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SUBSCRIPTION AGREEMENT AMENDMENT
This Subscription Agreement Amendment (this "Amendment") dated as
of August 28, 1998 is entered into by and between SmarTalk TeleServices, Inc.,
a California corporation (together with its successors, "SmarTalk"), and
▇▇▇▇▇▇▇▇ International Limited, a company organized under the laws of the
Cayman Islands (together with its successors, "▇▇▇▇▇▇▇▇").
WHEREAS, SmarTalk and ▇▇▇▇▇▇▇▇ entered into that certain
Subscription Agreement dated as of July 8, 1998 (the "Agreement"); and
WHEREAS, the parties desire to amend the Agreement as set forth
below;
The parties do hereby amend the Agreement as follows;
1. The first sentence of Section 1.b. is amended to read as follows:
SmarTalk hereby grants ▇▇▇▇▇▇▇▇ the right to purchase (the "Initial
Investment Right", and together with the Adjustment Right (as defined
below), the "Investment Rights"), and agrees to sell to ▇▇▇▇▇▇▇▇, at
▇▇▇▇▇▇▇▇'▇ sole option, additional shares ("Initial Investment Right
Shares", and together with Adjusted Issuance Shares and Adjustment Shares
(each as defined below), the "Additional Shares") of Common Stock having
an aggregate purchase price of up to $20 million at the per share purchase
price(s) determined in accordance with the next sentence from time to time
for a period commencing on the earlier of (a) March 1, 1999 and (b) a
Combination Announcement Date (as defined below) and ending on March 1,
2001.
2. The first sentence of Section 3.A.a. is amended to read as follows:
SmarTalk shall, as soon as practicable and at its own expense, file
a registration statement (the "Registration Statement") under the
Securities Act covering the sale or resale of the sum of (i) all Initial
Shares, and (ii) all Additional Shares (which Additional Shares for such
purposes shall be deemed to be not less than 4.4 million shares) (each, a
"Covered Security"), shall use its best efforts to cause such
Registration Statement to be declared effective not later than January 1,
1999 (the "Required Registration Date") and shall promptly amend such
Registration Statement from time to time if the maximum number of
Additional Shares is greater than
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the number of shares of Common Stock registered pursuant to such
Registration Statement, provided that ▇▇▇▇▇▇▇▇ shall have provided such
information and cooperation in connection therewith as SmarTalk may
reasonably request.
3. Subsections a, b and c of Section 5 are amended to read as follows:
a. For purposes of this Agreement, the "Adjusted Price" shall
mean the arithmetic average of the closing sale prices per share (rounded
to the nearest 1/10,000th) as reported by Bloomberg of the Common Stock
on the NASDAQ National Market (the "Average Closing Price"), subject to
adjustment pursuant to Section 3.A, during the consecutive trading day
period (the "Adjustment Period") beginning and including April 1, 1999
and ending and including June 30, 1999 (the last day of the Adjustment
Period is referred to herein as the "Measurement Date"), subject to
adjustment pursuant to the last sentence hereof. If the NASDAQ National
Market is not then the principal trading market for the Common Stock, the
Adjusted Price shall be calculated based on the closing sale prices per
share of Common Stock on the principal trading market for the Common
Stock at that time or, if there is then no such principal trading market,
the Adjusted Price shall be the fair market value per share of Common
Stock during such period as determined in good faith by the Board of
Directors of SmarTalk. If the value of the Common Stock is to be
determined by the Board of Directors of SmarTalk and ▇▇▇▇▇▇▇▇ disagrees
with said valuation, the value of the Common Stock will be determined by
binding arbitration in accordance with the then prevailing commercial
arbitration rules of the American Arbitration Association, and such
arbitration shall proceed in Chicago, Illinois or at such other place as
agreed to in writing by ▇▇▇▇▇▇▇▇ and SmarTalk. Notwithstanding anything
else contained in this Section 5.a, (i) if a Combination Closing Date
occurs prior to April 1, 1999, then the Adjusted Price will equal the
cash value of consideration into which one whole share of common stock
would be converted upon consummation of the Combination (as defined
below) (the "Combination Price"); (ii) if a Combination Closing Date
occurs between April 1, 1999 and June 30, 1999, (a) the Adjustment Period
shall end on the trading day immediately prior to the Combination
Announcement Date and (b) the Adjusted Price shall be the lesser of the
Combination Price or the Adjusted Price as calculated for the Adjustment
Period, as such period is adjusted by clause (ii)(a) of this Section 5.a;
and (iii) in the event the Registration Statement has not been declared
effective on or prior to the Required Registration Date or Initial
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Shares or Additional Shares may for any reason not be sold under the
Registration Statement on the Measurement Date, the "Adjusted Price" shall mean
the lower of (A) the value determined in accordance with the first sentence of
this paragraph without reference to this clause (iii) and (B) the Average
Closing Price during the 30 consecutive trading day period beginning and
including the date the Registration Statement is declared effective (in which
event the "Measurement Date" shall be the last day of such period).
b. In the event that the Adjusted Price exceeds $18.75, ▇▇▇▇▇▇▇▇ shall,
within three business days after the Measurement Date (or the Combination
Closing Date, if such date occurs before the Measurement Date), cause the
lesser of the following amounts to be wire transferred to SmarTalk in
immediately available funds: (i) the product of the dollar amount by which the
Adjusted Price exceeds $18.75 multiplied by the Initial Number or (ii)
$18,500,000.
c. In the event that $18.75 exceeds the Adjusted Price, SmarTalk shall,
within three business days after the Measurement Date, or, if applicable, the
Combination Closing Date, compensate ▇▇▇▇▇▇▇▇ in an amount equal to the lesser
of (a) the dollar amount by which $18.75 exceeds the Adjusted Price multiplied
by the Initial Number or (b) $18,500,000 (the lower of (a) and (b) is referred
to as the "Adjustment Amount"), in accordance with the following sentence.
SmarTalk shall have the option to either (1) cause such amount to be wire
transferred to ▇▇▇▇▇▇▇▇ in immediately available funds, provided that SmarTalk
has previously provided ▇▇▇▇▇▇▇▇ with written notice, not later than the
Measurement Date, of SmarTalk's intention to so satisfy its obligation to pay
the Adjustment Amount or (2) at ▇▇▇▇▇▇▇▇'▇ choice either: (x) cause a number of
shares ("Adjusted Issuance Shares") of Common Stock to be transferred to
▇▇▇▇▇▇▇▇ equal to the result of (i) the Adjustment Amount divided by (ii) the
Adjusted Price; or (y) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ the right to acquire (the "Adjustment
Right"), and agrees to issue to ▇▇▇▇▇▇▇▇, at ▇▇▇▇▇▇▇▇'▇ sole option, for no
further consideration additional shares ("Adjustment Shares") of Common Stock
having an aggregate value of up to the Adjustment Amount, where such shares are
valued at the Adjusted Value (as defined below) from time to time for a period
ending on the first trading day which is at least twenty-four (24) months from
the Measurement Date. The value per share (each, an "Adjusted Value") of Common
Stock issuable upon the exercise of an Adjustment Right shall be equal to the
Average Closing Price during the 40 trading-day period ending and excluding the
five trading days immediately prior to the Notice Date; provided,however, that
in no event
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shall such Adjusted Value be less than 95% or greater than 105% of the Average
Closing Price during the first five trading days of the relevant 40 trading-day
period. The Adjustment Amount shall be reduced dollar for dollar in connection
with each exercise of the Adjustment Right by an amount equal to the product of
the Adjusted Value and the number of shares of Common Stock issued in connection
with such exercise.
4. The sixth sentence of Section 6 is amended to read as follows:
The "First Value" with respect to the Initial Investment Right shall be $5
million and with respect to the Adjustment Right shall be 25% of the Adjustment
Amount, and the amortization of the First Value shall commence on the earlier of
(a) March 1, 1999 and (b) a Combination Announcement Date with respect to the
Initial Investment Right and on the Measurement Date with respect to the
Adjustment Right.
5. Subsection h of Section 7 is amended to read as follows:
If on any Notice Date, ▇▇▇▇▇▇▇▇ delivers to SmarTalk an Investment Notice
for an aggregate number of Additional Shares issuable pursuant to Investment
Rights (without regard to any notice periods) which, when added to the aggregate
number of (i) Initial Shares, (ii) Additional Shares previously issued and (iii)
any other shares of Common Stock required to be included by NASDAQ, would exceed
the number of shares equal to 20% of the total number of shares of Common Stock
outstanding (adjusted to reflect any split, subdivision, combination or
consolidation of the Common Stock, whether by reclassification, distribution of
a dividend with respect to the outstanding Common Stock payable in shares of
Common Stock, or otherwise, or any recapitalization of the Common Stock) on the
Closing Date (the "Original Number") and such circumstance would require the
approval (the "Required Consent") of the holders of the Common Stock pursuant to
the listing requirements or rules of the NASDAQ National Market (or such other
national securities exchange on which the Common Stock is then listed), SmarTalk
(A) shall not issue shares of Common Stock (the "Issuance Blockage") to the
extent that the total number of shares of Common Stock issued hereunder would
exceed 19.9% of the Original Number, and (B) shall use its best efforts to
obtain, within 110 days from the Notice Date, the Required Consent approval for
the issuance of 20% or more of SmarTalk's Common Stock under this Agreement. In
the event
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the Required Consent is not obtained in accordance with the preceding sentence,
▇▇▇▇▇▇▇▇ shall have the right to convert up to that amount of the Investment
Rights, the exercise of which would result in the total number of shares issued
hereunder to exceed 19.9% of the Original Number into a note (an "Excess Note")
by delivery of an Excess Notice (as defined below) in an amount equal to the
sum of up to (A) the product of (x) the positive excess of the closing price
(the "Excess Closing Price") as reported by Bloomberg of the Common Stock on the
NASDAQ National Market (or such other national securities exchange on which the
Common Stock is then listed) on the Excess Notice Date (as defined below) over
the applicable Investment Right Price and (y) the number of shares of Common
Stock that would be issuable in respect of the complete exercise of the Initial
Investment Right but for the Issuance Blockage, and (B) the Adjustment Amount.
All computations in the preceding sentence with respect to the Investment Right
Price and the number of shares of Common Stock issuable shall be determined as
if the Excess Notice Date were the Notice Date. In addition, in the event the
Required Consent is not obtained and any Excess Note is outstanding, SmarTalk
shall not issue any securities or incur any indebtedness for borrowed money
(other than indebtedness incurred pursuant to a revolving bank credit agreement
which may be entered into either before or after the Closing Date ("Bank
Debt") or in the ordinary course of SmarTalk's business), except in connection
with the repurchase of Excess Notes. The Excess Note(s) shall be subordinated
in right of payment to the Bank Debt, provided that such subordination shall
not affect SmarTalk's obligation to pay such Excess Note(s) when due. To
convert Investment Rights into an Excess Note, ▇▇▇▇▇▇▇▇ shall deliver one or
more written notices in the form attached hereto as Annex D (an "Excess
Notice") to SmarTalk from time to time. The date upon which ▇▇▇▇▇▇▇▇ causes an
Excess Notice to be delivered to SmarTalk, by hand, facsimile, electronic
transmission or otherwise, shall be the "Excess Notice Date" with respect to
such exercise of the Investment Rights, which date shall be deemed to be an
Investment Closing Date for purposes of Section 3 hereof. Each Excess Note shall
be due and payable eighteen months after the date of issuance and bear interest
at an interest rate of 10% per annum for the first six months, and 15% per
annum thereafter. Notwithstanding anything else in this Section 7(h) (and in
addition to SmarTalk's obligation to seek the Required Consent pursuant to the
first sentence of this Section 7(h)), if at any time ▇▇▇▇▇▇▇▇ delivers an
Investment Notice and SmarTalk is unable to issue all or any portion of the
shares identified therein as a result of the
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Issuance Blockage, SmarTalk shall issue to ▇▇▇▇▇▇▇▇ an Excess Note (on the
terms described in this Section 7(h)) in amount equal to the sum of (A) the
product of (x) the positive excess of the closing price as reported by
Bloomberg of the Common Stock on the NASDAQ National Market (or such other
national securities exchange on which the Common Stock is then listed) on
the Excess Notice Date over the applicable Investment Right Price and (y)
the number of shares of Common Stock that would be issuable in respect of
such exercise of the Initial Investment Right but for the Issuance
Blockage, and (B) the Adjustment Amount identified in such Investment
Notice for which shares of Common Stock are not issued as a result of the
Issuance Blockage; provided that, for such purpose the shares issuable upon
the exercise of the Adjustment Right shall be issued in full prior to the
issuance of any shares issuable with respect to the exercise of the Initial
Investment Right.
6. Unless the context otherwise requires, any reference in the Agreement
or this Amendment to the Agreement shall be deemed to refer to the Agreement as
amended by this Amendment. SmarTalk hereby represents and warrants to ▇▇▇▇▇▇▇▇
that (a) except to the extent that paragraphs i. and j. of Section 3 of the
Agreement are not true and correct as a result of the accounting treatment of
acquisitions completed in 1997 and the components of the restructuring charge
taken by SmarTalk in 1997, as such issues are referenced in SmarTalk's press
release dated August 16, 1998, SmarTalk's representations and warranties
contained in Section 3 of the Agreement are true and correct as of the date of
the Amendment and (b) except for SmarTalk's failure to deliver the Increase
Notice (as defined in the Agreement) due August 10, 1998, SmarTalk has complied
fully with all the covenants and agreements in the Agreement. Concurrent with
the execution of this Amendment, SmarTalk has delivered to ▇▇▇▇▇▇▇▇ a
certificate of the Chief Executive Officer or the Chief Financial Officer of
SmarTalk dated as of the date hereof and to such effect. ▇▇▇▇▇▇▇▇ hereby
represents and warrants to SmarTalk that (a) ▇▇▇▇▇▇▇▇'▇ representations and
warranties contained in Section 4 of the Agreement are true and correct as of
the date of the Amendment and (b) ▇▇▇▇▇▇▇▇ has complied fully with all the
covenants and agreements in the Agreement. Concurrent with the execution of
this Amendment, ▇▇▇▇▇▇▇▇ has delivered to SmarTalk a certificate of an
appropriate officer of ▇▇▇▇▇▇▇▇ dated as of the date hereof and to such effect.
7. SmarTalk and ▇▇▇▇▇▇▇▇, for themselves and on behalf of their
respective directors, officers, employees, affiliates, controlling persons,
agents and representatives and their successors and assigns, hereby release and
discharge one another and
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each other's respective directors, officers, employees, affiliates, controlling
persons, agents and representatives and their successors and assigns from any
and all liability, demands, claims, actions or causes of action arising from
facts or circumstances occurring or in existence prior to the date of this
Amendment that relate to the accounting treatment of acquisitions completed in
1997 and the components of the restructuring charge taken by SmarTalk in 1997,
as such issues are referenced in SmarTalk's press release dated August 16, 1998;
provided; however, that such release and discharge shall not be applicable to
liability, demands, claims, actions or causes of action arising out of or in
connection with, nor have the effect of prohibiting ▇▇▇▇▇▇▇▇'▇ participation (as
lead plaintiff or otherwise) in, any class action against SmarTalk, its
directors, officers, employees, affiliates, controlling persons, agents and
representatives and their successors and assigns commenced prior to the date of
this Amendment, and SmarTalk hereby agrees to waive any objection to ▇▇▇▇▇▇▇▇'▇
participation (as lead plaintiff or otherwise) therein.
8. This Amendment may be executed in one or more counterparts and it is
not necessary that signatures of all parties appear on the same counterpart,
but such counterparts together shall constitute but one and the same Amendment.
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Amendment, all as of the day and year first above written.
SMARTALK TELESERVICES, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: CEO
▇▇▇▇▇▇▇▇ INTERNATIONAL LIMITED
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Alternate Director
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Director
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