AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1999
Registration No. 333-72357
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TALK.COM INC.
FORMERLY, TEL-SAVE.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-28277736
(State or other jurisdiction (I.R.S. Employee
of incorporation or organization) Identification Number)
12020 SUNRISE VALLEY DRIVE
RESTON, VIRGINIA 22091
(703) 391-7500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ALOYSIUS T. LAWN, IV
GENERAL COUNSEL AND SECRETARY
TALK.COM INC.
6805 ROUTE 202 NEW HOPE, PA 18938
(215) 862-1500
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (as defined below), other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
CALCULATION OF REGISTRATION FEE
<TABLE>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value per share 3,585,447 $10.69 $38,328,428.43 $10,655.30
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(1) This Registration Statement covers a total of 16,428,803 shares. See note 2.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933 based on the
average of the high and low prices of the Common Stock on the Nasdaq
National Market on June 8, 1999. Filing fees of $39,944 was previously paid
in connection with the registration of 12,843,356 shares.
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<PAGE>
SUBJECT TO COMPLETION DATED JUNE 11, 1999
TALK.COM INC.
FORMERLY, TEL-SAVE.COM, INC.
PROSPECTUS
16,428,803 SHARES OF COMMON STOCK
The Selling Stockholders listed below under the caption ''Selling Stockholders''
may use this prospectus to offer and sell from time to time an aggregate of up
to 16,428,803 shares of our common stock.
Our common stock is quoted on the Nasdaq National Market and traded under the
symbol "TALK."
See "Risk Factors" beginning on page 2 for a discussion of certain material
factors that you should consider in connection with an investment in our common
stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is __, 1999
<PAGE>
RISK FACTORS
Before you invest in the shares of common stock offered in this prospectus, you
should carefully consider the following factors and other information contained
in our current and future reports and in this prospectus before deciding to
invest in our shares.
A majority of our sales are currently generated by customers who signed up to
our service while subscribing to America Online, Inc. our business currently
depends significantly on our agreements with AOL. Any significant reduction in
the number of AOL subscribers acquiring our service could adversely affect our
results of operations or our revenues and profitability.
At the beginning of 1997, we entered into an innovative
telecommunications marketing agreement with AOL, and launched a major initiative
for marketing and selling our telecommunication services online to AOL
subscribers over the AOL service. We believe that our business currently depends
to a material extent upon our agreements and relationship with AOL. We believe
that the results of our agreement with AOL will have a material effect on our
business, financial condition and results of operations. We cannot assure you
that our arrangement with AOL will be profitable for us on a quarter-to-quarter
basis or that our current experience with our AOL long distance business is a
fair indication of the future results of our AOL relationship.
Our agreement with AOL gives us the exclusive right to market long
distance and wireless telephone service over AOL until June 2003. However, AOL
may allow others to market long distance telephone and wireless services to AOL
subscribers after June 2000 if AOL forgoes the fixed quarterly payments that we
are otherwise obligated to pay AOL. We currently cannot predict the impact on
our AOL business if AOL elects to terminate our exclusivity period early.
Our spending on marketing may not be enough to attract and retain additional
customers.
We have spent substantial amounts of money marketing our AOL service
offerings, and under the amended AOL agreement will continue to do so. We can
provide no assurance that these expenditures are enough to attract substantial
additional customers to our service, or that any new subscribers will remain our
customers long enough to recoup the costs of attracting these additional
customers.
Actions by local telephone companies have hampered and may in the future
continue to hamper our ability to switch new customers quickly to our service.
Inability to switch new customers quickly to our long distance service makes it
more difficult for us to sign up new customers.
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The success of our online telecommunications sales and marketing
business depends in part on our ability to establish telephone service promptly
after receiving an order. Restrictions on marketing telecommunications services
are becoming stricter in the wake of widespread consumer complaints throughout
the industry about the unauthorized conversion of a customer's preselected
telecommunications carrier. Federal and state legislation and rulings by the
Federal Communications Commission have made the transfer of new customers to new
long distance service more difficult. In addition, many local exchange carriers
have offered their customers programs that require customers seeking to change
long distance carriers to contact the local carrier directly instead of having
the long distance carrier contact the local carrier on the customer's behalf.
Many local carriers have imposed burdensome requirements on customers seeking to
lift these programs and change long distance carriers, which makes it difficult
for customers to switch to our long distance service.
Although these programs and other restrictions were perhaps designed to
avoid unauthorized transfers of telephone service, by requiring the customer to
directly contact his or her local phone company to change long distance
carriers, they have the effect, we believe, of interfering with a customer's
choice to switch service to a better priced product, such as our AOL long
distance service. This requirement deprives new customers of the ability to take
full advantage of our online services, which allows a customer to sign-up and
authorize a change to our long distance service entirely online through our
innovative online customer care and billing systems. Although the FCC is engaged
in rule-making proceedings that could modify the rules governing the offering,
implementing and lifting of these programs, we can provide no assurance that
those rules will be adopted, or that if adopted, any new rules would effectively
limit the harmful effects of these programs.
If we are unable to maintain the complex systems required to support our online
operations, we could lose existing long distance customers and we may be unable
to expand our customer base as much as we had planned.
The success of our plans to increase and retain our customer base
through a focus on online transactions depends on our ability to develop and
maintain complex systems to support our online sign-up and billing services. We
have developed, and will seek to continue to develop and to improve, our systems
for customer care and billing services, including online sign-up, call detail
and billing reports and credit card payment. We will be required to find, employ
and retain skilled programmers to develop and maintain these complex systems.
Unanticipated delays or difficulties in developing these systems or in hiring
personnel could materially adversely affect our online business, including our
AOL telecommunications business.
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The significant growth of our business has in the past and may continue to put
significant strain on our resources.
Although we cannot assure you that our business will continue to grow
at a rapid pace, continued growth of our current business will continue to place
significant demands on our management and on our operational, financial and
other resources. Moreover, much of our management, including the new Chief
Executive Officer, recently joined us. We must also continue to improve our
operations, management, financial and information systems and controls and to
expand, train and manage our employee base, including in the areas of customer
service support, finance, marketing and administration. Our ability successfully
to improve in these areas depends, among other things, on our ability to pay for
significant investments of resources. We must also manage, attract and retain
qualified personnel, the competition for whom is intense.
If we are unable to compete successfully in the long distance market generally,
or in the online long distance market in particular, our sales could decline.
The long distance telecommunications industry is highly competitive.
Major participants in the industry regularly introduce new services and
marketing activities. Changes in the regulation of the telecommunications
industry may affect our competitive position, as may consolidation and alliances
across geographic regions and across industry segments. Competition in the long
distance business is based upon pricing, customer service, billing services and
perceived quality. We compete against numerous long distance carriers that offer
essentially the same services as we do. Several of our competitors are
substantially larger and have greater financial, technical and marketing
resources than we do.
Our success will depend upon our continued ability to provide high
quality, high value services at prices generally competitive with, or lower
than, those charged by our competitors. Our competitors' reduction of the long
distance prices they charge may have a material adverse impact on our
profitability. We also from time to time consider providing telecommunications
services we have not previously provided. If we offer these new services, we
would face the same competitive pressures that affect our existing services.
Customer attrition may affect our financial performance.
Purchasers of our long distance services are not obligated to purchase
any minimum amount of our services, and can stop using our service at any time
and without penalty. Our customers may not continue to buy their long distance
telephone service through us or through independent carriers and marketing
companies that purchase services from us. If a significant portion of our
customers were to decide to purchase long distance service from other long
distance service providers, we may not be able to replace them. A high level of
customer attrition is common in the long distance industry, and our financial
results are affected by this attrition. Attrition is attributable to a variety
of factors, including our termination of customers for nonpayment and the
initiatives of existing and new competitors who, to attract new customers, may
o implement national advertising campaigns,
o utilize telemarketing programs, and
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o provide cash payments and other forms of incentives.
Increased regulation of telemarketing may hinder our ability to obtain new
customers and may expose us to certain liabilities.
Both federal and state officials are tightening and increasing
enforcement of the rules that govern direct marketing, including the
telemarketing of telecommunications services. They are also increasing the
enforcement of the requirements imposed on long distance carriers seeking to
acquire customers through telemarketing. Customer complaints of unauthorized
conversion are widespread in the long distance industry and are beginning to
occur with respect to newly competitive local services. We have discontinued our
internal telemarketing operations, which may reduce our exposure to related
customer complaints and federal, state or local enforcement actions. However,
government officials have made inquiries with respect to the marketing of our
services and could hold us accountable under applicable laws for the direct
marketing activities of third parties carried out for our benefit. Our prior
telemarketing and other marketing efforts, our ongoing support of our
customer/partitions, and telemarketing and other marketing done in connection
with our online marketing agreements also raise the risk of enforcement actions
against us.
We use marketing companies, called partitions, to sell some of our services. The
activities of these companies may expose us to additional liabilities.
Historically, we marketed a significant portion of our services through
independent carriers and marketing companies who purchase services from us,
which generally have entered into non-exclusive agreements with us. Most of
these agreements do not contain any minimum use or revenue commitments by those
carriers and companies. If we were to lose access to services on the third party
networks or billing services that we use or if we were to have difficulties with
our proprietary network, our agreements and relationships with those carriers
and companies would suffer, and our results would suffer.
Provisions in our agreements with those carriers and companies require
them to comply with state and federal statutes and regulations, including those
regulating telemarketing. Because they are independent carriers and marketing
companies, however, we cannot control their activities. We also cannot predict
the extent of their compliance with applicable regulations. State and Federal
regulatory authorities have, in the past, tried to hold us liable for activities
those carriers and companies and have subjected us to increased regulatory
review. Increased regulatory review could affect possible future acquisitions of
new business from new independent carriers, marketing companies or other
resellers.
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We must continue to keep pace with technological changes in our industry in
order to succeed.
The telecommunications industry is characterized by:
o rapid technological change,
o frequent new service introductions, and
o evolving industry standards.
Our inability to anticipate these changes and to respond quickly by
offering services that meet or compete with these evolving standards could
negatively affect our chances for success. There can be no assurance that we
will have sufficient resources to make the necessary investments or to introduce
new services that would satisfy an expanded range of partition and customer
needs.
Establishing, deploying and relying on our own network, called "One Better Net",
increases the likelihood that we could incur losses or face other difficulties
if service was interrupted or our equipment damaged.
We provide services over our One Better Net network, using our own
switches, to approximately 80% of the lines using our long distance services.
Operation as a switch-based provider subjects us to risk of significant
interruption in our ability to provide services if our facilities such as
switching equipment or connections to transmission facilities were damaged by
fire or other natural disaster. To the extent that we are principally
responsible for providing our customers with telecommunications services,
interruption or failure to provide these services may subject us to claims from
customers who are damaged as a result of an interruption or failure.
Interruptions or other difficulties in operating One Better Net could have a
material adverse effect on our financial condition and results of operations.
We rely on third-party carriers to support the services we offer. If any of
these third parties fail or refuse to carry our calls, or if they increase the
prices they charge us, it could have a negative effect on our financial
condition.
We obtain services from various long distance and local carriers of
telecommunications services for our One Better Net network services and our
reselling operations. If these carriers fail to provide service, our customers
would still hold us responsible. We may also not be able to obtain competitive
or satisfactory rates.
If carriers:
o choose not to enter into agreements with us,
o terminate existing contracts with us,
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o reduce the level or type of telecommunication services they offer, or
o refuse to negotiate cost reductions to meet competitive prices,
it could have a material adverse effect on our financial condition and results
of operations.
The terms of some of our agreements with other parties may affect our cash
position and our ability to raise capital.
When AOL acquired 4,121,372 shares of our common stock for cash and the
surrender of a portion of its warrant rights in January 1999, we agreed to
reimburse AOL for losses that it might suffer if it sold the stock during the
16-month period beginning June 1, 1999 for less than it paid us for the stock.
The maximum amount we might have to pay under this agreement for such stock
sales is approximately $54 million, but the actual amount will depend on the
prices at which AOL sells the stock. We also agreed that when the long distance
exclusivity period under our marketing agreement with AOL ends AOL could require
us to buy back the warrants to purchase our common stock that AOL holds. The
maximum amount that we might have to pay for the AOL warrants is $36.3 million,
which we can pay with shares of our stock. Under circumstances described in our
investment agreement with AOL, we may have the right to pay a portion of this
amount with a promissory note. To secure these obligations to AOL, we have
pledged all the assets of Talk.com Inc., including the stock of its
subsidiaries, including our principal operating company, Tel-Save, Inc., and
agreed to fund an escrow account of up to $35 million from 50% of the proceeds
of most of our future debt financings over $50 million.
In addition, one of the agreements we entered into in connection with
Mr. Borislow's departure as one of our officers and directors requires us to get
his consent to sell our common stock in all circumstances except for sales on
exercise of employee options and our stock purchase rights if we use the sale
proceeds to repurchase our common stock from Mr. Borislow and two trusts that
are maintained for the benefit of his minor children. The agreement also
requires us to use 40% of the proceeds from our public and private sales of our
debt securities, except for borrowings from a commercial bank or financial
institution, to buy back our convertible notes from Mr. Borislow and the two
trusts. These rights that Mr. Borislow and the trusts have will end if Mr.
Borislow beneficially owns less than 2% of our outstanding common stock.
The exercise by AOL of its rights to sell our stock and require us to
pay the difference could have a significant effect on our cash position and
could hinder our ability to fund our operations as we might otherwise have done
had they not exercised. In addition, the existence of these AOL rights and the
rights of Mr. Borislow and the two trusts could hamper our ability to raise
additional capital.
We have no established cash dividend policy and cannot assure the amount or
frequency of future dividends.
We have no established dividend policy. We have never paid cash
dividends and we do not anticipate paying any cash dividends in the foreseeable
future.
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We have an authorized class of shares, and there are provisions in our bylaws
and charter, that could deter another party from gaining control of us and
paying our shareholders a premium for their shares. Also, our current reliance
on the aol business may deter some potential acquirors.
We have an authorized class of 5,000,000 shares of preferred stock that
may be issued by our board of directors. Our board has the right to authorize
the issuance of this stock and could set the terms, rights, preferences and
designations in such a way that could delay, deter or prevent another party from
obtaining control of us. Provisions of the Delaware General Corporation Law and
our bylaws, as well as our charter, which divides our board of directors into
three classes, each of which is elected for staggered three-year terms, could
also delay or prevent a change of control. These anti-takeover provisions may
deter a third party from acquiring us or attempting to acquire us, which might
preclude our shareholders from receiving a premium for their shares over the
then-current market value. Also, the current significance of our AOL business to
us and AOL's right to choose to terminate our AOL agreement if an AOL competitor
acquires us may deter some parties from acquiring or attempting to acquire us.
There are certain persons who own large numbers of shares of our common stock.
If they sold all or some of these shares, it could adversely affect the market
price of our common stock.
Future sales of substantial amounts of our common stock could adversely
affect the market price of our common stock. America Online, Inc. beneficially
owns 6,843,356 shares of our common stock, including 2,721,984 shares that they
can acquire by exercise of our warrants that they hold. Our agreements with AOL
permit them to sell these shares, if they elect to do so, at any time after May
31, 1999. Mr. Paul Rosenberg last reported that he beneficially owned 5,759,984
shares of our common stock. Mr. Daniel Borislow, our former Chairman of the
Board and Chief Executive Officer, beneficially owns 2,546,561 shares of our
common stock. In addition, trusts for the benefit of Mr. Borislow's minor
children own 2,240,886 shares of our common stock. We have agreed to register
the sale of shares by each of these persons. A decision by any of these persons
to sell all or a significant percentage of its shares could adversely affect the
market price of our common stock.
As of May 25, 1999 our officers and directors beneficially owned
5,775,043 shares, including 3,174,200 shares that they could acquire on exercise
of outstanding stock options and 215,050 shares that they could acquire on the
exercise of stockholder purchase rights. In addition, as of such date, there
were 3,850,100 shares reserved for issuance upon the conversion of our
outstanding 4-1/2% Convertible Subordinated Notes due 2002 and our 5%
Convertible Subordinated Notes due 2004. Sales of substantial amounts of our
common stock in the public market, or the perception that such sales could
occur, may adversely affect the market price of our common stock.
Our operations might be disrupted by the "Year 2000" problem.
We use equipment and other devices susceptible to the Year 2000
problem. If we experience such a problem with our internal computer-based
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systems or if the computer-based systems on which we depend that are operated by
others were to malfunction, we might not be able to:
o continue to provide telecommunications services,
o sign up new customers or
o bill existing customers for services.
These failures, if they occur, would have a material adverse effect on
our business and financial condition. However, because of the complexity of the
issues and the number of parties involved whose actions could affect us and the
fact that many of the issues are outside our control, it is difficult for us to
predict the nature or likelihood of such effects.
We depend on computer systems operated by third parties, such as local
exchange carriers, long-distance carriers from whom we purchase services, AOL
and other vendors. Other parties whose ability to deal with Year 2000 issues
could affect us include our partitions and the credit and debit card companies
through which most of our and AOL's customers are billed. We are generally not
in a position to require that these other companies assure us as to their
continued provision of services or that they will take the actions necessary to
assure that they will be ready for the Year 2000. Accordingly, while none of
these other companies have told us that they do not expect to be ready for Year
2000 issues, we do not believe we can project the likelihood of their abilities
to provide uninterrupted services to us. Even though we have contracts with a
number of long distance service providers to support our One Better Net network,
the failure of any of the significant suppliers to provide uninterrupted service
to us would likely have a material adverse effect on our business and results of
operations and financial condition.
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus or incorporated by reference
may contain forward-looking statements, including statements under the captions
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our annual and quarterly reports. Those statements can
be identified by the use of forward-looking terminology such as "may," "will,"
"expect," "anticipate," "estimate," "continue," or other similar words. These
statements discuss future expectations, contain projections of results of
operations or of financial condition or state other "forward-looking"
information. When considering these forward-looking statements, you should keep
in mind the risk factors and other cautionary statements contained in this
prospectus. The risk factors and other factors noted in this prospectus or in
the reports incorporated by reference could cause our actual results to differ
materially from those contained in any forward-looking statement. We undertake
no obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date of this prospectus
or to reflect the occurrence of unanticipated events.
USE OF PROCEEDS
We will not receive any of the proceeds from shares offered in this
prospectus.
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PLAN OF DISTRIBUTION
This prospectus covers shares being offered on behalf of the selling
shareholders listed below or their respective pledgees, donees, transferees or
other successors in interest. We will not receive any proceeds from this
offering. The selling shareholders listed below may offer the shares from time
to time in the open market, on the Nasdaq National Market, in privately
negotiated transactions, or in a combination of those methods, at market prices
that prevail at the time of sale or at privately negotiated prices. The selling
shareholders listed below may sell these shares through one or more brokers or
dealers or directly to purchasers. These broker-dealers may receive compensation
in the form of commissions, discounts or concessions from the selling
shareholders listed below and/or purchasers of the shares for whom those
broker-dealers may act as agent, or to whom they may sell as principal, or both.
Compensation as to a particular broker-dealer may exceed customary commissions.
The selling shareholders listed below and any broker-dealers who act in
connection with the sale of the shares under this prospectus may be deemed to be
"underwriters" within the meaning of the Securities Act. Any commissions they
receive and proceeds of any sale of shares may be deemed to be underwriting
discounts and commissions under the Securities Act. Under Exchange Act rules and
regulations, no distribution participant or its affiliated purchasers (as
defined in Regulation M adopted under the Exchange Act) may simultaneously
engage in market making activities with respect to those shares for a restricted
period beginning on the day proxy solicitation or offering materials are first
disseminated to security holders and ending upon the completion of the
distribution, except under certain limited circumstances. The selling
shareholders listed below, their respective affiliated purchasers and any other
person participating in that distribution will be subject to certain provisions
of the Exchange Act and related rules and regulations. These provisions
prohibit, except under certain limited circumstances, the purchase and sale of
any of the shares by the selling shareholders listed below, their respective
affiliated purchasers and any other person participating in such distribution
during the restricted period described above. These restrictions may affect the
marketability of the shares and the ability of any person or entity to engage in
market making activities with respect to the shares.
We have agreed to pay all of the expenses incident to the registration,
offering and sale of these shares to the public other than commissions or
discounts of underwriters, broker-dealers or agents. We have agreed to indemnify
the selling shareholders listed below against certain liabilities, including
certain liabilities under the Securities Act.
From time to time, the selling shareholders listed below may pledge,
hypothecate or grant a security interest in some or all of the shares it owns.
In the event of a foreclosure or event of default in connection with those
pledges, the shares may be transferred to the persons to whom the shares were
pledged. If a transfer of that type occurs, the transferees will be deemed to
have the rights of the selling shareholders listed below under this plan of
distribution. At the same time, the selling shareholders listed below will
beneficially own fewer shares. The plan of distribution of shares for the
selling shareholders listed below will otherwise remain unchanged.
SELLING SHAREHOLDERS
This prospectus relates to the possible offer for sale of up to
16,428,803 shares of our common stock by the selling shareholders listed below.
AOL, one of the selling shareholders, acquired 4,121,372 of these shares from us
under an investment agreement between AOL and us dated as of December 31, 1998
and amended in February 1999.
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AOL also owns warrants to purchase up to an additional 2,721,984 shares of our
common stock and has the right to exchange some of their warrants and shares for
cash or additional shares of our common stock. In connection with these
exchanges and purchases, we agreed to reimburse AOL, during the period
commencing on June 1, 1999 and ending on September 30, 2000, for realized losses
up to a specified amount resulting from a decline in the value of our common
stock from AOL's purchase price. AOL may also have the right, upon the
occurrence of events listed in the investment agreement, including our breach of
our principal agreements with AOL, to sell back to us all of AOL's shares, at
AOL's purchase price, and all of AOL's warrants, at AOL's booked amount
therefor. We agreed to secure our obligations under the investment agreement
with a pledge of all of the assets of Talk.com Inc., including the stock of our
subsidiaries. We also agreed to limitations on the amount of debt we could incur
and granted registration rights to AOL.
Under a registration rights agreement between AOL and us, we agreed to
register for possible offer and sale by AOL, under the circumstances
contemplated by the investment agreement, all of the shares described above and
an additional six million shares of our common stock, to cover the shares we may
deliver in connection with the exercise of the exchange right described above.
We have an agreement with AOL that relates to AOL's provision of marketing
services by AOL to us. This agreement and the investment agreement are both
described in more detail in our reports on Form 8-K, Form 10-K and Form 10-K/A
that were filed on January 20, 1999, March 31, 1999 and April 9, 1999,
respectively, all of which are incorporated by reference in this prospectus.
The other selling shareholders are Daniel M. Borislow, our founder and
former CEO, two of his children and two trusts established for the benefit of
his children known as the D&K Grantor Retained Annuity Trust dated June 15, 1998
and the D&K Grantor Retained Annuity Trust II dated August 18, 1998.
On January 5, 1999, Mr. Daniel M. Borislow, our founder and the
Chairman of the Board and Chief Executive Officer, resigned as a director and
officer of us and our subsidiaries. As outlined below, we entered into various
agreements and engaged in various transactions with Mr. Borislow. We agreed
that, so long as Mr. Borislow owns beneficially at least two percent (2%) of our
common stock (on a fully diluted basis), Mr. Borislow and the trusts for the
benefit of his children, who are also selling shareholders, would be entitled
to: registration rights with respect to their shares of our common stock, the
right to require us 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 us to repurchase our debt securities owned by Mr.
Borislow or the trusts for the benefit of his children and the right to require
us to use the proceeds from the exercise of stock options or rights to
repurchase our common stock owned by Mr. Borislow or the trusts for the benefit
of his children. We also agreed that, so long as Mr. Borislow had such
beneficial ownership, we would not, without the prior written consent of Mr.
Borislow and subject to exceptions listed in our agreements with him: engage in
specified significant corporate transactions, including the sale or encumbrance
of substantially all of our assets, mergers and consolidations and certain
material acquisitions, or, for a period of 18 months from the agreement date,
offer or sell any of our common stock unless and until Mr. Borislow and the
trusts have sold or otherwise disposed of all of our shares of common stock held
by him on the agreement date. In turn, Mr. Borislow terminated his 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 our
obligations in connection with the investment agreement with AOL described in
the Risk Factors section.
On January 5, 1999, we assigned to the trusts established for the
benefit of Mr. Borislow's children our 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 our 2002 Convertible Notes and 2004 Convertible Notes owned by the
trusts.
The information in the following table provides certain information
with respect to the shares beneficially owned by each of the selling
shareholders as of the date of this prospectus. The shares registered under the
registration statement of which this prospectus is a part may be offered from
time to time by the selling shareholders. However, the selling shareholders are
under no obligation to sell all or any portion of such shares, nor are they
obligated to sell any shares immediately under this prospectus. We will not
receive any proceeds from any sales of shares by the selling shareholders. All
information with respect to share ownership has been furnished by the selling
shareholders.
11
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
SHARES SHARES SHARES
NAME AND ADDRESS BENEFICIALLY OWNED REGISTERED HEREIN HELD AFTER OFFERING(1)
- ---------------- ------------------ ----------------- ----------------------
<S> <C> <C> <C>
America Online, Inc. 6,843,356 12,843,356 0
Daniel M. Borislow 1,207,421 1,207,421 0
Daniel M. Borislow,
Custodian for Daniel
Borislow UGMA/PA 68,570(2) 68,570(2) 0
Daniel M. Borislow,
Custodian for
Kylie Borislow
UGMA/PA 68,570(2) 68,570(2) 0
D&K Grantor Retained
Annuity Trust dated
June 15, 1998 443,586 443,586 0
D&K Grantor Retained
Annuity Trust II
dated August 18, 1998 1,797,300 1,797,300 0
</TABLE>
- -------------
(1) Assumes all of the shares offered by this prospectus are sold.
(2) This number may be determined to be 34,285. If so, the rest of the shares
will be restored to Mr. Daniel M. Borislow and will increase the number of
shares beneficially owned by him.
LEGAL MATTERS
Aloysius T. Lawn, IV, our General Counsel and Secretary, has rendered
an opinion to the effect that the shares of common stock offered by this
prospectus are duly authorized, legally issued, fully paid and non-assessable.
Mr. Lawn owns 153,650 shares of our common stock, holds vested options to
purchase 50,000 shares at a price of $5.75 per share, and holds rights to
purchase 10,183 shares of Common Stock at $17.00 per share.
EXPERTS
The consolidated financial statements and schedule of the Company and
its subsidiaries incorporated by reference in this prospectus have been audited
by BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their reports incorporated in this prospectus by
reference, and are incorporated in this prospectus in reliance upon those
reports given upon the authority of BDO Seidman, LLP as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
at the SEC's web site at http://www.sec.gov. The SEC allows us to incorporate by
reference the information that we file with the SEC, which means that we can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file later with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future filings (File No. 0-26728) we make with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934:
a. our annual report on Form 10-K for the year ended December 31, 1998
and amendments to our annual report, filed with the SEC on April 9,
1999 and April 30, 1999;
b. our current report on Form 8-K, dated January 20, 1999;
c. our quarterly report on Form 10-Q for the quarter ended March 31,
1999; and
d. the description of our capital stock contained in our registration
statement on Form 8-A, dated September 8, 1995.
12
<PAGE>
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Aloysius T. Lawn, IV
General Counsel and Secretary
Talk.com Inc.
6805 Route 202
New Hope, PA 18938
(215) 862-1500
Our principal executive offices are located at 12020 Sunrise Valley Drive,
Reston, Virginia 22091, and our telephone number is (703) 391-7500.
This prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide information other than that
provided in this prospectus. We have authorized no one to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of this document.
13
<PAGE>
16,428,803 SHARES OF COMMON STOCK
PROSPECTUS
___, [1999]
TABLE OF CONTENTS
PAGE
Risk Factors................................................... 2
Use Of Proceeds................................................ 9
Plan Of Distribution........................................... 10
Selling Shareholders........................................... 10
Legal Matters.................................................. 11
Experts........................................................ 12
Where You Can Find More Information............................ 12
14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC registration fee........................ $50,599
Legal fees and expenses..................... 20,000
Accounting fees and expenses................ 5,000
Printing.................................... 2,000
Total....................................... $66,944
ITEM 16. EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
5.1* Opinion of Aloysius T. Lawn, IV.
23.1 Consent of BDO Seidman, LLP (incorporated by reference to Exhibit
23.1 of our Annual Report on Form 10-K for the year ended December
31, 1998).
23.2 Consent of Aloysius T. Lawn, IV (included as part of Exhibit 5.1).
24.1 Power of Attorney (included as part of the signature page
previously filed).
- --------
* Previously filed.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this amendment to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Solebury, Commonwealth of
Pennsylvania, on June 11, 1999.
TALK.COM INC.
By: /s/ Gabriel Battista
----------------------------------
Gabriel Battista
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below, on June 11, 1999:
SIGNATURE TITLE
--------- -----
/s/ Gabriel Battista Chairman of the Board of Directors, Chief
- ------------------------------- Executive Officer, President and Director
Gabriel Battista (Principal Executive Officer)
*
- ------------------------------- Director
Gary W. McCulla
*
- ------------------------------- Director
Emanuel J. DeMaio
/s/ George P. Farley Chief Financial Officer and Director
- ------------------------------- (Principal Financial Officer)
George P. Farley
/s/ Kevin R. Kelly
- ------------------------------- Controller (Principal Accounting Officer)
Kevin R. Kelly
*
- ------------------------------- Director
Harold First
*
- ------------------------------- Director
Ronald R. Thoma
- --------
* The undersigned hereby signs this Amendment to the Registration Statement on
Form S-3 on behalf of the above person pursuant to powers of attorney duly
executed and filed with the Securities and Exchange Commission, all in the
capacities and on the date indicated.
/s/ Aloysius T. Lawn, IV
-------------------------------------
Aloysius T. Lawn IV, Attorney-in-Fact
II-2
