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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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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5500 FRANTZ ROAD, SUITE 125
DUBLIN, OHIO 43017
(614) 764-2933
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
THADDEUS BEREDAY
5500 FRANTZ ROAD, SUITE 125
DUBLIN, OHIO 43017
(614) 799-4538
(NAME AND ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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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 PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITY AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(2) PRICE(2) REGISTRATION FEES
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Common Stock, no par value per 2,715,000 100% $38,519,063 $11,364
share...........................
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(1) A proposal to effect the reincorporation of SmarTalk TeleServices, Inc. from
California to Delaware was approved by the shareholders of the Registrant on
December 31, 1997. Accordingly, subject to receipt of all requisite
regulatory approval, the Registrant's state of incorporation will change
from California to Delaware and 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 July 6, 1998,
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, AS AMENDED, 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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PROSPECTUS
SMARTALK TELESERVICES, INC.
2,715,000 SHARES OF COMMON STOCK
The shares offered hereby (the "Registrable Shares") consist of 2,715,000
shares of common stock, no par value per share (the "Common Stock"), of SmarTalk
Teleservices, Inc. ("SmarTalk" or the "Company"), which are owned by the selling
shareholders listed herein under "Selling Securityholders" (the "Selling
Shareholders"). The Registrable Shares may be offered from time to time by the
Selling Shareholders for a period not to exceed one year after the date of this
Prospectus, except as may be limited by SmarTalk in accordance with the
Registration Rights Agreement dated June 10, 1998, among SmarTalk and certain
former stockholders of Worldwide Direct, Inc. 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 will not receive any of the proceeds from the sale
of the Registrable Shares by the Selling Shareholders.
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 July 8, 1998, the last reported sale price of the Company's Common Stock
on Nasdaq (where it trades under the symbol "SMTK") was $17.125 per share.
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SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE
PROSPECTUS FOR CERTAIN INFORMATION RELATING
TO THE SALE OF THE REGISTRABLE SHARES.
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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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July 9, 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. The 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 contained in the
Company's Report on Form 8-A, filed October 11, 1996;
2. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
3. The financial statements contained in the Company's Current Reports
on Form 8-K dated November 24, 1997 and December 22, 1997 (as amended on
Form 8-K/A); and
4. The Company's Proxy Statement for the 1998 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.
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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 the information that is incorporated by reference (unless
such exhibits are specifically incorporated by reference into such documents).
Requests should be directed to Thaddeus Bereday, the Company's General Counsel,
at the Company's principal executive offices located at 5500 Frantz Road, Suite
125, Dublin, Ohio 43017. The telephone number is (614) 764-2933.
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 acquired companies, which could result in charges to earnings or
otherwise adversely affect the Company's operating results. 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, WORLDWIDE DIRECT, INC.,
AMERICAN EXPRESS TELECOM, INC., CONQUEST TELECOMMUNICATION SERVICES CORP., THE
SELECTED ASSETS OF THE RETAIL PREPAID PHONE CARD BUSINESS OF FRONTIER
CORPORATION, GTI TELECOM, INC. AND SMARTEL COMMUNICATIONS, INC.
SmarTalk recently acquired Worldwide Direct, Inc., American Express
Telecom, Inc., ConQuest Telecommunication Services Corp., ("ConQuest"), the
selected assets of the retail prepaid phone card business of Frontier
Corporation ("Frontier"), GTI Telecom, Inc. and SmarTel Communications, Inc.
Because of the inherent uncertainties associated with integrating the assets,
operations and personnel of several companies, there can be no assurance that
operating efficiencies will be realized as a result of the mergers and
acquisitions or that the combination of such businesses will be successful.
LIMITED OPERATING HISTORY; NET LOSSES; ABILITY TO UTILIZE NET OPERATING LOSS
CARRYFORWARDS;
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 years
ended December 31, 1995, 1996 and 1997 were approximately $1.3 million, $3.1
million and $61.9 million, respectively. In addition, the ability of the Company
or the Company's subsidiaries, as the case may be, to utilize their net
operating loss carryforwards to offset future taxable income may be subject to
certain limitations contained in the Internal Revenue Code of 1986, as amended
(the "Code"), which may have a material adverse effect on the Company. As of
December 31, 1997, the Company had an accumulated deficit of approximately $68.9
million.
COMPETITION
The telecommunications industry is highly competitive, rapidly evolving and
subject to constant technological change. Currently, 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's key competitors in the long distance
telecommunications industry are MCI Communications Corporation ("MCI"), AT&T
Corp. ("AT&T") and Sprint Corporation ("Sprint"), 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 the Company's competitors pricing flexibility. Telecommunications
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services companies may compete for consumers based on price, with the dominant
providers conducting extensive advertising campaigns in order to capture market
share. Competitors with greater financial resources may also be able to provide
more attractive incentive packages to retailers in order 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, because 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 Company's ability 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 in order to compete with the Company's services. The
Company currently is in the process of completing development of technology that
will permit it to market and deliver prepaid cellular phone service. The
proliferation of new telecommunications technology, including personal
communications 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
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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 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
further investment in the future in order 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
in order 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
The Company's business is dependent upon its relationships with leading
regional and national retailers. 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
of Directors (the "Board"), Erich L. Spangenberg, Chief Executive Officer and
Vice Chairman of the Board, Jeff Lindauer, President and Chief Operating
Officer, and Richard M. Teich, Executive Vice President. Although the Company
believes its new management structure will solidify the Company's
infrastructure, there can be no assurance that the anticipated benefits will be
realized or that the new management structure will be successful. Additionally,
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 $3.0 million and $1.0 million,
respectively.
DEPENDENCE UPON TELECOMMUNICATIONS PROVIDERS; NO GUARANTEED SUPPLY
The Company does not own a transmission network and, accordingly, depends
primarily on Frontier, MCI, WorldCom, Inc. and, to a lesser extent, 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 given 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."
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DEPENDENCE ON FACILITIES AND PLATFORMS; DAMAGE TO FACILITIES AND PLATFORMS;
FAILURE AND DOWNTIME
The Company owns and operates the Ohio Platform, a call processing platform
site located in Columbus, Ohio, and the VoiceChoice Platform, a call processing
platform site located in San Francisco, California. Additionally, the Company
utilizes two additional call processing platforms owned and operated by West
Teleservices. 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 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 Company's platforms since the Company's inception.
Although the Company maintains business interruption insurance providing
for aggregate coverage of approximately $1.0 million per occurrence, there can
be no assurance that the Company will be able to maintain its 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 lead-time 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 uncollectibles 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. In order 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
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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.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
As of July 6, 1998, the Company had 22,753,948 shares of Common Stock
outstanding. Of these shares, 18,393,342 shares of Common Stock are freely
tradable without restriction or further registration under the Securities Act.
The remaining 4,360,606 shares of Common Stock outstanding are "restricted
securities" as that term is defined in Rule 144 under the Securities Act ("Rule
144").
If the Company proposes to register any of its securities under the
Securities Act of 1933, as amended (the "Securities Act"), the Company generally
must notify SmarTalk Partners, LLC ("SmarTalk Partners"), the holder of
1,595,000 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.
On September 17, 1997, the Company sold $150 million aggregate principal
amount of 5 3/4% convertible subordinated notes due September 15, 2004 (the
"5 3/4% Notes") in an offering pursuant to Rule 144A under the Securities Act
(the "5 3/4% Notes Offering"). In connection with the 5 3/4% Notes Offering, the
Company has filed and the Commission declared effective a shelf registration
statement on Form S-3, covering a total of 5,714,286 shares of Common Stock
issuable upon conversion of the 5 3/4% Notes. The Company is obligated to use
all reasonable efforts to keep the registration statement effective until the
shelf registration statement is no longer required for resales of the 5 3/4%
Notes or the Common Stock issued upon conversion thereof. If the shelf
registration statement ceases to be effective or usable, the Company will accrue
liquidated damages which could have a material adverse effect on the Company.
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 ordered elimination of the tariffing requirement for domestic interstate
non-dominant carriers. The FCC's order is pending review and approval by the
Court of Appeals for the D.C. Circuit following long-standing appeals by the
FCC's past mandatory detariffing policies. In addition, the Company is required
to maintain a certificate of authority, issued by the FCC, to provide
international telecommunications services. The intrastate long distance
telecommunications operations of the
8
<PAGE> 10
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.
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. In early 1997, the FCC instituted significant changes to the
current incumbent local exchange carrier access charge structure. These changes
were meant, in part, to bring access charges closer to their actual costs. While
there has been a general trend toward access charge reductions, new primary
interexchange charges (PICCs) were authorized by the FCC to be imposed on
interexchange carriers serving presubscribed customers. PICCs are a flat-rate,
per presubscribed line, per month access charge imposed on all facilities based
carriers (although they may be passed on to resellers such as the Company).
Facilities based interexchange carriers were assessed interstate PICCs effective
January 1, 1998. Intrastate PICCs have also been adopted in the five-state
Ameritech region (Michigan, Wisconsin, Illinois, Indiana, and Ohio). PICCs will
affect the Company only to the extent that it offers presubscribed services. At
the same time, the Company may pursue underlying carriers for pass throughs of
any access charge reductions they may realize from incumbent local exchange
carriers.
Through the ConQuest acquisition, the Company is subject to additional
federal, state and international regulation of its long distance, operator
services and prepaid calling card services. The Company is in compliance with
the requirements of the TelePhone Operator Consumer Services Improvement Act of
1990 ("TOCSIA") and the FCC's implementing regulations regarding unblocking,
branding and posting for operator services. The Company maintains informational
tariffs for its operator services and maintains on file tariffs for its long
distance and prepaid calling card services. The Company is licensed in the
states in which it operates as a long-distance operator-services provider, and
is not aware of any instance in which there has been a substantial violation of
federal or state telecommunications regulation in connection with the Company's
services. While the Company believes that it is in compliance with the
applicable federal, state and international regulations governing
telecommunications services, there can be no assurance that the FCC or the
regulatory authorities in one or more states or foreign countries will not raise
material issues with regard to the Company's compliance with applicable
regulations, will not institute new regulation or modify existing regulation, or
that federal, state and international regulatory activities will not otherwise
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 in order to
ensure 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
9
<PAGE> 11
September 1996, the FCC promulgated rules in order to implement Section 276 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 million 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 arbitrary and
capricious, and remanded the matter to the FCC for reconsideration. On remand,
the FCC in September 1997, 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
nonfacilities-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 4,760,327 shares (approximately 19.58%) of the outstanding
Common Stock, which includes 1,553,750 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 13.95%) 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 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 (the "Articles") and Amended and Restated
Bylaws (the "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 Company's Board. Moreover, the Company's Board has the authority,
without action by, or consent of, the shareholders, to fix the rights and
preferences of and issue shares of preferred stock. 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 shareholder rights plan.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act
concerning the Company's future operations, economic performances and financial
condition, including such things as business strategy and measures to implement
strategy, competitive strengths, goals, expansion and growth of the Company's
business and operations and references to future success. These statements are
based on certain assumptions and analyses made by the
10
<PAGE> 12
Company in light of its experience and its perception of historical trends,
current conditions and expected future developments as well as other factors it
believes are appropriate in the circumstances. However, whether actual results
and developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, in addition to the risk factors
discussed above, including a global economic slowdown in the telecommunications
industry, unpredictable difficulties or delays in the development of new product
programs, difficulties and unanticipated expense of assimilating newly-acquired
businesses, technological shifts away from the Company's technologies and core
competencies, unforeseen interruptions to the Company's business with its
largest customers and distributors resulting from, but not limited to, strikes,
financial instabilities, unexpected government policies and regulations
affecting the Company or its significant customers, the effects of extreme
changes in monetary and fiscal policies in the U.S. and abroad, including
extreme currency fluctuations and unforeseen inflationary pressures, drastic and
unforeseen price pressures on the Company's services or significant cost
increases that cannot be recovered through price increases or productivity
improvements, significant changes in interest rates or in the availability of
financing for the Company or certain of its customers, rapid escalation of the
cost of regulatory compliance and litigation, unforeseen intergovernmental
conflicts or actions, including but not limited to armed conflict and trade
wars, any difficulties in obtaining or retaining the management or other human
resource competencies that the Company needs to achieve its business objectives,
and other factors, many of which are beyond the control of the Company.
Consequently, all of the forward-looking statements made in this Prospectus are
qualified by these cautionary statements, and there can be no assurance that the
actual results or developments anticipated by the Company will be realized or
that they will have the expected consequences to or effects on the Company and
its subsidiaries or their business or operations.
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 May 13, 1998; (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 NUMBER OF NUMBER OF PERCENTAGE OF
SHARES OWNED SHARES BEING SHARES OWNED SHARES OWNED
BEFORE THE OFFERED AFTER THE AFTER THE
NAME OF SELLING SECURITYHOLDER OFFERING FOR SALE OFFERING OFFERING
------------------------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Victor Grillo, Jr.
Raymond Wysocki, Jr.
Lloyd Lapidus
</TABLE>
- ---------------
* Because the Selling Shareholders may, pursuant to this Prospectus, offer all
or some portion of the Common Stock presently held, 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 the Common Stock since the date on which the
information regarding the Common Stock was provided in transactions exempt
from the registration requirements of the Securities Act. See "Plan of
Distribution."
Only the 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.
11
<PAGE> 13
PLAN OF DISTRIBUTION
The Selling Shareholders may from time to time sell all or a portion of the
Registrable Shares in transactions on 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 Shareholder 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 Nasdaq; (iv) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; and (v) privately negotiated transactions.
Pursuant to the provisions of the Agreement and Mutual Release, the Company
will pay the costs and expenses incident to its registration and qualification
of the Shares offered hereby, including registration and filing fees.
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 Registrable 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 consolidated financial statements of the Company incorporated in this
Prospectus by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 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 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 auditors, 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 and for
the years then ended, 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.
12
<PAGE> 14
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 at December 31, 1995 and
1996, and for each of the three years in the period ended December 31, 1996,
incorporated herein by reference to 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 incorporated herein by reference,
and are incorporated herein by reference in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
The financial statements of Amex Telecom as of December 31, 1996 and
December 31, 1997 and for the years then ended, incorporated herein by reference
in the Company's Current Report on Form 8-K, dated December 22, 1997, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed that in
the opinion of the 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.
13
<PAGE> 15
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE 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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information..................... 2
Documents Incorporated by Reference........ 2
Cautionary Statement Regarding Forward-
Looking Statements....................... 3
Risk Factors............................... 4
Use of Proceeds............................ 11
Selling Security Holders................... 11
Plan of Distribution....................... 12
Legal Matters.............................. 12
Experts.................................... 12
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
2,715,000 SHARES
SMARTALK
TELESERVICES, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
JULY 9, 1998
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 16
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 and Nasdaq entry fee.
<TABLE>
<CAPTION>
PAYABLE
BY REGISTRANT
-------------
<S> <C>
SEC registration fee........................................ $11,364
Nasdaq entry fee............................................ 17,500
Accounting fees and expenses................................ 5,000
Legal fees and expenses..................................... 7,500
Miscellaneous fees and expenses............................. 3,636
-------
Total............................................. $45,000
=======
</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> 17
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
June 10, 1998, by and among SmarTalk TeleServices, Inc.,
SMTK Acquisition corp. IV and Worldwide Direct, Inc.(1)
2.2 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.(2)
2.3 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.(3)
2.4 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.(4)
2.5 Asset Purchase Agreement, dated October 22, 1997, among
SmarTalk TeleServices, Inc., SMTK NY-1 Corp. and Frontier
Corporation.(5)
2.6 Stock Purchase Agreement, dated as of December 22, 1997, by
and among SmarTalk TeleServices, Inc., American Express
Telecom, Inc. and American Express Travel Related Services
Company, Inc. (without schedules).(8)
3.1 Amended and Restated Articles of Incorporation.(6)
3.2 Amended and Restated Bylaws.(6)
4.1 Registration Rights Agreement.(6)
4.2 Specimen Stock Certificate.(6)
4.3 Terms of Contingent Value Rights.(3)
4.4 Form of SmarTalk TeleServices, Inc. 10% Subordinated Note
Due 2001.(4)
4.5 Registration Rights Agreement, dated as of May 31, 1997,
among SmarTalk TeleServices, Inc., William R. Harger and
Waterton Investment Group I, LLC.(4)
4.6 Indenture, dated as of September 17, 1997, between SmarTalk
TeleServices, Inc. and Wilmington Trust Company, as
Trustee.(7)
4.7 Registration Rights Agreement, dated as of September 12,
1997, among SmarTalk TeleServices, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Salomon Brothers Inc.(7)
4.8 Registration Rights Agreement, dated as of June 10, 1998,
among SmarTalk TeleServices, Inc. and certain former
stockholders of Worldwide Direct, Inc.
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 Ernst & Young LLP.*
23.7 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>
- ---------------
* To be filed by amendment
(1) Incorporated by reference to SmarTalk's Form 8-K, dated June 10, 1998.
(2) Incorporated by reference to SmarTalk's Form 8-K, dated July 30, 1997.
II-2
<PAGE> 18
(3) Incorporated by reference to SmarTalk's Form 8-K, dated May 28, 1997 (as
amended on Form 8-K/A).
(4) Incorporated by reference to SmarTalk's Form 8-K, dated June 1, 1997 (as
amended on Form 8-K/A).
(5) Incorporated by reference to SmarTalk's Form 8-K, dated October 22, 1997.
(6) 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.
(7) Incorporated by reference to SmarTalk's Form 8-K, dated September 17, 1997.
(8) Incorporated by reference to SmarTalk's Form 8-K, dated December 22, 1997
(as amended on Form 8-K/A).
(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.
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.
II-3
<PAGE> 19
(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-4
<PAGE> 20
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 Dublin, State of Ohio, on the seventh day of July, 1998.
SMARTALK TELESERVICES, INC.
By: /s/ ERICH L. SPANGENBERG
--------------------------------------
Name: Erich L. Spangenberg
Title: Vice 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 Thaddeus Bereday 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>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ROBERT H. LORSCH Chairman of the Board July 7, 1998
- -------------------------------------------------------- of Directors
Robert H. Lorsch
/s/ ERICH L. SPANGENBERG Vice Chairman of the Board July 7, 1998
- -------------------------------------------------------- of Directors and
Erich L. Spangenberg Chief Executive Officer
(Principal Executive Officer)
/s/ GLEN ANDREW FOLCK Chief Financial Officer and July 7, 1998
- -------------------------------------------------------- Vice President
Glen Andrew Folck Finance/Operations
(Principal Financial and
Accounting Officer)
/s/ FRED F. FIELDING Director July 7, 1998
- --------------------------------------------------------
Fred F. Fielding
/s/ KENNETH A. VIELLIEU Director July 7, 1998
- --------------------------------------------------------
Kenneth A. Viellieu
/s/ ROBERT M. SMITH Director July 7, 1998
- --------------------------------------------------------
Robert M. Smith
</TABLE>
II-5
<PAGE> 1
EXHIBIT 4.8
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
and entered into as of June 10, 1998 by and among SmarTalk TeleServices, Inc., a
California corporation (the "Company"), and those parties executing this
Agreement and listed on Exhibit "A" attached hereto (each referred to herein as
a "Holder" and collectively as the "Holders").
WHEREAS, pursuant to that certain Agreement and Plan of
Reorganization and Merger, dated as of June 10, 1998 (the "Merger Agreement") by
and among the Company, Worldwide Direct, Inc., a Delaware corporation
("Worldwide"), and SMTK Acquisition Corp. IV, a Delaware corporation and wholly
owned subsidiary of the Company, the Company will purchase all issued and
outstanding shares of common and preferred stock of Worldwide, $0.01 par value
per share, and in connection therewith the Holders will receive such number of
shares of the Company's common stock, no par value (the "Common Stock") as
contemplated by the Merger Agreement; and
WHEREAS, the Company has agreed to provide the registration
rights set forth in this Agreement and the execution and delivery of this
Agreement by the Company is a condition to the obligations of the Holders under
the Merger Agreement;
NOW THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. Capitalized terms used herein and not
otherwise defined herein have the meanings ascribed to them in the Merger
Agreement. In addition, the following capitalized terms shall have the meanings
ascribed to them below:
"Affiliate," as applied to any specified Person, shall mean
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person and, in the case of
a Person who is an individual, shall include: (i) members of such specified
Person's immediate family (as defined in Instruction 2 of Item 404(a) of
Regulation S-K under the Securities Act); and (ii) trusts, the trustee and all
beneficiaries of which are such specified Person or members of such Person's
immediate family as determined in accordance with the foregoing clause (i). For
the purposes of this definition, "control," when used with respect to any
Person, means the power to direct the management and policies of such Person,
directly or
<PAGE> 2
indirectly, whether through the ownership of voting securities, by contact or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day that is not a Saturday, Sunday or
a day on which banking institutions in New York, New York or Los Angeles,
California are not required to be open.
"Closing" is defined in the Merger Agreement.
"Effectiveness Date" is defined in Section 2.1.
"Effectiveness Period" is defined in Section 2.1
"Event Date" is defined in Section 2.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Filing Date" is defined in Section 2.1.
"Holders" means the holders of stock or warrants of Worldwide
who have executed this Agreement, together with their transferees.
"Indemnified Holder" is defined in Section 4.1.
"Indemnified Party" is defined in Section 4.3.
"Indemnifying Party" is defined in Section 4.3.
"Person" means an individual, partnership, corporation,
limited liability company, trust or unincorporated organization, or a government
or agency or political subdivision thereof.
"Prospectus" means the prospectus included in a Registration
Statement, as amended or supplemented by any prospectus supplement and by all
other amendments thereto, including post-effective amendments, and all material
incorporated by reference into such Prospectus.
"Public Distribution" shall mean any bona fide underwritten
public distribution of Stock pursuant to an effective registration statement
under the Securities Act or any other applicable law.
"Public Offering" shall mean any bona fide underwritten public
distribution of Stock pursuant to an effective registration statement under the
Securities Act or any other applicable law.
2
<PAGE> 3
"Registrable Securities" means each share of Stock acquired by
the Holders pursuant to the Merger Agreement (or as set forth in clause (ii) of
the definition of "Stock" below), until it has been effectively registered under
the Securities Act and disposed of by such Holders pursuant to an effective
registration statement; provided, however, that "Registrable Securities" shall
not include any share of Stock or other security that has been issued under
clause (ii) of the definition of "Stock" below if such share of Stock or
security was issued pursuant to a Registration Statement filed with the SEC and
is not "restricted" within the meaning of Rule 144 under the Securities Act.
"Registration Expenses" is defined in Section 3.2
"Registration Statement" means any registration statement of
the Company relating to a Shelf Registration pursuant to Section 2.1, including
the Prospectus included therein, all amendments and supplements thereto
(including post-effective amendment) and all exhibits and material incorporated
by reference therein.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Selling Holder" means a Holder who sells or proposes to sell
Registrable Securities pursuant to a Registration Statement under the Securities
Act.
"Shelf Registration" or "Shelf Registration Statement" is
defined in Section 2.1.
"Stock" means the following securities: (i) the Common Stock;
or (ii) any security or other instrument: (a) received as a dividend on, or
other payment made to the holders of, the Common Stock (or any other security or
instrument referred to in this definition); or (b) issued in connection with a
split of the Common Stock (or any other security or instrument referred to in
this definition) or as a result of any exchange or reclassification of the
Common Stock (or any other security or instrument referred to in this
definition), reorganization, consolidation, merger or recapitalization.
ARTICLE II
REGISTRATION RIGHTS
Section 2.1. Shelf Registration.
(a) Filing and Effectiveness. The Company shall cause to be
filed with the SEC as soon as reasonably practicable, but in no event later than
30 days following the Closing (the date of such filing is referred to herein as
the "Filing Date"), a shelf registration statement pursuant to Rule 415 under
the Securities Act (a "Shelf Registration" or a "Shelf Registration Statement"),
which Shelf Registration Statement
3
<PAGE> 4
shall provide for resales of all Registrable Securities held by each of the
Holders who shall have provided the information required pursuant to Section
3.1(b). The Company shall use reasonable efforts to have such Shelf Registration
declared effective within 60 days of the Filing Date (the date of such
effectiveness is referred to herein as the "Effectiveness Date") and to keep
such Shelf Registration Statement continuously effective, supplemented and
amended to the extent necessary to ensure that it is available for resales of
Registrable Securities by such Holders, and to ensure that it conforms with the
requirements of this Agreement, the Securities Act and the policies, rules and
regulations of the SEC as announced from time to time, for a period of one (1)
year (the "Effectiveness Period").
(b) Effective Registration. A registration will not be deemed
to have been effected as a Shelf Registration unless it has been declared
effective by the SEC and the Company has complied in all material respects with
its obligations under this Agreement with respect thereto; provided that if,
after it has become effective, the offering of Registrable Securities pursuant
to such registration is or becomes the subject of any stop order, injunction or
other order or requirement of the SEC or any other governmental or
administrative agency, or if any court prevents or otherwise limits the sale of
Registrable Securities pursuant to the registration (for any reason other than
the acts or omissions of the Holders), such registration will be deemed not to
have been effected. If: (i) the Shelf Registration is deemed not to have been
effected in accordance with the provisions of the preceding sentence; or (ii)
the Shelf Registration does not remain continuously effective for the period
described in subsection (a) above, then such Shelf Registration Statement shall
not count as a Shelf Registration and the Company shall continue to be obligated
to effect a registration pursuant to this Section 2.1.
(c) Public Offering. (1) In addition to the other provisions
of this Section 2.1, on demand of the Holders of at least 600,000 shares of the
Registrable Securities, on or after August 1, 1998, an offering of Registrable
Securities pursuant to the Registration Statement may be effected on one
occasion in the form of a Public Offering.
(2) If any of the Registrable Securities are to be
sold in a Public Offering, Donaldson, Lufkin & Jenrette shall be the investment
banker in interest that will administer the offering. No Holder may participate
in any Public Offering hereunder unless such Person (i) agrees to sell its
Registrable Securities on the basis provided in any underwriting agreements
approved by the Persons entitled hereunder to approve such agreements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
agreements.
(d) Piggyback Registration. (1) If at any time prior to the
Effectiveness Date the Company proposes to register under the Securities Act any
of its equity securities, either for its own account or the account of a
security holder or holders, other than (i) a registration relating solely to
employee benefit plans, or (ii) a registration
4
<PAGE> 5
relating solely to a Rule 145 transaction, or a registration on any registration
form that does not permit secondary sales, the Company shall: (i) promptly give
to each Holder at least 30 days prior written notice thereof, which notice shall
include the anticipated filing date for the related registration statement and
the approximate amount of securities anticipated to be included in such
registration statement; and (ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
by each Holder, received by the Company within 20 days after receipt from the
Company of such written notice, subject to the provision below.
(2) Notwithstanding the foregoing, if a piggyback
registration is an underwritten registration, and the managing underwriters
advise the Company in writing that in their opinion the total amount of
securities requested to be included in such registration would materially
adversely affect the success of such proposed public offering, then the
Registrable Securities shall be subject to pro rata cutbacks with other selling
securityholders.
ARTICLE III
REGISTRATION PROCEDURES
Section 3.1. Registration Procedures.
(a) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement to permit the
sale or resale of Registrable Securities, the Company shall:
(1) prepare and file with the SEC a registration
statement with respect to such Registrable Securities within the time periods
specified herein, make all required filings with the NASD and use its best
efforts to cause such registration statement to become effective within the time
periods specified herein;
(2) promptly prepare and file with the SEC such
amendments and post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the applicable period
set forth in Section 2.1, or such shorter period as will terminate when all
Registrable Securities covered by such Registration Statement have been sold;
cause the Prospectus to be supplemented by a required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 under the Securities Act,
and to comply fully with the applicable provision of Rules 424 and 430A under
the Securities Act in a timely manner, and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus;
5
<PAGE> 6
(3) use its best efforts to keep such Registration
Statement continuously effective for the time periods specified herein and
provide all requisite financial statements for the period specified in Section
2.1; upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein: (A) to contain a material
misstatement or omission; or (B) not to be effective and usable for resale of
Registrable Securities during the period required by this Agreement, the Company
shall file promptly an appropriate amendment to such Registration Statement, in
the case of clause (A), correcting any such misstatement or omission, and, in
the case of either clause (A) or (B), use its best efforts to cause such
amendment to declared effective and such Registration Statement and related
Prospectus to become usable for their intended purpose(s) as soon as practicable
thereafter;
(4) provide: (A) the Holders of Registrable
Securities participating in the registration; (B) the sale or placement agent
therefor, if any, (C) counsel for such agent; and (D) counsel for each of the
Holders thereof, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the SEC,
and each amendment or supplement thereto, and for a reasonable period prior to
the filing of such registration statement make available for inspection by the
parties referred to in (A) through (D) above such financial and other
information and books and records of the Company, provide access to properties
of the Company and cause the officers, directors, employees, counsel and
independent certified public accountants of the Company to respond to such
inquiries as shall be reasonably necessary to conduct a reasonable investigation
within the meaning of Section 11 of the Securities Act;
(5) advise the Selling Holders promptly and, if
requested by such Selling Holders, to confirm such advice in writing: (A) when
the Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to any Registration Statement or any post-effective
amendment thereto, when the same has become effective; (B) of any request by the
SEC for amendments to the Registration Statement or amendments or supplements to
the Prospectus or for additional information relating thereto; (C) of the
issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement under the Securities Act or of the suspension by any
state securities commission of the qualification of the Registrable Securities
for offering or sale in any jurisdiction, or the initiation of any proceeding
for any of the preceding purposes; (D) of the existence of any fact or the
happening of any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement thereto, or
any document incorporated by reference therein untrue, or that requires the
making of any additions to or changes in the Registration Statement or the
Prospectus in order to make the statements therein not misleading. If at any
time the SEC shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption from
qualification of the Registrable Securities under state securities or Blue Sky
laws, the
6
<PAGE> 7
Company shall use its best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time;
(6) furnish to each Selling Holder named in any
Registration Statement or Prospectus such number of copies of any Registration
Statement or Prospectus included therein or any amendments or supplements to any
such Registration Statement or Prospectus (including all documents incorporated
by reference after the initial filing of such Registration Statement and all
exhibits filed therewith), reasonably requested by such Selling Holder;
(7) if requested by any Selling Holders, promptly
include in any Registration Statement or Prospectus, pursuant to a supplement or
post-effective amendment if necessary, such information as such Selling Holders
may reasonably request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Registrable
Securities, information with respect to the principal amount of Registrable
Securities being sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such offering,
and make all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the matters to
be included in such Prospectus supplement or post-effective amendment; provided,
however, that the Company shall not be required to take any action pursuant to
this Section 3.1(a)(7) that would, in the opinion of counsel to the Company,
violate applicable law or be materially detrimental to the business prospects of
the Company;
(8) deliver to each Selling Holder, without charge,
as many copies of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as such Persons reasonably may request; the
Company hereby consents to the use of the Prospectus and any amendment or
supplement thereto by each of the Selling Holders in connection with the
offering and the sale of the Registrable Securities covered by the Prospectus or
any amendment or supplement thereto;
(9) prior to any Public Offering of Registrable
Securities, cooperate with the Selling Holders and their respective counsel in
connection with the registration and qualification of the Registrable Securities
under the securities or Blue Sky laws of such jurisdictions as the Selling
Holders may request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions or the Registrable
Securities covered by the applicable Registration Statement; provided, however,
that the Company shall not be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that would
subject it to the service of process in suits or to taxation, except as is
required as a result of the Registration Statement, in any jurisdiction where it
is not now so subject;
(10) in connection with any sale of Registrable
Securities that will result in such securities no longer being Registrable
Securities, cooperate with the Selling Holders to facilitate the timely
preparation and delivery of certificates
7
<PAGE> 8
representing Registrable Securities to be sold and not bearing any restrictive
legends; and to register such Registrable Securities in such denominations and
such names as the Selling Holders may request at least two Business Days prior
to such sale of Registrable Securities;
(11) participate in good faith in any meetings with
potential investors or securities analysts (including "road shows") as the
Holders of a majority of the Registrable Securities may from time to time
reasonably request;
(12) enter into any customary agreements (including
an underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities;
(13) if requested by the Selling Holders, provide a
CUSIP number for all Registrable Securities not later than the effective date of
the Registration Statement covering such Registrable Securities and provide the
Company's transfer agent(s) and registrar(s) for the Registrable Securities with
printed certificates for the Registrable Securities;
(14) cooperate and assist in any filings required to
be made with the NASD and in the performance of any due diligence investigation
by any underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use their best efforts to cause such Registration Statement to become
effective and approved by such governmental agencies or authorities as may be
necessary to enable the Selling Holders or to consummate the disposition of such
Registrable Securities;
(15) otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC, and make generally available to
its security holders, as soon as practicable, a consolidated earnings statement
meeting the requirements of Rule 158 under the Securities Act (which need not be
audited) covering a period of at least twelve months, but not more than eighteen
months, beginning with the first month of the Company's first quarter commencing
after the effective date of the Registration Statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act; and
(16) cause all Registrable Securities covered by the
Registration Statement to be listed on each securities exchange on which
securities of the same class issued by the Company are then listed if requested
by the Selling Holders holding a majority of the Registered Securities or the
managing underwriter(s), if any.
(b) Provision by Holders of Certain Information. No Holder of
Registrable Securities may include any of its Registrable Securities in any
Registration Statement pursuant to this Agreement unless and until such Holder
furnishes to the Company in writing, within 20 days after receipt of a request
therefor, such information as the Company may reasonably request specified in
Item 507 of Regulation S-K under
8
<PAGE> 9
the Securities Act for use in connection with any Registration Statement or
Prospectus or preliminary Prospectus included therein. Each Holder as to which
any Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
Section 3.2. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be paid by the Company, regardless of
whether any Registration Statement required hereunder becomes effective,
including, without limitation the following (referred to herein as "Registration
Expenses");
(1) all registration and filing fees;
(2) fees and expenses of compliance with securities
or blue sky laws (including, without limitation, reasonable fees and
disbursements of counsel for the Selling Holders in connection with blue sky
qualifications of the Registrable Securities and determination of their
eligibility for investment under the laws of such jurisdictions as the Holders
of Registrable Securities being sold may designate);
(3) printing (including, without limitation, expenses
of printing or engraving certificates for the Registrable Securities in a form
eligible for trading on the New York Stock Exchange or for deposit with the
Depository Trust Company and of printing prospectuses), messenger, telephone and
delivery expenses;
(4) reasonable fees and disbursements of counsel for
the Company and for the Selling Holders (subject to the provisions of Section
3.2(c) hereof);
(5) reasonable fees and disbursements of all
independent certified public accountants of the Company (including, without
limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance);
(6) fees and expenses of other Persons retained by
the Company; and
(7) fees and expenses associated with any NASD filing
required to be made in connection with the registration of the Registrable
Securities.
(b) The Company will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with the listing of the
Registrable Securities to be registered on NASDAQ or on each national securities
exchange on which similar
9
<PAGE> 10
securities issued by the Company are then listed, rating agency fees and the
fees and expenses of any Person, including special experts, retained by the
Company.
(c) In connection with each Registration required hereunder,
the Company will reimburse the Holders of Registrable Securities being
registered pursuant to a registration statement required hereunder for the
reasonable fees and disbursements of not more than one counsel chosen by the
holders of a majority in number of such Registrable Securities.
(d) If the Holders demand a Public Offering pursuant to the
terms of this Agreement, the Company shall be responsible for all costs, fees,
and expenses in connection therewith, except for the fees and disbursements of
the underwriters (including any spread, underwriting commissions and discounts
and other expenses charged by the underwriters) and their legal counsel and
accountants (which shall be borne by the Holders); provided, however, that in no
case shall payments by the Company for fees and expenses under this Section 3.2
(d) exceed $75,000. Therefore, in such circumstances the Holder shall bear the
expenses of the fees and disbursements of any legal counsel or accounting firm
retained by the underwriters in connection with such Public Offering and the
costs of any determination (but not filing) by the underwriters of the
eligibility of the Registrable Securities for investment under the applicable
state securities laws. By way of illustration which is not intended to diminish
from the provisions of Sections 3.2(a)-(c), the Holders shall not be responsible
for, and the Company shall be required to pay the fees or disbursements incurred
by the Company (including by its legal counsel and accountants) in connection
with the preparation and filing of a Registration Statement and related
Prospectus for such offering, the maintenance of such Registration Statement in
accordance with the terms of this Agreement, the listing of the Registrable
Securities in accordance with the requirements of this Agreement and printing
expenses incurred in compliance with the requirements of this Agreement.
Section 3.3. Hold-Back Agreements.
(a) Restrictions on Public Distribution by Holder of
Registrable Securities.
(1) Upon the written request of the managing
underwriter or underwriters of a Public Offering, each Holder of Registrable
Securities shall not effect any Public Distribution of such securities, or any
securities convertible into or exchangeable or exercisable for such securities,
during the 14-day period prior to, and during the 90-day period following, the
offering date for each Public Offering made pursuant to such registration
statement (as identified by such underwriter or underwriters or the Company in
good faith). The foregoing provisions shall not apply to any Holder that is
prevented by applicable statute or regulation from entering into any such
agreement; provided, however, that any such Holder shall undertake not to effect
any Public Distribution of the class of securities covered by such registration
statement
10
<PAGE> 11
(except as part of such Public Offering) during such period unless it has
provided 60 days' prior written notice of such Public Distribution to the
managing underwriter.
(2) Each Holder agrees, upon a request of the Company
made after the Effectiveness Date in writing, not to effect any public sale or
distribution of Common Stock or otherwise conduct marketing activities with
respect to the Stock for a period not to exceed 90 days (the "90-Day Period") if
the Company proposes to make a securities offering or other corporate financing
transaction not in the ordinary course of business, if the Board of Directors of
the Company determines in good faith as evidenced by a resolution of the Board
of Directors that the continuation of public sales or a distribution or other
marketing activities could adversely affect the Company's ability to complete
such other transactions; provided, however, that the restriction contained in
this Section 3.3(a)(2) shall not apply in connection with a transaction by the
Company the primary purpose of which is to raise capital for a specifically
identifiable acquisition. The Holders will be subject to the requirements of
this subparagraph only during the period commencing on the Effectiveness Date
and ending on the last day of the Effectiveness Period, provided, however, that
the Company shall not be permitted to designate more than one such 90-Day Period
and the Effectiveness Period will be extended by such number of days equal to
the number of days the Holders were subject to the requirements of this
subparagraph.
ARTICLE IV
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INDEMNIFICATION AND CONTRIBUTION
Section 4.1. Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Selling Holder, each person, if any, who
controls such Holder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) (hereinafter referred to as a "controlling
person"), the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (each an
"Indemnified Holder"), to the fullest extent lawful, from and against any and
all losses, claims, damages, liabilities, judgments, actions and expenses
(including without limitation and as incurred, reimbursement of all reasonable
costs of investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of counsel to any
Indemnified Holder) directly or indirectly caused by, related to, based upon,
arising out of or in connection with any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus (or any amendment or supplement thereto), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by an untrue
statement or omission or alleged untrue statement or omission that is made in
reliance upon and in conformity with information relating to any of the Holders
furnished in writing to the Company by any of the Holders expressly for use
therein.
Section 4.2. Indemnification by Holders of Registrable Securities. Each
Selling Holder agrees, severally and not jointly, to indemnify and hold harmless
the Company and its directors, officers and any person controlling (within the
meaning of Section l5 of the Securities Act or Section 20 of the Exchange Act)
the Company and its respective officers, directors, partners, employees,
representatives and agents of each such person, to the same extent as the
foregoing indemnity from the Company to each of the Indemnified Holders, but
only with respect to losses, claims, damages, liabilities, judgments, actions
and expenses (including without limitation and as incurred, reimbursement of all
reasonable costs of investigating, preparing, pursuing or defending any claim or
action, or any investigation or proceeding by any governmental agency or body,
commenced or threatened, including the reasonable fees and expenses of counsel
to the Company) directly or indirectly caused by, related to, based upon,
arising out of or in connection with any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus (or any amendment or supplement thereto), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, that such untrue statement or omission is contained in any
information relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement or Prospectus. In case any
action or proceeding shall be brought against the Company or its directors or
officers or any such controlling person in respect of which
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indemnity may be sought against a Holder of Registrable Securities, such Holder
shall have the rights and duties given the Company, and the Company or its
directors or officers or such controlling person shall have the rights and
duties given to each Holder by the preceding paragraph. Each Selling Holder also
agrees to indemnify and hold harmless each other Selling Holder or underwriters
participating in the distribution on substantially the same basis as that of the
indemnification of the Company provided in this Section 4.2. In no event shall
the liability of any Selling Holder hereunder be greater in amount than the
dollar amount of the proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation. The
Company shall be entitled to receive indemnities from underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above with
respect to information so furnished in writing by such Persons specifically for
inclusion in any Registration Statement or Prospectus.
Section 4.3. Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder (an "Indemnified Party") will: (i)
promptly give notice of any claim, action or proceeding (including any
governmental or regulatory investigation or proceeding) or the commencement of
any such action or proceeding to the Person against whom such indemnity may be
sought (an "Indemnifying Party"); provided that the failure to give such notice
shall not relieve the Indemnifying Party of its obligations pursuant to this
Agreement except to the extent that such Indemnifying Party has been prejudiced
in any material respect by such failure; and (ii) permit the Indemnifying Party
to assume the defense of such claim with counsel reasonably satisfactory to such
Indemnified Party; provided that the Indemnified Party shall have the right to
employ separate counsel and participate in the defense of such claim, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Party unless: (a) the Indemnifying Party has agreed to pay for such fees and
expenses; (b) the Indemnifying Party shall have failed to assume the defense of
such claim and employ counsel reasonably satisfactory to such Indemnified Party;
or (c) in the reasonable judgment of such Indemnified Party, based upon advice
of its counsel, a conflict of interest may exist between such Indemnified Party
and the Indemnifying Party with respect to such claims. If such defense is not
assumed by the Indemnifying Party, the Indemnifying Party will not be subject to
any liability for any settlement of any such claim effected without the
Indemnifying Party's prior written consent, which consent shall not be
unreasonably withheld. The Indemnifying Party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify and hold harmless any Indemnified Party
from and against any loss, claim damage, liability or expense by reason of any
settlement of any such claim or action. No Indemnifying Party shall, without the
prior written consent of each Indemnified Party, settle or compromise or consent
to the entry of judgment in or otherwise seek to terminate any pending or
threatened action, claim, litigation or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Party is a party thereto), unless such settlement, compromise,
consent or termination includes an
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<PAGE> 14
unconditional release of each Indemnified Party from all liability arising out
of such action, claim, litigation or proceeding. An Indemnifying Party who is
not entitled to, or elects not to, assume the defense of the claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such Indemnifying Party with respect to such claim, unless in the
reasonable judgment of any Indemnified Party a conflict of interest may exist
between such Indemnified Party and any other such Indemnified Parties with
respect to such Claim, in which event the Indemnifying Party shall be obligated
to pay the fees and expenses of such additional counsel or counsels.
Section 4.4. Contribution. If the indemnification provided for in this
Article IV is unavailable to an Indemnified Party (other than by reason of
exceptions provided in those Sections) in respect of any losses, claims,
damages, liabilities or expenses referred to therein, then each applicable
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall have a
joint and severable obligation to contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages, liabilities
or expenses in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party, on the one hand, and of the Indemnified Party, on the
other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party, on the
one hand, and of the Indemnified Party, on the other, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 4.1, any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 4.4 were determined by pro
rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.4, none of the Indemnified
Holders shall be required to contribute, in the aggregate, any amount in excess
of the amount by which the net proceeds received by such Holder with respect to
the Registrable Securities exceeds the greater of (A) the amount paid by such
Holder for its Registrable Securities and (B) the amount of any damages which
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
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<PAGE> 15
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders' obligation
to contribute pursuant to this Section 4.4 are several in proportion to the
respective number of Registrable Securities held by each of the Holders
hereunder and not joint.
For purposes of this Article IV, each controlling person of a
Holder shall have the same rights to contribution as such Holder, and each
officer, director, and person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act
shall have the same rights to contribution as the Company, subject in each case
to the limitations set forth in the immediately preceding paragraph. Any party
entitled to contribution will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a claim
for contribution may be made against another party or parties under this Article
IV, notify such party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from who contribution may be sought from any obligation it or they may
have under this Article IV or otherwise except to the extent that it has been
prejudiced in any material respect by such failure. No party shall be liable for
contribution with respect to any action or claim settled without its written
consent; provided, however, that such written consent was not unreasonably
withheld.
Section 4.5. Additional Indemnity. The indemnity, contribution and
expense reimbursement obligations under this Article IV shall be in addition to
any liability each Indemnifying Party may otherwise have; provided, however,
that any payment made by the Company which results in an Indemnified Party
receiving from any source(s) indemnification, contribution or reimbursement for
an amount in excess of the actual loss, liability or expense incurred by such
Indemnified Party, shall be refunded to the Company by the Indemnified Party
receiving such excess payment.
ARTICLE V
MISCELLANEOUS
Section 5.1. Specific Performance. Each Holder, in addition to being
entitled to exercise all rights provided herein or granted by law, including
recovery of liquidated or other damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
Section 5.2. No Inconsistent Agreements. The Company will not on or
after the date of this Agreement enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The rights granted
to the Holders hereunder do not
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in any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any agreement in effect on the date
hereof.
Section 5.3. Charter Amendments Affecting the Company's Common Stock.
The Company will not amend its Articles of Incorporation in any respect that
would materially and adversely affect the rights of the Holders hereunder.
Section 5.4. Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to or departures from the provisions
hereof may not be given unless the Company has obtained the written consent of
each Holder.
Section 5.5. Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to the
others shall be made in writing, by hand-delivery, telegraph, telex, telecopier,
registered first-class mail or air courier guaranteeing overnight deliver as
follows:
if to the Company, to:
SmarTalk TeleServices, Inc.
5080 Tuttle Crossing Blvd.
Dublin, Ohio 43017
Attention: Thaddeus Bereday
Facsimile: (614) 764-4801
copy to:
Dewey Ballantine LLP
333 South Hope Street, 30th Floor
Los Angeles, California 90071
Attention: Robert M. Smith
Facsimile: (213) 625-0562
if to any other Person who is then the registered Holder:
To the address of such Holder as it appears
in the stock transfer books of the Company or such other
address as may be designated in writing hereafter, in the same
manner, by such Person.
copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
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Attention: Neil H. Aronson
Facsimile: (617) 542-2241
or to such other place and with such other copies as any party hereto may
designate as to itself by written notice to the others. All such notices and
communications shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; five Business Days after being deposited in the
mail, postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and on the next Business Day if timely delivered to
an air courier guaranteeing overnight delivery.
Section 5.6. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent holders of Registrable Securities, provided that the
Company may not assign its rights or obligations under this Agreement to any
other person or entity without the written consent of each of the Holders.
Section 5.7. Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
Section 5.8. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 5.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without regard
to the choice of law provisions thereof.
Section 5.10. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
Section 5.11. Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Registrable Securities. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
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Section 5.12. Pronouns. Whenever the context may require, any pronouns
used herein shall be deemed also to include the corresponding neuter, masculine
or feminine forms.
Section 5.13. Attorney's Fees. In any action or proceeding brought to
enforce any provision of this Agreement, the successful party shall be entitled
to recover reasonable attorney's fees in addition to its costs and expenses and
any other available remedy.
Section 5.14. Securities Held by the Company or its Subsidiaries.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by the
Company or its Subsidiaries shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
Section 5.15. Further Assurances. Each party shall cooperate and take
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
Section 5.16. Termination. Unless sooner terminated in accordance with
its terms or as otherwise herein provided, this Agreement shall terminate upon
the earlier to occur of: (i) the mutual agreement by the parties hereto; (ii)
except with respect to Article IV, with respect to any Holder, such Holder
ceasing to own any Registrable Securities; or (iii) the first anniversary of the
Effectiveness Date.
(signature page follows)
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IN WITNESS HEREOF, the parties hereto have executed and delivered this Agreement
as of the date first written above.
SMARTALK TELESERVICES, INC.
By: /s/ Erich Spangenberg
---------------------------------
Name: ERICH SPANGENBERG
Title: CEO
Address: 5080 Tuttle Crossing Blvd.
Dublin, Ohio 43017
FAX: (614) 764-4801
COMMON STOCKHOLDERS
/s/ Victor Grillo, Jr.
-------------------------------------------
[stockholder]
/s/ Lloyd Lapidus
-------------------------------------------
[stockholder]
/s/ Raymond Wysocki
-------------------------------------------
[stockholder]
SERIES A PREFERRED STOCKHOLDERS
/s/ Global Retail Partners, L.P.
-------------------------------------------
[stockholder]
/s/ DLJ Diversified Partners, L.P.
-------------------------------------------
[stockholder]
/s/ DLJ Diversified Partners-A, L.P.
-------------------------------------------
[stockholder]
/s/ GRP Partners, L.P.
-------------------------------------------
[stockholder]
/s/ Global Retail Partners Funding, Inc.
-------------------------------------------
[stockholder]
/s/ DLJ First ESC, L.L.C.
-------------------------------------------
[stockholder]
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<PAGE> 20
/s/ Aspire Partners, L.P.
-------------------------------------------
[stockholder]
/s/ C.F. Partners, L.P.
-------------------------------------------
[stockholder]
/s/ Jane Sadowsky
-------------------------------------------
[stockholder]
/s/ Carl Pradelli
-------------------------------------------
[stockholder]
SERIES B PREFERRED STOCKHOLDERS
/s/ Global Retail Partners, L.P.
-------------------------------------------
[stockholder]
/s/ DLJ Diversified Partners, L.P.
-------------------------------------------
[stockholder]
/s/ DLJ Diversified Partners-A, L.P.
-------------------------------------------
[stockholder]
/s/ GRP Partners, L.P.
-------------------------------------------
/s/ Global Retail Partners Funding, Inc.
-------------------------------------------
/s/ DLJ ESC-II, L.L.C.
-------------------------------------------
/s/ Direct Capital Partners, L.P.
-------------------------------------------
/s/ Richard Baum
-------------------------------------------
/s/ Levey Partners, L.L.C.
-------------------------------------------
/s/ Delta Omega Partners, L.L.C.
-------------------------------------------
/s/ Aspire Partners, L.P.
-------------------------------------------
/s/ Robert Gendelman
-------------------------------------------
/s/ KRG Worldwide Direct, L.L.C.
-------------------------------------------
/s/ C.F. Partners, L.P.
-------------------------------------------
/s/ Jane Sadowsky
-------------------------------------------
/s/ Carl Pradelli
-------------------------------------------
/s/ Century Business Credit Corp.
-------------------------------------------
20
