SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Talk.com Inc.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
- --------------------------------------------------------------------------------
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
5) Total fee paid:
[_] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
TALK.COM INC.
12020 Sunrise Valley Drive
Reston, Virginia 20190
(703) 391-7500
October 5, 1999
Dear Stockholders:
In the enclosed package, you will find our notice of annual meeting, proxy
statement and proxy card for our 1999 Annual Meeting of shareholders to be held
on November 10, 1999. As you may be aware, 1999 has been a year of significant
change in the management structure of Talk.com. Some of these changes may not be
apparent from the enclosed documents because the documents primarily include
information about 1998 in accordance with the rules of the Securities and
Exchange Commission.
I became Chairman of the Board, Chief Executive Officer and President of
Talk.com in January of 1999. In August and September 1999, respectively, Arthur
J. Marks and Mark S. Fowler were elected to fill vacancies on our Board of
Directors. As discussed in the enclosed materials, Mr. Fowler is up for election
this year. Talk.com is poised to achieve significant growth as the leading
e-commerce player in the telecom industry. With our senior leadership now in
place, we can concentrate our energies on accelerating Talk.com's growth and
capitalizing on its business momentum.
I appreciate your ongoing interest and participation in Talk.com. I hope
that you will be able to attend the annual meeting. Whether or not you are able
to be present in person at the annual meeting, we urge you to complete, date and
sign the enclosed proxy and return it at your earliest convenience in the
enclosed envelope. I encourage you to read the enclosed materials, which contain
information relevant to the actions to be taken at the annual meeting.
/s/ Gabriel Battista
-------------------------------------
Gabriel Battista
Chairman of the Board
Chief Executive Officer and President
Reston, Viriginia
October 5, 1999
<PAGE>
TALK.COM INC.
12020 Sunrise Valley Drive
Reston, Virginia 20190
(703) 391-7500
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
October 5, 1999
To the Stockholders of
Talk.com Inc. :
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Talk.com Inc. (the "Company") will be held on November 10, 1999, at
10:00 a.m., Eastern time, at The Sheraton Reston Hotel, 11810 Sunrise Valley
Drive, Reston, Virginia 20191 for the following purposes:
(1) To consider and vote upon a proposal to elect one director for a term
of three years, or until his successor has been elected and qualified;
(2) To consider and vote upon a proposal to ratify and approve the
designation of BDO Seidman LLP as the independent certified public
accountants for the Company for 1999; and
(3) To transact such other business as may properly come before the Annual
Meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on October 1, 1999 are
entitled to notice of and to vote at the meeting or any adjournment or
adjournments thereof.
The Board of Directors hopes that you will be able to attend the Annual
Meeting. Whether or not you are able to be present in person at the Annual
Meeting, we urge you to execute the enclosed proxy and return it at your
earliest convenience in the enclosed envelope. In the event that you attend the
Annual Meeting, you may revoke the proxy and vote in person if you desire. You
are urged to read the enclosed proxy statement, which contains information
relevant to the actions to be taken at the Annual Meeting.
By Order of the Board of Directors
/s/ Aloysius T. Lawn, IV
----------------------------------------
Aloysius T. Lawn, IV, Secretary
Reston, Viriginia
October 5, 1999
<PAGE>
TALK.COM INC.
12020 Sunrise Valley Drive
Reston, Virginia 20190
(703) 391-7500
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors (the "Board") of Talk.com Inc. (the "Company"), the
principal executive offices of which are located at 12020 Sunrise Valley Drive,
Reston, Virginia 22091, hereby solicits your proxy in the form enclosed for use
at the Annual Meeting of Stockholders to be held on November 10, 1999 (the
"Annual Meeting"), or at any adjournment or adjournments thereof. The Annual
Meeting will be held at The Sheraton Reston Hotel, 11810 Sunrise Valley Drive,
Reston, Viriginia 20191 at 10:00 a.m., Eastern time. The expenses of soliciting
your proxy will be borne by the Company. This proxy statement and the
accompanying form of proxy are first being released for mailing to stockholders
on or about October 5, 1999.
We urge you to date, sign and mail your proxy promptly to make certain that
your shares will be voted at the Annual Meeting. Proxies in the enclosed form
that are received in time for the Annual Meeting will be voted at the Annual
Meeting in accordance with the instructions, if any, indicated on the proxy
card. If no instruction is given, the proxy will be voted in favor of the
nominees for election as directors specified under "PROPOSAL 1: ELECTION OF
DIRECTOR"; and in favor of the ratification and approval of the selection of
auditors as described in "PROPOSAL 2: RATIFICATION OF INDEPENDENT CERTIFIED
ACCOUNTANTS." Any proxy may be revoked at any time before it is exercised by
giving written notice of such revocation or delivering a later dated proxy to
the Corporate Secretary of the Company prior to the Annual Meeting, or by voting
in person at the Annual Meeting.
VOTING SECURITIES
Only stockholders of record at the close of business on October 1, 1998 are
entitled to vote at the Annual Meeting. On October 1, 1999, there were
61,905,735 outstanding shares of Common Stock, which number reflects 5,028,735
shares as held in treasury and no longer outstanding. Other than shares held in
treasury, each share of Common Stock is entitled to one vote. The presence in
person or by proxy at the Annual Meeting of the holders of a majority of the
shares of Common Stock will constitute a quorum for the transaction of business.
With respect to Proposal 1, the nominees in each class for election as
directors who receive the greatest number of votes cast at the Annual Meeting,
assuming that a quorum is present, shall be elected as directors. A withheld
vote on any nominee will not affect the voting results.
With respect to Proposal 2, approval of that Proposal will require the
affirmative vote of a majority of the shares present in person or represented by
proxy at the Annual Meeting and entitled to vote.
Brokers who hold shares in street name do not have the authority to vote on
certain matters for which they have not received instructions from beneficial
owners. Such broker non-votes (arising from the lack of instructions from
beneficial owners) will not affect the outcome of the vote on Proposals 1 and 2.
It is anticipated that sufficient shareholders will attend the meeting, in
person or by proxy, to constitute a quorum for the transaction of business.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of October
1, 1999 (except as otherwise noted) by (i) each stockholder who is known by the
Company to own beneficially more than five percent of the outstanding Common
Stock, (ii) each of the Company's directors, (iii) each of the executive
officers named below and (iv) all current directors and executive officers of
the Company as a group. Except as otherwise indicated below, the Company
believes that the beneficial owners of the Common Stock listed below have sole
investment and voting power with respect to such shares.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT OF SHARES
NAME OF BENEFICIAL OWNER OR IDENTITY OF GROUP OWNED(1) BENEFICIALLY OWNED
- -------------------------------------------------- ---------------------------- -------------------
<S> <C> <C>
Massachusetts Financial Services Company ......... 7,309,000 (2) 11.81%
500 Boylston Street
Boston, Massachusetts 02116
America Online, Inc. ............................. 6,843,356 (3) 10.59%
22000 AOL Way
Dulles, Virginia 20166
FMR Corp. ........................................ 6,613,200 (4) 10.68%
82 Devonshire Street
Boston, Massachusetts 02109
Legg Mason, Inc. ................................. 5,997,900 (8)(10) 9.69%
100 Light Street
P.O. Box 1476
Baltimore, MD 21203
Paul Rosenberg ................................... 5,759,985 (5) 9.30%
650 N.E. 5th Avenue
Boca Raton, Fl 33432
Geocapital, LLC .................................. 3,339,025 (8) 5.39%
767 Fifth Avenue, 45th Floor
New York , New York 10153
Daniel Borislow .................................. 51,459 (6) *
George Farley .................................... 386,734 (9) *
Gary W. McCulla .................................. 344,945 (9) *
Edward B. Meyercord, III ......................... 846,438 (9) 1.35%
Emanuel J. DeMaio ................................ -- *
Gabriel Battista ................................. 1,052,500 (9) 1.67%
Harold First ..................................... 88,204 *
Ronald R. Thoma .................................. 102,831 *
Arthur J. Marks .................................. 86,001(7) *
Mark S. Fowler ................................... -- *
All directors and executive officers as a group
(10 persons) .................................... 3,077,585 4.78%
</TABLE>
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* Less than 1%.
(1) The securities "beneficially owned" by a person are determined in accordance
with the definition of "beneficial ownership" set forth in the regulations
of the Commission and, accordingly, may include securities owned by or for,
among others, the spouse, children or certain other relatives of such
person. The same shares may be beneficially owned by more than one person.
Beneficial ownership may be disclaimed as to certain of the securities.
Furthermore, the information as to numbers and percentages of shares owned
generally does not reflect, and has not been adjusted for, any shares that
may be issued upon exercise of the non-transferable share purchase rights
that were distributed to holders of shares, options and warrants of record
on December 31, 1998. Such holders of record received one such
non-transferable right for every 20 shares of Common Stock held or
underlying options or warrants on the record date.
4
<PAGE>
(2) Massachusetts Financial Services Company ("MFS"), an investment adviser,
filed an amendment to a Schedule 13G with the Commission on June 15, 1999
(the "MFS 13G"), in which it reported beneficial ownership of 7,309,000
shares, 6,471,100 of which are also beneficially owned by MFS Series Trust
II-MFS Emerging Growth Fund, an investment company, and 837,900 of which are
also owned by certain non-reporting entities as well as MFS. The foregoing
information is derived from the MFS 13G.
(3) The foregoing information is derived from the Schedule 13G filed by America
Online, Inc. on January 15, 1999.
(4) The foregoing information is derived from Schedule 13D filed by FMR Corp. on
March 10, 1999.
(5) The foregoing information is derived from the Schedule 13D filed by Paul
Rosenberg, the Rosenberg Family Limited Partnership, PBR, Inc. and the New
Millenium Charitable Foundation on January 12, 1999.
(6) Includes 32,082 shares beneficially owned by the D&K Charitable Foundation,
of which Messrs. Borislow and Farley serve as a directors.
(7) Excludes 74,241 shares of Common Stock and 821 stock purchase rights held by
Valhalla Capital Management, a general partnership of which Mr. Mark's
spouse serves as general partner. Also excludes 10,759 shares of Common
Stock and 180 stock purchase rights held in various client accounts managed
by Mr. Mark's spouse. Mr. Marks disclaims beneficial ownership of such
shares of Common Stock and stock purchase rights.
(8) The foregoing information was provided to the Company.
(9) Includes shares of Common Stock that could be acquired by Messrs. Battista,
Meyercord, McCulla and DeMaio upon exercise of vested options.
(10) Includes 5,500,000 shares of Common Stock beneficially owned by Legg Mason
Special Investment Trust and 497,900 shares beneficially owned by Legg
Mason Capital Management, Inc.
Under Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company's directors and certain officers and persons who
are the beneficial owners of more than 10 percent of the Common Stock are
required to report their ownership of the Common Stock, options and certain
related securities and any changes in that ownership to the SEC. Specific due
dates for these reports have been established, and the Company is required to
report in this proxy statement any failure to file by such dates in 1998. The
Company believes that all of the required filings have been made in a timely
manner. In making this statement, the Company has relied on copies of the
reporting forms received by it.
PROPOSAL 1: ELECTION OF DIRECTOR
The Company's Amended and Restated Certificate of Incorporation provides
that the Board of Directors (the "Board") shall consist of not less than one nor
more than 15 persons, the exact number to be fixed and determined from time to
time by resolution of the Board. The Board has acted to fix the number of
directors at five. Pursuant to the terms of the Company's Amended and Restated
Certificate of Incorporation, the Board is divided into three classes, as nearly
equal in number as reasonably possible, with terms currently expiring at the
annual meeting of stockholders in 2001 ("Class I"), the annual meeting of
stockholders in 2000 ("Class II") and the annual meeting of stockholders in 1999
("Class III"), respectively.
At the Annual Meeting, Mark S. Fowler is to be elected as a Class III
director, for a term to expire at the annual meeting of stockholders in 2002.
This director will serve until his successor has been elected and qualified. The
nominee for director currently serves as a director of the Company. The proxies
solicited hereby, unless directed to the contrary therein, will be voted for the
nominee. The nominee has consented to being named in this proxy statement and to
serve if elected. The Board has no reason to believe that the nominee for
election as a director will not be a candidate or will be unable to serve, but
if either occurs it is intended that the shares represented by proxies will be
voted for such substituted nominee or nominees as the Board, in its discretion,
may designate.
The following sets forth certain biographical information, present
occupation and business experience for the past five years for the nominee for
election as a director and the continuing Class I and Class II directors.
The Board of Directors recommends a vote FOR the Class III nominee
listed below.
5
<PAGE>
CLASS III: NOMINEE WHOSE TERM WILL EXPIRE IN 2002
MARK S. FOWLER, AGE 57, has been a director of the Company since September
1999. From 1981 to 1987 he was the Chairman of the Federal Communications
Commission. From 1987 to 1994, Mr. Fowler was Senior Communications Counsel at
Latham & Watkins, a law firm. From 1991 to 1994, he was the founder, Chairman
and CEO of PowerFone Holdings Inc., a telecommunications company. In 1994, he
founded and since then has served as Chairman of UniSite, a developer of antenna
sites for use by multiple wireless operators. Mr. Fowler is also a founder and
serves as Chairman of the Board of Directors of AssureSat, Inc., an operator of
telecommunications satellites.
CLASS I: INCUMBENTS WHOSE TERMS WILL EXPIRE IN 2001
GABRIEL BATTISTA, AGE 54. Mr. Battista became a director and the Chairman
of the Board, Chief Executive Officer and President of the Company on January 5,
1999. Prior to joining the Company, Mr. Battista served as Chief Executive
Officer of Network Solutions Inc., an Internet domain name registration company.
Prior to joining Network Solutions, Mr. Battista served from 1995 to 1996 as CEO
and from 1991 to 1995 as President and Chief Operating Officer of Cable &
Wireless, Inc., the nation's largest telecommunications provider exclusively
serving businesses. His career also includes management positions at US Sprint,
GTE Telenet and General Electric Information Services, Mr. Battista also serves
as a director of Axent Technologies, Inc., Capitol College, Systems & Computer
Technology Corporation (SCT) and Online Technologies Group, Inc. (OTG).
RONALD R. THOMA, AGE 61. Mr. Thoma currently serves as Executive Vice
President of Crown Cork and Seal Company, Inc. where he has been employed since
1955. Mr. Thoma has served as a director of the Company since 1995.
CLASS II: INCUMBENTS WHOSE TERMS WILL EXPIRE IN 2000
GEORGE FARLEY, AGE 59. Mr. Farley was Chief Financial Officer and
Treasurer of the Company from October 1997 until August 13, 1999. Mr. Farley is
formerly Group Vice President of Finance/Chief Financial Officer of Twin
County, a food distribution company. Twin County filed a petition under Federal
bankruptcy laws in December 1998. Prior to joining Twin County in September
1995, Mr. Farley was a partner of BDO Seidman, LLP, where he had served as a
partner since 1974.
ARTHUR J. MARKS, AGE 55, has been a director of the Company since August
1999. He has been a General Partner of New Enterprise Associates, a venture
capital firm, since 1984. Mr. Marks serves as a director of three
publicly-traded software companies, Object Design Inc., Epicor Software Corp.
and Progress Software Corp., as well as a number of privately-held companies.
THE BOARD OF DIRECTORS
The Board met or acted by unanimous written consent 12 times in 1998.
During the fiscal year ended December 31, 1998, each then-incumbent director
attended at least 75% of the aggregate number of meetings of the Board of
Directors and meetings of the committees of the Board on which he served.
BOARD COMMITTEES
The Board has established the following two committees, the function and
current members of which are noted below.
Audit Committee. In 1998, the Audit Committee consisted of Harold First
(Chairman) and Ronald R. Thoma. The Audit Committee makes recommendations
concerning the engagement of independent public accountants, reviews the plans
and results of the audit engagement with the independent public accountants,
approves professional services provided by the independent public accountants,
reviews the independence of the independent public accountants and reviews the
adequacy of the Company's internal accounting controls. The Audit Committee met
once in 1998.
6
<PAGE>
Compensation Committee. In 1998, the Compensation Committee consisted of
Harold First and Ronald R. Thoma (Chairman). The Compensation Committee is
responsible for determining compensation for the Company's executive officers
and currently administers the 1995 Employee Stock Option Plan and the 1998 Long
Term Incentive Plan and reviews and approves the grant of options to employees
of the Company. The Compensation Committee met or took action by written consent
twice during 1998.
Although the Board has not established a nominating or similar committee,
the Board will consider stockholder nominations for directors submitted in
accordance with the procedure set forth in Section 402 of the Company's Bylaws.
The procedure provides that a notice relating to the nomination of directors
must be timely given in writing to the Chairman of the Board of Directors of the
Company prior to the meeting. To be timely, notice relating to the nomination of
directors must be delivered not less than 14 days nor more than 50 days prior to
any such meeting of stockholders called for the election of directors. Notice to
the Company from a stockholder who proposes to nominate a person at a meeting
for election as a director must be accompanied by each proposed nominee's
written consent and contain the name, address and principal occupation of each
proposed nominee. Such notice must also contain the total number of shares of
capital stock of the Company that will be voted for each of the proposed
nominees, the name and address of the notifying stockholder and the number of
shares of capital stock of the Company owned by each notifying stockholder.
Stockholder nominations not made in accordance with such procedure may be
disregarded by the Chairman, who may instruct that all votes cast for each such
nominee be disregarded.
COMPENSATION OF DIRECTORS
The Company currently pays non-employee directors an annual retainer of
$10,000. In October, 1998, the Company's employee directors approved the grant
to each of the two non-employee directors of an option to purchase 30,000 shares
of Common Stock at the market value on the date of grant. In December 1998, the
Company's employee directors approved the grant to each of the two non-employee
directors of an additional option to purchase 10,000 shares of Common Stock at
the market value on the date of grant. The Compensation Committee approved
grants of options to purchase 30,000 shares of Common Stock under the 1998 Long
Term Incentive Plan at the market value on the date of grant to Mr. Marks and
Mr. Fowler, non-employee directors who were elected to fill vacancies on the
Board in August and September of 1999, respectively. Non-employee directors are
reimbursed for reasonable expenses incurred in connection with attendance at
Board meetings or meetings of committees thereof.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information for the fiscal years ended
December 31, 1998, 1997 and 1996 as to the compensation paid by the Company to
the Chief Executive Officer for services rendered and the four other most highly
compensated executive officers of the Company whose annual salary and bonus
exceeded $100,000 (the "Named Executives").
7
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------------- --------------------
SECURITIES
UNDERLYING
NAME AND OPTIONS/SARS
PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) (#)(2)
- ------------------------------------- ------ ---------------- ------------------- --------------------
<S> <C> <C> <C> <C>
DANIEL BORISLOW, Chairman and
Chief Executive Officer(3) ......... 1998 $ 325,000 $ 400,000 (4) 750,000
1997 $ 325,000 $ 500,000 --
1996 $ 325,000 $ 500,000 --
GARY W. MCCULLA, President and
Director of Sales and
Marketing(5) ....................... 1998 $ 300,000 $ 446,955 (6) $ 50,000
1997 $ 300,000 $ 500,000 (4) --
1996 $ 300,000 $ 350,000 900,000
EMANUEL J. DEMAIO, Chief
Operations Officer(7) .............. 1998 $ 185,000 $ 345,382 (6) $ 50,000
1997 $ 175,000 $ 225,000 (4) --
1996 $ 165,000 $ 150,000 270,000
EDWARD B. MEYERCORD, III
Executive Vice President -
Marketing and Corporate
Development(8) ..................... 1998 $ 200,000 $ 128,338 (6) --
1997 $ 210,000 $ 150,000 --
1996 $ 52,000(9) $ 400,000 800,000
GEORGE P. FARLEY, Chief Financial
Officer and Treasurer .............. 1998 $ 200,000 $ 100,000 (6) 250,000
1997 $ 28,462 $ 5,000 (6) 200,000 (10)
</TABLE>
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(1) The costs of certain benefits are not included because they did not
exceed, in the case of each Named Executive, the lesser of $50,000 or 10%
of the total annual salary and bonus reported in the above table.
(2) As adjusted to reflect a three-for-two stock split in the form of a stock
dividend effective as of March 15, 1996 and a two- for-one stock split in
the form of a stock dividend effective as of January 31, 1997.
(3) Mr. Borislow resigned from all offices with the Company and its
subsidiaries, effective January 5, 1999.
(4) Bonus paid in shares of Common Stock valued at the current market value of
the date of grant.
(5) Mr. McCulla resigned from all offices with the Company and its
subsidiaries, effective January 5, 1999.
(6) Bonus paid in shares of Common Stock and in-kind property valued in each
case at the current market value at the date of grant.
(7) Mr. DeMaio resigned from all offices with the Company and its
subsidiaries, effective May 14, 1999.
(8) Mr. Meyercord was appointed Chief Financial Officer and Treasurer of the
Company effective August 13, 1999.
(9) Mr. Meyercord was hired by the Company effective as of September 5, 1996.
In connection therewith, Mr. Meyercord was paid $400,000 and was granted
an option to purchase 800,000 shares of the Company`s Common Stock.
(10) Mr. Farley became an employee and Chief Financial Officer and Treasurer of
the Company on October 29, 1997. In connection with his employment, he
purchased 200,000 shares of the Company's Common Stock at a price of $4.25
per share from a former executive officer of the Company. Mr. Farley
resigned from all offices with the Company and its subsidiaries effective
August 13, 1999.
STOCK OPTION GRANTS
The following table sets forth further information regarding grants of
options to purchase Common Stock made by the Company during the fiscal year
ended December 31, 1998 to the Named Executives.
8
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF TOTAL VALUE AT ASSUME
NUMBER OF SECURITIES OPTIONS/SARS EXERCISE ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE PER OPTION TERM(1)
OPTIONS/SARS EMPLOYEES IN SHARE EXPIRATION ----------------------------
NAME GRANTED 1998 ($ SHARES) DATE 5%($) 10%($)
- ------------------------------ ---------------------- ----------------- ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel Borislow .............. 750,000 13.6 5.75 Oct. 12, 2009 $3,063,338 $7,991,566
Gary W. McCulla .............. 350,000 6.3 5.75 Jan. 5, 2001 $ 206,281 $ 422,625
Emanuel J. DeMaio ............ 350,000 6.3 5.75 Jan. 5, 2001 $ 206,281 $ 422,625
Edward B. Meyercord, III ..... -- -- -- -- -- --
George P. Farley ............. 250,000 4.5 5.75 Jan. 5, 2001 $ 147,344 $ 301,875
</TABLE>
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(1) Disclosure of the 5% and 10% assumed annual compound rates of stock
appreciation are mandated by the rules of the SEC and do not represent the
Company's estimate or projection of future common stock prices. The actual value
realized may be greater or less than the potential realizable value set forth in
the table.
The following table sets forth information concerning the 1998 year-end
value of unexercised in-the-money options held by each of the Named Executives.
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES "
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS AT
AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
SHARES
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---------------------------------- ------------- ------------- ------------------------ -----------------------------
<S> <C> <C> <C> <C>
Daniel Borislow .................. $300,000 $1,460,250 750,000/0 $ 8,250,000/0
Gary W. McCulla .................. 673,900 $1,263,610 0/800,000 0/$9,326,500
Emanuel J. DeMaio ................ 213,978 $ 446,458 199,200/485,000 $2,424,264/$3,492,950
Edward B. Meyercord, III ......... -- -- 800,000/0 $ 6,200,000/0
George P. Farley ................. -- -- 0/250,000 $ 0/2,750,000
</TABLE>
- ----------
(1) Based on a year-end fair market value of the underlying securities equal to
$16.75.
EMPLOYMENT CONTRACTS
Gabriel Battista is party to an employment agreement with the Company that
expires on December 31, 2001. Under the terms of the agreement, Mr. Battista
received a signing bonus of $3,000,000 and is entitled to an annual salary of
$500,000, payable in advance, plus a discretionary bonus. Mr. Battista is also
entitled to other benefits and perquisites. In addition, Mr. Battista was
granted options that vest over three years to purchase 1,000,000 shares of the
Company's Common Stock at an exercise price of $10.4375 per share, and options
that vested immediately upon execution of the agreement to purchase an
additional 650,000 shares at an exercise price of $7.00 per share.
In the event of certain transactions (including an acquisition of the
Company's assets, a merger into another entity or a transaction that results in
the Company's Common Stock no longer being required to be registered under the
Securities and Exchange Act of 1934), Mr. Battista will receive an additional
bonus of $1,000,000 if the price per share for the Company's Common Stock in
such transaction was less than or equal to $20.00 per share, or $3,000,000 if
the consideration is greater than $20.00 per share. In addition, upon a change
in control of the Company, all of Mr. Battista's options immediately vest.
Edward B. Meyercord, III entered into a five-year employment agreement with
the Company effective as of September 5, 1996. Under the contract, Mr. Meyercord
is entitled to a minimum annual base salary of $210,000 for each year. In the
event of a "change in control" as defined in Mr. Meyercord's agreement, he will
be entitled to receive an amount equal to the positive difference, if any,
between
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$2,000,000 and an amount equal to the product of (a) 800,000 (the number of
options held by Mr. Meyercord) and (b) the positive difference, if any, between
the market price of the Common Stock on the date of the change in control and
the exercise price of Mr. Meyercord's stock options ($9.00).
During 1998, George Farley was party to an employment agreement with the
Company, which provided for a base annual salary of $240,000 and annual bonuses
determined by the Board with continuation of the annual salary payments for
twenty-two months after termination of his employment. In connection with his
resignation on August 13, 1999 as an employee of the Company, Mr. Farley's
employment agreement was modified to clarify the provision by the Company of (i)
continued health, medical and other benefits; and (ii) the continued use of an
automobile leased by the Company and the right to purchase the automobile for
$1.00 at the end of the term of the current lease.
Mr. Borislow's employment agreement with the Company terminated on January
5, 1999. Under the terms of the agreement, Mr. Borislow was entitled to an
annual base salary of $325,000, customary benefits and a cost of living
adjustment based upon the Consumer Price Index as published by the Department
of Labor. Mr. McCulla's and Mr. DeMaio's employment agreements have terminated
in connection with their separation from the Company as executive officers. See
"Certain Relationships and Related Party Transactions."
The above-described agreements require each of the executives to maintain
the confidentiality of Company information and assign inventions to the Company.
In addition, each of such executive officers has agreed that such person will
not compete with the Company by engaging in any capacity in any business that is
competitive with the business of the Company during the term of his respective
agreement and thereafter for specified periods.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Daniel Borislow, the Chief Executive Officer of the Company, served on the
Compensation Committee until March 3, 1998, the date of his resignation from
the Committee. Until the termination of his employment agreement on January 5,
1999, Mr. Borislow's compensation was determined by the non-employee director
members of the Compensation Committee. See "Report On Executive Compensation."
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On January 5, 1999, Mr. Daniel Borislow, a founder of the Company and its
Chairman of the Board and Chief Executive Officer, resigned as a director and
officer of the Company and its subsidiaries. As outlined below, the Company
entered into various agreements and engaged in various transactions with Mr.
Borislow and certain entities in which he or his family has an interest.
The Company paid $1.0 million to Mr. Borislow, assigned certain automobiles
to him, and continued certain of his health and medical benefits and director
and officer insurance. The Company also agreed that, so long as Mr. Borislow
owns beneficially at least two percent (2%) of the common stock (on a fully
diluted basis), Mr. Borislow and trusts for the benefit of his children would be
entitled to: registration rights with respect to their shares of Common Stock,
the right to require the Company to use a portion of proceeds from any public or
private sale of debt securities, excluding borrowings from a commercial bank or
other financial institution, by the Company to repurchase debt securities of the
Company owned by Mr. Borislow or the trusts for the benefit of his children and
the right to require the Company to use the proceeds from the exercise of stock
options or rights to repurchase Common Stock owned by Mr. Borislow or the trusts
for the benefit of his children. The Company also agreed that, so long as Mr.
Borislow had such beneficial ownership, the Company would not, without the prior
written consent of Mr. Borislow and subject to certain exceptions: (a) engage in
certain significant corporate transactions, including the sale or encumbrance of
substantially all of its assets, mergers and consolidations and certain material
acquisitions, or, (b) for a period of 18 months from the agreement date, offer
or sell any of its Common Stock unless and until Mr. Borislow and the trusts
have sold or otherwise disposed of all of the shares of Common Stock held by him
on the agreement date. In turn, Mr. Borislow terminated his
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employment with the Company and agreed not to compete with the Company for at
least one year. Mr. Borislow also agreed to guarantee up to $20.0 million of the
Company's obligations in connection with the Investment Agreement with AOL
described in Item 7 of this report.
Effective December 31, 1998, the Company, in exchange for a total of
783,706 shares of Common Stock, (i) sold to Jimlew Capital, L.L.C., a company
owned by Mr. Borislow, (a) all of the capital stock of Emergency Transportation
Corporation (a wholly owned subsidiary of the Company, the primary asset of
which is an interest in a jet airplane), valued at approximately $8.7 million,
and (b) all of the real property constituting the Company's headquarters in New
Hope, Pennsylvania, valued at approximately $2.0 million, and (ii) released Mr.
Borislow from an obligation to the Company for borrowings representing
approximately $4.7 million principal amount and interest at the rate of 6% per
annum. Mr. Borislow agreed to lease to the Company a portion of the headquarters
property at a base monthly rent of $12,500. The subsidiary stock and the real
property were valued based on the book value of these assets, which the
management of the Company believes approximated the fair market value of these
assets on the date of exchange. The Common Stock exchanged for the assets was
valued at its market value on the date of the exchanges. The Company had
previously determined that it would be desirable to dispose of these assets and
accordingly believed that the ownership of these assets was not required for the
continued operation of the Company's business.
During 1998, the following additional officers and directors had
outstanding non-interest-bearing loans from the Company in the amounts
indicated: Gary W. McCulla, $3,541,382; George P. Farley, $1,554,532; Aloysius
T. Lawn, IV, $1,293,506; Emanuel J. DeMaio, $821,906; Harold First, $236,800;
and Ronald Thoma, $236,800. These loans were incurred in connection with the
exercise of stock options or the holding of shares of Common Stock. The loans
have since been repaid through delivery by the borrower to the Company of shares
of Common Stock with a fair market value on date of payment equal to the
outstanding amount of such loans.
On January 5, 1999, the Company assigned to a trust for the benefit of Mr.
Borislow's children the Company's interest in $53,700,000 principal amount of
subordinated notes of Communication TeleSystems International d/b/a WorldxChange
Communications, in exchange for $62,545,000 aggregate principal amount of the
Company's 2002 Convertible Notes and 2004 Convertible Notes owned by the trust.
The exchange rate was determined based on the Company's assessment of the fair
values of the WorldxChange Notes and of the Company's Convertible Notes given in
exchange, which assessment was supported by the opinion of an independent
investment banking firm as to the fairness to the Company of the consideration
received.
In the first quarter of 1999, the Company purchased from Mr. Borislow and
from two trusts for the benefit of Mr. Borislow's children $76,557,000 aggregate
principal amount of the Company's 2002 Convertible Notes and 2004 Convertible
Notes for $65.4 million in cash.
On January 5, 1999, pursuant to the terms of his existing employment
agreement, Gary W. McCulla entered into an agreement with the Company in
connection with his separation from the Company as an officer. In accordance
with his employment agreement, he is entitled to receive payments aggregating
$750,000 per year through January 5, 2001, and is eligible to receive certain
health, medical and other benefits.
On April 6, 1999, pursuant to the terms of his existing employment
agreement, Emanuel J. DeMaio entered into an agreement with the Company
providing for the termination of his employment with the Company as of May 14,
1999. In accordance with his employment agreement, he is entitled to receive
payments aggregating $400,000 per year for two years, and is eligible to receive
certain health, medical and other benefits. Mr. DeMaio agreed to remain
available to provide consulting services to the Company for a period of 18
months at a rate of two hundred dollars ($200) per hour.
On August 13, 1999, George Farley entered into an agreement with the
Company providing for the termination of his employment with the Company as of
that date and certain other matters. The details of this amendment are
described above. See "Employment Contracts."
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REPORT ON EXECUTIVE COMPENSATION
The Board has a compensation committee (the "Compensation Committee") to
approve salaries and certain incentive compensation arrangements for management
and key employees of the Company. Mr. Borislow did not participate in decisions
relating to his compensation.
The principal elements of the Company's compensation structure are
described below:
Annual Salary. Minimum annual base salaries for executive officers of the
Company, have been established pursuant to employment contracts negotiated with
each of the executive officers of the Company. The Company believes that such
employment contracts help to attract and retain qualified individuals. In
addition, the employment agreements require the Company's executive officers to
maintain the confidentiality of Company information and prevent such persons
from competing with the Company in any capacity in any business that is
competitive with the business of the Company during the term of the respective
agreement and thereafter for specified periods of time. See "Employment
Contracts."
Minimum annual base salaries for executive officers of the Company
generally are established by employment contracts. Increases above such minimum
base salaries will be granted in the discretion of the Compensation Committee
based on its subjective assessment of individual performance.
Annual Bonus Plan. In March 1996, the Compensation Committee established
the Company's bonus program. Under the bonus program, the Company pays cash
bonuses based on the incremental increase in gross revenues over the gross
revenues from the preceding fiscal year, excluding incremental increases in
gross revenues attributable to acquisitions by the Company (the "Incremental
Amount"). From the available Incremental Amount, the Compensation Committee has
the sole discretion to award cash bonuses to executives equal to an aggregate of
1.5% of such Incremental Amount. Mr. Borislow was entitled to receive a cash
bonus equal to at least .5% of the Incremental Amount. With respect to
incremental revenue associated with acquisitions made by the Company
("Acquisition Incremental Amount"), the non-employee directors may award
additional cash bonuses to the Chairman and Chief Executive Officer and other
executives. These additional cash bonuses are limited to .5% of Acquisition
Incremental Amount to, the Chairman and Chief Executive Officer and 1.5% of
Acquisition Incremental Amount to other executives.
On December 18, 1998, the Compensation Committee met and awarded the
bonuses set forth in the Summary Compensation Table in accordance with the terms
of the bonus program described above.
Long Term Incentive Compensation. In general, the Company has granted stock
options to key executives as an inducement to such executives' entering into
employment contracts with the Company.
The Company believes that stock options are an effective tool for directly
linking the financial interests of executive officers and key employees with
those of the Company's stockholders and for recruiting and retaining high
quality management personnel. Stock options are intended to focus the efforts of
executive officers and key employees on performance that will increase the value
of the Company for all of its stockholders. Future option grants under the 1995
Employee Stock Option Plan and under the 1998 Long-Term Incentive Plan will be
made in the discretion of the Compensation Committee or in connection with the
negotiation of individual employment arrangements.
Chief Executive Officer's 1998 Compensation. As set forth in the Summary
Compensation Table, Mr. Borislow's total base salary and bonus was $725,000. On
December 18, 1998, the Compensation Committee met and awarded Mr. Borislow's
bonus set forth in the Summary Compensation Table in accordance with the terms
of the bonus program described above.
THE COMPENSATION COMMITTEE
Harold First
Ronald R. Thoma
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PERFORMANCE GRAPH
The following graph sets forth a comparison of the percentage change in the
cumulative total stockholder return on the Common Stock compared to the
cumulative total return of the S&P 400 Index and the S&P Long Distance Index for
the period from September 21, 1995, the date on which trading in the Common
Stock commenced, through December 31, 1998. The comparison assumes that $100 was
invested on September 21, 1995 in Common Stock and each of the indices and
assumes reinvestment of dividends. The stock price performance shown on the
graph below is not necessarily indicative of future performance.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 21, SEPTEMBER 29, DECEMBER 29, DECEMBER 29, DECEMBER 31, DECEMBER 31,
1995 1995 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Talk.Com, Inc. ........ $100 $ 96 $ 87 $272 $372 $187
- ------------------------------------------------------------------------------------------------------------------------------
S&P 400 Index ......... 100 100 105 126 162 206
- ------------------------------------------------------------------------------------------------------------------------------
S&P Long Distance
Index ................ 100 102 102 100 144 209
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</TABLE>
PROPOSAL 2: RATIFICATION OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
The Board has appointed the firm of BDO Seidman, LLP as independent
auditors of the Company for the current fiscal year. This internationally known
firm has served as the Company's independent auditors since 1995 and has no
direct or indirect financial interest in the Company.
Although not legally required to do so, the Board is submitting the
selection of BDO Seidman, LLP as the Company's independent auditors for
ratification by the stockholders at the Annual Meeting. If a majority of the
shares of common stock represented in person or by proxy at the meeting is not
voted for such ratification (which is not expected), the Board will reconsider
its appointment of BDO Seidman, LLP as independent auditors of the Company.
A representative of BDO Seidman, LLP will be present at the Annual Meeting
and will have the opportunity to make a statement if he desires to do so. It is
anticipated that such representative will be available to respond to appropriate
questions from stockholders.
13
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The Board of Directors recommends a vote FOR the proposal to ratify the
selection of BDO Seidman, LLP as independent auditors of the Company.
OTHER BUSINESS
The Company does not presently know of any matters that will be presented
for action at the Annual Meeting other than those set forth herein. If other
matters properly come before the meeting, proxies submitted on the enclosed form
will be voted by the persons named in the enclosed form of proxy in accordance
with their best judgment.
ANNUAL REPORTS
The Company's Annual Report on Form 10-K, as amended, for the fiscal year
ended December 31, 1998 is enclosed with this proxy statement. The Company also
has filed this report with the SEC. Other than those sections of the Company's
Annual Report on Form 10-K, as amended, that are specifically incorporated by
reference into this proxy statement, the Form 10-K is not part of these proxy
solicitation materials.
2000 ANNUAL MEETING OF STOCKHOLDERS
In accordance with rules promulgated by the SEC, any stockholder who wishes
to submit a proposal for inclusion in the proxy materials to be distributed by
the Company in connection with the annual meeting of stockholders in 2000 must
submit it so it will be received by the Company by June 7, 2000, unless the
Company changes the date of next year's annual meeting by more than 30 days from
this year's, in which case the proposal must be submitted at a reasonable time
before the Company begins to print and mail its proxy materials. Any shareholder
proposals for the 2000 annual meeting of shareholders that are submitted outside
the processes of Rule 14a-8 under the Securities Act of 1934 will be considered
untimely if not received by the Company within a reasonable time prior to its
printing its proxy materials in 2000. In addition, any stockholder proposal for
next year's annual meeting submitted after August 21, 2000 or, if the Company
changes the date of the 2000 annual meeting by more than 30 days from this
year's, after a reasonable time before the Company mails its proxy materials for
next year's annual meeting, will not be considered filed on a timely basis with
the Company under SEC Rule 14a-4(c)(1). For proposals that are not timely filed,
the Company retains discretion to vote proxies it receives. For proposals that
are timely filed, the Company retains discretion to vote proxies it receives
provided 1) the Company includes in its proxy statement advice on the nature of
the proposal and how it intends to exercise its voting discretion and 2) the
proponent does not issue a proxy statement.
By Order of the Board of Directors
/s/ Aloysius T. Lawn, IV
Aloysius T. Lawn, IV, Secretary
Reston, Virginia
October 5, 1999
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TALK.COM INC.
12020 Sunrise Valley Drive
Reston, Virginia 20190
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON NOVEMBER 10, 1999
The undersigned holder of shares of Common Stock of Talk.com Inc. hereby
appoints Gabriel Battista and Aloysius T. Lawn, IV, and each of them, with full
power of substitution, as proxies to vote all shares owned by the undersigned at
the Annual Meeting of Stockholders to be held on November 10, 1999, at 10:00
a.m., Eastern time, at The Sheraton Reston Hotel, 11810 Sunrise Valley Drive,
Reston, Virginia 20191, and any adjournment or postponement thereof. A majority
of said proxies, or any substitute or substitutes, who shall be present and act
at the meeting (or if only one shall be present and act, then that one) shall
have all the powers of said proxies hereunder.
Please mark, date and sign the proxy and return it promptly in the accompanying
business reply envelope, which requires no postage if mailed in the United
States. If you plan to attend the meeting, please so indicate in the space
provided on the reverse side.
The shares represented by this Proxy, if signed and returned, will be voted as
specified on the reverse side. If no specification is made, your shares will be
voted FOR approval of the election of the one director nominee, Mark S. Fowler
and FOR ratification and approval of the appointment of BDO Seidman, LLP as the
independent certified public accountants for the Company for 1999 (the "Audit
Proposal").
IMPORTANT: PLEASE MARK AND SIGN ON THE REVERSE SIDE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE ELECTION OF ONE
DIRECTOR AND FOR APPROVAL OF THE AUDIT PROPOSAL.
(SEE REVERSE SIDE)
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FOLD AND DETACH HERE
<PAGE>
<TABLE>
<CAPTION>
FOR the WITHHOLD AUTHORITY
nominee to vote for nominee FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C>
1. Election of Mark S. Fowler / / / / 2. To approve the Audit Proposal / / / / / /
MARK HERE IF YOU PLAN TO ATTEND THE MEETING / /
In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting or any
postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS AND WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS APPEARING ON THIS SIDE. IF A CHOICE
IS NOT INDICATED WITH RESPECT TO ITEM 1 OR ITEM 2,
THIS PROXY WILL BE VOTED "FOR" SUCH ITEM. THE
PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO
ANY OTHER MATTER PROPERLY BROUGHT BEFORE THE
MEETING OR ANY POSTPONEMENT. THIS PROXY IS
REVOCABLE AT ANY TIME BEFORE IT IS EXERCISED.
Receipt herewith of the Company's Notice of
Annual Meeting of Stockholders to be held on
November 10, 1999 and the related proxy statement
dated October 8, 1999 and Form 10-K for the fiscal
year ended December 31, 1998, as amended, are
hereby acknowledged.
PLEASE SIGN, DATE AND MAIL TODAY
Signature(s) of Stockholder(s)_______________________________________________________________ Date ___________________________, 1999
Joint owners must EACH sign. Please sign EXACTLY as your name(s) appear(s) on this card. When signing as attorney, executor,
administrator, trustee, guardian, partner, or corporate officers, please give FULL title.
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FOLD AND DETACH HERE
</TABLE>
