery and performance of this Agreement and
the purchase of the Securities pursuant hereto are within Purchaser's
corporate or partnership powers, as applicable, and have been duly and
validly authorized by all requisite corporate or partnership action;
(n) this Agreement has been duly executed and delivered by the
Purchaser;
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(o) such Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or sold
except as specified in this Agreement;
(p) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms when executed and
delivered by the Company (subject to (i) applicable bankruptcy, insolvency
or similar laws affecting creditors rights generally and (ii) equitable
principles of general applicability);
(q) the Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of
its investment in the Securities and the Purchaser is capable of bearing
the economic risks of such investment;
(r) the Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; the Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations
on transfer described herein; the Purchaser has been afforded access to
information about the Company and the financial condition, results of
operations, property, management and prospects of the Company sufficient
to enable it to evaluate its investment in the Securities; the Purchaser
has been afforded the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Securities and
the merits and the risks of investing in the Securities; and the Purchaser
has been afforded the opportunity to obtain such additional information
which the Company possesses or can acquire that is necessary to verify the
accuracy and completeness of the information given to the Purchaser
concerning the Company. The foregoing does not in any way relieve the
Company of its representations and other undertakings hereunder, and shall
not limit any Purchaser's ability to rely thereon; and
(s) no part of the source of funds used by the Purchaser to acquire
the Securities constitutes assets allocated to any separate account
maintained by the Purchaser in which any employee benefit plan (or its
related trust) has any interest.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 6.1. CONDITIONS PRECEDENT TO THE PURCHASERS' OBLIGATION TO
PURCHASE. The obligation of each Purchaser hereunder to purchase the
Debentures is subject to
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the satisfaction, on the Closing Date, of each of the following conditions,
provided that these conditions are for such Purchaser's sole benefit and may
be waived by such Purchaser at any time in its sole discretion:
(a) The Reorganization (other than the Shareholder Ratification)
shall have been consummated substantially in accordance with the terms of
the Reorganization Agreement without amendment or alteration of any term
thereof, except for the amendments specified on SCHEDULE 6.1(a) hereto
(including the amendments to reflect the Shareholder Lock-Up Letters)
which shall be adopted prior to consummation of the Reorganization;
(b) The Company shall have consummated the UCI Teleport Acquisition
substantially in accordance with the terms of the UCI Teleport Agreement
without amendment or alteration of any term thereof (or such matter shall
be addressed in the manner set forth in the Funds Flow Memorandum);
(c) The Company shall have consummated the AT&T Settlement
substantially in accordance with the terms of the AT&T Settlement
Agreement without amendment or alteration of any term thereof (or such
matter shall be addressed in the manner set forth in the Funds Flow
Memorandum);
(d) The Company shall have executed and delivered to Infinity
Investors Limited the Option Agreement (and each agreement referenced
therein) and the Company and Infinity Investors Limited shall have
consummated the transactions contemplated therein;
(e) The Company and each Orix Shareholder shall have executed and
delivered, and performed the obligations set forth under, the Orix Stock
Pledge Agreement;
(f) The Company and Orix shall have executed this Agreement, the
Company shall have executed the Registration Rights Agreement, and Orix
shall have executed the Orix Asset Pledge Agreement, and delivered the
same to the Purchasers;
(g) The Company shall have delivered to the Purchasers duly executed
the Debentures in accordance with Section 2.3 hereof;
(h) The Company shall have delivered to the Purchasers the Solvency
Certificate substantially in the form of EXHIBIT H;
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(i) The representations and warranties of the Company contained in
each Transaction Agreement shall be true and correct in all respects as of
the date when made and as of the Closing Date as though made at such time
(except for representations and warranties that speak as of a specified
date) and the Company shall have performed, satisfied and complied with
all covenants, agreements and conditions required by such Transaction
Agreements to be performed, satisfied or complied with by it at or prior
to the Closing Date. The Purchasers shall have received an Officer's
Certificate, executed by the chief executive officer of the Company, dated
as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by the Purchasers, including but
not limited to, certificates with respect to the Company Corporate
Documents, resolutions relating to the transactions contemplated hereby
and the incumbencies of certain officers and Directors of the Company.
The form of such certificate is attached hereto as EXHIBIT F;
(j) Nothing shall have occurred which the Purchasers or the
Purchasers shall determine have, or could reasonably be expected to have,
a material adverse effect on the rights or remedies of the Purchasers, or
on the ability of the Company to perform its obligations to the Purchasers
or which have, or could reasonably be expected to have, a materially
adverse effect on the business, operations, property, assets, liabilities,
conditions (financial or otherwise) or prospects of the Company;
(k) All necessary governmental (domestic and foreign) and third
party approvals in connection with the transactions contemplated by the
Transaction Agreements and otherwise referred to herein or therein shall
have been attained and remain in effect, and all applicable waiting
periods shall have expired without action being taken by any competent
authority which restrains, prevents or imposes materially adverse
conditions upon the consummation of the transactions contemplated by the
Transaction Agreements and otherwise referred to herein or therein.
Additionally, there shall not exist any judgment, order, injunction or
other restraint issued or filed for a hearing seeking injunctive relief or
other restraint pending or notified prohibiting or imposing materially
adverse conditions upon the consummation of the transactions contemplated
by the Transaction Agreements;
(l) All applicable waiting periods in respect to the issuance and
sale of the Debentures shall have expired without any action having been
taken by any competent authority that could restrain, prevent or impose
any materially adverse conditions thereon or that could seek or threaten
any of the foregoing;
(m) No law or regulation shall have been imposed or enacted that, in
the judgment of the Purchasers, could adversely affect the transactions
set forth herein or in
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the other Transaction Agreements, and no law or regulation shall have
been proposed that could reasonably have any such effect;
(n) Each of the Purchasers shall have received an opinion, dated the
Closing Date, of counsel to the Company, substantially in the form
attached as EXHIBIT L hereto;
(o) All corporate and legal proceeds and all instruments and
agreements in connection with the transactions contemplated by this
Agreement and the other Transaction Agreements shall be satisfactory in
form and substance to the Purchasers, and the Purchasers shall have
received all information and copies of documents and papers, including
records of corporate proceedings, governmental approvals, good standing
certificates, and bring-down telegrams, if any, which the Purchasers
reasonably may have requested in connection therewith, such documents and
papers where appropriate to be certified by proper corporate or government
authorities;
(p) Except as disclosed on SCHEDULE 4.8, no litigation by any entity
(private or governmental) shall be pending or threatened with respect to
this Agreement or any documentation executed in connection herewith or the
actions contemplated hereby which the Purchasers shall determine could
reasonably be expected to have a materially adverse effect on the
business, operations, property, assets, liabilities, condition (financial
or otherwise) or prospects of the Company;
(q) There shall have been delivered to the Purchasers true and
correct copies, certified as true and complete by the appropriate officer
of the Company of (i) all Plans, (ii) all agreements entered into by the
Company or any Subsidiary governing the terms and relative rights of its
capital stock and any agreements entered into by its shareholders relating
to any such entity with respect to their capital stock, (iii) all
agreements with members of, or with respect to, the management of the
Company or any Subsidiary, (iv) any employment agreements entered into by
the Company or any Subsidiary, (v) all collective bargaining agreements
applying or relating to any employee of the Company or any Subsidiary, and
(vi) all agreements evidencing or relating to Debt of the Company or any
Subsidiary which exceeds (or upon utilization of any unused commitments
may exceed) $50,000; all of which documents and agreements shall be in
form and substance satisfactory to the Purchasers and shall be in full
force and effect on the Closing Date;
(r) There shall have not occurred any disruption or adverse change
in the financial or capital markets generally, or in the market for the
Common Stock (including, but not limited to any suspension or delisting,
which the Purchasers reasonably deem material in connection with the
purchase of the Securities);
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(s) The Company shall have paid to the Purchasers all costs, fees
and expenses (including, without limitation, legal fees and expenses)
payable to the Purchasers, pursuant to the Transaction Agreements, to the
extent then due;
(t) The Purchasers shall have confirmed receipt of the Debentures to
be issued, duly executed by the Company in the denominations and
registered in the names of the Purchasers as specified in or pursuant to
SCHEDULE 2.1;
(u) Immediately before and after the Closing Date, no Default or
Event of Default under the Debentures shall have occurred and be
continuing;
(v) The Company shall have entered into an agreement on terms
acceptable to the Purchasers and substantially in the form of EXHIBIT M
attached hereto restricting for a period of two (2) years from the Closing
Date the Company's right to sell or otherwise dispose of the shares of
common stock of UPC issuable upon conversion of the UPC Debentures and/or
UPC Preferred Stock;
(w) The Company shall have supplied to the Purchasers the proposed
list of officers and directors of the Company following the
Reorganization;
(x) Kerry Rogers and Jack Higgins shall have executed Shareholder
Lock-Up Letters in the form attached hereto as Exhibit O; and
(y) The Purchasers shall have received all other opinions,
resolutions, certificates, instruments, agreements or other documents as
they shall reasonably request.
SECTION 6.2. CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations
of the Company to issue and sell the Securities to the Purchasers pursuant to
this Agreement are subject to the satisfaction, at or prior to the Closing
Date, of the following conditions:
(a) The representations and warranties of the Purchasers contained
herein shall be true and correct in all material respects on the Closing
Date and the Purchasers shall have performed and complied in all material
respects with all agreements required by this Agreement to be performed or
complied with by the Purchasers at or prior to the Closing Date;
(b) The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation;
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(C) Receipt by the Company of duly executed counterparts of this
Agreement, the Registration Rights Agreement and the Option Agreement (and
each agreement referenced therein) signed by Infinity Investors Limited;
and
(D) The Company shall have received payment of the Purchase Price.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Company (and Orix, until the Shareholder Ratification has been
consummated) hereby agrees that, from and after the date hereof for so long as
any of the Convertible Instruments remain outstanding and for the benefit of
the Purchasers:
SECTION 7.1. INFORMATION. The Company will deliver to each holder of
the Convertible Instruments:
(A) AUDITED ANNUAL FINANCIAL STATEMENTS. As soon as available and
in any event within ninety (90) days after the end of each fiscal year of
the Company, a consolidated balance sheet of the Company and its
Subsidiaries as of the end of such fiscal year and the related
consolidated statements of income and cash flows and stockholders' equity
(deficit) for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, and certified by
independent public accountants of the Company of nationally recognized
standing in each case together with a report of such accounting firm
stating that in the course of its regular audit of the financial
statements of the Company, which audit was conducted in accordance with
GAAP, such accounting firm obtained no knowledge of any Default or Event
of Default which has occurred or is continuing or, if in the opinion of
such accounting firm such a Default or Event of Default has occurred and
is continuing, a statement as to the nature thereof;
(B) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any
event within forty five (45) days after the end of each of the first three
fiscal quarters of each fiscal year of the Company, a consolidated balance
sheet of the Company and its Subsidiaries as of the end of such quarter
and the related consolidated statements of income and cash flows and
stockholders' equity (deficit) for such quarter and for the portion of the
Company's fiscal year ended at the end of such quarter, setting forth in
each case in comparative form the figures for the corresponding quarter
and the corresponding portion of the Company's previous fiscal year, all
certified (subject to footnote presentation and normal year-end
adjustments), as to fairness of presentation,
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GAAP and consistency, by the chief financial officer or the chief
accounting officer of the Company;
(C) FILINGS UNDER SECURITIES ACT AND EXCHANGE ACT. Promptly upon
the filing thereof, copies of (i) all registration statements (other than
the exhibits thereto and any registration statements on Form S-8 or its
equivalent), (ii) all reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the Company or any Subsidiary has filed with the
Commission and (iii) any material press releases issued by the Company or
any Subsidiary;
(D) OFFICER'S CERTIFICATES. Simultaneously with the delivery of
each item referred to in clauses (a) and (b) above, a certificate from the
Company stating that no Default or Event of Default has occurred and is
continuing, or within five Business Days after any officer of the Company
obtains knowledge of a Default or Event of Default , a certificate of the
chief financial officer of the Company setting forth the details thereof
and the action which the Company is taking or proposes to take with
respect thereto;
(E) OTHER REPORTS AND FILINGS. Promptly upon the mailing thereof to
the shareholders of the Company generally, copies of all financial
statements, reports and proxy statements so mailed and any other document
generally distributed to shareholders;
(F) ERISA EVENTS. If and when any member of the ERISA Group (i)
gives or is required to give notice to the PBGC of any "reportable event"
(as defined in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of ERISA,
or knows that the plan administrator of any Plan has given or is required
to give notice of any such reportable event, a copy of the notice of such
reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA
or notice that any Multiemployer Plan is in reorganization, is insolvent
or has been terminated, a copy of such notice; (iii) receives notice from
the PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect
of, or appoint a trustee to administer any Plan, a copy of such notice;
(iv) applies for a waiver of the minimum funding standard under Section
412 of the Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice
and other information filed with the PBGC; (vi) gives notice of withdrawal
from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or
(vii) fails to make any required payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could
result in the imposition of a Lien or the posting of a bond or other
security, a certificate of the
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chief financial officer or the chief accounting officer of the Company
setting forth details as to such occurrence and action, if any, which
the Company or applicable member of the ERISA Group is required or
proposes to take;
(G) NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any event
within three Business Days after an officer of the Company obtains
knowledge thereof, notice of (i) the occurrence of any event which
constitutes a Default or Event of Default, (ii) any litigation or
governmental proceeding pending (x) against the Company or any of its
Subsidiaries which would materially and adversely affect the business,
operations, property, assets, condition (financial or otherwise) or
prospects of the Company or any of its Subsidiaries or (y) with respect to
this Agreement or any of the other Transaction Agreements, and (iii) any
other event which is likely to materially and adversely affect the
business, operations, property, assets, condition (financial or otherwise)
or prospects of the Company or any of its Subsidiaries; and
(H) OTHER INFORMATION. From time to time such additional
information regarding the financial position or business of the Company
and its Subsidiaries as the Purchasers may reasonably request.
SECTION 7.2. PERFORMANCE OF OBLIGATIONS. The Company will, and will
cause each of its Subsidiaries to, perform all its obligations under the terms
of each mortgage, indenture, security agreement and other debt instrument by
which it is bound, except such non-performances as could not in the aggregate
have a material adverse effect on the business, operations, property, assets,
condition (financial or otherwise) or prospects of the Company or of the
Company and its Subsidiaries taken as a whole.
SECTION 7.3. MAINTENANCE OF PROPERTY; INSURANCE. The Company will, and
will cause each Subsidiary to, keep all property useful and necessary in its
business in good working order and condition, (ii) maintain with financially
sound and reputable insurance companies insurance on all its property in at
least such amounts and against at least such risks as is common in the
industry, (iii) furnish to the Purchasers' Representative, upon written
request, full information as to the insurance carried.
SECTION 7.4. MAINTENANCE OF EXISTENCE. The Company will continue, and
each Subsidiary will continue, to engage in business of the same general type
as now conducted by the Company and such Subsidiaries, and will preserve, renew
and keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
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SECTION 7.5. COMPLIANCE WITH LAWS. The Company will and will cause each
Subsidiary to comply, in all material respects, with all federal, state,
municipal, local or foreign laws, ordinances, rules, regulations, municipal
by-laws, codes and requirements of governmental authorities in respect of the
conduct of its business and the ownership of its property (including, without
limitation, Environmental Laws and ERISA and the rules and regulations
thereunder) except where non-compliance therewith could not reasonably be
expected, in the aggregate, to have a material adverse effect on the business,
condition (financial or otherwise), operations, performance, properties or
prospects of the Company or such Subsidiary.
SECTION 7.6. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Company
will and will cause each Subsidiary to keep proper books of record and account
in which full, true and correct entries in conformity with GAAP and all
requirements of law shall be made of all dealings and transactions in relation
to their respective businesses and activities. The Company will, and will
cause each Subsidiary to, permit, during normal business hours upon reasonable
notice, officers and designated representatives of the Purchasers'
Representative to visit and inspect properties of the Company, upon reasonable
prior notice, to examine and make abstracts from any of the books and records
of the Company and to discuss the affairs, finances and accounts of the Company
with its executive officers and independent public accountants, all at such
reasonable times at the Company's expense.
SECTION 7.7. INVESTMENT COMPANY ACT. The Company will not be or become
an open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
SECTION 7.8. SUPPLEMENTAL INFORMATION. If at any time the Company is
not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish at its expense, upon request, for the benefit of
the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
SECTION 7.9. USE OF PROCEEDS. The proceeds from the issuance and sale
of the Debentures by the Company and Orix shall be used for the purposes set
forth in the Funds Flow Memorandum. None of the proceeds from the issuance and
sale of Debentures by the Company pursuant to this Agreement will be used
directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any "margin stock" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System.
SECTION 7.10. COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL CONTRACTS.
The Company will comply and will cause each Subsidiary to comply, in all
material respects, with all terms and conditions of all material contracts to
which it is subject.
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SECTION 7.11 BLUE SKY LAWS. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonable determine is necessary
to qualify the Convertible Instruments for sale to the Purchasers at the
Closing pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to each
Purchaser and the Purchasers' Representative on or prior to the Closing Date.
SECTION 7.12 OBSERVER RIGHTS. As long as the Purchasers own, in the
aggregate, not less than twenty five percent (25%) of the Convertible
Instruments issued hereunder (or an equivalent amount of Common Stock issued
upon conversion thereof), a representative of the Purchasers (the "Observer")
will have all the rights of a director (exclusive of payment of director
fees) pursuant to the Company's Corporate Documents but will not attend
meetings of the Company's Board of Directors and will not be entitled to vote
on matters submitted for the Board's approval. The Company shall provide to
the Observer copies of all notices, minutes, consents, and other materials
that it provides to its Directors (including but not limited to the minutes
of shareholders' meetings); provided, however, that the Observer shall agree
to hold in confidence and trust and to act in a fiduciary manner with respect
to all information so provided; and, provided further, that the Company
reserves the right to withhold any information or portion thereof if access
to such information or attendance at such meeting could adversely affect the
attorney-client privilege between the Company and its counsel or would result
in disclosure of material inside information or trade secrets to the
Observer. At the request of the Purchasers, key members of the Company's
management and executive officers will meet with the Observer no less than
four (4) times per calendar year, at the Company's facilities and at the
Company's expense.
SECTION 7.13. MAINTENANCE OF REPORTING STATUS; SUPPLEMENTAL INFORMATION.
So long as any of the Securities are outstanding, the Company shall timely file
all reports required to be filed with the Commission pursuant to the Exchange
Act. The Company shall not terminate its status as an issuer required to file
reports under the Exchange Act, even if the Exchange Act or the rules and
regulations thereunder would permit such termination. If at anytime the
Company is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company will promptly furnish at its expense, upon request,
for the benefit of the holders from time to time of Securities, and prospective
purchasers of Securities, information satisfying the information requirements
of Rule 144 under the Securities Act.
SECTION 7.14. OTC ELIGIBILITY. Unless the Common Stock becomes listed on
the Nasdaq Stock Market's National Market, Nasdaq Stock Market's SmallCap
Market, American Stock Exchange or New York Stock Exchange, the Company shall
take all actions necessary such that the Company's Common Stock will be (i)
eligible for quotation on the OTC Market and
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(ii) "active" securities (as such term is defined by NASD regulations)
satisfying the frequency-of-quotation requirement and traded on the OTC
Market. Additionally, the Company shall take all actions necessary such that
at least ten (10) members of the NASD continue to be registered as market
makers with respect to the Company's shares of Common Stock.
SECTION 7.15. KEY-MAN INSURANCE POLICY. Within 30 days of Closing, the
Company shall purchase a $3 million key-man life insurance policy (the "Key
Man Policy") on the life of Kerry Rogers. The Company shall appoint the
Purchasers as the primary beneficiary of the Key Man Policy to the extent of
the remaining balance (i.e., the principal amount and accrued interest or
Stated Value and accrued dividends) of the Convertible Instruments and any
remaining proceeds shall be payable to the Company. The Company shall
maintain the Key Man Policy for so long as the Purchasers hold at least
$500,000 of the Convertible Instruments.
ARTICLE VIII
NEGATIVE COVENANTS
The Company (and Orix, until the Shareholder Ratification has been
consummated) hereby agrees that, from and after the date hereof for so long as
any Convertible Instruments remain outstanding and for the benefit of the
Purchasers:
SECTION 8.1. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. Except for
consummation of the Reorganization and mergers contemplated by the
Reincorporation, the Company will not, and will not permit any of its
Subsidiaries to, wind up, liquidate or dissolve its affairs or enter into any
transaction of merger or consolidation, or convey, sell, lease or otherwise
dispose of (or agree to do any of the foregoing at any future time) all or any
part of its property or assets, or purchase or otherwise acquire (in one or a
series of related transactions) any part of the property or assets ("Asset
Sale") (other than purchases or other acquisitions of inventory, materials and
equipment in the ordinary course of business) of any Person, or permit any of
its Subsidiaries so to do any of the foregoing, except that the Company and its
Subsidiaries may (i) make sales of inventory in the ordinary course of
business, and (ii) in the ordinary course of business, sell equipment which is
uneconomical or obsolete.
SECTION 8.2. TRANSACTIONS WITH AFFILIATES. The Company will not, and
will not permit any of its Subsidiaries to, enter into any transaction or
series of related transactions, whether or not in the ordinary course of
business, with any Affiliate of the Company, other than on terms and conditions
substantially as favorable to the Company or such Subsidiary as would be
obtainable by the Company or such Subsidiary at the time in a comparable
arm's-length transaction with a Person other than an Affiliate.
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SECTION 8.3. RESTRICTIONS ON CERTAIN AMENDMENTS. Except for the
Reincorporation, neither the Company nor any Subsidiary will waive any
provision of, amend, or suffer to be amended, any provision of such entity's
existing Debt, any material contract or agreement previously or hereafter
filed by the Company with the Commission as part of its SEC Reports, any
Company Corporate Document or Subsidiary Corporate Document if such
amendment, in the Company's reasonable judgment, would materially adversely
affect the Purchasers or the holders of the Securities without the prior
written consent of the Purchasers.
SECTION 8.4 PROHIBITION ON DISCOUNTED EQUITY OFFERINGS.
(a) Until such time as all of the Convertible Instruments have been
either redeemed or converted into Conversion Shares in full, the Company
agrees that it will not issue any of its equity securities (or securities
convertible into or exchangeable or exercisable for equity securities
(collectively, the "Derivative Securities"), on terms that allow a holder
thereof to acquire such equity securities (or Derivative Securities) at a
discount to the Market Price of the Common Stock at the time of issuance
or, in the case of Derivative Securities (other than the Shares) at a
conversion price based on any formula (other than standard anti-dilution
provisions) based on the Market Price on a date later than the date of
issuance so long as such conversion is not below the Market Price on the
date of issuance (each such event, a "Discounted Equity Offering"). As
used herein, "discount" shall include, but not be limited to, (i) any
warrant, right or other security granted or offered in connection with
such issuance which, on the applicable date of grant, is offered with an
exercise or conversion price, as the case may be, at less than the then
current Market Price of the Common Stock or, if such security has an
exercise or conversion price based on any formula (other than standard
anti-dilution provisions) based on the Market Price on a date later than
the date of issuance, then at a price below the Market Price on such date
of exercise or conversion, as the case may be, or (ii) any commissions,
fees or other allowances paid in connection with such issuances (other
than customary underwriter or placement agent commissions, fees or
allowances). For the purposes of determining the Market Price at which
Common Stock is acquired under this Section, normal underwriting
commissions and placement fees (including underwriters' warrants) shall be
excluded.
(b) Until such time as all of the Convertible Instruments have been
either redeemed or converted into Conversion Shares in full, the Company
agrees it will not issue any of its equity securities (or Derivative
Securities), unless any shares of Common Stock issued or issuable in
connection therewith are "restricted securities". As used herein
"restricted securities" shall mean securities which may not be sold by
virtue of contractual restrictions imposed by the Company either pursuant
to an exemption from registration under the Securities Act or pursuant to
a registration statement filed by the Company with
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the Commission, in each case prior to eighteen (18) months following the
date of issuance of such securities.
(c) The restrictions contained in this Section 10.5 shall not apply
to the issuance by the Company of (or the agreement to issue) Common Stock
or Derivative Securities in connection with (i) the acquisition (including
by merger) of a business or of assets otherwise permitted under this
Agreement, (ii) stock option or other compensatory plans, or (iii)
issuance of Common Stock pursuant to the terms of the Equity Line.
SECTION 8.5 EXECUTIVE COMPENSATION. The Company shall not pay any of
its employees more than $100,000 per annum, without approval of the Company's
compensation committee, except for Kerry Rogers whose base salary shall be
$250,000 for calendar year 1998, with not more than $150,000 thereof paid
during calendar year 1998 (with any deferred portion being payable in January
1999), plus perquisites which shall not exceed $3,000 per month. In
addition, the Company shall be permitted to establish compensation plans
(including stock option plans) that are comparable to other companies of
similar size in similar industries, and which are approved by the Company's
compensation committee.
SECTION 8.6 REGISTRATION RIGHTS. The Company shall not grant any
registration rights to any parties receiving warrants to acquire Common Stock
in connection with the Reorganization or this Agreement.
ARTICLE IX
RESTRICTIVE LEGENDS
SECTION 9.1 RESTRICTIVE LEGENDS. The Convertible Instruments shall
bear a legend substantially as set forth below and any other legend, if such
legend or legends are reasonably required to comply with state, federal or
foreign law. Assuming that there are no changes in the material facts
represented by the Purchasers in Section 5.1 of this Agreement or applicable
law from the date hereof until the date of conversion, all certificates
representing the Conversion Shares into which the Convertible Instruments are
converted after the Restricted Period shall be issued without any restrictive
legend.
"The securities of Touch Tone America, Inc. represented hereby have
been issued pursuant to Regulation S, promulgated under the United
States Securities Act of 1933, as amended (the "Act"), and have not
been registered under the Act or any applicable state securities
laws. These securities may not be offered or sold within the United
States or to or for the account of a "U.S. Person" (as that term is
defined in Regulation S) during the period commencing on the date of
sale of
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these securities and ending following the fortieth day thereafter. These
securities may first be converted into common stock on February 16, 1998."
SECTION 9.2. ISSUANCE OF COMMON SHARES; TRANSFERS. Upon conversion of
the Convertible Instruments, the Company will, and will use its best lawful
efforts to cause its transfer agent to, issue within three (3) Business Days
of the delivery of a Notice of Conversion one or more certificates
representing shares of Common Stock in such name or names and in such
denominations specified by a Purchaser in a Notice of Conversion. The shares
of Common Stock to be issued upon conversion of the Convertible Instruments
shall not bear any restrictive legends and shall be freely transferable upon
expiration of the Restricted Period, subject to compliance with the terms of
the Convertible Instruments. The Company agrees that no instructions other
than these instructions, and instructions for a "stop transfer" until the end
of the Restricted Period have been or will be given to its transfer agent and
also agrees that the Convertible Instruments or Conversion Shares, as
applicable, shall otherwise be freely transferable by Purchaser on the books
and records of the Company subject to compliance with Federal and state
securities laws and the terms of the Convertible Instruments. The Company
will notify its transfer agent of the Closing Date and of the date of
expiration of the Restricted Period. Nothing in this section shall affect in
any way a Purchaser's obligations and agreement to comply with all applicable
securities laws upon resale of the Securities.
ARTICLE X
ADDITIONAL AGREEMENTS AMONG THE PARTIES
SECTION 10.1. REGISTRATION RIGHTS. The Company shall grant the
Purchasers registration rights covering the Conversion Shares and Warrant
Shares on the terms set forth in the Registration Rights Agreement.
SECTION 10.2. ADDITIONAL EQUITY.
(a) Following the Closing Date and at the times specified in
subsection (b) below, the Purchasers (whether one or more) agree to use
reasonable good faith efforts (but shall not be obligated) to provide the
Company either (x) a structured equity funding line with a maximum
commitment of $2,500,000 (the "Equity Line") or (y) a commitment to
acquire an additional $2,500,000 stated value of Series B Shares
containing terms (including the Conversion Price) identical to those
provided herein and in the Series B Certificate of Designation (the
"Additional Series B Share Acquisition"). The terms of Equity Line will
allow the Company to issue Common Stock from time to time to the
Purchasers, at a purchase price equal to 85% of the then applicable Market
Price of the Common Stock. The definitive documentation (which shall be
satisfactory to
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Purchasers in their sole discretion) establishing the Equity Line will
contain certain customary conditions to funding (similar to the condition
specified in Section 6.1 hereof), including, without limitation, (i) the
continued effectiveness of a registration statement and prospectus
allowing the public resale of the Common Stock purchased under the Equity
Line by the Purchasers, (ii) no Event of Default shall exist hereunder,
(iii) the financial condition of the Company shall be acceptable to the
Purchasers, and (iv) the Purchasers shall be satisfied in their sole
discretion with the financial and capital markets generally, including
the market for the Common Stock (including, without limitation, the
average trading volume and average Closing Bid Price of the Common
Stock). The definitive documentation (which shall be satisfactory to
Purchasers in their sole discretion) establishing the Additional Series B
Share Acquisition will contain certain customary conditions to closing
(similar to the conditions specified in Section 6.1 hereof), including,
without limitation (i) the continued applicability of Regulation S with a
Restricted Period not greater than 40 days following the issuance of the
additional Series B Shares, (ii) no Event of Default shall exist
hereunder, (iii) the financial condition of the Company shall be
acceptable to the Purchasers and (iv) the Purchasers shall be satisfied in
their sole discretion with the financial and capital markets generally,
including the market for the Common Stock (including, without limitation,
the average trading volume and average Closing Bid Price of the Common
Stock).
(b) Commencing July 1, 1998 and continuing through December 1, 1998,
the Company may request that the Purchasers provide either the Equity Line
or the Additional Series Share Acquisition. Upon receipt of any such
notice delivered prior to July 31, 1998, the Purchasers and the Company
shall then, in good faith, use all reasonable efforts to immediately
prepare the definitive documentation necessary for the applicable
financing (i.e., Equity Line or Additional Series B Share Acquisition)
consistent with the requirements of subsection (a) above. Upon
presentation of such definitive documentation to the Company, the Company
shall either (x) execute the definitive documentation with respect to the
Equity Line or Additional Series B Share Acquisition, as applicable, or
(y) in lieu thereof, the Warrants shall vest in accordance with their
terms. In addition, if the Company fails to notify the Purchasers by July
31, 1998 that the Company desires the Purchasers to provide either the
Equity Line or Additional Series B Share Acquisition, then the Warrants
shall vest in accordance with their terms (collectively, the "WARRANT
VESTING EVENTS").
SECTION 10.3. SHAREHOLDER RATIFICATION. As contemplated by Article III
above, the Company hereby agrees that it shall utilize its best lawful
efforts to obtain the Shareholder Ratification as soon as practicable
following the Closing Date and in all events by the Rescission Date. In the
event the Shareholder Ratification is not obtained by the Rescission Date,
the Purchasers, at their option, shall have the right ("Rescission Right") to
require the Company and
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Orix, jointly and severally, to repay all of the Debentures issued to the
Purchasers hereunder for a purchase price equal to the outstanding balance
due and owing (including without limitation accrued and unpaid interest)
thereon (the "Rescission Price"). The Rescission Price shall be payable to
the Purchasers in immediately available funds within one (1) Business Day of
the Company's receipt of written notice of the Purchaser's election to
exercise the Rescission Right hereunder. The Company's obligation to pay the
Rescission Price shall be a joint and several obligation of Orix by virtue of
Orix's execution of this Agreement (the "Orix Obligation"). The Orix
Obligation shall be secured by a pledge (x) by the Company and each Orix
Shareholder to the Purchasers of all outstanding capital stock of Orix
pursuant to the form of Stock Pledge Agreement in the form attached hereto as
EXHIBIT N (the "Orix Stock Pledge Agreement") and by (y) Orix of all of its
assets pursuant to the form of Asset Pledge Agreement in the form attached
hereto as EXHIBIT N-1 (the "ORIX ASSET PLEDGE AGREEMENT"); PROVIDED, HOWEVER,
the Purchasers hereby agree to refrain from exercising their remedies
thereunder (except in the case of an Event of Default) for a period of thirty
(30) days following the Recission Date during which period Orix shall in good
faith seek to repay the Convertible Instruments pursuant to their terms or
such other terms and shall be acceptable to the Purchasers.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. NOTICES. All notices, demands and other communications
to any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties. Each such notice, demand or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified on the signature
page hereof, (ii) if given by mail, four (4) days after such communication is
deposited in the mail with first class postage prepaid, addressed as
aforesaid or (iii) if given by any other means, when delivered at the address
specified in or pursuant to this Section.
SECTION 11.2. NO WAIVERS; AMENDMENTS.
(A) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
(B) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing
and is signed
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by the Company; provided, that without the consent of each Purchaser
affected thereby, an amendment or waiver may not restrict or limit such
Purchaser's rights under the Certificates of Designation. In
determining whether the requisite number of holders of the Shares have
concurred in any direction, consent, or waiver as provided in any
Transaction Agreement, Shares which are owned by the Company or any
other obligor on or guarantor of the Shares, or by any Person
Controlling, Controlled by, or under Common Control with any of the
foregoing, shall be disregarded and deemed not to be outstanding for the
purpose of any such determination; and provided further that no such
amendment, supplement or waiver which affects the rights of the
Purchasers and their Affiliates otherwise than solely in their
capacities as holders of Shares shall be effective with respect to them
without their prior written consent.
SECTION 11.3. INDEMNIFICATION BY THE COMPANY.
(a) The Company agrees to indemnify and hold harmless each
Purchaser, its Affiliates, and each Person, if any, who controls such
Purchaser, or any of its Affiliates, within the meaning of the Securities
Act or the Exchange Act (each for purposes of this Section 11.3 a
"Controlling Person"), and the respective partners, agents, employees,
officers and directors of each Purchaser, their Affiliates and any such
Controlling Person (each for purposes of this Section 11.3 an "Indemnified
Party" and collectively, the "Indemnified Parties"), from and against any
and all losses, claims, damages, liabilities and expenses (including,
without limitation, and as incurred, reasonable costs of investigating,
preparing or defending any such claim or action, whether or not such
Indemnified Party is a party thereto, provided that the Company shall not
be obligated to advance such costs to any Indemnified Party other than the
Purchasers unless it has received from such Indemnified Party an
undertaking to repay to the Company the costs so advanced if it should be
determined by final judgment of a court of competent jurisdiction that
such Indemnified Party was not entitled to indemnification hereunder with
respect to such costs) which may be incurred by such Indemnified Party in
connection with any investigative, administrative or judicial proceeding
brought or threatened that relates to or arises out of, or is in
connection with any activities contemplated by any Transaction Agreement
or any other services rendered in connection herewith; provided that the
Company will not be responsible for any claims, liabilities losses,
damages or expenses that are determined by final judgment of a court of
competent jurisdiction to result from such Indemnified Party's gross
negligence, willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in
writing and the Company, at its
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option, may, assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party and payment of
all reasonable fees and expenses. The failure to so notify the Company
shall not affect any obligations the Company may have to such
Indemnified Party under this Agreement or otherwise unless the Company
is materially adversely affected by such failure. Such Indemnified Party
shall have the right to employ separate counsel in such action and
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party, unless: (i)
the Company has failed to assume the defense and employ counsel or (ii)
the named parties to any such action (including any impleaded parties)
include such Indemnified Party and the Company, and such Indemnified
Party shall have been advised by counsel that there may be one or more
legal defenses available to it which are different from or additional to
those available to the Company, in which case, if such Indemnified Party
notifies the Company in writing that it elects to employ separate
counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of
such Indemnified Party, provided, however, that the Company shall not,
in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be responsible hereunder for the reasonable fees and
expenses of more than one such firm of separate counsel, in addition to
any local counsel, which counsel shall be designated by the Purchasers.
The Company shall not be liable for any settlement of any such action
effected without the written consent of the Company (which shall not be
unreasonably withheld) and the Company agrees to indemnify and hold
harmless each Indemnified Party from and against any loss or liability
by reason of settlement of any action effected with the consent of the
Company. In addition, the Company will not, without the prior written
consent of the Purchasers, settle or compromise or consent to the entry
of any judgment in or otherwise seek to terminate any pending or
threatened action, claim, suit or proceeding in respect to which
indemnification or contribution may be sought hereunder (whether or not
any Indemnified Party is a party thereto) unless such settlement,
compromise, consent or termination includes an express unconditional
release of the Purchasers and the other Indemnified Parties,
satisfactory in form and substance to the Purchasers, from all liability
arising out of such action, claim, suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party harmless,
then in lieu of indemnifying such Indemnified Party, the Company shall
contribute to the amount paid or payable by such Indemnified Party as a
result of such claims, liabilities, losses, damages, or expenses (i) in
such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and by the Purchasers on the other
from the transactions contemplated by
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this Agreement or (ii) if the allocation provided by clause (i) is not
permitted under applicable law, in such proportion as is appropriate to
reflect not only the relative benefits received by the Company on the
one hand and the Purchasers on the other, but also the relative fault of
the Company and the Purchasers as well as any other relevant equitable
considerations. Notwithstanding the provisions of this Section 11.3, the
aggregate contribution of all Indemnified Parties shall not exceed the
amount of interest and fees actually received by the Purchasers pursuant
to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and the Purchasers on the other
with respect to the transactions contemplated hereby shall be determined
by reference to, among other things, whether any untrue or alleged
untrue statement of material fact or the omission or alleged omission to
state a material fact related to information supplied by the Company or
by the Purchasers and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 11.3 (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise, (ii) shall survive the termination of this Agreement and the
other Transaction Agreements and the payment in full of the Convertible
Instruments and (iii) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Purchasers or
any other Indemnified Party.
SECTION 11.4. INDEMNIFICATION BY THE PURCHASER.
(a) The Purchaser agrees to indemnify and hold harmless the Company,
its Affiliates, and each Person, if any, who controls the Company, or any
of its Affiliates, within the meaning of the Securities Act or the
Exchange Act (each for purposes of this Section 11.4 a "Controlling
Person"), and the respective partners, agents, employees, officers and
directors of the Company, their Affiliates and any such Controlling Person
(each for purposes of this Section 11.4 an "Indemnified Party" and
collectively, the "Indemnified Parties"), from and against any and all
losses, claims, damages, liabilities and expenses (including, without
limitation, and as incurred, reasonable costs of investigating, preparing
or defending any such claim or action, whether or not such Indemnified
Party is a party thereto, provided that the Purchaser shall not be
obligated to advance such costs to any Indemnified Party other than the
Companies unless it has received from such Indemnified Party an
undertaking to repay to the Purchaser the costs so advanced if it should
be determined by final judgment of a court of competent
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jurisdiction that such Indemnified Party was not entitled to
indemnification hereunder with respect to such costs) which may be
incurred by such Indemnified Party in connection with any breach of the
representations and warranties of the Purchaser contained in this
Agreement; provided that the Purchaser will not be responsible for any
claims, liabilities losses, damages or expenses that are determined by
final judgment of a court of competent jurisdiction to result from such
Indemnified Party's gross negligence, willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Purchaser under this
Agreement, such Indemnified Party shall promptly notify the Purchaser in
writing and the Purchaser, at its option, may, assume the defense thereof,
including the employment of counsel reasonably satisfactory to such
Indemnified Party and payment of all reasonable fees and expenses. The
failure to so notify the Purchaser shall not affect any obligations the
Purchaser may have to such Indemnified Party under this Agreement or
otherwise unless the Purchaser is materially adversely affected by such
failure. Such Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such
Indemnified Party, unless: (i) the Purchaser has failed to assume the
defense and employ counsel or (ii) the named parties to any such action
(including any impleaded parties) include such Indemnified Party and the
Purchaser, and such Indemnified Party shall have been advised by counsel
that there may be one or more legal defenses available to it which are
different from or additional to those available to the Purchaser, in which
case, if such Indemnified Party notifies the Purchaser in writing that it
elects to employ separate counsel at the expense of the Purchaser, the
Purchaser shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, provided, however, that
the Purchaser shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be responsible hereunder for the reasonable
fees and expenses of more than one such firm of separate counsel, in
addition to any local counsel, which counsel shall be designated by the
Companies. The Purchaser shall not be liable for any settlement of any
such action effected without the written consent of the Purchaser (which
shall not be unreasonably withheld) and the Purchaser agrees to indemnify
and hold harmless each Indemnified Party from and against any loss or
liability by reason of settlement of any action effected with the consent
of the Purchaser. In addition, the Purchaser will not, without the prior
written consent of the Companies, settle or compromise or consent to the
entry of any judgment in or otherwise seek to terminate any pending or
threatened action, claim, suit or proceeding in respect to which
indemnification or contribution may be sought hereunder (whether or not
any Indemnified Party is a party thereto) unless such settlement,
compromise, consent or
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termination includes an express unconditional release of the Companies
and the other Indemnified Parties, satisfactory in form and substance to
the Companies, from all liability arising out of such action, claim,
suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party harmless,
then in lieu of indemnifying such Indemnified Party, the Purchaser shall
contribute to the amount paid or payable by such Indemnified Party as a
result of such claims, liabilities, losses, damages, or expenses (i) in
such proportion as is appropriate to reflect the relative benefits
received by the Purchaser on the one hand and by the Companies on the
other from the transactions contemplated by this Agreement or (ii) if the
allocation provided by clause (i) is not permitted under applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits received by the Purchaser on the one hand and the Companies on
the other, but also the relative fault of the Purchaser and the Companies
as well as any other relevant equitable considerations. Notwithstanding
the provisions of this Section 11.4, the aggregate contribution of all
Indemnified Parties shall not exceed the amount of interest and fees
actually received by the Companies pursuant to this Agreement. It is
hereby further agreed that the relative benefits to the Purchaser on the
one hand and the Companies on the other with respect to the transactions
contemplated hereby shall be determined by reference to, among other
things, whether any untrue or alleged untrue statement of material fact or
the omission or alleged omission to state a material fact related to
information supplied by the Purchaser or by the Companies and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 11.4 (i) shall be in addition to any
liability the Purchaser may have to any Indemnified Party at common law or
otherwise, (ii) shall survive the termination of this Agreement and the
other Transaction Agreements and the payment in full of the Convertible
Instruments and (iii) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Companies or
any other Indemnified Party.
SECTION 11.5. EXPENSES: DOCUMENTARY TAXES. The Company agrees to pay (i)
the greater of $25,000 or all actual reasonable out-of-pocket expenses of the
Purchasers, including fees and disbursements of counsel, in connection with (x)
the negotiation and preparation of this Agreement (the "Expense Reimbursement
Fee") and (y) any waiver or
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consent hereunder or under any other Transaction Agreement or any amendment
hereof or thereof and (ii) all reasonable out-of-pocket expenses of the
Purchasers and each holder of Securities, including fees and disbursements of
counsel, in connection with any collection, bankruptcy, insolvency and other
enforcement proceedings resulting therefrom. In addition, the Company agrees
to pay any and all stamp, transfer and other similar taxes, assessments or
charges payable in connection with the execution and delivery of any
Transaction Agreement or the issuance of the Securities to the Purchasers,
excluding their assigns.
SECTION 11.6. PAYMENT. The Company agrees that, so long as a Purchaser
shall own any Shares issued by the Company hereunder, the Company will make any
payments required to such Purchaser of all amounts due thereon by wire transfer
by 1:00 P.M. (New York City time) on the date of payment.
SECTION 11.7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company and upon the Purchasers and their respective successors and
assigns; provided that the Company shall not assign or otherwise transfer its
rights or obligations under this Agreement to any other Person without the
prior written consent of the Purchasers. All provisions hereunder purporting
to give rights to Purchasers and their Affiliates or to holders of Securities
are for the express benefit of such Persons and their successors and assigns.
SECTION 11.8. BROKERS. Except as set forth on SCHEDULE 11.7, the Company
represents and warrants that it has not employed any broker, finder, financial
advisor or investment banker who would be entitled to any brokerage, finder's
or other fee or commission payable by the Company or the Purchasers in
connection with the sale of the Securities. Each Purchaser hereby warrants that
it has not employed any broker, finder, financial advisor or investment banker
who would be entitled to any brokerage, finder's or other fee or commission
payable by the Company in connection with the sale of the Securities.
SECTION 11.9. CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEVADA. EACH PARTY
HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR CLARK COUNTY AND OF ANY NEVADA STATE COURT SITTING IN
NEVADA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH
A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
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SECTION 11.10. FURTHER ASSURANCE. The Company, the Purchasers'
Representative and the Purchasers shall each take such further actions as
requested by any party hereto which are necessary, desirable or proper to carry
out the purposes of this Agreement and each Transaction Agreement.
SECTION 11.11. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated unless a
failure of consideration would result thereby.
SECTION 11.12 SURVIVAL. All provisions contained in this Agreement
(unless specifically noted to the contrary) shall survive the redemption or
conversion into Conversion Shares in full of the Shares and shall remain
operative and in full force and effect.
SECTION 11.13. COUNTERPARTS. This Agreement may be executed by telecopy
signature and in any number of counterparts each of which shall be an original
with the same effect as if the signatures there to and hereto were upon the
same instrument.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
TOUCH TONE AMERICA, INC.
By: /s/ Kerry Rogers
-----------------------------------------
Name: Kerry Rogers
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
Address: 3300 N. Central Avenue, Suite 1155
Phoenix, Arizona 85012
Telephone: (602) 263-7559
Fax: (602) 263-9623
With a copy to: Lawrence E. Johnson, Esq.
Day, Campbell & McGill
3070 Bristol, Suite 650
Costa Mesa, California 92626
Fax: (714) 429-2901
IF TO PURCHASERS:
INFINITY INVESTORS LIMITED
By: /s/ James A. Loughran
-------------------------
Name: James A. Loughran
-----------------------
Title:
----------------------
Address: 38 Hertford Street
London, England WIY 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
With a copy to: HW Partners Limited
1601 Elm Street, Suite 4100
Dallas, Texas75201
Attn: Stuart Chasanoff
Fax: (214)720-1662
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ACKNOWLEDGED AND AGREED TO
FOR ALL PURPOSES SPECIFIED:
ORIX GLOBAL COMMUNICATIONS, INC.
By: /s/ Kerry Rogers
---------------------------
Name: Kerry Rogers
-------------------------
Title: President
------------------------
Address: 1771 E. Flamingo Road
Building B, Suite 200
Las Vegas, Nevada 89119
Telephone: (702) 792-2500
Fax: (702) 792-3313
Attn: Kerry Rogers
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LIST OF SCHEDULES
Schedule 2.1 - Purchasers
Schedule 4.1 - Subsidiaries
Schedule 4.3A - Authorized issued and outstanding
Capital Stock of Company and Orix
Schedule 4.3B - List of Shareholders of Orix
Schedule 4.3C - Capitalization of Company
Schedule 4.7(a)- Financial Information and SEC Reports
Schedule 4.7(c)- Pro Forma Balance Sheet of Company as
of August 31, 1997
Schedule 4.8 - Litigation
Schedule 4.11 - Taxes
Schedule 4.12 - Company Investments and Joint Ventures
Schedule 4.17 - Lease Obligations
Schedule 4.21 - Insurance
Schedule 5.1(a) Definition of U.S. Person
Schedule 6.1(a)- Amendments to Reorganization Agreement
Schedule 11.7 - Brokers
Page 1
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SCHEDULE 2.1
DEBENTURES
- ---------------------------------------------------------------------------
NAME/ADDRESS PRINCIPAL AMOUNT
OF DEBENTURES
- ---------------------------------------------------------------------------
Infinity Investors Limited, a Nevis corporation $2,500,000
- ---------------------------------------------------------------------------
Page 2
<PAGE>
SCHEDULE 4.1
SUBSIDIARIES
GetNet International, Inc., an Arizona Corporation.
Page 3
<PAGE>
SCHEDULE 4.3A
AUTHORIZED ISSUED AND OUTSTANDING
CAPITAL STOCK OF COMPANY AND ORIX
ORIX
Authorized
Issued 1,200 Common Shares
TOUCH TONE AMERICA
Common Preferred Issuable in Series
----------------------------------------------------------
Authorized 100,000,000 10,000,000
Issued 4,561,245 --
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SCHEDULE 4.3B
LIST OF SHAREHOLDERS OF ORIX
Outstanding shares of common stock 4,568,245
Options, rights to acquire common
stock currently outstanding 3,865,000
HOLDER NUMBER OF SHARES
- ------ ----------------
Kerry L. Rogers 650
W. Bruce Voss 50
Eckley M. Keach 50
Richard W. Weese 30
John Higgins 305
Robert A. Michel 100
Neal Matthews 15
Page 5
<PAGE>
SCHEDULE 4.3C
POST-REORGANIZATION CAPITALIZATION OF COMPANY
TOUCH TONE AMERICA, INC.
__________________
PROFORMA CAPITALIZATION TABLE
Authorized shares
Common 100,000,000
Preferred 10,000,000
Outstanding Shares
Common: 4,568,245
Preferred - Series A 0
Preferred - Series B 0
Preferred - Series C 0
Options to acquire Common shares 3,865,000
Total number of Common shares after
giving effect to all rights calling for
the issuance of Common shares 8,433,245
Number of shares to be issued to Orix
to afford it a 80% equity interest in
TTA after the exercise of all options 33,732,980
Total number of shares issued and
outstanding after giving effect to the
issuance of 33,732,980 shares to Orix 42,166,225
Principal amount of 8% Convertible
Debentures 2,500,000
Common shares reserved for future
issuances following the conversion of
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Series B and C Preferred Shares 14,000,000
Page 7
<PAGE>
SCHEDULE 4.7(A)
FINANCIAL INFORMATION AND SEC REPORTS
The Company''s Form 10-KSB for the year ended May 31, 1997 was not filed in a
timely manner.
Page 8
<PAGE>
SCHEDULE 4.7(C)
BALANCE SHEET OF COMPANY
Attached hereto as ANNEX I is a pro forma consolidated balance sheet of the
Company consisting of the Company's unaudited estimated consolidated balance
sheet as of August 31, 1997.
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SCHEDULE 4.8
LITIGATION
(1) The Company has advised Infinity that Michael Canny, President of GetNet
International, Inc., a wholly-owned subsidiary of the Company, has sued the
Company concerning an employment compensation dispute, and that Mr. Canny has
no other causes of action. Further, the Company has advised that the potential
for loss from this suit if no greater than $100,000. Further, the Company has
advised that the Company has meritorious defenses to this suit and that Mr.
Canny will not recover on this suit.
(2) The Company has advised Infinity that it will enter into an agreement with
the Internal Revenue Service regarding its unpaid payroll taxes. Further, the
Company has advised that the potential for loss from this agreement will not
be grater than $200,000, $100,000 if said amount being unpaid payroll taxes and
$100,000 being in penalties.
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SCHEDULE 4.11
TAXES
None
Page 11
<PAGE>
SCHEDULE 4.12
COMPANY INVESTMENTS AND JOINT VENTURES
1. GetNet International, Inc., an Arizona corporation, is a Subsidiary of the
Company.
2. Orix Global Communications, Inc., a Nevada corporation, will be a
Subsidiary of the Company following the Reorganization.
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SCHEDULE 4.17
LEASE OBLIGATIONS
None
Page 13
<PAGE>
SCHEDULE 4.21
INSURANCE
Attached hereto as ANNEX A is a full and complete list of all insurance policies
held by the Company and Orix.
Page 14
<PAGE>
SCHEDULE 6.1(a)
AMENDMENTS TO REORGANIZATION AGREEMENT
1. That certain amendment to the Reorganization made as of November 7, 1997.
2. That certain amendment to the Reorganization made as of December 18, 1997.
3. The attached amendment made as of the Closing Date.
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<PAGE>
SCHEDULE 11.7
BROKERS
1. Baron-Chase Fee
2. Warrants to Baron-Chase
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LIST OF EXHIBITS
Exhibit A - Reorganization Agreement
Exhibit B - Debentures
Exhibit C - Series B Certificate of Designation
Exhibit D - Option Agreement
Exhibit E - AT & T Settlement Agreement
Exhibit F - Officer's Certificate
Exhibit G - Registration Rights Agreement
Exhibit H - Solvency Certificate
Exhibit I - UCI Teleport Agreement
Exhibit J - Common Stock Purchase Warrant
Exhibit K - Funds Flow Memorandum
Exhibit L - Company Counsel Opinion
Exhibit M - UPC Securities Disposition Agreement
Exhibit N - Orix Stock Purchase Agreement
Exhibit N-1 - Orix Asset Pledge Agreement
Exhibit O - Shareholder Lock-Up Letters
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THIS WARRANT HAS BEEN OFFERED AND SOLD OUTSIDE OF THE UNITED STATES IN A
TRANSACTION UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT. THIS WARRANT MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED IN THE
UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S)
UNLESS THE WARRANT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO THE
AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
TOUCH TONE AMERICA, INC.
COMMON STOCK PURCHASE WARRANT
TOUCH TONE AMERICA, INC. (the "COMPANY"), hereby certifies that, for
value received, INFINITY INVESTORS LIMITED, or assigns, is entitled, subject
to the terms set forth below, to purchase from the Company at any time or
from time to time after the date hereof and prior to August 1, 2003 (the
"EXERCISE PERIOD"), at the Purchase Price hereinafter set forth, 400,000
fully paid and nonassessable shares of Common Stock of the Company. The
number and character of such shares of Common Stock and the Purchase Price
are subject to adjustment as provided herein.
The purchase price per share of Common Stock issuable upon exercise of
this Warrant (the "PURCHASE PRICE") shall initially be $1.46; provided, on
and following each Reset Date, the Conversion Price shall be the lower of
$1.46 and the then applicable Reset Price. The Reset Price shall be
calculated on the first day of each of the calendar months of March through
July, 1998 (each such date being a "Reset Date") as the Monthly WASP (as
herein defined) for the immediately preceding calendar month (each a
"Preceding Month"). The "Monthly WASP" means the daily-weighted average
sales price on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the daily-weighted average sales price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no daily-weighted average sales price is
reported for such security by Bloomberg, then the average of the bid prices
of any market makers for such security as reported in the "pink sheets" by
the National Quotation Bureau, Inc., in each case for all Trading Days during
each Previous Month. If the Monthly WASP cannot be calculated for such
security on such date on any of the foregoing bases, the Monthly WASP of such
security on such date shall be the fair market value as mutually determined
by the Company and the holders of this Warrant for which the calculation of
the Monthly WASP is required in order to determine the Purchase Price of this
Warrant, that the Purchase Price shall be adjusted from time to time as
provided in Sections 5 and 6 below.
- -------------------------------------------------------------------------------
COMMON STOCK PURCHASE WARRANT - Page 1
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As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(A) The term "COMPANY" shall include Touch Tone America, Inc. and
any entity that shall succeed or assume the obligations of such
corporation hereunder.
(B) The term "COMMON STOCK" includes (a) the Company's common stock,
(b) any other capital stock of any class or classes (however designated)
of the Company, authorized on or after such date, the holders of which
shall have the right, without limitation as to amount, either to all or to
a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to
preference, and the holders of which shall ordinarily, in the absence of
contingencies, be entitled to vote for the election of a majority of
directors of the Company (even though the right so to vote has been
suspended by the happening of such a contingency) and (c) any other
securities into which or for which any of the securities described in (a)
or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(C) The term "OTHER SECURITIES" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) that the holder of this Warrant at any time shall
be entitled to receive, or shall have received, on the exercise of this
Warrant, in lieu of or in addition to Common Stock, or that at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4 or
otherwise.
1. EXERCISE OF WARRANT.
1.1. METHOD OF EXERCISE. This Warrant may be exercised in whole or in
part (but not as to a fractional share of Common Stock), at any time and
from time to time during the Exercise Period by the Holder hereof by
delivery of a notice of exercise (a "NOTICE OF EXERCISE") substantially
in the form attached hereto as EXHIBIT A via facsimile to the Company.
Promptly thereafter the Holder shall surrender this Warrant to the Company
at its principal office, accompanied by payment of the Purchase Price
multiplied by the number of shares of Common Stock for which this Warrant
is being exercised (the "EXERCISE PRICE"). Payment of the Exercise Price
shall be made, at the option of the Holder, (i) by check or bank draft
payable to the order of the Company, (ii) by wire transfer to the account
of the Company, (iii) in shares of Common Stock having a Market Value on
the Exercise Date (as hereinafter defined) equal to the aggregate Exercise
Price or (iv) by presentation and surrender of this Warrant to the Company
for cashless exercise (a "CASHLESS EXERCISE"), with such surrender being
deemed a waiver of the Holder's obligation to pay all or any portion of the
Exercise Price. In the event the Holder elects a Cashless Exercise (which
such election shall be irrevocable) the Holder
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shall exchange this Warrant for that number of shares of Common Stock
determined by multiplying the number of shares of Common Stock being
exercised by a fraction, the numerator of which shall be the
difference between the then current Market Value of the Common Stock and
the Purchase Price, and the denominator of which shall be the then current
Market Value of the Common Stock. If the amount of the payment received by
the Company is less than the Exercise Price, the Holder will be notified of
the deficiency and shall make payment in that amount within five (5)
business days. In the event the payment exceeds the Exercise Price, the
Company will promptly refund the excess to the Holder. Upon exercise, the
Holder shall be entitled to receive, promptly after payment in full, one
or more certificates, issued in the Holder's name or in such name or names
as the Holder may direct, subject to the limitations on transfer contained
herein, for the number of shares of Common Stock so purchased. The shares
of Common Stock so purchased shall be deemed to be issued as of the close
of business on the date on which the Company shall have received from the
Holder payment in full of the Exercise Price (the "EXERCISE DATE").
1.2. REGULATION S RESTRICTIONS.
(a) Exercise of this Warrant and acceptance of shares of Common
Stock upon such exercise shall constitute a representation by the
holder (on which the Company shall have the right to rely in issuing
the Common Stock upon such exercise) that the holder is not a U.S.
Person (as such term is defined in Regulation S promulgated under the
Securities Act of 1933, as amended ("Regulation S")) and an agreement
by the holder not to offer or sell such shares in the United States
to a U.S. Person or for the account or benefit of a U.S. Person
during the period commencing on the date on which it exercises the
Warrant and ending on the 40th day following the Exercise Date. All
certificates for the shares of Common Stock issuable upon exercise
of this Warrant shall bear a legend stating as follows:
"The shares of Common Stock represented hereby have been
issued pursuant to Regulation S, promulgated under the United
States Securities Act of 1933, as amended (the "Act") and have
not been registered under the Act or any applicable state
securities laws. These shares may not be offered or sold within
the United States or to or for the account of a "U.S. Person" as
that term is defined Regulation S during the period commencing
on the date of issuance hereof and ending [COMPLETE AS
APPLICABLE 40-DAY RESTRICTED PERIOD].
(b) The Company covenants that upon the expiration of the
applicable 40-day restrictive period relating to the shares of Common
Stock underlying this
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Warrant, it will issue, and use its best lawful efforts to cause its
transfer agent to issue, one or more certificates representing such
shares of Common Stock (or Other Securities) without any restrictive
legend such that such shares shall be freely tradable, subject only
to compliance with Federal and state securities laws. The Company
acknowledges that "best lawful efforts" as used herein shall, among
other things, require the Company obtain an opinion of counsel of the
Company reasonably satisfactory to the holder regarding certain
Federal securities law implications in connection with removing the
restrictive legend on the shares of Common Stock issuable upon
exercise of this Warrant.
1.3. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise of this Warrant, upon the request of the holder hereof,
acknowledge in writing its continuing obligation to afford to such holder
any rights to which such holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant. If the holder
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such holder any such
rights.
1.4. LIMITATION ON EXERCISE; VESTING.
(a) Notwithstanding the foregoing, unless the holder delivers a
waiver in accordance with the immediately following sentence, in no
event (other than as provided below) shall a holder of this Warrant
be entitled to exercise any of this Warrant in excess of that number
of shares of Common Stock issued upon exercise of which the sum of
(x) the number of shares of Common Stock beneficially owned by the
holder and its affiliates (other than shares of Common Stock which
may be deemed beneficially owned through the ownership of the
unexercised portion of this Warrant) and (y) the number of shares of
Common Stock issuable upon the exercise hereof with respect to which
the determination of this proviso is being made, would result in
beneficial ownership by a holder and such holder's affiliates of more
than 4.9% of the outstanding shares of Common Stock (the "Limitation
on Conversion"). For purposes of the proviso to the immediately
preceding sentence, (i) beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended, and Regulation 13D-G thereunder, except as otherwise
provided in clause (x) of such proviso and (ii) a holder may waive
the limitations set forth therein by written notice to the Company
upon not less than sixty-one (61) days prior written notice (with
such waiver taking effect only upon the expiration of such sixty-one
(61) day notice period). The Limitation on Conversion shall not
apply and shall be of no further force and effect following written
notice to the Company by the holder upon the occurrence of event of
default by the Company under any other contractual agreements with the
holder.
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(b) Notwithstanding any provision herein to the contrary, the
holder shall not be entitled to exercise this Warrant for shares of
Common Stock unless a Warrant Vesting Event (as defined in the
Securities Purchase Agreement dated the date hereof between the
Company and the holder) occurs.
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as
practicable after the exercise of this Warrant, and in any event within five
(5) business days thereafter, the Company at its expense (including the
payment by it of any applicable issue, stamp or transfer taxes) will cause to
be issued in the name of and delivered to the holder thereof, or, to the
extent permissible hereunder, to such other person as such holder may direct,
a certificate or certificates for the number of fully paid and nonassessable
shares of Common Stock (or Other Securities) to which such holder shall be
entitled on such exercise, plus, in lieu of any fractional share to which
such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then applicable Purchase Price, together with any other
stock or other securities and property (including cash, where applicable) to
which such holder is entitled upon such exercise pursuant to Section 1 or
otherwise.
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time, the holders
of Common Stock (or Other Securities) shall have received, or (on or after
the record date fixed for the determination of shareholders eligible to
receive) shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as
a stock dividend or in a stock split (adjustments in respect of which are
provided for in Section 6), then and in each such case the holder of this
Warrant, on the exercise hereof as provided in Section 1, shall be entitled
to receive the amount of stock and other securities and property (including
cash in the cases referred to in subdivisions (b) and (c) of this Section 3)
that such holder would hold on the date of such exercise if on the date
hereof it had been the holder of record of the number of shares of Common
Stock called for on the face of this Warrant and had thereafter, during the
period from the date hereof to and including the date of such exercise,
retained such shares and all such other or additional stock and other
securities and property (including cash in the cases referred to in
subdivisions (b) and (c) of this Section 3) receivable by him as aforesaid
during such period, giving effect to all adjustments called for during such
period by Sections 4 and 6.
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4. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
4.1. REORGANIZATION, ETC. In case at any time or from time to time,
the Company shall (a) effect a reorganization, (b) consolidate with or
merge into any other person, or (c) transfer all or substantially all of
its properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then, in each such case, the
holder of this Warrant, on the exercise hereof as provided in Section 1 at
any time after the consummation of such reorganization, consolidation or
merger or the effective date of such dissolution, as the case may be,
shall receive, in lieu of the Common Stock (or Other Securities) issuable
on such exercise prior to such consummation or such effective date, the
stock and other securities and property (including cash) to which such
holder would have been entitled upon such consummation or in connection
with such dissolution, as the case may be, if such holder had so exercised
this Warrant, immediately prior thereto, all subject to further adjustment
thereafter as provided in Sections 3 and 6.
4.2. DISSOLUTION. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense
deliver or cause to be delivered the stock and other securities and
property (including cash, where applicable) receivable by the holder of
this Warrant after the effective date of such dissolution pursuant to this
Section 4 to a bank or trust company, as trustee for the holder or
holders of this Warrant.
4.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred
to in this Section 4, this Warrant shall continue in full force and effect
and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after
the consummation of such reorganization, consolidation or merger or the
effective date of dissolution following any such transfer, as the case may
be, and shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person
acquiring all or substantially all of the properties or assets of the
Company, whether or not such person shall have expressly assumed the terms
of this Warrant as provided in Section 6.
5. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of this Warrant, all shares of Common Stock (or
Other Securities) from time to time issuable on the exercise of this Warrant.
6. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event that the Company
shall (i) issue additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) subdivide its outstanding
shares of Common Stock, or (iii) combine its outstanding shares of the Common
stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
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event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such event,
and the product so obtained shall thereafter be the Purchase Price then in
effect. The Purchase Price, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive event or events described herein
in this Section 6. The holder of this Warrant shall thereafter, on the
exercise hereof as provided in Section 1, be entitled to receive that number
of shares of Common Stock determined by multiplying the number of shares of
Common Stock that would otherwise (but for the provisions of this Section 6)
be issuable on such exercise by a fraction of which (i) the numerator is the
Purchase Price that would otherwise (but for the provisions of this Section
6) be in effect, and (ii) the denominator is the Purchase Price in effect on
the date of such exercise.
7. ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
7.1. SPECIAL DEFINITIONS. For purposes of this Section 7, the
following definitions shall apply:
(a) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(b) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares of preferred stock or other securities directly or
indirectly convertible into or exchangeable for Common Stock.
(c) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of
Common Stock issued by the Company after the first day of the Exercise
Period, other than shares of Common Stock issued or issuable to officers,
employees or directors of the Company or any subsidiary of the Company,
pursuant to a stock purchase or option plan or other employee stock bonus
arrangement (collectively, the "Plans") approved by the Board of Directors
and shareholders of the Company.
(d) "MARKET PRICE" shall mean:
(i) if traded on a stock exchange, the Market Price of the
Common Stock shall be deemed to be the average of the daily
closing selling prices of the Common Stock on the stock exchange
reasonably determined by the Company's Board of Directors to be
the primary market for the Common Stock over the ten (10) trading
day period ending on the date prior to the Exercise Date, as such
prices are officially quoted in the composite tape of
transactions on such exchange;
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(ii) if traded over-the-counter, the Market Price of the
Common Stock shall be deemed to be the average of the daily
closing selling prices (or, if such information is not available,
the average of the daily closing bid and asked prices) of the
Common Stock over the ten (10) trading day period ending on the
date prior to the Exercise Date, as such prices are reported by
the National Association of Securities Dealers through its NASDAQ
system or any successor system; and
(iii) if there is no public market for the Common Stock,
then the Market Price shall be determined by mutual agreement of
the holder of the Warrant and the Company, and if the holder and
the Company are unable to so agree within twenty (20) days after
the event giving rise to the need to determine the Market Price,
by an investment banker of national reputation selected by mutual
agreement of the Company and the holder of the Warrant, with the
fees and costs incurred by such investment banker to be borne by
the Company.
7.2. ISSUANCE OF ADDITIONAL SHARES. In the event the Company shall
issue or agree to issue Additional Shares of Common Stock (pursuant to an
Option or otherwise) without consideration or for a consideration per share
less than the then applicable Market Price in effect on the date of and
immediately prior to such issue, then and in such event, such Purchase
Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Purchase
Price by a fraction, the numerator of which shall be (i) the number of
shares of Common Stock outstanding immediately prior to such issue plus
(ii) the number of shares of Common Stock which the aggregate consideration
received or deemed to have been received by the Company for the total
number of Additional Shares of Common Stock so issued would purchase at
such Market Price, and the denominator of which shall be (i) the number of
shares of Common Stock outstanding immediately prior to such issue plus
(ii) the number of Additional Shares of Common Stock so issued or deemed
to be issued. For the purposes of the foregoing calculation, the number of
shares of Common stock deemed to be outstanding immediately prior to the
issuance of any securities described in either clause of the preceding
sentence shall be the sum of (i) the total number of shares of Common Stock
issued and outstanding at such time, plus (ii) the total number of shares
of Common Stock issuable upon conversion in full of all Convertible
Securities issued and outstanding at such time, plus (iii) the total number
of shares of Common Stock issuable upon conversion in full of all
Convertible Securities issuable upon exercise of Options for Convertible
Securities issued and outstanding at such time.
8. NO IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in
good faith
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assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of
the holder of this Warrant against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the exercise of this Warrant above the
amount payable therefor on such exercise, (b) will take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock on the exercise of
this Warrant, and (c) will not transfer all or substantially all of its
properties and assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the
surviving person), unless such other person shall expressly assume in writing
and will be bound by all the terms of this Warrant.
9. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of this Warrant, the Company at its
expense will promptly cause independent certified public accountants of
national standing selected by the Company to compute such adjustment or
readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based,
including a statement of (a) the consideration received or receivable by the
Company for any additional shares of Common Stock (or Other Securities)
issued or sold or deemed to have been issued or sold, (b) the number of
shares of Common Stock (or Other Securities) outstanding or deemed to be
outstanding, and (c) the Purchase Price and the number of shares of Common
Stock to be received upon exercise of this Warrant, in effect immediately
prior to such issue or sale and as adjusted and readjusted as provided in
this Warrant. The Company will forthwith mail a copy of each such certificate
to the holder of this Warrant, and will, on the written request at any time
of the holder of this Warrant, furnish to such holder a like certificate
setting forth the Purchase price at the time in effect and showing how it was
calculated.
10. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders of any
class or securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or
any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property, or to
receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
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then and in each such event the Company will mail or cause to be mailed to
the holder of this Warrant a notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, and (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation
or winding-up is to take place, and the time, if any, as of which the holders
of record of Common Stock (or Other Securities) shall be entitled to exchange
their shares of Common Stock (or Other Securities) for securities or other
property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation
or winding-up. Such notice shall be mailed at least 20 days prior to the date
specified in such notice on which any action is to be taken.
11. EXCHANGE OF WARRANT. On surrender for exchange of this
Warrant, properly endorsed, to the Company, the Company at its expense will
issue and deliver to or on the order of the holder thereof a new Warrant of
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate
on the face or faces thereof for the number of shares of Common Stock called
for on the face of the Warrant so surrendered.
12. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
13. REMEDIES. The Company stipulates that the remedies at law of
the holder of this Warrant in the event of any default or threatened default
by the Company in the performance of or compliance with any of the terms of
this Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
14. NEGOTIABILITY, ETC. This Warrant is issued upon the following
terms, to all of which each holder or owner hereof by the taking hereof
consents and agrees:
(a) title to this Warrant may be transferred by endorsement (by
the holder hereof executing the form of assignment at the end hereof)
and delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery;
(b) any person in possession of this Warrant properly endorsed
is authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and
delivery hereof to a BONA FIDE
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purchaser hereof for value; each prior taker or owner waives and
renounces all of his equities or rights in this Warrant in
favor of each such BONA FIDE purchaser, and each such BONA FIDE
purchaser shall acquire absolute title hereto and to all rights
represented hereby;
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to
the contrary; and
(d) notwithstanding the foregoing, this Warrant may not be sold,
transferred or assigned except pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable
exemption therefrom.
15. REGISTRATION RIGHTS. The Company is obligated to register the
shares of Common Stock issuable upon exercise of this Warrant pursuant to the
terms of a Registration Rights Agreement between the Company and Infinity
Emerging Opportunities Limited dated the date hereof.
16. NOTICES, ETC. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished
to the Company in writing by such holder or, until any such holder furnishes
to the Company an address, then to, and at the address of, the last holder of
this Warrant who has so furnished an address to the Company.
17. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws of the State of Nevada.
18. HEADINGS. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms
hereof. This Warrant is being executed as an instrument under seal. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
[SIGNATURE PAGE FOLLOWS]
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DATED December 31, 1997.
TOUCH TONE AMERICA, INC.
By: /s/ Kerry Rogers
-----------------------------------------
Name: Kerry Rogers
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
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EXHIBIT A
FORM OF NOTICE OF EXERCISE - WARRANT
(To be executed only upon exercise or conversion
of the Warrant in whole or in part)
To Touch Tone America, Inc.:
The undersigned registered holder of the accompanying Warrant hereby
exercises such Warrant or portion thereof for, and purchases thereunder,
______________ shares of Common Stock (as defined in such Warrant) and
herewith makes payment therefor in the amount and manner set forth below, as
of the date written below. The undersigned requests that the certificates for
such shares of Common Stock be issued in the name of, and delivered to,
_________________________________ whose address is ____________________________
_______________________________________________________________________________.
The Exercise Price is paid as follows:
// Bank draft payable to the Company in the amount of $__________.
// Wire transfer to the account of the Company in the amount of $________.
// Delivery of ____________ previously held shares of Common Stock having
an aggregate Market Value of $_________.
// Cashless exercise. Surrender of ___________ shares purchasable
under this Warrant for such shares of Common Stock issuable in exchange
therefor pursuant to the Cashless Exercise provisions of the Warrant,
as provided in Section 1.1(iv) thereto.
Upon exercise pursuant to this Notice of Exercise, the holder will be in
compliance with the Limitation on Exercise (as defined in the Warrant). The
undersigned reaffirms that it is not a "U.S. Person" and that the
representations and warranties of the undersigned contained in the Securities
Purchase Agreement pursuant to which the Convertible Debentures were issued
are true and correct in all material respects as of the date hereof.
Dated: ____________________
-------------------------------------------------
(Name must conform to name of holder as specified
on the face of the Warrant)
By:
----------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
Address of holder:
-------------------------------------------------
-------------------------------------------------
Date of Exercise: ________
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REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December
31, 1997, among TOUCH TONE AMERICA, INC. (the "Company"), and the other
undersigned parties hereto (collectively, the "Funds").
1. INTRODUCTION. The Company and the Funds have today executed that
certain Securities Purchase Agreement and that certain Option Agreement
(collectively, the "Purchase Agreement"), pursuant to which the Company has
agreed, among other things, to issue the Convertible Instruments and Warrants
(each as defined therein) to the Funds or their successors, assigns or
transferees (collectively, the "Holders"). The Convertible Instruments and
Warrants are convertible and exercisable into an indeterminable number of
shares of the Company's common stock, no par value (the "Common Stock"),
pursuant to the terms of the Convertible Instruments and Warrants,
respectively. The number of Conversion Shares and Warrant Shares (each as
defined in the Purchase Agreement) (collectively, the "Securities") is
subject to adjustment upon the occurrence of stock splits, recapitalizations
and similar events occurring after the date hereof. Capitalized terms used in
this Agreement are defined in Section 3 hereof; references to sections shall
be to sections of this Agreement.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1 REGISTRATION ON LIQUIDITY EVENT.
(A) REGISTRATION OF REGISTRABLE SECURITIES. As soon as is
practicable after the occurrence of each Liquidity Event, but in no event
later than thirty (30) days thereafter, the Company shall prepare and file a
registration statement to effect the registration under the Securities Act of
all, but not less than all, of the Registrable Securities which relate (or,
because of the indeterminable number thereof, which could reasonably be
deemed to relate) to the Securities; all to the extent requisite to permit
the public disposition of such Registrable Securities so to be registered.
The Company shall use its best efforts to cause the Registration Statement
which is the subject of this Section 2.1(a) (the "Registration Statement") to
be declared effective by the Commission upon the earlier to occur of (i) 90
days after the occurrence of a Liquidity Event or (ii) five (5) business days
after receipt of a "no review" or similar letter from the Commission (the
"Required Effectiveness Date"). Nothing contained herein shall be deemed to
limit the number of Registrable Securities to be registered by the Company
hereunder. As a result, should the Registration Statement not relate to the
maximum number of Registrable Securities acquired by (or potentially
acquirable by) the holders thereof upon conversion of the Convertible
Instruments, or exercise of the Warrants, the Company shall be required to
file a separate registration statement (utilizing Rule 462 promulgated under
the Exchange Act, where applicable) relating to such Registrable Securities
which then remain unregistered. The provisions of this Agreement shall relate
to such separate registration statement as if it were an amendment to the
Registration Statement.
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REGISTRATION RIGHTS AGREEMENT - Page 1
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(B) REGISTRATION STATEMENT FORM; PLAN OF DISTRIBUTION.
Registrations under this Section 2.1 shall be on Form S-3 or such other
appropriate registration form of the Commission as shall permit the
disposition of such Registrable Securities in accordance with the intended
method or methods of disposition specified by the Funds (and substantially in
accordance with the Plan of Distribution attached hereto as Annex A);
PROVIDED, HOWEVER, such intended method of disposition shall not include an
underwritten offering of the Registrable Securities.
(D) EXPENSES. The Company will pay all Registration Expenses in
connection with any registration required by this Section 2.1.
(E) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective
within the time period specified herein, PROVIDED that a registration which
does not become effective after the Company has filed a registration
statement with respect thereto solely by reason of the refusal to proceed of
any holder of Registrable Securities (other than a refusal to proceed based
upon the advice of counsel in the form of a letter signed by such counsel and
provided to the Company relating to a disclosure matter unrelated to such
holder) shall be deemed to have been effected by the Company unless the
holders of the Registrable Securities shall have elected to pay all
Registration Expenses in connection with such registration, (ii) if, after it
has become effective, such registration becomes subject to any stop order,
injunction or other order or extraordinary requirement of the Commission or
other governmental agency or court for any reason or (iii) if, after it has
become effective, such registration ceases to be effective for more than an
aggregate of ninety (90) days.
2.2 INCIDENTAL REGISTRATION.
(A) RIGHT TO INCLUDE REGISTRABLE SECURITIES. Following the
occurrence of any Liquidity Event, the Company proposes to register any of its
securities under the Securities Act (other than by a registration in connection
with an acquisition in a manner which would not permit registration of
Registrable Securities for sale to the public, on Form S-8, or any successor
form thereto, on Form S-4, or any successor form thereto and other than
pursuant to Section 2.1), on an underwritten basis (either best-efforts or
firm-commitment), THEN, the Company will each such time give prompt written
notice to all Holders of its intention to do so and of such Holders' rights
under this Section 2.2. Upon the written request of any such Holder made within
twenty (20) days after the receipt of any such notice (which request shall
specify the Registrable Securities intended to be disposed of by such Holder
and the intended method of disposition thereof), the Company will, subject to
the terms of this Agreement, effect the registration under the Securities Act
of up to that number of Registrable Securities equal to that number of
Conversion Shares acquirable upon conversion of up to 75% of the original
principal amount of the Convertible Instruments which the Company has been so
requested to register by the Holders thereof, to the extent requisite to permit
the disposition (in accordance with the intended methods thereof as aforesaid)
of such Registrable Securities so to be registered, by inclusion of such
Registrable Securities in the registration statement which covers the
securities which the
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Company proposes to register, PROVIDED that if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason either not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to each Holder and,
thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith), without prejudice, however,
to the rights of any holder or holders of Registrable Securities entitled to
do so to request that such registration be effected as a registration under
Section 2.1, and (ii) in the case of a determination to delay registering,
shall be permitted to delay registering any Registrable Securities, for the
same period as the delay in registering such other securities. No
registration effected under this Section 2.2 shall relieve the Company of its
obligation to effect any registration upon request under Section 2.1, nor
shall any such registration hereunder be deemed to have been effected
pursuant to Section 2.1. The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities requested
pursuant to this Section 2.2. The right provided the Holders of the
Registrable Securities pursuant to this Section shall be exercisable at their
sole discretion and will in no way limit any of the Company's obligations to
pay the Securities according to their terms.
(B) PRIORITY IN INCIDENTAL REGISTRATIONS. If the managing
underwriter of the underwritten offering contemplated by this Section 2.2
shall inform the Company and holders of the Registrable Securities requesting
such registration by letter of its belief that the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering, then the Company will include in such registration, to
the extent of the number which the Company is so advised can be sold in such
offering, (i) first securities proposed by the Company to be sold for its own
account, and (ii) second Registrable Securities and securities of other
selling security holders requested to be included in such registration pro
rata on the basis of the number of shares of such securities so proposed to
be sold and so requested to be included; PROVIDED, HOWEVER, the holders of
Registrable Securities shall have priority to all shares sought to be
included by officers and directors of the Company as well as holders of ten
percent (10%) or more of the Company's Common Stock.
2.3 REGISTRATION PROCEDURES. If and whenever the Company is required to
effect the registration of any Registrable Securities under the Securities
Act as provided in Section 2.1 and, as applicable, 2.2, the Company shall, as
expeditiously as possible:
(i) prepare and file with the Commission the Registration Statement
to effect such registration (including such audited financial statements
as may be required by the Securities Act or the rules and regulations
promulgated thereunder) and thereafter use its best efforts to cause such
registration statement to be declared effective by the Commission, as soon
as practicable, but in any event no later than the Required Effectiveness
Date; PROVIDED, HOWEVER, that before filing such registration statement or
any amendments thereto, the Company will furnish to the counsel selected
by the holders
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of Registrable Securities which are to be included in such
registration, copies of all such documents proposed to be filed;
(ii) with respect to any Registration Statement pursuant to Section
2.1, prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement until the earlier to occur of three (3) years after
the date of this Agreement (subject to the right of the Company to suspend
the effectiveness thereof for not more than 10 consecutive days or an
aggregate of 30 days in such three (3) years period) or such time as all
of the securities which are the subject of such registration statement
cease to be Registrable Securities (such period, in each case, the
"Registration Maintenance Period"); PROVIDED, HOWEVER, that if the Common
Stock Purchase Warrants have been exercised in full, the Registration
Maintenance Period shall be reduced to two (2) years;
(iii) furnish to each seller of Registrable Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents, as
such seller and underwriter, if any, may reasonably request in order to
facilitate the public sale or other disposition of the Registrable
Securities owned by such seller;
(iv) use its reasonable efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities laws or blue sky laws as any seller
thereof shall reasonably request, to keep such registrations or
qualifications in effect for so long as such registration statement
remains in effect, and take any other action which may be reasonably
necessary to enable such seller to consummate the disposition in such
jurisdictions of the securities owned by such seller, except that the
Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this subdivision (iv) be obligated to be
so qualified or to consent to general service of process in any such
jurisdiction;
(v) notify the Sellers' Representative and its counsel promptly and
confirm such advice in writing promptly after the Company has knowledge
thereof:
(v) when the registration statement, the prospectus or any
prospectus supplement related thereto or post-effective amendment to
the registration
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statement has been filed, and, with respect to the registration
statement or any post-effective amendment thereto, when the same
has become effective;
(w) of any request by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information;
(x) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or the
initiation of any proceedings by any Person for that purpose; and
(y) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any proceeding for such
purpose;
(vi) notify each seller of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or
upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, and at the
request of any such seller promptly prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(vii) use its reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of the registration statement at the
earliest possible moment;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more than
eighteen months, beginning with the first full calendar month after the
effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder;
(ix) enter into such agreements and take such other actions as the
Sellers' Representative shall reasonably request in writing (at the
expense of the requesting or benefiting sellers) in order to expedite or
facilitate the disposition of such Registrable Securities; and
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(x) use its best efforts to list all Registrable Securities covered
by such registration statement on any securities exchange on which any of
the Registrable Securities are then listed.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company
may from time to time reasonably request in writing.
The Company will not file any registration statement pursuant to Section
2.1, or amendment thereto or any prospectus or any supplement thereto
(including such documents incorporated by reference and proposed to be filed
after the initial filing of the registration statement) to which the Sellers'
Representative shall reasonably object, PROVIDED that the Company may file such
document in a form required by law or upon the advice of its counsel.
The Company represents and warrants to each holder of Registrable
Securities that it has obtained all necessary waivers, consents and
authorizations necessary to execute this Agreement and consummate the
transactions contemplated hereby other than such waivers, consents and/or
authorizations specifically contemplated by the Purchase Agreement.
Each Fund agrees that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in subdivision (vi) of this
Section 2.3, such Fund will forthwith discontinue such Fund's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such Fund's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (viii) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such Fund's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
If any such registration statement refers to any Holder of Registrable
Securities by name or otherwise as the holder of any securities of the Company,
then such holder shall have the right to require (a) the insertion therein of
language, in form and substance reasonably satisfactory to such holder, to the
effect that the holding by such holder of such securities is not to be
construed as a recommendation by such holder of the investment quality of the
Company's securities covered thereby and that such holding does not imply that
such holder will assist in meeting any future financial requirements of the
Company, or (b) in the event that such reference to such holder by name or
otherwise is not required by the Securities Act or any similar federal statute
then in force, the deletion of the reference to such holder.
2.4 UNDERWRITTEN OFFERINGS.
(A) INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company
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will, if requested by any holder of Registrable Securities as provided
in Section 2.2 and subject to the provisions of Section 2.2(a), use
its reasonable efforts to arrange for such underwriters to include
all the Registrable Securities to be offered and sold by such
holder among the securities to be distributed by such underwriters,
PROVIDED that if the managing underwriter of such underwritten
offering shall inform the holders of the Registrable Securities
requesting such registration, in respect of such underwritten
offering, by letter of its belief that inclusion in such
underwritten distribution of all or a specified number of such
Registrable Securities to requested to be included would interfere
with the successful marketing of the securities (other than such
Registrable Securities and other securities so requested to be
included which may be included in such underwritten offering
without such effect) then, the Company may, upon written notice to
all holders of such Registrable Securities (and of such other
shares so requested to be included) exclude PRO RATA from such
underwritten offering (if and to the extent stated by such managing
underwriter to be necessary to eliminate such effect) the number of
such Registrable Securities and shares of such other securities so
requested to be included in the registration of which shall have
been requested by each holder of Registrable Securities and by the
holders of such other securities so that the resultant aggregate
number of such Registrable Securities and of such other shares or
securities to requested to be included which are included in such
underwritten offering shall be equal to the approximate number of
shares stated in such managing underwriter's letter. The holders
of Registrable Securities to be distributed by such underwriters
shall be parties to the underwriting agreement between the Company
and such underwriters and may, at their option, require that any or
all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of
such other underwriters shall also be made to and for the benefit
of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters
under such underwriting agreement be conditions precedent to the
obligations of such holders of Registrable Securities. Any such
holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or
the underwriters other than representations, warranties or
agreements regarding such holder, such holder's Registrable
Securities and such holder's intended method of distribution and
any other representations required by law.
(B) HOLDBACK AGREEMENTS. Subject to such other reasonable requirements
as may be imposed by the underwriter as a condition of inclusion of a Fund's
Registrable Securities in the registration statement, each Fund agrees by
acquisition of Registrable Securities, if so required by the managing
underwriter, not to sell, make any short sale of, loan, grant any option for
the purchase of, effect any public sale or distribution of or otherwise dispose
of, except as part of such underwritten registration, any equity securities of
the Company, during such reasonable period of time requested by the
underwriter; provided however, such period shall not exceed the 120 day period
commencing 30 days prior to the commencement of such underwritten offering and
ending 90 days following the completion of such underwritten offering.
(C) PARTICIPATION IN UNDERWRITTEN OFFERINGS. No holder of Registrable
Securities may participate in any underwritten offering under Section 2.2
unless such holder of Registrable Securities (i) agrees to sell such Person's
securities on the basis provided in any underwriting arrangements approved,
subject to the terms and conditions hereof, by the holders of a majority
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of Registrable Securities to be included in such underwritten offering and
(ii) completes and executes all questionnaires, indemnities, underwriting
agreements and other documents (other than powers of attorney) required under
the terms of such underwriting arrangements. Notwithstanding the foregoing,
no underwriting agreement (or other agreement in connection with such
offering) shall require any holder of Registrable Securities to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations and warranties contained in a writing
furnished by such holder expressly for use in the related registration
statement or representations, warranties or agreements regarding such holder,
such holder's Registrable Securities and such holder's intended method of
distribution and any other representation required by law.
2.5 PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give
each of them such access to its books and records and such opportunities to
discuss the business of the Company with its officers and the independent
public accountants who have certified its financial statements as shall be
necessary, in the reasonable opinion of such holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
2.6 REGISTRATION DEFAULT FEE. In the event the Registration Statement
is (x) not declared effective by the Commission by the Required Effectiveness
Date or (y) such effectiveness is not maintained for a period of (i) with
respect to the Convertible Instruments, two (2) years after the date of
issuance of such Convertible Instruments and (ii) with respect to the Warrants,
two (2) years after the date of exercise of the Warrants (subject to the right
of the Company to suspend the effectiveness thereof for not more than ten (10)
consecutive days or an aggregate of thirty (30) days during such period) (the
"Registration Maintenance Period"), then in each case, Company shall pay to the
Funds monthly, as liquidated damages and not as a penalty, the greater of (x)
its prorata portion of an amount equal to 0.5% of the aggregate outstanding
amount (principal balance or stated value, as applicable) of the Convertible
Instruments, which monthly amount shall be increased to 1.0% in the event that
the Registration Statement is not declared effective by the Commission within
thirty (30) days following the Required Effectiveness Date or (y) $1,000 for
each day the Registration Statement (i) is not declared effective by the
Commission by the Required Effectiveness Date or such effectiveness is not
maintained for the Registration Maintenance Period (the "Default Fee"). Any
such Default Fee shall be paid in cash by the Company to the Funds by wire
transfer in immediately available funds on the last day of each calendar week
following the event requiring its payment.
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2.7 INDEMNIFICATION.
(A) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does agree to, indemnify and hold harmless the
holder of any Registrable Securities covered by such registration statement,
its directors and officers, each other Person who participates as an
underwriter in the offering or sale of such securities and each other Person,
if any, who controls such holder or any such underwriter within the meaning
of the Securities Act against any losses, claims, damages or liabilities,
joint or several, to which such holder or any such director or officer or
underwriter or controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse such holder and each such director, officer, underwriter and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding, PROVIDED that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by such holder or underwriter stating that it is for
use in the preparation thereof and, PROVIDED FURTHER that the Company shall
not be liable to any Person who participates as an underwriter in the
offering or sale of Registrable Securities or to any other Person, if any,
who controls such underwriter within the meaning of the Securities Act, in
any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of such
Person's failure to send or give a copy of the final prospectus, as the same
may be then supplemented or amended, within the time required by the
Securities Act to the Person asserting the existence of an untrue statement
or alleged untrue statement or omission or alleged omission at or prior to
the written confirmation of the sale of Registrable Securities to such Person
if such statement or omission was corrected in such final prospectus or an
amendment or supplement thereto. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such
holder or any such director, officer, underwriter or controlling person and
shall survive the transfer of such securities by such holder.
(B) INDEMNIFICATION BY THE SELLERS. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to this Agreement, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such Registrable
Securities, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 2.6) the Company,
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each director of the Company, each officer of the Company and each other
Person, if any, who controls the Company within the meaning of the Securities
Act, with respect to any statement or alleged statement in or omission or
alleged omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly
executed by such seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Any such indemnity
shall remain in full force and effect, regardless of any investigation made
by or on behalf of the Company or any such director, officer or controlling
person and shall survive the transfer of such securities by such seller.
(C) NOTICES OF CLAIMS. ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section
2.7, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action, PROVIDED that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its obligations under the preceding subdivisions of this Section
2.7, except to the extent that the indemnifying party is actually prejudiced
by such failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may
exist in respect of such claim, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that the indemnifying
party may wish, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party
shall not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof
other than reasonable costs of investigation. No indemnifying party shall,
without the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement of any such action which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability, or a
covenant not to sue, in respect to such claim or litigation. No indemnified
party shall consent to entry of any judgment or enter into any settlement of
any such action the defense of which has been assumed by an indemnifying
party without the consent of such indemnifying party.
(D) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subdivisions of this Section 2.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities (but only if and to the extent required pursuant to the terms of
2.7(b)) with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority, other than the Securities Act.
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<PAGE>
(E) INDEMNIFICATION PAYMENTS. The indemnification required by
this Section 2.6 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
(F) CONTRIBUTION. If the indemnification provided for in the
preceding subdivisions of this Section 2.7 is unavailable to an indemnified
party in respect of any expense, loss, claim, damage or liability referred to
therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such expense, loss, claim, damage or
liability (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the holder or
underwriter, as the case may be, on the other from the distribution of the
Registrable Securities or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and of the holder or
underwriter, as the case may be, on the other in connection with the
statements or omissions which resulted in such expense, loss, damage or
liability, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the holder or
underwriter, as the case may be, on the other in connection with the
distribution of the Registrable Securities shall be deemed to be in the same
proportion as the total net proceeds received by the Company from the initial
sale of the Registrable Securities by the Company to the purchasers pursuant
to the Convertible Instrument Purchase Agreement and the Warrants bear to the
gain, if any, realized by all selling holders participating in such offering
or the underwriting discounts and commissions received by the underwriter, as
the case may be. The relative fault of the Company on the one hand and of the
holder or underwriter, as the case may be, on the other shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission to state a material fact relates to
information supplied by the Company, by the holder or by the underwriter and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, PROVIDED that
the foregoing contribution agreement shall not inure to the benefit of any
indemnified party if indemnification would be unavailable to such indemnified
party by reason of the provisions contained in the first sentence of
subdivision (a) of this Section 2.6, and in no event shall the obligation of
any indemnifying party to contribute under this subdivision (f) exceed the
amount that such indemnifying party would have been obligated to pay by way
of indemnification if the indemnification provided for under subdivisions (b)
of this Section 2.6 had been available under the circumstances.
The Company and the holders of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this subdivision (f) were
determined by PRO RATA allocation (even if the holders and any underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth in the preceding
Page 11
<PAGE>
sentence and subdivision (c) of this Section 2.6, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (f), no holder of
Registrable Securities or underwriter shall be required to contribute any
amount in excess of the amount by which (i) in the case of any such holder,
the net proceeds received by such holder from the sale of Registrable
Securities or (ii) in the case of an underwriter, the total price at which
the Registrable Securities purchased by it and distributed to the public were
offered to the public exceeds, in any such case, the amount of any damages
that such holder or underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
3. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
"COMMISSION": The Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"COMMON STOCK": As defined in Section 1.
"COMPANY": As defined in the introductory paragraph of this Agreement.
"CONVERSION SHARES": As defined in Section 1.
"CONVERTIBLE INSTRUMENTS": As defined in Section 1, such term to include
any securities issued in substitution of or in addition to such Convertible
Instruments.
"DEFAULT FEE": As defined in Section 2.6.
"EXCHANGE ACT": The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder.
"LIQUIDITY EVENT": The occurrence of an event whereby Regulation S is
amended or modified either (x) to increase to more than 40 the number of days
contained in the Restricted Period (as defined in the Purchase Agreement) or
(y) so that the Conversion Shares or Warrant Shares would be deemed "restricted
securities" pursuant to the Securities Act.
"PERSON": A corporation, association, partnership, organization,
business, individual, governmental or political subdivision thereof or a
governmental agency.
"PURCHASE AGREEMENT": As defined in Section 1.
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<PAGE>
"REGISTRABLE SECURITIES": The Securities and any securities issued or
issuable with respect to such Securities by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. Once issued such
securities shall cease to be Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they shall
have been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (c) they shall have been otherwise
transferred, new certificates for them not bearing a legend restricting
further transfer shall have been delivered by the Company and subsequent
disposition of them shall not require registration or qualification of them
under the Securities Act or any similar state law then in force, (d) they
shall have ceased to be outstanding, (e) on the second or third anniversary
of this Agreement as specified in Section 2.3(iii)or (f) any and all legends
restricting transfer thereof have been removed in accordance with the
provisions of Rule 144(k) (or any successor provision) under the Securities
Act.
"REGISTRATION EXPENSES": All expenses incident to the Company's
performance of or compliance with this Agreement, including, without
limitation, all registration, filing and NASD fees, all stock exchange and
SmallCap Market listing fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of
counsel for the Company and of its independent public accountants, including
the expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, the reasonable fees and
disbursements of not more than one law firm (not to exceed $25,000) retained
by the holder or holders of more than 50% of the Registrable Securities,
premiums and other costs of policies of insurance of the Company against
liabilities arising out of the public offering of the Registrable Securities
being registered and any fees and disbursements of underwriters customarily
paid by issuers or sellers of securities, but excluding underwriting
discounts and commissions and transfer taxes, if any, PROVIDED that, in any
case where Registration Expenses are not to be borne by the Company, such
expenses shall not include salaries of Company personnel or general overhead
expenses of the Company, auditing fees, premiums or other expenses relating
to liability insurance required by underwriters of the Company or other
expenses for the preparation of financial statements or other data normally
prepared by the Company in the ordinary course of its business or which the
Company would have incurred in any event.
"REGISTRATION MAINTENANCE PERIOD": As defined in Section 2.6.
"REQUIRED EFFECTIVENESS DATE": As defined in Section 2.1.
"SECURITIES": As defined in Section 1.
"SECURITIES ACT": The Securities Act of 1933, as amended, and the rules
and regulations of the Commission thereunder.
Page 13
<PAGE>
"SELLERS' REPRESENTATIVE": Infinity Investors Limited, as long as one or
more of the Funds shall be a Holder or such Person designated by Infinity
Investors Limited (or subsequent Sellers' Representative) at the time of
disposition of the last of the Convertible Instruments held by one or more of
the Funds (or subsequent Sellers' Representative).
"WARRANT SHARES": As defined in Section 1.
4. RULE 144. The Company shall timely file the reports required to be
filed by it under the Securities Act and the Exchange Act (including but not
limited to the reports under Sections 13 and 15(d) of the Exchange Act
referred to in subparagraph (c) of Rule 144 adopted by the Commission under
the Securities Act) and the rules and regulations adopted by the Commission
thereunder (or, if the Company is not required to file such reports, will,
upon the request of any holder of Registrable Securities, make publicly
available other information) and will take such further action as any holder
of Registrable Securities may reasonably request, all to the extent required
from time to time to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with the requirements of this Section
4.
5. AMENDMENTS AND WAIVERS. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company shall have
obtained the written consent to such amendment, action or omission to act, of
the holder or holders of the sum of the 51% or more of the shares of (i)
Registrable Securities issued at such time, plus (ii) Registrable Securities
issuable upon exercise or conversion of the Securities then constituting
derivative securities (if such Securities were not fully exchanged or
converted in full as of the date such consent is sought). Each holder of any
Registrable Securities at the time or thereafter outstanding shall be bound
by any consent authorized by this Section 5, whether or not such Registrable
Securities shall have been marked to indicate such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election, be treated as the holder of
such Registrable Securities for purposes of any request or other action by
any holder or holders of Registrable Securities pursuant to this Agreement or
any determination of any number or percentage of shares of Registrable
Securities held by any holder or holders of Registrable Securities
contemplated by this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
7. NOTICES. Except as otherwise provided in this Agreement, all
notices, requests and other communications to any Person provided for
hereunder shall be in writing and shall be
Page 14
<PAGE>
given to such Person (a) in the case of a party hereto other than the
Company, addressed to such party in the manner set forth in the Purchase
Agreement or at such other address as such party shall have furnished to the
Company in writing, or (b) in the case of any other holder of Registrable
Securities, at the address that such holder shall have furnished to the
Company in writing, or, until any such other holder so furnishes to the
Company an address, then to and at the address of the last holder of such
Registrable Securities who has furnished an address to the Company, or (c) in
the case of the Company, at the address set forth on the signature page
hereto, to the attention of its President, or at such other address, or to
the attention of such other officer, as the Company shall have furnished to
each holder of Registrable Securities at the time outstanding. Each such
notice, request or other communication shall be effective (i) if given by
mail, 72 hours after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid or (ii) if given by any other
means (including, without limitation, by fax or air courier), when delivered
at the address specified above, PROVIDED that any such notice, request or
communication shall not be effective until received.
8. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto. In addition, and whether
or not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of the parties hereto other than the
Company shall also be for the benefit of and enforceable by any subsequent
holder of any Registrable Securities, subject to the provisions respecting
the minimum numbers or percentages of shares of Registrable Securities
required in order to be entitled to certain rights, or take certain actions.
contained herein. Each of the Holders of the Registrable Securities agrees,
by accepting any portion of the Registrable Securities after the date hereof,
to the provisions of this Agreement including, without limitation,
appointment of the Sellers' Representative to act on behalf of such Holder
pursuant to the terms hereof which such actions shall be made in the good
faith discretion of the Sellers' Representative and be binding on all persons
for all purposes.
9. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS
OF THE STATE OF NEVADA WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF
LAWS.
11. COUNTERPARTS. This Agreement may be executed by facsimile and may
be signed simultaneously in any number of counterparts, each of which shall
be deemed an original, but all such counterparts shall together constitute
one and the same instrument.
12. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the Company and each other party hereto relating to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
Page 15
<PAGE>
13. SEVERABILITY. If any provision of this Agreement, or the
application of such provisions to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such
provision to Persons or circumstances other than those to which it is held
invalid, shall not be affected thereby.
[SIGNATURE PAGE FOLLOWS]
Page 16
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.
TOUCH TONE AMERICA, INC.
By: /s/ Kerry Rogers
----------------------------------------------
Name: Kerry Rogers
--------------------------------------------
Title: President and Chief Executive Officer
-------------------------------------------
Address: 3300 N. Central Avenue, Suite 1155
Phoenix, Arizona 85012
Telephone: (602) 263-7559
Fax: (602) 263-9623
INFINITY INVESTORS LIMITED
By: /s/ James A. Loughran
----------------------------------------------
Name: James A. Loughran
--------------------------------------------
Title:
-------------------------------------------
Address: 38 Hertford Street
London, England WIY 7TG
Telephone: 011-44-171-355-4975
Attn: J. A. Loughran
With copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1689
Fax: (214) 720-1662
Attn.: Stuart Chasanoff, Esq.
Page 17
<PAGE>
PUT AND CALL AGREEMENT
This PUT AND CALL AGREEMENT (this "Agreement") dated as of the 31st day
of December, 1997, is entered into by and among TOUCH TONE AMERICA, INC. (the
"Company") and INFINITY INVESTORS LIMITED ("Purchaser").
WITNESSETH:
WHEREAS, the Company and Purchaser have executed and delivered as of the
date hereof that certain Option Agreement to which this Agreement is appended
(the "Option Agreement").
NOW THEREFORE, the parties hereto agree as follows:
1. GENERAL. Capitalized terms not otherwise defined herein shall have
the meaning defined in the Option Agreement.
2. PUT OPTION.
(a) On December 31, 1999 (the "Put Date"), the Company shall have
the right (the "Put Right") to require that the Purchaser repurchase all
(but not less than all) of the Transferred UPC Securities then owned by
the Company (the "Put Option") at a purchase price equal to the product of
thirty percent (30%) multiplied by the aggregate Exchange Amount of all
Transferred UPC Securities being repurchased on the Put Date (the "Put
Price"). The Company shall be entitled to exercise the Put Right by
delivering to the Purchaser a written notice specifying (i) the aggregate
Transferred UPC Securities then owned by the Company and to be purchased
under the Put Option, (ii) the aggregate Put Price, and (iii) the date,
not earlier than ten (10) but not later than thirty (30) days after the
Put Date, on which the Put Option shall be exercised (the "Put Exercise
Date"). Notwithstanding the Put Price as stated above, if during the
period commencing on the first anniversary of the Closing Date and ending
on the date immediately preceding the Put Date (the "Testing Period"), the
average Closing Bid Price of the Common Stock for each Trading Day during
the Testing Period equals or exceeds $7.50 (as adjusted for any events
specified in Paragraph VI C. of the Series B Certificate of Designation),
then the Put Price shall be equal to one hundred percent (100%) of the
Exchange Amount of the Transferred UPC Securities then owned by the
Company and to be purchased by the Purchaser under the Put Option.
Notwithstanding anything to the contrary herein, the Purchaser shall not
be required to repurchase any Transferred UPC Securities if (x) there
shall exist any Lien thereon, (y) the terms, rights, preferences and
obligations of such Transferred UPC Securities have been amended, altered
or modified in any manner after the date hereof, without the prior written
consent of the Purchaser, which consent may be
- -------------------------------------------------------------------------------
PUT AND CALL AGREEMENT - Page 1
<PAGE>
withheld in the sole discretion of the Purchaser or (z) any Event of
Default shall then exist under the Option Agreement.
(b) Assuming the Company has properly exercised the Put Right and
the Purchaser is required to repurchase the Transferred UPC Securities
then owned by the Company pursuant to subsection (a) above, on the Put
Exercise Date (i) the Company shall deliver to the Purchaser the
Transferred UPC Securities, properly endorsed, subject to the Put Option,
and (ii) the Purchaser shall deliver to the Company the applicable Put
Price, at the sole and exclusive option of the Purchaser, either (x) in
immediately available funds, (y) in exchange for the assignment to the
Company of the Convertible Instruments issued under either the Option
Agreement and/or the Securities Purchase Agreement dated the date of the
Option Agreement and attached thereto (or a combination of such
Convertible Instruments, as such terms are defined therein, as selected by
the Purchaser) (collectively, the "Touch Tone Securities") or (z) in any
combination of the items specified in (x) and (y) above; provided, that
the Purchaser shall not be authorized to pay all or any portion of the Put
Price in Touch Tone Securities if there shall exist any Lien thereon
created by the Purchaser after the Closing Date.
3. CALL OPTION.
(a) The Purchaser shall have the right, but not the obligation,
commencing on the Put Date and continuing for a period of thirty (30) days
thereafter, to purchase from the Company (the "Call Option") any or all of
the Transferred UPC Securities then owned by the Company at a call price
of one hundred and ten percent (110%) of the aggregate Exchange Amount of
the Transferred UPC Securities then owned by the Company (the "Call
Price"), by delivering to the Company a written notice from the Purchaser
specifying (i) the Transferred UPC Securities to be purchased by the
Purchaser, (ii) the Call Price, and (iii) the date, not earlier than ten
(10) and not later than thirty (30) days, on which the Call Option shall
be exercised (the "Call Exercise Date").
(b) On the Call Exercise Date (i) the Company shall deliver to the
Purchaser the Transferred UPC Securities, properly endorsed, subject to
the Call Option and (ii) the Purchaser shall deliver to the Company, in
immediately available funds, the applicable Call Price.
4. COMPANY NOTICE TO PURCHASER.
(a) The Company shall, from time to time, notify the Purchaser of
any sale, transfer or other disposition by the Company of any Transferred
UPC Securities received by the Company in each Exchange.
(b) The Transferred UPC Securities (other than the UPC Common
Shares) shall bear a legend referring to this Agreement, and any assignee
or transferee of the
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<PAGE>
Transferred UPC Securities (other than the UPC Common
Shares) shall take such securities subject to the Call Option set forth in
terms of this Agreement.
5. MISCELLANEOUS.
(a) NO ASSIGNMENT OR TRANSFER. Neither this Agreement, nor the Put
Option or the Call Option granted hereby, nor any other rights under this
Agreement, shall be assignable or transferable, directly or indirectly;
PROVIDED, the Purchaser may assign the Call Option to any Affiliate of any
Purchaser.
(b) NOTICES. All notices, requests and demands to or upon the
parties hereto shall be in writing and shall be delivered by the method
and at the address set forth in the Option Agreement. For purposes of this
Agreement, the date of a "Notice Date" shall be the date a notice or other
communication is deemed effective pursuant to Section 11.1 of the Option
Agreement.
(c) FURTHER ASSURANCES. The parties agree to do all things and to
deliver all instruments and documents necessary to accomplish the purposes
of this Agreement, and to provide to one another such information and
assistance necessary to enable one another to do the same.
(d) GOVERNING LAW. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and construed in accordance
with the laws of the State of Nevada.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INFINITY INVESTORS LIMITED
By: /s/ James A. Loughran
--------------------------------
Title:
------------------------------
TOUCH TONE AMERICA, INC.
By: /s/ Kerry Rogers
-----------------------------------------
Name: Kerry Rogers
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
Page 4
<PAGE>
OPTION AGREEMENT
DATED AS OF
DECEMBER 31, 1997
BY AND AMONG
TOUCH TONE AMERICA, INC.,
AS THE ISSUER,
AND
INFINITY INVESTORS LIMITED,
AS THE PURCHASER
<PAGE>
OPTION AGREEMENT
AGREEMENT, dated as of December 31, 1997, among Touch Tone America, Inc.
(the "Company") and INFINITY INVESTORS LIMITED ("Purchaser").
R E C I T A L S:
WHEREAS, the Company has entered into that certain Amended Agreement and
Plan of Reorganization in the form attached hereto as EXHIBIT A (the
"Reorganization Agreement") between the Company and Orix Global Communications,
Inc. ("Orix"), pursuant to which the Company shall acquire all of the issued
and outstanding capital stock of Orix in exchange for the issuance to the
shareholders of Orix (the "Orix Shareholders") of 33,732,980 shares of the
Company's common stock, no par value (the "Common Stock") (the
"Reorganization"); and
WHEREAS, the Company and the Purchaser desire to set forth herein their
agreement pursuant to which the Purchaser shall, at its option, at any time,
and from time to time on or before the second anniversary date hereof, assign
and transfer to the Company the Transferred UPC Securities (as hereafter
defined) in exchange (the "Exchange") for Convertible Instruments (as hereafter
defined) of the Company in an aggregate amount equal to the Exchange Amount (as
hereafter defined); and
WHEREAS, contemporaneous herewith the Company, Purchaser and certain other
parties have executed and delivered that certain Securities Purchase Agreement
in the form attached hereto as EXHIBIT B (the "Securities Purchase Agreement");
and
WHEREAS, the Convertible Instruments shall be issued by the Company in a
private placement pursuant to Regulation S ("Regulation S") promulgated under
the Securities Act of 1933, as amended (the "Securities Act"); and
WHEREAS, the Convertible Instruments will be convertible into shares of
Common Stock on the terms described therein.
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
- -------------------------------------------------------------------------------
OPTION AGREEMENT - Page 1
<PAGE>
I. DEFINITIONS
SECTION 1.1 Definitions. The following terms, as used herein, have the
following meanings:
"AFFILIATE" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other
Person (other than the Subject Person or a Consolidated Subsidiary of the
Subject Person) which is Controlled by or is under common Control with a
Controlling Person.
"AGREEMENT" means this Option Agreement, as amended, supplemented or
otherwise modified from time to time in accordance with its terms.
"ASSET SALE" has the meaning set forth in Section 8.1.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York and Miami, Florida are authorized
or required by law to close.
"CHANGE OF CONTROL" means (i) after the date of this Agreement any person
or group of persons (within the meaning of Sections 13 and 14 of the Exchange
Act and the rules and regulations of the Commission relating to such Sections)
other than the Purchaser shall have acquired beneficial ownership (within the
meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to the
Exchange Act) of 33-1/3% or more of the outstanding shares of Common Stock of
the Company, (ii) any sale or other disposition (other than by reason of death
or disability) to any Person of any Common Stock of the Company owned by Kerry
Rogers or Jack Higgins resulting in such Persons owning, in the aggregate, less
than 95% of the outstanding voting shares of Common Stock of the Company
received by them in Reorganization; or (iii) individuals constituting the Board
of Directors of the Company on the date hereof (together with any new Directors
whose election by such Board of Directors or whose nomination for election by
the stockholders of the Company was approved by a vote of at least 50.1% of the
Directors then still in office who were either Directors immediately following
the Reorganization or whose election or nomination for election was previously
so approved), cease for any reason to constitute at least two-thirds of the
Board of Directors of the Company then in office.
"CLOSING BID PRICE" shall mean for any security as of any date, the lowest
closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the principal
securities exchange or trading market where such security is listed or traded
or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no lowest trading price is
reported for
Page 2
<PAGE>
such security by Bloomberg, then the average of the bid prices of any
market-makers for such securities as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the lowest closing bid price cannot be
calculated for such security on such date on any of the foregoing bases, the
lowest closing bid price of such security on such date shall be the fair market
value as mutually determined by the Purchaser and the Company for which the
calculation of the closing bid price requires, and in the absence of such
mutual determination, as determined by the Board of Directors of the Company in
good faith.
"CLOSING DATE" means each of the applicable dates of the issuance of the
Convertible Instruments to the Purchaser and the corresponding closing of each
Exchange.
"COMMISSION" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"COMMON STOCK" has the meaning set forth in the Recitals.
"COMPANY" means Touch Tone America, Inc., a California corporation, and
its successors.
"COMPANY CORPORATE DOCUMENTS" means the certificate of incorporation and
by-laws of the Company.
"CONSOLIDATED SUBSIDIARY" means at any date with respect to any Person any
Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such
statements were prepared as of such date.
"CONTROL" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise .
"CONVERSION DATE" shall mean the date of delivery (including delivery via
telecopy) of a Notice of Conversion for all or a portion of the Convertible
Instruments by the holder thereof to the Company.
"CONVERSION PRICE" has the meaning set forth in the Debentures or Series C
Certificate of Designation, as applicable.
"CONVERSION SHARES" has the meaning set forth in Section 4.5.
"CONVERTIBLE INSTRUMENTS" means the Debentures or Series C Shares, as
applicable.
Page 3
<PAGE>
"DEBENTURES" means Convertible Exchange Debentures due December 31, 1999
in the form attached hereto as EXHIBIT C, to be issued to the Purchaser (if the
Shareholder Ratification Event has not occurred) on each applicable Closing
Date upon consummation of each Exchange.
"DEBT" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such
Person.
"DEFAULT" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DERIVATIVE SECURITIES" has the meaning set forth in Section 8.4.
"DISCOUNTED EQUITY OFFERINGS" has the meaning set forth in Section 8.4.
"DIRECTORS" means the individuals then serving on the Board of Directors
or similar such management council of the Company.
"ESCROW AGENT" means the Person serving as the Escrow Agent pursuant to
the terms of the Escrow Agreement.
"ESCROW AGREEMENT" means that certain Escrow Agreement between the
Company, the Purchaser and the Escrow Agent, dated the date of this Agreement,
in the form attached hereto as EXHIBIT D.
"EVENT OF DEFAULT" has the meaning set forth in the Debentures and in
Section 3.1.
"EXCHANGE" has the meaning set forth in the Recitals.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE AMOUNT" means (i) with respect to the UPC Debentures, the
outstanding principal balance thereof, together with accrued and unpaid
interest thereon through the Business Day preceding the Closing Date, (ii) with
respect to the UPC Preferred Shares, the aggregate stated value thereof,
together with accrued and unpaid dividends thereon through the Business
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Day preceding the Closing Date, and (iii) with respect to the UPC Common
Shares, the product of (x) the average Closing Bid Price of the UPC Common
Shares for the five (5) consecutive Trading Days through and including the
Business Day immediately preceding the Closing Date multiplied by (y) the
number of shares of UPC Common Shares so conveyed as part of the Exchange.
"EXPENSE REIMBURSEMENT FEE" has the meaning set forth in Section 11.5.
"GAAP" has the meaning set forth in Section 1.2.
"GUARANTEE" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"KEY MAN POLICY" has the meaning set forth in Section 7.14.
"LIEN" means, any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction,
security interest or other adverse claim, whether arising by contract or under
law or otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"MARKET PRICE" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"MATERIAL ADVERSE EFFECT" has the meaning set forth in Section 4.1.
"MAXIMUM EXCHANGE AMOUNT" has the meaning set forth in Section 2.1.
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"NOTICE OF CONVERSION" means the form to be delivered by a holder of the
Convertible Instruments upon conversion of all or a portion thereof to the
Company substantially in the form attached to the Debentures.
"OBSERVER" has the meaning set forth in Section 7.11.
"OFFICER'S CERTIFICATE" shall mean a certificate executed by the
President, chief executive officer or chief financial officer of the Company
substantially in the form of EXHIBIT E attached hereto.
"OPTION" shall have the meaning set forth in Section 2.1.
"OPTION EXPIRATION DATE" has the meaning set forth in Section 2.1.
"OPTION NOTICE" has the meaning set forth in Section 2.1.
"ORIX" means Orix Global Communications, Inc., a Nevada corporation.
"OTC MARKET" means the electronic quotation medium known as the OTC
Bulletin Board-Registered Trademark- by which members of the National
Association of Securities Dealers, Inc. enter, update and display quotations
and other information regarding eligible securities.
"PERSON" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, government (or any agency or political subdivision thereof) or other
entity of any kind.
"PURCHASER" means, collectively, Infinity Investors Limited, and its
successors and assigns, including the assignors of the Transferred UPC
Securities from time to time by Infinity Investors Limited prior to
consummation of any Exchange, and the holders from time to time of the
Convertible Instruments issued in each Exchange.
"PUT AND CALL AGREEMENT" has the meaning set forth in Section 2.3.
"RECAPITALIZATION EVENT" has the meaning set forth in Section 3.1.
"REGISTRATION RIGHTS AGREEMENT" means the agreement between the Company
and the Purchaser dated the Closing Date substantially in the form set forth
in EXHIBIT F attached hereto.
"RESTRICTED PERIOD" means the period from the applicable Closing Date
through and including the fortieth (40th) day thereafter.
"REINCORPORATION" has the meaning set forth in Section 3.3.
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"REORGANIZATION" has the meaning set forth in the Recitals.
"REORGANIZATION AGREEMENT" has the meaning set forth in the Recitals.
"SECURITIES" means the Debentures, the Series C Shares and the
Conversion Shares.
"SECURITIES PURCHASE AGREEMENT" has the meaning set forth in the
Recitals.
"SERIES C CERTIFICATE OF DESIGNATION" means that certain Series C
Certificate of Designations, Preferences and Rights setting forth the rights
and preferences of the Series C Shares in the form attached hereto as EXHIBIT
G.
"SERIES C PREFERRED STOCK" means shares of Series C Convertible
Preferred Stock of the Company, the rights and preferences of which are more
fully described in the Series C Certificate of Designation.
"SERIES C SHARES" means that certain number of shares of Series C
Preferred Stock issuable to the Purchaser (if the Shareholder Ratification
Event has occurred) from time to time on each applicable Closing Date upon
consummation of each Exchange.
"SECURITIES ACT" has the meaning set forth in the Recitals.
"SHAREHOLDER RATIFICATION" has the meaning set forth in Section 3.2.
"SHAREHOLDER RATIFICATION EVENT" shall mean the later to occur of (x)
the Shareholder Ratification and (y) the date of final determination that the
Company is not obligated to pay more than $250,000 to existing shareholders
of the Company who properly exercise dissenters rights under applicable
California law arising as a result of the Shareholder Ratification.
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity of which a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person. Unless specified to the contrary,
"Subsidiary" means a Subsidiary of the Company. Unless specified to the
contrary, all references to a Subsidiary of the Company shall be deemed to
include Orix after giving effect to the Reorganization.
"SUBSIDIARY CORPORATE DOCUMENTS" means the certificates of incorporation
and by-laws of each Subsidiary.
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"TRADING DAY" shall mean any Business Day in which at least 1,000 shares
of Common Stock are traded on the OTC Market, or any Business Day in which
any other automated quotation system or exchange on which the Common Stock is
then traded is open for trading for at least four (4) hours, as applicable
"TRANSACTION AGREEMENTS" means this Agreement, the Debentures, the
Registration Rights Agreement, the Put and Call Agreement, the Escrow
Agreement, the Reorganization Agreement, and the Series C Certificate of
Designation.
"TRANSFERRED UPC SECURITIES" means the UPC Debentures, UPC Preferred
Shares and/or UPC Common Shares, as applicable, as assigned and conveyed by
the Purchaser to the Company in the form so assigned and conveyed by the
Purchaser on each Closing Date upon consummation of each Exchange.
"UPC" shall mean United Petroleum Corporation, a Delaware corporation
and its successors and assigns.
"UPC CERTIFICATE OF DESIGNATION" means that certain Certificate of
Designations, Preferences and Rights setting forth the rights and preferences
of the UPC Preferred Shares in the form attached hereto as EXHIBIT H.
"UPC COMMON SHARES" means shares of common stock of UPC.
"UPC DEBENTURES" means Convertible Debentures of UPC in the form annexed
hereto as EXHIBIT I.
"UPC PREFERRED SHARES" means shares of UPC Preferred Stock.
"UPC PREFERRED STOCK" means shares of Convertible Preferred Stock of UPC
issued pursuant to the terms of the UPC Certificate of Designation.
SECTION 1.2 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared, in
accordance with generally accepted accounting principles as in effect from
time to time, applied on a consistent basis (except for changes concurred in
by the Company's independent public accountants) ("GAAP"). All references to
"dollars," "Dollars" or "$" are to United States dollars unless otherwise
indicated. All references to the "Company and its Subsidiaries" shall include
references to Orix as a Subsidiary of the Company after giving effect to the
consummation of the Reorganization, unless otherwise indicated.
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ARTICLE II
PURCHASE, EXCHANGE AND SALE OF DEBENTURES
SECTION 2.1. (A) OPTION. The Company hereby irrevocably grants to the
Purchaser an option (the "Option") exercisable at any time, and from time to
time, prior to the second anniversary date of this Agreement (the "Option
Expiration Date") to assign and convey to the Company Transferred UPC
Securities with an Exchange Amount not to exceed in the aggregate for all
such assignments $11,000,000 (the "Maximum Exchange Amount").
(B) EXERCISE OF OPTION. The Purchaser shall have the right,
but not the obligation, to exercise the Option from time to time by
delivering to the Company and the Escrow Agent prior to the Option Expiration
Date one or more written notices (each an "Option Notice") specifying (i) the
Transferred UPC Securities to be assigned and conveyed to the Company, (ii)
the Exchange Amount thereof and (iii) the date, not earlier than one (1)
Business Day and not later than three (3) Business Days after the delivery of
such Option Notice, on which the closing of the Exchange shall occur. On the
applicable Closing Date, (x) the Purchaser shall deliver to the Escrow Agent
the applicable Transferred UPC Securities and (y) the Escrow Agent shall
deliver (I) to the Company the Transferred UPC Securities received from the
Purchaser and (II) to the Purchaser at its address specified on the signature
page hereto (unless a contrary address located outside of the United States
is provided in the Option Notice) either the Debentures (if the Shareholder
Ratification Event has not occurred) or the Series C Shares (if the
Shareholder Ratification Event has occurred), dated the date of the first
Closing Date by the Escrow Agent, all as more fully described in the Escrow
Agreement.
SECTION 2.2 ESCROW PROCEDURES.
(A) Promptly following the date hereof, the Company shall file
with the Secretary of State of California the Series C Certificate of
Designation and shall deposit with the Escrow Agent for administration
pursuant to the terms of the Escrow Agreement a Debenture in the
aggregate principal balance of the Maximum Exchange Amount. Immediately
following the Shareholder Ratification Event, the Company shall
undertake the actions specified in Section 3.1 below.
(B) From and after the first Closing Date hereunder, the Purchaser
shall hold either the Debentures or Series C Shares. At each subsequent
Closing Date, the Purchaser shall directly assign to the Company the
Transferred UPC Securities and the Company and the Purchaser shall
record the then applicable (x) aggregate principal balance of the
Debentures outstanding or (y) aggregate number of Series C Shares and
the stated value thereof then outstanding. Each of the Company and the
Purchaser acknowledge and agree that the Debentures or Series C Shares
held by the Purchaser following the first Closing Date shall reflect the
Maximum Exchange Amount; provided, however, for all purposes
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(including calculation of interest or dividend payments) the amount of
the Debentures or the number of Series C Shares deemed issued and
outstanding and held by the Purchaser shall be the Exchange Amount
applicable to each Exchange consummated on each Closing Date.
SECTION 2.3 PUT AND CALL AGREEMENT. Contemporaneous with the
execution and delivery of this Agreement, the Company and the Purchaser shall
enter into a Put and Call Agreement in the form annexed hereto as EXHIBIT J
(the "Put and Call Agreement").
SECTION 2.4 ADDITIONAL PAYMENTS TO PURCHASER. The Company further
agrees that following each Exchange consummated on each Closing Date, if UPC
makes any payments of interest on the UPC Debentures and/or dividends with
respect to the UPC Preferred Shares (in each case, whether in cash, property
or securities) attributable to any period prior to the applicable Closing
Date, then the Company shall pay to Purchaser within one (1) Business Day
from receipt thereof all such payments of interest and/or dividends (whether
in cash, property or securities).
SECTION 2.5 RIGHTS AND PREFERENCES OF SERIES B SHARES AND SERIES C
SHARES. Notwithstanding any provision in this Agreement, the Series C
Certificate of Designation, the Securities Purchase Agreement or the Series B
Certificate of Designation (as defined in the Securities Purchase Agreement)
to the contrary, upon any Mandatory Redemption Event (as defined in the
Series C Certificate of Designation), the Company shall redeem all of the
Series C Shares prior to any redemption of the Series B Shares (as defined in
the Securities Purchase Agreement).
ARTICLE III
EXCHANGE OF DEBENTURES FOR SERIES B SHARES
SECTION 3.1. EXCHANGE OF DEBENTURES FOR SERIES C SHARES. Effective on
the first Business Day following the consummation of the Shareholder
Ratification Event, the aggregate outstanding principal balance, together
with accrued and unpaid interest thereon, of the Debentures shall be
automatically exchanged for an equal stated amount of Series C Shares (based
on the liquidation preference per share as provided in the Series C
Certificate of Designation) (the "Recapitalization Event"); provided,
however, the Recapitalization Event shall not occur if, as of the date of
consummation of the Shareholder Ratification Event, an Event of Default then
exists. In connection therewith, the Company shall issue effective as of the
first Business Day following the Shareholder Ratification Event the
appropriate number of Series C Shares representing the Maximum Exchange
Amount in the name of Purchaser and deliver the same to the Escrow Agent for
administration pursuant to the Escrow Agreement, and the Escrow Agent shall
submit to the Company the original Debentures for cancellation. Following the
Recapitalization Event, all references in this Agreement to Default and Event
of Default
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(including, without limitation, the references set forth in Articles Seven
and Eight hereof), shall be construed to mean the occurrence of a Mandatory
Redemption Event as specified in the Series C Certificate of Designation.
SECTION 3.2 SHAREHOLDER RATIFICATION. The Company has disclosed that
the Reorganization will require the ratification and/or approval by the
shareholders of the Company holding at least 50.1% of the Common Stock
outstanding immediately preceding the Reorganization (the "Shareholder
Ratification"). The Company hereby agrees to use its best lawful efforts to
obtain such Shareholder Ratification as soon as practicable following the
date hereof. The items which the Shareholder Ratification shall cover shall
include, among other items requested by the Company and approved by the
Purchaser, the following:
(A) Approval of the Reorganization; and
(B) The reincorporation of the Company from the State of
California to the State of Delaware (the "Reincorporation").
SECTION 3.3 REINCORPORATION. In the event the Company obtains the
Shareholder Ratification on the terms set forth above on or before June 30,
1998, then (x) the Recapitalization Event shall occur following the
Shareholder Ratification Event (assuming there then exists no Event of
Default under the Debentures) and (y) the Series C Shares shall remain as
issued and outstanding securities of the Company following the
Reincorporation, and the Series C Certificate of Designation shall thereafter
be governed by the laws of the State of Delaware.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and Orix, jointly and severally, represent and warrant to
the Purchaser, and each of them, as of the date hereof the following:
SECTION 4.1. ORGANIZATION AND QUALIFICATION. The Company and each
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation (or organization), with full power and authority to own, lease,
use and operate its properties and to carry on its business as and where now
owned, leased, used, operated and conducted. SCHEDULE 4.1 sets forth a list
of all Subsidiaries and the jurisdiction in which each is incorporated (or
organized). The Company and each of its Subsidiaries is duly qualified to
conduct business as a foreign corporation and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary, except where such failure would not have a Material
Adverse Effect. A "Material Adverse Effect" means any material adverse
effect on the operations, results of operations, properties, assets,
condition (financial or otherwise) or prospects of the Company
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or the Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered into in
connection herewith.
SECTION 4.2. AUTHORIZATION AND EXECUTION.
(A) Each of the Company and Orix have all requisite corporate
power and authority to enter into and perform each of the Transaction
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby and (with respect to the Company) to
issue the Convertible Instruments in accordance with the terms hereof
and thereof.
(B) The execution, delivery and performance by the Company and Orix
of each Transaction Agreement to which it is a party and the issuance by
the Company of the Convertible Instruments have been duly and validly
authorized and no further consent or authorization of the Company or Orix,
or their respective Boards of Directors or shareholders is required.
(C) This Agreement has been duly executed and delivered by the
Company and Orix.
(D) This Agreement constitutes, and upon execution and delivery
thereof by the Company and Orix, each of the Transaction Agreements will
constitute, a valid and binding agreement of the Company and Orix, in each
case enforceable against the Company and Orix in accordance with its
respective terms.
(E) All representations and warranties of each party to the
Reorganization Agreement are true and correct.
(F) All representations and warranties of the Company and Orix in
the Securities Purchase Agreement are true and correct.
SECTION 4.3. SERIES C SHARES. Upon issuance, the Series C Shares will
be, duly authorized, validly issued, fully paid and non-assessable. None of the
Series C Shares are subject to preemptive rights of the stockholders of the
Company or any Liens or encumbrances imposed through the actions or failure to
act of the Company. Other than as set forth on SCHEDULE 4.3 hereto, (i) there
are no outstanding options, warrants, scrip, rights to subscribe for, puts,
calls, rights of first refusal, agreements, understandings, claims or other
commitments or rights of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for any shares of capital stock of the
Company or any of its Subsidiaries, or arrangements by which the Company or any
of its Subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its Subsidiaries, and (ii) there are no
agreements or arrangements under which the Company or any of its Subsidiaries
are obligated to register the sale of any of its
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or their securities under the Securities Act (except pursuant to the
Registration Rights Agreement) and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in
any agreement providing rights to security holders) that will be triggered by
the issuance of the Convertible Instruments or the Conversion Shares. The
Company has furnished to the Purchaser' true and correct copies of the
Company's Corporate Documents and Subsidiary Corporate Documents, and the
terms of all securities convertible into or exercisable for Common Stock and
the material rights of the holders thereof in respect thereto.
SECTION 4.4. GOVERNMENTAL AUTHORIZATION. The execution and delivery
by the Company and Orix of the Transaction Agreements does not and will not,
the issuance and sale by the Company of the Convertible Instruments does not
and will not, and the consummation of the transactions contemplated hereby
and by the other Transaction Agreements will not, require any action by or in
respect of, or filing with, any governmental body, agency or governmental
official except (a) such actions or filings that have been undertaken or made
prior to the date hereof and that will be in full force and effect (or as to
which all applicable waiting periods have expired) on and as of the date
hereof or which are not required to be filed on or prior to the Closing Date,
and (b) such actions or filings that, if not obtained, would not result in a
Material Adverse Effect.
SECTION 4.5. ISSUANCE OF SHARES. Upon conversion in accordance with
the terms of the Debentures or the Series C Certificate of Designation, the
shares of Common Stock issued upon conversion thereof (the "Conversion
Shares") shall be duly and validly issued and outstanding, fully paid and
nonassessable, free and clear of any taxes, Liens and charges with respect to
issuance and shall not be subject to preemptive rights or similar rights of
any other stockholders of the Company. Assuming the representations and
warranties of the Purchaser herein are true and correct in all material
respects, each of the Securities will have been issued in material compliance
with all applicable United States federal securities laws. The Company
understands and acknowledges that, in certain circumstances, the issuance of
the Conversion Shares could dilute the ownership interests of other
stockholders of the Company. The Company further acknowledges that its
obligation to issue the Conversion Shares upon conversion of the Shares in
accordance with this Agreement, the Debentures and the Series C Certificate
of Designation is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company.
SECTION 4.6. NO CONFLICTS. The execution and delivery by the Company
and Orix of the Transaction Agreements to which each is a party did not and
will not, the issuance and sale by the Company of the Securities did not and
will not and the consummation of the transactions contemplated hereby and by
the other Transaction Agreements will not, as of the date hereof, contravene
or constitute a default under or violation of (i) any provision of applicable
law or regulation, (ii) the Company Corporate Documents or Subsidiary
Corporate Documents, (iii) any material agreement, judgment, injunction,
order, decree or other material instrument binding upon the Company or any
Subsidiary or any of their respective assets, or result in the creation or
imposition of any Lien on any asset of the Company or any Subsidiary.
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The Company and each Subsidiary is in compliance with and conforms to all
statutes, laws, ordinances, rules, regulations, orders, restrictions and all
other legal requirements of any domestic or foreign government or any
instrumentality thereof having jurisdiction over the conduct of its
businesses or the ownership of its properties, except in each case where such
failure would not have a Material Adverse Effect.
SECTION 4.7. FULL DISCLOSURE. The information heretofore furnished by
the Company and Orix to the Purchaser for purposes of or in connection with
this Agreement or any transaction contemplated hereby does not, and all such
information hereafter furnished by the Company or any Subsidiary to the
Purchaser will not (in each case taken together and on the date as of which
such information is furnished), contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they are made,
not misleading.
SECTION 4.8. CURRENT PUBLIC INFORMATION. The Company is a "reporting
issuer" as defined in Rule 902(l) of Regulation S and it has a class of
securities (Common Stock) registered under Section 12(b) or 12(g) of the
Exchange Act.
SECTION 4.9. NO DIRECTED SELLING EFFORTS IN REGARD TO THIS TRANSACTION;
COMPLIANCE WITH REGULATION S. The Company has not' and no Purchaser nor any
distributor, if any, participating in the offering of the Securities nor any of
their respective affiliates nor any Person acting for the Company or any such
distributor has conducted any "directed selling efforts" in connection with the
offering described in this Agreement as that term is defined in Rule 902 of
Regulation S. The Company has not offered the Securities to the Purchaser in
the United States or to any Person in the United States or any U.S. person (as
defined in Regulation S). The Company represents and warrants that the offering
by the Company of the Securities to the Purchaser as contemplated in this
Agreement is not part of a plan or scheme to evade the registration provisions
of the Securities Act.
SECTION 4.10. NO ACTION. The Company has not taken and will not take any
action that will affect in any way the running of the Restricted Period or the
ability of any Purchaser to resell freely, without restrictive legend following
the running of the Restricted Period, the Convertible Instruments and/or
Conversion Shares in accordance with applicable securities laws and this
Agreement.
SECTION 4.11. EXCHANGE AMOUNT. The Board of Directors of the Company has
concluded that the Exchange Amount of the Transferred UPC Securities
corresponds to the fair market value of such securities and that to the extent
the Exchange Amount includes any discount to the Market Price, such discount is
not excessive.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.1. PURCHASER. Each Purchaser severally (but not jointly)
hereby represents and warrants to the Company solely as to such Purchaser that:
(A) the Purchaser is not a "U.S. person" as that term is defined in
Rule 902(o) of Regulation S (a copy of which definition is attached hereto
as SCHEDULE 5.1(a), and such Purchaser is not an entity organized or
incorporated under the laws of any foreign jurisdiction by any U.S. person
principally for the purpose of investing in securities not registered
under the Securities Act, unless the Purchaser is or was organized or
incorporated by "U.S. persons" who are accredited investors (as defined in
Rule 501(a) under the Securities Act) and who are not natural persons,
estates or trusts;
(B) the Convertible Instruments were not offered to the Purchaser in
the United States and at the time of execution of this Agreement and at
the time the buy order was originated, and of any offer to such Purchaser
to purchase the Convertible Instruments hereunder, such Purchaser was
outside the United States;
(C) the Purchaser is purchasing the Convertible Instruments for its
own account and not on behalf of or for the benefit of any U.S. person and
the resale of the Convertible Instruments and Conversion Shares has not
been prearranged with any buyer in the United States, and that any sale of
the Convertible Instruments or Conversion Shares following the expiration
of the Restricted Period may be made only pursuant to the registration of
such Securities or an applicable exemption therefrom;
(D) the Purchaser agrees that all offers and sales of the
Convertible Instruments prior to the expiration of the Restricted Period
shall not be made to U.S. persons or for the account or benefit of U.S.
persons or within the United States and shall otherwise be made in
compliance with the provisions of Regulation S;
(E) the Purchaser has not been engaged or acted as or on behalf of a
distributor or dealer (and is not an affiliate of a distributor or dealer)
with respect to the offering of the Convertible Instruments.
(F) the Purchaser shall take all reasonable steps to ensure its
compliance with Regulation S and shall promptly send to each Person who
acts as a distributor, dealer or a Person receiving a selling
concession, fee or other remuneration in respect of any of the
Convertible Instruments, who purchases prior to the expiration of the
Restricted Period a confirmation or other notice to the Person stating
that the Person is subject to the same
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restrictions on offers and sales as the Person pursuant to
Section 901(c)(2)(iv) of Regulation S;
(G) the Purchaser has not engaged in any "direct selling efforts"
(as such term is defined in Regulation S) and has no present plan or
intention of selling the Securities in the United States, has made no
predetermined arrangements to sell the Securities (other than the
registration provisions contained in the Registration Rights Agreement,
which pertain only to a potential method of disposing of the shares of
Common Stock) and that the offering of the Securities, together with any
subsequent resale by any Purchaser of the Securities, is not part of a
plan or scheme on the part of Purchaser to evade the registration
provisions of the Securities Act;
(H) the Purchaser currently does not have a short position in the
Company's Common Stock, including any short call position or any long put
position or any contract or arrangement that has the effect of eliminating
or substantially diminishing the risk of ownership of the Convertible
Instruments, nor has any Purchaser engaged in any hedging transaction with
respect to the Convertible Instruments (or the Common Stock of the
Company);
(I) The Purchaser is not an officer, director or "affiliate" (as
that term is defined in Rule 405 under the Securities Act) of the company
or an "underwriter" or "dealer" (as such terms are defined in the federal
securities law of the United States). If the Purchaser becomes an
affiliate of the Company at any time after purchasing the Debentures, the
Purchaser understands and agrees that every sale made by it thereafter
must be made in compliance with the provisions of Rule 144 of the Act
(except for the four (4) year holding period requirement), including the
filing of Form 144 with the Commission at the time of the sale, as
required under Rule 144. The Purchaser understands and agrees that the
provisions of Rule 144, if at any time applicable to it, are separate and
apart from and independent of any restrictions imposed by Regulation S and
will apply even after the expiration oft he applicable restricted period
under Regulation S.
(J) If at any time after the expiration of the restricted period the
Purchaser wishes to transfer or attempts to transfer the Debentures to a
U.S. Person, Purchaser agrees to notify the Company if at such time it is
an "affiliate" of the Company or is then acting as an "underwriter",
"dealer" or "distributor" as to such Debentures (as such terms are defined
in the federal securities laws of the United States or the regulations
promulgated thereunder, including, but not limited to, Regulation S), or
if such transfer is being made as apart of a plan or scheme to evade the
registration provisions of the Securities Act.
(K) this Agreement and the remaining Transaction Agreements to which
it is a party have been duly executed and delivered in London, England by
the Purchaser.
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(L) the Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act and the Securities to be acquired by
it pursuant to this Agreement are being acquired for its own account and,
as of the date hereof, not with a view toward, or for sale in connection
with, any distribution thereof except in compliance with applicable United
States federal and state securities law; provided that the disposition of
the Purchaser's property (including the Conversion Shares) shall at all
times be and remain within its control;
(M) the execution, delivery and performance of this Agreement and
the purchase of the Securities pursuant hereto are within Purchaser's
corporate or partnership powers, as applicable, and have been duly and
validly authorized by all requisite corporate or partnership action;
(N) this Agreement has been duly executed and delivered by the
Purchaser;
(O) such Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or sold
except as specified in this Agreement;
(P) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms when executed and
delivered by the Company (subject to (i) applicable bankruptcy, insolvency
or similar laws affecting creditors rights generally and (ii) equitable
principles of general applicability);
(Q) the Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of
its investment in the Securities and the Purchaser is capable of bearing
the economic risks of such investment;
(R) the Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; the Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations
on transfer described herein; the Purchaser has been afforded access to
information about the Company and the financial condition, results of
operations, property, management and prospects of the Company sufficient
to enable it to evaluate its investment in the Securities; the Purchaser
has been afforded the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Securities and
the merits and the risks of investing in the Securities; and the Purchaser
has been afforded the opportunity to obtain such additional information
which the Company possesses or can acquire that is necessary to verify the
accuracy and completeness of the information given to the Purchaser
concerning the
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Company. The foregoing does not in any way relieve the Company of its
representations and other undertakings hereunder, and shall not limit
any Purchaser's ability to rely thereon;
(S) no part of the source of funds used by the Purchaser to acquire
the Securities constitutes assets allocated to any separate account
maintained by the Purchaser in which any employee benefit plan (or its
related trust) has any interest; and
(T) as of the date of execution of this Agreement, Purchaser is the
holder and beneficial owner of the UPC Debentures and the UPC Preferred
Stock listed on SCHEDULE 5.1(R), free and clear of all Liens; the rights
and obligations of Purchaser and UPC with regard to the UPC Debentures and
the UPC Preferred Shares are as set forth in (i) the Securities Purchase
Agreement between Purchaser and UPC, as amended, (ii) the UPC Debentures,
and (iii) the UPC Certificate of Designation, each as amended, copies of
which are attached hereto as EXHIBITS B, I and H, respectively.
ARTICLE VI
CONTEMPORANEOUS ACTS
SECTION 6.1. COMPANY DELIVERIES. Contemporaneous with the execution and
delivery of this Agreement:
(A) The Company shall execute the Registration Rights Agreement,
Escrow Agreement and Put and Call Agreement and deliver signed copies
thereof to Purchaser;
(b) The Company shall deliver to the Escrow Agent a duly executed
undated Debenture representing the Maximum Exchange Amount in accordance
with Section 2.1 hereof;
(c) The Company shall cause its legal counsel to deliver to the
Purchaser an opinion, dated the date hereof, substantially in the form
attached hereto as EXHIBIT K ; and
(d) The Company shall deliver to the Purchaser all other opinions,
resolutions, certificates, instruments, agreements or other documents as
it shall reasonably request.
SECTION 6.2. PURCHASER DELIVERIES. Contemporaneous with the execution
and delivery of this Agreement:
(A) The Purchaser shall execute the Registration Rights Agreement,
the Escrow Agreement and the Put and Call Agreement and deliver signed
copies thereof to the Company.
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ARTICLE VII
AFFIRMATIVE COVENANTS
The Company (and Orix, until the Shareholder Ratification has been
consummated) hereby agrees that, from and after the date hereof until the later
to occur of (x) the Option Expiration Date or (y) for so long as any of the
Convertible Instruments remain outstanding and for the benefit of the
Purchaser:
SECTION 7.1. INFORMATION. The Company will deliver to each holder of
the Convertible Instruments:
(A) AUDITED ANNUAL FINANCIAL STATEMENTS. As soon as available and
in any event within ninety (90) days after the end of each fiscal year of
the Company, a consolidated balance sheet of the Company and its
Subsidiaries as of the end of such fiscal year and the related
consolidated statements of income and cash flows and stockholders' equity
(deficit) for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, and certified by
independent public accountants of the Company of nationally recognized
standing in each case together with a report of such accounting firm
stating that in the course of its regular audit of the financial
statements of the Company, which audit was conducted in accordance with
GAAP, such accounting firm obtained no knowledge of any Default or Event
of Default which has occurred or is continuing or, if in the opinion of
such accounting firm such a Default or Event of Default has occurred and
is continuing, a statement as to the nature thereof;
(B) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any
event within forty five (45) days after the end of each of the first three
fiscal quarters of each fiscal year of the Company, a consolidated balance
sheet of the Company and its Subsidiaries as of the end of such quarter
and the related consolidated statements of income and cash flows and
stockholders' equity (deficit) for such quarter and for the portion of the
Company's fiscal year ended at the end of such quarter, setting forth in
each case in comparative form the figures for the corresponding quarter
and the corresponding portion of the Company's previous fiscal year, all
certified (subject to footnote presentation and normal year-end
adjustments), as to fairness of presentation, GAAP and consistency, by the
chief financial officer or the chief accounting officer of the Company;
(C) FILINGS UNDER SECURITIES ACT AND EXCHANGE ACT. Promptly upon
the filing thereof, copies of (i) all registration statements (other than
the exhibits thereto and any registration statements on Form S-8 or its
equivalent), (ii) all reports on Forms 10-K,
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10-Q and 8-K (or their equivalents) which the Company or any Subsidiary has
filed with the Commission and (iii) any material press releases issued by
the Company or any Subsidiary;
(D) OFFICER'S CERTIFICATES. Simultaneously with the delivery of
each item referred to in clauses (a) and (b) above, a certificate from the
Company stating that no Default or Event of Default has occurred and is
continuing, or within five Business Days after any officer of the Company
obtains knowledge of a Default or Event of Default , a certificate of the
chief financial officer of the Company setting forth the details thereof
and the action which the Company is taking or proposes to take with
respect thereto;
(E) OTHER REPORTS AND FILINGS. Promptly upon the mailing thereof to
the shareholders of the Company generally, copies of all financial
statements, reports and proxy statements so mailed and any other document
generally distributed to shareholders;
(F) NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any event
within three Business Days after an officer of the Company obtains
knowledge thereof, notice of (i) the occurrence of any event which
constitutes a Default or Event of Default, (ii) any litigation or
governmental proceeding pending (x) against the Company or any of its
Subsidiaries which would materially and adversely affect the business,
operations, property, assets, condition (financial or otherwise) or
prospects of the Company or any of its Subsidiaries or (y) with respect to
this Agreement or any of the other Transaction Agreements, and (iii) any
other event which is likely to materially and adversely affect the
business, operations, property, assets, condition (financial or otherwise)
or prospects of the Company or any of its Subsidiaries; and
(G) OTHER INFORMATION. From time to time such additional
information regarding the financial position or business of the Company
and its Subsidiaries as the Purchaser may reasonably request.
SECTION 7.2. PERFORMANCE OF OBLIGATIONS. The Company will, and will
cause each of its Subsidiaries to, perform all its obligations under the
terms of each mortgage, indenture, security agreement and other debt
instrument by which it is bound, except such non-performances as could not in
the aggregate have a material adverse effect on the business, operations,
property, assets, condition (financial or otherwise) or prospects of the
Company or of the Company and its Subsidiaries taken as a whole.
SECTION 7.3. MAINTENANCE OF PROPERTY; INSURANCE. The Company will,
and will cause each Subsidiary to, keep all property useful and necessary in
its business in good working order and condition, (ii) maintain with
financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks as
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is common in the industry, (iii) furnish to the Purchaser' Representative,
upon written request, full information as to the insurance carried.
SECTION 7.4. MAINTENANCE OF EXISTENCE. The Company will continue, and
each Subsidiary will continue, to engage in business of the same general type
as now conducted by the Company and such Subsidiaries, and will preserve,
renew and keep in full force and effect its respective corporate existence
and their respective material rights, privileges and franchises necessary or
desirable in the normal conduct of business.
SECTION 7.5. COMPLIANCE WITH LAWS. The Company will and will cause
each Subsidiary to comply, in all material respects, with all federal, state,
municipal, local or foreign laws, ordinances, rules, regulations, municipal
by-laws, codes and requirements of governmental authorities in respect of the
conduct of its business and the ownership of its property except where
non-compliance therewith could not reasonably be expected, in the aggregate,
to have a material adverse effect on the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company
or such Subsidiary.
SECTION 7.6. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Company
will and will cause each Subsidiary to keep proper books of record and
account in which full, true and correct entries in conformity with GAAP and
all requirements of law shall be made of all dealings and transactions in
relation to their respective businesses and activities. The Company will,
and will cause each Subsidiary to, permit, during normal business hours upon
reasonable notice, officers and designated representatives of the Purchaser'
Representative to visit and inspect properties of the Company, upon
reasonable prior notice, to examine and make abstracts from any of the books
and records of the Company and to discuss the affairs, finances and accounts
of the Company with its executive officers and independent public
accountants, all at such reasonable times at the Company's expense.
SECTION 7.7. INVESTMENT COMPANY ACT. The Company will not be or
become an open-end investment trust, unit investment trust or face-amount
certificate company that is or is required to be registered under Section 8
of the Investment Company Act of 1940, as amended.
SECTION 7.8. SUPPLEMENTAL INFORMATION. If at any time the Company is
not subject to the requirements of Section 13 or 15(d) of the Exchange Act,
the Company will promptly furnish at its expense, upon request, for the
benefit of the holders from time to time of Securities, and prospective
purchasers of Securities, information satisfying the information requirements
of Rule 144 under the Securities Act.
SECTION 7.9. COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL
CONTRACTS. The Company will comply and will cause each Subsidiary to comply,
in all material respects, with all terms and conditions of all material
contracts to which it is subject.
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SECTION 7.10 BLUE SKY LAWS. The Company shall promptly take such
action as the Company shall reasonable determine is necessary to qualify the
Convertible Instruments for sale to the Purchaser at the Closing pursuant to
this Agreement under applicable securities or "blue sky" laws of the states
of the United States (or to obtain an exemption from such qualification), and
shall provide evidence of any such action so taken to each Purchaser and the
Purchaser' Representative on or prior to the Closing Date.
SECTION 7.11 OBSERVER RIGHTS. As long as the Purchaser own, in the
aggregate, not less than twenty five percent (25%) of the Convertible
Instruments issued hereunder (or an equivalent amount of Common Stock issued
upon conversion thereof), a representative of the Purchaser (the "Observer")
will have all the rights of a director (exclusive of payment of director
fees) pursuant to the Company's Corporate Documents but will not attend
meetings of the Company's Board of Directors and will not be entitled to vote
on matters submitted for the Board's approval. The Company shall provide to
the Observer copies of all notices, minutes, consents, and other materials
that it provides to its Directors (including but not limited to the minutes
of shareholders' meetings); provided, however, that the Observer shall agree
to hold in confidence and trust and to act in a fiduciary manner with respect
to all information so provided; and, provided further, that the Company
reserves the right to withhold any information or portion thereof if access
to such information or attendance at such meeting could adversely affect the
attorney-client privilege between the Company and its counsel or would result
in disclosure of material inside information or trade secrets to the
Observer. At the request of the Purchaser, key members of the Company's
management and executive officers will meet with the Observer no less than
four (4) times per calendar year, at the Company's facilities and at the
Company's expense.
SECTION 7.12. MAINTENANCE OF REPORTING STATUS; SUPPLEMENTAL
INFORMATION. So long as any of the Securities are outstanding, the Company
shall timely file all reports required to be filed with the Commission
pursuant to the Exchange Act. The Company shall not terminate its status as
an issuer required to file reports under the Exchange Act, even if the
Exchange Act or the rules and regulations thereunder would permit such
termination. If at anytime the Company is not subject to the requirements of
Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish at
its expense, upon request, for the benefit of the holders from time to time
of Securities, and prospective Purchaser of Securities, information
satisfying the information requirements of Rule 144 under the Securities Act.
SECTION 7.13. OTC ELIGIBILITY. Unless the Common Stock becomes listed
on the Nasdaq Stock Market's National Market, Nasdaq Stock market's SmallCap
Market, American Stock Exchange or New York Stock Exchange, the Company shall
take all actions necessary such that the Company's Common Stock will be (i)
eligible for quotation on the OTC Market and (ii) "active" securities (as
such term is defined by NASD regulations) satisfying the frequency-of-
quotation requirement and traded on the OTC Market. Additionally, the Company
shall take all
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actions necessary such that at least ten (10) members of the NASD continue to
be registered as market makers with respect to the Company's shares of Common
Stock.
SECTION 7.14. KEY-MAN INSURANCE POLICY. Within 30 days of Closing, the
Company shall purchase a $3 million key-man life insurance policy (the "Key
Man Policy") on the life of Kerry Rogers. The Company shall appoint the
Purchasers as the primary beneficiary of the Key Man Policy to the extent of
the remaining balance (i.e., the principal amount and accrued interest or
Stated Value and accrued dividends) of the Convertible Instruments and any
remaining proceeds shall be payable to the Company. The Company shall
maintain the Key Man Policy for so long as the Purchasers hold at least
$500,000 of the Convertible Instruments.
ARTICLE VIII
NEGATIVE COVENANTS
The Company (and Orix, until the Shareholder Ratification has been
consummated) hereby agrees that, from and after the date hereof until the
later to occur of (x) the Option Expiration Date or (y) for so long as any
Convertible Instruments remain outstanding and for the benefit of the
Purchaser:
SECTION 8.1. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. Except for
consummation of the Reorganization and mergers contemplated by the
Reincorporation, the Company will not, and will not permit any of its
Subsidiaries to, wind up, liquidate or dissolve its affairs or enter into any
transaction of merger or consolidation, or convey, sell, lease or otherwise
dispose of (or agree to do any of the foregoing at any future time) all or
any part of its property or assets, or purchase or otherwise acquire (in one
or a series of related transactions) any part of the property or assets
("Asset Sale") (other than purchases or other acquisitions of inventory,
materials and equipment in the ordinary course of business) of any Person, or
permit any of its Subsidiaries so to do any of the foregoing, except that the
Company and its Subsidiaries may (i) make sales of inventory in the ordinary
course of business, and (ii) in the ordinary course of business, sell
equipment which is uneconomical or obsolete.
SECTION 8.2. TRANSACTIONS WITH AFFILIATES. The Company will not, and
will not permit any of its Subsidiaries to, enter into any transaction or
series of related transactions, whether or not in the ordinary course of
business, with any Affiliate of the Company, other than on terms and
conditions substantially as favorable to the Company or such Subsidiary as
would be obtainable by the Company or such Subsidiary at the time in a
comparable arm's-length transaction with a Person other than an Affiliate.
SECTION 8.3. RESTRICTIONS ON CERTAIN AMENDMENTS. Except for the
Reincorporation, neither the Company nor any Subsidiary will waive any
provision of, amend, or suffer to be amended, any provision of such entity's
existing Debt, any material contract or
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agreement previously or hereafter filed by the Company with the Commission as
part of its SEC Reports, any Company Corporate Document or Subsidiary
Corporate Document if such amendment, in the Company's reasonable judgment,
would materially adversely affect the Purchaser or the holders of the
Securities without the prior written consent of the Purchaser.
SECTION 8.4 PROHIBITION ON DISCOUNTED EQUITY OFFERINGS.
(A) Until such time as all of the Convertible Instruments have been
either redeemed or converted into Conversion Shares in full, the Company
agrees that it will not issue any of its equity securities (or securities
convertible into or exchangeable or exercisable for equity securities
(collectively, the "Derivative Securities"), on terms that allow a holder
thereof to acquire such equity securities (or Derivative Securities) at a
discount to the Market Price of the Common Stock at the time of issuance
or, in the case of Derivative Securities (other than the Shares) at a
conversion price based on any formula (other than standard anti-dilution
provisions) based on the Market Price on a date later than the date of
issuance so long as such conversion is not below the Market Price on the
date of issuance (each such event, a "Discounted Equity Offering"). As
used herein, "discount" shall include, but not be limited to, (i) any
warrant, right or other security granted or offered in connection with
such issuance which, on the applicable date of grant, is offered with an
exercise or conversion price, as the case may be, at less than the then
current Market Price of the Common Stock or, if such security has an
exercise or conversion price based on any formula (other than standard
anti-dilution provisions) based on the Market Price on a date later than
the date of issuance, then at a price below the Market Price on such date
of exercise or conversion, as the case may be, or (ii) any commissions,
fees or other allowances paid in connection with such issuances (other
than customary underwriter or placement agent commissions, fees or
allowances). For the purposes of determining the Market Price at which
Common Stock is acquired under this Section, normal underwriting
commissions and placement fees (including underwriters' warrants) shall be
excluded.
(B) Until such time as all of the Convertible Instruments have been
either redeemed or converted into Conversion Shares in full, the Company
agrees it will not issue any of its equity securities (or Derivative
Securities), unless any shares of Common Stock issued or issuable in
connection therewith are "restricted securities". As used herein
"restricted securities" shall mean securities which may not be sold by
virtue of contractual restrictions imposed by the Company either pursuant
to an exemption from registration under the Securities Act or pursuant to
a registration statement filed by the Company with the Commission, in each
case prior to eighteen (18) months following the date of issuance of such
securities.
(C) The restrictions contained in this Section 10.5 shall not apply
to the issuance by the Company of (or the agreement to issue) Common Stock
or Derivative Securities in connection with (i) the acquisition (including
by merger) of a business or of assets
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otherwise permitted under this Agreement, (ii) stock option or other
compensatory plans, or (iii) issuance of Common Stock pursuant to the terms
of the Equity Line.
SECTION 8.5 EXECUTIVE COMPENSATION. The Company shall not pay any of
its employees more than $100,000 per annum without approval of the Company's
compensation committee, except for Kerry Rogers whose base salary shall be
$250,000 for calendar year 1998, with not more than $150,000 thereof paid
during calendar year 1998 (with any deferred portion being payable in January
1999), plus perquisites which shall not exceed $3,000 per month. In
addition, the Company shall be permitted to establish compensation plans
(including stock option plans) that are comparable to other companies of
similar size in similar industries, and which are approved by the Company's
compensation committee.
SECTION 8.6 REGISTRATION RIGHTS. The Company shall not grant any
registration rights to any parties receiving warrants to acquire Common Stock
in connection with the Reorganization or this Agreement.
ARTICLE IX
RESTRICTIVE LEGENDS
SECTION 9.1 RESTRICTIVE LEGENDS. The Convertible Instruments shall
bear a legend substantially as set forth below and any other legend, if such
legend or legends are reasonably required to comply with state, federal or
foreign law. Assuming that there are no changes in the material facts
represented by the Purchaser in Section 5.1 of this Agreement or applicable
law from the date hereof until the date of conversion, all certificates
representing the Conversion Shares into which the Convertible Instruments are
converted after the Restricted Period shall be issued without any restrictive
legend.
"The securities of Touch Tone America, Inc. represented hereby have
been issued pursuant to Regulation S, promulgated under the United
States Securities Act of 1933, as amended (the "Act"), and have not
been registered under the Act or any applicable state securities
laws. These securities may not be offered or sold within the United
States or to or for the account of a "U.S. Person" (as that term is
defined in Regulation S) during the period commencing on the date of
sale of these securities and ending forty days thereafter (the
"Restricted Period"). These securities may first be converted into
common stock on the 41st day following the date of issuance hereof.
SECTION 9.2. ISSUANCE OF COMMON SHARES; TRANSFERS. Upon conversion of
the Convertible Instruments, the Company will, and will use its best lawful
efforts to cause its transfer agent to, issue within three (3) Business Days
of the delivery of a Notice of Conversion one or more certificates
representing shares of Common Stock in such name or names and in
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such denominations specified by a Purchaser in a Notice of Conversion. The
shares of Common Stock to be issued upon conversion of the Convertible
Instruments shall not bear any restrictive legends and shall be freely
transferable upon expiration of the Restricted Period, subject to compliance
with the terms of the Convertible Instruments. The Company agrees that no
instructions other than these instructions, and instructions for a "stop
transfer" until the end of the Restricted Period have been or will be given
to its transfer agent and also agrees that the Convertible Instruments or
Conversion Shares, as applicable, shall otherwise be freely transferable by
Purchaser on the books and records of the Company subject to compliance with
Federal and state securities laws and the terms of the Convertible
Instruments. The Company will notify its transfer agent of the Closing Date
and of the date of expiration of the Restricted Period. Nothing in this
section shall affect in any way a Purchaser's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities.
ARTICLE X
ADDITIONAL AGREEMENTS AMONG THE PARTIES
SECTION 10.1. REGISTRATION RIGHTS. The Company shall grant the
Purchaser registration rights covering the Conversion Shares on the terms set
forth in the Registration Rights Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. NOTICES. All notices, demands and other communications
to any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties. Each such notice, demand or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified on the signature
page hereof, (ii) if given by mail, four (4) days after such communication is
deposited in the mail with first class postage prepaid, addressed as
aforesaid or (iii) if given by any other means, when delivered at the address
specified in or pursuant to this Section.
SECTION 11.2. NO WAIVERS; AMENDMENTS.
(A) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
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(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing
and is signed by the Company; provided, that without the consent of each
Purchaser affected thereby, an amendment or waiver may not restrict or
limit such Purchaser's rights under the Certificates of Designation. In
determining whether the requisite number of holders of the Shares have
concurred in any direction, consent, or waiver as provided in any
Transaction Agreement, Shares which are owned by the Company or any other
obligor on or guarantor of the Shares, or by any Person Controlling,
Controlled by, or under Common Control with any of the foregoing, shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination; and provided further that no such amendment, supplement or
waiver which affects the rights of the Purchaser and their Affiliates
otherwise than solely in their capacities as holders of Shares shall be
effective with respect to them without their prior written consent.
SECTION 11.3. INDEMNIFICATION BY THE COMPANY.
(a) The Company agrees to indemnify and hold harmless each
Purchaser, its Affiliates, and each Person, if any, who controls such
Purchaser, or any of its Affiliates, within the meaning of the Securities
Act or the Exchange Act (each for purposes of this Section 11.3 a
"Controlling Person"), and the respective partners, agents, employees,
officers and directors of each Purchaser, their Affiliates and any such
Controlling Person (each for purposes of this Section 11.3 an "Indemnified
Party" and collectively, the "Indemnified Parties"), from and against any
and all losses, claims, damages, liabilities and expenses (including,
without limitation, and as incurred, reasonable costs of investigating,
preparing or defending any such claim or action, whether or not such
Indemnified Party is a party thereto, provided that the Company shall not
be obligated to advance such costs to any Indemnified Party other than the
Purchaser unless it has received from such Indemnified Party an
undertaking to repay to the Company the costs so advanced if it should be
determined by final judgment of a court of competent jurisdiction that
such Indemnified Party was not entitled to indemnification hereunder with
respect to such costs) which may be incurred by such Indemnified Party in
connection with any investigative, administrative or judicial proceeding
brought or threatened that relates to or arises out of, or is in
connection with any activities contemplated by any Transaction Agreement
or any other services rendered in connection herewith; provided that the
Company will not be responsible for any claims, liabilities losses,
damages or expenses that are determined by final judgment of a court of
competent jurisdiction to result from such Indemnified Party's gross
negligence, willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in
writing and the Company, at its
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option, may, assume the defense thereof, including the employment
of counsel reasonably satisfactory to such Indemnified Party and
payment of all reasonable fees and expenses. The failure to so
notify the Company shall not affect any obligations the Company may
have to such Indemnified Party under this Agreement or otherwise
unless the Company is materially adversely affected by such
failure. Such Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of
such Indemnified Party, unless: (i) the Company has failed to
assume the defense and employ counsel or (ii) the named parties to
any such action (including any impleaded parties) include such
Indemnified Party and the Company, and such Indemnified Party shall
have been advised by counsel that there may be one or more legal
defenses available to it which are different from or additional to
those available to the Company, in which case, if such Indemnified
Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall
not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, provided, however, that
the Company shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be responsible hereunder for the
reasonable fees and expenses of more than one such firm of separate
counsel, in addition to any local counsel, which counsel shall be
designated by the Purchaser. The Company shall not be liable for
any settlement of any such action effected without the written
consent of the Company (which shall not be unreasonably withheld)
and the Company agrees to indemnify and hold harmless each
Indemnified Party from and against any loss or liability by reason
of settlement of any action effected with the consent of the
Company. In addition, the Company will not, without the prior written
consent of the Purchaser, settle or compromise or consent to the entry
of any judgment in or otherwise seek to terminate any pending or
threatened action, claim, suit or proceeding in respect to which
indemnification or contribution may be sought hereunder (whether or
not any Indemnified Party is a party thereto) unless such
settlement, compromise, consent or termination includes an express
unconditional release of the Purchaser and the other Indemnified
Parties, satisfactory in form and substance to the Purchaser, from
all liability arising out of such action, claim, suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party harmless,
then in lieu of indemnifying such Indemnified Party, the Company shall
contribute to the amount paid or payable by such Indemnified Party as a
result of such claims, liabilities, losses, damages, or expenses (i) in
such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and by the Purchaser on the other
from the transactions contemplated by this Agreement or (ii) if the
allocation provided by clause (i) is not permitted under applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits received
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by the Company on the one hand and the Purchaser on the other, but
also the relative fault of the Company and the Purchaser as well as
any other relevant equitable considerations. Notwithstanding the
provisions of this Section 11.3, the aggregate contribution of all
Indemnified Parties shall not exceed the amount of interest and fees
actually received by the Purchaser pursuant to this Agreement. It is
hereby further agreed that the relative benefits to the Company on
the one hand and the Purchaser on the other with respect to the
transactions contemplated hereby shall be determined by reference
to, among other things, whether any untrue or alleged untrue statement
of material fact or the omission or alleged omission to state a material
fact related to information supplied by the Company or by the Purchaser
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. No Person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any Person who was not guilty of such fraudulent misrepresentation.
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 11.3 (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise, (ii) shall survive the termination of this Agreement and the
other Transaction Agreements and the payment in full of the Convertible
Instruments and (iii) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Purchaser or
any other Indemnified Party.
SECTION 11.4 INDEMNIFICATION BY THE PURCHASER.
(a) The Purchaser severally agrees to indemnify and hold harmless
the Company, its Affiliates, and each Person, if any, who controls the
Company, or any of its Affiliates, within the meaning of the Securities
Act or the Exchange Act (each for purposes of this Section 11.4 a
"Controlling Person"), and the respective partners, agents, employees,
officers and directors of the Company, their Affiliates and any such
Controlling Person (each for purposes of this Section 11.4 an "Indemnified
Party" and collectively, the "Indemnified Parties"), from and against any
and all losses, claims, damages, liabilities and expenses (including,
without limitation, and as incurred, reasonable costs of investigating,
preparing or defending any such claim or action, whether or not such
Indemnified Party is a party thereto, provided that the Purchaser shall
not be obligated to advance such costs to any Indemnified Party other than
the Company unless it has received from such Indemnified Party an
undertaking to repay to the Purchaser the costs so advanced if it should
be determined by final judgment of a court of competent jurisdiction that
such Indemnified Party was not entitled to indemnification hereunder with
respect to such costs) which may be incurred by such Indemnified Party in
connection with any breach of the representations and warranties of the
Purchaser contained in this Agreement; provided that the Purchaser will
not be responsible for any
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claims, liabilities losses, damages or expenses that are determined by
final judgment of a court of competent jurisdiction to result from such
Indemnified Party's gross negligence, willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Purchaser under this
Agreement, such Indemnified Party shall promptly notify the Purchaser in
writing and the Purchaser, at its option, may, assume the defense thereof,
including the employment of counsel reasonably satisfactory to such
Indemnified Party and payment of all reasonable fees and expenses. The
failure to so notify the Purchaser shall not affect any obligations the
Purchaser may have to such Indemnified Party under this Agreement or
otherwise unless the Purchaser is materially adversely affected by such
failure. Such Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such
Indemnified Party, unless: (i) the Purchaser has failed to assume the
defense and employ counsel or (ii) the named parties to any such action
(including any impleaded parties) include such Indemnified Party and the
Purchaser, and such Indemnified Party shall have been advised by counsel
that there may be one or more legal defenses available to it which are
different from or additional to those available to the Purchaser, in which
case, if such Indemnified Party notifies the Purchaser in writing that it
elects to employ separate counsel at the expense of the Purchaser, the
Purchaser shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, provided, however, that
the Purchaser shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be responsible hereunder for the reasonable
fees and expenses of more than one such firm of separate counsel, in
addition to any local counsel, which counsel shall be designated by the
Company. The Purchaser shall not be liable for any settlement of any such
action effected without the written consent of the Purchaser (which shall
not be unreasonably withheld) and the Purchaser agrees to indemnify and
hold harmless each Indemnified Party from and against any loss or
liability by reason of settlement of any action effected with the consent
of the Purchaser. In addition, the Purchaser will not, without the prior
written consent of the Company, settle or compromise or consent to the
entry of any judgment in or otherwise seek to terminate any pending or
threatened action, claim, suit or proceeding in respect to which
indemnification or contribution may be sought hereunder (whether or not
any Indemnified Party is a party thereto) unless such settlement,
compromise, consent or termination includes an express unconditional
release of the Company and the other Indemnified Parties, satisfactory in
form and substance to the Company, from all liability arising out of such
action, claim, suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient
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to hold an Indemnified Party harmless, then in lieu of indemnifying
such Indemnified Party, the Purchaser shall contribute to the
amount paid or payable by such Indemnified Party as a result of
such claims, liabilities, losses, damages, or expenses (i) in such
proportion as is appropriate to reflect the relative benefits
received by the Purchaser on the one hand and by the Company on the
other from the transactions contemplated by this Agreement or
(ii) if the allocation provided by clause (i) is not permitted under
applicable law, in such proportion as is appropriate to reflect not
only the relative benefits received by the Purchaser on the one
hand and the Company on the other, but also the relative fault of
the Purchaser and the Company as well as any other relevant equitable
considerations. Notwithstanding the provisions of this Section 11.4, the
aggregate contribution of all Indemnified Parties shall not exceed the
amount of interest and fees actually received by the Company pursuant to
this Agreement. It is hereby further agreed that the relative benefits
to the Purchaser on the one hand and the Company on the other with
respect to the transactions contemplated hereby shall be determined by
reference to, among other things, whether any untrue or alleged untrue
statement of material fact or the omission or alleged omission to state a
material fact related to information supplied by the Purchaser or by the
Company and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 11.4 (i) shall be in addition to any
liability the Purchaser may have to any Indemnified Party at common law or
otherwise, (ii) shall survive the termination of this Agreement and the
other Transaction Agreements and the payment in full of the Convertible
Instruments and (iii) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Company or any
other Indemnified Party.
SECTION 11.5 EXPENSES: DOCUMENTARY TAXES. The Company agrees to pay (i)
the greater of $25,000 or all actual reasonable out-of-pocket expenses of the
Purchaser, including fees and disbursements of counsel, in connection with (x)
the negotiation and preparation of this Agreement (the "Expense Reimbursement
Fee") and (y) any waiver or consent hereunder or under any other Transaction
Agreement or any amendment hereof or thereof and (ii) all reasonable
out-of-pocket expenses of the Purchaser and each holder of Securities,
including fees and disbursements of counsel, in connection with any collection,
bankruptcy, insolvency and other enforcement proceedings resulting therefrom.
In addition, the Company agrees to pay any and all stamp, transfer and other
similar taxes, assessments or charges payable in connection with the execution
and delivery of any Transaction Agreement or the issuance of the Securities to
the Purchaser, excluding their assigns.
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<PAGE>
SECTION 11.6. PAYMENT. The Company agrees that, so long as a Purchaser
shall own any Shares issued by the Company hereunder, the Company will make
any payments required to such Purchaser of all amounts due thereon by wire
transfer by 1:00 P.M. (New York City time) on the date of payment.
SECTION 11.7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company and upon the Purchaser and their respective successors and
assigns; provided that the Company shall not assign or otherwise transfer its
rights or obligations under this Agreement to any other Person without the
prior written consent of the Purchaser. All provisions hereunder purporting
to give rights to Purchaser and their Affiliates or to holders of Securities
are for the express benefit of such Persons and their successors and assigns.
SECTION 11.8. BROKERS. Except as set forth on SCHEDULE 11.8, the
Company represents and warrants that it has not employed any broker, finder,
financial advisor or investment banker who would be entitled to any
brokerage, finder's or other fee or commission payable by the Company or the
Purchaser in connection with the sale of the Securities. Each Purchaser
hereby warrants that it has not employed any broker, finder, financial
advisor or investment banker who would be entitled to any brokerage, finder's
or other fee or commission payable by the Company in connection with the sale
of the Securities.
SECTION 11.9. CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEVADA. EACH PARTY
HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR CLARK COUNTY AND OF ANY NEVADA STATE COURT SITTING IN
NEVADA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
SECTION 11.10. FURTHER ASSURANCE. The Company, the Purchaser'
Representative and the Purchaser shall each take such further actions as
requested by any party hereto which are necessary, desirable or proper to
carry out the purposes of this Agreement and each Transaction Agreement.
SECTION 11.11. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in
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full force and effect and shall in no way be affected, impaired or
invalidated unless a failure of consideration would result thereby.
SECTION 11.12 SURVIVAL. All provisions contained in this Agreement
(unless specifically noted to the contrary) shall survive the redemption or
conversion into Conversion Shares in full of the Shares and shall remain
operative and in full force and effect.
SECTION 11.12. COUNTERPARTS. This Agreement may be executed by telecopy
signature and in any number of counterparts each of which shall be an
original with the same effect as if the signatures there to and hereto were
upon the same instrument.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
TOUCH TONE AMERICA, INC.
By: /s/ Kerry Rogers
Name: Kerry Rogers
Title: President and Chief Executive Officer
Address: 3300 N. Central Avenue, Suite 1155
Phoenix, Arizona 85012
Telephone: (602) 263-7559
Fax: (602) 263-9623
With a copy to: Lawrence E. Johnson, Esq.
Day, Campbell & McGill
3070 Bristol, Suite 650
Costa Mesa, California 92626
Fax: (714) 429-2901
IF TO PURCHASER:
INFINITY INVESTORS LIMITED
By: /s/ James A. Loughran
Name: James A. Loughran
Title:
Address: 38 Hertford Street
London, England WIY 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
ACKNOWLEDGED AND AGREED TO
FOR ALL PURPOSES SPECIFIED:
ORIX GLOBAL COMMUNICATIONS, INC.
By: /s/ Kerry Rogers
Name: Kerry Rogers
Title: President
Address: 1771 E. Flamingo Road
Building B, Suite 200
Las Vegas, Nevada 89119
Telephone: (702)792-2500
Fax: (702) 792-3313
Attn: Kerry Rogers
Page 34
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LIST OF SCHEDULES
Schedule 4.1 - Subsidiaries
Schedule 4.3 - Outstanding Convertible Securities
Schedule 5.1(a)- Definition of U.S. Person
Schedule 5.1(r)- UPC Debentures and UPC Preferred Stock held by Purchaser
Schedule 11.8 - Brokers
Page 35
<PAGE>
SCHEDULE 4.1
SUBSIDIARIES
GetNet International, Inc., an Arizona Corporation.
Orix Global communications, Inc., a Nevada corporation, will be a Subsidiary
following the Reorganization.
Page 36
<PAGE>
SCHEDULE 4.3
OUTSTANDING CONVERTIBLE SECURITIES
None
Page 37
<PAGE>
SCHEDULE 5.1(a)
DEFINITION OF U.S. PERSON
Attached hereto as ANNEX A is a copy of the definition of "U.S. person" as
defined in Rule 902(o) of Regulation S.
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<PAGE>
SCHEDULE 5.1(r)
UPC DEBENTURES AND UPC PREFERRED STOCK HELD BY PURCHASER
Page 39
<PAGE>
SCHEDULE 11.8
BROKERS
None
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LIST OF EXHIBITS
Exhibit A - Reorganization Agreement
Exhibit B - Securities Purchase Agreement
Exhibit C - Convertible Exchange Debentures
Exhibit D - Escrow Agreement
Exhibit E - Officer's Certificate
Exhibit F - Registration Rights Agreement
Exhibit G - Series C Certificate of Designation
Exhibit H - UPC Certificate of Designation
Exhibit I - UPC Debentures
Exhibit J - Put and Call Agreement
Exhibit K - Company Counsel Opinion
Page 41
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("AGREEMENT") is made as of the 31ST day of
December, 1997, by ORIX GLOBAL COMMUNICATIONS, INC. (hereinafter called
"DEBTOR", whether one or more), in favor of Infinity Investors Limited, as
agent for and representative of (in such capacity, "PLEDGEE") the Purchasers
(as hereinafter defined) under the Securities Purchase Agreement (as
hereinafter defined). Debtor hereby agrees with Pledgee as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings indicated below:
(a) The term "BORROWER" shall mean Debtor.
(b) The term "CODE" shall mean the Uniform Commercial Code as in
effect in the State of Nevada on the date of this Agreement or as it may
hereafter be amended from time to time.
(c) The term "COLLATERAL" shall mean all of the property set forth
below:
(i) All present and future accounts, chattel paper,
documents, instruments, cash, deposit accounts and general
intangibles (including any right to payment for goods sold or
services rendered arising out of the sale or delivery of personal
property or work done or labor performed by Debtor), now or hereafter
owned, held, or acquired by Debtor, together with any and all books
of account, customer lists and other records relating in any way to
the foregoing (including, without limitation, computer software,
whether on tape, disk, card, strip, cartridge or any other form), and
in any case where an account arises from the sale of goods, the
interest of Debtor in such goods.
(ii) All present and hereafter acquired inventory
(including without limitation, all raw materials, work in process and
finished goods) held, possessed, owned, held on consignment, or held
for sale, lease, return or to be furnished under contracts of
services, in whole or in part, by Debtor wherever located, all
records relating in any way to the foregoing (including, without
limitation, any computer software, whether on tape, disk, card,
strip, cartridge or any other form).
(iii) All equipment and fixtures of whatsoever kind and
character now or hereafter possessed, held, acquired, leased or owned
by Debtor and used or usable in Debtor's business, together with all
replacements, accessories, additions, substitutions and accessions to
all of the foregoing, all records relating in any way to the
foregoing (including, without limitation, any computer software,
whether on tape, disk, card, strip, cartridge or any other form). To
the extent that the foregoing property is located on, attached to,
annexed to, related to, or used in connection with, or otherwise made
a part of, and is or shall become fixtures upon, real property, such
real property and the record owner thereof is described on EXHIBIT
"A" attached hereto and made a part hereof.
(iv) All rights of Borrower in all deposits accounts
maintained by Borrower including any account established pursuant to
Section 4(j) of this Agreement.
The term Collateral, as used herein, shall also include all PRODUCTS
and PROCEEDS of all of the foregoing (including without limitation,
insurance payable by reason of loss or damage to the foregoing property)
and any property, securities, guaranties or monies of Debtor which may at
any time come into the possession of Secured Party (as hereinafter
defined). The designation of proceeds does not authorize Debtor to sell,
transfer or otherwise convey any of the foregoing property except finished
goods intended for sale in the ordinary course of Debtor's business or as
otherwise provided herein.
(d) The term "INDEBTEDNESS" shall mean (i) all indebtedness,
obligations and liabilities of Borrower to Secured Party to timely pay the
Rescission Price, as such term is defined in the Securities
- -------------------------------------------------------------------------------
SECURITY AGREEMENT - Page 1
<PAGE>
Purchase Agreement dated as of the date hereof (the "SECURITIES PURCHASE
AGREEMENT") among Borrower, Orix, and Infinity Investors Limited and
Infinity Emerging Opportunities Limited (the "PURCHASERS"); (ii) all
accrued but unpaid interest on any of the indebtedness described in
(i) above; (iii) all obligations owing to Secured Party under any
documents evidencing, securing, governing and/or pertaining to all or any
part of the indebtedness described in (i) and (ii) above; (iv) all costs
and expenses incurred by Secured Party in connection with the collection
and administration of all or any part of the indebtedness and obligations
described in (i), (ii) and (iii) above or the protection or preservation
of, or realization upon, the collateral securing all or any part of such
indebtedness and obligations, including without limitation all reasonable
attorneys' fees; and (v) all renewals, extensions, modifications and
rearrangements of the indebtedness and obligations described in (i), (ii),
(iii) and (iv) above.
(e) The term "LOAN DOCUMENTS" shall mean all instruments and
documents evidencing, securing, governing, guaranteeing and/or pertaining
to the Indebtedness, including without limitation the Securities Purchase
Agreement.
(f) The term "OBLIGATED PARTY" shall mean any party other than
Borrower who secures, guarantees and/or is otherwise obligated to pay all
or any portion of the Indebtedness.
(g) The term "SECURED PARTY" shall mean the Purchasers, and the
Pledgee as agent for the Purchasers, their successors and assigns,
including without limitation, any party to whom any Purchaser or the
Pledgee, or any of their successors or assigns, may assign all or any part
of the Indebtedness or any of its rights and interests under this
Agreement.
All words and phrases used herein which are expressly defined in Section
1-201 or Chapter 9 of the Code shall have the meaning provided for therein.
Other words and phrases defined elsewhere in the Code shall have the meaning
specified therein except to the extent such meaning is inconsistent with a
definition in Section 1-201 or Chapter 9 of the Code.
2. SECURITY INTEREST. As security for the Indebtedness, Debtor, for
value received, hereby grants to Secured Party a continuing security interest
in the Collateral.
3. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and
warrants the following to Secured Party:
(a) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement and all of the other Loan Documents by Debtor have been
duly authorized by all necessary corporate action of Debtor, to the extent
Debtor is a corporation, or by all necessary partnership action, to the
extent Debtor is a partnership.
(b) ENFORCEABILITY. This Agreement and the other Loan Documents
constitute legal, valid and binding obligations of Debtor, enforceable in
accordance with their respective terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of creditors' rights and except to the extent specific
remedies may generally be limited by equitable principles.
(c) OWNERSHIP AND LIENS. Debtor has good and marketable title to
the Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, except for the security interest created
by this Agreement. No dispute, right of setoff, counterclaim or defense
exists with respect to all or any part of the Collateral. Debtor has not
executed any other security agreement currently affecting the Collateral
and no effective financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any recording
office except as may have been executed or filed in favor of Secured
Party.
(d) NO CONFLICTS OR CONSENTS. Neither the ownership, the intended
use of the Collateral by Debtor, the grant of the security interest by
Debtor to Secured Party herein nor the exercise by Secured Party of its
rights or remedies hereunder, will (i) conflict with any provision of (A)
any domestic or foreign law, statute, rule or regulation, (B) the articles
or certificate of incorporation, charter, bylaws or partnership
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<PAGE>
agreement, as the case may be, of Debtor, or (C) any agreement,
judgment, license, order or permit applicable to or binding upon Debtor,
or (ii) result in or require the creation of any lien, charge or
encumbrance upon any assets or properties of Debtor or of any person
except as may be expressly contemplated in the Loan Documents. Except
as expressly contemplated in the Loan Documents, no consent, approval,
authorization or order of, and no notice to or filing with, any court,
governmental authority or third party is required in connection with the
grant by Debtor of the security interest herein or the exercise by
Secured Party of its rights and remedies hereunder.
(e) SECURITY INTEREST. Debtor has and will have at all times full
right, power and authority to grant a security interest in the Collateral
to Secured Party in the manner provided herein, free and clear of any
lien, security interest or other charge or encumbrance. This Agreement
creates a legal, valid and binding security interest in favor of Secured
Party in the Collateral securing the Indebtedness. Possession by Secured
Party of all certificates, instruments and cash constituting Collateral
from time to time and/or the filing of the financing statements delivered
prior hereto and/or concurrently herewith by Debtor to Secured Party will
perfect and establish the first priority of Secured Party's security
interest hereunder in the Collateral.
(f) LOCATION. Debtor's residence or chief executive office, as the
case may be, and the office where the records concerning the Collateral
are kept is located at its address set forth on the signature page hereof.
Except as specified elsewhere herein, all Collateral shall be kept at such
address and such other addresses as may be listed in SCHEDULE "A" attached
hereto and made a part hereof.
(g) SOLVENCY OF DEBTOR. As of the date hereof, and after giving
effect to this Agreement and the completion of all other transactions
contemplated by Debtor at the time of the execution of this Agreement, (i)
Debtor is and will be solvent, (ii) the fair saleable value of Debtor's
assets exceeds and will continue to exceed Debtor's liabilities (both
fixed and contingent), (iii) Debtor is paying and will continue to be able
to pay its debts as they mature, and (iv) if Debtor is not an individual,
Debtor has and will have sufficient capital to carry on Debtor's
businesses and all businesses in which Debtor is about to engage.
(h) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as disclosed in
writing to Secured Party: (i) Debtor is conducting Debtor's businesses in
material compliance with all applicable federal, state and local laws,
statutes, ordinances, rules, regulations, orders, determinations and court
decisions, including without limitation, those pertaining to health or
environmental matters such as the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986 (collectively, together with
any subsequent amendments, hereinafter called "CERCLA"), the Resource
Conservation and Recovery Act of 1976, as amended by the Used Oil
Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980,
and the Hazardous Substance Waste Amendments of 1984 (collectively,
together with any subsequent amendments, hereinafter called "RCRA"), the
Texas Water Code and the Texas Solid Waste Disposal Act; (ii) none of the
operations of Debtor is the subject of a federal, state or local
investigation evaluating whether any material remedial action is needed to
respond to a release or disposal of any toxic or hazardous substance or
solid waste into the environment; (iii) Debtor has not filed any notice
under any federal, state or local law indicating that Debtor is
responsible for the release into the environment, the disposal on any
premises in which Debtor is conducting its businesses or the improper
storage, of any material amount of any toxic or hazardous substance or
solid waste or that any such toxic or hazardous substance or solid waste
has been released, disposed of or is improperly stored, upon any premise
on which Debtor is conducting its businesses; and (iv) Debtor otherwise
does not have any known material contingent liability in connection with
the release into the environment, disposal or the improper storage, of any
such toxic or hazardous substance or solid waste. The terms "HAZARDOUS
SUBSTANCE" and "RELEASE", as used herein, shall have the meanings
specified in CERCLA, and the terms "SOLID WASTE" and "DISPOSAL", as used
herein, shall have the meanings specified in RCRA; provided, however, that
to the extent that the laws of the State of Texas establish meanings for
such terms which are broader than that specified in either CERCLA or RCRA,
such broader meanings shall apply.
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(i) INVENTORY. The security interest in the inventory shall
continue through all stages of manufacture and shall, without further
action, attach to the accounts or other proceeds resulting from the sale
or other disposition thereof and to all such inventory as may be returned
to Debtor by its account debtors.
(j) ACCOUNTS. Each account represents the valid and legally binding
indebtedness of a bona fide account debtor arising from the sale or lease
by Debtor of goods or the rendition by Debtor of services and is not
subject to contra accounts, setoffs, defenses or counterclaims by or
available to account debtors obligated on the accounts except as disclosed
by Debtor to Secured Party from time to time in writing. The amount shown
as to each account on Debtor's books is the true and undisputed amount
owing and unpaid thereon, subject only to discounts, allowances, rebates,
credits and adjustments to which the account debtor has a right and which
have been disclosed to Secured Party in writing.
(k) CHATTEL PAPER, DOCUMENTS AND INSTRUMENTS. The chattel paper,
documents and instruments of Debtor pledged hereunder have only one
original counterpart and no party other than Debtor or Secured Party is in
actual or constructive possession of any such chattel paper, documents or
instruments.
4. AFFIRMATIVE COVENANTS. Debtor will comply with the covenants
contained in this Section 4 at all times during the period of time this
Agreement is effective unless Secured Party shall otherwise consent in writing.
(a) OWNERSHIP AND LIENS. Debtor will maintain good and marketable
title to all Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, except for the security interest created
by this Agreement and the security interests and other encumbrances
expressly permitted by the other Loan Documents. Debtor will not permit
any dispute, right of setoff, counterclaim or defense to exist with
respect to all or any part of the Collateral. Debtor will cause any
financing statement or other security instrument with respect to the
Collateral to be terminated, except as may exist or as may have been filed
in favor of Secured Party. Debtor will defend at its expense Secured
Party's right, title and security interest in and to the Collateral
against the claims of any third party.
(b) FURTHER ASSURANCES. Debtor will from time to time at its
expense promptly execute and deliver all further instruments and documents
and take all further action necessary or appropriate or that Secured Party
may request in order (i) to perfect and protect the security interest
created or purported to be created hereby and the first priority of such
security interest, (ii) to enable Secured Party to exercise and enforce
its rights and remedies hereunder in respect of the Collateral, and (iii)
to otherwise effect the purposes of this Agreement, including without
limitation: (A) executing and filing such financing or continuation
statements, or amendments thereto; and (B) furnishing to Secured Party
from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral, all in reasonable detail satisfactory to Bank.
(c) INSPECTION OF COLLATERAL. Debtor will keep adequate records
concerning the Collateral and will permit Secured Party and all
representatives and agents appointed by Secured Party to inspect any of
the Collateral and the books and records of or relating to the Collateral
at any time during normal business hours, to make and take away
photocopies, photographs and printouts thereof and to write down and
record any such information.
(d) PAYMENT OF TAXES. Debtor (i) will timely pay all property and
other taxes, assessments and governmental charges or levies imposed upon
the Collateral or any part thereof, (ii) will timely pay all lawful claims
which, if unpaid, might become a lien or charge upon the Collateral or any
part thereof, and (iii) will maintain appropriate accruals and reserves
for all such liabilities in a timely fashion in accordance with generally
accepted accounting principles. Debtor may, however, delay paying or
discharging any such taxes, assessments, charges, claims or liabilities so
long as the validity thereof is contested in good faith by proper
proceedings and provided Debtor has set aside on Debtor's books adequate
reserves therefor; provided, however, Debtor understands and agrees that
in the event of any such delay in payment or discharge and upon Secured
Party's written request, Debtor will establish with Secured Party an
escrow acceptable to Secured Party adequate to cover the payment of such
taxes, assessments and governmental charges with interest, costs
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and penalties and a reasonable additional sum to cover possible costs,
interest and penalties (which escrow shall be returned to Debtor upon
payment of such taxes, assessments, governmental charges, interests,
costs and penalties or disbursed in accordance with the resolution of
the contest to the claimant) or furnish Secured Party with an indemnity
bond secured by a deposit in cash or other security acceptable to
Secured Party. Notwithstanding any other provision contained in this
Subsection, Secured Party may at its discretion exercise its rights
under Subsection 6(c) at any time to pay such taxes, assessments,
governmental charges, interest, costs and penalties.
(e) MORTGAGEE'S AND LANDLORD'S WAIVERS. Debtor shall cause each
mortgagee of real property owned by Debtor and each landlord of real
property leased by Debtor to execute and deliver agreements satisfactory
in form and substance to Secured Party by which such mortgagee or landlord
waives or subordinates any rights it may have in the Collateral.
(f) CONDITION OF GOODS. Debtor will maintain, preserve, protect and
keep all Collateral which constitutes goods in good condition, repair and
working order and will cause such Collateral to be used and operated in
good and workmanlike manner, in accordance with applicable laws and in a
manner which will not make void or cancelable any insurance with respect
to such Collateral. Debtor will promptly make or cause to be made all
repairs, replacements and other improvements to or in connection with the
Collateral which Secured Party may request from time to time.
(g) INSURANCE. Debtor will, at its own expense, maintain insurance
with respect to all Collateral which constitutes goods in such amounts,
against such risks, in such form and with such insurers, as shall be
satisfactory to Secured Party from time to time. Each policy for property
damage insurance shall provide for all losses to be paid directly to
Secured Party. Each policy of insurance maintained by Debtor shall (i)
name Debtor and Secured Party as insured parties thereunder (without any
representation or warranty by or obligation upon Secured Party) as their
interests may appear, (ii) contain the agreement by the insurer that any
loss thereunder shall be payable to Secured Party notwithstanding any
action, inaction or breach of representation or warranty by Debtor, (iii)
provide that there shall be no recourse against Secured Party for payment
of premiums or other amounts with respect thereto, and (iv) provide that
at least thirty (30) days prior written notice of cancellation or of lapse
shall be given to Secured Party by the insurer. Debtor will, if requested
by Secured Party, deliver to Secured Party original or duplicate policies
of such insurance and, as often as Secured Party may reasonably request, a
report of a reputable insurance broker with respect to such insurance.
Debtor will also, at the request of Secured Party, duly execute and
deliver instruments of assignment of such insurance policies and cause the
respective insurers to acknowledge notice of such assignment. All
insurance payments in respect of loss of or damage to any Collateral shall
be paid to Secured Party and applied as Secured Party in its sole
discretion deems appropriate.
(h) ACCOUNTS AND GENERAL INTANGIBLES. Debtor will, except as
otherwise provided in Subsection 6(f), collect, at Debtor's own expense,
all amounts due or to become due under each of the accounts and general
intangibles. In connection with such collections, Debtor may and, at
Secured Party's direction, will take such action not otherwise forbidden
by Subsection 5(e) as Debtor or Secured Party may deem necessary or
advisable to enforce collection or performance of each of the accounts and
general intangibles. Debtor will also duly perform and cause to be
performed all of its obligations with respect to the goods or services,
the sale or lease or rendition of which gave rise or will give rise to
each account and all of its obligations to be performed under or with
respect to the general intangibles. Debtor also covenants and agrees to
take any action and/or execute any documents that Secured Party may
request in order to comply with the Federal Assignment of Claims Act, as
amended.
(i) CHATTEL PAPER, DOCUMENTS AND INSTRUMENTS. Debtor will take such
action as may be requested by Secured Party in order to cause any chattel
paper, documents or instruments to be valid and enforceable and will cause
all chattel paper to have only one original counterpart. Upon request by
Secured Party, Debtor will deliver to Secured Party all originals of
chattel paper, documents or instruments and will mark all chattel paper
with a legend indicating that such chattel paper is subject to the
security interest granted hereunder.
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(j) COLLECTIONS. After the occurrence of an Event of Default (as
hereinafter defined), Debtor will cause all proceeds of and collections
with respect to all Collateral to be deposited in a bank account
established at a bank acceptable to Pledgee, with any such proceeds and
collections to be subject to withdrawal by Pledgee only, and until so
turned over shall be deemed to be held in trust by Borrower for Secured
Party and shall not be commingled with Borrower's other funds or
properties. Such proceeds and collections, when deposited, shall continue
to be collateral security for all of the Indebtedness and shall not
constitute payment thereof until applied as hereinafter provided. At any
time after the occurrence of any Event of Default, Secured Party shall be
entitled to apply all or a part of the funds on deposit in said account to
the principal of or interest on or both in respect of any of the
Indebtedness in accordance with the provisions of Section 8(b) hereof.
5. NEGATIVE COVENANTS. Debtor will comply with the covenants contained
in this Section 5 at all times during the period of time this Agreement is
effective, unless Secured Party shall otherwise consent in writing.
(a) TRANSFER OR ENCUMBRANCE. Debtor will not (i) sell, assign (by
operation of law or otherwise), transfer, exchange, lease or otherwise
dispose of any of the Collateral, (ii) grant a lien or security interest
in or execute, file or record any financing statement or other security
instrument with respect to the Collateral to any party other than Secured
Party, or (iii) deliver actual or constructive possession of any of the
Collateral to any party other than Secured Party, except for (A) sales and
leases of inventory in the ordinary course of business, and (B) the sale or
other disposal of any item of equipment which is worn out or obsolete and
which has been replaced by an item of equal suitability and value, owned by
Debtor and made subject to the security interest under this Agreement, but
which is otherwise free and clear of any lien, security interest,
encumbrance or adverse claim; provided, however, the exceptions permitted
in clauses (A) and (B) above shall automatically terminate upon the
occurrence of an Event of Default.
(b) IMPAIRMENT OF SECURITY INTEREST. Debtor will not take or fail
to take any action which would in any manner impair the value or
enforceability of Secured Party's security interest in any Collateral.
(c) POSSESSION OF COLLATERAL. Debtor will not cause or permit the
removal of any Collateral from its possession, control and risk of loss,
nor will Debtor cause or permit the removal of any Collateral from the
address on the signature page hereof and the addresses specified on
SCHEDULE "A" to this Agreement other than (i) as permitted by Subsection
5(a), or (ii) in connection with the possession of any Collateral by
Secured Party or by its bailee.
(d) GOODS. Debtor will not permit any Collateral which constitutes
goods to at any time (i) be covered by any document except documents in the
possession of the Secured Party, (ii) become so related to, attached to or
used in connection with any particular real property so as to become a
fixture upon such real property, or (iii) be installed in or affixed to
other goods so as to become an accession to such other goods unless such
other goods are subject to a perfected first priority security interest
under this Agreement.
(e) COMPROMISE OF COLLATERAL. Debtor will not adjust, settle,
compromise, amend or modify any Collateral, except an adjustment,
settlement, compromise, amendment or modification in good faith and in the
ordinary course of business; provided, however, this exception shall
automatically terminate upon the occurrence of an Event of Default or upon
Secured Party's written request. Debtor shall provide to Secured Party
such information concerning (i) any adjustment, settlement, compromise,
amendment or modification of any Collateral, and (ii) any claim asserted by
any account debtor for credit, allowance, adjustment, dispute, setoff or
counterclaim, as Secured Party may request from time to time.
(f) FINANCING STATEMENT FILINGS. Debtor recognizes that financing
statements pertaining to the Collateral have been or may be filed where
Debtor maintains any Collateral, has its records concerning any Collateral
or has its residence or chief executive office, as the case may be. Without
limitation of any other covenant herein, Debtor will not cause or permit
any change in the location of (i) any Collateral, (ii) any records
concerning any Collateral, or (iii) Debtor's residence or chief executive
office, as the case may be, to a
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jurisdiction other than as represented in Subsection 3(f) unless Debtor
shall have notified Secured Party in writing of such change at least thirty
(30) days prior to the effective date of such change, and shall have first
taken all action required by Secured Party for the purpose of further
perfecting or protecting the security interest in favor of Secured Party in
the Collateral. In any written notice furnished pursuant to this
Subsection, Debtor will expressly state that the notice is required by this
Agreement and contains facts that may require additional filings of
financing statements or other notices for the purpose of continuing
perfection of Secured Party's security interest in the Collateral.
6. RIGHTS OF SECURED PARTY. Secured Party shall have the rights
contained in this Section 6 at all times during the period of time this
Agreement is effective.
(a) ADDITIONAL FINANCING STATEMENTS FILINGS. Debtor hereby
authorizes Secured Party to file, without the signature of Debtor, one or
more financing or continuation statements, and amendments thereto, relating
to the Collateral. Debtor further agrees that a carbon, photographic or
other reproduction of this Security Agreement or any financing statement
describing any Collateral is sufficient as a financing statement and may be
filed in any jurisdiction Secured Party may deem appropriate.
(b) POWER OF ATTORNEY. Debtor hereby irrevocably appoints Secured
Party as Debtor's attorney-in-fact, such power of attorney being coupled
with an interest, with full authority in the place and stead of Debtor and
in the name of Debtor or otherwise, from time to time in Secured Party's
discretion, to take any action and to execute any instrument which Secured
Party may deem necessary or appropriate to accomplish the purposes of this
Agreement, including without limitation: (i) to obtain and adjust insurance
required by Secured Party hereunder; (ii) to demand, collect, sue for,
recover, compound, receive and give acquittance and receipts for moneys due
and to become due under or in respect of the Collateral; (iii) to receive,
endorse and collect any drafts or other instruments, documents and chattel
paper in connection with clause (i) or (ii) above; and (iv) to file any
claims or take any action or institute any proceedings which Secured Party
may deem necessary or appropriate for the collection and/or preservation of
the Collateral or otherwise to enforce the rights of Secured Party with
respect to the Collateral.
(c) PERFORMANCE BY SECURED PARTY. If Debtor fails to perform any
agreement or obligation provided herein, Secured Party may itself perform,
or cause performance of, such agreement or obligation, and the expenses of
Secured Party incurred in connection therewith shall be a part of the
Indebtedness, secured by the Collateral and payable by Debtor on demand.
(d) REQUEST FOR ENVIRONMENTAL INSPECTIONS. Upon Secured Party's
reasonable request from time to time, Debtor will obtain at Debtor's sole
expense an inspection or audit of Debtor's operations from an engineering
or consulting firm approved by Secured Party, indicating the presence or
absence of toxic or hazardous substances and solid wastes on any premises
in which Debtor is conducting its business; provided, however, Debtor will
be obligated to pay for the cost of any such inspection or audit no more
than one time in any twelve (12) month period unless Secured Party has
reason to believe that toxic or hazardous substances or solid wastes have
been dumped on any such premises. If Debtor fails to order or obtain an
inspection or audit within ten (10) days after Secured Party's request,
Secured Party may at its option order such inspection or audit, and Debtor
grants to Secured Party and its agents, employees, contractors and
consultants access to the premises in which it is conducting its business
and a license (which is coupled with an interest and is irrevocable) to
obtain inspections and audits. Debtor agrees to promptly provide Secured
Party with a copy of the results of any such inspection or audit received
by Debtor. The cost of such inspections and audits shall be a part of the
Indebtedness, secured by the Collateral and payable by Debtor on demand.
(e) DEBTOR'S RECEIPT OF PROCEEDS. All amounts and proceeds
(including instruments and writings) received by Debtor in respect of such
accounts or general intangibles shall be received in trust for the benefit
of Secured Party hereunder and, upon request of Secured Party, shall be
segregated from other property of Debtor and shall be forthwith delivered
to Secured Party in the same form as so received (with any necessary
endorsement) and applied to the Indebtedness in such manner as Secured
Party deems appropriate in its sole discretion.
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(f) NOTIFICATION OF ACCOUNT DEBTORS. Secured Party may at its
discretion from time to time notify any or all obligors under any
accounts or general intangibles (i) of Secured Party's security interest
in such accounts or general intangibles and direct such obligors to make
payment of all amounts due or to become due to Debtor thereunder
directly to Secured Party, and (ii) to verify the accounts or general
intangibles with such obligors. Secured Party shall have the right, at
the expense of Debtor, to enforce collection of any such accounts or
general intangibles and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as Debtor.
7. EVENTS OF DEFAULT. Each of the following constitutes an "EVENT OF
DEFAULT" under this Agreement:
(a) DEFAULT UNDER SECURITIES PURCHASE AGREEMENT. The occurrence
of any Event of Default under the Securities Purchase Agreement or
Convertible Debenture (as defined therein); or
(b) NON-PERFORMANCE OF COVENANTS. The failure of Borrower or any
Obligated Party to timely and properly observe, keep or perform any
covenant, agreement, warranty or condition required herein or in any of
the other Loan Documents; or
(c) DEFAULT UNDER OTHER LOAN DOCUMENTS. The occurrence of an
event of default under any of the other Loan Documents; or
(d) FALSE REPRESENTATION. Any representation contained herein or
in any of the other Loan Documents made by Borrower or any Obligated
Party is false or misleading in any material respect; or
(e) DEFAULT TO THIRD PARTY. The occurrence of any event which
permits the acceleration of the maturity of any indebtedness owing by
Borrower or any Obligated Party to any third party under any agreement
or undertaking; or
(f) BANKRUPTCY OR INSOLVENCY. If Borrower or any Obligated Party:
(i) becomes insolvent, or makes a transfer in fraud of creditors, or
makes an assignment for the benefit of creditors, or admits in writing
its inability to pay its debts as they become due; (ii) generally is not
paying its debts as such debts become due; (iii) has a receiver, trustee
or custodian appointed for, or take possession of, all or substantially
all of the assets of such party or any of the Collateral, either in a
proceeding brought by such party or in a proceeding brought against such
party and such appointment is not discharged or such possession is not
terminated within sixty (60) days after the effective date thereof or
such party consents to or acquiesces in such appointment or possession;
(iv) files a petition for relief under the United States Bankruptcy Code
or any other present or future federal or state insolvency, bankruptcy
or similar laws (all of the foregoing hereinafter collectively called
"APPLICABLE BANKRUPTCY LAW") or an involuntary petition for relief is
filed against such party under any Applicable Bankruptcy Law and such
involuntary petition is not dismissed within sixty (60) days after the
filing thereof, or an order for relief naming such party is entered
under any Applicable Bankruptcy Law, or any composition, rearrangement,
extension, reorganization or other relief of debtors now or hereafter
existing is requested or consented to by such party; (v) fails to have
discharged within a period of sixty (60) days any attachment,
sequestration or similar writ levied upon any property of such party; or
(vi) fails to pay within thirty (30) days any final money judgment
against such party; or
(g) EXECUTION ON COLLATERAL. The Collateral or any portion
thereof is taken on execution or other process of law in any action
against Debtor; or
(h) ABANDONMENT. Debtor abandons the Collateral or any portion
thereof; or
(i) ACTION BY OTHER LIENHOLDER. The holder of any lien or
security interest on any of the assets of Debtor, including without
limitation, the Collateral (without hereby implying the consent of
Secured Party to the existence or creation of any such lien or security
interest on the Collateral), declares a default thereunder or institutes
foreclosure or other proceedings for the enforcement of its remedies
thereunder; or
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(j) LIQUIDATION, DEATH AND RELATED EVENTS. If Borrower or any
Obligated Party is an entity, the liquidation, dissolution, merger or
consolidation of any such entity or, if Borrower or any Obligated Party
is an individual, the death or legal incapacity of any such individual.
8. REMEDIES AND RELATED RIGHTS. If an Event of Default shall have
occurred, and without limiting any other rights and remedies provided herein,
under any of the other Loan Documents or otherwise available to Secured Party,
Secured Party may exercise one or more of the rights and remedies provided in
this Section.
(a) REMEDIES. Secured Party may from time to time at its
discretion, without limitation and without notice except as expressly
provided in any of the Loan Documents:
(i) exercise in respect of the Collateral all the
rights and remedies of a secured party under the Code (whether or
not the Code applies to the affected Collateral);
(ii) require Debtor to, and Debtor hereby agrees
that it will at its expense and upon request of Secured Party,
assemble the Collateral as directed by Secured Party and make it
available to Secured Party at a place to be designated by Secured
Party which is reasonably convenient to both parties;
(iii) reduce its claim to judgment or foreclose or
otherwise enforce, in whole or in part, the security interest
granted hereunder by any available judicial procedure;
(iv) sell or otherwise dispose of, at its office,
on the premises of Debtor or elsewhere, the Collateral, as a unit
or in parcels, by public or private proceedings, and by way of one
or more contracts (it being agreed that the sale or other
disposition of any part of the Collateral shall not exhaust Secured
Party's power of sale, but sales or other dispositions may be made
from time to time until all of the Collateral has been sold or
disposed of or until the Indebtedness has been paid and performed
in full), and at any such sale or other disposition it shall not be
necessary to exhibit any of the Collateral;
(v) buy the Collateral, or any portion thereof,
at any public sale;
(vi) buy the Collateral, or any portion thereof,
at any private sale if the Collateral is of a type customarily sold
in a recognized market or is of a type which is the subject of
widely distributed standard price quotations;
(vii) apply for the appointment of a receiver for
the Collateral, and Debtor hereby consents to any such appointment;
and
(viii) at its option, retain the Collateral in
satisfaction of the Indebtedness whenever the circumstances are
such that Secured Party is entitled to do so under the Code or
otherwise.
Debtor agrees that in the event Debtor is entitled to receive any notice
under the Uniform Commercial Code, as it exists in the state governing
any such notice, of the sale or other disposition of any Collateral,
reasonable notice shall be deemed given when such notice is deposited in
a depository receptacle under the care and custody of the United States
Postal Service, postage prepaid, at Debtor's address set forth on the
signature page hereof, five (5) days prior to the date of any public
sale, or after which a private sale, of any of such Collateral is to be
held. Secured Party shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Secured
Party may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
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(b) APPLICATION OF PROCEEDS. If any Event of Default shall have
occurred, Secured Party may at its discretion apply or use any cash held
by Secured Party as Collateral, and any cash proceeds received by Secured
Party in respect of any sale or other disposition of, collection from, or
other realization upon, all or any part of the Collateral as follows in
such order and manner as Secured Party may elect:
(i) to the repayment or reimbursement of the
reasonable costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred by Secured Party in
connection with (A) the administration of the Loan Documents, (B) the
custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, the Collateral, and (C)
the exercise or enforcement of any of the rights and remedies of
Secured Party hereunder;
(ii) to the payment or other satisfaction of any liens
and other encumbrances upon the Collateral;
(iii) to the satisfaction of the Indebtedness;
(iv) by holding such cash and proceeds as Collateral;
(v) to the payment of any other amounts required by
applicable law (including without limitation, Section 9-504 of the
Code or any other applicable statutory provision); and
(vi) by delivery to Debtor or any other party lawfully
entitled to receive such cash or proceeds whether by direction of a
court of competent jurisdiction or otherwise.
(c) DEFICIENCY. In the event that the proceeds of any sale of,
collection from, or other realization upon, all or any part of the
Collateral by Secured Party are insufficient to pay all amounts to which
Secured Party is legally entitled, Borrower and any party who guaranteed
or is otherwise obligated to pay all or any portion of the Indebtedness
shall be liable for the deficiency, together with interest thereon as
provided in the Loan Documents.
(d) NON-JUDICIAL REMEDIES. In granting to Secured Party the power
to enforce its rights hereunder without prior judicial process or judicial
hearing, Debtor expressly waives, renounces and knowingly relinquishes any
legal right which might otherwise require Secured Party to enforce its
rights by judicial process. Debtor recognizes and concedes that
non-judicial remedies are consistent with the usage of trade, are
responsive to commercial necessity and are the result of a bargain at
arm's length. Nothing herein is intended to prevent Secured Party or
Debtor from resorting to judicial process at either party's option.
(e) OTHER RECOURSE. Debtor waives any right to require Secured
Party to proceed against any third party, exhaust any Collateral or other
security for the Indebtedness, or to have any third party joined with
Debtor in any suit arising out of the Indebtedness or any of the Loan
Documents, or pursue any other remedy available to Secured Party. Debtor
further waives any and all notice of acceptance of this Agreement and of
the creation, modification, rearrangement, renewal or extension of the
Indebtedness. Debtor further waives any defense arising by reason of any
disability or other defense of any third party or by reason of the
cessation from any cause whatsoever of the liability of any third party.
Until all of the Indebtedness shall have been paid in full, Debtor shall
have no right of subrogation and Debtor waives the right to enforce any
remedy which Secured Party has or may hereafter have against any third
party, and waives any benefit of and any right to participate in any other
security whatsoever now or hereafter held by Secured Party. Debtor
authorizes Secured Party, and without notice or demand and without any
reservation of rights against Debtor and without affecting Debtor's
liability hereunder or on the Indebtedness to (i) take or hold any other
property of any type from any third party as security for the
Indebtedness, and exchange, enforce, waive and release any or all of such
other property, (ii) apply such other property and direct the order or
manner of sale thereof as Secured Party may in its discretion determine,
(iii) renew, extend, accelerate, modify, compromise, settle or release any
of the Indebtedness or other security for the Indebtedness, (iv) waive,
enforce or modify any of the
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provisions of any of the Loan Documents executed by any third party, and
(v) release or substitute any third party.
9. INDEMNITY. Debtor hereby indemnifies and agrees to hold harmless
Secured Party, and its officers, directors, employees, agents and
representatives (each an "INDEMNIFIED PERSON") from and against any and all
liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
(collectively, the "CLAIMS") which may be imposed on, incurred by, or
asserted against, any Indemnified Person arising in connection with the Loan
Documents, the Indebtedness or the Collateral (including without limitation,
the enforcement of the Loan Documents and the defense of any Indemnified
Person's actions and/or inactions in connection with the Loan Documents).
WITHOUT LIMITATION, THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED
PERSON WITH RESPECT TO ANY CLAIMS WHICH IN WHOLE OR IN PART ARE CAUSED BY OR
ARISE OUT OF THE NEGLIGENCE OF SUCH AND/OR ANY OTHER INDEMNIFIED PERSON,
except to the limited extent the Claims against an Indemnified Person are
proximately caused by such Indemnified Person's gross negligence or willful
misconduct. If Debtor or any third party ever alleges such gross negligence
or willful misconduct by any Indemnified Person, the indemnification provided
for in this Section shall nonetheless be paid upon demand, subject to later
adjustment or reimbursement, until such time as a court of competent
jurisdiction enters a final judgment as to the extent and effect of the
alleged gross negligence or willful misconduct. The indemnification provided
for in this Section shall survive the termination of this Agreement and shall
extend and continue to benefit each individual or entity who is or has at any
time been an Indemnified Person hereunder.
10. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement contains the entire agreement
of Secured Party and Debtor with respect to the Collateral. If the
parties hereto are parties to any prior agreement, either written or oral,
relating to the Collateral, the terms of this Agreement shall amend and
supersede the terms of such prior agreements as to transactions on or
after the effective date of this Agreement, but all security agreements,
financing statements, guaranties, other contracts and notices for the
benefit of Secured Party shall continue in full force and effect to secure
the Indebtedness unless Secured Party specifically releases its rights
thereunder by separate release.
(b) AMENDMENT. No modification, consent or amendment of any
provision of this Agreement or any of the other Loan Documents shall be
valid or effective unless the same is in writing and signed by the party
against whom it is sought to be enforced.
(c) ACTIONS BY SECURED PARTY. The lien, security interest and other
security rights of Secured Party hereunder shall not be impaired by (i)
any renewal, extension, increase or modification with respect to the
Indebtedness, (ii) any surrender, compromise, release, renewal, extension,
exchange or substitution which Secured Party may grant with respect to the
Collateral, or (iii) any release or indulgence granted to any endorser,
guarantor or surety of the Indebtedness. The taking of additional
security by Secured Party shall not release or impair the lien, security
interest or other security rights of Secured Party hereunder or affect the
obligations of Debtor hereunder.
(d) WAIVER BY SECURED PARTY. Secured Party may waive any Event of
Default without waiving any other prior or subsequent Event of Default.
Secured Party may remedy any default without waiving the Event of Default
remedied. Neither the failure by Secured Party to exercise, nor the delay
by Secured Party in exercising, any right or remedy upon any Event of
Default shall be construed as a waiver of such Event of Default or as a
waiver of the right to exercise any such right or remedy at a later date.
No single or partial exercise by Secured Party of any right or remedy
hereunder shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right or remedy hereunder may be
exercised at any time. No waiver of any provision hereof or consent to
any departure by Debtor therefrom shall be effective unless the same shall
be in writing and signed by Secured Party and then such waiver or consent
shall be effective only in the specific instances, for the purpose for
which given and to the extent therein specified. No notice to or
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demand on Debtor in any case shall of itself entitle Debtor to any other or
further notice or demand in similar or other circumstances.
(e) COSTS AND EXPENSES. Debtor will upon demand pay to Secured
Party the amount of any and all costs and expenses (including without
limitation, attorneys' fees and expenses), which Secured Party may incur
in connection with (i) the transactions which give rise to the Loan
Documents, (ii) the preparation of this Agreement and the perfection and
preservation of the security interests granted under the Loan Documents,
(iii) the administration of the Loan Documents, (iv) the custody,
preservation, use or operation of, or the sale of, collection from, or
other realization upon, the Collateral, (v) the exercise or enforcement of
any of the rights of Secured Party under the Loan Documents, or (vi) the
failure by Debtor to perform or observe any of the provisions hereof.
(F) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA AND
APPLICABLE FEDERAL LAWS, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF
PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER,
IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEVADA.
(g) APPOINTMENT OF PLEDGEE AS AGENT. Pledgee has been appointed to
act as Pledgee hereunder by and for the benefit of the Purchasers.
(h) SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be illegal, invalid or unenforceable
under present or future laws, such provision shall be fully severable,
shall not impair or invalidate the remainder of this Agreement and the
effect thereof shall be confined to the provision held to be illegal,
invalid or unenforceable.
(i) NO OBLIGATION. Nothing contained herein shall be construed as
an obligation on the part of Secured Party to extend or continue to extend
credit to Borrower.
(j) NOTICES. All notices, requests, demands or other communications
required or permitted to be given pursuant to this Agreement shall be in
writing and given by (i) personal delivery, (ii) expedited delivery
service with proof of delivery, or (iii) United States mail, postage
prepaid, registered or certified mail, return receipt requested, sent to
the intended addressee at the address set forth on the signature page
hereof or to such different address as the addressee shall have designated
by written notice sent pursuant to the terms hereof and shall be deemed to
have been received either, in the case of personal delivery, at the time
of personal delivery, in the case of expedited delivery service, as of the
date of first attempted delivery at the address and in the manner provided
herein, or in the case of mail, upon deposit in a depository receptacle
under the care and custody of the United States Postal Service. Either
party shall have the right to change its address for notice hereunder to
any other location within the continental United States by notice to the
other party of such new address at least thirty (30) days prior to the
effective date of such new address.
(k) BINDING EFFECT AND ASSIGNMENT. This Agreement (i) creates a
continuing security interest in the Collateral, (ii) shall be binding on
Debtor and the heirs, executors, administrators, personal representatives,
successors and assigns of Debtor, and (iii) shall inure to the benefit of
Secured Party and its successors and assigns. Without limiting the
generality of the foregoing, Secured Party may pledge, assign or otherwise
transfer the Indebtedness and its rights under this Agreement and any of
the other Loan Documents to any other party. Debtor's rights and
obligations hereunder may not be assigned or otherwise transferred without
the prior written consent of Secured Party.
(l) TERMINATION. It is contemplated by the parties hereto that from
time to time there may be no outstanding Indebtedness, but notwithstanding
such occurrences, this Agreement shall remain valid and shall be in full
force and effect as to subsequent outstanding Indebtedness. Upon (i) the
satisfaction in full of the Indebtedness, (ii) the termination or
expiration of any commitment of Secured Party to extend credit to
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Borrower, (iii) written request for the termination hereof delivered by
Debtor to Secured Party, and (iv) written release or termination delivered
by Secured Party to Debtor, this Agreement and the security interests
created hereby shall terminate. Upon termination of this Agreement and
Debtor's written request, Secured Party will, at Debtor's sole cost and
expense, return to Debtor such of the Collateral as shall not have been
sold or otherwise disposed of or applied pursuant to the terms hereof and
execute and deliver to Debtor such documents as Debtor shall reasonably
request to evidence such termination.
(m) CUMULATIVE RIGHTS. All rights and remedies of Secured Party
hereunder are cumulative of each other and of every other right or remedy
which Secured Party may otherwise have at law or in equity or under any of
the other Loan Documents, and the exercise of one or more of such rights
or remedies shall not prejudice or impair the concurrent or subsequent
exercise of any other rights or remedies.
(n) GENDER AND NUMBER. Within this Agreement, words of any gender
shall be held and construed to include the other gender, and words in the
singular number shall be held and construed to include the plural and
words in the plural number shall be held and construed to include the
singular, unless in each instance the context requires otherwise.
(o) DESCRIPTIVE HEADINGS. The headings in this Agreement are for
convenience only and shall in no way enlarge, limit or define the scope or
meaning of the various and several provisions hereof.
[SIGNATURE PAGE FOLLOWS]
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EXECUTED as of the date first written above.
Debtor's Address: DEBTOR:
ORIX GLOBAL COMMUNICATIONS, INC.
- ------------------------
- ------------------------
- ------------------------
By: /s/ Kerry Rogers
----------------------------------
Its: President
----------------------------------
Secured Party's Address:
c/o Infinity Investors Limited
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Fax: 214/720-1662
Attn: Barrett Wissman
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<PAGE>
SCHEDULE "A"
TO
SECURITY AGREEMENT
DATED DECEMBER __, 1997
The other addresses referenced in Subsection 3(f) are as follows:
<PAGE>
EXHIBIT "A"
TO
SECURITY AGREEMENT
DATED DECEMBER ___, 1997
Location:
Owner of Record:
Legal Description:
<PAGE>
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("AGREEMENT") is made as of the 31st day of
December, 1997, by the parties set forth on signature page hereto under the
heading Pledgor (hereinafter called "PLEDGOR", whether one or more), in favor
of Infinity Investors Limited, as agent for and representative of (in such
capacity, "PLEDGEE") the Purchasers (as hereinafter defined) under the
Securities Purchase Agreement (as hereinafter defined). Pledgor hereby agrees
with Pledgees as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings indicated below:
(a) The term "BORROWER" shall mean Touch Tone America, Inc. and Orix
Global Communications, Inc., or either of them.
(b) The term "CODE" shall mean the Uniform Commercial Code as in
effect in the State of Nevada on the date of this Agreement or as it may
hereafter be amended from time to time.
(c) The term "COLLATERAL" shall mean all of the following property
all shares of capital stock or other equity interests now owned or
hereafter acquired by Pledgor in Orix Global Communications, Inc. ("Orix"),
together with certificates representing all of such shares or other
interests (the "Pledged Shares"), and any interest of Pledgor in the
entries on the books of any financial intermediary pertaining to the
Pledged Shares, and all dividends, cash, options, warrants, rights,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any
and all of the Pledged Shares. The term Collateral, as used herein, shall
also include (A) all certificates, instruments and/or other documents
evidencing the foregoing, (B) all renewals, replacements and substitutions
of all of the foregoing, (C) all Additional Property (as hereinafter
defined), and (D) all PRODUCTS and PROCEEDS of all of the foregoing. The
designation of proceeds does not authorize Pledgor to sell, transfer or
otherwise convey any of the foregoing property. The delivery at any time
by Pledgor to Secured Party of any property as a pledge to secure payment
or performance of any indebtedness or obligation whatsoever shall also
constitute a pledge of such property as Collateral hereunder.
(d) The term "INDEBTEDNESS" shall mean (i) all indebtedness,
obligations and liabilities of Borrower to Secured Party to timely pay the
Rescission Price, as such term is defined in the Securities Purchase
Agreement dated as of the date hereof (the "SECURITIES PURCHASE AGREEMENT")
among Borrower, Orix, and Infinity Investors Limited and Infinity Emerging
Opportunities Limited (the "PURCHASERS"); (ii) all accrued but unpaid
interest on any of the indebtedness described in (i) above; (iii) all
obligations owing to Secured Party under any documents evidencing,
securing, governing and/or pertaining to all or any part of the
indebtedness described in (i) and (ii) above; (iv) all costs and expenses
incurred by Secured Party in connection with the collection and
administration of all or any part of the indebtedness and obligations
described in (i), (ii) and (iii) above or the protection or preservation
of, or realization upon, the collateral securing all or any part of such
indebtedness and obligations, including without limitation all reasonable
attorneys' fees; and (v) all renewals, extensions, modifications and
rearrangements of the indebtedness and obligations described in (i), (ii),
(iii) and (iv) above.
(e) The term "LOAN DOCUMENTS" shall mean all instruments and
documents evidencing, securing, governing, guaranteeing and/or pertaining
to the Indebtedness, including without limitation the Securities Purchase
Agreement.
(f) The term "OBLIGATED PARTY" shall mean any party other than
Borrower who secures, guarantees and/or is otherwise obligated to pay all
or any portion of the Indebtedness.
- -------------------------------------------------------------------------------
STOCK PLEDGE AGREEMENT - Page 1
<PAGE>
(g) The term "SECURED PARTY" shall mean the Purchasers, and the
Pledgee as agent for the Purchasers, their successors and assigns,
including without limitation, any party to whom any Purchaser or the
Pledgee, or any of their successors or assigns, may assign all or any part
of the Indebtedness or any of its their rights and interests under this
Agreement.
All words and phrases used herein which are expressly defined in Section
1-201, Chapter 8 or Chapter 9 of the Code shall have the meaning
provided for therein. Other words and phrases defined elsewhere in the
Code shall have the meaning specified therein except to the extent such
meaning is inconsistent with a definition in Section 1-201, Chapter 8 or
Chapter 9 of the Code.
2. SECURITY INTEREST. As security for the Indebtedness, Pledgor, for
value received, hereby grants to Secured Party a continuing security interest in
the Collateral.
3. ADDITIONAL PROPERTY. Collateral shall also include the following
property (collectively, the "ADDITIONAL PROPERTY") which Pledgor becomes
entitled to receive or shall receive in connection with any other Collateral:
(a) any stock certificate, including without limitation, any certificate
representing a stock dividend or any certificate in connection with any
recapitalization, reclassification, merger, consolidation, conversion, sale of
assets, combination of shares, stock split or spin-off; (b) any option, warrant,
subscription or right, whether as an addition to or in substitution of any other
Collateral; (c) any dividends or distributions of any kind whatsoever, whether
distributable in cash, stock or other property; (d) any interest, premium or
principal payments; and (e) any conversion or redemption proceeds; provided,
however, that until the occurrence of an Event of Default (as hereinafter
defined), Pledgor shall be entitled to all cash dividends and all interest paid
on the Collateral (except interest paid on any certificate of deposit pledged
hereunder) free of the security interest created under this Agreement. All
Additional Property received by Pledgor shall be received in trust for the
benefit of Secured Party. All Additional Property and all certificates or other
written instruments or documents evidencing and/or representing the Additional
Property that is received by Pledgor, together with such instruments of transfer
as Secured Party may request, shall immediately be delivered to or deposited
with Secured Party and held by Secured Party as Collateral under the terms of
this Agreement. If the Additional Property received by Pledgor shall be shares
of stock or other securities, such shares of stock or other securities shall be
duly endorsed in blank or accompanied by proper instruments of transfer and
assignment duly executed in blank with, if requested by Secured Party,
signatures guaranteed by a member or member organization in good standing of an
authorized Securities Transfer Agents Medallion Program, all in form and
substance satisfactory to Secured Party. Secured Party shall be deemed to have
possession of any Collateral in transit to Secured Party or its agent.
4. VOTING RIGHTS. As long as no Event of Default shall have occurred
hereunder, any voting rights incident to any stock or other securities pledged
as Collateral may be exercised by Pledgor; provided, however, that Pledgor will
not exercise, or cause to be exercised, any such voting rights, without the
prior written consent of Secured Party, if the direct or indirect effect of such
vote will result in an Event of Default hereunder.
5. MAINTENANCE OF COLLATERAL. Other than the exercise of reasonable care
to assure the safe custody of any Collateral in Secured Party's possession from
time to time, Secured Party does not have any obligation, duty or
responsibility with respect to the Collateral. Without limiting the generality
of the foregoing, Secured Party shall not have any obligation, duty or
responsibility to do any of the following: (a) ascertain any maturities,
calls, conversions, exchanges, offers, tenders or similar matters relating to
the Collateral or informing Pledgor with respect to any such matters; (b) fix,
preserve or exercise any right, privilege or option (whether conversion,
redemption or otherwise) with respect to the Collateral unless (i) Pledgor makes
written demand to Secured Party to do so, (ii) such written demand is received
by Secured Party in sufficient time to permit Secured Party to take the action
demanded in the ordinary course of its business, and (iii) Pledgor provides
additional collateral,
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acceptable to Secured Party in its sole discretion; (c) collect any amounts
payable in respect of the Collateral (Secured Party being liable to account
to Pledgor only for what Secured Party may actually receive or collect
thereon); (d) sell all or any portion of the Collateral to avoid market loss;
(e) sell all or any portion of the Collateral unless and until (i) Pledgor
makes written demand upon Secured Party to sell the Collateral, and (ii)
Pledgor provides additional collateral, acceptable to Secured Party in its
sole discretion; or (f) hold the Collateral for or on behalf of any party
other than Pledgor.
6. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and
warrants the following to Secured Party:
(a) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement and all of the other Loan Documents by Pledgor have been duly
authorized by all necessary corporate action of Pledgor, to the extent Pledgor
is a corporation, or by all necessary partnership action, to the extent Pledgor
is a partnership.
(b) ENFORCEABILITY. This Agreement and the other Loan Documents
constitute legal, valid and binding obligations of Pledgor, enforceable in
accordance with their respective terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the enforcement of
creditors' rights and except to the extent specific remedies may generally be
limited by equitable principles.
(c) OWNERSHIP AND LIENS. Pledgor has good and marketable title to
the Collateral free and clear of all liens, security interests, encumbrances or
adverse claims, except for the security interest created by this Agreement. No
dispute, right of setoff, counterclaim or defense exists with respect to all or
any part of the Collateral. Pledgor has not executed any other security
agreement currently affecting the Collateral and no financing statement or other
instrument similar in effect covering all or any part of the Collateral is on
file in any recording office except as may have been executed or filed in favor
of Secured Party. The Pledged Shares constitute 100% of the issued and
outstanding capital stock of Orix.
(d) NO CONFLICTS OR CONSENTS. Neither the ownership, the intended
use of the Collateral by Pledgor, the grant of the security interest by Pledgor
to Secured Party herein nor the exercise by Secured Party of its rights or
remedies hereunder, will (i) conflict with any provision of (A) any domestic or
foreign law, statute, rule or regulation, (B) the articles or certificate of
incorporation, charter, bylaws or partnership agreement, as the case may be, of
Pledgor, or (C) any agreement, judgment, license, order or permit applicable to
or binding upon Pledgor or otherwise affecting the Collateral, or (ii) result in
or require the creation of any lien, charge or encumbrance upon any assets or
properties of Pledgor or of any person except as may be expressly contemplated
in the Loan Documents. Except as expressly contemplated in the Loan Documents,
no consent, approval, authorization or order of, and no notice to or filing
with, any court, governmental authority or third party is required in connection
with the grant by Pledgor of the security interest herein or the exercise by
Secured Party of its rights and remedies hereunder.
(e) SECURITY INTEREST. Pledgor has and will have at all times full
right, power and authority to grant a security interest in the Collateral to
Secured Party in the manner provided herein, free and clear of any lien,
security interest or other charge or encumbrance. This Agreement creates a
legal, valid and binding security interest in favor of Secured Party in the
Collateral.
(f) SECURITIES. Any certificates evidencing securities pledged as
Collateral are valid and genuine and have not been altered. All securities
pledged as Collateral have been duly authorized and validly issued, are fully
paid and non-assessable, and were not issued in violation of the preemptive
rights of any party or of any agreement by which Pledgor or the issuer thereof
is bound. No restrictions or conditions exist with respect to the transfer or
voting of any securities pledged as Collateral, except as has been disclosed to
Secured Party in writing. To the best of Pledgor's knowledge, no issuer of such
securities (other than securities of a class which are publicly traded) has any
outstanding stock rights, rights to subscribe, options, warrants or convertible
securities outstanding or any other rights outstanding entitling any party to
have issued to such party capital stock of such issuer, except as has been
disclosed to Secured Party in writing.
(g) NAME CHANGE. Orix was formerly known as Orix Leasing, Inc., and
all stock certificates representing the issued and outstanding capital stock of
Orix are represented by stock certificates Nos. 1-18 of Orix Leasing, Inc.
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<PAGE>
7. AFFIRMATIVE COVENANTS. Pledgor will comply with the covenants
contained in this Section at all times during the period of time this
Agreement is effective unless Secured Party shall otherwise consent in
writing.
(a) OWNERSHIP AND LIENS. Pledgor will maintain good and marketable
title to all Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, except for the security interest created by
this Agreement and the security interests and other encumbrances expressly
permitted by the other Loan Documents. Pledgor will not permit any
dispute, right of setoff, counterclaim or defense to exist with respect to
all or any part of the Collateral. Pledgor will cause any financing
statement or other security instrument with respect to the Collateral to be
terminated, except as may exist or as may have been filed in favor of
Secured Party. Pledgor will defend at its expense Secured Party's right,
title and security interest in and to the Collateral against the claims of
any third party.
(b) ADVERSE CLAIM. Pledgor covenants and agrees to promptly notify
Secured Party of any claim, action or proceeding affecting title to the
Collateral, or any part thereof, or the security interest created hereunder
and, at Pledgor's expense, defend Secured Party's security interest in the
Collateral against the claims of any third party. Pledgor also covenants
and agrees to promptly deliver to Secured Party a copy of all written
notices received by Pledgor with respect to the Collateral, including
without limitation, notices received from the issuer of any securities
pledged hereunder as Collateral.
(c) DELIVERY OF INSTRUMENTS AND/OR CERTIFICATES. Contemporaneously
herewith, Pledgor covenants and agrees to deliver to Secured Party any
certificates, documents or instruments representing or evidencing the
Collateral, with Pledgor's endorsement thereon and/or accompanied by proper
instruments of transfer and assignment duly executed in blank with, if
requested by Secured Party, signatures guaranteed by a member or member
organization in good standing of an authorized Securities Transfer Agents
Medallion Program, all in form and substance satisfactory to Secured Party.
(d) FURTHER ASSURANCES. Pledgor will contemporaneously with the
execution hereof and from time to time thereafter at its expense promptly
execute and deliver all further instruments and documents and take all
further action necessary or appropriate or that Secured Party may request
in order (i) to perfect and protect the security interest created or
purported to be created hereby and the first priority of such security
interest, (ii) to enable Secured Party to exercise and enforce its rights
and remedies hereunder in respect of the Collateral, and (iii) to otherwise
effect the purposes of this Agreement, including without limitation: (A)
executing and filing any financing or continuation statements, or any
amendments thereto; (B) obtaining written confirmation from the issuer of
any securities pledged as Collateral of the pledge of such securities, in
form and substance satisfactory to Secured Party; (C) cooperating with
Secured Party in registering the pledge of any securities pledged as
Collateral with the issuer of such securities; (D) delivering notice of
Secured Party's security interest in any securities pledged as Collateral
to any securities or financial intermediary, clearing corporation or other
party required by Secured Party, in form and substance satisfactory to
Secured Party; and (E) obtaining written confirmation of the pledge of any
securities constituting Collateral from any securities or financial
intermediary, clearing corporation or other party required by Secured
Party, in form and substance satisfactory to Secured Party. If all or any
part of the Collateral is securities issued by an agency or department of
the United States, Pledgor covenants and agrees, at Secured Party's
request, to cooperate in registering such securities in Secured Party's
name or with Secured Party's account maintained with a Federal Reserve
Bank. When applicable law provides more than one method of perfection of
Secured Party's security interest in the Collateral, Secured Party may
choose the method(s) to be used.
8. NEGATIVE COVENANTS. Pledgor will comply with the covenants contained
in this Section at all times during the period of time this Agreement is
effective, unless Secured Party shall otherwise consent in writing.
(a) TRANSFER OR ENCUMBRANCE. Pledgor will not (i) sell, assign (by
operation of law or otherwise) or transfer Pledgor's rights in any of the
Collateral, (ii) grant a lien or security interest in or execute, file or
record any financing statement or other security instrument with respect to
the Collateral to
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any party other than Secured Party, or (iii) deliver actual or
constructive possession of any certificate, instrument or document
evidencing and/or representing any of the Collateral to any party other
than Secured Party.
(b) IMPAIRMENT OF SECURITY INTEREST. Pledgor will not take or fail
to take any action which would in any manner impair the value or
enforceability of Secured Party's security interest in any Collateral.
(c) DILUTION OF OWNERSHIP. As to any securities pledged as
Collateral (other than securities of a class which are publicly traded),
Pledgor will not consent to or approve of the issuance of (i) any
additional shares of any class of securities of Orix (unless immediately
upon issuance additional securities are pledged and delivered to Secured
Party pursuant to the terms hereof to the extent necessary to give Secured
Party a security interest after such issuance in at least the same
percentage of such issuer's outstanding securities as Secured Party had
before such issuance), (ii) any instrument convertible voluntarily by the
holder thereof or automatically upon the occurrence or non-occurrence of
any event or condition into, or exchangeable for, any such securities, or
(iii) any warrants, options, contracts or other commitments entitling any
third party to purchase or otherwise acquire any such securities.
(d) RESTRICTIONS ON SECURITIES. Pledgor will not enter into any
agreement creating, or otherwise permit to exist, any restriction or
condition upon the transfer, voting or control of any securities pledged as
Collateral, except as consented to in writing by Secured Party.
9. RIGHTS OF SECURED PARTY. Secured Party shall have the rights
contained in this Section at all times during the period of time this
Agreement is effective.
(a) POWER OF ATTORNEY. Pledgor hereby irrevocably appoints Secured
Party as Pledgor's attorney-in-fact, such power of attorney being coupled
with an interest, with full authority in the place and stead of Pledgor and
in the name of Pledgor or otherwise, to take any action and to execute any
instrument which Secured Party may from time to time in Secured Party's
discretion deem necessary or appropriate to accomplish the purposes of this
Agreement, including without limitation, the following action: (i)
transfer any securities, instruments, documents or certificates pledged as
Collateral in the name of Secured Party or its nominee; (ii) use any
interest, premium or principal payments, conversion or redemption proceeds
or other cash proceeds received in connection with any Collateral to reduce
any of the Indebtedness; (iii) exchange any of the securities pledged as
Collateral for any other property upon any merger, consolidation,
reorganization, recapitalization or other readjustment of the issuer
thereof, and, in connection therewith, to deposit and deliver any and all
of such securities with any committee, depository, transfer agent,
registrar or other designated agent upon such terms and conditions as
Secured Party may deem necessary or appropriate; (iv) exercise or comply
with any conversion, exchange, redemption, subscription or any other right,
privilege or option pertaining to any securities pledged as Collateral;
provided, however, except as provided herein, Secured Party shall not have
a duty to exercise or comply with any such right, privilege or option
(whether conversion, redemption or otherwise) and shall not be responsible
for any delay or failure to do so; and (v) file any claims or take any
action or institute any proceedings which Secured Party may deem necessary
or appropriate for the collection and/or preservation of the Collateral or
otherwise to enforce the rights of Secured Party with respect to the
Collateral.
(b) PERFORMANCE BY SECURED PARTY. If Pledgor fails to perform any
agreement or obligation provided herein, Secured Party may itself perform,
or cause performance of, such agreement or obligation, and the expenses of
Secured Party incurred in connection therewith shall be a part of the
Indebtedness, secured by the Collateral and payable by Pledgor on demand.
Notwithstanding any other provision herein to the contrary, Secured Party
does not have any duty to exercise or continue to exercise any of the
foregoing rights and shall not be responsible for any failure to do so or
for any delay in doing so.
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10. EVENTS OF DEFAULT. Each of the following constitutes an "Event of
Default" under this Agreement:
DEFAULT UNDER SECURITIES PURCHASE AGREEMENT. The occurrence of any
Event of Default under the Securities Purchase Agreement; or
NON-PERFORMANCE OF COVENANTS. The failure of Borrower or any
Obligated Party to timely and properly observe, keep or perform any
covenant, agreement, warranty or condition required herein or in any of the
other Loan Documents; or
FALSE REPRESENTATION. Any representation contained herein or in any
of the other Loan Documents made by Borrower or any Obligated Party is
false or misleading in any material respect; or
DEFAULT TO THIRD PARTY. The occurrence of any event which permits the
acceleration of the maturity of any indebtedness owing by Borrower or any
Obligated Party to any third party under any agreement or undertaking; or
EXECUTION ON COLLATERAL. The Collateral or any portion thereof is
taken on execution or other process of law in any action against Pledgor;
or
ABANDONMENT. Pledgor abandons the Collateral or any portion thereof;
or
ACTION BY OTHER LIENHOLDER. The holder of any lien or security
interest on any of the assets of Pledgor, including without limitation, the
Collateral (without hereby implying the consent of Secured Party to the
existence or creation of any such lien or security interest on the
Collateral), declares a default thereunder or institutes foreclosure or
other proceedings for the enforcement of its remedies thereunder; or
DILUTION OF OWNERSHIP. The issuer of any securities (other than
securities of a class which are publicly traded) constituting Collateral
hereafter issues any shares of any class of capital stock (unless
immediately upon issuance, additional securities are pledged and delivered
to Secured Party pursuant to the terms hereof to the extent necessary to
give Secured Party a security interest after such issuance in at least the
same percentage of such issuer's outstanding securities as Secured Party
had before such issuance) or any options, warrants or other rights to
purchase any such capital stock; or
BANKRUPTCY OF ISSUER. (i) The issuer of any securities constituting
Collateral files a petition for relief under any Applicable Bankruptcy Law,
(ii) an involuntary petition for relief is filed against any such issuer
under any Applicable Bankruptcy Law and such involuntary petition is not
dismissed within thirty (30) days after the filing thereof, or (iii) an
order for relief naming any such issuer is entered under any Applicable
Bankruptcy Law.
11. REMEDIES AND RELATED RIGHTS. If an Event of Default shall have
occurred, and without limiting any other rights and remedies provided herein,
under any of the other Loan Documents or otherwise available to Secured Party,
Secured Party may exercise one or more of the rights and remedies provided in
this Section.
(a) REMEDIES. Secured Party may from time to time at its discretion,
without limitation and without notice except as expressly provided in any
of the Loan Documents:
(i) exercise in respect of the Collateral all the rights and
remedies of a secured party under the Code (whether or not the Code applies
to the affected Collateral);
(ii) reduce its claim to judgment or foreclose or otherwise
enforce, in whole or in part, the security interest granted hereunder by
any available judicial procedure;
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(iii) sell or otherwise dispose of, at its office, on the premises
of Pledgor or elsewhere, the Collateral, as a unit or in parcels, by public
or private proceedings, and by way of one or more contracts (it being
agreed that the sale or other disposition of any part of the Collateral
shall not exhaust Secured Party's power of sale, but sales or other
dispositions may be made from time to time until all of the Collateral has
been sold or disposed of or until the Indebtedness has been paid and
performed in full), and at any such sale or other disposition it shall not
be necessary to exhibit any of the Collateral;
(iv) buy the Collateral, or any portion thereof, at any public
sale;
(v) buy the Collateral, or any portion thereof, at any private
sale if the Collateral is of a type customarily sold in a recognized market
or is of a type which is the subject of widely distributed standard price
quotations;
(vi) apply for the appointment of a receiver for the Collateral,
and Pledgor hereby consents to any such appointment; and
(vii) at its option, retain the Collateral in satisfaction of the
Indebtedness whenever the circumstances are such that Secured Party is
entitled to do so under the Code or otherwise.
Pledgor agrees that in the event Pledgor is entitled to receive any notice
under the Uniform Commercial Code, as it exists in the state governing any such
notice, of the sale or other disposition of any Collateral, reasonable notice
shall be deemed given when such notice is deposited in a depository receptacle
under the care and custody of the United States Postal Service, postage prepaid,
at Pledgor's address set forth on the signature page hereof, five (5) days prior
to the date of any public sale, or after which a private sale, of any of such
Collateral is to be held. Secured Party shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned. Pledgor further
acknowledges and agrees that the redemption by Secured Party of any certificate
of deposit pledged as Collateral shall be deemed to be a commercially reasonable
disposition under Section 9-504 of the Code.
(b) PRIVATE SALE OF SECURITIES. Pledgor recognizes that Secured
Party may be unable to effect a public sale of all or any part of the
securities pledged as Collateral because of restrictions in applicable
federal and state securities laws and that Secured Party may, therefore,
determine to make one or more private sales of any such securities to a
restricted group of purchasers who will be obligated to agree, among other
things, to acquire such securities for their own account, for investment
and not with a view to the distribution or resale thereof. Pledgor
acknowledges that each any such private sale may be at prices and other
terms less favorable then what might have been obtained at a public sale
and, notwithstanding the foregoing, agrees that each such private sale
shall be deemed to have been made in a commercially reasonable manner and
that Secured Party shall have no obligation to delay the sale of any such
securities for the period of time necessary to permit the issuer to
register such securities for public sale under any federal or state
securities laws. Pledgor further acknowledges and agrees that any offer to
sell such securities which has been made privately in the manner described
above to not less than five (5) bona fide offerees shall be deemed to
involve a "public sale" for the purposes of Section 9-504(3) of the Code,
notwithstanding that such sale may not constitute a "public offering" under
any federal or state securities laws and that Secured Party may, in such
event, bid for the purchase of such securities.
(c) APPLICATION OF PROCEEDS. If any Event of Default shall have
occurred, Secured Party may at its discretion apply or use any cash held by
Secured Party as Collateral, and any cash proceeds received by Secured
Party in respect of any sale or other disposition of, collection from, or
other realization upon, all or any part of the Collateral as follows in
such order and manner as Secured Party may elect:
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(i) to the repayment or reimbursement of the reasonable costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses) incurred by Secured Party in connection with (A) the
administration of the Loan Documents, (B) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon,
the Collateral, and (C) the exercise or enforcement of any of the rights
and remedies of Secured Party hereunder;
(ii) to the payment or other satisfaction of any liens and other
encumbrances upon the Collateral;
(iii) to the satisfaction of the Indebtedness;
(iv) by holding such cash and proceeds as Collateral;
(v) to the payment of any other amounts required by applicable
law (including without limitation, Section 9-504 of the Code or any other
applicable statutory provision); and
(vi) by delivery to Pledgor or any other party lawfully entitled
to receive such cash or proceeds whether by direction of a court of
competent jurisdiction or otherwise.
(d) DEFICIENCY. In the event that the proceeds of any sale of,
collection from, or other realization upon, all or any part of the
Collateral by Secured Party are insufficient to pay all amounts to which
Secured Party is legally entitled, Borrower and any party who guaranteed or
is otherwise obligated to pay all or any portion of the Indebtedness shall
be liable for the deficiency, together with interest thereon as provided in
the Loan Documents.
(e) NON-JUDICIAL REMEDIES. In granting to Secured Party the power to
enforce its rights hereunder without prior judicial process or judicial
hearing, Pledgor expressly waives, renounces and knowingly relinquishes any
legal right which might otherwise require Secured Party to enforce its
rights by judicial process. Pledgor recognizes and concedes that
non-judicial remedies are consistent with the usage of trade, are
responsive to commercial necessity and are the result of a bargain at arm's
length. Nothing herein is intended to prevent Secured Party or Pledgor
from resorting to judicial process at either party's option.
(f) OTHER RECOURSE. Pledgor waives any right to require Secured
Party to proceed against any third party, exhaust any Collateral or other
security for the Indebtedness, or to have any third party joined with
Pledgor in any suit arising out of the Indebtedness or any of the Loan
Documents, or pursue any other remedy available to Secured Party. Pledgor
further waives any and all notice of acceptance of this Agreement and of
the creation, modification, rearrangement, renewal or extension of the
Indebtedness. Pledgor further waives any defense arising by reason of any
disability or other defense of any third party or by reason of the
cessation from any cause whatsoever of the liability of any third party.
Until all of the Indebtedness shall have been paid in full, Pledgor shall
have no right of subrogation and Pledgor waives the right to enforce any
remedy which Secured Party has or may hereafter have against any third
party, and waives any benefit of and any right to participate in any other
security whatsoever now or hereafter held by Secured Party. Pledgor
authorizes Secured Party, and without notice or demand and without any
reservation of rights against Pledgor and without affecting Pledgor's
liability hereunder or on the Indebtedness, to (i) take or hold any other
property of any type from any third party as security for the Indebtedness,
and exchange, enforce, waive and release any or all of such other property,
(ii) apply such other property and direct the order or manner of sale
thereof as Secured Party may in its discretion determine, (iii) renew,
extend, accelerate, modify, compromise, settle or release any of the
Indebtedness or other security for the Indebtedness, (iv) waive, enforce or
modify any of the provisions of any of the Loan Documents executed by any
third party, and (v) release or substitute any third party.
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(g) VOTING RIGHTS. Upon the occurrence of an Event of Default,
Pledgor will not exercise any voting rights with respect to securities
pledged as Collateral. Pledgor hereby irrevocably appoints Secured Party
as Pledgor's attorney-in-fact (such power of attorney being coupled with an
interest) and proxy to exercise any voting rights with respect to Pledgor's
securities pledged as Collateral upon the occurrence of an Event of
Default.
(h) DIVIDEND RIGHTS AND INTEREST PAYMENTS. Upon the occurrence of an
Event of Default:
(i) all rights of Pledgor to receive and retain the dividends
and interest payments which it would otherwise be authorized to receive and
retain pursuant to Section 3 shall automatically cease, and all such rights
shall thereupon become vested with Secured Party which shall thereafter
have the sole right to receive, hold and apply as Collateral such dividends
and interest payments; and
(ii) all dividend and interest payments which are received by
Pledgor contrary to the provisions of clause (i) of this Subsection shall
be received in trust for the benefit of Secured Party, shall be segregated
from other funds of Pledgor, and shall be forthwith paid over to Secured
Party in the exact form received (properly endorsed or assigned if
requested by Secured Party), to be held by Secured Party as Collateral.
12. INDEMNITY. Pledgor hereby indemnifies and agrees to hold harmless
Secured Party, and its officers, directors, employees, agents and
representatives (each an "Indemnified Person") from and against any and all
liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
(collectively, the "Claims") which may be imposed on, incurred by, or asserted
against, any Indemnified Person arising in connection with the Loan Documents
the Indebtedness or the Collateral (including without limitation, the
enforcement of the Loan Documents and the defense of any Indemnified Person's
actions and/or inactions in connection with the Loan Documents). WITHOUT
LIMITATION, THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PERSON
WITH RESPECT TO ANY CLAIMS WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT
OF THE NEGLIGENCE OF SUCH AND/OR ANY OTHER INDEMNIFIED PERSON, except to the
limited extent the Claims against an Indemnified Person are proximately caused
by such Indemnified Person's gross negligence or willful misconduct. If Pledgor
or any third party ever alleges such gross negligence or willful misconduct by
any Indemnified Person, the indemnification provided for in this Section shall
nonetheless be paid upon demand, subject to later adjustment or reimbursement,
until such time as a court of competent jurisdiction enters a final judgment as
to the extent and effect of the alleged gross negligence or willful misconduct.
The indemnification provided for in this Section shall survive the termination
of this Agreement and shall extend and continue to benefit each individual or
entity who is or has at any time been an Indemnified Person hereunder.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement contains the entire agreement
of Secured Party and Pledgor with respect to the Collateral. If the
parties hereto are parties to any prior agreement, either written or oral,
relating to the Collateral, the terms of this Agreement shall amend and
supersede the terms of such prior agreements as to transactions on or
after the effective date of this Agreement, but all security agreements,
financing statements, guaranties, other contracts and notices for the
benefit of Secured Party shall continue in full force and effect to secure
the Indebtedness unless Secured Party specifically releases its rights
thereunder by separate release.
(b) AMENDMENT. No modification, consent or amendment of any
provision of this Agreement or any of the other Loan Documents shall be
valid or effective unless the same is in writing and signed by the party
against whom it is sought to be enforced.
(c) ACTIONS BY SECURED PARTY. The lien, security interest and other
security rights of Secured Party hereunder shall not be impaired by (i) any
renewal, extension, increase or modification with respect
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to the Indebtedness, (ii) any surrender, compromise, release, renewal,
extension, exchange or substitution which Secured Party may grant with
respect to the Collateral, or (iii) any release or indulgence granted to
any endorser, guarantor or surety of the Indebtedness. The taking of
additional security by Secured Party shall not release or impair the
lien, security interest or other security rights of Secured Party
hereunder or affect the obligations of Pledgor hereunder.
(d) WAIVER BY SECURED PARTY. Secured Party may waive any Event of
Default without waiving any other prior or subsequent Event of Default.
Secured Party may remedy any default without waiving the Event of Default
remedied. Neither the failure by Secured Party to exercise, nor the delay
by Secured Party in exercising, any right or remedy upon any Event of
Default shall be construed as a waiver of such Event of Default or as a
waiver of the right to exercise any such right or remedy at a later date.
No single or partial exercise by Secured Party of any right or remedy
hereunder shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right or remedy hereunder may be exercised
at any time. No waiver of any provision hereof or consent to any departure
by Pledgor therefrom shall be effective unless the same shall be in writing
and signed by Secured Party and then such waiver or consent shall be
effective only in the specific instances, for the purpose for which given
and to the extent therein specified. No notice to or demand on Pledgor in
any case shall of itself entitle Pledgor to any other or further notice or
demand in similar or other circumstances.
(e) COSTS AND EXPENSES. Pledgor will upon demand pay to Secured
Party the amount of any and all costs and expenses (including without
limitation, attorneys' fees and expenses), which Secured Party may incur in
connection with (i) the transactions which give rise to the Loan Documents,
(ii) the preparation of this Agreement and the perfection and preservation
of the security interests granted under the Loan Documents, (iii) the
administration of the Loan Documents, (iv) the custody, preservation, use
or operation of, or the sale of, collection from, or other realization
upon, the Collateral, (v) the exercise or enforcement of any of the rights
of Secured Party under the Loan Documents, or (vi) the failure by Pledgor
to perform or observe any of the provisions hereof.
(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA AND APPLICABLE FEDERAL
LAWS, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR
NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER, IN RESPECT OF
ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEVADA.
(g) APPOINTMENT OF PLEDGEE AS AGENT. Pledgee has been appointed to
act as Pledgee hereunder by and for the benefit of the Purchasers.
(h) SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be illegal, invalid or unenforceable
under present or future laws, such provision shall be fully severable,
shall not impair or invalidate the remainder of this Agreement and the
effect thereof shall be confined to the provision held to be illegal,
invalid or unenforceable.
(i) NO OBLIGATION. Nothing contained herein shall be construed as an
obligation on the part of Secured Party to extend or continue to extend
credit to Borrower.
(j) NOTICES. All notices, requests, demands or other communications
required or permitted to be given pursuant to this Agreement shall be in
writing and given by (i) personal delivery, (ii) expedited delivery service
with proof of delivery, or (iii) United States mail, postage prepaid,
registered or certified mail, return receipt requested, sent to the
intended addressee at the address set forth on the signature page hereof or
to such different address as the addressee shall have designated by written
notice sent pursuant to the terms hereof and shall be deemed to have been
received either, in the case of personal delivery, at the time of personal
delivery, in the case of expedited delivery service, as of the date of
first attempted delivery
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at the address and in the manner provided herein, or in the case of
mail, upon deposit in a depository receptacle under the care and custody
of the United States Postal Service. Either party shall have the right
to change its address for notice hereunder to any other location within
the continental United States by notice to the other party of such new
address at least thirty (30) days prior to the effective date of such
new address.
(k) BINDING EFFECT AND ASSIGNMENT. This Agreement (i) creates a
continuing security interest in the Collateral, (ii) shall be binding on
Pledgor and the heirs, executors, administrators, personal representatives,
successors and assigns of Pledgor, and (iii) shall inure to the benefit of
Secured Party and its successors and assigns. Without limiting the
generality of the foregoing, Secured Party may pledge, assign or otherwise
transfer the Indebtedness and its rights under this Agreement and any of
the other Loan Documents to any other party. Pledgor's rights and
obligations hereunder may not be assigned or otherwise transferred without
the prior written consent of Secured Party.
(l) TERMINATION. It is contemplated by the parties hereto that from
time to time there may be no outstanding Indebtedness, but notwithstanding
such occurrences, this Agreement shall remain valid and shall be in full
force and effect as to subsequent outstanding Indebtedness. Upon (i) the
satisfaction in full of the Indebtedness, (ii) the termination or
expiration of any commitment of Secured Party to extend credit to Borrower,
(iii) written request for the termination hereof delivered by Pledgor to
Secured Party, and (iv) written release delivered by Secured Party to
Pledgor, this Agreement and the security interests created hereby shall
terminate. Upon termination of this Agreement and Pledgor's written
request, Secured Party will, at Pledgor's sole cost and expense, promptly
return to Pledgor such of the Collateral as shall not have been sold or
otherwise disposed of or applied pursuant to the terms hereof and execute
and deliver to Pledgor such documents as Pledgor shall reasonably request
to evidence such termination.
(m) CUMULATIVE RIGHTS. All rights and remedies of Secured Party
hereunder are cumulative of each other and of every other right or remedy
which Secured Party may otherwise have at law or in equity or under any of
the other Loan Documents, and the exercise of one or more of such rights or
remedies shall not prejudice or impair the concurrent or subsequent
exercise of any other rights or remedies.
(n) GENDER AND NUMBER. Within this Agreement, words of any gender
shall be held and construed to include the other gender, and words in the
singular number shall be held and construed to include the plural and words
in the plural number shall be held and construed to include the singular,
unless in each instance the context requires otherwise.
(o) DESCRIPTIVE HEADINGS. The headings in this Agreement are for
convenience only and shall in no way enlarge, limit or define the scope or
meaning of the various and several provisions hereof.
[SIGNATURE PAGE FOLLOWS]
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EXECUTED as of the date first written above.
PLEDGOR:
TOUCH TONE AMERICA, INC.
By: /s/ Kerry Rogers
-----------------------------------------
Name: Kerry Rogers
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
Secured Party's Address: Address: 3300 N. Central Avenue
Suite 1155
c/o Infinity Investors Limited Phoenix, Arizona 85012
c/o HW Partners, L.P. Telephone: 602/263-7559
1601 Elm Street Fax: 602/263-9623
4000 Thanksgiving Tower
Dallas, Texas 75201
Fax: 214/720-1662
Attn: Barrett Wissman
ATTACHED ARE SIGNATURE PAGES FROM
EACH SHAREHOLDER OF ORIX GLOBAL
COMMUNICATIONS, INC., EACH OF WHICH
IS A PART OF THIS STOCK PLEDGE
AGREEMENT.
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Exhibit 10.8
December 31, 1997
Infinity Investors Limited
38 Hertford Street
London, England WIY 7TG
Gentlemen:
Reference is hereby made to that certain Securities Purchase Agreement
dated the date hereof among Touch Tone America, Inc. (the "Company"), Orix
Global Communications, Inc. ("Orix"), Infinity Investors Limited and Infinity
Emerging Opportunities Limited (collectively, the "Purchasers"), together
with each Transaction Agreement referenced therein (including, without
limitation, the Option Agreement). Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed thereto in the Purchase
Agreement.
Consistent with the condition precedent to the Closing Date in the
Purchase Agreement set forth in Section 6.1 thereof, the undersigned each
hereby agree that they shall not sell, transfer or otherwise dispose of any
of the shares of Common Stock of the Company received by them in the
Reorganization or otherwise prior to January 1, 1999, unless such sale,
transfer or other disposition occurs as a selling shareholder pursuant to an
underwritten offering of at least $2,500,000 gross proceeds by the Company of
its Common Stock. The undersigned acknowledge that any breach by the
undersigned of this covenant shall (x) result in an Event of Default under
the Debentures and (y) entitle the Purchasers to pursue all remedies
available at law or in equity, including injunctive relief.
<PAGE>
Infinity Investors Limited
Infinity Emerging Opportunities Limited
December 31, 1997
Page 2
Yours very truly,
/s/ KERRY ROGERS
-------------------------------
KERRY ROGERS
/s/ JOHN HIGGINS
-------------------------------
JOHN HIGGINS
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") dated as of the 31st day of
December, 1997 among TOUCH TONE AMERICA, INC., a California corporation (the
"Company"), ORIX GLOBAL COMMUNICATIONS, INC., a Nevada corporation ("Orix"),
INFINITY INVESTORS LIMITED, a Nevis West Indies corporation ("Purchaser") and
ARTER & HADDEN, LLP, 1717 Main Street, Suite 4100, Dallas, Texas 75201, as
escrow agent (the "Escrow Agent").
WHEREAS, pursuant to that certain Option Agreement dated as of the date
hereof between Purchaser and the Company (and agreed to by Orix) (the "Option
Agreement"), the Company has agreed to deposit with the Escrow Agent the
Convertible Instruments (as defined in the Option Agreement) for the purpose of
providing a mechanism for the transfer and assignment by Purchaser to the
Company of the UPC Securities (as defined in the Option Agreement) in exchange
for the issuance of the Convertible Instruments to Purchaser;
WHEREAS, Purchaser and the Company desire that the Escrow Agent receive,
hold and dispose of the Convertible Instruments in accordance with the terms,
conditions and provisions of this Escrow Agreement, and the Escrow Agent agrees
to act in such capacity.
NOW, THEREFORE, the parties agree as follows:
1. GENERAL. Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to those terms in the Option
Agreement.
2. APPOINTMENT OF ESCROW AGENT; ESCROW PROPERTY.
(a) The Company and Purchaser hereby appoint the Escrow Agent, and
the Escrow Agent hereby agrees to act, as the agent of such parties in
performing the duties of the Escrow Agent hereunder. As compensation
for the Escrow Agent's services hereunder, the Escrow Agent shall
receive reimbursement of all reasonable expenses (if any) incurred by
the Escrow Agent in connection with the performance of its duties under
this Agreement, which shall be borne by the Company.
(b) On the date hereof, the Company shall cause to be deposited
with the Escrow Agent Debentures in the original principal amount of
$11,000,000 (and together with any interest accrued thereon or any
Series C Shares that may be deposited with the Escrow Agent after the
date hereof (including any dividends accrued thereon) in exchange for
the Debentures sometimes referred to herein as the "Escrow Property").
(c) The Escrow Property shall be held and distributed by the
Escrow Agent in accordance with the provisions hereof and the Option
Agreement.
- -------------------------------------------------------------------------------
ESCROW AGREEMENT - Page 1
<PAGE>
(d) In accordance with the Option Agreement, on the first Business
Day following the date of the Shareholder Ratification Event, the
Company shall deliver to the Escrow Agent certificates evidencing that
certain number of Series C Shares in an aggregate stated value (based
upon the liquidation preference per Series C Share as provided in the
Series C Certificate of Designation) equal to the aggregate outstanding
principal balance of the Debentures PLUS any accrued and unpaid interest
thereon, issued in the name of Purchaser, PROVIDED that no Event of
Default under the Option Agreement or the Debentures exists at such
time. The Escrow Agent shall deliver to the Company the Debentures for
cancellation. The Escrow Agent shall have the right to require joint
written notice from the Company and the Purchaser that so such Event of
Default then exists, and in the absence thereof, shall continue to hold
the Debentures.
3. DISBURSEMENT OF ESCROW PROPERTY.
(a) Upon exercise by Purchaser of the Option at any time prior to
the Termination Date (as hereinafter defined), Purchaser shall deliver
to the Escrow Agent written notice of its election specifying the
aggregate amount of UPC Securities to be assigned and conveyed to the
Company in accordance with the Option Agreement and the date, not
earlier that one Business Day and not later than three (3) Business
Days, on which the closing of the exchange of such securities shall
occur (the "Closing Date"). On the Closing Date, Purchaser shall
deliver to the Escrow Agent the applicable UPC Securities to be assigned
and conveyed to the Company.
(b) Upon receipt by the Escrow Agent of the UPC Securities, the
Escrow Agent shall deliver (i) to the Company the UPC Securities
received from Purchaser and (ii) to Purchaser at its address set forth
on the signature page hereto (unless a contrary address located outside
the United States is provided in the Option notice) all of the
Debentures (if the Shareholder Ratification Event has not occurred) or
all of the Series C
Shares (if the Shareholder Ratification Event has occurred), as
the case may be, held by the Escrow Agent notwithstanding the aggregate
amount of UPC Securities to be assigned and conveyed to the Company on
the Closing Date. The Escrow Agent shall date the Debentures as of the
Closing Date or the Series C Shares, as the case may be, to be issued to
Purchaser on the Closing Date prior to delivery of such securities to
Purchaser. From and after the Closing Date, Purchaser shall hold either
the Debentures or the Series C Shares, as the case may be, not exchanged
and issued to Purchaser on the Closing Date (if any) in accordance with
the terms of the Option Agreement. Upon delivery of all of the
Debentures or Series C Shares, as the case may be, by the Escrow Agent
to Purchaser, this Agreement and the obligations of the Escrow Agent
shall terminate.
4. TERMINATION. This Agreement shall terminate on the earlier to
occur of the following: (i) the date upon which all of the Escrow Property
has been delivered in accordance with the provision herewith, or (ii) five
(5) Business Days following the second anniversary of
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<PAGE>
the date hereof (the "Termination Date"). On the Business Day following the
Termination Date, or as soon as practicable thereafter, the Escrow Agent
shall deliver to the Company any remaining Escrow Property, if any, PROVIDED
that if any Disputes (as hereinafter defined) between the Company and
Purchaser exist on such date, the Escrow Agent shall retain the Escrow
Property until such time as such Disputes have been resolved. Upon
termination of this Agreement, all obligations of the Escrow Agent shall
terminate and this Agreement shall have no further force and effect.
5. ESCROW AGENTS RIGHTS AND RESPONSIBILITIES.
(a) The Escrow Agent shall have no duties or obligations hereunder
except those specifically set forth herein and such duties and
obligations shall be determined solely by the express provisions of this
Escrow Agreement. In connection with its duties hereunder, the Escrow
Agent shall be protected in acting or refraining from acting upon any
written notice, request, consent, certificate, order, affidavit, letter,
telegram or other document furnished to it hereunder and believed by it
to be genuine and to have been signed or sent by the proper party or
parties. The Escrow Agent shall not be liable for anything it may do or
refrain from doing in connection with its duties hereunder, except as a
result of its own gross negligence or willful misconduct. Further, the
Escrow Agent shall not be liable for the loss of any Debentures or
Series C Shares during the period such securities are held in escrow.
The Company agrees that in the event any Debentures or Series C Shares
are lost, stolen, mislaid or destroyed, the Company will promptly
replace such securities in like tenor and forward them to the Escrow
Agent to be held in accordance with the provisions of this Agreement and
the Option Agreement.
(b) In the event the Escrow Agent shall be uncertain as to its
duties or rights under this Escrow Agreement or shall receive any
instruction, claim or demand which, in the opinion of the Escrow Agent,
is in conflict with the provisions of this Escrow Agreement (any of the
foregoing, a "Dispute"), the Escrow Agent shall be entitled to refrain
from taking any action with respect to such Dispute until it shall be
directed otherwise by an instrument in writing signed by the Company and
Purchaser, or if such an instrument shall not be provided to the Escrow
Agent within thirty (30) days of its request of the parties, the Escrow
Agent may apply for instructions from a competent court pursuant to an
interpleader proceeding.
6. RESIGNATION. The Escrow Agent may resign at any time by giving at
least thirty (30) days prior written notice to the Company and Purchaser,
such resignation to be effective upon the acceptance of appointment by the
successor Escrow Agent as hereinafter provided. The resigning Escrow Agent
may appoint a successor Escrow Agent, reasonably acceptable to the Company
and Purchaser, or Purchaser may appoint a successor Escrow Agent, reasonably
acceptable to the Company. If a successor Escrow Agent shall not have been
appointed within twenty (20) days after such notice of resignation, either
the Company or Purchaser may apply to any court of competent jurisdiction to
appoint a successor Escrow Agent. Any successor Escrow
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<PAGE>
Agent however appointed, shall execute and deliver to the predecessor Escrow
Agent an instrument accepting such appointment, and thereupon such successor
Escrow Agent shall, without further act, become fully vested with all the
rights, powers, obligations and duties of the predecessor Escrow Agent with
respect to the Escrow Property with the same effect as if originally named
the Escrow Agent.
7. REPRESENTATION OF PURCHASER. The Company acknowledges that the
Escrow Agent represents Purchaser on a day to day basis with respect to
various legal matters, including without limitation, the Option Agreement and
the transactions contemplated thereby. The Company further acknowledges and
agrees that the Escrow Agent will continue to represent Purchaser (including,
without limitation, with respect to matters under the Option Agreement)
notwithstanding its appointment as the Escrow Agent hereunder, and that such
representation by the Escrow Agent shall not be deemed to conflict with the
Escrow Agent's duties hereunder. To the extent applicable, the Company and
Orix hereby waive any conflict associated with such continued representation.
8. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally or by telefax (receipt confirmed) or four (4) Business Days after
mailing by certified mail, postage paid, return receipt requested, to the
parties or their successors in interest at their respective addresses set
forth on the signature page hereto and to the Escrow Agent as set forth
below, or at such other addresses as the parties may designate by written
notice in the manner aforesaid:
Arter & Hadden LLP
1717 Main Street, Suite 4100
Dallas, Texas 75201
Attention: Victor B. Zanetti, Esq.
Telefax: (214) 741-7139
9. GOVERNING LAW. THIS ESCROW AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED THEREIN, WITHOUT REGARD TO ANY CONFLICTS
OR CHOICE OF LAW RULES OR ANY PRESUMPTION OR CONSTRUCTION AGAINST THE PARTY
CAUSING THIS AGREEMENT TO BE DRAFTED.
10. SUCCESSORS AND ASSIGNS. This Escrow Agreement shall not be
assigned by any party hereto. This Escrow Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, personal representatives, successors and permitted
assigns.
11. ENTIRE AGREEMENT. This Agreement, the Option Agreement, the
Debentures, the Series C Certificate of Designation and the other instruments
and agreements referred to in such documents embody the entire agreement
between the parties as to the subject matter hereof and
Page 4
<PAGE>
there have been no agreements, representations or warranties, oral or
written, between the parties other than those set forth or provided for in
such agreements.
12. AMENDMENTS. This Agreement may not be added, modified, changed or
waived, in whole or in part, except in an instrument in writing signed by
each of the parties hereto.
13. COUNTERPARTS. This Agreement may be executed by facsimile
signature in any number of counterparts, each such counterpart to be deemed
an original, and all such counterparts taken together to constitute one and
the same instrument.
[SIGNATURE PAGES FOLLOW]
Page 5
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date and year first above written.
TOUCH TONE AMERICA, INC.
By: /s/ Kerry Rogers
-----------------------------------------
Name: Kerry Rogers
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
Address: 300 N. Central Avenue, Suite 1155
Phoenix, Arizona 85012
Telephone: (602) 263-7559
Fax: (602) 263-9623
INFINITY INVESTORS LIMITED
By: /s/ James A. Loughran
----------------------------------------
Name: James A. Loughran
--------------------------------------
Title:
-------------------------------------
Address: 38 Hertford Street
London, England WIY 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
ARTER & HADDEN LLP
By: /s/ Victor B. Zanetti
----------------------------------------
Victor B. Zanetti, Esq., Partner
Page 6
<PAGE>
ORIX GLOBAL COMMUNICATIONS, INC.
By: /s/ Kerry Rogers
----------------------------------------
Name: Kerry Rogers
--------------------------------------
Title: President
-------------------------------------
Address: 1771 E. Flamingo Road
Building B, Suite 200
Las Vegas, Nevada 89119
Telephone: (702) 792-2500
Fax: (702) 792-3313
Attn: Kerry Rogers
Page 7
<PAGE>
Exhibit 99.1
Document 18
FOR DETAILS, CONTACT:
EDWARD WIRTH, ACTING PRESIDENT TOUCH TONE AMERICA, INC.
Touch Tone America 3300 N. Central Avenue, Ste. 1155
Phone (813) 562-5971 Phoenix, Arizona 85012
KERRY ROGERS, PRESIDENT Phone (602) 922-6289
ORIX Global Communications, Inc.
Phone (702) 792-2500
-------------------------------------------------------------------------
TOUCH TONE ANNOUNCES NASDAQ
DECISION
-------------------------------------------------------------------------
Phoenix, Arizona, December 16, 1997 - Touch Tone America, Inc. (Nasdaq:
TONE and TONEW) ("Touch Tone") is disappointed to announce that the
determination has been made by the Listing Qualifications Panel of the
Nasdaq regarding its request for the continued inclusion on the Nasdaq
SmallCap Market, notwithstanding its failure to meet the total assets
and capital surplus requirements that are set forth in the NASD
Marketplace Rules, following the December 4, 1997 oral hearing. Based on
the representation made regarding the contemplated acquisition of ORIX
Global Communications, Inc. and the contemplated private placement of
$5,000,000 from institutional investors, the Panel was of the opinion
that the proposed transactions would result in a change of control,
financial structure and business and that, therefore, the NASD
Marketplace Rules for initial inclusion requirements are applicable. As
a result, the Panel determined to delist Touch Tone's securities from
the Nasdaq stock market effective with the close of business on December
16, 1997.
Touch Tone is contemplating a number of actions and will communicate its
plans.
Touch Tone America, Inc. is a long distance telephone and Internet
service provider.
**********
