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
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.
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SECURITIES PURCHASE AGREEMENT - Page 1
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 ▇▇▇▇▇ ▇▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇▇▇ 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.
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"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.
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"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.
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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.
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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
"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
Page 14
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
Page 15
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
Page 16
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
Page 17
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.
Page 18
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,
Page 19
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
Page 20
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;
Page 21
(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);
Page 22
(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;
Page 23
(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
Page 24
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;
Page 25
(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
Page 26
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);
Page 27
(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) ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇ 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;
Page 28
(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,
Page 29
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
Page 30
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.
Page 31
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.
Page 32
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
Page 33
(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 ▇▇▇▇▇ ▇▇▇▇▇▇. 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.
Page 34
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
Page 35
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 ▇▇▇▇▇ ▇▇▇▇▇▇ 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
Page 36
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
Page 37
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
Page 38
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
Page 39
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
Page 40
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
Page 41
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
Page 42
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
Page 43
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
Page 44
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 ▇▇▇▇▇ 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.
Page 45
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]
Page 46
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/ ▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
Address: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Day, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
IF TO PURCHASERS:
INFINITY INVESTORS LIMITED
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------
Title:
----------------------
Address: ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Fax: ▇▇▇-▇▇-▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇. ▇. ▇▇▇▇▇▇▇▇
With a copy to: HW Partners Limited
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Fax: (▇▇▇)▇▇▇-▇▇▇▇
Page 47
ACKNOWLEDGED AND AGREED TO
FOR ALL PURPOSES SPECIFIED:
ORIX GLOBAL COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------
Title: President
------------------------
Address: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇
Page 48
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
SCHEDULE 2.1
DEBENTURES
---------------------------------------------------------------------------
NAME/ADDRESS PRINCIPAL AMOUNT
OF DEBENTURES
---------------------------------------------------------------------------
Infinity Investors Limited, a Nevis corporation $2,500,000
---------------------------------------------------------------------------
Page 2
SCHEDULE 4.1
SUBSIDIARIES
GetNet International, Inc., an Arizona Corporation.
Page 3
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 --
Page 4
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
------ ----------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 650
W. ▇▇▇▇▇ ▇▇▇▇ 50
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 50
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 30
▇▇▇▇ ▇▇▇▇▇▇▇ 305
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 100
▇▇▇▇ ▇▇▇▇▇▇▇▇ 15
Page 5
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
Page 6
Series B and C Preferred Shares 14,000,000
Page 7
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
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.
Page 9
SCHEDULE 4.8
LITIGATION
(1) The Company has advised Infinity that ▇▇▇▇▇▇▇ ▇▇▇▇▇, President of GetNet
International, Inc., a wholly-owned subsidiary of the Company, has sued the
Company concerning an employment compensation dispute, and that ▇▇. ▇▇▇▇▇ 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 ▇▇.
▇▇▇▇▇ 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.
Page 10
SCHEDULE 4.11
TAXES
None
Page 11
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.
Page 12
SCHEDULE 4.17
LEASE OBLIGATIONS
None
Page 13
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
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.
Page 15
SCHEDULE 11.7
BROKERS
1. ▇▇▇▇▇-▇▇▇▇▇ Fee
2. Warrants to ▇▇▇▇▇-▇▇▇▇▇
Page 16
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
Page 17