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EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of May 31, 1997 by and among SmarTalk TeleServices, Inc., a
California corporation (the "Company"), and each of the holders of the Company's
Common Stock, no par value (the "Common Stock") executing this Agreement (each
of which is referred to herein, together with its transferees, as a "Holder" and
collectively with their transferees, the "Holders").
WHEREAS, pursuant to that certain Stock Purchase Agreement dated
as of May 31, 1997 (the "Stock Purchase Agreement") by and among the Company,
GTI Telecom, Inc., a Florida corporation ("GTI") and the Holders, SmarTalk will
purchase and receive from the Holders, all of the outstanding shares of capital
stock of GTI, and in connection therewith the Holders will receive 2,580,000
shares of Common Stock; 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 SmarTalk, GTI and
the Holders under the Stock Purchase 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 Stock
Purchase 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 indirectly, whether through the ownership of voting securities, by
contract 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.
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"Closing" is defined in the Stock Purchase Agreement.
"Effectiveness Date" is defined in Section 2.1.
"Effectiveness Period" is defined in Section 2.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Event Date" is defined in Section 2.1.
"Holders" means the holders of Common Stock which have executed
this Agreement, together with their transferees.
"Filing Date" is defined in Section 2.1.
"90-Day Period" is defined in Section 3.4
"Person" means an individual, partnership, corporation, limited
liability company, trust or unincorporated organization, or a government or
agency or political subdivision thereof.
"Piggyback Registration" is defined in Section 2.2.
"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, or any bona fide public
sale in an open market transaction under Rule 144 of the Securities Act (or any
successor rule) if such sale is in compliance with the requirements of
paragraphs (c), (d), (e), (f) and (g) of such Rule (notwithstanding the
provisions of paragraph (k) of such Rule).
"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.
"Registrable Securities" means each share of Stock acquired by
the Holders pursuant to the Stock Purchase Agreement (or as set forth in clause
(ii) of the definition of "Stock" below), until (i) it has been effectively
registered under the Securities Act and disposed of by such Holders pursuant to
an effective registration statement, or (ii) it is sold by such Holders pursuant
to Rule 144 (or any similar provisions then in force) under the Securities Act;
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
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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 or a Piggyback
Registration pursuant to Section 2.2, including the Prospectus included therein,
all amendments and supplements thereto (including post-effective amendments) 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.
"Underwritten Registration" or "Underwritten Offering" means a
Piggyback Registration in which Stock of the Company is sold to an underwriter
for re-offering to the public.
ARTICLE II.
REGISTRATION RIGHTS
SECTION 2.1. SHELF REGISTRATION.
(a) Filing and Effectiveness. The Company shall cause to be filed
with the SEC prior to the later to occur of (i) May 30, 1998 or (ii) 10 days
after the date the Company first becomes eligible to file a registration
statement on Form S-3 (the 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 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
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Company shall use its best 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 at least two years
following the Closing (the "Effectiveness Period"), subject in any event to
Section 3.4(a)(2) hereof.
(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) No Underwriter. The Company shall be under no obligation to
effect or to assist any underwritten offering of Registrable Securities except
to the extent that a Piggyback Registration is effected in the form of an
Underwritten Offering pursuant to Section 2.2.
SECTION 2.2. PIGGYBACK REGISTRATION.
If at any time after May 30, 1998 the Company shall determine to
file a registration statement under the Securities Act relating to a proposed
sale to the public of its Common Stock (but excluding registrations on Form S-4
or S-8) either for its own account or the account of a security holder or
holders (in either case a "Piggyback Registration"), the Company shall:
(a) promptly give to each Holder of a Registrable Security
written notice thereof (which notice will include a list of the jurisdictions in
which the Company intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws, the proposed offering price,
and the plan of distribution);
(b) 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 or
requests, made within 30 days after such written notice from the Company, by any
holder or holders of Registrable Securities; and
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(c) use its best efforts to cause the managing underwriter or
underwriters of such proposed Underwritten Offering to permit the Registrable
Securities requested to be included in the Registration Statement for such
Underwritten Offering to be included on the same terms and conditions as any
similar securities of the Company included therein. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such offering advise
the Holders of such Registrable Securities that marketing considerations require
a limitation on the number of shares of Common Stock or other Registrable
Securities offered pursuant to any Registration Statement subject to this
Section 2.2, then subject to the advice of said managing underwriter or
underwriters as to the size and composition of the offering, the Company will
include Common Stock and other Registrable Securities in such registration in
accordance with the following priorities: (i) first, Common Stock to be sold for
the account of the Company; (ii) second, Common Stock to be sold for the account
of the Company's stockholders, other than the Holders of Registrable Securities,
who have demanded or requested to be included in the registration pursuant to
"demand," "piggyback" or other registration rights provisions of other
agreements to which the Company is a party and (iii) third, pro rata with
respect to all Holders of Registrable Securities who have requested to be
included in the registration pursuant to this Section 2.2 in proportion to the
number of shares owned by each such Holder.
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;
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(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 purposes(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, and throughout the period specified in Section 3.4(b) hereof,
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
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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 filing 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;
(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 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;
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(11) 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;
(12) 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;
(13) 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 month periods, 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
(14) 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 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"):
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(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); and
(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 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.
SECTION 3.3. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may
participate in any Underwritten Registration hereunder unless such Holder (i)
agrees to sell its Registrable Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all reasonable questionnaires,
powers of attorney, underwriting agreements, hold-back agreements, letters and
other documents customarily required under the terms of such underwriting
arrangements. Notwithstanding the foregoing, (x) no Selling Holder shall be
required to make
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any representations or warranties except those which relate solely to such
Holder and its intended method of distribution, and (y) the liability of each
such Holder to any underwriter under such underwriting agreement will be limited
to liability arising from misstatements or omissions regarding such Holder and
its intended method of distribution and any such liability shall not exceed an
amount equal to the amount of net proceeds such Holder derives from such
registration. Nothing in this Section 3.3 shall be construed to create any
additional rights regarding the registration of Registrable Securities in any
Person otherwise than as set forth herein.
SECTION 3.4. 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, including a sale pursuant to Rule 144 under the
Securities Act (except as part of such Public Offering), 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 (except as part of such Underwritten 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 and delivered with at least five
days' prior notice, 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, material acquisition
or engage in any other material corporate 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. 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
designated more than two such 90-Day Periods 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.
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ARTICLE IV.
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 15 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 indemnity may be
sought against a Holder of Registrable Securities, such Holder shall have the
rights and duties
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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, or (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 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
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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. 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.
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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. RULE 144. The Company agrees it will file in a timely
manner all reports required to be filed by it pursuant to the Securities Act and
the Exchange Act and the rules and regulations adopted by the SEC thereunder and
will take such further action as any Holder of Registrable Securities may
reasonably request in order that such Holder may affect sales of Registrable
Securities without registration within the limitations of the exemptions
provided by Rule 144, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC. At any reasonable time
and upon the request of a Holder of Registrable Securities, the Company will
furnish such Holder with such information as may be necessary to enable the
Holder to effect sales of Registrable Securities pursuant to Rule 144 under the
Securities Act and will deliver to such Holder a written statement as to whether
it has compiled with such information and requirements.
SECTION 5.2. 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.
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SECTION 5.3. 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 Company has not
previously entered into any agreement granting any registration rights with
respect to its securities to any Person. The rights granted to the Holders
hereunder do not 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 5.4. 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 5.5. 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 5.6. 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.
1640 South Sepulveda Boulevard, Suite 500
Los Angeles, CA 90025
Attention: General Counsel
Fax: 310 (479-3297)
if to any Holder:
to the address specified below such Holder's name on the
signature pages hereto;
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 5.7. 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,
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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 5.8. 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 5.9. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
SECTION 5.10. 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 5.11. 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 5.12. 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.
SECTION 5.13. PRONOUNS. Whenever the context may require, any pronouns
used herein shall be deemed also to include the corresponding neuter, masculine
or feminine forms.
SECTION 5.14. 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 5.15. SECURITIES HELD BY THE COMPANY OR ITS SUBSIDIARIES.
Whenever the consent or approval of Holders of a specified percentage or
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 5.16. 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.
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SECTION 5.17. 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)
with respect to any Holder, such Holder ceasing to own any Registrable
Securities, or (iii) the fifteenth anniversary of the Closing.
(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 L. SPANGENBERG
------------------------------------
Name: Erich L. Spangenberg
Title: President, Chief Operating Officer
Address: 1640 South Sepulveda Boulevard,
Suite 500
Los Angeles, California 90025
FAX: (310) 479-3297
By: /s/ WILLIAM R. HARGER
------------------------------------
WILLIAM R. HARGER
Address: c/o J. Bennett Grocock, Esq.
126 East Jefferson Street,
Suite 200
Orlando, Florida 32801
FAX: (407) 425-0032
WATERTON INVESTMENT GROUP I, LLC
By: Waterton Management, L.L.C.
Its: Managing Member
By: /s/ KENNETH J. ABDALLA
--------------------------------------
Kenneth J. Abdalla
Managing Member of
Waterton Management, L.L.C.
Address: 10000 Santa Monica Boulevard,
Fifth Floor
Los Angeles, California 90067
FAX: (310) 798-7201