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
(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 ▇▇▇, 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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(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
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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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"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.
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"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
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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
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]
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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/ ▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------------
Title: President and Chief Executive Officer
-------------------------------------------
Address: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
INFINITY INVESTORS LIMITED
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------------
Title:
-------------------------------------------
Address: ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Telephone: ▇▇▇-▇▇-▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇. ▇. ▇▇▇▇▇▇▇▇
With copy to: HW Partners, L.P.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn.: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
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