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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1998
REGISTRATION NO. 333-42857
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SMARTALK TELESERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA(1) 4899 95-4502740
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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1640 SOUTH SEPULVEDA BOULEVARD, SUITE 500
LOS ANGELES, CALIFORNIA 90025
(310) 444-8800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID A. HAMBURGER
1640 SOUTH SEPULVEDA BOULEVARD, SUITE 500
LOS ANGELES, CALIFORNIA 90025
(310) 444-8800
(NAME AND ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
COPY TO:
ROBERT M. SMITH
DEWEY BALLANTINE LLP
333 SOUTH HOPE STREET
LOS ANGELES, CALIFORNIA 90071
(213) 626-3399
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(2) PRICE(2) REGISTRATION FEES
- ------------------------------------------------------------------------------------------------------
Common Stock, no par value per
share....................... 2,580,001 100% $60,952,524 $17,981
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(1) The Registrant's state of incorporation will change from California to
Delaware if a proposal to effect the reincorporation of SmarTalk
TeleServices, Inc. is approved by the shareholders of the Registrant. In
such event, the Registrant will be a Delaware corporation.
(2) Based upon the average of the high and low sale price of the Common Stock as
reported by the Nasdaq Stock Market's National Market on December 15, 1997,
estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED JANUARY 7, 1998
PROSPECTUS
SMARTALK TELESERVICES, INC.
2,580,001 SHARES OF COMMON STOCK
The shares offered hereby (the "Registrable Shares") consist of 2,580,001
shares of common stock, no par value per share (the "Common Stock"), of SmarTalk
TeleServices, Inc., a California corporation ("SmarTalk" or the "Company"),
which are owned by the selling shareholders listed herein under "Selling
Security Holders" (collectively, the "Selling Shareholders"). The Registrable
Shares may be offered from time to time by the Selling Shareholders for a period
not to exceed two years after the date of this Prospectus, except as may be
limited by SmarTalk in accordance with the Registration Rights Agreement dated
May 31, 1997 by and among SmarTalk, William R. Harger and Waterton Investment
Group I, LLC (the "Registration Rights Agreement"). SmarTalk shall pay its own
legal and accounting fees, all registration and filing fees attributable to the
registration of the Registrable Shares, all legal fees and filing fees relating
to state securities or "blue sky" filings, the filing fee payable to the Nasdaq
Stock Market's National Market ("Nasdaq") and all printing fees incurred in
connection herewith. SmarTalk shall reimburse the Selling Shareholders for the
reasonable fees and disbursements of not more than one counsel chosen by the
holders of a majority in number of the Registrable Shares. SmarTalk will not
receive any of the proceeds from the sale of the Registrable Shares by the
Selling Shareholder.
The Selling Shareholders have not informed SmarTalk of any specific plans
for the distribution of the Registrable Shares covered by this Prospectus, but
it is anticipated that the Registrable Shares will be sold from time to time
primarily in transactions (which may include block transactions) on Nasdaq at
the market price then prevailing, although sales may also be made in negotiated
transactions or otherwise. The Selling Shareholders and the brokers and dealers
through whom sale of the Registrable Shares may be made may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and their commissions or discounts and other compensation may
be regarded as underwriters' compensation. See "Plan of Distribution."
On January 6, 1998, the last reported sale price of the Company's Common
Stock on Nasdaq (where it trades under the symbol "SMTK") was $24.875 per share.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE PROSPECTUS FOR
CERTAIN INFORMATION RELATING TO THE SALE OF THE COMMON STOCK.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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January 7, 1998
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AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC" or the "Commission"). Reports,
proxy statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained by mail from the Public Reference
Section of the Commission at 450 West Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The reports, proxy statements and other information
may also be obtained from the Web site that the Commission maintains at
http://www.sec.gov. SmarTalk Common Stock is listed on Nasdaq and such materials
may be inspected at the offices of Nasdaq, National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which were
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission
are not necessarily complete, and in each instance reference is made to the copy
of such document so filed. Each such statement is qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
1. The description of the Company's Common Stock (the "Common Stock")
contained in the Company's Registration Statement on Form S-1, filed
October 23, 1996;
2. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
3. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997;
4. The Company's Current Reports on Form 8-K dated May 28, 1997 (as amended
on Form 8-K/A), June 1, 1997 (as amended on Form 8-K/A), July 30, 1997,
September 17, 1997, November 6, 1997, November 24, 1997 and December 22,
1997; and
5. The Company's Proxy Statement for the 1997 Annual Meeting of the
SmarTalk shareholders.
All other documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the filing of a post-effective amendment which indicates that all securities
offered have been sold or which deregisters all securities then remaining
unsold, shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date of filing such documents.
Any statement contained in this Prospectus or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of Registrable Shares, to whom a copy of this Prospectus is
delivered, upon the written or oral request of such person, a copy of any and
all information that has been incorporated by reference in the Prospectus not
including exhibits to
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the information that is incorporated by reference (unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
directed to David A. Hamburger, the Company's Vice President -- Legal Affairs,
General Counsel and Assistant Secretary, at the Company's principal executive
offices located at 1640 South Sepulveda Boulevard, Suite 500, Los Angeles,
California 90025. The telephone number is (310) 444-8800.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein regarding matters that are not
historical facts are forward-looking statements (within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act). Because such
forward-looking statements include risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, those discussed under "RISK FACTORS."
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RISK FACTORS
Prospective investors should carefully consider the risk factors set forth
below, as well as the other information contained in this Prospectus, in
evaluating an investment in the securities offered hereby. This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in this Prospectus.
Acquisition Strategy. The Company regularly pursues opportunities to expand
through acquisitions. The Company plans to continue to seek acquisitions that
complement its services, broaden its consumer base and improve its operating
efficiencies. Acquisitions may result in potentially dilutive issuances of
equity securities, the incurrence of additional debt and the amortization of
expenses related to goodwill and other intangible assets, all of which could
have a material adverse effect on the Company. Acquisitions also involve
numerous additional risks, including difficulties in assimilation of the
operations, services, products and personnel of the acquired company, which
could result in charges to earnings or otherwise adversely affect the Company's
operating results. For instance, there can be no assurance that the anticipated
benefits of the SmarTel Communications, Inc., a Delaware corporation ("SmarTel")
and GTI Telecom, Inc., a Florida corporation ("GTI") acquisitions (the "SmarTel
Acquisition" and the "GTI Acquisition", respectively) will be realized or that
the combination of the Company and SmarTel and GTI will be successful. There can
be no assurance that acquisition opportunities will continue to be available,
that the Company will have access to the capital required to finance potential
acquisitions, that the Company will continue to acquire businesses or that any
acquired businesses will be profitable.
Ability to Integrate the Operations of SmarTalk, SmarTel and GTI. SmarTalk
recently acquired SmarTel and GTI. Because the markets in which SmarTalk,
SmarTel and GTI operate are highly competitive and because of the inherent
uncertainties associated with merging three companies, there can be no assurance
that SmarTalk will be able to realize fully the operating efficiencies the
Company currently expects to realize as a result of the mergers and the
consolidation of the administrative operations of the Company, SmarTel and GTI
or that such operating efficiencies will be realized in the time frame currently
anticipated.
Uncertainties Regarding Recent Acquisitions. On December 9, 1997, SmarTalk
acquired selected assets of the retail prepaid phone card business of Frontier
Corporation, a New York corporation (the "Frontier Selected Assets"). On
December 31, 1997, SmarTalk acquired Conquest Telecommunication Services Corp.,
a Delaware corporation ("ConQuest"), and American Express Telecom, Inc., a
Delaware corporation ("Amex"). There can be no assurance that the anticipated
benefits of the acquisitions of ConQuest, Amex and the Frontier Selected Assets
will be realized. In addition, there can be no assurance that the Company will
not experience difficulties in integrating the operations of ConQuest, Amex and
the Frontier Selected Assets with those of the Company.
Limited Operating History; Net Losses; Ability to Utilize Net Operating
Loss Carry-Forwards; Accumulated Deficit. The Company was formed in October 1994
and has had only a limited operating history upon which investors may base an
evaluation of its performance. As a result of operating expenses and development
expenditures, the Company has incurred significant operating and net losses to
date. Net losses for the period ended December 31, 1994, the years ended
December 31, 1995 and 1996, and for the nine months ended September 30, 1997
were approximately $65,000, $1,300,000, $3,100,000 and $500,000, respectively.
In addition, the ability of the Company or the Company's subsidiaries, as the
case may be, to utilize their net operating loss carry-forwards to offset future
taxable income may be subject to certain limitations contained in the Internal
Revenue Code of 1986, as amended, which may have a material adverse effect on
the Company. As of September 30, 1997, the Company had an accumulated deficit of
approximately $7,500,000.
Competition. The telecommunications services industry is highly
competitive, rapidly evolving and subject to constant technological change.
Today there are numerous companies selling prepaid calling cards, and the
Company expects competition to increase in the future. Other providers currently
offer one or more of each of the services offered by the Company. As a service
provider in the long distance telecommunications industry, the Company competes
with three dominant providers, AT&T Corp., MCI Communications Corporation
("MCI") and Sprint Corporation, all of which are substantially larger and have:
(i) greater financial, technical, engineering, personnel and marketing
resources; (ii) longer operating histories; (iii) greater name recognition; and
(iv) larger consumer bases than the Company. These advantages afford
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the Company's competitors pricing flexibility. Telecommunications services
companies may compete for consumers based on price, with the dominant providers
conducting extensive advertising campaigns to capture market share. Competitors
with greater financial resources may also be able to provide more attractive
incentive packages to retailers to encourage them to carry products that compete
with the Company's services. In addition, competitors with greater resources
than the Company may be better situated to negotiate favorable contracts with
retailers. The Company believes that existing competitors are likely to continue
to expand their service offerings to appeal to retailers and their consumers.
Moreover, since there are few, if any, substantial barriers to entry, the
Company expects that new competitors are likely to enter the telecommunications
market and attempt to market telecommunications services similar to the
Company's services, which would result in greater competition.
The ability of the Company to compete effectively in the telecommunications
services industry will depend upon the Company's continued ability to provide
high quality services at prices generally competitive with, or lower than, those
charged by its competitors. Certain of the Company's competitors dominate the
telecommunications industry and have the financial resources to enable them to
withstand substantial price competition, which is expected to increase
significantly, and there can be no assurance that the Company will be able to
compete successfully in the future. Moreover, there can be no assurance that
certain of the Company's competitors will not be better situated to negotiate
contracts with suppliers of telecommunications services which are more favorable
than contracts negotiated by the Company. In addition, there can be no assurance
that competition from existing or new competitors or a decrease in the rates
charged for telecommunications services by the major long distance carriers or
other competitors would not have a material adverse effect on the Company.
Rapid Technological Change; Dependence on New Services. The
telecommunications services industry is characterized by rapid technological
change, new product introduction and evolving industry standards. The Company's
success will depend, in significant part, on its ability to make timely and
cost-effective enhancements and additions to its technology and introduce new
services that meet consumer demands. The Company expects new products and
services, and enhancements to existing products and services, to be developed
and introduced to compete with the Company's services. The proliferation of new
telecommunication technology, including personal communication services and
voice communication over the Internet, may reduce demand for long distance
services, including prepaid calling cards. There can be no assurance that the
Company will be successful in developing and marketing new services or
enhancements to services that respond to these or other technological changes or
evolving industry standards. In addition, there can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of its existing services or
that its new services or enhancements thereto will adequately meet the
requirements of the marketplace and achieve market acceptance. Delay in the
introduction of new services or enhancements, the inability of the Company to
develop such new services or enhancements or the failure of such services or
enhancements to achieve market acceptance could have a material adverse effect
on the Company.
Volatility of Stock Price. The market price of the Common Stock has been
highly volatile and may continue to be subject to wide fluctuations in response
to quarterly variations in operating results, changes in financial estimates by
securities analysts, or other events or factors. In addition, the U.S. stock
market has experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of many
telecommunications companies and that often have been unrelated to the operating
performance of such companies. These broad market fluctuations may adversely
affect the market price of the Common Stock.
Difficulties of Managing Rapid Growth. Although the Company has experienced
substantial growth in revenue in the last year and intends to continue to grow
rapidly, there can be no assurance that the growth experienced by the Company
will continue or that the Company will be able to achieve the growth
contemplated by its business strategy. The Company's ability to continue to grow
may be affected by various factors, many of which are not within the Company's
control, including competition and federal and state regulation of the
telecommunications industry. This growth has placed, and is expected to continue
to place, significant demands on all aspects of the Company's business,
including its administrative, technical and financial personnel and systems. The
Company's future operating results will substantially depend on the ability of
its officers and key employees to manage such anticipated growth, to attract and
retain additional
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highly qualified management, technical and financial personnel, and to implement
and/or improve its technical, administrative, financial control and reporting
systems. The Company's financial controls and reporting systems will require
enhancement and substantial investment in the future to accommodate the
Company's anticipated growth. There can be no assurance that the Company will
not encounter difficulties in expanding its financial controls and reporting
systems to meet the Company's future needs. If the Company is unable to respond
to and manage changing business conditions, then the quality of services, its
ability to retain key personnel and its results of operations could be
materially adversely affected. Difficulties in managing continued growth could
have a material adverse effect on the Company.
Dependence on Major Retailers. Currently, the SmarTalk TeleServices Card
(the "SmarTalk Card") is sold at selected retail locations throughout the U.S.,
including locations operated by the following leading retailers: American Stores
(which includes Jewel/Osco Combo Stores, Osco Drug Stores, Sav-On Drug Stores
and Acme Grocery), Bergen Brunswig Drug Company (Good Neighbor Pharmacies), Best
Buy, Bradlees, Builders Square, Dayton's, Dominick's Finer Foods, Eckerd Drug,
Food4Less, Future Shop, The Good Guys, Nix Check Cashing, Office Depot,
OfficeMax, Pamida, Penn Daniels, Ralphs Supermarkets, Service Merchandise,
Staples, Star Market, Stop & Shop, Thrifty Oil and Venture Stores. The Company's
arrangements with retailers are often pursuant to short-term arrangements. If
the Company is unsuccessful in providing competitive pricing, meeting the
requirements of its retailers, developing new products that are attractive to
such retailers or complying with the terms of its arrangements with such
retailers, such retailers may fail to market aggressively the Company's services
or may terminate their relationships with the Company, either of which could
have a material adverse effect on the Company. Substantially all of the
Company's revenue to date has been derived from the sale of the SmarTalk Card to
retailers. Certain of those retailers have, from time to time, accounted for a
significant percentage of the Company's revenue. The inability of any such
retailer to pay the Company for cards shipped or the loss of any such retailer
could have a material adverse effect on the Company.
Dependence on Key Management and Personnel. The Company's success is
largely dependent upon its executive officers, the loss of one or more of whom
could have a material adverse effect on the Company. The Company believes that
its continued success will depend to a significant extent upon the efforts and
abilities of Robert H. Lorsch, Chairman of the Board and Chief Executive
Officer, Erich L. Spangenberg, Vice Chairman of the Board and Chief Operating
Officer, Jeff Lindauer, President, and Richard M. Teich, Executive Vice
President. Although the Company believes that it would be able to locate
suitable replacements for these executives if their services were lost, there
can be no assurance it would be able to do so. Accordingly, the loss of services
of any of these individuals could have a material adverse effect on the Company.
The Company maintains, and is the sole beneficiary of, "key man" life insurance
on Messrs. Lorsch and Teich in the amounts of $3,000,000 and $1,000,000,
respectively.
Dependence Upon Telecommunications Providers; No Guaranteed Supply. The
Company does not own a transmission network and, accordingly, depends primarily
on MCI, WorldCom Inc., and, to a lesser extent, on other carriers for
transmission of its long distance calls. Further, the Company is dependent upon
local exchange carriers for call origination and termination. The Company's
ability to maintain and expand its business depends, in part, on its ability to
continue to obtain telecommunications services on favorable terms from long
distance carriers and other such suppliers, as well as the cooperation of both
interexchange and local exchange carriers in originating and terminating service
for its consumers in a timely manner. The Company has not experienced
significant losses in the past because of interruptions of service at any of its
carriers, but no assurance can be made in this regard with respect to the
future. In addition, no assurance can be given that the Company will be able to
obtain long distance services in the future at favorable prices, and a material
increase in the price at which the Company obtains long distance service could
have a material adverse effect on the Company. See "-- Competition."
Dependence on Facilities and Platforms; Damage to Facilities and Platforms;
Failure and Downtime. The Company owns and operates the VoiceChoice Platform, a
call processing platform site located in San Francisco, California, and another
platform site acquired in the GTI Acquisition located in Orlando, Florida. The
Company utilizes additional call processing platform services at a facility
located in San Antonio, Texas which is backed up by a facility in Omaha,
Nebraska. The Company's network service operations are dependent upon its
ability to protect the equipment and data at such facilities against damage that
may be caused by fire, power loss, technical failures, unauthorized intrusion,
natural disasters, sabotage and other
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similar events. Although the Company has taken precautions to protect itself and
its consumers from events that could interrupt delivery of services, there can
be no assurance that a fire, act of sabotage, technical failure, human error,
natural disaster or a similar event would not cause the failure of a significant
technical component, thereby resulting in an outage. Such an outage could have a
material adverse effect on the Company. The Company believes that technical
failures have not resulted in any material downtime of the SmarTalk Platforms
since the Company's inception.
Although the Company maintains business interruption insurance providing
for aggregate coverage of approximately $1,000,000 per occurrence, there can be
no assurance that the Company will be able to maintain its business interruption
insurance, that such insurance would continue to be available at reasonable
prices, that such insurance would cover all such losses or that such insurance
would be sufficient to compensate the Company for losses it experiences due to
the Company's inability to provide services to its consumers.
Seasonality; Factors Affecting Operating Results; Potential Fluctuations in
Period-to-Period Results. The Company's sales have been, and the Company expects
that its sales will continue to be, somewhat seasonal, due to holiday purchases
of the SmarTalk Card. In addition, the Company's operating results have varied
significantly in the past and may vary significantly in the future. Traditional
operator assisted long distance services produce peak revenues during the summer
months, coincident with domestic travel and vacation patterns. Though less
severe than call center services, prepaid calling cards are also affected by
seasonal demand fluctuations with demand peaking in the spring and summer
months.
Factors that may cause the Company's operating results to vary include: (i)
changes in operating expenses; (ii) the timing of the introduction of services;
(iii) market acceptance of new and enhanced versions of services; (iv) potential
acquisitions; (v) changes in legislation and regulation which affect the
competitive environment for services; (vi) general economic factors; and (vii)
the ability to recognize revenue on the unused portion of expired SmarTalk
Cards. Moreover, for many of the Company's retailers, services represent a new
merchandising category, with the attendant concerns regarding shelf space
positioning, sales force education and effective marketing and, with respect to
arrangements with certain retailers requiring customized services, there may be
significant leadtime to provide such services following receipt of customer
orders. As a result of these factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as an indication of future performance.
Risk of Loss From Returned Transactions; Fraud; Bad Debt; Theft of
Services. The Company utilizes national credit card clearance systems for
electronic credit card settlement. The Company generally bears the same credit
risks normally assumed by other users of these systems arising from returned
transactions caused by closed accounts, frozen accounts, unauthorized use,
disputes, theft or fraud. The Company's relationships with providers of merchant
card services such as VISA and MasterCard could be adversely affected by
excessive uncollectables or chargebacks, which are generally higher in the
telephone industry than in other industries, particularly with respect to
recharges because the transaction typically is not on a face-to-face basis in
which a cardholder signature is captured. Termination of the Company's ability
to offer recharge through merchant card services would have a material adverse
effect on the Company. To minimize its financial exposure, the Company limits
the amount that consumers can recharge within specified timeframes and generally
charges a higher rate for recharge services than for the initial purchase. From
time to time, persons have obtained services without rendering payment to the
Company by unlawfully utilizing the Company's access numbers and personal
identification numbers ("PINs"). Although to date the Company has not
experienced material losses due to such unauthorized use of access numbers and
customized PINs, no assurance can be given that future losses due to
unauthorized use will not be material. The Company attempts to manage these
credit, theft and fraud risks through its internal controls, monitoring and
blocking systems. The Company also maintains reserves which it deems adequate
for such risks. Past experience in estimating and establishing reserves and the
Company's historical losses are not necessarily accurate indications of the
Company's future losses or the adequacy of the reserves established by the
Company in the future. Although the Company believes that its risk management
and bad debt reserve practices are adequate, there can be no assurance that the
Company's risk management practices or reserves will be sufficient to protect
the Company from unauthorized or returned transactions or thefts of services
which could have a material adverse effect on the Company.
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Shares Eligible for Future Sale; Registration Rights. As of January 6,
1998, the Company had 21,618,186 shares of Common Stock outstanding. Of these
shares, 12,765,189 shares of Common Stock are freely tradable without
restriction or further registration under the Securities Act. The remaining
8,852,997 shares of Common Stock outstanding are "restricted securities" as that
term is defined in Rule 144 under the Securities Act ("Rule 144"). The
registration statement, of which this Prospectus is a part, relates to 2,580,001
of such shares.
As of January 6, 1998, options and warrants to purchase an aggregate of
3,601,844 shares of Common Stock were outstanding.
A total of 4,879,931 shares of Common Stock are subject to various
registration rights. The registration statement, of which this Prospectus is a
part, relates to 2,580,001 of such shares, issued by the Company in connection
with the GTI Acquisition (the "GTI Registrable Shares"). The Company is
obligated to cause to be filed with the Commission a shelf registration
statement prior to the later to occur of (i) May 30, 1998 or (ii) 10 days after
the date the Company first becomes eligible to file a registration statement on
Form S-3. The Company is required to use its best efforts to effect such
registration within 60 days of the filing date, and to keep the shelf
registration statement continuously effective, supplemented and amended to the
extent necessary to ensure that it is available for resales of GTI Registrable
Shares by such holders. After May 30, 1998 holders of GTI Registrable Shares
will have piggyback registration rights under any proposed sale to the public of
Common Stock (but excluding registrations on Form S-4 or S-8) either for its own
account or the account of a security holder or holders.
If the Company proposes to register any of its securities under the
Securities Act, the Company generally must notify SmarTalk Partners, LLC
("SmarTalk Partners"), the holder of 1,600,000 Shares of Common Stock (the
"Partners Registrable Shares") of the Company's intent to register such Common
Stock and allow SmarTalk Partners an opportunity to include the Partners
Registrable Shares in the Company's registration. SmarTalk Partners also has the
right to require the Company to prepare and file a registration statement under
the Securities Act pertaining to the Partners Registrable Shares.
Possible Inability to Recognize a Portion of Deferred Revenue. The sale of
long distance domestic and outbound international telephone service through
prepaid calling cards may be subject to "escheat" laws in various states. These
laws generally provide that payments or deposits received in advance or in
anticipation of the provision of utility (including telephone) services that
remain unclaimed for a specific period of time after the termination of such
services are deemed "abandoned property" and must be submitted to the state.
Although the Company is not aware of any case in which such laws have been
applied to the sale of prepaid calling cards, and does not believe that such
laws are applicable, in the event that such laws are deemed applicable, the
Company may be unable to recognize the portion of its deferred revenue remaining
upon the expiration of the cards with unused calling time. In such event, the
Company may be required to deliver such amounts to certain states in accordance
with these laws, which could have a material adverse effect on the Company.
Government Regulation. The Company is currently subject to federal and
state government regulation of its long distance telephone services. The Company
is regulated at the federal level by the Federal Communications Commission (the
"FCC") and is currently required to maintain both domestic and international
tariffs for its services containing the currently effective rates, terms, and
conditions of service. The FCC has proposed, however, to eliminate the tariffing
requirement for domestic interstate non-dominant carriers. In addition, the
Company is required to maintain a certificate, issued by the FCC, in connection
with its international services. The intrastate long distance telecommunications
operations of the Company are also subject to various state laws and
regulations, including prior certification, notification or registration
requirements. The Company generally must obtain and maintain certificates of
public convenience and necessity from regulatory authorities in most states in
which it offers service. In most of these jurisdictions, the Company must file
and obtain prior regulatory approval of tariffs for intrastate services. In
addition, the Company must update or amend the tariffs and, in some cases, the
certificates of public convenience and necessity when rates are adjusted or new
products are added to the long distance services offered by the Company. The FCC
and numerous state agencies also impose prior approval requirements on transfers
of control, including corporate reorganizations, and assignments of certain
regulatory authorizations.
8
<PAGE> 10
If the federal and state regulations requiring the local exchange carriers
to provide equal access for the origination and termination of calls by long
distance subscribers (such as the Company's consumers) change or if the
regulations governing the fees to be charged for such access services change,
particularly if such regulations are changed to allow variable pricing of such
access fees based upon volume, such changes could have a material adverse effect
on the Company.
The Telecommunications Act of 1996 mandated the establishment of Universal
Service for the promotion of nationwide access to telecommunications services in
rural, insular and high cost areas that are reasonably comparable in price and
type to those found in urban areas and the promotion of access to advanced
services for schools, libraries and certain health care providers.
Telecommunications providers of interstate services, including payphone
aggregators and private network operators that offer service to others for a fee
on a non-common carrier basis, must contribute toward the funding of Universal
Service. Certain government and public entities are exempt, as are entities
whose contribution would be less than $100.00 per year. Although the Company's
competition will be similarly situated, the Universal Service Fund annual
assessment may have a material adverse effect on the long term financial
condition of the Company.
The Telecommunications Act of 1996 (Section 276) further mandated that the
FCC promulgate rules to establish a per call compensation plan to insure that
all payphone providers are fairly compensated for each completed intrastate and
interstate payphone initiated call, including calls on which payphone providers
had not heretofore received compensation. Such calls included those placed to
toll free numbers (800/888) such as operator assisted and prepaid calling card
calls, and calls placed through network access codes. In September 1996, the FCC
promulgated rules to implement Section 176 of the Telecommunications Act of 1996
which established a three-phase compensation plan for payphone providers. Under
the first phase, interexchange carriers with annual toll revenues of more than
$100,000,000 were to pay a total of $45.85 per payphone per month for all toll
free access code calls for the first year, commensurate with their portion of
total interexchange revenues. All switch-based and facilities-based
interexchange carriers were to pay $0.35 per call to each payphone provider
during the second year (although payments could subsequently be recovered from
resellers by the carriers), after which per call compensation rates were to be
left to individual market-driven rates negotiated between payphone providers and
interexchange carriers. On July 1, 1997, the D.C. Circuit Court of Appeals
vacated significant portions of the FCC's rules including the $0.35 per call
rate which was found to be arbitrarily and capricious, and remanded the matter
to the FCC for reconsideration. On remand, in September 1997 the FCC established
a two-year "default" compensation rate of $0.284 per payphone-originated toll
free or access code call. At the end of the two-year interim period, the per
call payphone compensation rate will be the deregulated market-based local coin
rate less $0.066. This amount is payable by all "switch-based" interexchange
carriers (but again may be passed through to non-facilities-based resellers).
The revised FCC rules became effective on October 7, 1997 but continue to be
subject to regulatory and legal challenges. The Company is unable to predict
whether this regulation or other potential changes in the regulatory environment
could have a material adverse effect on the Company.
Control of the Company. The directors, executive officers and their
respective affiliates beneficially own 4,954,523 shares (approximately 21.1%) of
the outstanding Common Stock, which includes 1,917,946 shares issuable upon the
exercise of stock options exercisable within 60 days of the date of this
Prospectus. Mr. Lorsch beneficially owns 3,250,393 shares (approximately 14.7%)
of the outstanding Common Stock. As a result, these shareholders in general, and
Mr. Lorsch in particular, are able to exercise significant influence over all
matters requiring shareholder approval, including the election of directors and
approval of significant corporate transactions. Such concentration of ownership
may also have the effect of delaying or preventing a change in control of the
Company.
Anti-Takeover Considerations. The Company's Board of Directors has
authority to issue up to 10,000,000 shares of preferred stock and to fix the
rights, preferences, privileges and restrictions, including voting rights, of
the preferred stock without further vote or action by the Company's
shareholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The Company's Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws require that any action required
or permitted to be taken by shareholders of the Company must be effected at a
duly called annual or special meeting of shareholders of the Company and may not
be effected by written consent. In addition, the Company's charter documents
eliminate cumulative voting, which may make it more difficult for a third party
to gain control of the
9
<PAGE> 11
Company's Board of Directors. These and other charter provisions may deter a
third party who would propose to acquire the Company or to engage in a similar
transaction affecting control of the Company in which the
shareholders might receive a premium for their shares over the then current
market value. Further, the Company may consider additional anti-takeover
defenses, including the implementation of a shareholders' rights plan.
USE OF PROCEEDS
SmarTalk will not receive any proceeds from the sale of the Registrable
Shares by the Selling Shareholders.
SELLING SECURITY HOLDERS
The following table sets forth the name of each Selling Shareholder and
relationship, if any, with the Company and: (i) the number of shares owned by
each Selling Shareholder as of December 14, 1997; (ii) the number of shares
being offered for sale by each Selling Shareholder under this Prospectus; (iii)
the number of shares owned by each Selling Shareholder after the offering; and
(iv) the percentage of the Common Stock of the Company owned by each Selling
Shareholder after the offering.
<TABLE>
<CAPTION>
NUMBER OF
SHARES NUMBER OF NUMBER OF PERCENTAGE
OWNED SHARES SHARES OF SHARES
BEFORE BEING OWNED OWNED
THE OFFERED AFTER THE AFTER THE
NAME OF SELLING SECURITY HOLDER OFFERING FOR SALE OFFERING OFFERING
- ------------------------------------------------------ --------- --------- --------- ----------
<S> <C> <C> <C> <C>
Waterton Investment Group I, LLC...................... 632,302 632,302 * *
</TABLE>
- ---------------
* Because the Selling Shareholders may, pursuant to this Prospectus, offer all
or some portion of the Common Stock they presently hold, no estimate can be
given as to the amount of the Common Stock that will be held by the Selling
Shareholders upon termination of any such sales. In addition, the Selling
Shareholders identified above may have sold, transferred or otherwise disposed
of all or a portion of their Common Stock since the date on which they
provided the information regarding their Common Stock, in transactions exempt
from the registration requirements of the Securities Act. See "Plan of
Distribution."
Only Selling Shareholders identified above who beneficially own the Common
Stock set forth opposite each such Selling Shareholder's name in the foregoing
table on the effective date of the Registration Statement may sell such Common
Stock pursuant to this Prospectus. The Company may from time to time, in
accordance with the Registration Rights Agreement, include additional Selling
Shareholders in supplements to this Prospectus.
PLAN OF DISTRIBUTION
The Selling Shareholders may from time to time sell all or a portion of the
Registrable Shares in transactions on the Nasdaq, in the over-the-counter
market, in negotiated transactions, or a combination of such methods of sale, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Registrable Shares may be
sold directly or through underwriters or broker-dealers. If the Registrable
Shares are sold through underwriters or broker-dealers, the Selling Shareholders
may pay underwriting discounts or brokerage commissions and charges. The methods
by which the Registrable Shares may be sold include: (i) a block trade in which
the broker or dealer so involved will attempt to sell the securities as agent
but may position and resell a portion of the block as principle to facilitate
the transaction; (ii) purchases by a broker or dealer as principle and resale by
such broker or dealer for its own account pursuant to this Prospectus; (iii)
exchange distributions and/or secondary distributions in accordance with the
rules of the Nasdaq; (iv) ordinary brokerage transactions and transactions in
which the broker solicits purchasers; and (v) privately negotiated transactions.
Pursuant to the provisions of the Registration Rights Agreement, the
Company will pay the costs and expenses incident to its registration and
qualification of the shares offered hereby, including registration and filing
fees. In addition, the Company has agreed to indemnify the Selling Shareholders
in certain circum-
10
<PAGE> 12
stances, against certain liabilities, including liabilities arising under the
Securities Act. Each Selling Shareholder has agreed to indemnify the Company and
its directors, and its officers who sign the Registration Statement against
certain liabilities, including liabilities arising under the Securities Act.
Any securities covered by this Prospectus that qualify for sale pursuant to
Rule 144 or Rule 144A may be sold under Rule 144 or Rule 144A rather than
pursuant to this Prospectus. There can be no assurance that any Selling
Shareholder will sell any or all of the shares described herein, and any Selling
Shareholder may transfer, devise or gift such securities by other means not
described herein.
LEGAL MATTERS
Certain legal matters relating to the validity of the Common Stock offered
hereby will be passed upon for the Company by Dewey Ballantine LLP, Los Angeles,
California. Mr. Robert M. Smith, a director of the Company, is a member of the
law firm of Dewey Ballantine LLP.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K of SmarTalk TeleServices, Inc. for the year ended
December 31, 1996 have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of SmarTel and subsidiaries as of December 31,
1995 and 1996 and for the three years in the period ended December 31, 1996
incorporated herein by reference in the Company's Current Report on Form 8-K
dated November 24, 1997 have been audited by Arthur Andersen LLP, independent
accountants, as indicated in their report to opinion with respect thereto, and
are incorporated herein by reference in reliance upon the authority of said firm
as experts in giving said report.
The financial statements of GTI as of December 31, 1996 and for the year
then ended, incorporated herein by reference in the Company's Current Report on
Form 8-K, dated November 24,1997, have been audited by KPMG Peat Marwick LLP,
independent accountants, as stated in their report incorporated herein by
reference. The report of KPMG Peat Marwick LLP covering the December 31, 1996
financial statements of GTI contains explanatory paragraphs which state that
GTI's financial statements have been restated and that recurring losses from
operations and net capital deficiency raise substantial doubt about GTI's
ability to continue as a going concern. The 1996 GTI financial statements do not
include any adjustments that might result from the outcome of that uncertainty.
The financial statements of GTI as of December 31, 1995 and 1994
incorporated in this Prospectus by reference to the Company's Current Report on
Form 8-K, dated November 24, 1997 have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial statements referred to above and the reports of each of the
accountants referred to above are incorporated herein by reference in reliance
upon said firms as experts in accounting and auditing.
The consolidated financial statements of ConQuest as of December 31, 1995
and 1996, and for each of the three years in the period ended December 31, 1996,
appearing in the Company's Current Report on Form 8-K, dated November 24, 1997,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon, included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
11
<PAGE> 13
============================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY SELLING
SHAREHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK
OFFERED HEREBY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................... 2
Incorporation of Certain Information by
Reference................................ 2
Cautionary Statement Regarding Forward-
Looking Statements....................... 3
Risk Factors............................... 4
Use of Proceeds............................ 10
Selling Security Holders................... 10
Plan of Distribution....................... 10
Legal Matters.............................. 11
Experts.................................... 11
</TABLE>
============================================================
============================================================
SMARTALK
TELESERVICES, INC.
2,580,001 SHARES
OF COMMON STOCK
------------------------
PROSPECTUS
------------------------
January 7, 1998
============================================================
<PAGE> 14
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
registration of the Common Stock offered hereby. The Company will bear all of
such expenses. All amounts are estimated except for the Securities and Exchange
Commission registration fee.
<TABLE>
<CAPTION>
PAYABLE
BY REGISTRANT
-------------
<S> <C>
SEC registration fee................................... $17,981
Accounting fees and expenses........................... 5,000
Legal fees and expenses................................ 15,000
Miscellaneous fees and expenses........................ 2,019
-------
Total........................................ $40,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 317 of the California General Corporation Law (the "CGCL"), a
corporation may indemnify its directors, officers, employees and agents and its
former directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses (including attorney's fees), as well as judgements, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in parties by
reason of their serving or having served in such capacity. The CGCL provides,
however, that such person must have acted in good faith and in a manner he or
she reasonably believed to be in (or not opposed to) the best interests of the
corporation and, in the case of a criminal action, such person must have had no
reasonable cause to believe his or her conduct was unlawful. In addition, the
CGCL does not permit indemnification in an action or suit by or in the right of
the corporation, where such person has been adjudged liable to the corporation,
unless, and only to the extent that, a court determines that such person fairly
and reasonably is entitled to indemnity for expenses the court deems proper in
light of liability adjudication. With respect to present or former directors and
officers, indemnity is mandatory to the extent a claim, issue or matter has been
successfully defended.
The Company's Amended and Restated Bylaws (the "Bylaws") provide for
mandatory indemnification of directors and officers generally to the same extent
authorized by the CGCL. Under the Bylaws, the Company shall advance expenses
incurred by an officer or director in defending any such action if the director
or officer undertakes to repay such amount if it is determined that he or she is
not entitled to indemnification. The Company has obtained directors' and
officers' liability insurance.
The Company has entered into separate indemnification agreements with its
directors and officers. Each indemnification agreement provides for, among other
things: (i) indemnification against any and all expenses, liabilities and losses
(including attorney's fees, judgements, fines, taxes, penalties and amounts paid
in settlement) of any claim against an indemnified party unless it is
determined, as provided in the indemnification agreement, that indemnification
is not permitted under applicable law; and (ii) prompt advancement of expenses
to any indemnified party in connection with his or her defense against any
claim.
II-1
<PAGE> 15
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization and Merger, dated as of July 30, 1997, by
and among Conquest Telecommunication Services, Corp., SmarTalk TeleServices,
Inc. and SMTK Acquisition Corp. II.(1)
2.2 Agreement and Plan of Merger, dated May 24, 1997, among SmarTalk TeleServices,
Inc., SMTK Acquisition Corporation, SmarTel Communications, Inc. and each of
the stockholders of SmarTel Communications, Inc.(2)
2.3 Stock Purchase Agreement, dated as of May 31, 1997, by and among SmarTalk
TeleServices, Inc., GTI Telecom, Inc., Waterton Investment Group I, LLC and
William R. Harger.(3)
2.4 Asset Purchase Agreement, dated October 22, 1997, among SmarTalk TeleServices,
Inc., SMTK NY-1 Corp. and Frontier Corporation.(4)
4.1 Registration Rights Agreement.(5)
4.2 Specimen Stock Certificate.(5)
4.3 Terms of Contingent Value Rights.(2)
4.4 Form of SmarTalk TeleServices, Inc. 10% Subordinated Note Due 2001.(3)
4.5 Registration Rights Agreement, dated as of May 31, 1997, among SmarTalk
TeleServices, Inc., William R. Harger and Waterton Investment Group I, LLC.(3)
4.6 Indenture, dated as of September 17, 1997, between SmarTalk TeleServices, Inc.
and Wilmington Trust Company, as Trustee.(6)
4.7 Registration Rights Agreement, dated as of September 12, 1997, among SmarTalk
TeleServices, Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
Salomon Brothers Inc.(6)
4.8 Form of SmarTalk TeleServices, Inc. 5 3/4% Convertible Subordinated Note due
2004.(6)
5.1 Opinion of Dewey Ballantine LLP regarding legality of shares being registered.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Arthur Anderson LLP.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Price Waterhouse LLP.
23.5 Consent of Ernst & Young LLP.
23.6 Consent of Dewey Ballantine LLP (included in its opinion filed as Exhibit 5.1)
24.1 Powers of Attorney (included on the signature page of this Registration
Statement).
</TABLE>
- ---------------
(1) Incorporated by reference to SmarTalk's Form 8-K, dated July 30, 1997.
(2) Incorporated by reference to SmarTalk's Form 8-K, dated May 28, 1997 (as
amended on Form 8-K/A).
(3) Incorporated by reference to SmarTalk's Form 8-K, dated June 1, 1997 (as
amended on Form 8-K/A).
(4) Incorporated by reference to SmarTalk's Form 8-K, dated October 22, 1997.
(5) Incorporated by reference to SmarTalk's Registration Statement on Form S-1,
registration number 333-10391, filed with the Securities and Exchange
Commission on August 19, 1996 and the amendments thereto.
(6) Incorporated by reference to SmarTalk's Form 8-K, dated September 17, 1997.
(b) FINANCIAL STATEMENT SCHEDULES.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-2
<PAGE> 16
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on the 7th day of January 1998.
SMARTALK TELESERVICES, INC.
By: /s/ ROBERT H. LORSCH
------------------------------------
Name: Robert H. Lorsch
Title: Chairman of the Board of
Directors and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
H. Lorsch, Erich L. Spangenberg and David A. Hamburger his true and lawful
attorney-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ----------------
<S> <C> <C>
/s/ ROBERT H. LORSCH Chairman of the Board of January 7, 1998
- --------------------------------------------- Directors and Chief Executive
Robert H. Lorsch Officer (Principal Executive
Officer)
/s/ ERICH L. SPANGENBERG Vice Chairman of the Board of January 7, 1998
- --------------------------------------------- Directors and Chief Operating
Erich L. Spangenberg Officer
/s/ GLEN ANDREW FOLCK Chief Financial Officer and January 7, 1998
- --------------------------------------------- Vice President
Glen Andrew Folck Finance/Operations (Principal
Financial and Accounting
Officer)
/s/ AHMED O. ALFI Director January 7, 1998
- ---------------------------------------------
Ahmed O. Alfi
/s/ FRED F. FIELDING Director January 7, 1998
- ---------------------------------------------
Fred F. Fielding
/s/ JEFFREY I. SCHEINROCK Director January 7, 1998
- ---------------------------------------------
Jeffrey I. Scheinrock
/s/ ROBERT M. SMITH Director January 7, 1998
- ---------------------------------------------
Robert M. Smith
</TABLE>
II-4
<PAGE> 1
EXHIBIT 5.1
January 6, 1998
SmarTalk TeleServices, Inc.
1640 South Sepulveda Boulevard, Suite 500
Los Angeles, California 90025
Dear Sirs:
In connection with the registration under the Securities Act of 1933 (the
"Act") of 2,580,001 shares (the "Securities") of Common Stock, no par value, of
SmarTalk TeleServices, Inc., a California corporation (the "Company"), we, as
your special counsel, have examined such corporate records, certificates and
other documents, and such questions of law, as we have considered necessary or
appropriate for the purposes of this opinion. Upon the basis of such
examination, we advise you that, in our opinion, the Securities are validly
issued, fully paid and nonassessable.
The foregoing opinion is limited to the Federal laws of the United States,
and the laws of the State of California, and we are expressing no opinion as to
the effect of the laws of any other jurisdiction.
We have relied as to certain matters on information obtained from public
officials, officers of the Company and other sources believed by us to be
responsible.
We hereby consent to the filing of this opinion as an exhibit to the
registration statement and to the references to us under the heading "Legal
Matters" in the Prospectus. In giving such consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7 of
the Act.
Very truly yours,
/s/ Dewey Ballantine LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
February 23, 1997 relating to the financial statements of SmarTalk TeleServices,
Inc. for the year ended December 31, 1996. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Century City, California
January 2, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in Amendment No. 1 of Registration Statement 333-42857 of SmarTalk
TeleServices, Inc. of our report dated April 4, 1997 (except with respect to the
matter discussed in Notes 1, 3(a), 4(d), 5 and 9, as to which the date is May
24, 1997 and to the matter discussed in Note 1(c), as to which the date is
November 24, 1997) on the financial statements of SmarTel Communications, Inc.
and subsidiaries (the Company) as of December 31, 1995 and 1996 and for the
three years in the period ended December 31, 1996, included in the Form 8-K
dated November 24, 1997, and to all references to our firm contained in this
registration statement. It should be noted that we have not audited any
financial statements of the Company subsequent to December 31, 1996 or performed
any audit procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
Boston Massachusetts
January 2, 1998
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT ACCOUNTANTS' CONSENT
To the Board of Directors of
GTI Telecom, Inc.:
We consent to the use of our report dated April 4, 1997, except as to note 15
which is as of May 16, 1997 and note 2 which is as of November 24, 1997, with
respect to the balance sheet of GTI Telecom, Inc. as of December 31, 1996 (as
restated), and the related statements of operations, stockholders' deficit and
cash flows for the year ended December 31, 1996 (as restated), included in the
Form 8-K dated November 24, 1997, incorporated by reference in Amendment No. 1
of Registration Statement 333-42857 of SmarTalk TeleServices, Inc. and to our
firm under the heading "Experts".
Our report contains an explanatory paragraph which states that the Company's
financial statements have been restated.
Our report also contains an explanatory paragraph that states that GTI Telecom,
Inc. has suffered recurring losses from operations and has working capital and
stockholder's deficits which raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
/s/ KPMG PEAT MARWICK LLP
Orlando, Florida
January 5, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of SmarTalk
TeleServices, Inc. of our report dated July 18, 1996, except as to Note 2, which
is as of November 24, 1997, relating to the financial statements of GTI Telecom,
Inc., which appears in such Prospectus. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
Century City, California
January 2, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of SmarTalk
TeleServices, Inc. for the registration of 2,580,001 shares of Common Stock and
to the incorporation by reference therein of our report dated February 7, 1997
(except Note 11 as to which the date is February 19, 1997 and the last paragraph
of Note 9 as to which the date is November 25, 1997), with respect to the
consolidated financial statements of ConQuest Telecommunication Services Corp.
included in the Current Report on Form 8-K of SmarTalk Teleservices, Inc. filed
with the Securities and Exchange Commission on December 11, 1997.
/s/ ERNST & YOUNG LLP
December 16, 1997
Columbus, Ohio
