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EXHIBIT 99.1
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this "Agreement") dated as of
July 8, 1998 is entered into by and between SmarTalk TeleServices, Inc., a
California corporation (together with its successors, "SmarTalk"), and Xxxxxxxx
International Limited, a company organized under the laws of the Cayman Islands
(together with its successors, "Xxxxxxxx").
The parties hereto agree as follows:
1. Purchase and Sale. In consideration of and upon the basis
of the representations, warranties and agreements and subject to the terms and
conditions set forth in this Agreement:
a. Common Stock. SmarTalk agrees to issue and sell to
Xxxxxxxx, and Xxxxxxxx agrees to purchase from SmarTalk, on the Closing
Date specified in Section 2 hereof, 1,751,824 (the "Initial Number")
newly issued shares of SmarTalk common stock, no par value (the "Common
Stock"), at a purchase price per share equal to SEVENTEEN AND 125/1000
DOLLARS ($17.125) (the "Initial Purchase Price"), the last sales price
of the Common Stock as reported by Bloomberg, L.P. ("Bloomberg") for
the date hereof, and an aggregate purchase price of $29,999,986 (the
"Initial Aggregate Price"). The shares of Common Stock purchased
pursuant to this Section 1.a are referred to herein as the "Initial
Shares."
b. Initial Investment Right. SmarTalk hereby grants
Xxxxxxxx the right to purchase (the "Initial Investment Right", and
together with the Adjustment Right (as defined below), the "Investment
Rights"), and agrees to sell to Xxxxxxxx, at Xxxxxxxx'x sole option,
additional shares ("Initial Investment Right Shares", and together
with Adjusted Issuance Shares and Adjustment Shares (each as defined
below), the "Additional Shares") of Common Stock having an aggregate
purchase price of up to $20 million at the per share purchase price(s)
determined in accordance with the next sentence from time to time for
a period ending on the first trading day which is at least eighteen
months from the Closing Date. The purchase price per share (each, an
"Investment Right Price") of Common Stock issuable upon the exercise
of an Initial Investment Right shall be equal to the average of the
closing prices (rounded to the nearest 1/10,000th) as reported by
Bloomberg of the Common Stock on the NASDAQ National Market (or such
other national securities exchange on which the Common Stock is then
listed) during the 40 trading-day period ending and excluding the five
trading days immediately prior to the Notice Date (as defined below);
provided, however, that in no event shall such
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Investment Right Price be less than 95% or greater than 105% of the
average of the closing prices as reported by Bloomberg of the Common
Stock on the NASDAQ National Market during the first five trading days
of the relevant 40 trading-day period. If the NASDAQ National Market
is not then the principal trading market for the Common Stock, the
Investment Right Price shall be calculated in accordance with the
calculation of the Adjusted Price (as defined below) under such
circumstances as set forth in Section 5 (as possibly modified by
Section 3.A(a)).
c. To exercise the Investment Rights, Xxxxxxxx shall
deliver one or more written notices in the form attached hereto as
Annex A (an "Investment Notice") to SmarTalk from time to time prior
to the respective expiration date. The date upon which Xxxxxxxx
causes an Investment Notice to be delivered to SmarTalk, by hand,
facsimile, electronic transmission or otherwise, shall be the "Notice
Date" with respect to such exercise of the Investment Rights. If the
Investment Rights are exercised, such sale shall take place on an
Investment Closing Date (as defined below) upon satisfaction of the
terms and conditions described herein. Upon satisfaction or, if
applicable, waiver of the relevant conditions set forth in Sections 9
and 10 hereof, the closing of the sale or delivery of Additional
Shares (the "Investment Closing") shall take place initially via
facsimile on the date that is three trading days following the Notice
Date, as otherwise provided herein, or at such other date and time as
Xxxxxxxx and SmarTalk shall mutually agree (such date and time being
referred to herein as the "Investment Closing Date").
d. Notwithstanding anything else contained in this
Agreement, solely in limitation of Xxxxxxxx'x rights, the aggregate
number of Additional Shares issuable immediately upon exercise of the
Investment Rights, together with all Additional Shares previously
issued, shall be less than or equal to the lower of (i) the
Exercisable Number (as defined below) or (ii) the number of shares of
Common Stock otherwise issuable upon the exercise of Investment
Rights. Any Additional Shares not issued as a result of the previous
sentence shall be issuable when and to the extent the Exercisable
Number is thereafter increased. The "Exercisable Number" is initially
900,000 and thereafter may be increased upon expiration of a
sixty-five day period (the "65 Day Notice Period") after either (i)
Xxxxxxxx delivers a notice (a "65 Day Notice") to SmarTalk designating
an aggregate number of shares of Common Stock in excess of the then
existing Exercisable Number, or (ii) SmarTalk delivers a notice (an
"Increase Notice") stating the increase, if any, in the aggregate
number (the "Increased Number") of shares of Common Stock outstanding
as of the last day of the preceding month over the number outstanding
as of the last day of the second preceding month, in which event the
Exercisable Number shall be increased by the number which is 9.75% of
the Increased Number. A 65 Day Notice may be given at any time.
Unless expressly waived by Xxxxxxxx,
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SmarTalk shall deliver an Increase Notice to Xxxxxxxx on or before the
10th day of each month from and after August 1, 1998. One or more 65
Day Notice(s) may be given from time to time at any time after the
Closing Date, provided that any increase in the Exercisable Number
designated by any 65 Day Notice shall be effective only upon
expiration of the 65 Day Notice Period with respect to such 65 Day
Notice.
2. Closing. Upon satisfaction or, if applicable,
waiver of the conditions set forth in Sections 9 and 10 hereof, the deliveries
set forth below (the "Closing") shall take place initially via facsimile at
1:00 p.m. (New York time) on July 9, 1998, or at such other date and time as
Xxxxxxxx and SmarTalk may agree (such date and time being referred to herein as
the "Closing Date"), provided that SmarTalk shall deliver the original stock
certificates representing the Initial Shares or the Additional Shares, as the
case may be, to Xxxxxxxx via Federal Express at the address set forth in Annex
B hereof. Each original stock certificate delivered in accordance with this
Section 2 shall represent 250,000 shares of Common Stock (except that to the
extent that the number of Initial Shares or Additional Shares to be delivered
to Xxxxxxxx at any given time are not evenly divisible by 250,000, one stock
certificate shall represent the remaining shares).
a. At the Closing, the following deliveries shall be made:
(i). Initial Shares Certificate. SmarTalk shall deliver
the stock certificates representing the Initial Shares, duly
registered on the books of SmarTalk in the name of Xxxxxxxx or its
nominee.
(ii). Closing Documents. The closing documents required by
Sections 9 and 10 shall be delivered to Xxxxxxxx and SmarTalk,
respectively.
(iii). Initial Purchase Price. Xxxxxxxx shall cause to be
wire transferred to SmarTalk, in accordance with instructions set
forth in Section 15, the Initial Aggregate Price, in immediately
available United States dollars.
(iv). Delivery Notice. An executed copy of the delivery
notice in the form attached hereto as Annex B shall be delivered in
accordance therewith, with a copy delivered to Xxxxxxxx.
The foregoing deliveries shall be deemed to occur
simultaneously as part of a single transaction, and no delivery shall be deemed
to have been made until all such deliveries have been made.
b. At any Investment Closing, the following deliveries shall be
made:
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(i). Additional Shares. SmarTalk shall deliver
the certificate(s) representing the Additional Shares, duly registered
on the books of SmarTalk in the name of Xxxxxxxx or its nominee,
against payment by Xxxxxxxx of the Investment Purchase Price (if any)
by wire transfer in immediately available funds, to the account
identified in the Investment Notice.
(ii). Closing Documents. The closing documents
required by Sections 9 and 10 shall be delivered to Xxxxxxxx and
SmarTalk, respectively.
(iii). Delivery Notice. An executed copy of the
delivery notice in the form attached hereto as Annex C shall be
delivered in accordance therewith, with a copy delivered to Xxxxxxxx.
The foregoing deliveries shall be deemed to occur
simultaneously as part of a single transaction, and no delivery shall be deemed
to have been made until all such deliveries have been made. The original
certificates representing the Additional Shares shall be delivered via Federal
Express to Xxxxxxxx at the address set forth in Section 15 hereof, unless
Xxxxxxxx shall have delivered to SmarTalk a written notice specifying a
different address.
3. Representations and Warranties of SmarTalk. SmarTalk
hereby represents and warrants to Xxxxxxxx on the date hereof, on the Closing
Date, the Measurement Date (as defined below) and on each Investment Closing
Date, if any, as follows:
a. SmarTalk has been duly incorporated and is validly
existing in good standing under the laws of California, or after the
Closing Date, if another entity has succeeded SmarTalk in accordance
with the terms hereof, under the laws of one of the United States.
b. The execution, delivery and performance of this
Agreement (including the issuance of the Initial Shares and the
Additional Shares) by SmarTalk have been duly authorized by all
requisite corporate action and no further consent or authorization of
SmarTalk, its Board of Directors or its shareholders (other than the
Required Consent (as defined below), if applicable) is required. This
Agreement has been duly executed and delivered by SmarTalk and, when
this Agreement is duly authorized, executed and delivered by Xxxxxxxx,
will be a valid and binding agreement enforceable against SmarTalk in
accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general
principles of equity.
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c. SmarTalk has full corporate power and authority
necessary to execute and deliver this Agreement and to perform its
obligations hereunder (including the issuance of the Initial Shares
and the Additional Shares).
d. Except as may be required under the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), no
consent, approval, authorization or order of any court, governmental
agency or other body is required for execution and delivery by
SmarTalk of this Agreement or the performance by SmarTalk of any of
its obligations hereunder other than such as may already have been
received.
e. Except as may be required under the HSR Act, neither
the execution and delivery by SmarTalk of this Agreement nor the
performance by SmarTalk of any of its obligations hereunder:
(1) violates, conflicts with, results in a breach
of, or constitutes a default (or an event which with the
giving of notice or the lapse of time or both would be
reasonably likely to constitute a default) under (A) the
Articles of Incorporation or by-laws of SmarTalk or any of its
subsidiaries, (B) any decree, judgment, order, law, treaty,
rule, regulation or determination of which SmarTalk is aware
(after due inquiry) of any court, governmental agency or body,
or arbitrator having jurisdiction over SmarTalk or any of its
subsidiaries or any of their respective properties or assets,
(C) the terms of any bond, debenture, note or any other
evidence of indebtedness, or any agreement, stock option or
other similar plan, indenture, lease, mortgage, deed of trust
or other instrument to which SmarTalk or any of its
subsidiaries is a party, by which SmarTalk or any of its
subsidiaries is bound, or to which any of the properties or
assets of SmarTalk or any of its subsidiaries is subject, (D)
the terms of any "lock-up" or similar provision of any
underwriting or similar agreement to which SmarTalk or any of
its subsidiaries is a party or (E) any rules of the National
Association of Securities Dealers, Inc. or the NASDAQ National
Market applicable to SmarTalk or the transactions contemplated
hereby; or
(2) results in the creation or imposition of any
lien, charge or encumbrance upon (A) any Initial Share or any
Additional Share or (B) any of the properties or assets of
SmarTalk or any of its subsidiaries.
f. SmarTalk has validly reserved for issuance to
Xxxxxxxx (i) the Initial Number of shares of Common Stock for issuance
at the Closing; (ii) 4.4 million shares of Common Stock that may be
issuable from time to time as Additional Shares; and (iii) any
additional shares of Common Stock as required
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under this Agreement. When issued to Xxxxxxxx against payment
therefor in accordance with the terms of this Agreement, each Initial
Share and each Additional Share:
(1) will have been duly and validly authorized, duly
and validly issued, fully paid and non-assessable;
(2) will be free and clear of any security
interests, liens, claims or other encumbrances (other than
encumbrances that may be imposed under federal securities
laws); and
(3) will not have been issued or sold in violation
of any preemptive or other similar rights of the holders of
any securities of SmarTalk.
g. SmarTalk satisfies all quantitative maintenance
criteria of the NASDAQ National Market or, after the Closing Date, has
a valid exemption from such criteria. Following the Closing, the
Initial Shares are, and the Additional Shares (when and if issued)
will be, duly listed and admitted for trading on the principal
exchange or market for the Common Stock.
h. On the Closing Date, there is no pending or, to the
best knowledge of SmarTalk, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over SmarTalk or any of its affiliates
that would materially affect the execution by SmarTalk of, or the
performance by SmarTalk of its obligations under, this Agreement,
provided, however, that the representations and warranties contained
in this Section 3.1(g) shall not apply to any action, threatened
action, suit, proceeding or investigation initiated by Xxxxxxxx.
i. None of SmarTalk's filings with the United States
Securities and Exchange Commission (the "SEC") under the Securities
Act of 1933, as amended (the "Securities Act"), or under Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (each an "SEC Filing") contained any untrue statement
of a material fact or omitted to state any material fact necessary in
order to make the statements, in the light of the circumstances under
which they were made, not misleading.
j. Since the date of SmarTalk's most recent SEC Filing,
there has not been, and SmarTalk is not aware of, any development that
would require an amendment to SmarTalk's Registration Statement on
Form S-3 (registration number 333-42857) in order to permit public
offers and sales of shares of Common Stock thereunder.
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k. The offer and sale of the Initial Shares and the
Additional Shares to Xxxxxxxx pursuant to this Agreement will, subject
to compliance by Xxxxxxxx with the applicable representations and
warranties contained in Section 4 hereof and with the applicable
covenants and agreements contained in Section 8 hereof, be made in
accordance with the provisions and requirements of Regulation D
promulgated under the Securities Act of 1933, as amended (the
"Securities Act") and any applicable state law.
l. As of the date hereof, the authorized capital stock
of SmarTalk consists of 100,000,000 shares of Common Stock, and
10,000,000 shares of preferred stock, no par value, of SmarTalk
("Preferred Stock"). As of July 8, 1998, (i) 25,468,948 shares of
Common Stock (including the treasury shares described in clause (iii)
below) and no shares of Preferred Stock were issued and outstanding,
(ii) less than 10,000,000 shares of Common Stock were reserved for
issuance upon exercise of outstanding stock options, warrants or other
convertible rights, (iii) less than 5,000,000 shares of Common Stock
are currently subject to issuance upon the exercise of outstanding
stock options, warrants or other convertible rights, and (iv) no
shares of Common Stock were held in the treasury of SmarTalk. All of
the outstanding shares of Common Stock are, and all shares which may
be issued pursuant to stock options, warrants or other convertible
rights will be, when issued and paid for in accordance with the
respective terms thereof, duly authorized, validly issued, fully paid
and non-assessable and free of any preemptive rights in respect
thereof. As of the date hereof, except as set forth above, and except
for shares of Common Stock or other securities issued upon conversion,
exchange, exercise or purchase associated with the securities,
options, warrants, rights and other instruments referenced above, (i)
no shares of capital stock or other voting securities of SmarTalk were
outstanding, (ii) no equity equivalents, interests in the ownership or
earnings of SmarTalk or other similar rights were outstanding and
(iii) there were no existing options, warrants, calls, subscriptions
or other rights or agreements or commitments relating to the capital
stock of SmarTalk or any of its subsidiaries or obligating SmarTalk or
any of its subsidiaries to issue, transfer, sell or redeem any shares
of capital stock, or other equity interest in, SmarTalk or any of its
subsidiaries or obligating SmarTalk or any of its subsidiaries to
grant, extend or enter into any such option, warrant, call,
subscription or other right, agreement or commitment. No provision of
this Section 3(l) is intended to relate to any transaction, including
but not limited to options traded by third parties on the Chicago
Board of Exchange, in which SmarTalk is not a party and by which
neither SmarTalk nor any of its properties are bound.
m. The parties hereto acknowledge that Xxxxxxxx, without
limiting Xxxxxxxx'x reliance on any of the representations,
warranties, covenants and agreements of SmarTalk contained herein, has
neither requested of nor received
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from SmarTalk any non-public information relating to SmarTalk or the
business affairs or business prospects of SmarTalk.
3.A Registration Provisions.
a. SmarTalk shall as soon as practicable and at its own
expense, file a registration statement (the "Registration Statement")
under the Securities Act covering the sale or resale of the sum of (i)
all Initial Shares, and (ii) all Additional Shares (which Additional
Shares for such purposes shall be deemed to be not less than 4.4
million shares) (each, a "Covered Security"), shall use its best
efforts to cause such Registration Statement to be declared effective
not later than 90 calendar days (the "Required Registration Date")
after the Closing Date and shall promptly amend such Registration
Statement from time to time if the maximum number of Additional Shares
is greater than the number of shares of Common Stock registered
pursuant to such Registration Statement, provided that Xxxxxxxx shall
have provided such information and cooperation in connection therewith
as SmarTalk may reasonably request. If the Registration Statement has
not been declared effective by the Required Registration Date, the
Investment Right Price as determined pursuant to Section 1.b. (or, if
applicable, the Adjusted Value as determined pursuant to Section 5)
for shares of Common Stock issuable upon exercise of the Investment
Rights exercised following the Required Registration Date and before
the third business day following the date such Registration Statement
is declared effective shall be reduced by 2.5% for each month (or
portion thereof) following the Required Registration Date that such
Registration Statement shall not have been declared effective.
b. SmarTalk will use its best efforts to: (i) keep such
registration effective until the earlier of (A) the second anniversary
of the issuance of each Covered Security (provided that, Xxxxxxxx may
freely resell such Covered Securities), (B) the later of the date all
of the Covered Securities shall have been sold by Xxxxxxxx and the
date the Investment Rights expire or (C) such time as all of the
Covered Securities held by Xxxxxxxx can be sold by Xxxxxxxx or any of
its affiliates within a three-month period without compliance with the
registration requirements of the Securities Act pursuant to Rule 144
under the Securities Act ("Rule 144"); (ii) prepare and file with the
SEC such amendments and supplements to the Registration Statement and
the prospectus used in connection with the Registration Statement (as
so amended and supplemented from time to time, the "Prospectus") as
may be necessary to comply with the provisions of the Securities Act
with respect to the disposition of all Covered Securities by Xxxxxxxx
or any of its affiliates; (iii) furnish such number of Prospectuses
and other documents incident thereto, including any amendment of or
supplement to the Prospectus, as Xxxxxxxx from time to time may
reasonably request; (iv) cause all Covered Securities to be listed on
each securities exchange and quoted on each quotation service on which
similar securities issued by SmarTalk are then
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listed or quoted; (v) provide a transfer agent and registrar for all
Covered Securities and a CUSIP number for all Covered Securities; (vi)
otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC; and (vii) file the documents required of
SmarTalk and otherwise use its best efforts to obtain and maintain
requisite blue sky clearance in (A) New York, California and all other
jurisdictions in which any of the shares of Common Stock were
originally sold and (B) all other states specified in writing by
Xxxxxxxx, provided, however, that as to this clause (B), SmarTalk
shall not be required to qualify to do business or consent to service
of process in any state in which it is not now so qualified or has not
so consented.
c. SmarTalk shall furnish to Xxxxxxxx upon request a
reasonable number of copies of a supplement to or an amendment of such
Prospectus as may be necessary in order to facilitate the public sale
or other disposition of all or any of the Covered Securities by
Xxxxxxxx or any of its affiliates pursuant to the Registration
Statement.
d. With a view to making available to Xxxxxxxx and its
affiliates the benefits of Rule 144 and Form S-3 under the Securities
Act, SmarTalk covenants and agrees to: (i) make and keep available
adequate current public information (within the meaning of Rule
144(c)) concerning SmarTalk, until the earlier of (A) the second
anniversary of the issuance of each Covered Security (provided that,
Xxxxxxxx may freely resell such Covered Securities) or (B) such date
as all of the Covered Securities shall have been resold by Xxxxxxxx or
any of its affiliates; and (ii) furnish to Xxxxxxxx upon request, as
long as Xxxxxxxx owns any Covered Securities, (A) a written statement
by SmarTalk that it has complied with the reporting requirements of
the Securities Act and the Exchange Act, (B) a copy of the most recent
annual or quarterly report of SmarTalk, and (C) such other information
as may be reasonably requested in order to avail Xxxxxxxx and its
affiliates of Rule 144 or Form S-3 with respect to such Covered
Securities.
e. Notwithstanding anything else in this Section 3.A,
if, at any time during which a Prospectus is required to be delivered
in connection with the sale of any Covered Securities, SmarTalk
determines in good faith that a development has occurred or a
condition exists as a result of which the Registration Statement or
the Prospectus contains a material misstatement or omission, SmarTalk
will immediately notify Xxxxxxxx thereof by telephone and in writing.
Upon receipt of such notification, Xxxxxxxx and its affiliates will
immediately suspend all offers and sales of any Covered Securities
pursuant to the Registration Statement. In such event, SmarTalk will
amend or supplement the Registration Statement as promptly as
practicable and will take such other steps as may be required to
permit sales of the Covered Securities thereunder by Xxxxxxxx and its
affiliates in accordance with applicable federal and state
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securities laws. SmarTalk will promptly notify Xxxxxxxx after it has
determined in good faith that such sales have become permissible in
such manner and will promptly deliver copies of the Registration
Statement and the Prospectus (as so amended or supplemented) to
Xxxxxxxx in accordance with paragraph (b) of this Section 3.A.
Notwithstanding the foregoing, (A) under no circumstances shall
SmarTalk be entitled to exercise its right to suspend sales of any
Covered Securities pursuant to the Registration Statement more than
two times in any twelve-month period, (B) the period during which such
sales may be suspended (each a "Blackout Period") shall not exceed
thirty days and (C) no Blackout Period may commence less than 30 days
after the end of the preceding Blackout Period.
Upon the commencement of a Blackout Period pursuant to this
Section 3.A, Xxxxxxxx will notify SmarTalk of any contracts to sell
any Covered Securities (each a "Sales Contract") that Xxxxxxxx or any
of its affiliates has entered into prior to the commencement of such
Blackout Period and that would require delivery of such Covered
Securities during such Blackout Period, which notice will contain the
aggregate sale price and volume of Covered Securities pursuant to such
Sales Contract. Upon receipt of such notice, SmarTalk will
immediately notify Xxxxxxxx of its election either (i) to terminate
the Blackout Period and, as promptly as practicable, amend or
supplement the Registration Statement or the Prospectus in order to
correct the material misstatement or omission and deliver to Xxxxxxxx
copies of such amended or supplemented Registration Statement and
Prospectus in accordance with paragraph (b) of this Section 3.A or
(ii) to continue the Blackout Period in accordance with this
paragraph. If SmarTalk elects to continue the Blackout Period, and
Xxxxxxxx or any of its affiliates is therefore unable to consummate
the sale of Covered Securities pursuant to the Sales Contract (such
unsold Covered Securities being hereinafter referred to herein as the
"Unsold Securities"), SmarTalk will promptly indemnify each Xxxxxxxx
Indemnified Party (as such term is defined in Section 13 below)
against any Proceeding (as such term is defined in Section 13 below)
that each Xxxxxxxx Indemnified Party may incur arising out of or in
connection with Xxxxxxxx'x breach or alleged breach of any such Sales
Contract, and SmarTalk shall reimburse each Xxxxxxxx Indemnified Party
for any reasonable costs or expenses (including reasonable legal fees)
incurred by such party in investigating or defending any such
Proceeding (collectively, the "Indemnification Amount"); provided,
however, that each Xxxxxxxx Indemnified Party shall take all actions
reasonably necessary or appropriate to mitigate such Indemnification
Amount; and provided further, however, that the Indemnification Amount
shall be reduced by an amount equal to the number of Unsold Securities
multiplied by the difference between (x) the actual per share price
received by Xxxxxxxx or any of its affiliates upon the sale of the
Unsold Securities (if such sale occurs within three Trading Days of
the end of the Blackout Period) or the closing sale price of the
Common Stock on the NASDAQ National Market or other national
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securities exchange on which the Common Stock is then listed on the
third Trading Day after the end of the Blackout Period (if the Unsold
Securities are not sold by Xxxxxxxx or any of its affiliates within
three Trading Days of the end of the Blackout Period), and (y) the per
share sale price for the Unsold Securities provided in the Sales
Contract. As used herein, the term "Trading Day" means any day on
which SmarTalk's Common Stock is quoted on the NASDAQ National Market
or, if applicable, other national securities exchange.
4. Representations and Warranties of Xxxxxxxx. Xxxxxxxx
hereby represents and warrants to SmarTalk on the date hereof, on the Closing
Date, and on each Investment Closing Date, if any, as follows:
x. Xxxxxxxx has been duly incorporated and is validly
existing in good standing under the laws of the Cayman Islands, or
after the Closing Date, under the laws of the jurisdiction of its
organization.
b. The execution, delivery and performance of this
Agreement by Xxxxxxxx have been duly authorized by all requisite
corporate action and no further consent or authorization of Xxxxxxxx,
its Board of Directors or its stockholders is required. This
Agreement has been duly executed and delivered by Xxxxxxxx and, when
duly authorized, executed and delivered by SmarTalk, will be a valid
and binding agreement enforceable against Xxxxxxxx in accordance with
its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights generally and to general principles of
equity.
x. Xxxxxxxx understands that no United States federal or
state agency has passed on, reviewed or made any recommendation or
endorsement of the Initial Shares or any Additional Shares.
d. In making the decision to purchase the Initial Shares
or any Additional Shares in accordance with this Agreement, Xxxxxxxx
has relied solely upon independent investigations made by it and not
upon any representations, warranties, covenants and agreements made by
SmarTalk other than the representations, warranties, covenants and
agreements made in this Agreement. Without limiting Xxxxxxxx'x
reliance on any of the representations, warranties, covenants and
agreements of SmarTalk contained in this Agreement, Xxxxxxxx assumes
the risk that the knowledge of any of the non-public information
described in Section 3(m) might have materially influenced Xxxxxxxx'x
decision to enter into and perform this Agreement.
e. Subject to Section 3.A hereof, Xxxxxxxx understands
that the Initial Shares and the Additional Shares have not been
registered under the
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Securities Act and may not be re-offered or resold other than pursuant
to registration thereunder or an available exemption therefrom.
x. Xxxxxxxx is an "accredited investor" as such term is
defined in Regulation D promulgated under the Securities Act.
x. Xxxxxxxx is purchasing the Initial Shares and the
Additional Shares for its own account for investment only and not with
a view to, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered under the
Securities Act.
x. Xxxxxxxx understands that the Initial Shares and the
Additional Shares are being or will be offered and sold to it in
reliance on specific exemptions from the registration requirements of
United States federal securities laws and that SmarTalk is relying on
the truth and accuracy of, and Xxxxxxxx'x compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of Xxxxxxxx set forth herein in order to determine the
availability of such exemptions and the eligibility of Xxxxxxxx to
acquire Initial Shares and the Additional Shares.
i. The transactions contemplated by this Agreement are
not part of a plan or scheme on the part of Xxxxxxxx, any of its
affiliates or any person acting on its or their behalf to evade the
registration requirements of the Securities Act.
x. Xxxxxxxx is purchasing the Initial Shares within the
Investment Purposes Only exemption of the XXX Xxx, 00 C.F.R Section
802-9. As of the date hereof, Xxxxxxxx intends to purchase any
Additional Shares within the Investment Purposes Only exemption of the
XXX Xxx, 00 C.F.R Section 802-9 and will take any action required by
the HSR Act in connection with any such purchase.
k. From April 1, 1998 to the Closing Date, neither
Xxxxxxxx nor its affiliates sold any shares of Common Stock of SmarTalk
short.
5. Initial Purchase Price Adjustment.
a. For purposes of this Agreement, the "Adjusted Price"
shall mean the arithmetic average of the closing sale prices per share
(rounded to the nearest 1/10,00th) as reported by Bloomberg of the
Common Stock on the NASDAQ National Market (the "Average Closing
Price"), subject to adjustment pursuant to Section 3.A, during the
consecutive trading day period (the "Adjustment Period") beginning and
including September 24, 1998 and ending and including December 17,
1998 (the last day of the Adjustment Period is referred to herein as
the "Measurement Date"), subject to adjustment pursuant
13
to the last sentence hereof. If the NASDAQ National Market is not
then the principal trading market for the Common Stock, the Adjusted
Price shall be calculated based on the closing sale prices per share
of Common Stock on the principal trading market for the Common Stock
at that time or, if there is then no such principal trading market,
the Adjusted Price shall be the fair market value per share of Common
Stock during such period as determined in good faith by the Board of
Directors of SmarTalk. If the value of the Common Stock is to be
determined by the Board of Directors of SmarTalk and Xxxxxxxx
disagrees with said valuation, the value of the Common Stock will be
determined by binding arbitration in accordance with the then
prevailing commercial arbitration rules of the American Arbitration
Association, and such arbitration shall proceed in Chicago, Illinois
or at such other place as agreed to in writing by Xxxxxxxx and
SmarTalk. Notwithstanding anything else contained in this Section
5.a, (i) if a Combination Closing Date (as defined below) occurs prior
to September 24th, then the Adjusted Price will equal the cash value
of consideration in to which one whole share of common stock would be
converted upon consummation of the Combination (as defined below) (the
"Combination Price"); (ii) if a Combination Announcement Date occurs
between September 24th and December 17th, (a) the Adjustment Period
shall end on the trading day immediately prior to the Combination
Announcement Date and (b) the Adjusted Price shall be the lesser of
the Combination Price or the Adjusted Price as calculated for such
periods; and (iii) in the event the Registration Statement has not
been declared effective on or prior to the Required Registration Date
or Initial Shares or Additional Shares may for any reason not be sold
under the Registration Statement on the Measurement Date, the
"Adjusted Price" shall mean the lower of (A) the value determined in
accordance with the first sentence of this paragraph without reference
to this clause (iii) and (B) the Average Closing Price during the 30
consecutive trading day period beginning and including the date the
Registration Statement is declared effective (in which event the
"Measurement Date"shall be the last day of such period).
b. In the event that the Adjusted Price exceeds the
Initial Purchase Price, Xxxxxxxx shall, within three business days
after the Measurement Date (or the Combination Closing Date, if such
date occurs before the Measurement Date), cause the lesser of the
following amounts to be wire transferred to SmarTalk in immediately
available funds: (i) the product of the dollar amount by which the
Adjusted Price exceeds the Initial Purchase Price multiplied by the
Initial Number or (ii) $10,000,000.
c. In the event that the Initial Purchase Price exceeds
the Adjusted Price, SmarTalk shall, within three business days after
the Measurement Date, or, if applicable, the Combination Closing Date
at Xxxxxxxx'x option, compensate Xxxxxxxx in an amount equal to the
lesser of (a) the dollar amount by which the Initial Purchase Price
exceeds the Adjusted Price multiplied by the Initial
14
Number or (b) $10,000,000 (the lower of (a) and (b) is referred to as
the "Adjustment Amount"), in accordance with the following sentence.
SmarTalk shall at Xxxxxxxx'x choice either: (a) cause a number of
shares ("Adjusted Issuance Shares") of Common Stock to be transferred
to Xxxxxxxx equal to the result of (i) the Adjustment Amount divided
by (ii) the Adjusted Price; or (b) xxxxx Xxxxxxxx the right to acquire
(the "Adjustment Right"), and agrees to issue to Xxxxxxxx, at
Xxxxxxxx'x sole option, for no further consideration additional shares
("Adjustment Shares") of Common Stock having an aggregate value of up
to the Adjustment Amount, where such shares are valued at the Adjusted
Value (as defined below) from time to time for a period ending on the
first trading day which is at least eighteen months from the
Measurement Date. The value per share (each, an "Adjusted Value") of
Common Stock issuable upon the exercise of an Adjustment Right shall
be equal to the Average Closing Price during the 40 trading-day period
ending and excluding the five trading days immediately prior to the
Notice Date; provided, however, that in no event shall such Adjusted
Value be less than 95% or greater than 105% of the Average Closing
Price during the first five trading days of the relevant 40
trading-day period. The Adjustment Amount shall be reduced dollar for
dollar in connection with each exercise of the Adjustment Right by an
amount equal to the product of the Adjusted Value and the number of
shares of Common Stock issued in connection with such exercise.
d. A "Combination Announcement Date" is a date on which
SmarTalk publicly announces an agreement, or a potential acquirer
announces a tender offer, relating to a transaction which if
consummated would be a Combination.
6. Consolidation, Merger, Etc. In case SmarTalk
shall be a party to any transaction providing for (i) any acquisition of
SmarTalk by means of merger or other form of corporate reorganization in which
outstanding shares of SmarTalk are exchanged for securities or other
consideration issued, or caused to be issued, by the acquiring corporation (the
"Acquirer") or its subsidiary or (ii) a sale of all or substantially all of the
assets of SmarTalk (on a consolidated basis) or (iii) any other transaction or
series of related transactions by SmarTalk in which in excess of 50% of
SmarTalk's voting power is transferred to a single entity or group acting in
concert (each of the foregoing being referred to as a "Combination"), until the
Combination is closed (the "Combination Closing"), Xxxxxxxx may choose to
exercise the Investment Rights (in whole or in part). Xxxxxxxx may elect to
exercise the Investment Rights simultaneously with the Combination Closing, in
which event, it shall receive a number of shares of Acquirer Common Stock (as
defined below) and any other consideration that it would have received had it
exercised the Investment Rights immediately prior to the Combination Closing.
On the date of the Combination Closing (the "Combination Closing Date"),
subject to the following sentence, any remaining dollar value of the Investment
Rights that have not been exercised by Xxxxxxxx shall be automatically
15
converted into a right to purchase an equal dollar value of shares of common
stock of the acquiring company on terms identical to those set forth in Section
1.b (and Sections 5.c and 3.A(a), if applicable). On the Combination Closing
Date, in lieu of the preceding sentence at SmarTalk's option, the Acquirer may
repurchase (i) the Initial Investment Right for a number of shares of Acquirer
Common Stock having an aggregate market value on the Combination Closing Date
equal to the sum of (A) the Unamortized Value (as defined below) and (B) the
product of (x) the positive excess of the Closing Price of Common Stock on the
trading day immediately prior to the Combination Closing Date (the "Combination
Price") over the applicable Investment Right Price and (y) the number of shares
of Common Stock that would be issuable in respect of the complete exercise of
the Initial Investment Right; and (ii) if applicable, the Adjustment Right for
a number of shares of Acquirer Common Stock having an aggregate market value on
the Combination Closing Date equal to the sum of (A) the Adjustment Amount and
the Unamortized Value (as defined below), and (B) the product of (x) the
positive excess of the Combination Price over the applicable Adjusted Value and
(y) the number of shares of Common Stock that would be issuable in respect of
the complete exercise of the Adjustment Right . The "Unamortized Value" with
respect to the Initial Investment Right or the Adjustment Right, as applicable,
shall be an amount equal to the product of (x) the unamortized balance as of
the Combination Closing Date declining from the First Value on a straight line
amortization to zero on the respective expiration date of the Investment
Rights, multiplied by (y) a fraction, the numerator of which is the unexercised
amount of the Initial Investment Right or the Adjustment Right, as applicable,
and the denominator of which is $20,000,000 in the case of the Initial
Investment Right, and the original Adjustment Amount in the case of the
Adjustment Right. The "First Value" with respect to the Initial Investment
Right shall be $5 million and with respect to the Adjustment Right shall be 25%
of the Adjustment Amount, and the amortization of the First Value shall
commence on the Closing Date with respect to the Initial Investment Right and
on the Measurement Date with respect to the Adjustment Right. The "Acquirer
Common Stock" shall mean the class of publicly traded common stock of the
Acquirer having the largest market capitalization as of the Combination Closing
Date. All computations in the preceding sentence with respect to the
Investment Right Price and the number of shares of Common Stock issuable shall
be determined as if the Combination Closing Date were the Notice Date.
7. Covenants of SmarTalk. SmarTalk covenants and agrees with
Xxxxxxxx as follows:
a. For so long as Xxxxxxxx owns any Initial
Shares or Additional Shares or any Investment Rights exist, and in any
case for a period of 90 days thereafter, SmarTalk will use its best
efforts to (i) maintain the eligibility of the Common Stock for
quotation on the NASDAQ National Market or listing on a national
securities exchange (as defined in the Exchange Act) and (ii) regain
the eligibility of the Common Stock for quotation on the NASDAQ
16
National Market in the event that the Common Stock is delisted by the
NASDAQ National Market.
b. SmarTalk will provide Xxxxxxxx with an
opportunity to review and comment on any public disclosure by SmarTalk
of information regarding this Agreement and the transactions
contemplated hereby. Beginning on the date hereof and for so long as
any Investment Rights exist, and in any case for a period of 90 days
thereafter, SmarTalk will (i) promptly notify Xxxxxxxx if there is any
public disclosure by SmarTalk of material information regarding
SmarTalk or its financial condition, prospects or results of operation
and (ii) provide Xxxxxxxx with copies of all SEC Filings.
c. As soon as such information is available (but
in no event later than August 1, 1998), SmarTalk shall deliver to
Xxxxxxxx a written notice stating the number of outstanding shares of
Common Stock as of the Closing Date.
d. SmarTalk will make all filings required by
law with respect to the transactions contemplated hereby.
e. SmarTalk will cause the Common Stock issuable
as Additional Shares to be duly listed and admitted for trading on the
NASDAQ National Market or, if the NASDAQ National Market is not then
the principal trading market for the Common Stock, on a national
securities exchange (as defined in the Exchange Act) or the principal
exchange or market for the Common Stock.
f. On the day following the Closing Date,
SmarTalk will make the appropriate filing for the Initial Shares to
become duly listed and admitted for trading on the NASDAQ National
Market and thereafter SmarTalk shall use its best efforts to ensure
that the Initial Shares become listed and admitted for trading as soon
as practicable. In addition, SmarTalk will take all necessary steps
to achieve a waiver of NASDAQ's 15-day holding period. Moreover,
SmarTalk will immediately notify Xxxxxxxx in writing, pursuant to
Section 15, once the shares are duly listed.
g. For a period beginning on the date hereof and
ending on the day which is one year after the Closing Date, SmarTalk
will not offer or sell any of its or its subsidiaries' Preferred
Stock, Common Stock or other equity securities (or any securities
convertible into or exchangeable for such Preferred Stock, Common
Stock or other equity securities) in reliance upon Section 4(2) of the
Securities Act or Regulation D promulgated thereunder or under
Regulation S promulgated under the Securities Act (an "Equity
Placement"), unless SmarTalk shall have given Xxxxxxxx at least eight
business days prior
17
written notice of its intention to engage in any such Equity Placement
or other capital raising transaction in advance of soliciting or
negotiating with any prospective investor and the parties hereto shall
have negotiated in good faith during such eight business days with
respect to any proposed Equity Placement, provided that during such
eight business day period, SmarTalk shall not negotiate with any party
other than Xxxxxxxx with respect to any proposed Equity Placement.
Except during the five trading days immediately prior to and following
the Closing Date and during the three trading days immediately prior
to, and the five trading days immediately following, any Investment
Closing Date, the above restrictions shall not apply to (i) the sale
of securities representing 50% or more of voting power of a subsidiary
of SmarTalk, (ii) any strategic partnership or arrangement or joint
venture entered into by SmarTalk or any of its subsidiaries, (iii) the
merger or consolidation of SmarTalk with or into any other corporation
or entity (other than a merger or consolidation that in substance
results in the issuance of SmarTalk's securities for cash), (iv) any
registered, underwritten public offering of SmarTalk's equity
securities, (v) any issuances of Common Stock (including warrants and
options exercisable for or convertible into Common Stock) in
connection with any employee, consultant or director compensation plan
or arrangement, (vi) any transaction intended to be made in reliance
upon Rule 144A of the Securities Act so long as such transaction
involves more than 10 unaffiliated purchasers; (vii) any acquisition
of any other corporation or entity by SmarTalk or any of its
subsidiaries or merger or consolidation of any other corporation or
entity with or into SmarTalk or any of its subsidiaries, provided such
corporation or entity engages in a substantial trade or business;
(viii) any issuance of warrants or other similar instrument with a
fixed exercise price at or above the then current market price in
connection with the offer and sale of non-convertible debt securities
by SmarTalk, (ix) any issuance in connection with bona fide bank or
equipment financing by or on behalf of SmarTalk or any of its
subsidiaries.
h. If on any Notice Date, the aggregate number of
Additional Shares issuable pursuant to Investment Rights (without regard to any
notice periods), when added to the aggregate number of (i) Initial Shares, (ii)
Additional Shares previously issued and (iii) any other shares of Common Stock
required to be included by NASDAQ, would exceed the number of shares equal to
20% of the total number of shares of Common Stock outstanding (adjusted to
reflect any split, subdivision, combination or consolidation of the Common
Stock, whether by reclassification, distribution of a dividend with respect to
the outstanding Common Stock payable in shares of Common Stock, or otherwise,
or any recapitalization of the Common Stock) on the Closing Date (the "Original
Number") and such circumstance would require the approval (the "Required
Consent") of the holders of the Common Stock pursuant to the listing
requirements or rules of the NASDAQ National Market (or such other national
securities exchange on which the Common Stock is then listed), SmarTalk (A)
shall not issue shares of Common Stock (the "Issuance Blockage") to the extent
that the total
18
number of shares of Common Stock issued hereunder would equal 19.9% of the
Original Number, and (B) shall use its best efforts to obtain, within 90 days
from the Notice Date, the Required Consent approval for the issuance of 20% or
more of SmarTalk's Common Stock under this Agreement. In the event the
Required Consent is not obtained in accordance with the preceding sentence,
Xxxxxxxx shall have the right to convert up to that amount of the Investment
Rights, the exercise of which would result in the total number of shares issued
hereunder to exceed 19.9% of the Original Number into a note (an "Excess Note")
by delivery of an Excess Notice (as defined below) in an amount equal to the
sum of up to (A) the product of (x) the positive excess of the closing price
(the "Excess Closing Price") as reported by Bloomberg of the Common Stock on
the NASDAQ National Market (or such other national securities exchange on which
the Common Stock is then listed) on the Excess Notice Date (as defined below)
over the applicable Investment Right Price and (y) the number of shares of
Common Stock that would be issuable in respect of the complete exercise of the
Initial Investment Right but for the Issuance Blockage, and (B) the Adjustment
Amount. All computations in the preceding sentence with respect to the
Investment Right Price and the number of shares of Common Stock issuable shall
be determined as if the Excess Notice Date were the Notice Date. In addition,
in the event the Required Consent is not obtained and any Excess Note is
outstanding, SmarTalk shall not issue any securities or incur any indebtedness
for borrowed money (other than indebtedness incurred pursuant to a revolving
bank credit agreement which may be entered into either before or after the
Closing Date ("Bank Debt") or in the ordinary course of SmarTalk's business),
except in connection with the repurchase of Excess Notes. The Excess Note(s)
shall be subordinated in right of payment to the Bank Debt, provided that such
subordination shall not affect SmarTalk's obligation to pay such Excess Note(s)
when due. To convert Investment Rights into an Excess Note, Xxxxxxxx shall
deliver one or more written notices in the form attached hereto as Annex D (an
"Excess Notice") to SmarTalk from time to time. The date upon which Xxxxxxxx
causes an Excess Notice to be delivered to SmarTalk, by hand, facsimile,
electronic transmission or otherwise, shall be the "Excess Notice Date" with
respect to such exercise of the Investment Rights, which date shall be deemed
to be an Investment Closing Date for purposes of Section 3 hereof. Each Excess
Note shall be due and payable eighteen months after the date of issuance and
bear interest at an interest rate of 10% per annum for the first six months,
and 15% per annum thereafter. Notwithstanding anything else in this section
7(h), if at any time Xxxxxxxx delivers an Investment Notice and SmarTalk is
unable to issue all or any portion of the shares identified therein as a result
of the Issuance Blockage, SmarTalk shall issue to Xxxxxxxx an Excess Note in
amount equal to the sum of (A) the product of (x) the positive excess of the
closing price as reported by Bloomberg of the Common Stock on the NASDAQ
National Market (or such other national securities exchange on which the Common
Stock is then listed) on the Excess Notice Date over the applicable Investment
Right Price and (y) the number of shares of Common Stock that would be issuable
in respect of such exercise of the Initial Investment Right but for the
Issuance Blockage, and (B) the Adjustment Amount identified in such Investment
Notice for which shares of Common Stock are not issued
19
as a result of the Issuance Blockage; provided that, for such purpose the
shares issuable upon the exercise of the Adjustment Right shall be issued in
full prior to the issuance of any shares issuable with respect to the exercise
of the Initial Investment Right.
8. Covenants of Xxxxxxxx. Xxxxxxxx hereby covenants and
agrees with SmarTalk as follows:
a. Neither Xxxxxxxx nor any of its affiliates nor any
person acting on its or their behalf will at any time offer or sell any Initial
Shares or any Additional Shares other than pursuant to registration under the
Securities Act or pursuant to an available exemption therefrom.
x. Xxxxxxxx will provide SmarTalk with an opportunity to
review and comment on its filings pursuant to Regulation 13D-G under the
Exchange Act regarding this Agreement and the transactions contemplated hereby.
c. For a period of 45 calendar days commencing on the
Closing Date, neither Xxxxxxxx nor any of its affiliates shall sell short any
shares of Common Stock of SmarTalk.
8.A. Legend. Subject to Section 3.A., Xxxxxxxx
understands that the certificates or other instruments representing the Initial
Shares and the Additional Shares shall bear a restrictive legend in
substantially the following form (and a stop transfer order may be placed
against transfer of such certificates or other instruments):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and SmarTalk shall
issue a certificate without such legend to any holder of Initial Shares or
Additional Shares if, unless otherwise required by state securities laws, (a)
such shares are sold pursuant to an effective registration statement under the
Securities Act, or (b) such holder provides SmarTalk with assurances reasonably
satisfactory to SmarTalk that such shares may be publicly sold pursuant to Rule
144 (or similar regulation hereinafter adopted) without restriction.
8.B. Adjustments. In the event that SmarTalk shall
declare a dividend or make a distribution on or with respect to the outstanding
shares of its Common Stock
20
in shares of its Common Stock, subdivide its outstanding shares of Common Stock
into a greater number of shares, or combine its outstanding shares of Common
Stock into a smaller number of shares, then, in each such event, the number of
shares issuable and the per share price stated in this Agreement (including
without limitation the calculation of the Adjusted Price) in effect at the time
of the record date for such dividend or distribution or the effective date of
such subdivision or combination shall be proportionately adjusted, if
necessary, as determined in good faith by the Board of Directors of SmarTalk,
so that Xxxxxxxx shall be entitled to receive the aggregate number of shares of
Common Stock that Xxxxxxxx would have received immediately following such
action if Xxxxxxxx had exercised its rights immediately prior to such action.
Such adjustment shall be made successively whenever any event specified above
shall occur.
9. Conditions Precedent to Xxxxxxxx'x Obligations. The
obligations of Xxxxxxxx hereunder are subject to the performance by SmarTalk of
its obligations hereunder and to the satisfaction of the following additional
conditions precedent, unless expressly waived in writing by Xxxxxxxx:
a. On the Closing Date, the Measurement Date and each
Investment Closing Date, if any, (i) to the extent provided in Section
3 hereof, the representations and warranties made by SmarTalk in this
Agreement shall be true and correct, and (ii) SmarTalk shall have
complied fully with all the covenants and agreements in this
Agreement; and Xxxxxxxx shall have received on each such date a
certificate of the Chief Executive Officer or the Chief Financial
Officer of SmarTalk dated such date and to such effect.
b. On the Closing Date, the Measurement Date and each
Investment Closing Date, if any, SmarTalk shall have delivered to
Xxxxxxxx an opinion of the general counsel reasonably satisfactory to
Xxxxxxxx, dated the date of delivery, confirming in substance the
matters covered in paragraphs (a), (b), (c), (d), (e), (f), and (h) of
Section 3 hereof, provided that such opinion need not address such
matters to the extent that such matters are addressed in the opinion
of Xxxxx Xxxxxxxxxx LLP.
c. On the Closing Date, SmarTalk shall have delivered to
Xxxxxxxx an opinion of Xxxxx Xxxxxxxxxx LLP reasonably satisfactory to
Xxxxxxxx, dated the date of delivery, to the effect that the offer and
sale of the Initial Shares hereunder do not require registration under
the Securities Act.
d. On each Investment Closing Date, if any, SmarTalk
shall have delivered to Xxxxxxxx an opinion of Xxxxx Xxxxxxxxxx LLP
reasonably satisfactory to Xxxxxxxx, dated the date of delivery, to
the effect that the offer and sale of the Additional Shares to
Xxxxxxxx do not require registration under the Securities Act.
21
e. In addition, as of the Closing Date SmarTalk shall
have delivered an opinion of Xxxxx Xxxxxxxxxx LLP or other counsel
reasonably satisfactory to Xxxxxxxx, dated the date of delivery,
confirming in substance the matter covered in paragraphs (a), (b),
(c), (e)(1)(A) (only as to SmarTalk), and (f) (only as to rights under
general corporation law, the Articles of Incorporation, and the
By-Laws) of Section 3 hereof.
10. Conditions Precedent to SmarTalk's Obligations. The
obligations of SmarTalk hereunder are subject to the performance by Xxxxxxxx of
its obligations hereunder and to the satisfaction of the following additional
conditions precedent, unless expressly waived in writing by SmarTalk:
a. On the Closing Date and each Additional Investment
Date, if any, (i) the representations and warranties made by Xxxxxxxx
in this Agreement shall be true and correct, and (ii) Xxxxxxxx shall
have complied fully with all the covenants and agreements in this
Agreement; and SmarTalk shall have received on each such date a
certificate of an appropriate officer of Xxxxxxxx dated such date and
to such effect.
11. Fees and Expenses. Each of Xxxxxxxx and SmarTalk
agrees to pay its own expenses incident to the performance of its obligations
hereunder, including, but not limited to the fees, expenses and disbursements
of such party's counsel, except as is otherwise expressly provided in this
Agreement.
12. Non-Performance.
If, on the date hereof, on the Closing Date, or on any
Additional Investment Date, SmarTalk shall fail to deliver the Initial Shares
or Additional Shares to Xxxxxxxx required to be delivered pursuant to this
Agreement for any reason other than the failure of any condition precedent to
SmarTalk's obligations hereunder or the failure by Xxxxxxxx to comply with its
obligations hereunder, then SmarTalk shall:
a. hold Xxxxxxxx harmless against any loss, claim or
damage (including without limitation, incidental and consequential
damages) arising from or as a result of such failure by SmarTalk; and
b. reimburse Xxxxxxxx for all of its reasonable
out-of-pocket expenses, including fees and disbursements of its
counsel, incurred by Xxxxxxxx in connection with this Agreement and
the transactions contemplated herein and therein;
provided, however, that SmarTalk shall then be under no further liability to
Xxxxxxxx except as provided in this Section 12 and Section 13 hereof.
22
13. Indemnification.
a. Indemnification of Xxxxxxxx. SmarTalk hereby agrees
to indemnify Xxxxxxxx and each of its officers, directors, employees,
agents and affiliates and each person that controls (within the
meaning of Section 20 of the Exchange Act) any of the foregoing
persons (each a "Xxxxxxxx Indemnified Party") against any claim,
demand, action, liability, damages, loss, cost or expense (including,
without limitation, reasonable legal fees) (a "Proceeding"), that it
may incur in connection with any of the transactions contemplated
hereby arising out of or based upon:
(1) any untrue or alleged untrue statement
of a material fact in an SEC filing or this Agreement by
SmarTalk or any of its affiliates or any person acting on its
or their behalf or omission or alleged omission to state
therein or herein any material fact necessary in order to make
the statements, in the light of the circumstances under which
they were made, not misleading by SmarTalk or any of its
affiliates or any person acting on its or their behalf;
(2) any of the representations or warranties
made by SmarTalk herein being untrue or incorrect at the time
such representation or warranty was made; and
(3) any breach or non-performance by
SmarTalk of any of its covenants, agreements or obligations
under this Agreement;
and SmarTalk hereby agrees to reimburse each Xxxxxxxx Indemnified
Party for any reasonable legal or other expenses incurred by such
Xxxxxxxx Indemnified Party in investigating or defending any such
Proceeding;
provided, however, that the foregoing indemnity shall not apply to any
Proceeding to the extent that it arises out of or is based upon the
gross negligence or wilful misconduct of Xxxxxxxx in connection
therewith. Furthermore, the foregoing indemnity rights will not take
effect unless or until the total amount of the indemnification is
$10,000.
b. Indemnification of SmarTalk. Xxxxxxxx hereby agrees
to indemnify SmarTalk and each of its officers, directors, employees,
agents and affiliates and each person that controls (within the
meaning of Section 20 of the Exchange Act) any of the foregoing
persons (each a "SmarTalk Indemnified Party") against any Proceeding,
that it may incur in connection with any of the transactions
contemplated hereby arising out of or based upon:
23
(1) any untrue or alleged untrue statement
of a material fact by Xxxxxxxx or any of its affiliates or any
person acting on its or their behalf or omission or alleged
omission to state any material fact necessary in order to make
the statements, in the light of the circumstances under which
they were made, not misleading by Xxxxxxxx or any of its
affiliates or any person acting on its or their behalf;
(2) any of the representations or warranties
made by Xxxxxxxx herein being untrue or incorrect; and
(3) any breach or non-performance by
Xxxxxxxx of any of its covenants, agreements or obligations
under this Agreement;
and Xxxxxxxx hereby agrees to reimburse each SmarTalk Indemnified
Party for any reasonable legal or other expenses incurred by such
SmarTalk Indemnified Party in investigating or defending any such
Proceeding;
provided, however, that the foregoing indemnity shall not apply to any
Proceeding to the extent that it arises out of or is based upon the
gross negligence or wilful misconduct of SmarTalk in connection
therewith. Furthermore, the foregoing indemnity rights will not take
effect unless or until the total amount of the indemnification is
$10,000.
c. Conduct of Claims.
(1) Whenever a claim for indemnification
shall arise under this Section, the party seeking
indemnification (the "Indemnified Party"), shall notify the
party from whom such indemnification is sought (the
"Indemnifying Party") in writing of the Proceeding and the
facts constituting the basis for such claim in reasonable
detail;
(2) Upon delivery of such notice, such
Indemnified Party shall have a duty to take all reasonable
steps to mitigate any losses, liabilities, costs, charges and
expenses relating to any such Proceeding;
(3) Such Indemnifying Party shall have the
right to retain the counsel of its choice in connection with
such Proceeding and to participate at its own expense in the
defense of any such Proceeding; provided, however, that
counsel to the Indemnifying Party shall not (except with the
consent of the relevant Indemnified Party) also be counsel to
such Indemnified Party. In no event shall the Indemnifying
Party be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from its own
counsel for all Indemnified Parties in connection with any one
action or separate but
24
similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances; and
(4) No Indemnifying Party shall, without the
prior written consent of the Indemnified Parties (which
consent shall not be unreasonably withheld), settle or
compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened,
or any claim whatsoever in respect of which indemnification
could be sought under this Section unless such settlement,
compromise or consent (A) includes an unconditional release of
each Indemnified Party from all liability arising out of such
litigation, investigation, proceeding or claim and (B) does
not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any
Indemnified Party.
14. Survival of the Representations, Warranties, etc. The
respective representations, warranties, and agreements made herein by or on
behalf of the parties hereto shall remain in full force and effect, regardless
of any investigation made by or on behalf of the other party to this Agreement
or any officer, director or employee of, or person controlling or under common
control with, such party and will survive delivery of and payment for any
Additional Shares issuable hereunder.
15. Notices. All communications hereunder shall be in writing, and
a. if sent to Xxxxxxxx, shall be delivered by
hand, sent by registered mail or transmitted and confirmed by
facsimile to Xxxxxxxx, unless otherwise notified in writing of
a substitute address, at:
Original Copy:
--------------
Xxxxxxxx International Limited
c/o Midland Bank Trust Corporation (Cayman) Limited
X.X. Xxx 0000
Xxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxx Xxxxxxx, B.W.I.
Attn: Xxxxxx Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxxx Asset Management
000 Xxxxx Xxxxxx, 00xx Xxxxx
00
Xxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
0000 Xxx Xxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxxx X. Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
b. if sent to SmarTalk, shall be delivered by
hand, sent by registered mail or transmitted and confirmed by
facsimile to SmarTalk, unless otherwise notified in writing of
a substitute address, at:
SmarTalk TeleServices, Inc.
0000 Xxxxxx Xxxxxxxx Xxxx.
Xxxxxx, Xxxx 00000
Attention: General Counsel
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxx Xxxxxxxxxx LLP
000 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
To the extent that any funds shall be delivered to
SmarTalk by wire transfer, unless otherwise
instructed by SmarTalk, such funds should be
delivered in accordance with the following wire
instructions:
SmarTalk TeleServices, Inc.
Acct# 004124294
ABA# 000000000
Bank: Southern California Bank, Downey, CA
26
16. Miscellaneous
a. This Agreement may be executed in one or more
counterparts and it is not necessary that signatures of all parties
appear on the same counterpart, but such counterparts together shall
constitute but one and the same agreement.
b. This Agreement shall inure to the benefit of and be
binding upon the parties hereto, their respective successors and
assigns and, with respect to Section 13 hereof, their respective
officers, directors, employees, agents, affiliates and controlling
persons, and no other person shall have any right or obligation
hereunder. SmarTalk may not assign this Agreement. Xxxxxxxx may
assign any of its rights, in whole or in part, at its sole discretion
(including, without limitation, the Investment Rights); provided that
in connection with any such assignment, Xxxxxxxx shall obtain a
representation from the assignee for the express benefit of SmarTalk
to the effect that, as of the date of such assignment and giving
effect thereto, such person or entity beneficially owns no more than
14.9% of SmarTalk's outstanding common stock.
c. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of New York, and each
of the parties hereto hereby submits to the non-exclusive jurisdiction
of any State or Federal court in the State of New York and any court
hearing any appeal therefrom, over any suit, action or proceeding
against it arising out of or based upon this Agreement (a "Related
Proceeding"). Each of the parties hereto hereby waives any objection
to any Related Proceeding in such courts whether on the grounds of
venue, residence or domicile or on the ground that the Related
Proceeding has been brought in an inconvenient forum.
d. This Agreement shall not limit SmarTalk's ability to
issue options under or to enter into, adopt or amend any stock option,
bonus, incentive, deferred compensation, hospitalization, medical
insurance, severance or other plan, fund, program or policy providing
director, officer, employee or similar person benefits maintained or
contributed to by SmarTalk in the ordinary course of business
consistent with past practice.
e. This Agreement shall not limit SmarTalk's ability to
adopt a shareholders rights plan or similar agreement or arrangement
(any of which, a "Rights Plan") provided that SmarTalk shall not adopt
a Rights Plan unless in connection therewith SmarTalk delivers to
Xxxxxxxx a legal opinion from outside counsel reasonable satisfactory
to Xxxxxxxx confirming that no Xxxxxxxx Party (as defined below) shall
be adversely affected by such Rights Plan either at such time or with
the passage of time, as a result of its being the beneficial owner of
any securities issued or issuable pursuant to this Agreement (any such
securities, "Xxxxxxxx Securities," including any Common Stock which
have been or may be issued upon exercise of the Investment Rights),
where a "Xxxxxxxx Party" shall
27
include (i) Xxxxxxxx, Xxxxxxxx Asset Management, Inc., Polaris Fund,
L.P., and The Xxxxxxxx Fund, L.P., (ii) any Affiliate of Xxxxxxxx,
(iii) any creditor of Xxxxxxxx who acquires Xxxxxxxx Securities upon
the exercise of creditor rights in connection with a bona fide credit
arrangement, and (iv) any other person who acquires Xxxxxxxx
Securities; provided, that such person stated or intends to state in a
timely fashion in a filing pursuant to Regulation 13D-G under the
Securities Exchange Act of 1934, as amended, or any successor
provision thereto, that such person has acquired such securities in
the ordinary course of business and not with the purpose or effect of
changing or influencing control of SmarTalk, nor in connection with or
as a participant in any transaction having such purpose or effect,
including any transaction subject to Rule 13d-3(b).
SmarTalk shall not take any actions inconsistent with the
rights of Xxxxxxxx Parties as of the Closing Date.
f. The headings of the sections of this document have
been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement. This Agreement constitutes the
entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties hereto with
respect to the subject matter of this Agreement. This Agreement is
not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder or under the terms of the term sheets
between such parties.
17. Time of Essence. Time shall be of the essence in
this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement, all as of the day and year first above written.
SMARTALK TELESERVICES, INC.
By:
------------------------------------
Name:
Title:
XXXXXXXX INTERNATIONAL LIMITED
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
28
ANNEX A
[FORM OF INVESTMENT NOTICE]
_____________, __
SmarTalk TeleServices, Inc.
[ADDRESS]
Ladies and Gentlemen:
Xxxxxxxx International Limited ("Xxxxxxxx") hereby elects to
exercise the _________ Right (as defined in the Subscription Agreement (the
"Agreement") dated as of July ____, 1998 by and between SmarTalk TeleServices,
Inc. ("SmarTalk") and Xxxxxxxx) and, if applicable, herewith tenders $_________
by check or wire transfer to the account of SmarTalk as payment for __________
Additional Shares in accordance with the terms of the Agreement. Capitalized
terms not otherwise defined herein shall have the meanings ascribed thereto in
the Agreement.
In accordance with the terms of the Agreement, the Investment
Closing Date shall be ___________, and the total number of Additional Shares
issuable in respect of this exercise is ________________. Xxxxxxxx requests
that stock certificates representing the Additional Shares purchased hereby be
registered in the name of Xxxxxxxx and delivered to the following address in
accordance with the terms of the Agreement:
[To Come]
XXXXXXXX INTERNATIONAL LIMITED
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
AGREED AND ACKNOWLEDGED:
SMARTALK TELESERVICES, INC.
By:
------------------------------------
Name:
Title:
29
ANNEX B
[FORM OF INITIAL SHARE DELIVERY NOTICE]
Xxxxxxxx International Limited
c/o Fletcher Asset Management
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
RE: Subscription Agreement (the "Agreement") dated July , 1998
by and between Xxxxxxxx International Limited ("Xxxxxxxx") and
SmarTalk TeleServices, Inc. ("SmarTalk").
Ladies and Gentlemen:
Attached are copies of each of the original stock certificates
representing the __________ Initial Shares (as defined in the Agreement)
purchased by Xxxxxxxx, together with a copy of the overnight courier air xxxx
which will be used to ship the certificates. We have the executed originals of
the stock certificates and other documents required to be delivered in
connection with the Closing. Upon our confirmation of the payment of the
$_____________ Initial Aggregate Price by Xxxxxxxx to SmarTalk, for the Initial
Shares on the Closing Date, we will send the original stock certificates by
overnight courier to the following address:
Xxxxxx Brothers, Inc.
3 World Financial Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxx, Prime Broker Services
Telephone: (000) 000-0000
and we will send the other original documents by overnight courier to the
following address:
Xxxxxxxx International Limited
c/o Midland Bank Trust Corporation (Cayman) Limited
X.X. Xxx 0000
Xxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxx Xxxxxxx, B.W.I.
Attn: Xxxxxx Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxxx International Limited
c/o Fletcher Asset Management
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Capitalized terms not otherwise defined in this letter have the
meanings set forth in the Agreement.
Very truly yours,
SMARTALK TELESERVICES, INC.
30
ANNEX C
[FORM OF ADDITIONAL SHARE DELIVERY NOTICE]
Xxxxxxxx International Limited
c/o Fletcher Asset Management
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
RE: Subscription Agreement (the "Agreement") dated July , 1998
by and between Xxxxxxxx International Limited ("Xxxxxxxx") and
SmarTalk TeleServices, Inc. ("SmarTalk").
Ladies and Gentlemen:
Attached are copies of the original stock certificates representing
the __________ Additional Shares (as defined in the Agreement) purchased by
Xxxxxxxx, together with a copy of the overnight courier air xxxx which will be
used to ship the certificates. We have the executed originals of the stock
certificates and other documents required to be delivered in connection with
the Investment Closing. Upon our confirmation of the payment of the
$_____________ aggregate Investment Right Price by Xxxxxxxx to SmarTalk, if
applicable, for the Additional Shares on the Notice Date, we will send the
stock certificates by overnight courier to the following address:
[To Come]
and we will send the other original documents by overnight courier to the
following address:
Xxxxxxxx International Limited
c/o Midland Bank Trust Corporation (Cayman) Limited
X.X. Xxx 0000
Xxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxx Xxxxxxx, B.W.I.
Attn: Xxxxxx Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxxx International Limited
c/o Fletcher Asset Management
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Capitalized terms not otherwise defined in this letter have the
meanings set forth in the Agreement.
Very truly yours,
SMARTALK TELESERVICES, INC.
31
ANNEX D
[FORM OF EXCESS NOTES NOTICE]
_____________, __
SmarTalk TeleServices, Inc.
[ADDRESS]
Ladies and Gentlemen:
Xxxxxxxx International Limited ("Xxxxxxxx") hereby elects to
exercise its right to convert some or all of its Investment Rights (as defined
in the Subscription Agreement (the "Agreement") dated as of July ____, 1998 by
and between SmarTalk TeleServices, Inc. ("SmarTalk") and Xxxxxxxx) and, in
lieu of receipt of ________ shares of Common Stock, hereby requests issuance of
an Excess Note in the amount of $________ in accordance with the terms of the
Agreement. Capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Agreement.
Xxxxxxxx requests that the Excess Notes be registered in the
name of Xxxxxxxx and delivered to the following address in accordance with the
terms of the Agreement:
[To Come]
XXXXXXXX INTERNATIONAL LIMITED
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
AGREED AND ACKNOWLEDGED:
SMARTALK TELESERVICES, INC.
By:
------------------------------------
Name:
Title:
