AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 2000.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TALK.COM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 4812 23-2827736
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
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----------------
12020 SUNRISE VALLEY DRIVE, SUITE 250
RESTON, VIRGINIA 20191
(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, PENNSYLVANIA 18938
(215) 862-1500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES OF ALL COMMUNICATIONS TO:
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PHILIP A. HABER, ESQ. MICHAEL S. MULLMAN, ESQ.
KELLEY DRYE & WARREN LLP BLANK ROME TENZER GREENBLATT LLP
101 PARK AVENUE 405 LEXINGTON AVENUE
NEW YORK, NEW YORK 10178 NEW YORK, NEW YORK 10174
(212) 808-7800 (212) 885-5000
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----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE AND ALL OTHER
CONDITIONS UNDER THE MERGER AGREEMENT (DESCRIBED IN THE JOINT PROXY
STATEMENT/PROSPECTUS HEREIN) ARE SATISFIED OR WAIVED.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE REGISTRATION FEES
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Common stock, par value $.01 per share (1) 14,285,700 shares(2) Not applicable $2,112,000(3) $ 557.57(4)
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(1) Includes the associated rights to purchase one three-hundredth of a share
of Series A Junior Participating Preferred Stock, which initially are
attached to and trade with the common stock of the registrant. No separate
consideration will be received for the rights.
(2) The maximum number of shares of the registrant's common stock issuable in
connection with the merger in exchange for shares of the acquired company's
common stock, based on (i) the number of shares of the acquired company's
common stock outstanding on June 30, 2000, including shares issuable
pursuant to certain exercisable options and warrants (25,000,000 shares)
and (ii) the exchange ratio to be applied in the merger (0.571428 shares of
registrant's common stock for each share of the acquired company's common
stock).
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act, based on the book
value as of April 30, 2000 of the common stock to be acquired by the
registrant in the merger, for which there is no market.
(4) A fee of $900.00 was previously paid in connection with the initial filing
of the joint proxy statement/prospectus included in this Registration
Statement. Therefore, pursuant to Rule 457(b) under the Securities Act, no
additional amount is being paid herewith.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
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[GRAPHIC OMITTED]
JOINT PROXY STATEMENT/PROSPECTUS
[GRAPHIC OMITTED]
YOUR VOTE ON OUR PROPOSED MERGER IS VERY IMPORTANT!
To the Stockholders of Talk.com Inc. and Access One Communications Corp.:
Talk.com and Access One have agreed to combine in a merger. We believe this
merger will create a stronger competitor in the rapidly changing
telecommunications industry. Accordingly, we believe that this merger will
benefit the stockholders of both companies, and we ask for your support in
voting for the merger proposals at our meetings.
In the merger, Access One stockholders will receive 0.571428 Talk.com
shares for every Access One share, and Access One will become a wholly owned
subsidiary of Talk.com. Talk.com will issue approximately 12.2 million shares of
its common stock, and options and warrants to purchase approximately 2.1 million
additional shares of its common stock, to holders of Access One stock, stock
options and warrants. After completion of the merger, these new Talk.com shares,
options and warrants will represent approximately 18.3% of the shares of
Talk.com common stock that will then be outstanding. Talk.com stockholders will
continue to own their existing shares.
Talk.com common stock is listed on the Nasdaq National Market under the
symbol "TALK."
Information about the merger and the other items to be voted on at your
company's meeting is contained in this joint proxy statement/prospectus and in
the merger agreement attached as Annex A. WE URGE YOU TO READ THIS MATERIAL,
INCLUDING THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 16.
The boards of directors of both Talk.com and Access One believe the merger
is advisable, fair and in the best interests of their respective stockholders,
have unanimously approved the merger and recommend that their respective
stockholders vote FOR the merger proposal as described in the attached
materials. We cannot complete the merger unless the stockholders of both
companies approve the respective proposals relating to the merger.
Your vote is important, regardless of the number of shares you own. Please
vote as soon as possible to make sure that your shares are represented at your
company's stockholder meeting. You may cast your vote by proxy or in person at
your company's stockholder meeting. To grant your proxy to vote your shares,
complete and return the enclosed proxy card. If you complete the enclosed proxy
card without indicating how you want to vote, then your proxy will be counted as
a vote in favor of the merger.
Very truly yours,
Gabriel Battista Elizabeth Stallings
Chief Executive Officer President
Talk.com Inc. Access One Communications Corp.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OR THE SHARES OF TALK.COM COMMON STOCK TO BE ISSUED IN
CONNECTION WITH THE MERGER, OR DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated July 7, 2000, and is first
being mailed to stockholders on or about July 10, 2000.
<PAGE>
TALK.COM INC.
12020 SUNRISE VALLEY DRIVE
RESTON, VIRGINIA 20191
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 9, 2000
----------------
To the stockholders of Talk.com Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of the stockholders of
Talk.com Inc. will be held on Wednesday, August 9, 2000 at the Sheraton Reston
Hotel, 11810 Sunrise Valley Drive, Reston, Virginia 20191, at 10:00 a.m., local
time, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of
Talk.com common stock under an Agreement and Plan of Merger, dated as
of March 24, 2000, as amended, among Talk.com, Aladdin Acquisition
Corp., a wholly owned subsidiary of Talk.com that was created to
complete the merger, and Access One Communications Corp., and to
approve all other transactions described in the merger agreement;
2. To consider and vote upon a proposal to elect two directors for terms
of three years, or until their successors have been elected and
qualified;
3. To consider and vote upon a proposal to ratify and approve the 2000
Long-Term Incentive Plan;
4. To consider and vote upon a proposal to ratify and approve the
appointment of BDO Seidman LLP as the independent certified public
accountants for Talk.com; and
5. To transact such other business as may properly be presented at the
meeting and at any adjournments or postponements thereof.
The board of directors of Talk.com has fixed the close of business on June
30, 2000 as the record date for the purpose of determining stockholders who are
entitled to notice of and to vote at the annual meeting and any adjournments or
postponements thereof.
A list of Talk.com stockholders entitled to vote at the annual meeting will
be available for inspection during regular business hours at Talk.com's office
at 12020 Sunrise Valley Drive, Reston, Virginia 20191, for a period of ten days
prior to the annual meeting.
Under Delaware law, holders of Talk.com common stock will not have
appraisal rights in connection with the merger.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF TALK.COM UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE PROPOSALS DESCRIBED ABOVE.
By order of the Board of Directors,
Aloysius T. Lawn, IV
Secretary
Reston, Virginia
July 7, 2000
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN
THE ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING.
<PAGE>
ACCESS ONE COMMUNICATIONS CORP.
3427 NW 55TH STREET
FORT LAUDERDALE, FLORIDA 33309
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 9, 2000
----------------
To the stockholders of Access One Communications Corp.:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Access
One Communications Corp. will be held on Wednesday, August 9, 2000 at the
Sheraton Reston Hotel, 11810 Sunrise Valley Drive, Reston, Virginia 20191, at
11:30 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of March 24, 2000, as amended, among Access One,
Talk.com Inc. and Aladdin Acquisition Corp. Under the merger
agreement, each outstanding share of Access One common stock will be
converted into 0.571428 shares of Talk.com common stock, and Access
One will become a wholly owned subsidiary of Talk.com; and
2. To transact such other business as may properly be presented at the
meeting and at any adjournments or postponements thereof.
The board of directors of Access One has fixed the close of business on
June 30, 2000 as the record date for the purpose of determining stockholders who
are entitled to notice of and to vote at the special meeting and any
adjournments or postponements thereof.
Approval of the merger agreement requires the affirmative vote of a
majority of the votes cast on this proposal at the meeting by holders of Access
One common stock. As of the record date, there were 19,242,102 shares of Access
One common stock outstanding. Each of those shares is entitled to one vote in
person or by proxy with respect to each matter to be voted on by holders of
Access One common stock at the special meeting. The holders of approximately
67.7% of the outstanding shares of common stock of Access One have agreed to
vote in favor of the merger, and therefore approval of the merger agreement is
assured.
Under New Jersey law, holders of Access One common stock will not have
appraisal rights in connection with the merger.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF ACCESS ONE
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
By order of the Board of Directors,
Wesly Minella,
Secretary
Fort Lauderdale, Florida
July 7, 2000
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN
THE ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF
YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON IF YOU WISH, EVEN IF
YOU PREVIOUSLY RETURNED OR GRANTED YOUR PROXY.
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TABLE OF CONTENTS
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I. THE MERGER ............................................................................ 1
QUESTIONS AND ANSWERS ABOUT THE MERGER ................................................... 1
SUMMARY .................................................................................. 4
The Companies ......................................................................... 4
The Merger ............................................................................ 5
Recommendations of the Talk.com Board and the Access One Board on the Merger .......... 5
Opinion of Financial Advisor .......................................................... 5
Interests of Officers and Directors of Access One in the Merger ....................... 5
Conversion of Access One Stock Options and Warrants ................................... 6
Ownership of Talk.com After the Merger ................................................ 6
Conditions to the Completion of the Merger ............................................ 6
Regulatory Approvals .................................................................. 7
Termination of the Merger Agreement ................................................... 7
Termination Fee ....................................................................... 8
Voting Agreement ...................................................................... 8
Indemnification and Escrow Agreements ................................................. 8
Services Agreement .................................................................... 9
Material Federal Income Tax Consequences of the Merger ................................ 9
Listing of Talk.com Common Stock ...................................................... 9
Stockholder Votes Required ............................................................ 9
Ownership of Shares by Directors and Officers ......................................... 9
Appraisal Rights ...................................................................... 10
Accounting Treatment of the Merger .................................................... 10
Other Talk.com Annual Meeting Proposals ............................................... 10
Comparative Per Share Market Price Information ........................................ 10
Cash Dividend Policies ................................................................ 11
Comparative Per Share Information ..................................................... 12
Selected Historical Consolidated Financial Data ....................................... 13
Unaudited Pro Forma Condensed Consolidated Selected Financial Data .................... 14
RISK FACTORS ............................................................................. 16
THE TALK.COM ANNUAL MEETING .............................................................. 29
THE ACCESS ONE SPECIAL MEETING ........................................................... 32
THE MERGER ............................................................................... 34
Background of the Merger .............................................................. 34
Talk.com's Reasons for the Merger; Recommendation of Talk.com's Board of Directors .... 36
Access One's Reasons for the Merger; Recommendation of Access One's Board of Directors. 39
Opinion of Financial Advisor to Talk.com .............................................. 41
Material Federal Income Tax Consequences of the Merger ................................ 48
Regulatory Review Relating to the Merger .............................................. 50
Appraisal Rights ...................................................................... 51
Resale of Talk.com Common Stock ....................................................... 51
Accounting Treatment .................................................................. 51
Interests of Access One Officers and Directors in the Merger .......................... 52
Indemnification; Directors' and Officers' Insurance ................................... 52
THE MERGER AGREEMENT AND RELATED AGREEMENTS .............................................. 53
The Merger ............................................................................ 53
Timing of Closing ..................................................................... 53
Conversion of Access One Common Stock ................................................. 53
Conversion of Access One Stock Options and Warrants ................................... 53
Exchange Agent ........................................................................ 54
Representations and Warranties ........................................................ 54
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Covenants ............................................................................. 55
Conditions to the Completion of the Merger ............................................ 57
Termination of the Merger Agreement ................................................... 58
Amendments and Waivers ................................................................ 59
Voting Agreement ...................................................................... 59
Indemnification and Escrow Agreements ................................................. 59
Services Agreement .................................................................... 60
DIRECTORS AND EXECUTIVE OFFICERS OF TALK.COM AFTER THE MERGER ............................ 60
II. FINANCIAL INFORMATION ................................................................ 62
Talk.com Unaudited Pro Forma Consolidated Financial Information ....................... 62
Talk.com Business ..................................................................... 67
Access One Selected Consolidated Financial Data ....................................... 69
Access One Management's Discussion and Analysis of Financial Condition and Results of
Operations ........................................................................... 70
Access One Business ................................................................... 74
Access One Management ................................................................. 88
Executive Compensation ................................................................ 89
Access One Principal Stockholders ..................................................... 89
III. CERTAIN LEGAL INFORMATION ........................................................... 90
Comparison of Access One and Talk.com Stockholder Rights .............................. 90
Summary of Material Differences Between Current Rights of Access One and Talk.com
Stockholders and the Rights Access One Stockholders Will Have As Talk.com
Stockholders Following the Merger .................................................... 91
Description of Talk.com Capital Stock ................................................. 92
Description of Access One Capital Stock ............................................... 94
Legal Matters ......................................................................... 95
Experts ............................................................................... 95
IV. OTHER TALK.COM ANNUAL MEETING PROPOSALS .............................................. 96
Proposal 2 -- Election of Directors ................................................... 96
Executive Compensation ................................................................ 98
Performance Graph ..................................................................... 103
Proposal 3 -- Approval of the 2000 Long Term Incentive Plan ........................... 103
Proposal 4 -- Ratification of Independent Certified Public Accountants ................ 107
Principal Stockholders of Talk.com .................................................... 108
V. ADDITIONAL INFORMATION FOR STOCKHOLDERS ............................................... 110
Stockholder Proposals for 2001 Annual Meeting of Talk.com Stockholders ................ 110
Where You Can Find More Information ................................................... 110
INDEX TO ACCESS ONE FINANCIAL STATEMENTS ................................................. F-1
INDEX TO OMNICALL FINANCIAL STATEMENTS ................................................... F-23
ANNEXES
Agreement and Plan of Merger, dated as of March 24, 2000, by and among Talk.com Inc.,
Aladdin Acquisition Corp. and Access One Communications Corp., and Amendment to
Agreement and Plan of Merger, dated as of June 29, 2000 ................................. Annex A
Voting Agreement, dated as of March 24, 2000, by and among Talk.com Inc., Aladdin
Acquisition Corp., Access One Communications Corp. and the other signatories identified
on the signature pages thereto .......................................................... Annex B
Indemnification Agreement, dated March 24, 2000, by and among Talk.com Inc. and Access One
Communications Corp. .................................................................... Annex C
Form of Escrow Agreement by and among Talk.com Inc., Aladdin Acquisition Corp., Access One
Communications Corp., Kenneth G. Baritz and the Escrow Agent ............................ Annex D
Fairness Opinion of Bear, Stearns & Co. Inc. ............................................. Annex E
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I. THE MERGER
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE TALK.COM AND ACCESS ONE PROPOSING TO MERGE?
A: The boards of Talk.com and Access One believe that combining the
businesses of both companies will result in a stronger and more
competitive company capable of achieving greater financial
strength, operational efficiencies, earnings power and growth
potential than either company would have on its own. The merger
will add Access One's resources and expertise in providing local
telecommunications services to Talk.com's resources and expertise
in providing long distance services. The combination will further
Talk.com's recently announced strategy of offering bundled local
and long distance telecommunications services to new and existing
customers. The merger will allow Access One's stockholders to
obtain liquidity with respect to their stock and to participate in
the growth of a leading provider of telecommunications services
through an e-commerce platform.
Q: DO THE COMPANIES RECOMMEND VOTING IN FAVOR OF THE MERGER
AGREEMENT?
A: Yes. The board of directors of Talk.com unanimously approved the
merger and recommends that its stockholders vote in favor of the
issuance of additional shares under the merger agreement. The
board of directors of Access One unanimously approved the merger
and recommends that its stockholders vote in favor of the merger
agreement.
Q: WHAT WILL STOCKHOLDERS RECEIVE WHEN THE MERGER IS COMPLETED?
A: If you own Access One common stock, you will receive 0.571428
shares of Talk.com common stock for each share of Access One
common stock. Only whole shares of Talk.com common stock will be
issued. Holders of Access One common stock will receive cash
instead of any fractional interest in a share of Talk.com common
stock. If you own Talk.com common stock, your shares will remain
outstanding after the merger.
Q: WHAT WILL BE THE NAME OF THE COMBINED COMPANY?
A: The name of the combined company will be Talk.com Inc. Access One
will become a wholly owned subsidiary of Talk.com as a result of
the merger.
Q: WHO WILL MANAGE THE COMBINED COMPANY?
A: Gabriel Battista, currently Chairman and Chief Executive Officer
of Talk.com, will be the Chairman and Chief Executive Officer of
the combined company. Kenneth G. Baritz, who prior to the date of
the merger agreement was Chairman and Chief Executive Officer of
Access One, has joined Talk.com as President and will be the
President of the combined company. He is also required as a
condition to the merger to be elected a director of Talk.com.
Kevin Griffo, who prior to the date of the merger agreement was
President and Chief Operating Officer of Access One, has joined
Talk.com as Executive Vice President - Local Services and will
hold that position in the combined company. All other current
executive officers of Talk.com will continue to serve in the same
capacities as executive officers of the combined company.
Q: WHEN WILL THE MERGER BE COMPLETED?
A: Talk.com and Access One are working to complete the merger during
the third quarter of this year, subject to stockholder and
regulatory approvals.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER FOR ACCESS ONE
STOCKHOLDERS?
A: Access One stockholders who exchange their shares of Access One
common stock for shares of Talk.com common stock in the merger
will not recognize any gain or loss on the exchange for
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United States federal income tax purposes, except to the extent
that they receive any cash in lieu of fractional shares of
Talk.com common stock. The merger will not have any tax
consequences for Talk.com stockholders. YOU SHOULD CONSULT YOUR
OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES
OF THE MERGER.
Q: WHEN AND WHERE ARE THE TALK.COM AND ACCESS ONE STOCKHOLDER
MEETINGS?
A: The Talk.com annual meeting will be held at 10:00 a.m. local time,
on Wednesday, August 9, 2000 at the Sheraton Reston Hotel, 11810
Sunrise Valley Drive, Reston, Virginia 20191.
The Access One special meeting will be held at 11:30 a.m. local
time, on Wednesday, August 9, 2000 at the Sheraton Reston Hotel,
11810 Sunrise Valley Drive, Reston, Virginia 20191.
Q: WHO CAN VOTE?
A: All record holders of Talk.com common stock at the close of
business on June 30, 2000 can vote at the Talk.com annual meeting.
All record holders of Access One common stock at the close of
business on June 30, 2000 can vote at the Access One special
meeting.
Q: HOW DO I VOTE?
A: You may cast your vote by mail, by proxy, or in person at the
meeting. To cast your vote by mail, complete, date, sign and mail
the enclosed proxy card in the enclosed, postage pre-paid
envelope. Votes cast by mail must be received prior to the vote at
the meeting in order to be counted.
When you cast your vote using the proxy card, you also appoint
members of your company's management as your representatives, or
proxies, at the meeting. They will vote your shares at the meeting
in accordance with your instructions on the proxy card.
You may also vote in person at the meeting. If you hold your
shares in street name, then you must contact your broker or other
nominee and request a legal proxy to vote in person at the
meeting.
Q: WHAT HAPPENS IF I DO NOT INDICATE MY PREFERENCE FOR OR AGAINST A
PARTICULAR PROPOSAL?
A: If you submit a proxy without specifying the manner in which you
would like your shares to be voted on a particular proposal, your
shares will be voted FOR that proposal.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY
BROKER VOTE MY SHARES FOR ME?
A: If you do not provide your broker with instructions on how to vote
your "street name" shares on a particular proposal, your broker
may not be permitted to vote them on that proposal. Therefore, you
should be sure to provide your broker with specific instructions
on how to vote your shares on each proposal presented.
Q: WHAT IF I VOTE AND THEN CHANGE MY MIND?
A: You can revoke your proxy by writing to your company, by
submitting a new proxy with a later date by mail or by attending
the meeting and casting your vote in person. Your last vote will
be the vote that is counted.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: It means you have multiple accounts at the transfer agent and/or
with stockbrokers. Please sign and return all the proxy cards that
you receive in order to ensure that all of your shares are voted.
Q: SHOULD STOCK CERTIFICATES BE SENT IN WITH THE ENCLOSED PROXY CARD?
A: No. If the merger is completed, Access One stockholders will be
sent instructions for exchanging their Access One stock
certificates for Talk.com stock certificates. Do not send in your
certificates until you receive the instructions.
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Q: WHO CAN HELP ANSWER OTHER QUESTIONS?
A: If you have additional questions about the merger, you should
contact:
TALK.COM STOCKHOLDERS:
Ms. Ruth Abeshaus
Director of Investor and Public Relations
Talk.com Inc.
6805 Route 202
New Hope, Pennsylvania 18938
Telephone: (215) 862-1500
ACCESS ONE STOCKHOLDERS:
Ms. Elizabeth Stallings
President and Treasurer
Access One Communications Corp.
12001 Science Drive, Suite 130
Orlando, Florida 32826
Telephone: (407) 313-1300
3
<PAGE>
SUMMARY
This summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read this document
carefully as well as the documents to which we refer you. See "Where You Can
Find More Information" on page 110. We have indicated page references
parenthetically to direct you to a more complete description of the topics in
this summary.
THE COMPANIES
Talk.com Inc.
12020 Sunrise Valley Drive
Reston, Virginia 20191
(703) 391-7500
http://www.talk.com
Talk.com Inc., a Delaware corporation, through its subsidiaries provides
telecommunications services to residential and business customers throughout the
United States, primarily to residential consumers through its e-commerce
platform. The e-commerce platform is built around Talk.com's advanced online and
web-enabled customer care, billing and information systems.
Talk.com's telecommunications service offerings include long distance
outbound service, inbound toll-free service and dedicated private line services
for data. Talk.com announced late last year that, in light of recent regulatory
developments, it was planning a strategic initiative to expand its product mix
by offering local telecommunications service bundled with its long distance
service. The proposed merger with Access One Communications Corp. provides a
significant opportunity to implement this new strategy. Talk.com has already
commenced offering local service in the southeastern United States and in New
York State. Talk.com believes that it has an opportunity to capture additional
market share and accelerate future growth through its offerings of local and
bundled local and long distance telecommunications services.
Talk.com markets its telecommunications services primarily through
marketing agreements with various partners and on the Internet through its web
site. In connection with its rollout of local services, Talk.com anticipates
that its marketing and promotional expenditures will continue to increase on an
absolute basis and as a percentage of revenue during the remainder of the
current year. In addition, Talk.com expects to continue to expend significant
marketing dollars under its agreement with America Online, Inc., which gives
Talk.com the exclusive right, at least until June 2001, to market long distance
telecommunications services through AOL's online service. Talk.com also intends
to seek new marketing partnerships and to utilize new marketing channels to
extend its local and long distance services and other product offerings into new
and expanded markets.
Access One Communications Corp.
3427 NW 55th Street
Fort Lauderdale, Florida 33309
(954) 714-0000/(888) 988-6988
http://www.accessone.cc
Access One Communications Corp., a New Jersey corporation, is a competitive
local exchange carrier that offers a bundled package of telecommunications
products, including local and long distance telephone, voicemail,
teleconferencing, Internet access and other enhanced and value-added services.
Access One focuses its principal marketing efforts on small and medium-sized
businesses having fewer than 10 local access lines in any one location and has
recently commenced marketing its services to residential customers. Access One's
strategy is to expand its customer base by being
4
<PAGE>
more flexible, innovative and responsive to the needs of its target customers
than the regional Bell operating companies and the first-tier interexchange
carriers, which have historically concentrated their sales and marketing efforts
on residential and large business customers. Access One attempts to
differentiate itself by providing an integrated, customized package of
telecommunications services on a single bill and responsive customer service.
Access One and its subsidiaries currently sell local telecommunications
services in Florida, Kentucky, Alabama, Georgia, Louisiana, Mississippi, North
Carolina, South Carolina and Tennessee, through BellSouth Telecommunications,
Inc. and Sprint-Florida Incorporated, incumbent local exchange carriers, and
long distance services through Frontier Communications of the West, Inc. Access
One also has agreements with Premiere Communications, Inc. and Premiere
Technologies Company to provide enhanced services, such as voice mail and
calling card products.
Both Talk.com and Access One maintain web sites, the addresses of which are
shown above. The information contained on those web sites is not part of this
joint proxy statement/prospectus, and should not be relied on in connection with
the matters presented here.
THE MERGER (SEE PAGE 34)
The merger agreement provides that Aladdin Acquisition Corp., a newly
formed, wholly owned subsidiary of Talk.com, will merge with and into Access
One. As a result of the merger, Access One will become a wholly owned subsidiary
of Talk.com. Talk.com will issue 0.571428 shares of Talk.com common stock for
every share of Access One common stock. It will also issue new Talk.com stock
options and warrants in place of existing Access One stock options and warrants,
based on the same ratio.
The full text of the merger agreement is attached as Annex A to this joint
proxy statement/prospectus. The merger agreement is the principal legal document
that governs the terms of the merger and we encourage you to read it along with
this document.
RECOMMENDATIONS OF THE TALK.COM BOARD AND THE ACCESS ONE BOARD ON THE MERGER
(SEE PAGES 36-41)
The Talk.com board believes that the merger is advisable, fair to and in
the best interests of Talk.com stockholders and recommends that Talk.com
stockholders vote FOR approval of the issuance of additional stock under the
merger agreement.
The Access One board believes that the merger is advisable, fair to and in
the best interests of Access One stockholders and recommends that Access One
stockholders vote FOR approval of the merger agreement.
OPINION OF FINANCIAL ADVISOR (SEE PAGE 41)
Bear, Stearns & Co. Inc. is acting as Talk.com's financial advisor in
connection with the merger. It has delivered to the Talk.com board of directors
a written opinion that, as of March 24, 2000, the exchange ratio of 0.571428
Talk.com shares for each Access One share was fair, from a financial point of
view, to the stockholders of Talk.com. The full text of the written opinion of
Bear Stearns is attached as Annex E. The fairness opinion describes important
exceptions, assumptions and limitations and should be read carefully and in its
entirety. BEAR STEARNS' OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF
TALK.COM AND DOES NOT RECOMMEND HOW TALK.COM STOCKHOLDERS SHOULD VOTE ON THE
ISSUANCE OF ADDITIONAL SHARES UNDER THE MERGER.
INTERESTS OF OFFICERS AND DIRECTORS OF ACCESS ONE IN THE MERGER (SEE PAGE 52)
When you consider the recommendation of the Access One board that you vote
in favor of the merger, you should be aware that a number of its officers and
directors have interests in the
5
<PAGE>
merger that are in addition to the interests of Talk.com's and Access One's
stockholders. Two of Access One's executive officers have entered into
employment agreements with Talk.com under which they have become executive
officers of Talk.com and have received options to purchase Talk.com common stock
and other benefits. One of those executive officers is also required to be
elected as a director of Talk.com as a condition to completion of the merger.
The vesting schedule of all options issued to officers and directors of
Access One under Access One's stock option plans will accelerate upon the
consummation of the merger. These options will become fully vested on
consummation of the merger. Holders of these options will receive in the merger
equivalent options to purchase Talk.com common stock, which will be immediately
exercisable. However, these holders will not be permitted to sell Talk.com
common stock obtained upon exercise of those options until one year after the
merger or, if earlier, the respective dates on which their original Access One
options would have vested. In addition, a promissory note in favor of a director
of Access One in the original principal amount of $3 million, made by OmniCall,
Inc., a wholly owned subsidiary of Access One, will become immediately due and
payable upon the consummation of the merger, and will be repaid in full by
Talk.com.
CONVERSION OF ACCESS ONE STOCK OPTIONS AND WARRANTS (SEE PAGE 53)
Outstanding options and warrants to purchase Access One common stock, other
than the warrants held by MCG Finance Corporation, will automatically be
converted into equivalent options and warrants to purchase Talk.com common
stock, based on the share exchange ratio in the merger of 0.571428 shares of
Talk.com common stock for each share of Access One common stock. MCG has
separately agreed to exchange its warrants in the merger, on the basis of the
same exchange ratio, for approximately 1.2 million shares of Talk.com common
stock. MCG will therefore be treated as though it had exercised its warrants
immediately before the merger. Under a consulting agreement with Talk.com, MCG
will also receive a warrant to purchase 300,000 shares of Talk.com common stock.
OWNERSHIP OF TALK.COM AFTER THE MERGER
In the merger, Talk.com will issue approximately 12.2 million shares of its
common stock, based on the number of shares of Access One common stock
outstanding on June 30, 2000, to Access One stockholders and to MCG Finance
Corporation, a holder of Access One warrants. In addition, Talk.com will issue
options and warrants to purchase approximately 2.1 million additional shares of
its common stock in replacement of outstanding Access One stock options and
other Access One warrants, and will grant a warrant to purchase 300,000 shares
of Talk.com common stock to MCG under a consulting agreement. The new shares of
Talk.com common stock, including shares issuable under the new options and
warrants, represent approximately 22.2% of the currently outstanding Talk.com
common stock, and will represent approximately 18.3% of the Talk.com common
stock that will be outstanding after the merger.
CONDITIONS TO THE COMPLETION OF THE MERGER (SEE PAGE 57)
Talk.com and Access One will not complete the merger unless a number of
conditions are satisfied or waived by them. These conditions include:
o approvals by the Talk.com and Access One stockholders;
o expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, which has
already occurred before the date of this joint proxy
statement/prospectus;
o receipt of other necessary approvals from regulatory authorities;
o absence of any law or court order prohibiting the merger;
6
<PAGE>
o absence of an imposition by any regulatory authority of any order
or other provision that would effectively limit Talk.com's
ownership, control or operation of Access One and its business
after the merger; and
o receipt by Access One of an opinion of counsel that the merger
will qualify as a tax-free reorganization.
REGULATORY APPROVALS (SEE PAGE 50)
Completion of the merger will not occur until after receipt of all
necessary regulatory approvals and consents. The FCC and several state public
utility commissions have jurisdiction to review and/or approve the merger. As of
the date of this joint proxy statement/prospectus, the FCC and a majority of the
states from which Access One derives substantial local intrastate revenues have
completed their review or approval, as applicable, of the merger.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Talk.com
and Access One filed information with the Department of Justice and the Federal
Trade Commission. On April 18, 2000, the Federal Trade Commission granted early
termination of the waiting period under the act. However, both regulatory
agencies retain the authority to challenge the merger on antitrust grounds
before or after the merger is completed.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 58)
The merger agreement may be terminated by mutual written consent of
Talk.com and Access One. The merger agreement may also be terminated by either
Talk.com or Access One if:
o the merger has not become effective by March 23, 2001, and the failure to
complete the merger by that date is not due to the action or failure to act
of the party seeking to terminate;
o a closing condition of the terminating party is not satisfied due to a
breach of any representation, warranty or covenant of the other party and
the breach is not cured within 30 days after notice is delivered by the
terminating party, except neither party may terminate the merger on this
basis if it is in material breach of any of its own representations,
warranties or covenants in the merger agreement;
o the Talk.com stockholders or the Access One stockholders fail to give the
necessary approval of the merger or related transactions; or
The merger agreement may also be terminated by Talk.com if:
o the Access One board enters into an agreement with respect to an
alternative acquisition proposal;
o the Access One board withdraws its recommendation to the Access One
stockholders in favor of the approval of the merger;
o the Access One board, after receiving an alternative acquisition proposal,
fails to confirm publicly its recommendation of the merger within ten days
after Talk.com requests that a public confirmation be made; or
o Access One or its representatives, except as explicitly permitted in the
merger agreement, solicit, negotiate or enter into an alternative
acquisition proposal.
The board of directors of Access One may withdraw its recommendation in
favor of the merger in response to a superior acquisition proposal if the board
determines in good faith that the failure to withdraw the recommendation would
violate the board's fiduciary duty to its stockholders. The Access One special
meeting will be held even if Access One receives a superior acquisition proposal
from a third party and the board will still submit the merger agreement to a
vote of Access One's stockholders for approval. As of the date of this joint
proxy statement/prospectus, no such proposal has been received.
7
<PAGE>
TERMINATION FEE (SEE PAGE 58)
Access One has agreed to pay Talk.com a termination fee of $6 million in
cash if:
o Talk.com terminates the merger agreement because Access One has committed a
material breach of any of its representations, warranties or covenants in
the merger agreement and the breach is not cured within 30 days after
notice is delivered by Talk.com;
o Talk.com terminates the merger agreement because the Access One board:
enters into an agreement with respect to an alternative acquisition
proposal; withdraws its recommendation in favor of the merger; or after
receiving an alternative acquisition proposal, fails to confirm publicly
its recommendation of the merger within ten days after Talk.com requests
that a public confirmation be made; or
o Talk.com terminates the merger agreement because Access One or its
representatives solicit, negotiate or enter into an alternative acquisition
proposal that is inconsistent with the merger agreement.
Talk.com has agreed to pay Access One a termination fee of $6 million in
cash if Access One terminates the merger agreement because Talk.com has
committed a material breach of any of its representations, warranties or
covenants in the merger agreement and the breach is not cured within 30 days
after notice is delivered by Access One.
VOTING AGREEMENT (SEE PAGE 59)
Talk.com and Access One entered into a voting agreement with the holders of
approximately 13.0 million shares of Access One common stock, or approximately
67.7% of the outstanding Access One common stock. Under the voting agreement,
these holders agreed to vote any shares of Access One common stock they own in
favor of the merger and related transactions and against any proposal made in
opposition to consummation of the merger. These holders also granted an
irrevocable proxy to Talk.com and designated individuals to vote their shares in
such manner. The full text of the voting agreement is attached as Annex B to
this joint proxy statement/prospectus. We encourage you to read it along with
this document.
INDEMNIFICATION AND ESCROW AGREEMENTS (SEE PAGE 59)
Under the indemnification agreement, Access One, prior to the merger, and
its stockholders, for a period of one year after the merger, have agreed to
indemnify Talk.com against losses in excess of $1 million resulting from any
breach of the representations, warranties, covenants and agreements of Access
One contained in the merger agreement. At the time of the merger, Talk.com and
Access One will enter into an escrow agreement under which 10% of the stock of
Talk.com issued to stockholders of Access One in the merger will be deposited in
escrow in order to secure the obligations of Access One and its stockholders
that may arise under these indemnification provisions. Talk.com's right to
indemnification is limited to amounts that can be satisfied from the proceeds of
shares of Talk.com common stock held in escrow. The escrow agent is required to
distribute all remaining escrowed shares to the former Access One stockholders
one year after the merger, except for any shares withheld to cover pending
claims for indemnification.
Talk.com has agreed in the indemnification agreement to indemnify Access
One's stockholders for a period of one year after the merger against any losses
resulting from a breach of Talk.com's representations, warranties, covenants and
agreements contained in the merger agreement.
The full text of the indemnification agreement and the full text of the
form of the escrow agreement are attached as Annexes C and D to this joint proxy
statement/prospectus. We encourage you to read them along with this document.
8
<PAGE>
SERVICES AGREEMENT (SEE PAGE 60)
Access One has entered into a services agreement with Talk.com Holding
Corp., Inc., a subsidiary of Talk.com, for an initial term of five years. Under
the agreement, Access One will provide telephone exchange services, exchange
access services, and administrative support services to Talk.com for resale to
its customers. Access One will have a right to terminate the services agreement
if the merger is not completed by March 23, 2001, other than by reason of action
or inaction on the part of Access One. If such termination occurs, Talk.com will
have the right to continue to use the services provided under the agreement for
a transition period of up to 180 days. In addition, if the merger is not
completed by that date for reasons that are attributable to action or inaction
on the part of Access One, then Access One has agreed to provide the services
required by the services agreement, for the balance of the initial contract
term, at rates equal to the direct incremental cost to it of obtaining and
providing those services.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 48)
An Access One stockholder's receipt of Talk.com common stock in the merger
generally will be tax-free for United States federal income tax purposes. This
tax treatment may not apply to all Access One stockholders. You should consult
your own tax advisor for a full understanding of the tax consequences of the
merger.
LISTING OF TALK.COM COMMON STOCK
The shares of Talk.com common stock to be issued in the merger will be
listed on the Nasdaq National Market under the ticker symbol "TALK."
STOCKHOLDER VOTES REQUIRED
Approval of the issuance of additional Talk.com common stock under the
merger agreement requires the affirmative vote of a majority of the votes cast
on that proposal at the Talk.com annual meeting.
Approval of the merger agreement by the Access One stockholders requires
the affirmative vote of a majority of the votes cast on that proposal at the
Access One special meeting. Under the voting agreement, the holders of
approximately 67.7% of the outstanding common stock of Access One have agreed to
vote in favor of the merger agreement.
OWNERSHIP OF SHARES BY DIRECTORS AND OFFICERS
As of April 26, 2000, Talk.com directors and executive officers
beneficially owned approximately 1,767,000 shares of Talk.com common stock,
including shares issuable under outstanding stock options, representing
approximately 2.5% of the outstanding shares. Each of Talk.com's directors and
executive officers intends to vote at the Talk.com annual meeting in favor of
approval of the issuance of additional shares of Talk.com common stock under the
merger agreement.
As of May 15, 2000, Access One's directors and executive officers
beneficially owned 8,228,139 shares of Access One common stock, including shares
issuable under outstanding options and warrants, representing approximately
39.1% of the outstanding shares of Access One common stock. Each of Access One's
directors and executive officers who owns any Access One stock intends to vote
at the Access One special meeting to approve the merger agreement and the
merger.
9
<PAGE>
APPRAISAL RIGHTS
Under Delaware law, the holders of Talk.com common stock will not have
appraisal rights in connection with the merger.
Under New Jersey law, holders of Access One common stock will not have
appraisal rights in connection with the merger.
ACCOUNTING TREATMENT OF THE MERGER (SEE PAGE 51)
The merger, for accounting and financial reporting purposes, will be
accounted for using the purchase method of accounting. The purchase method of
accounting allows the companies to be treated as if the combination occurred on
the closing date. When the merger is complete, Talk.com will include the fair
value of the assets and liabilities of Access One in Talk.com's consolidated
balance sheet and will include income of Access One after the closing date in
Talk.com's consolidated statement of income.
OTHER TALK.COM ANNUAL MEETING PROPOSALS (SEE PAGES 29-31 AND 96-109)
At the Talk.com annual meeting, in addition to approval of the issuance of
Talk.com common stock under the merger agreement, Talk.com is asking you to:
o elect two directors to the Talk.com board of directors;
o approve the Talk.com 2000 Long-Term Incentive Plan;
o approve the appointment of Talk.com's independent accountants; and
o conduct other business if properly presented.
The election of Mr. Baritz as a director of Talk.com is a condition to the
merger. If Mr. Baritz is not elected a director, the merger will not be
completed. In addition, completion of the merger is a condition to Mr. Baritz
becoming a director of Talk.com. If for any reason the merger is not completed,
Mr. Baritz will not serve as a director of Talk.com.
The Talk.com board of directors recommends that you vote FOR the election
of directors, FOR approval of the 2000 Long-Term Incentive Plan, and FOR
approval of the appointment of Talk.com's independent accountants.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Talk.com common stock is quoted on the Nasdaq National Market under the
symbol "TALK." Access One is a privately held company, and its common stock is
not traded or quoted in any public market.
10
<PAGE>
The following table shows, for the calendar quarters indicated, based on
published financial sources, the high and low closing sale prices of shares of
Talk.com common stock on the Nasdaq National Market:
<TABLE>
<CAPTION>
TALK.COM COMMON STOCK
------------------------
HIGH LOW
---------- -----------
<S> <C> <C>
1998
First Quarter ...................... $ 30 $ 19 1/4
Second Quarter ..................... $ 24 5/16 $ 13 9/16
Third Quarter ...................... $ 19 3/8 $ 9 1/16
Fourth Quarter ..................... $ 19 3/8 $ 4 23/32
1999
First Quarter ...................... $ 19 5/8 $ 8 1/16
Second Quarter ..................... $ 14 1/4 $ 9 7/8
Third Quarter ...................... $12 29/32 $ 8 11/16
Fourth Quarter ..................... $18 15/16 $ 11 1/8
2000
First Quarter ...................... $ 20 1/8 $13 11/16
Second Quarter ..................... $ 15 7/16 $ 5 23/32
</TABLE>
On July 6, 2000, the most recent practicable date before the date of this
joint proxy statement/prospectus, Talk.com common stock closed at $6 1/16.
The following table presents:
o the last reported sale price of one share of Talk.com common stock, as
reported on the Nasdaq National Market, on March 24, 2000, the last full
trading day prior to the public announcement of the proposed merger, and on
July 6, 2000, the last day for which that information could be calculated
prior to the date of this document, and
o the market value of one share of Access One common stock on an equivalent
per share basis as if the merger had been completed on March 24, 2000, the
last full trading day prior to the public announcement of the proposed
merger, and on July 6, 2000, the last day for which that information could
be calculated prior to the date of this document. The equivalent price per
share data for Access One common stock has been determined by multiplying
the last reported sale price of one share of Talk.com common stock on each
of these dates by the exchange ratio in the merger.
<TABLE>
<CAPTION>
CLOSING PRICE OF EQUIVALENT PRICE PER SHARE OF
DATE TALK.COM COMMON STOCK ACCESS ONE COMMON STOCK
--------------------------- ----------------------- ------------------------------
<S> <C> <C>
March 24, 2000 ......... $ 14.5625 $ 8.32
July 6, 2000 ........... $ 6.0625 $ 3.46
</TABLE>
You are urged to obtain current market quotations for Talk.com common stock
before making a decision with respect to the merger.
CASH DIVIDEND POLICIES
Talk.com has never declared or paid any cash dividends on its capital
stock. Talk.com currently intends to retain all available funds for use in the
operation and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future. Access One has not declared or paid any
cash dividends on its capital stock.
11
<PAGE>
COMPARATIVE PER SHARE INFORMATION
The following tables present unaudited historical and pro forma per share
data that reflect the completion of the merger based upon the historical and pro
forma financial statements of Talk.com and Access One included elsewhere in this
joint proxy statement/prospectus or incorporated by reference. You should read
the data presented below together with the historical financial statements,
including applicable notes, and the unaudited pro forma condensed consolidated
financial data.
The average number of common shares outstanding used in calculating pro
forma net income per common share from continuing operations is calculated
assuming that the estimated number of shares of Talk.com common stock to be
issued in the merger were outstanding from the beginning of the periods
presented.
Access One pro forma equivalent amounts are calculated by multiplying the
respective Talk.com pro forma consolidated per share amounts by the exchange
ratio of 0.571428.
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
THREE MONTHS ENDED YEAR ENDED
TALK.COM MARCH 31, 2000 DECEMBER 31, 1999
----------------------------------------- ---------------------------- -------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------ ------------- ------------ ----------
<S> <C> <C> <C> <C>
Income from continuing operations per
common share -- Basic ................. $ 0.20 $ 0.07 $ 0.94 $ 0.30
Income from continuing operations per
common share -- Diluted ............... $ 0.20 $ 0.06 $ 0.90 $ 0.28
Cash dividends per common share ......... N/A N/A N/A N/A
Book value per common share ............. $ 0.91 $ 3.13 $ 0.62
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
THREE MONTHS ENDED YEAR ENDED
ACCESS ONE JANUARY 31, 2000 OCTOBER 31, 1999
---------------------------------------- ---------------------------- --------------------------
PRO FORMA PRO FORMA
HISTORICAL EQUIVALENT HISTORICAL EQUIVALENT
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations
per common share -- Basic ............ ($ 0.14) $ 0.04 ($ 0.39) $ 0.17
Income (loss) from continuing operations
per common share -- Diluted .......... ($ 0.14) $ 0.03 ($ 0.39) 0.16
Cash dividend per common share ......... N/A N/A N/A N/A
Book value per common share ............ $ 0.16 $ 1.79 ($ 0.42)
</TABLE>
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following financial information is provided to assist you in your
analysis of the financial aspects of the merger. The Talk.com information is
derived from the audited financial statements of Talk.com as of and for the
fiscal years ended December 31, 1995 through 1999, and from the unaudited
financial statements of Talk.com as of and for the three months ended March 31,
1999 and 2000. The information presented here is only a summary and should be
read in conjunction with the historical financial statements and related notes
contained in the annual and quarterly reports of Talk.com and other information
that has been filed with the SEC and is incorporated by reference in this joint
proxy statement/prospectus. See "Where You Can Find More Information" to learn
where you can obtain copies of this other information.
The Access One information is derived from the audited financial statements
of Access One as of and for the fiscal years ended October 31, 1997, 1998 and
1999, and the unaudited financial statements of Access One as of and for the six
months ended April 30, 1999 and 2000. The information presented here is only a
summary and should be read in conjunction with the historical financial
statements and related notes contained elsewhere in this joint proxy
statement/prospectus.
Talk.com Selected Historical Consolidated Financial Data
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE
MONTHS ENDED MARCH 31, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------- ---------------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
TALK.COM CONDENSED
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Sales ......................... $ 156,059 $ 110,572 $ 516,548 $ 448,600 $ 304,768 $ 232,424 $ 180,102
Operating income (loss) ....... 13,683 12,355 59,555 (256,873) (85,051) 21,788 17,701
Income (loss) before
extraordinary gain (1) ...... 13,380 12,334 57,699 (308,436) (20,945) 20,168 10,819
Net income (loss) (1) ......... $ 13,380 $ 31,331 $ 78,929 $ (221,326) $ (20,945) $ 20,168 $ 10,819
Income (loss) before
extraordinary gain per
share -- Basic (1) .......... $ 0.20 $ 0.21 $ 0.94 $ (5.20) $ (0.33) $ 0.38 $ 0.34
Net income (loss) per share
-- Basic (1) ................ $ 0.20 $ 0.53 $ 1.29 $ (3.73) $ (0.33) $ 0.38 $ 0.34
Income (loss) before
extraordinary gain per
share -- Diluted (1) ........ $ 0.20 $ 0.20 $ 0.90 $ (5.20) $ (0.33) $ 0.35 $ 0.32
Net income (loss) per share
--Diluted (1) ............... $ 0.20 $ 0.50 $ 1.23 $ (3.73) $ (0.33) $ 0.35 $ 0.32
TALK.COM CONDENSED
CONSOLIDATED BALANCE SHEET
DATA:
Total assets .................. $ 232,036 $ 148,501 $ 215,008 $ 272,560 $ 814,891 $ 257,008 $ 71,388
Convertible debt .............. 84,950 94,285 84,985 242,387 500,000 -- --
Total stockholders' equity
(deficit) ................... 59,780 (68,867) 40,103 (136,785) 222,828 230,720 41,314
</TABLE>
----------------------
(1) For the period ended September 19, 1995, Talk.com Holding Corp., the
predecessor corporation to Talk.com, elected to report as an S corporation
for federal and state income tax purposes. Accordingly, the predecessor's
stockholders included their respective shares of Talk.com's taxable income
in their individual income tax returns. The pro forma income taxes reflect
the taxes that would have been accrued if Talk.com had elected to report as
a C corporation.
13
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Access One Selected Historical Consolidated Financial Data
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX AS OF AND FOR THE
MONTHS ENDED APRIL 30, YEAR ENDED OCTOBER 31,
-------------------------- ----------------------------------------
2000 1999 1999 1998 1997
------------ ----------- ------------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ACCESS ONE CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Sales ........................................ $ 18,688 $ 5,376 $ 15,413 $ 5,811 $ 479
Operating loss ............................... (2,690) (1,776) (3,613) (3,387) (142)
Net loss ..................................... $ (3,282) $ (2,297) $ (4,994) $ (4,761) $ (158)
Net loss per share -- Basic and Diluted....... $ (0.18) $ (0.17) $ (0.39) $ (0.41) $ (0.05)
ACCESS ONE CONDENSED CONSOLIDATEDBALANCE SHEET DATA:
Total assets ................................. $ 26,657 $ 6,287 $ 3,885 $ 4,110
Long-term debt (1) ........................... 16,691 6,837 181 410
Total stockholders' equity (deficit) (2) ..... 2,112 (5,356) (496) 2,097
</TABLE>
----------------------
(1) See Notes to the Consolidated Financial Statements of Access One
incorporated elsewhere in this document for an explanation of borrowings
under the MCG credit facility and a discussion of the other long-term
borrowings.
(2) See Notes to the Consolidated Financial Statements of Access One
incorporated elsewhere in this document.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED SELECTED FINANCIAL DATA
The following unaudited pro forma condensed selected financial data are
derived from the unaudited pro forma consolidated balance sheet as of March 31,
2000 and the unaudited pro forma consolidated statements of operations for the
three months ended March 31, 2000 and the year ended December 31, 1999,
presented elsewhere in this joint proxy statement/prospectus.
The unaudited pro forma consolidated balance sheet as of March 31, 2000 was
prepared by combining the balance sheet at March 31, 2000 for Talk.com with the
balance sheet of January 31, 2000 for Access One, giving effect to the merger as
though it had been completed on March 31, 2000 and utilizing the shares of
Access One common stock outstanding as of January 31, 2000.
The unaudited pro forma consolidated statement of operations for the three
months ended March 31, 2000 was prepared by combining the consolidated
statements of operations for the three months ended March 31, 2000 and January
31, 2000 for Talk.com and Access One, respectively, and the period November 1
through November 29, 1999 for OmniCall, Inc. OmniCall was acquired by Access One
on November 29, 1999 by issuing 6,439,776 shares of Access One's common stock,
accounting for it under the purchase method of accounting, with its operations
included in the Access One consolidated financial statements from November 30,
1999. The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1999 was prepared by combining the consolidated statements of
operations: (1) for the year ended December 31, 1999 for Talk.com, (2) for the
year ended October 31, 1999 for Access One and (3) for the periods January 1,
1999 to November 29, 1999 and November 30, 1999 to December 31, 1999 (for which
OmniCall adopted a new basis of accounting arising from its acquisition by
Access One) for OmniCall, giving effect to the mergers as though they had
occurred on January 1, 1999.
The pro forma consolidated financial statements do not purport to represent
what the results of operations or financial position of Talk.com would actually
have been if the mergers and related transactions had, in fact, occurred on the
dates indicated above, nor do they purport to project the results of operations
or financial position of Talk.com for any future period or as of any date,
respectively.
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<TABLE>
<CAPTION>
PRO FORMA
TALK.COM ACCESS ONE CONSOLIDATED
FOR THE YEAR FOR THE YEAR OMNICALL OMNICALL FOR THE YEAR
ENDED ENDED JANUARY 1 TO NOVEMBER 30 TO ENDED
DECEMBER 31, OCTOBER 31, NOVEMBER 29, DECEMBER 31, PRO FORMA DECEMBER 31,
1999 1999 1999 1999(1) ADJUSTMENTS 1999
-------------- -------------- -------------- ---------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
TALK.COM CONDENSED PRO
FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
DATA:
Sales ........................... $ 516,548 $ 15,413 $ 12,745 $1,416 $ -- $ 546,122
Operating income (loss) ......... 59,555 (3,613) (8,209) (428) (21,963) 25,342
Income (loss) before
extraordinary item ............. 57,699 (4,994) (8,458) $ (479) (21,963) 21,805
Income (loss) before
extraordinary item per
share -- Basic ................. $ 0.94 $ (0.39) $ 0.30
Income (loss) before
extraordinary item per
share -- Diluted ............... $ 0.90 $ (0.39) $ 0.28
</TABLE>
----------------------
(1) Reflects operations from November 30, 1999 to December 31, 1999, for which
period OmniCall adopted a new basis of accounting arising from its
acquisition by Access One.
<TABLE>
<CAPTION>
PRO FORMA
TALK.COM ACCESS ONE CONSOLIDATED
AS OF AND FOR AS OF AND FOR AS OF AND FOR
THE THREE THE THREE OMNICALL THE THREE
MONTHS ENDED MONTHS ENDED NOVEMBER 1 TO MONTHS ENDED
MARCH 31, JANUARY 31, NOVEMBER 29, PRO FORMA MARCH 31,
2000 2000 1999(1) ADJUSTMENTS 2000
--------------- --------------- --------------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
TALK.COM CONDENSED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Sales .................................... $ 156,059 $ 8,463 $1,446 $ -- $ 165,968
Operating income (loss) .................. 13,683 (2,420) (633) (5,252) 5,378
Net income (loss) ........................ 13,380 (2,320) (687) (5,252) 5,121
Net income (loss) per share
-- Basic ............................... $ 0.20 $ (0.13) $ 0.07
Net income (loss) per share
-- Diluted ............................. $ 0.20 $ (0.13) $ 0.06
TALK.COM CONDENSED PRO FORMA
CONSOLIDATED BALANCE SHEET DATA:
Total assets ............................. $ 232,036 $ 25,278 $ 184,421 $ 441,735
Long-term debt ........................... 84,950 14,262 (14,262) 84,950
Total stockholders' equity (deficit) ..... 59,780 3,031 196,950 259,761
</TABLE>
----------------------
(1) To reflect OmniCall's results of operations for the period from November 1
through November 29, 1999, during which Access One did not own OmniCall.
15
<PAGE>
RISK FACTORS
You should carefully consider the following risks, which are not listed in
order of priority, in addition to those factors discussed in the documents which
Talk.com has filed with the SEC which we have incorporated into this document,
and the other information contained in this joint proxy statement/prospectus,
before voting on the merger proposals.
THE MARKET VALUE OF THE TALK.COM SHARES RECEIVED IN THE MERGER WILL FLUCTUATE.
The share exchange ratio in the merger is fixed. This means that the
exchange ratio will not be adjusted to reflect changes in the market value of
Talk.com common stock. The market value of Talk.com common stock at the
effective time of the merger may vary significantly from the price as of the
date the merger agreement was executed, the date of this joint proxy
statement/prospectus or the dates on which Talk.com and Access One stockholders
vote on the merger. For example, during the approximately 12 month period
beginning on July 1, 1999 and ending on July 6, 2000, the most recent practical
date prior to the mailing of this joint proxy statement/prospectus, the closing
prices of Talk.com common stock on the Nasdaq National Market ranged from a low
of $5 23/32 to a high of $20 1/8 and ended that period at $6 1/16. See "Summary
-- Comparative Per Share Market Price Information" for more detailed share price
information.
These variations may result from a number of factors, including:
o market perception of the synergies expected to be achieved by the
merger,
o changes in the business, operations or prospects of Talk.com or Access
One,
o changes in price competition for local and long distance services,
o levels of attrition in the number of customers,
o developments with respect to the combined company's new local services
and bundled local and long distance services initiative,
o changes in government policy, regulation and enforcement,
o developments in the combined company's relationship with AOL,
o developments with respect to the marketing of local and long distance
services under the combined company's agreements with its various
marketing partners,
o the operating and stock price performance of other comparable
companies,
o market assessments of the likelihood that the merger will be completed
and the timing of the merger, and
o general market and economic conditions.
In particular, the stock prices for many companies in the
telecommunications sector have experienced wide fluctuations that have often
been unrelated to the operating performance of such companies. Talk.com has
been, and is likely to continue to be, subject to such fluctuations. Past stock
performance is not an indication of future market performance.
The merger may not be completed as currently contemplated by Talk.com and
Access One immediately following the Talk.com and Access One stockholder
meetings. Regulatory or other factors could lead to delays in completing the
merger. At the time of their respective stockholder meetings, Talk.com and
Access One stockholders will not know the exact value of the Talk.com common
stock that will be issued in connection with the merger.
Talk.com and Access One urge you to obtain current market quotations of
Talk.com common stock. Neither Talk.com nor Access One can assure you as to the
market price of Talk.com common stock at any time.
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<PAGE>
WE MAY BE UNABLE TO SUCCESSFULLY INTEGRATE OUR OPERATIONS.
The merger involves the integration of two companies that have previously
operated independently. If Talk.com is unable to successfully integrate Access
One into Talk.com's operations, Talk.com may not be able to realize expected
operating and cost efficiencies, revenue growth and technological development.
The integration of Talk.com and Access One is subject to a number of risks,
including risks that:
o The integration could divert management's attention from the daily
operations of the combined company;
o The integration of Talk.com and Access One's management, computer
systems, operating systems, services and product lines may take longer
or cost more than expected, including integrating Access One's billing
and data systems into Talk.com's billing, data and e-commerce systems;
o Talk.com may lose some of its existing marketing partners or key
employees; and
o Talk.com may be unable to retain Access One's customers, strategic
partners or key employees.
Neither Talk.com nor Access One can assure you that there will be no delays
or difficulties in the transition process.
FAILURE TO COMPLETE THE MERGER COULD HURT TALK.COM'S STOCK PRICE AND FUTURE
OPERATIONS.
If the merger is not completed for any reason, Talk.com and Access One may
be subject to a number of material risks, including the following:
o Talk.com and Access One may be required to pay the other a termination
fee,
o Talk.com and Access One would not receive the benefits arising from
the merger,
o the services agreement may be terminated if the merger is not
completed within one year of the date of the merger agreement, and
o the price of Talk.com common stock may decline to the extent that the
current market price of Talk.com common stock reflects a market
assumption that the merger will be completed.
THE COMBINED COMPANY WILL INCUR SIGNIFICANT MERGER-RELATED CHARGES AND
INTEGRATION COSTS.
The combined company will incur merger-related costs such as financial
advisory, legal and accounting fees and financial printing and other related
charges.
Additional unanticipated costs may be incurred in the integration of
Talk.com and Access One.
OFFICERS AND DIRECTORS OF ACCESS ONE MAY HAVE POTENTIAL CONFLICTS OF INTEREST.
Certain directors and officers of Access One have interests in the merger
that are in addition to the interests of Access One stockholders. Kenneth G.
Baritz has resigned his posts as Chairman and Chief Executive Officer of Access
One to become President of Talk.com. It is also a condition to the merger that
Mr. Baritz be elected a member of the Talk.com board of directors, and he has
accordingly been nominated for election at the annual meeting. However, he will
not become a director if the merger is not completed. Kevin Griffo resigned as
President and Chief Operating Officer of Access One to become Executive Vice
President -- Local Services, of Talk.com. Each of Messrs. Baritz and Griffo
entered into an employment agreement with Talk.com and was granted an option to
purchase 1,300,000 shares of Talk.com common stock at an exercise price of
$13.69, the market price of Talk.com common stock at the close of business on
the date preceding the date of grant. The merger will also result in immediate
acceleration of the vesting schedule of all options held by officers and
directors of Access One and in the acceleration and repayment of debt owed by
Access One to one of its directors. After completion of the merger, Mr. Baritz,
who will then be the
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<PAGE>
President and a director of Talk.com, will serve under the escrow agreement as
the representative of the former stockholders of Access One with respect to any
claims by Talk.com of a breach by Access One of its representations and
warranties under the merger agreement. It is the intention of the parties that
if the merger is not completed for any reason, then the employment agreements of
Messrs. Baritz and Griffo with Talk.com will be terminated and they will return
to their former positions at Access One.
ACCESS ONE STOCKHOLDERS COULD LOSE A PORTION OF THE TALK.COM STOCK TO BE
DISTRIBUTED TO THEM.
Under the merger agreement, 10% of all shares of Talk.com stock to be
issued in the merger must be placed in an escrow at the closing of the merger
instead of being distributed to the stockholders of Access One. Under a separate
indemnification agreement, Talk.com is entitled to be indemnified against
breaches of the representations, warranties, agreements and covenants of Access
One contained in the merger agreement, to the extent that Talk.com's losses
suffered or sustained within one year of the closing of the merger exceed $1
million and written notice of such losses is delivered prior to the first
anniversary of the closing of the merger. Access One and the stockholders of
Access One are not liable for such losses to the extent that they cannot be
satisfied from the proceeds of Talk.com stock held in escrow. If Talk.com is
found to have valid claims for indemnification exceeding $1 million, it will be
entitled to recover under the indemnity agreement only by return of some or all
of the shares of Talk.com held in the escrow. Under the terms of these
agreements, Kenneth G. Baritz, the former Chief Executive Officer of Access One,
will be authorized to defend and to settle any claims asserted by Talk.com, on
behalf of all of the former stockholders of Access One. As a result, the former
Access One stockholders could lose all or a portion of the Talk.com stock to be
placed into escrow. See "The Merger Agreement -- Indemnification and Escrow
Agreements."
STOCKHOLDERS OF ACCESS ONE MAY BE PREVENTED FROM SELLING THEIR TALK.COM STOCK
RECEIVED IN THE MERGER FOR A PERIOD FOLLOWING THE MERGER.
Although all Talk.com stock received in the merger will be listed for
trading on Nasdaq, under the merger agreement, the stockholders of Access One
may not sell any of the Talk.com stock received in the merger until the earlier
of 90 days after completion of the merger or October 31, 2000. As a result of
this provision, stockholders of Access One may be prevented from selling their
Talk.com stock during that period, and could lose an opportunity to obtain a
favorable market price for that stock. See "The Merger Agreement -- Covenants --
Restriction on Resale of Securities Received in the Merger."
THE MERGER IS EXPECTED TO CAUSE DILUTION TO HISTORICAL TALK.COM EARNINGS.
The merger and the transactions contemplated by the merger agreement are
expected to have a dilutive effect on historical earnings per share of Talk.com
due to the additional Talk.com shares that will be issued in the merger. On a
historical basis for Talk.com, diluted earnings before extraordinary gain per
share were $0.90 for the year ended December 31, 1999, as compared to $0.28 on a
pro forma basis for the combined company. The pro forma figure does not include
costs associated with or benefits anticipated from the merger, such as synergies
and related cost savings, transaction costs, merger-related costs, integration
costs or restructuring charges. See "Financial Information -- Talk.com Unaudited
Pro Forma Consolidated Financial Information" for additional pro forma financial
information for the combined company after the merger.
FUTURE SALES OF TALK.COM'S COMMON STOCK BY STOCKHOLDERS COULD ADVERSELY AFFECT
TALK.COM'S STOCK PRICE.
An aggregate of approximately 12.2 million shares of Talk.com common stock
will be issued in connection with the merger. These shares, other than those
owned by affiliates of Talk.com and Access One, will be freely tradeable in the
market upon the earlier of (a) 90 days following the effective time of the
merger or (b) October 31, 2000. In addition, Talk.com will issue approximately
18
<PAGE>
2.1 million options and warrants to acquire Talk.com common stock in exchange
for options, warrants or other rights to acquire Access One common stock. Sales
of a substantial number of shares of Talk.com common stock issued in the merger
could adversely affect the market price of Talk.com common stock.
Future sales of substantial amounts of Talk.com's common stock could
adversely affect the market price of its common stock. As of April 26, 2000, AOL
beneficially owned 6,843,356 shares of Talk.com's common stock, including
2,721,984 shares that it can acquire by exercise of Talk.com warrants that it
holds. Talk.com's agreements with AOL permit AOL to sell these shares, if they
elect to do so, at any time. Mr. Paul Rosenberg last reported that he
beneficially owned 5,759,985 shares of Talk.com common stock. Other large
stockholders and the numbers of Talk.com common stock of which they last
reported ownership include Massachusetts Financial Services Company -- 7,160,400
shares, Legg Mason, Inc. -- 5,997,900 shares, and Geocapital, LLC -- 3,743,825
shares. A decision by any of these persons to sell all or a significant
percentage of their shares could adversely affect the market price of Talk.com
common stock.
As of April 26, 2000, Talk.com's officers and directors beneficially owned
1,756,957 shares. In addition, as of such date, there were 3,850,100 shares
reserved for issuance upon the conversion of Talk.com outstanding 4- 1/2%
Convertible Subordinated Notes due 2002 and Talk.com 5% Convertible Subordinated
Notes due 2004. Sales of substantial amounts of Talk.com common stock in the
public market, or the perception that such sales could occur, may adversely
affect the market price of Talk.com common stock.
THE MERGER MAY NOT BE TREATED AS A TAX FREE REORGANIZATION.
The merger is intended to be treated as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code and generally tax free to the
stockholders of Access One. It is a condition to the obligation of Access One to
consummate the merger that it receives an opinion from its counsel that the
merger will be treated as a tax-free reorganization. In rendering its opinion,
counsel to Access One will rely upon certain representations of Access One and
Talk.com, made as of the closing date of the merger. If such representations are
untrue, incorrect or incomplete, the merger may not be treated as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, and the receipt in the merger by Access One stockholders of Talk.com
common stock may be taxable.
ACCESS ONE HAS EXPERIENCED SIGNIFICANT OPERATING LOSSES, WHICH COULD ADVERSELY
AFFECT THE COMBINED COMPANY'S PERFORMANCE.
Access One has incurred significant operating losses in the past. The
combined company can give no assurance that the acquired business can be
operated profitably. Continued significant operating losses of the acquired
business could adversely affect the revenues and profitability of the combined
company.
THE COMBINED COMPANY'S BUSINESS STRATEGY, INTENDED TO CAPTURE ADDITIONAL MARKET
SHARE AND ACCELERATE FUTURE GROWTH, MAY NOT SUCCEED.
Talk.com believes that it has an opportunity to capture additional market
share and accelerate future growth through its offerings of local and bundled
local and long distance telecommunications services. In connection with this
perceived opportunity, Talk.com has recently revised its business strategy. In
this regard, Talk.com anticipates that its marketing and promotional
expenditures will continue to increase on an absolute basis and as a percentage
of revenue during the remainder of the year 2000. Talk.com also anticipates
continuing to spend significant marketing dollars with AOL. Accordingly,
Talk.com believes that the projected increase in marketing and advertising
expenditures will significantly reduce the combined company's earnings in 2000.
Talk.com expects to recognize efficiencies in the future and to benefit
from better marketing opportunities and product offerings as a result of the
merger. However, Talk.com cannot assure you that the combined company will
succeed in capturing and retaining additional market share,
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<PAGE>
accelerating future growth and integrating the product offerings of Talk.com and
Access One. If the combined company does not succeed in achieving these goals,
it may have a material adverse effect on its business, financial condition and
results of operation and the price of its common stock. Even if the combined
company does achieve these goals, there is a risk that the increased market
share and accelerated future growth could be accompanied by material adverse
effects on the combined company's business, financial condition, results of
operation and on the price of its common stock.
THE COMBINED COMPANY'S BUSINESS WILL DEPEND TO A SIGNIFICANT EXTENT ON ITS
ABILITY TO OBTAIN ACCESS TO ELEMENTS OF INCUMBENT LOCAL TELEPHONE COMPANIES'
NETWORKS. A SIGNIFICANT REDUCTION IN THE AVAILABILITY OR FUNCTIONALITY OF SUCH
COMBINATIONS OF UNBUNDLED NETWORK ELEMENTS COULD ADVERSELY AFFECT THE COMBINED
COMPANY'S REVENUES AND PROFITABILITY.
The success of the combined company's strategy to offer local telephone
service and bundled local and long distance service will depend on its ability
to obtain access to elements of traditional local telephone companies' networks.
On November 5, 1999, the FCC released an order establishing that traditional
incumbent local exchange carriers nationwide must offer to competitors, in an
individual or combined form, a series of unbundled network elements that
comprise the most important facilities, features, functions, and capabilities of
an incumbent local carrier's network. The price at which such elements are
offered must correspond to the forward-looking cost of providing these elements.
When offered in the combination known as the unbundled network element platform,
or UNE-P, these piece-parts include the loop and switching elements needed to
provide local telephone service to a customer. The FCC is presently reviewing
whether to expand or further restrict the availability of UNE-P.
In providing local telephone service using UNE-P, Talk.com must rely on the
availability of network elements from incumbent local telephone carriers. The
continued ability to obtain those network elements in the configuration known as
UNE-P depends on FCC and state regulatory rulings that require incumbent local
telephone carriers to make UNE-P available to carriers. If those rules were
modified or eliminated, the ability to provide local service to customers using
UNE-P could be materially adversely affected. Notably, although Talk.com does
not expect adverse changes, the FCC has been asked by several incumbent
telephone companies to reconsider its order directing them to provide UNE-P. In
addition, incumbent telephone companies have appealed the FCC's order requiring
that circuit switching be made available as an unbundled network element, and
that such network elements be combined in a UNE-P fashion, and have asked the
federal appeals court to set aside the FCC's order.
Changes in the cost of the network elements that comprise UNE-P also could
materially adversely affect the viability of using UNE-P to provide local
service. The United States Court of Appeals for the Eighth Circuit is currently
considering challenges to the pricing methodology established by the FCC for
setting the rates paid by competitive carriers to incumbent local telephone
carriers for leasing network elements. If the court rejects the FCC's pricing
methodology and that methodology ultimately is replaced with a methodology that
imposes higher rates for network elements, the economic efficiency of UNE-P
would suffer. Similarly, state commissions have the authority to review and
modify the prices paid for unbundled network elements, and a state commission
decision to change the prices of the local loop and switching elements could
materially affect Talk.com's ability to use UNE-P to provide local service. In
addition, state commissions currently are implementing FCC rules that require
incumbent telephone companies to file rates for UNE-Ps that are deaveraged by
geographic density zone. Such geographic rate deaveraging could result in rates
which make use of UNE-P unattractive or uneconomic in less dense geographic
areas.
AN ADVERSE CHANGE IN TALK.COM'S RELATIONSHIP WITH AOL COULD HARM ITS BUSINESS.
Talk.com's business currently depends to a substantial extent upon its
agreements and relationship with AOL. Approximately 91.4% of Talk.com's 1.64
million customers as of March 31, 2000 were obtained under Talk.com's agreement
with AOL. Beginning in the second quarter of 2000, there has been a significant
reduction in the principal marketing opportunity provided to Talk.com by
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AOL, which has resulted in a decline in gross additions of new online customers.
Talk.com expects that this decline will be reflected in a decline in online
sales in the second quarter. However, all of Talk.com's marketing channels with
AOL remain in place. Nevertheless, Talk.com cannot assure you that its
arrangement with AOL will be profitable for the combined company on a
quarter-to-quarter basis or that its current experience with its AOL long
distance business is a fair indication of the future results of its AOL
relationship. Talk.com's agreement with AOL gives Talk.com the exclusive right
to market long distance service over AOL until June 2003. However, as of June 30
of each year beginning in 2000, AOL can terminate this exclusivity and allow
others to market long distance telephone services to AOL subscribers. AOL did
not elect to terminate long distance exclusivity on June 30, 2000, and therefore
the exclusivity period for long distance will continue through at least June 30,
2001. AOL did notify Talk.com that a similar exclusive arrangement as to
wireless services would terminate on July 1, 2000, although Talk.com's right to
offer wireless services to AOL customers will continue on a non-exclusive basis.
Talk.com does not believe that the loss of exclusivity as to the wireless
services will have a material impact on its business. Talk.com currently cannot
predict the impact on its business if AOL elects to terminate Talk.com's long
distance exclusivity before June 30, 2003.
THE COMBINED COMPANY MAY HAVE SIGNIFICANT REIMBURSEMENT AND REPURCHASE
OBLIGATIONS UNDER THE INVESTMENT AGREEMENT WITH AOL.
Under the terms of the investment agreement with AOL, Talk.com has agreed
to reimburse AOL for losses AOL may incur on the sale, during the period from
June 1, 1999 through September 30, 2000, of any of the 4,121,372 Talk.com shares
it acquired in January 1999. The maximum amount Talk.com might have to pay under
this agreement for such stock sales is approximately $54 million plus AOL's
reasonable expenses incurred in connection with the sale, but the actual amount
will depend on the prices at which AOL sells the stock. For example, assuming
AOL were to sell all of its shares subject to the Talk.com reimbursement
obligation at the closing price of Talk.com common stock as of July 5, 2000, the
most recent practical date prior to the mailing of this joint proxy
statement/prospectus, the reimbursement amount would be approximately $50.8
million. Talk.com has the option of issuing a six-month 10% note payable to AOL
to satisfy the reimbursement amount or other amounts payable on exercise of its
first refusal rights.
Talk.com also agreed that when the long distance exclusivity period under
its marketing agreement with AOL ends, which will not be before June 30, 2001,
AOL could require Talk.com to buy back the warrants to purchase Talk.com common
stock held by AOL. The maximum amount that Talk.com might have to pay for the
AOL warrants is $36.3 million, which Talk.com can pay with shares of its common
stock or with cash. Under circumstances described in Talk.com's investment
agreement with AOL, Talk.com has the right to pay a portion of this amount with
a promissory note.
To secure its obligations under the investment agreement with AOL, Talk.com
has pledged the stock of its subsidiaries, including its principal operating
company, Talk.com Holding Corp., and has agreed to fund an escrow account of up
to $35 million from 50% of the proceeds of any debt financing, other than a
bank, receivable or other asset based financing of up to $50 million. The
exercise by AOL of its rights under Talk.com's investment agreement with AOL
could have a significant effect on the combined company's cash position and
could hinder the combined company's ability to fund its operations as it might
otherwise have done had they not exercised. In addition, the existence of these
AOL rights could hamper the combined company's ability to raise additional
capital.
THE COMBINED COMPANY MAY BE UNABLE TO SUCCESSFULLY INTEGRATE ITS MANAGEMENT
TEAM.
Five of the members of senior management, including Messrs. Baritz and
Griffo, have joined Talk.com during the past 18 months. There can be no
assurance that senior management will function together effectively as a
management team. The failure to function effectively together could have a
material adverse effect on the ability of the combined company to implement its
growth strategy as well as on its business, financial condition and results of
operations.
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THE FAILURE OF THE COMBINED COMPANY TO ATTRACT AND RETAIN A SIGNIFICANT NUMBER
OF QUALIFIED PERSONNEL MAY PREVENT THE COMBINED COMPANY FROM ACHIEVING ITS
GOALS.
In order to implement its newly stated strategy and achieve its goals, the
combined company will need to attract and retain a significant number of
qualified management, marketing, engineering, programming, sales and technical
personnel. Talk.com cannot be sure that it will be able to attract or retain
qualified personnel. The loss of the services of qualified personnel, or the
inability to attract, retain and motivate qualified personnel, could have a
material adverse effect on the combined company's business, financial condition
and results of operations. Talk.com does not have "key man" life insurance on
any of its officers or directors.
THE COMBINED COMPANY MAY NOT BE ABLE TO MANAGE ITS GROWTH SUCCESSFULLY.
The expansion and development of the combined company's business will
depend upon, among other things, its ability to:
o evaluate markets,
o obtain any required government authorizations,
o interconnect to, and colocate with, facilities owned by incumbent
local exchange carriers, and
o obtain unbundled network elements and wholesale services from the
incumbent local exchange carriers on reasonable terms.
These must all be accomplished in a timely manner, at reasonable cost and
on satisfactory terms and conditions. Talk.com's growth has placed, and Talk.com
anticipates in the future will place, a significant strain on Talk.com's
administrative, operational and financial resources. The combined company's
ability to manage its growth successfully will require the combined company to:
o enhance its operational, management, financial and information systems
and controls, and
o hire and retain qualified sales, marketing, administrative, operating
and technical personnel.
Talk.com cannot assure you that the combined company will be able to do so.
The combined company's inability to manage its growth effectively could have a
material adverse effect on its business, results of operations and financial
condition.
THE COMBINED COMPANY MAY NOT BE ABLE TO OBTAIN THE ADDITIONAL CAPITAL REQUIRED
TO FULLY IMPLEMENT ITS BUSINESS PLAN.
If adequate funds are not available to the combined company or available to
it on satisfactory terms, it may be required to limit its service or product
development activities or other operations, or otherwise modify its business
strategy. There can be no assurance that the combined company will be able to
obtain these necessary funds from its own operations. If the combined company is
required to seek third party financing, there can be no assurance that third
party financing will be available in amounts or on terms acceptable to the
combined company, if at all. In addition, if funds are raised through the
incurrence of debt, the combined company's operations and finances may become
subject to restrictions. If the combined company obtains additional funds by
selling any of its equity securities, the percentage ownership of Talk.com
stockholders will be reduced, stockholders may experience additional dilution,
or the equity securities may have rights, preferences or privileges senior to
the common stock.
IF THE COMBINED COMPANY DOES NOT CONTINUALLY ADAPT TO TECHNOLOGICAL CHANGE, IT
COULD LOSE CUSTOMERS AND MARKET SHARE.
The telecommunications industry is characterized by:
o rapid technological change,
o frequent new service introductions,
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<PAGE>
o intense competition on pricing, and
o evolving industry standards.
The combined company's inability to anticipate these changes and to respond
quickly by offering services that meet or compete with these evolving standards
could negatively affect its chances for success. There can be no assurance that
the combined company will have sufficient resources to make the necessary
investments or to introduce new services that would satisfy an expanded range of
customer needs. Any failure by the combined company to obtain new technology
could cause the combined company to lose customers and market share and could
hamper the combined company's ability to attract new customers.
COMPETITION IN THE TELECOMMUNICATIONS INDUSTRY IS INTENSE, AND THE COMBINED
COMPANY MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
The telecommunications industry is highly competitive. Major participants
in the industry regularly introduce new services and marketing activities.
Competition in the long distance business is based upon pricing, customer
service, billing services and perceived quality. Talk.com competes against
numerous telecommunications companies that offer essentially the same services
as they do. Several of Talk.com's competitors are substantially larger and have
greater financial, technical and marketing resources than Talk.com does. The
combined company's success will depend upon Talk.com's continued ability to
provide high quality, high value services at prices generally competitive with,
or lower than, those charged by Talk.com's competitors.
The major carriers have targeted price plans at residential customers --
Talk.com's primary target market under its various marketing agreements and its
internet offering -- with significantly simplified rate structures and with
bundles of wireless services and local services with long distance, which may
lower overall long distance prices. Competition is fierce for the small to
medium-sized businesses that Talk.com also serves. Additional pricing pressure
may also come from the introduction of new technologies, such as internet
telephony, which seek to provide voice communications at a cost below that of
traditional circuit-switched long distance service. Reductions in prices charged
by competitors may have a material adverse effect on the combined company. In
addition, the ability of competitors to develop online billing and information
systems that are comparable to Talk.com's systems may have a material adverse
effect on the combined company.
Consolidation and alliances across geographic regions and in the long
distance market and across industry segments may also intensify competition from
significantly larger, well-capitalized carriers.
Allegedly to combat "slamming," the unauthorized conversion of a customer's
preselected telecommunications carrier, many local exchange carriers have
initiated "PIC freeze" programs that, once selected by the customer, require a
customer 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 PIC freezes and change carriers, and
thereby made it difficult for customers to switch to the combined company's long
distance service. Such activities could have an adverse effect on the combined
company.
The entry of the Bell operating companies into the long distance market may
further heighten competition. Under the Telecommunications Act of 1996, the Bell
operating companies were authorized to provide long distance service that
originates outside their traditional services areas, and may gain authority to
provide long distance service that originates within their region after
satisfying certain market opening conditions. While currently only one Bell
operating company, Bell Atlantic, has entered the long distance market, SBC
Communications, Inc. recently obtained FCC approval to enter the long distance
market in Texas, and a number of others have made proposals to offer such
services. Bell operating company entry into the long distance market means new
competition from well-capitalized, well-known companies that have the capacity
to "bundle" other services, such as local and wireless telephone services,
internet access and cable television, with long distance telephone services.
While the Telecommunications Act includes certain safeguards against
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anti-competitive conduct by the Bell operating companies, it is impossible to
predict whether such safeguards will be adequate or what effect such conduct
would have on the combined company. Because of the Bell operating companies'
name recognition in their existing markets, the established relationships that
they have with their existing local service customers, and their ability to take
advantage of those relationships, as well as the possibility of interpretations
of the Telecommunications Act favorable to the Bell operating companies, it may
be more difficult for other providers of long distance services, such as the
combined company, to compete.
There can be no assurance that the combined company will be able to compete
successfully.
CUSTOMER ATTRITION COULD HARM THE COMBINED COMPANY'S FINANCIAL PERFORMANCE.
Purchasers of Talk.com's long distance services are not obligated to
purchase any minimum amount of Talk.com's services, and can stop using
Talk.com's service at any time and without penalty. Talk.com's customers may not
continue to buy their long distance telephone service through Talk.com or
through independent carriers and marketing companies that purchase services from
Talk.com. If a significant portion of Talk.com customers were to decide to
purchase long distance service from other long distance service providers, the
combined company's operating results could be harmed. A high level of customer
attrition is common in the long distance industry, and Talk.com's financial
results are affected by this attrition. Attrition is attributable to a variety
of factors, including Talk.com's termination of customers for nonpayment and the
initiatives of existing and new competitors who, to attract new customers, may
implement national advertising campaigns, utilize telemarketing programs, and
provide cash payments and other forms of incentives.
THE COMBINED COMPANY'S USE OF DIRECT CHANNELS AND INDEPENDENT CARRIERS TO SELL
SOME OF ITS SERVICES MAY EXPOSE IT TO LIABILITY.
Talk.com conducts its sales and marketing efforts both online, through its
various partners and its own web site, as well as through traditional channels,
such as direct mail, telemarketing, independent carriers and partition
arrangements. Generally, these independent carriers and marketing companies
(which are called partitions) purchase services from Talk.com and resell these
services under non-exclusive agreements with Talk.com. Such partitions no longer
comprise a majority of Talk.com's business as they once did. Provisions in
Talk.com's agreements with these independent carriers and marketing companies
require them to comply with federal and state statutes and regulations,
including those regulating telemarketing. Because they are independent carriers
and marketing companies, however, Talk.com cannot control their activities.
Talk.com also cannot predict the extent of their compliance with applicable
regulations. Federal and state regulatory authorities have, in the past, tried
to hold Talk.com liable for activities of these independent carriers and
marketing companies. There can be no assurance that the use of these independent
carriers and marketing companies will not subject the combined company to future
liabilities. Similarly, there can be no assurance that the use of direct
channels, including telemarketing, will not subject the combined company to
future liabilities.
AN ADVERSE CHANGE IN THE COMBINED COMPANY'S RELATIONSHIPS WITH THIRD PARTY
CARRIERS, INCLUDING BELLSOUTH, COULD HARM ITS BUSINESS.
Talk.com and Access One obtain services from various long distance and
local carriers of telecommunications services for their own network services and
their reselling operations. If carriers choose not to enter into agreements with
the combined company, terminate existing contracts with the combined company,
reduce the level or type of telecommunication services they offer, or refuse to
negotiate cost reductions to meet competitive prices, it could have a material
adverse effect on the combined company's financial condition and results of
operations.
INTERRUPTIONS IN OPERATING THE COMBINED COMPANY'S NETWORK OR DAMAGE TO THE
NETWORK COULD HAVE AN ADVERSE EFFECT ON THE COMBINED COMPANY'S FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Talk.com provides services over its own telecommunications network, using
its own switches, to approximately 95% of the lines using Talk.com's long
distance services. Operation as a switch-based provider subjects Talk.com to
risk of significant interruption in its ability to provide services if its
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facilities such as switching equipment or connections to transmission facilities
were damaged by fire or other natural disaster. To the extent that Talk.com is
principally responsible for providing its customers with telecommunications
services, interruption or failure to provide these services may subject Talk.com
to claims from customers who are damaged as a result of an interruption or
failure. Interruptions or other difficulties in operating its own network could
have a material adverse effect on the combined company's financial condition and
results of operations.
THE COMBINED COMPANY COULD CONTINUE TO BE HAMPERED IN ITS ABILITY TO SWITCH NEW
CUSTOMERS QUICKLY TO ITS SERVICE.
The success of Talk.com's business depends, in part, on its 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 FCC 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. Although these restrictions were designed to avoid unauthorized
transfers of telephone service, they have the effect of making it difficult for
customers to switch their long distance service carrier. Although the FCC is
engaged in rule-making proceedings that could modify the rules governing the
offering, implementing and lifting of these restrictions, Talk.com can provide
no assurance that those rules will be adopted, or that if adopted, any new rules
would benefit the combined company.
THE COMBINED COMPANY'S NEED TO COMPLY WITH EXTENSIVE GOVERNMENT REGULATION COULD
INCREASE ITS COSTS AND SLOW ITS GROWTH.
Talk.com's networks and the provision of telecommunications services are
subject to significant regulation at the federal, state and local levels. Delays
in receiving required regulatory approvals, or the enactment of new adverse
regulation or regulatory requirements, may slow the combined company's growth
and have a material adverse effect upon the combined company.
The FCC exercises jurisdiction over Talk.com with respect to interstate and
international services. Talk.com must obtain, and has obtained, prior FCC
authorization for installation and operation of international facilities and the
provision, including by resale, of international long distance services.
Additionally, Talk.com has filed publicly available documents detailing
Talk.com's services, equipment and pricing, also known as "tariffs," with the
FCC for both international and domestic long-distance service. In April of this
year, the D.C. Circuit upheld a 1996 FCC mandate that competitive interstate and
international long distance carriers eliminate the filing of such tariffs with
the agency. Pending appeal and FCC implementation of this mandate, the ruling
may materially adversely affect the combined company's operations by requiring
that it enforce its standard terms, conditions and pricing for interstate and
international telecommunications service offerings through means other than
tariffs.
State regulatory commissions exercise jurisdiction over Talk.com because
Talk.com also provides intrastate services. Talk.com is authorized to provide
intrastate telecommunications services in the states in which it is currently
operational. Talk.com may be required to obtain additional state regulatory
authorizations, if and when Talk.com seeks to build its own network segments, or
if and when it may provide new regulated intrastate telecommunications offerings
not covered by its existing authorizations. Local authorities regulate
Talk.com's access to municipal rights-of-way. Numerous local regulations, such
as building codes and licensing, also apply to activities that Talk.com
undertakes in constructing or expanding its network. These regulations vary by
location.
Restrictions on the marketing of telecommunications services are becoming
stricter in the wake of widespread consumer complaints throughout the industry
about "slamming" -- the unauthorized conversion of a customer's preselected
telecommunications carrier -- and "cramming" -- the
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unauthorized provision of additional telecommunications services. The
constraints of federal and state regulation, as well as increased FCC, FTC and
state enforcement attention, could limit the scope and the success of the
combined company's and its partitions' marketing efforts and subject them to
enforcement action.
The FCC has tentatively concluded that "electronic signatures" may not be
used to obtain letters of authorization from customers to switch carriers.
Numerous parties have asked the FCC to reconsider its view, and its decision is
not final. However, if such a decision were to become final, such action would
have an adverse affect on Talk.com, since Talk.com relies on electronic
signatures for the Internet-based orders that account for a significant portion
of its current sales. Similar restrictions on the use of electronic signatures,
if imposed by state regulators or legislators, could also have an adverse
impact.
Regulators at both the federal and state level require Talk.com to pay
various fees and assessments, file periodic reports, and comply with various
rules regarding the contents of Talk.com's bills, protection of subscriber
privacy and similar matters on an ongoing basis.
Talk.com cannot assure you that the state commissions will grant all
necessary required authorizations for the merger or refrain from taking action
against Talk.com if the combined company is found to have provided services
without obtaining the necessary authorizations, or to have violated other
requirements of their rules and orders. Regulators or others could challenge
Talk.com's compliance with applicable rules and orders. These challenges could
cause Talk.com to incur substantial legal and administrative expenses.
Many states impose various reporting requirements and/or require prior
approval for transfers of control of certified carriers, corporate
reorganizations, acquisitions of telecommunications operations, assignments of
carrier assets, including subscriber bases, carrier stock offerings and
incurrence by carriers of significant debt obligations. Such reporting and
approval requirements could have a material adverse effect on the combined
company's business with respect to the current merger or future transactions
subject to such regulations.
DEREGULATION OF THE TELECOMMUNICATIONS BUSINESS INVOLVES UNCERTAINTIES, AND THE
RESOLUTION OF THESE UNCERTAINTIES COULD ADVERSELY AFFECT THE COMBINED COMPANY'S
BUSINESS.
The Telecommunications Act provides for a significant deregulation of the
domestic telecommunications industry, including the long distance industry. The
Telecommunications Act remains subject to judicial review and additional FCC
rulemaking, and thus it is difficult to predict what effect the legislation will
have on the combined company and the combined company's operations. There are
currently many regulatory actions underway and being contemplated by federal and
state authorities regarding interconnection pricing and other issues that could
result in significant changes to the business conditions in the
telecommunications industry. Talk.com cannot assure you that these changes will
not have a material adverse effect upon the combined company.
THE COMBINED COMPANY'S ABILITY TO USE TALK.COM'S OR ACCESS ONE'S NET OPERATING
LOSS CARRYFORWARDS MAY BE LIMITED.
As of December 31, 1999, Talk.com had federal income tax net operating loss
carryforwards of approximately $183 million, which begin to expire in 2012.
Under Section 382 of the Internal Revenue Code, generally, a company's ability
to use its net operating loss carryforwards to reduce its future tax liability
is limited if, within a three year period, an ownership change of more than 50%
occurs. A more than 50% cumulative change in ownership of Talk.com occurred on
October 26, 1999, resulting in annual limitations of approximately $61 million
on the utilization of net operating loss carryforwards as of that date. While
the merger, by itself, will not affect this limitation, there can be no
assurance that Talk.com's net operating loss carryforwards as of December 31,
1999 or any subsequently generated net operating losses, if any, will not become
subject to subsequent limitations. In addition, Access One has net operating
loss carryforwards. The extent to which the combined company may use Access
One's net operating loss carryforwards to reduce the combined company's
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future tax liability may be limited. As a result of these limitations, the
future tax liability of the combined company may be greater than the combined
tax liabilities of Talk.com and Access One in the absence of the merger.
"ANTI-TAKEOVER" PROVISIONS MAY MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO
ACQUIRE CONTROL OF THE COMBINED COMPANY, EVEN IF THE CHANGE IN CONTROL WOULD BE
BENEFICIAL TO STOCKHOLDERS.
Talk.com is a Delaware corporation. Anti-takeover provisions in Delaware
law and Talk.com's charter and bylaws could make it more difficult for a third
party to acquire control of the combined company. These provisions could
adversely affect the market price of Talk.com's common stock and could reduce
the amount that stockholders might receive if the combined company is sold. For
example, Talk.com's charter provides that Talk.com's board of directors may
issue preferred stock without shareholder approval. In addition, Talk.com's
certificate of incorporation provides for a classified board, with each board
member serving a staggered three-year term. Talk.com has a stockholders rights
plan designed to deter coercive takeover tactics and prevent an acquirer from
gaining control of Talk.com. These "anti-takeover" provisions may make it more
difficult for a third party to acquire control of the combined company, even if
the change in control would be beneficial to stockholders.
TALK.COM HAS NEVER PAID CASH DIVIDENDS ON ITS COMMON STOCK AND DOES NOT
ANTICIPATE PAYING CASH DIVIDENDS IN THE FORESEEABLE FUTURE.
Talk.com has never paid cash dividends on its common stock and does not
anticipate paying cash dividends in the foreseeable future.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Joint Proxy Statement/Prospectus that are
not historical facts are "forward-looking statements" (as such term is defined
in the Private Securities Litigation Reform Act of 1995), which can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should" or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. Management of Talk.com and Access
One wish to caution the reader that the forward-looking statements referred to
above and contained in this Joint Proxy Statement/Prospectus regarding matters
that are not historical facts involve predictions. No assurance can be given
that the future results will be achieved as actual events or results may differ
materially as a result of risks facing Talk.com and Access One. Such risks
include, but are not limited to, those associated with:
o changes in general economic and business conditions
o changes in the telecommunications industry
o changes in applicable federal and state regulations
o intense competition, including competition from larger companies with
greater resources
o intense price competition
o level of attrition in the number of customers
o rapid technological change
o changes in product and service offerings
o Talk.com's and Access One's limited operating history as a combined
company
o integration of the two companies after the merger
o success of the combined company's new local services and bundled
local and long distance services initiative
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o management of rapid growth
o dependence on important marketing relationships such as Talk.com's
relationship with AOL
o dependence on third party carriers
o dependence on complex information systems
o service interruptions resulting from fire and other natural disasters
o changes in government policy, regulation and enforcement
o other risks described above in "Risk Factors."
Any one or more of these risks, alone or in combination, could cause actual
results to vary materially from the future results indicated, expressed or
implied in such forward-looking statements.
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THE TALK.COM ANNUAL MEETING
DATE, TIME AND PLACE
The Talk.com annual meeting will be held on Wednesday, August 9, 2000, at
10:00 a.m. local time, at the Sheraton Reston Hotel, 11810 Sunrise Valley Drive,
Reston, Virginia 20191.
PURPOSE OF THE TALK.COM ANNUAL MEETING
At the Talk.com annual meeting, you will be asked to approve the issuance
of shares of Talk.com common stock in connection with the merger. The Talk.com
board determined that the merger and the issuance of shares of common stock in
connection therewith are advisable and are fair to and in the best interests of
Talk.com stockholders. The board has unanimously approved the merger agreement
and the merger.
Talk.com's common stock is listed on the Nasdaq National Market. Nasdaq's
rules require stockholder approval when an acquisition will involve the issuance
of new shares of a listed class of common stock amounting to more than 20% of
the outstanding common stock. The new shares to be issued in the merger,
including those underlying options and warrants to be issued in the merger, will
amount to more than 20% of the shares of Talk.com common stock now outstanding.
In addition to the approval of additional stock, you will also be asked to:
(1) elect two directors to the board of directors for three-year terms, (2) to
ratify and approve the 2000 Long-Term Incentive Plan, and (3) to ratify and
approve the designation of BDO Seidman LLP as its independent certified public
accountants.
The board of directors recommends that stockholders vote:
o FOR the issuance of shares of Talk.com common stock in connection with
the merger,
o FOR the election of two directors,
o FOR the proposal to ratify and approve the 2000 Long-Term Incentive
Plan, and
o FOR the proposal to ratify and approve the designation of BDO Seidman
LLP as the independent certified public accountants for Talk.com.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of Talk.com common stock at the close of business on
June 30, 2000, the record date, will receive notice of and can vote at the
Talk.com annual meeting. On the record date, 65,824,578 shares of Talk.com
common stock were issued and outstanding and held by approximately 396 holders
of record.
A quorum must be present to vote on the proposals presented at the annual
meeting. A majority of the issued and outstanding Talk.com shares entitled to
vote establishes a quorum. If present, even shares that are abstaining from
voting at the annual meeting will be counted towards the quorum. Abstentions and
broker non-votes count as present for establishing a quorum. You are entitled to
one vote per share held at the Talk.com annual meeting.
VOTES REQUIRED
Approval of the issuance of Talk.com common stock under the merger
agreement requires the affirmative vote of a majority of the votes cast on this
proposal at the annual meeting in person or by proxy.
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, will be elected as directors. A withheld vote on any nominee will not
affect the voting results.
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Approval of the proposal to ratify and approve the 2000 Long-Term Incentive
Plan requires the affirmative vote of a majority of the votes cast on this
proposal at the annual meeting in person or by proxy.
With respect to the proposal to ratify and approve the designation of BDO
Seidman LLP as independent certified public accountants, approval will require
the affirmative vote of a majority of the shares present and entitled to vote at
the annual meeting in person or by proxy.
VOTING BY TALK.COM DIRECTORS AND EXECUTIVE OFFICERS
At the close of business on the record date, directors and executive
officers of Talk.com and their affiliates owned and were entitled to vote an
aggregate of approximately 308,000 shares of Talk.com common stock, which
represented approximately 0.5% of the shares of Talk.com common stock
outstanding on that date. Every director and executive officer of Talk.com has
indicated his or her present intention to vote, or cause to be voted, the
Talk.com common stock owned by him or her for approval of the issuance of shares
of Talk.com common stock in connection with the merger, and for any other
proposals properly presented at the meeting.
VOTING OF PROXIES
All shares of Talk.com common stock represented by properly executed
proxies received in time for the Talk.com annual meeting will be voted at the
Talk.com annual meeting in the manner specified in the proxies. Properly
executed proxies that do not contain voting instructions will be voted:
o FOR approval of the issuance of shares of Talk.com common stock in
connection with the merger,
o FOR the election of two directors to the board of directors of
Talk.com,
o FOR the proposal to ratify and approve the 2000 Long-Term Incentive
Plan,
o FOR the proposal to ratify and approve the designation of BDO Seidman
LLP as the independent certified public accountants for Talk.com, and
o FOR giving discretion to the proxies to vote upon such other business
as may properly come before the meeting, including any adjournment or
postponement thereof.
With respect to each proposal, other than the approval of independent
certified public accountants, an abstention will not affect the outcome of the
vote.
In the absence of specific instructions from customers, brokers who hold
shares of Talk.com common stock in street name for beneficial owners may be
prohibited from giving a proxy to vote those customers' shares. These non-voted
shares are referred to as "broker non-votes." Broker non-votes are counted as
present only for purposes of determining whether a quorum is present. Broker
non-votes do not affect the outcome of the vote on any proposal.
Adjournments may be made for the purpose of soliciting additional proxies.
Any adjournment may be made by approval of the holders of shares representing a
majority of the votes present in person or by proxy at the meeting. A quorum is
not needed for an adjournment. No announcement is needed for an adjournment
other than an announcement made at the meeting. Talk.com does not currently
intend to seek an adjournment of the meeting.
HOW TO VOTE BY PROXY
Complete, sign, date and return the enclosed proxy card in the enclosed
envelope. Proxies must be received by Talk.com prior to the date of the annual
meeting.
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REVOCABILITY OF PROXIES
You may revoke a proxy at any time before the annual meeting. To revoke
your proxy, you must file a duly executed revocation of proxy with the Secretary
of Talk.com. Then you must submit a new duly executed proxy by mail or by
appearing at the annual meeting and voting in person. Attendance at the Talk.com
annual meeting will not constitute revocation of a proxy. If you hold shares in
the name of your broker, bank, or other nominee, then you must bring a legal
proxy from your broker, bank or other nominee to the meeting to vote in person.
DEADLINE FOR VOTING BY PROXY
Votes cast by mail must be received prior to the annual meeting to be
counted. Revocations must be received before the annual meeting to be effective.
SOLICITATION OF PROXIES
Talk.com will bear the cost of the solicitation of proxies from its
stockholders. Proxies will be solicited on behalf of the board of directors.
Directors, officers and employees may solicit proxies. No additional
compensation will be paid for the solicitations made by directors, officers or
employees. Talk.com has hired Corporate Investor Communications, Inc. to assist
in the distribution and solicitation of proxies. Talk.com will pay that firm a
fee of $5,000, plus reasonable expenses, for these services.
Talk.com will make arrangements with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation materials to the
beneficial owners of stock held of record by such persons. Talk.com will
reimburse custodians, nominees and fiduciaries for any reasonable out-of-pocket
expenses.
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THE ACCESS ONE SPECIAL MEETING
DATE, TIME AND PLACE
The Access One special meeting will be held on Wednesday, August 9, 2000,
at 11:30 a.m., at the Sheraton Reston Hotel, 11810 Sunrise Valley Drive, Reston,
Virginia 20191.
PURPOSE OF THE ACCESS ONE SPECIAL MEETING
At the Access One special meeting, you will be asked to approve the merger
agreement. The Access One board has determined that the merger is advisable and
fair to and in the best interests of Access One stockholders. The board has
unanimously approved the merger agreement and unanimously recommends that you
vote FOR approval of the merger agreement.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of Access One common stock at the close of business
on June 30, 2000, the record date, are entitled to notice of and to vote at the
Access One special meeting. On the record date, 19,242,102 shares of Access One
common stock were issued and outstanding and were held by 707 holders of record.
A majority of the shares of Access One common stock issued and outstanding and
entitled to vote on the record date must be represented in person or by proxy at
the Access One special meeting for a quorum to be present to vote upon the
proposal to adopt the merger agreement. Abstentions and broker "non-votes" count
as present for establishing a quorum. Holders of record of Access One common
stock on the record date are entitled to one vote per share at the special
meeting.
VOTES REQUIRED
Approval of the merger agreement requires the affirmative vote of a
majority of the votes cast by Access One stockholders in person or by proxy at
the special meeting. Abstentions and broker "non-votes" do not effect the
outcome of the vote.
VOTING AGREEMENT; VOTING BY ACCESS ONE DIRECTORS AND EXECUTIVE OFFICERS
Under a Voting Agreement dated as of March 24, 2000, stockholders holding
an aggregate of approximately 13.0 million shares of Access One common stock,
comprising approximately 67.7% of the outstanding common stock of Access One,
have agreed to vote their shares in favor of approval of the merger agreement,
the merger and any matter that could reasonably be expected to facilitate the
merger, and to vote their shares against any proposal made in opposition to
consummation of the merger.
At the close of business on the record date, directors and executive
officers of Access One and their affiliates owned and were entitled to vote
6,963,973 shares of Access One common stock, which represented approximately
36.2% of the shares of Access One common stock outstanding on that date. All of
these directors and executive officers of Access One have signed the Voting
Agreement and therefore have agreed to vote their shares in favor of approval of
the merger agreement.
VOTING OF PROXIES
All shares of Access One common stock represented by properly executed
proxies received in time for the Access One special meeting will be voted at the
Access One special meeting in the manner specified in the proxies. Properly
executed proxies that do not contain voting instructions will be voted:
o FOR approval of the merger agreement; and
o FOR giving discretion to the proxies to vote upon such other business
as may properly come before the meeting, including any adjournment or
postponement thereof.
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Only shares affirmatively voted for approval of the merger agreement will
be counted as favorable votes. In the absence of specific instructions from
customers, brokers who hold shares of Access One in street name for beneficial
owners may be prohibited from giving a proxy to vote those customers' shares.
These non-voted shares are referred to as "broker non-votes." Broker non-votes
are counted as present for purposes of determining whether a quorum is present.
Broker non-votes do not affect the outcome of the vote on any proposal.
We do not expect that any matter other than the proposal to approve the
merger agreement will be brought before the Access One special meeting. If,
however, the Access One board properly presents other matters, the persons named
as proxies will vote in accordance with their judgment.
Adjournments may be made for the purpose of soliciting additional proxies.
Any adjournment may be made by approval of the holders of shares representing a
majority of the votes present in person or by proxy at the meeting. A quorum is
not needed for an adjournment. No announcement is needed for an adjournment
other than the announcement made at the meeting. Access One does not currently
intend to seek an adjournment of the meeting.
HOW TO VOTE BY PROXY
Complete, sign, date and return the enclosed proxy card in the enclosed
envelope. Proxies must be received by Access One prior to the date of the
special meeting.
REVOCABILITY OF PROXIES
You may revoke a proxy at any time before the special meeting. To revoke
your proxy, you must file a duly executed revocation of proxy with the clerk of
Access One. Then you must submit a new duly executed proxy by mail or by
appearing at the special meeting and voting in person. Attendance at the Access
One special meeting will not constitute revocation of a proxy. If you hold
shares in the name of your broker, bank or other nominee, then you must bring a
legal proxy from your broker, bank or other nominee to the meeting in order to
vote in person.
SOLICITATION OF PROXIES
Access One will bear the cost of the solicitation of proxies from its
stockholders. Proxies will be solicited on behalf of the board of directors.
Directors, officers and employees may solicit proxies. No additional
compensation will be paid for the solicitations made by directors, officers or
employees. Access One will make arrangements with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of stock held of record by such persons.
Access One will reimburse custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses.
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THE MERGER
BACKGROUND OF THE MERGER
As part of each company's strategy of enhancing stockholder value and
improving its competitive position within its industry segment, Talk.com and
Access One have regularly considered acquisition opportunities, joint ventures
and other partnerships and strategic alliances. During the course of 1999,
management of Talk.com developed a strategy to broaden and diversify the group
of marketing partners with which Talk.com has relationships and to increase its
product offerings. In particular, in late 1999, management of Talk.com developed
a plan to introduce and market bundled local and long distance telephone service
to residential and small business customers in selected markets on a nationwide
basis.
On November 5, 1999, the FCC issued an order requiring traditional local
telephone companies to offer to competitors the separate facilities, features
and other components of their networks that those competitors need in order to
provide local telephone service to customers. The combination of these
facilities, features and components is referred to in the telecommunications
industry as an unbundled network element platform, or "UNE-P." See "Talk.com
Business - Recent Regulatory and Other Developments." Talk.com believes that
this change in FCC regulations created an enhanced opportunity for Talk.com to
build or acquire local telephone service capabilities that it can offer to
customers on a cost effective basis alone or in combination with its existing
long distance service.
At a regularly scheduled meeting of the board of directors of Talk.com on
February 7, 2000, Gabriel Battista, President, Chairman and Chief Executive
Officer of Talk.com, discussed in detail with the board Talk.com's strategy to
diversify its marketing channels and introduce new products, including providing
local services. These discussions focussed in particular on Talk.com's
opportunities to offer bundled local telephone service with its core long
distance product.
On February 14, 2000, Edward B. Meyercord III, the Executive Vice President
-- Chief Financial Officer and Treasurer of Talk.com, contacted Bear, Stearns &
Co. Inc. to discuss Talk.com's business strategy. Bear Stearns suggested to Mr.
Meyercord that Access One, a competitive local exchange carrier with
telecommunications interconnections in nine states in the BellSouth region,
might favor a strategic alliance or other combination with a long distance
carrier. Based on this information, Mr. Meyercord contacted Kenneth G. Baritz,
then the Chairman and Chief Executive Officer of Access One, to discuss a
possible combination of the two companies that would allow them to offer a
combined package of local and long distance telecommunications services.
On February 17, 2000, Messrs. Meyercord and Baritz met in Orlando, Florida,
to discuss the advisability and terms of a possible merger or other business
combination. Later that day, Sung Cho, Director, Corporate Finance, and Jeffrey
Earhart, an employee of Talk.com, met in Orlando with Elizabeth Stallings, then
the Treasurer of Access One, and Jack Allen, Director of Information Systems of
Access One, to discuss their respective business operations.
On February 18, 2000, Messrs. Meyercord, Cho and Earhart met in Orlando
with Kevin Griffo, then the President and Chief Operating Officer of Access One,
David Rodrigue, Director of Customer Service of Access One, Messrs. Baritz and
Allen, and Ms. Stallings to discuss significant aspects of their respective
businesses and operations and the advantages and disadvantages of a possible
combination of the two companies.
On February 22, 2000, the board of directors of Access One held a special
meeting to consider the proposed business combination and the future of the
company. At the meeting, Kenneth Baritz, Kevin Griffo and William Rogers were
present, as well as Steve Tunney of MCG Finance Corporation. The board
considered and discussed, among other things, the strategic, operational and
financial benefits of the proposed combination. See "-- Access One's Reasons for
the Merger; Recommendation of the Access One Board of Directors." The board
voted to approve the proposed merger and authorized Mr. Baritz and other senior
officers to finalize the documentation and to take all necessary or appropriate
actions to complete the merger.
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On February 23 and February 24, 2000, Messrs. Meyercord and Cho, with the
assistance of Talk.com's legal counsel, prepared a preliminary acquisition
proposal, which was sent to Mr. Baritz on February 24, 2000. The proposal
suggested a stock-for-stock merger in which each share of Access One common
stock would be exchanged for Talk.com common stock.
On February 25, 2000, Mr. Meyercord contacted Bear Stearns and retained the
firm as Talk.com's financial advisor in connection with the proposed
acquisition. Also on that day, Aloysius T. Lawn IV, Executive Vice President --
General Counsel and Secretary of Talk.com, discussed with Mr. Baritz in detail
the business, financial and legal due diligence that Talk.com planned to conduct
with respect to Access One.
On February 29, 2000, Gregory Wood, the Chief Information Officer, and Ben
Serzo, Director, Computer Operations of Talk.com, visited Access One's
facilities in Orlando, Florida and discussed significant aspects of Access One's
business operations with Messrs. Baritz, Griffo, Allen and Rodrigue and Ms.
Stallings. Also on that same day, Mr. Cho met in Washington, DC, with Salman
Tajuddin, of MCG Finance Corporation, to discuss MCG's loan facility with Access
One and other financial aspects of Access One's business.
On March 1, 2000, Mr. Cho and representatives of Bear Stearns met in
Orlando, Florida, with Messrs. Baritz, Griffo, Allen, Rodrigue and Ms.
Stallings to conduct a due diligence review of Access One's business and
operations. The next day, Messrs. Meyercord and Cho met in Orlando, Florida,
with Messrs. Baritz and Griffo and Ms. Stallings to review financial aspects of
Access One's business. On March 7, 2000, Mr. Lawn discussed the proposed
structure and terms of the merger with Mr. Baritz by telephone.
On March 8, 2000, Mr. Battista and Messrs. Meyercord and Cho met in New
Hope, Pennsylvania, with Messrs. Baritz and Griffo to discuss strategic aspects
of the proposed combination. Mr. Lawn also participated in a portion of these
conversations relating to the structure and terms of the merger. An additional
meeting on this subject was held on March 10, 2000 in New Hope between Messrs.
Meyercord and Cho on behalf of Talk.com and Messrs. Baritz and Griffo on behalf
of Access One.
On March 14, 2000, Messrs. Battista, Meyercord, Cho and George Vinall,
Executive Vice President -- Business Development of Talk.com, held a further
meeting with Messrs. Baritz and Griffo in Reston, Virginia to review strategic
and financial aspects of the proposed combination, including potential
synergies, cost savings and other factors affecting the decision to merge.
During the period from March 15 to March 20, 2000, Messrs. Meyercord, Lawn,
Cho and Baritz and representatives of Bear Stearns held numerous telephonic
discussions and in person meetings in New Hope, Pennsylvania and Fort
Lauderdale, Florida to discuss the terms of the proposed merger and to review
business and financial due diligence materials. During this period, members of
the board of directors of Talk.com were advised by telephone of the progress of
the discussions on the proposed merger.
On March 20, 2000, the board of directors of Talk.com held a special
meeting to consider the proposed terms of the merger. Mr. Battista presented a
detailed review of the underlying strategy and terms of the proposed merger with
Access One. The board considered and discussed, among other things, strategic
and financial aspects of the proposed combination, the proposed terms of the
merger, and results of the business, financial and legal due diligence by
members of Talk.com management and their financial and legal advisors. The board
then authorized Talk.com's management to complete the discussion and negotiation
of the terms of the proposed merger and to present to the Board a final proposal
for approval. Mr. Battista introduced Mr. Baritz to the Talk.com board of
directors. Mr. Baritz discussed in detail the historical and current business
and operations of Access One and his own background and experience.
During the period from March 21 to March 24, 2000, Messrs. Battista,
Meyercord and Lawn, together with Talk.com's financial and legal advisors, held
numerous meetings and discussions with Messrs. Baritz and Griffo and Access
One's legal advisors with respect to the terms of the merger agreement and
related documentation.
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On March 24, 2000, the board of directors of Talk.com held a special
meeting by conference telephone. At that meeting, all board members were present
except Mr. Fowler, as well as members of senior management and Talk.com's
financial and legal advisers. Members of Talk.com's senior management discussed
their views regarding the proposed combination and the strategic and operational
benefits which could result from the combination. See "-- Talk.com's Reasons for
the Merger; Recommendation of the Talk.com Board of Directors." Representatives
of Bear Stearns reviewed the financial analysis that they had performed with
respect to the proposed merger and the strategic, operational and financial
aspects of the merger. Bear Stearns also delivered to the board its oral
opinion, later confirmed in writing, that the exchange ratio in the merger was
fair, from a financial point of view, to the stockholders of Talk.com. See "--
Opinion of Financial Advisor to Talk.com." Following these presentations, a
discussion ensued concerning the terms of the merger as set forth in the final
drafts of the merger agreement and related documentation presented at the
meeting. The board voted to approve the proposed merger and authorized Mr.
Battista and other officers to take all necessary or appropriate actions to
complete the merger. After the board meeting was adjourned, Talk.com and Access
One signed the merger agreement and related documents.
The following day, on March 25, 2000, Mr. Fowler discussed the merger and
the terms and conditions of the final merger agreement and related documents at
length with members of Talk.com's senior management. Mr. Fowler and the other
members of the board subsequently signed a unanimous consent of directors dated
as of March 24, 2000, approving and ratifying the merger agreement and the
related documents, the merger, and the issuance of additional of Talk.com common
stock under the merger agreement.
The members of the board of directors of Access One subsequently signed a
unanimous consent dated as of March 24, 2000, approving and ratifying the
merger, the merger agreement and the related documents.
TALK.COM'S REASONS FOR THE MERGER; RECOMMENDATION OF TALK.COM'S BOARD OF
DIRECTORS
The telecommunications industry is constantly growing and highly
competitive. Technological advancements and regulatory changes have prompted an
increase in mergers, acquisitions and consolidations. These events have created
entities that are capable of providing a full range of products and services
both in domestic and international markets.
Talk.com currently uses its own telecommunications network, One Better Net,
to provide long distance services to its customers. As discussed above, in late
1999 and early 2000, Talk.com adopted a new strategy to offer a package of local
and long distance telephone service to residential and small business customers
in selected markets on a nationwide basis. To provide this integrated package of
local and long distance telecommunications services, Talk.com plans to take
advantage of recent legal and regulatory rulings that enable companies to gain
access to the individual components of the traditional local telephone service
provider's networks.
To achieve its goal of entering the local carrier arena, toward the end of
1999 Talk.com announced that it would commence leasing local lines for resale in
an effort to expand the portfolio of telecommunications services to small and
medium-sized businesses. In addition, Talk.com has begun offering local calling
service to its customers this year. One effective method for Talk.com to branch
into the local carrier market is through the acquisition of established local
carriers. Talk.com believes that a non-facilities based competitive local
exchange carrier that offers a package of local telecommunications products,
such as Access One, is an appropriate local carrier to acquire as a basis for
expanding its own local service capabilities.
Access One has substantial experience in providing local telecommunications
services throughout the southeastern part of the United States. Talk.com plans
to take advantage of Access One's experience in providing local
telecommunications services to develop and market throughout the nation combined
"all distance" packages of local and long distance services to residential and
small business consumers.
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By merging with Access One, Talk.com expects to acquire an expanded
capacity to provide local calling to its customers and to increase the variety
of telecommunications services provided to its customers. Access One offers
local and long distance telephone, voice-mail, teleconferencing, Internet and
other enhanced and value-added services. In the opinion of Talk.com's
management, the combination of Access One's capabilities in providing local
telecommunication services with Talk.com's marketing strengths, core long
distance offerings and on-line services will create a more comprehensive
telecommunications services company with more choices for Talk.com's customers.
Talk.com believes that offering bundled local and long distance service will
result in decreased "churn," or frequency with which its customers change their
long distance service to another carrier.
Talk.com believes that the merger will enable it to achieve its strategic
objectives. In particular, Talk.com believes that Access One's current
arrangements with BellSouth with respect to UNE-P, entered into in February
2000, will enable Access One to provide local service to its customers in the
future at prices significantly lower than it has paid in the past. Talk.com
estimates, based on the number of Access One customers and assuming the
conversion to UNE-P, that these cost savings may amount to approximately
$700,000 per month, which, after the merger is completed, should increase the
anticipated gross profit of the combined company in providing local service and
bundled and local and long distance service to its customers. However, these
estimates are based on Access One's limited experience under these new
arrangements, and Talk.com cannot assure you that such cost savings or increased
gross profit will in fact be realized or, if realized, that they will be as
significant in amount as is currently anticipated.
In reaching its decision to approve the merger and to recommend to
stockholders the issuance of additional Talk.com common stock in the merger, the
Talk.com board consulted with senior management and financial and legal
advisors. The board also independently considered a number of factors including
the following:
o the complementary nature of the two companies' products and services;
o the fact that Talk.com's stockholders will have the opportunity to
participate in the potential for diversified and enhanced growth after
the merger;
o the fact that the combination would create an enhanced opportunity for
Talk.com to sell bundled local and long distance services in the
BellSouth region and nationally;
o the possibility that bundled local and long distance services would
reduce the frequency with which Talk.com's customers change
long-distance carriers, or "churn," and would reduce selling and
marketing costs;
o the possibility that the incremental revenues and higher gross profit
resulting from the combination and from an improved cost structure at
Access One would provide a higher return on the marketing investments
required to attract new customers;
o the likelihood that Access One's expertise can be exported to other
regional Bell operating company territories;
o the possibility of combining Talk.com's successful marketing platform
with Access One's ability to profitably re-sell local services;
o the potential of Access One to enhance Talk.com's public market
perception and result in an increased valuation of the combined
company;
o the possibility that bundled local and long distance services would
significantly increase Talk.com's average revenue per customer and
provide other opportunities for revenue growth;
o the fact that Access One covers nine states in the BellSouth region
and is the largest provider of unbundled network element platform
local services in the southeastern United States;
o the strategic and financial alternatives available to Access One,
including remaining an independent company;
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o the Bear Stearns financial presentation to the board of Talk.com;
o the Bear Stearns opinion that the exchange ratio is fair, from a
financial point of view, to the stockholders of Talk.com;
o the terms and conditions of the merger agreement, including
termination fees and closing conditions;
o the agreement by Access One stockholders representing more than 50% of
the outstanding common stock of Access One to vote in favor of the
merger; and
o the qualification of the merger as a tax-free transaction for United
States federal income tax purposes (except for any tax resulting from
cash received by Access One stockholders for fractional interests in
shares of Talk.com common stock).
The Talk.com board also reviewed with senior management and its legal and
financial advisors a number of additional factors relevant to the merger,
including:
o historical information concerning Talk.com's and Access One's
respective businesses, financial performance and condition,
operations, technology, management and competitive position;
o Talk.com's view as to the financial condition, results of operations
and businesses of Talk.com and Access One before and after giving
effect to the merger, based on management's due diligence;
o the changing regulatory environment with regard to UNE-P and other
aspects of Talk.com's and Access One's businesses;
o reports from management and legal advisors as to the results of their
due diligence investigation of Access One and its operations; and
o current financial market conditions and historical market prices and
trading information with regard to Talk.com's common stock.
The Talk.com board also identified and considered the following potentially
negative factors in its deliberations concerning the merger:
o the risk that key benefits of each company's products and services
cannot be integrated into a unified product line delivering all the
capabilities of both companies;
o the risk that the integration of the two companies' respective
operations and employees might not occur in a timely manner and that
the operations of the two companies might not be successfully
integrated;
o the risk that, despite the efforts of the combined company, key
technical and management personnel might not remain employed by the
combined company;
o the substantial charges to be incurred in connection with the merger,
including costs of integrating the businesses and transaction expenses
arising from the merger;
o the risk that the potential benefits sought in the merger might not be
fully realized; and
o the other risks described under the caption "Risk Factors" presented
earlier in this joint proxy statement/prospectus.
The information and factors considered by the Talk.com board are not
intended to be exhaustive but include all material factors considered by the
Talk.com board. In view of the variety of factors considered in connection with
its evaluation of the merger, the Talk.com board did not find it practicable to,
and did not, quantify or otherwise assign relative weight to the specific
factors considered in reaching its determination. In addition, individual
members of the Talk.com board may have given different weight to different
factors.
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After careful consideration, the Talk.com board unanimously determined that
the terms of the merger agreement are fair to and in the best interests of
Talk.com and its stockholders, and approved the merger, the issuance of
additional Talk.com common stock under the merger agreement, and the terms of
the merger agreement and related documents. The Talk.com board unanimously
recommends that you vote FOR the issuance of additional Talk.com common stock
under the merger agreement.
ACCESS ONE'S REASONS FOR THE MERGER; RECOMMENDATION OF ACCESS ONE'S BOARD OF
DIRECTORS
The telecommunications industry is constantly growing and highly
competitive. Technological advancements and regulatory changes have prompted an
increase in mergers, acquisitions and consolidations. These events have created
entities that are capable of providing a full range of products and services
both in domestic and international markets.
Access One currently provides local telecommunication services throughout
the southeastern part of the United States. Access One has built a platform for
such services with an excess capacity and Talk.com has a large customer base and
is in search of such excess capacity. Talk.com currently uses its own
telecommunications network, One Better Net, to provide long distance services to
its customers. To provide an integrated package of local and long distance
telecommunications services, Talk.com plans to take advantage of recent legal
and regulatory rulings that enable companies to gain access to the individual
components of the traditional local telephone service provider's networks.
Access One believes that the telecommunications industry is moving toward a
bundled product where unlimited local, vertical features and long distance
services will be billed by one vendor, at one rate, through a single invoice.
Access One could achieve its goal of offering a bundled product by merging with
an established long distance carrier. Access One believes that a competitive
long distance carrier that offers a package of telecommunications products, such
as Talk.com, is an appropriate long distance carrier to merge with as a basis
for expanding its own telecommunications service capabilities.
Talk.com has substantial experience in providing long distance
telecommunications services throughout the United States. Access One plans to
take advantage of Talk.com's experience in providing long distance
telecommunications services to develop and market throughout the nation combined
"all distance" packages of local and long distance services to residential and
small business consumers.
By merging with Talk.com, Access One expects to provide long distance
calling to its customers and to increase the variety of telecommunications
services provided to its customers. Talk.com offers long distance telephone,
teleconferencing and other enhanced and value-added services. In the opinion of
Access One's management, the combination of Access One's services with
Talk.com's on-line billing services and marketing arrangements will create a
more comprehensive telecommunications services company with more choices for
Access One's customers. Access One believes that, over time, the merger will
lead to a significant reduction in operating costs and capital expenditures and
enable it to efficiently achieve its strategic objectives. The combined company
would have greater access to capital markets to finance future growth, at more
favorable rates, than Access One would have on its own. In addition, the
combined company would have more flexibility to accomplish future acquisitions
with equity rather than debt.
In reaching its decision to approve the merger agreement and the merger,
and to recommend that the stockholders approve the merger agreement and the
merger, the Access One board consulted with senior management and advisors. The
board also independently considered a number of factors including the following:
o the complementary nature of the two companies' products and services;
o the fact that Access One's stockholders will have the opportunity to
participate in the potential for diversified and enhanced growth after
the merger;
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o the fact that Access One's stockholders would gain liquidity by
receiving publicly traded common stock of Talk.com in place of their
Access One common stock, which is not publicly traded;
o the fact that the combination would create an opportunity to create
and sell bundled local and long distance services in the BellSouth
region and nationally;
o the possibility that the incremental revenues and higher gross profit
resulting from the combination will provide a higher return on the
marketing investments required to attract new customers;
o the operational and administrative cost savings that would result from
the merger with Talk.com;
o the fact that the merger will bring together the complementary assets,
resources and expertise of the two companies, which should enable the
consolidated company to effectively compete in the rapidly changing
telecommunications markets;
o the potential ability of Access One to utilize Talk.com's existing
marketing relationships and internet capabilities to accelerate sales;
o the potential of Access One to enhance Talk.com's public market
perception and result in an increased valuation of the combined
company;
o the possibility of significantly increasing the average revenue per
customer by combining local services with long distance services;
o the likelihood that bundled local and long distance services would
significantly increase revenue opportunities, would reduce selling and
marketing costs, and may reduce the frequency with which Talk.com's
customers change long-distance carriers;
o the qualification of the merger as a tax-free transaction for U.S.
federal income tax purposes (except for any tax resulting from cash
received by Access One stockholders for fractional interests in shares
of Talk.com common stock).
The Access One board also reviewed with senior management and legal and
financial advisors a number of additional factors relevant to the merger,
including:
o historical information concerning Talk.com's and Access One's
respective businesses, financial performance and condition,
operations, technology, management and competitive position;
o current financial market conditions and historical market prices and
trading information with regard to Talk.com's common stock.
The Access One board also identified and considered the following
potentially negative factors in its deliberations concerning the merger:
o the risk that key benefits of each company's products and services
cannot be integrated into a unified product line delivering all the
capabilities of both companies;
o the risk that the integration of the two companies' respective
operations and employees might not occur in a timely manner and that
the operations of the two companies might not be successfully
integrated;
o the risk that, despite the efforts of the combined company, key
technical and management personnel might not remain employed by the
combined company;
o the substantial charges to be incurred in connection with the merger,
including costs of integrating the businesses and transaction expenses
arising from the merger;
o the risk that potential benefits sought in the merger might not be
fully realized; and
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o the other risks described under the caption "Risk Factors" presented
earlier in this joint proxy statement/prospectus.
The information and factors considered by the Access One board is not
intended to be exhaustive but includes all material factors considered by the
Access One board. In view of the variety of factors considered in connection
with its evaluation of the merger, the Access One board did not find it
practicable to, and did not, quantify or otherwise assign relative weight to the
specific factors considered in reaching its determination. In addition,
individual members of the Access One board may have given different weight to
different factors.
After careful consideration, the Access One board determined that the terms
of the merger agreement are fair to and in the best interests of Access One and
its stockholders. As a result, the board approved the merger agreement and the
merger. The Access One board recommends that you vote FOR approval of the merger
agreement and the merger.
OPINION OF FINANCIAL ADVISOR TO TALK.COM
OVERVIEW
Talk.com retained Bear Stearns to act as its financial advisor in
connection with the merger. Bear Stearns delivered its oral opinion, on March
24, 2000, to the Talk.com board of directors to the effect that, and based upon
and subject to the assumptions made, the exchange ratio pursuant to the merger
was fair, from a financial point of view, to holders of shares of Talk.com
common stock. Bear Stearns' oral opinion was subsequently confirmed by its
written opinion dated March 24, 2000.
The full text of Bear Stearns' written opinion is attached as Annex E to
this joint proxy statement/prospectus. Holders of Talk.com common stock are
urged to read the Bear Stearns opinion carefully in its entirety, especially
with regard to the assumptions made and matters considered by Bear Stearns, as
well as the limitations on the information considered and analysis presented.
THE BEAR STEARNS OPINION WAS PREPARED FOR THE BENEFIT AND USE OF THE TALK.COM
BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE EXCHANGE RATIO PURSUANT TO THE MERGER TO HOLDERS OF SHARES OF
TALK.COM COMMON STOCK AS OF THE DATE OF THE OPINION. THE OPINION DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER, DOES NOT CONSTITUTE A RECOMMENDATION TO
THE TALK.COM BOARD OF DIRECTORS IN CONNECTION WITH THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF TALK.COM COMMON STOCK AS TO HOW TO
VOTE AT THE TALK.COM ANNUAL MEETING. BEAR STEARNS DID NOT EXPRESS ANY OPINION AS
TO TALK.COM'S UNDERLYING BUSINESS DECISION TO PURSUE THE MERGER OR THE PRICE OR
RANGE OF PRICES AT WHICH TALK.COM COMMON STOCK MAY TRADE SUBSEQUENT TO THE
ANNOUNCEMENT OF THE MERGER.
The exchange ratio and the terms of the merger were determined by
arm's-length negotiations between Talk.com and Access One and were not based on
any recommendation by Bear Stearns. Talk.com did not impose any limitations on
Bear Stearns with respect to the investigation made or the procedures followed
by Bear Stearns in rendering its opinion.
In arriving at its opinion, Bear Stearns, among other things:
o reviewed the merger agreement;
o reviewed Talk.com's recent filings with the Securities and Exchange
Commission;
o reviewed Access One's (i) audited financial statements for the fiscal
years ended October 31, 1997, October 31, 1998 and October 31, 1999
and (ii) interim unaudited financial statements through January 31,
2000;
o reviewed certain operating and financial information related to
Talk.com's business and prospects on a standalone basis, including
certain projections for the ten year period through December 31, 2009,
prepared and provided to Bear Stearns by Talk.com's management;
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o reviewed certain operating and financial information related to Access
One's business and prospects on a standalone basis, prepared and
provided to Bear Stearns by Access One's management, and certain
projections for the ten year period through December 31, 2009 relating
to Access One, prepared and provided to Bear Stearns by Talk.com's
management;
o reviewed certain estimates of revenue enhancements, cost savings and
other combination benefits expected to result from the merger,
prepared and provided to Bear Stearns by Talk.com's management;
o met with certain members of Talk.com's and Access One's senior
management to discuss each company's respective business, operations,
historical and projected financial results and future prospects as
well as certain estimates of revenue enhancements, cost savings and
other combination benefits for the combined company expected to result
from the merger;
o reviewed the historical prices, trading multiples and trading volumes
of the shares of Talk.com common stock;
o reviewed publicly available financial data, stock market performance
data and trading multiples of companies which we deemed generally
comparable to Talk.com and Access One;
o reviewed the terms of recent precedent mergers and acquisitions
involving companies which Bear Stearns deemed generally comparable to
Access One;
o performed discounted cash flow analyses relating to each of Talk.com
and Access One on a standalone basis and also on a pro forma combined
basis, both including and excluding the estimated combination
benefits; and
o reviewed the pro forma financial results, financial condition and
capitalization of Talk.com on a pro forma basis giving effect to the
merger.
Bear Stearns relied upon, without independent verification, the accuracy
and completeness of the financial and other information provided by Talk.com and
Access One, including without limitation certain projections and estimated
combination benefits expected to result from the merger. With respect to such
projections and estimated combination benefits that could be achieved upon
consummation of the merger, Bear Stearns assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the senior managements of Talk.com and Access One as to the
expected future performance of Talk.com and Access One, as well as of Talk.com
on a pro forma basis giving effect to the merger. Bear Stearns did not
independently verify or assess any such information or the projections and
combination benefits provided, and Bear Stearns further relied upon the
assurances of the senior managements of Talk.com and Access One that they were
unaware of any facts that would make the information provided to Bear Stearns
incomplete or misleading. Bear Stearns did not perform or obtain any independent
appraisal of the assets or liabilities of Talk.com or Access One, nor was Bear
Stearns furnished with any such appraisals. In addition, Bear Stearns assumed
that the Merger will qualify as a tax-free "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code.
The preparation of a fairness opinion is a complex process that involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances. Therefore, a fairness opinion is not necessarily susceptible to
partial analysis or summary description. Bear Stearns believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
the factors considered, without considering all of the analyses and factors,
could create a misleading or incomplete view of the processes underlying its
opinion. In arriving at its opinion, Bear Stearns did not assign any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments based upon its experience in providing such opinions and on then
existing economic, monetary, market and other conditions as to the significance
of each analysis and factor. In its analyses, Bear Stearns, at Talk.com's
direction and with Talk.com's consent, made numerous assumptions with respect to
industry performance, general business conditions and other matters, many of
which are beyond the control of Talk.com, Access
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One or Bear Stearns. Any assumed estimates implicitly contained in Bear Stearns'
opinion or relied upon by Bear Stearns in rendering its opinion are not
necessarily reflective of actual values or predictive of future results or
values. Any estimates relating to the value of a business or securities do not
purport to be appraisals or necessarily reflect the prices at which companies or
securities may actually be sold.
The Talk.com board of directors retained Bear Stearns based upon Bear
Stearns' qualifications, experience and expertise. Bear Stearns is an
internationally recognized investment banking firm which, as part of its
investment banking business, regularly engages in the evaluation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. Bear Stearns has previously rendered investment banking and financial
advisory services to Talk.com and has received fees for rendering these
services. In addition to acting as Talk.com's advisor in connection with the
merger, Bear Stearns has previously been retained by Talk.com's predecessor
company, Tel-Save Holdings, Inc., as an underwriter in connection with its
offering of $300 million of 4.5% convertible subordinated notes in September
1997. In the ordinary course of its business, Bear Stearns may actively trade
the equity and/or debt securities of Talk.com for its own account or for
accounts of its customers and, accordingly, Bear Stearns may at any time hold a
long or short position in such securities.
Pursuant to the terms of the engagement letter between Talk.com and Bear
Stearns dated March 24, 2000, Talk.com agreed to pay to Bear Stearns (i) a cash
fee of $750,000 upon the delivery by Bear Stearns of a fairness opinion and (ii)
a cash fee payable upon consummation of the merger (less any fees paid pursuant
to (i) above) equal to the higher of (a) 0.8% of the total transaction value
upon consummation of the merger or (b) $2,000,000.
In addition, Talk.com has agreed to reimburse Bear Stearns for all
reasonable out-of-pocket expenses incurred by it in connection with the merger,
including the reasonable fees and disbursements of its legal counsel. Talk.com
also has agreed to indemnify Bear Stearns against specific liabilities in
connection with its engagement, including liabilities under the federal
securities laws.
Summary of Analyses
The following is a summary of the material financial analyses presented by
Bear Stearns to the Talk.com board of directors on March 24, 2000. Certain of
these summaries of financial analyses include information presented in tabular
format. In order to fully understand the financial analyses used by Bear
Stearns, the tables must be read together with the text of each summary. The
tables alone do not represent a complete description of the financial analyses.
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<PAGE>
SUMMARY VALUATION ANALYSIS. Bear Stearns reviewed the aggregate equity and
enterprise values of Access One based on Talk.com's closing stock price on March
23, 2000. In addition, Bear Stearns analyzed the implied multiples of enterprise
value to local access lines as of February 29, 2000, last quarter annualized
revenues and EBITDA (which is a company's earnings before interest, taxes,
depreciation and amortization), as well as projected revenues and projected
EBITDA for the fiscal years ended December 31, 2000 and December 31, 2001. Such
analyses are summarized in the table below:
SUMMARY VALUATION ANALYSIS
<TABLE>
<CAPTION>
AT MARKET
AS OF 3/23/00
--------------
<S> <C>
VALUATION
TALK.COM STOCK PRICE ...................... $ 13.69
GROSS EQUITY VALUE ........................ $ 195.5
NET EQUITY VALUE .......................... 191.0
ENTERPRISE VALUE .......................... 209.2
ENTERPRISE VALUE/REVENUE
LAST QUARTER ANNUALIZED ................... 6.2x
2000E (1) ................................. 4.2x
2001P (1) ................................. 2.5x
ENTERPRISE VALUE/EBITDA
LAST QUARTER ANNUALIZED ................... NM
2000E (1) ................................. 36.9x
2001P (1) ................................. 14.3x
ENTERPRISE VALUE/ACCESS LINES (2) ......... $ 3,680.8
</TABLE>
---------------------
(1) CALENDAR YEAR ENDING DECEMBER 31ST.
(2) AS OF FEBRUARY 29, 2000.
ANALYSIS OF SELECTED PRECEDENT M&A TRANSACTIONS. Bear Stearns reviewed
selected precedent mergers and acquisitions involving companies that, like
Access One, provide local telecommunications services. Bear Stearns noted that
most precedent transactions involving such companies are not directly relevant
for the purpose of comparison to the merger, as such precedent transactions
were, among other things, (i) considerably larger in size and (ii) mainly
involved facilities based operators. However, Bear Stearns did make a direct
comparison of the merger to the acquisitions of ATX Telecommunications Services
by CoreComm Limited and Ovation Communications Inc. by McLeodUSA Inc., which
were announced on March 10, 2000 and January 11, 1999, respectively. Bear
Stearns also compared the merger to a universe of acquisitions involving Rural
Local Exchange Carriers ("RLECs") and a universe of transactions involving the
purchase of local access lines. The table below summarizes certain relevant
statistics from these analyses:
PRECEDENT M&A TRANSACTION ANALYSIS
<TABLE>
<CAPTION>
TRANSACTION
TRANSACTION VALUE/LAST
VALUE/ QUARTER
DATE TARGET ACQUIROR TRANSACTION ACCESS ANNUALIZED
ANNOUNCED NAME NAME VALUE LINES REVENUE
----------------------- --------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
3/10/00 ATX CoreComm $ 910.7 $9,107 6.1x
1/11/99 Ovation McLeodUSA 402.5 8,831 7.9x
Selected RLEC
Transactions (1) $3,939 NA
Selected Access Line
Purchases (2) 3,000 NM
</TABLE>
---------------------
(1) A universe of 40 acquisitions of RLECs.
(2) A universe of 17 access lines purchases (mostly rural access lines).
44
<PAGE>
Bear Stearns noted that neither the ATX/CoreComm and Ovation/McLeodUSA
transactions nor the RLEC and access line transactions are identical to the
merger. Bear Stearns noted further that the analysis of precedent transactions
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics and other factors that would
necessarily affect the acquisition value of Access One versus the acquisition
value of any other comparable company in general and ATX and Ovation in
particular.
DISCOUNTED CASH FLOW ANALYSIS. Bear Stearns performed discounted cash flow
analyses to determine a range of estimated per share equity values for Talk.com
and estimated total equity value for Access One on a standalone basis. In
addition, Bear Stearns performed discounted cash flow analyses to determine a
range of estimated per share equity values for Talk.com on a pro forma basis
giving effect to the merger.
Talk.com Standalone Discounted Cash Flow Analyses. Bear Stearns performed a
discounted cash flow analysis of the after-tax cash flows of Talk.com on a
standalone basis for the ten year period beginning January 1, 2000 and ending
December 31, 2009. Bear Stearns calculated a terminal value for Talk.com on a
standalone basis by applying to projected EBITDA in 2009 a range of multiples
of 6.0x to 8.0x. Bear Stearns determined that such range of terminal
multiples was appropriate for valuing Talk.com based on (i) the implied
perpetual growth rates of free cash flow derived from such multiples, (ii)
Bear Stearns' review of small-capitalization long distance companies
generally comparable to Talk.com and (iii) Bear Stearns' overall experience
in valuing growth-oriented companies. Bear Stearns chose weighted average
costs of capital ("WACC") ranging from 14.0% to 16.0% based on several
judgements by Bear Stearns regarding factors such as (i) inherent business
risk of Talk.com, (ii) the weighted average, unlevered equity beta of
companies comparable to Talk.com and (iii) estimates of Talk.com's cost of
debt and prospective capital structure.
The discounted cash flow analyses of Talk.com on a standalone basis
generated the following range of per share discounted cash flow equity values:
TALK.COM STANDALONE DISCOUNTED CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
EBITDA EXIT MULTIPLE IN 2009
---------------------------------------
WACC 6.0X 7.0X 8.0X
------------ ----------- ----------- -----------
<S> <C> <C> <C>
14.0% $ 32.54 $ 35.31 $ 38.09
15.0% 30.44 32.98 35.52
16.0% 28.51 30.84 33.18
</TABLE>
Bear Stearns compared the following historical trading prices for Talk.com
common stock to the Talk.com per share discounted cash flow equity values as
outlined in the table above.
TALK.COM STOCK PRICE DATA
<TABLE>
<S> <C>
CLOSING STOCK PRICE ON 3/23/00 ......... $13.69
5-DAY AVERAGE .......................... 14.15
10-DAY AVERAGE ......................... 14.42
20-DAY AVERAGE ......................... 15.09
PAST YEAR HIGH CLOSING PRICE ........... 20.13
PAST YEAR LOW CLOSING PRICE ............ 8.69
</TABLE>
Access One Standalone Discounted Cash Flow Analyses. Bear Stearns performed
discounted cash flow analyses on the after-tax cash flows of Access One on a
standalone basis. After-tax cash flows for the ten-year period beginning January
1, 2000 and ending on December 31, 2009 were calculated as after-tax earnings
before depreciation and amortization less changes in working capital and capital
expenditures. Bear Stearns calculated a terminal value for Access One on a
standalone basis by applying to projected EBITDA in 2009 a range of multiples of
7.0x to 9.0x. Bear Stearns determined that such range of terminal multiples was
appropriate for valuing Access One based on (i) the
45
<PAGE>
implied perpetual growth rates of free cash flow derived from such multiples,
(ii) Bear Stearns' review of telecommunications companies generally comparable
to Access One and (iii) Bear Stearns' overall experience in valuing
growth-oriented companies. Bear Stearns chose weighted average costs of capital
ranging from 15.0% to 17.0% based on several assumptions regarding factors such
as the (i) inherent business risk of Access One, (ii) the weighted average,
unlevered equity beta of companies comparable to Access One and (iii) estimates
of Access One's cost of debt and prospective capital structure.
Bear Stearns' discounted cash flow analyses of Access One on a standalone
basis generated the following range of equity values:
ACCESS ONE STANDALONE DISCOUNTED CASH FLOW ANALYSIS (1)
<TABLE>
<CAPTION>
EBITDA EXIT MULTIPLE IN 2009
---------------------------------------
WACC 7.0X 8.0X 9.0X
------------ ----------- ----------- -----------
<S> <C> <C> <C>
15.0% $ 456.6 $ 498.7 $ 540.9
16.0% 422.3 460.9 499.5
17.0% 390.9 426.3 461.8
</TABLE>
---------------------
(1) EXCLUDES IMPACT OF PROJECTED COMBINATION BENEFITS.
Talk.com Pro Forma Discounted Cash Flow Analyses. Bear Stearns performed
discounted cash flow analyses of the after-tax cash flows of Talk.com and Access
One on a pro forma combined basis giving effect to the merger. Bear Stearns
based its analyses on the Talk.com and Access One projections, both with and
without certain estimated combination benefits, prepared and provided to Bear
Stearns by Talk's management based on extensive guidance from Access One's
management.
The resulting ranges of per share discounted cash flow equity values of
Talk.com on a pro forma basis, both including and excluding estimated
combination benefits, are outlined in the table below:
TALK.COM PRO FORMA DISCOUNTED CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
WITHOUT COMBINATION BENEFITS WITH COMBINATION BENEFITS
------------------------------------------------- ----------------------------------------------
EBITDA EXIT MULTIPLE IN 2009(2) EBITDA EXIT MULTIPLE IN 2009(2)
----------------------------------- -----------------------------------
7.0X/ 8.0X/ 9.0X/ 7.0X/ 8.0X/ 9.0X/
WACC(1) 6.0X 7.0X 8.0X WACC(1) 6.0X 7.0X 8.0X
------------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
15%/14% $ 32.87 $ 35.63 $ 38.39 15%/14% $ 37.48 $ 40.78 $ 44.09
16%/15% 30.70 33.23 35.76 16%/15% 34.94 37.97 41.00
17%/16% 28.72 31.04 33.36 17%/16% 32.61 35.39 38.17
</TABLE>
---------------------
(1) Represents the estimated WACC for Access One and Talk.com, respectively
(2) Represents the estimated multiples of EBITDA for Access One and Talk.com,
respectively
Bear Stearns then calculated the premium or discount of such implied pro
forma per share discounted cash flow equity values to Talk.com's standalone per
share discounted cash flow equity values under the various scenarios as
described above:
PREMIUM / (DISCOUNT) RELATIVE TO TALK.COM'S STANDALONE
PER SHARE DISCOUNTED CASH FLOW VALUE
<TABLE>
<CAPTION>
WITHOUT COMBINATION BENEFITS WITH COMBINATION BENEFITS
------------------------------------------------- -------------------------------------------------
EBITDA EXIT MULTIPLE IN EBITDA EXIT MULTIPLE IN
2009(2) 2009(2)
--------------------------------- ------------------------------------
7.0X/ 8.0X/ 9.0X/ 7.0X/ 8.0X/ 9.0X/
WACC(1) 6.0X 7.0X 8.0X WACC(1) 6.0X 7.0X 8.0X
------------- --------- --------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
15%/14% 1.0% 0.9% 0.8% 15%/14% 15.2% 15.5% 15.7%
16%/15% 0.9 0.8 0.7 16%/15% 14.8 15.1 15.4
17%/16% 0.7 0.6 0.6 17%/16% 14.4 14.7 15.0
</TABLE>
---------------------
(1) Represents the estimated WACC for Access One and Talk.com, respectively
(2) Represents the estimated multiples of EBITDA for Access One and Talk.com,
respectively
46
<PAGE>
ILLUSTRATIVE VALUE CREATION ANALYSIS. Bear Stearns calculated implied per
share equity values of Talk.com common stock on a pro forma basis, based on (i)
a range of trading multiples of estimated 2001 revenue and (ii) a range of
estimated combination benefits. Bear Stearns then compared such estimated pro
forma values to Talk.com's closing stock price of $13.69 on March 23, 2000. Bear
Stearns calculated the pro forma equity market value of Talk.com by subtracting
total debt of both Talk.com and Access One from the implied pro forma enterprise
value and adding cash and cash equivalents. Bear Stearns then calculated the pro
forma per share equity value of Talk.com by dividing the aggregate pro forma
equity value by the number of fully diluted common shares of Talk.com that would
be outstanding based on the exchange ratio pursuant to the merger.
The assumed multiples of estimated 2001 revenue ranged from 1.00x to 3.00x
with a blended mid-point multiple of 1.30x, which was based on (i) Talk.com's
current trading multiple of estimated 2001 revenue (i.e., 1.15x) and (ii) Access
One's implied multiple of 2001 revenue (i.e., 2.5x) based on the exchange ratio.
Bear Stearns analyzed the implied per share equity values of Talk.com against an
estimated range of annual revenue benefits expected to result from the merger of
$0.0 to $150.0 million, which revenue benefits were capitalized at the
respective multiples of 2001 revenue. Bear Stearns noted that projected revenue
benefits pursuant to the transaction were estimated to be approximately $8.0
million, $77 million and $152.0 million in 2000, 2001 and 2002 respectively. The
range of Talk.com implied pro forma per share equity values based on these
multiples and estimated annual combination benefits are set forth in the
following table:
PRO FORMA EQUITY VALUE PER TALK.COM SHARE
<TABLE>
<CAPTION>
2001 REVENUE MULTIPLE
REVENUE -------------------------------------------------------------------
SYNERGIES 1.00X 1.15X 1.30X 2.15X 3.00X
---------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.0 $ 10.69 $ 12.21 $ 13.64 $ 22.16 $ 30.36
37.5 11.12 12.70 14.19 23.05 31.56
75.0 11.54 13.20 14.75 23.94 32.76
112.5 11.97 13.69 15.30 24.82 33.96
150.0 12.40 14.18 15.85 25.69 35.16
</TABLE>
The following table sets forth the percentage premium of the implied values
in the table above to the closing price of $13.69 of Talk.com common stock on
March 23, 2000:
PREMIUM TO TALK.COM STOCK PRICE OF $13.69 AS
OF MARCH 23, 2000
<TABLE>
<CAPTION>
2001 REVENUE MULTIPLE
REVENUE -----------------------------------------------------------------------
SYNERGIES 1.00X 1.15X 1.30X 2.15X 3.00X
---------------- ------------- ------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.0 (21.9)% (10.8)% (0.3)% 61.9% 121.8%
37.5 (18.8) ( 7.2) 3.7 68.4 130.6
75.0 (15.7) ( 3.6) 7.7 74.9 139.3
112.5 (12.5) 0.0 11.8 81.4 148.1
150.0 ( 9.4) 3.6 15.8 87.7 156.9
</TABLE>
47
<PAGE>
Bear Stearns compared the range of multiples of estimated 2001 revenue for
Talk.com on a pro forma basis (i.e., 1.00x - 3.00x) to trading multiples of
selected emerging telecommunications companies, which, in Bear Stearns'
judgment, were generally comparable to the operations of Talk.com and Access
One. Such multiples were based on publicly available information, including
estimates in published third-party research reports. Such comparable companies
and their respective multiples are set forth in the table below:
COMPARABLE TRADING MULTIPLES
<TABLE>
<CAPTION>
ENTERPRISE
VALUE/2001
EMERGING TELECOMMUNICATIONS COMPANIES REVENUE
---------------------------------------------- -----------
<S> <C>
Z-Tel Technologies ......................... 6.9x
CTC Communications Group ................... 5.4
CoreComm Ltd. .............................. NA
Mpower ..................................... 10.8
Network Plus ............................... 9.3
Focal ...................................... 12.6
US LEC ..................................... 4.5
CapRock Communications ..................... 4.5
</TABLE>
Bear Stearns noted that none of the comparable companies is identical to
Talk.com or Access One and that, accordingly, any analysis of comparable
companies necessarily involves complex consideration and judgments concerning
differences in financial and operating characteristics and other factors that
would necessarily affect the relative trading values of Talk.com and Access One
versus the companies to which Talk.com and Access One were being compared.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material United States federal
income tax consequences of the merger. This discussion is based on the Internal
Revenue Code of 1986, as amended, applicable United States Treasury Regulations,
administrative interpretations and court decisions as in effect as of the date
of this joint proxy statement/prospectus, all of which may change, possibly with
retroactive effect.
This discussion does not address all aspects of federal income taxation
that may be important to an Access One stockholder in light of that
stockholder's particular circumstances or to an Access One stockholder subject
to special rules, such as:
o a stockholder who is a foreign person;
o a financial institution or insurance company;
o a tax-exempt organization;
o a dealer or broker in securities;
o a stockholder that holds its Access One common stock as part of a
hedge, appreciated financial position, straddle or conversion
transaction; or
o a stockholder who acquired its Access One common stock on the exercise
of employee stock options or otherwise as compensation.
In addition, no information is provided in this joint proxy
statement/prospectus with respect to the tax consequences of the merger under
any non-income tax or under any applicable foreign, state or local laws.
Access One has received an opinion of Blank Rome Tenzer Greenblatt LLP, as
special tax counsel, dated as of the date of this joint proxy
statement/prospectus, that the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code. The opinion is filed as an exhibit to the registration
statement of which this joint proxy statement/prospectus is a part. Talk.com and
Access One will each be a party to that
48
<PAGE>
reorganization within the meaning of Section 368(b) of the Internal Revenue
Code. It is a condition to the obligation of Access One to complete the merger
that tax counsel confirm its opinion as of the closing date. Access One does not
intend to waive this condition.
In delivering its opinion, Blank Rome Tenzer Greenblatt LLP has relied on:
(1) representations and covenants made by Talk.com and Access One, including
those contained in certificates of officers of Talk.com and Access One, and (2)
specified assumptions, including an assumption regarding the completion of the
merger in the manner contemplated by the merger agreement. In addition, the
opinion of Blank Rome Tenzer Greenblatt LLP has assumed, and Blank Rome Tenzer
Greenblatt LLP's ability to provide the closing date opinion will depend on, the
absence of changes in existing facts or in applicable law between the date of
this joint proxy statement/prospectus and the closing date. If any of those
representations, covenants or assumptions is inaccurate, Blank Rome Tenzer
Greenblatt LLP may not be able to provide the required closing date opinion
and/or the tax consequences of the merger could differ from those described in
the opinion that Blank Rome Tenzer Greenblatt LLP has delivered. Blank Rome
Tenzer Greenblatt LLP's opinion neither binds the Internal Revenue Service nor
precludes it or the courts from adopting a contrary position. Talk.com and
Access One do not intend to obtain a ruling from the Internal Revenue Service on
the tax consequences of the merger.
Based upon the opinion of Blank Rome Tenzer Greenblatt LLP, the following
will be the material United States federal income tax consequences of the
merger:
o no gain or loss will be recognized for federal income tax purposes by
Talk.com, Aladdin Acquisition Corp. or Access One as a result of the
merger;
o except as described below with respect to cash received in lieu of
fractional shares, a holder of Access One common stock will not
recognize gain or loss on the exchange of shares of Access One common
stock for Talk.com common stock under the merger;
o a holder of Access One common stock who receives cash in lieu of
Talk.com fractional shares will be treated for tax purposes as having
received such fractional shares and then as having received cash in
redemption thereof. Hence, provided the Access One common stock is
held as a capital asset, a holder will generally recognize capital
gains or losses equal to the difference between the amount of cash
received and the holder's tax basis allocable to the Talk.com
fractional shares. The gain or loss will be long term capital gain or
loss if the shares of Access One common stock were held by the
exchanging Access One stockholder for more than one year on the date
of the closing;
o the aggregate tax basis of the Talk.com common stock received by a
holder, including any fractional share deemed received, will be the
same as the aggregate tax basis of the Access One common stock
exchanged therefor; and
o the holding period of the Talk.com common stock, including any
fractional share deemed received, will include the holding period of
the Access One common stock surrendered therefor, provided that the
shares of Access One common stock are held as capital assets on the
closing date of the merger.
Under the Internal Revenue Code, a holder of Access One common stock may be
subject, under certain circumstances, to information reporting and may be
subject to backup withholding at a rate of 31% with respect to the amount of
cash, if any, received in lieu of fractional shares of Talk.com common stock
pursuant to the merger, unless the stockholder provides proof of an applicable
exemption or a correct taxpayer identification number, and otherwise complies
with applicable requirements of the backup withholding rules. Any amounts
withheld under the backup withholding rules are not an additional tax and may be
refunded or credited against the stockholder's United States federal income tax
liability, provided the required information is furnished to the Internal
Revenue Service.
THIS DISCUSSION OF MATERIAL FEDERAL INCOME TAX CONSEQUENCES IS INTENDED TO
PROVIDE ONLY A GENERAL SUMMARY, AND IS NOT A COMPLETE ANALYSIS OR DESCRIPTION
OF ALL POTENTIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. THIS DISCUSSION
DOES NOT ADDRESS TAX CONSEQUENCES THAT MAY VARY WITH,
49
<PAGE>
OR ARE CONTINGENT ON, INDIVIDUAL CIRCUMSTANCES. ACCORDINGLY, WE STRONGLY URGE
EACH ACCESS ONE STOCKHOLDER TO CONSULT ITS OWN TAX ADVISOR TO DETERMINE THE
PARTICULAR UNITED STATES FEDERAL, STATE OR LOCAL OR FOREIGN INCOME OR OTHER TAX
CONSEQUENCES TO THE STOCKHOLDER OF THE MERGER.
REGULATORY REVIEW RELATING TO THE MERGER
In order to complete the merger, Access One and its subsidiaries must
receive authorization from or be subject to review by various U.S. federal and
state governmental agencies. As of the date of this joint proxy
statement/prospectus, the FCC, and a majority of those states in the
southeastern United States from which a substantial portion of the local
intrastate revenues of Access One and its subsidiaries are derived, have
completed their review or approval, as applicable, of the merger. These states
include Alabama, Florida, Louisiana, Mississippi, North Carolina, South Carolina
and Tennessee. It is possible that one or more other state governmental agencies
will not provide the requested approvals or consents in a timely manner or at
all or may seek, as a condition to any such approvals or consents, various
regulatory concessions. Receipt of all requisite regulatory approvals and
consents by each of Talk.com and Access One is a condition to the obligations of
each of Talk.com and Access One to consummate the merger. There can be no
assurance that all required regulatory approvals and consents will be obtained
within the time frame contemplated by the merger agreement, on terms that are
satisfactory to the parties, or at all.
Antitrust. The merger is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, which provides that
certain transactions may not be consummated until required information and
materials are furnished to the Antitrust Division of the U.S. Department of
Justice and the U.S. Federal Trade Commission and the requisite waiting period
has expired or has been terminated. The required information and materials were
filed with the Department of Justice and the Federal Trade Commission on April
6, 2000. On April 18, 2000 the Federal Trade Commission granted early
termination of the waiting period under the Act. However, at any time before or
after the merger, the Federal Trade Commission or the Department of Justice
could take actions under the antitrust laws with respect to the merger,
including seeking to enjoin consummation of the merger or seeking the
divestiture by Talk.com of all or part of the stock or assets of Access One, or
of other businesses conducted by Talk.com. In addition, state governments and
private parties may also seek to take action under federal or state antitrust
laws with respect to the merger.
Other U.S. Federal and State Regulatory Approvals and Consents. The merger
is subject to a number of other U.S. federal and state regulatory approvals and
consents. Both Talk.com and Access One hold, either directly or indirectly,
authority from the FCC under Section 214 of the Communications Act of 1934 to
provide U.S. telecommunications services, including facilities-based and resold
switched international and domestic long distance services, among other
services. As a result, the merger required prior approval of the FCC. The
application for approval of the merger was accorded streamlined review by the
FCC, and was granted on May 31, 2000.
Talk.com believes that under current United States law and policy as
articulated by the FCC, there are no foreign ownership or other considerations
that would cause the FCC to deny or specially condition the applications for
transfer of control of Access One's authorizations to Talk.com. Talk.com has
already secured a full complement of authorizations in its own right. No special
operational or other conditions, other than those generally applicable to such
authorizations, were attached by the FCC to such authorizations. The merger will
not result in any new circumstances that would warrant the imposition of any
such special operational or other conditions.
With regard to the intrastate telecommunications operations of Access One
and Talk.com, some state public utility commissions will require application for
prior approval of the merger and others will require notification. The governing
legal standards vary from state to state, but approval of or consent to the
merger generally requires a showing that it is consistent with the public
interest, convenience and necessity. As part of that evaluation, the public
utility commissions may examine the impact of the merger on intrastate
telecommunications competition, its effect on the customers and employees of
Access One, Talk.com and other carriers within their jurisdiction, and other
aspects of Talk.com's and Access One's businesses. The public utility
commissions in some states have issued or
50
<PAGE>
are currently expected to issue the requisite approvals in a timely manner, and
such approvals are not expected to delay the completion of the merger. However,
Talk.com cannot assure you that all such approvals will be issued in a timely
manner, or that such approvals will be granted on terms that are satisfactory to
Talk.com.
For a period of time after the FCC or a state public utility commission
approves of and consents to the merger, the approvals and consents will be
subject to judicial review upon appeal of a third party and reconsideration by
the FCC or public utility commission. Closing the merger during this time period
exposes Talk.com to the risk of reversal or modification of previously obtained
approvals or consents.
APPRAISAL RIGHTS
Under Delaware law, holders of Talk.com common stock will not have
appraisal rights in connection with the merger.
Under New Jersey law, holders of Access One common stock will not have
appraisal rights in connection with the merger.
RESALE OF TALK.COM COMMON STOCK
This joint proxy statement/prospectus does not cover any resales of the
Talk.com common stock to be received by the stockholders of Access One upon
completion of the merger. No one is authorized to make use of this joint proxy
statement/prospectus in connection with any resale.
All shares of Talk.com common stock received by Access One stockholders in
the merger will be freely transferable, except that:
o shares of Talk.com common stock received by persons who are affiliates
of Talk.com at the time of the Talk.com annual meeting or affiliates
of Access One at the time of the Access One special meeting may be
resold by them only in transactions permitted by Rule 145 under the
Securities Act or as otherwise permitted under the Securities Act, and
o the merger agreement restricts the resale of Talk.com shares received
by Access One stockholders in the merger until the earlier of 90 days
following the completion of the merger or October 31, 2000.
Persons who are considered affiliates of Access One for resale purposes
generally include individuals or entities that control, are controlled by or are
under common control with Access One and include directors and executive
officers of Access One.
Officers, directors and employees of Access One who hold Access One stock
options that are subject to accelerated vesting upon the merger will receive in
the merger equivalent Talk.com stock options, which will be immediately
exercisable. However, those persons will be prohibited from selling Talk.com
stock obtained upon exercise of those options until one year after completion of
the merger or, if earlier, the respective dates on which their original Access
One options would have vested.
ACCOUNTING TREATMENT
Talk.com will account for the merger under the purchase method of
accounting, with Talk.com being the acquiror for accounting purposes.
Under the purchase method of accounting, the assets and liabilities of
Talk.com will be brought forward at their net book values. A new basis will be
established for Access One's assets and liabilities and any excess of the
consideration over the fair value of Access One's identifiable assets and
liabilities will be accounted for as goodwill. The revenues and expenses of
Talk.com and Access One will be consolidated from the date of consummation of
the merger.
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INTERESTS OF ACCESS ONE OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendations of the Talk.com board and the Access One
board with respect to the merger, you should be aware that officers and
directors of Access One may have interests in the merger that are different
from, or in addition to, their interests as stockholders of Talk.com and Access
One. The Talk.com board and the Access One board were aware of such interests
and considered them in approving the merger agreement and the transactions
contemplated by the merger agreement.
The vesting schedule of options issued to officers and directors of Access
One under Access One's 1999 Stock Option Plan will accelerate upon the
consummation of the merger. These options will become fully vested upon the
consummation of the merger. Holders of these options will receive equivalent
options to purchase Talk.com common stock which will be immediately exercisable.
However, those holders will not be permitted to sell Talk.com common stock
obtained upon exercise of those options until one year after the merger or, if
earlier, the respective dates on which their original Access One options would
have vested.
A promissory note in the original principal amount of $3 million made by
OmniCall, Inc., a wholly owned subsidiary of Access One, in favor of a director
of Access One, will become immediately due and payable upon the consummation of
the merger, and will be repaid in full by Talk.com.
On March 24, 2000, Kenneth G. Baritz, then Chairman and Chief Executive
Officer of Access One, and Kevin Griffo, then President of Access One, entered
into three-year employment agreements with Talk.com, resigned from their
positions as executive officers of Access One, and became executive officers of
Talk.com. The board elected Elizabeth Stallings, the Treasurer of Access One, to
the additional office of President of Access One. It is the intention of the
parties that if the merger is not completed for any reason, then the employment
agreements of Messrs. Baritz and Griffo with Talk.com will be terminated and
they will return to their former positions at Access One.
Under his employment agreement, Mr. Baritz was designated the President of
Talk.com. He will receive a base salary of $300,000 per year and will
participate in all benefit plans made available to Talk.com's senior executive
officers.
Mr. Griffo was designated Executive Vice President - Local Services of
Talk.com. He will receive a base salary of $250,000 per year and will
participate in all benefit plans made available to Talk.com's senior executive
officers.
Each of Messrs. Baritz and Griffo was granted an option to purchase
1,300,000 shares of Talk.com common stock at an exercise price of $13.69, the
market price of Talk.com common stock at the close of business on the date
preceding the date of grant. The options will vest and become exercisable in
three equal annual installments on the first, second and third anniversaries of
the date of grant, except that they will immediately become fully vested and
exercisable upon a change in control of Talk.com. The options will expire on the
tenth anniversary of the date of grant. Each of Messrs. Baritz and Griffo has
also agreed not to compete with Talk.com for a period of 18 months after
termination of his employment.
After completion of the merger, Mr. Baritz, who will then be the President
and a director of Talk.com, will serve under the escrow agreement as the
representative of the former stockholders of Access One with respect to any
claims by Talk.com of a breach by Access One of its representations and
warranties under the merger agreement.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
The merger agreement provides that Talk.com will refrain from taking any
action to alter or impair any indemnification provisions presently existing in
the Access One certificate of incorporation or by-laws with respect to
identified matters involving officers and directors of Access One, and will
honor such obligations with respect to all such identified matters.
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THE MERGER AGREEMENT AND RELATED AGREEMENTS
This section is a summary of the material terms of the merger agreement, a
copy of which is attached as Annex A to this document. The following description
does not purport to be complete and is qualified by reference to the merger
agreement. We encourage you should to read the full text of the merger agreement
for details of the merger and the terms and conditions of the merger agreement.
THE MERGER
When the merger occurs, Aladdin Acquisition Corp., a wholly owned
subsidiary of Talk.com created for purposes of the merger, will be merged with
and into Access One in accordance with the Delaware General Corporation Law and
the New Jersey Business Corporation Act. Access One will be the surviving
corporation of the merger and as a result will become a wholly owned subsidiary
of Talk.com.
TIMING OF CLOSING
The merger will become effective on the date we file certificates of merger
with the Secretary of State of the State of Delaware and the Secretary of State
of the State of New Jersey, or at such later time as we may agree and specify in
the certificate of merger. We plan to file the certificate of merger as soon as
practicable after the conditions set forth in the merger agreement have been
satisfied or waived.
CONVERSION OF ACCESS ONE COMMON STOCK
At and as of the effective time of the merger, each outstanding share of
Access One common stock will be converted into 0.571428 shares of Talk.com
common stock. As of the effective time, Access One shares will be canceled and
will cease to exist and a holder of such shares will cease to have any rights
with respect to the shares except the right to receive the corresponding number
of shares of Talk.com common stock. Talk.com will not issue any fractional
shares of its common stock in the merger. Instead, each Access One stockholder
otherwise entitled to a fractional share of Talk.com common stock will be paid
an amount in cash equal to such fraction of a share multiplied by $14.00.
Talk.com will appoint an exchange agent to handle the exchange of Access
One common stock in the merger for Talk.com common stock. Soon after the
effective time of the merger, the exchange agent will send to each holder of
Access One common stock a letter of transmittal for use in the exchange and
instructions explaining how to surrender Access One stock certificates to the
exchange agent. Holders of certificates representing shares of Access One common
stock that surrender their certificates to the exchange agent, together with a
properly completed letter of transmittal, will receive the appropriate number of
shares of Talk.com common stock. Holders of unexchanged shares of Access One
common stock will not be entitled to receive any dividends or other
distributions payable by Talk.com after the effective time of the merger until
their certificates are surrendered or, with respect to uncertificated shares,
until a properly completed letter of transmittal is delivered to the exchange
agent.
CONVERSION OF ACCESS ONE STOCK OPTIONS AND WARRANTS
Outstanding options and warrants to purchase Access One common stock, other
than warrants held by MCG Finance Corporation, will automatically be converted
into equivalent options to purchase Talk.com common stock, based on the share
exchange ratio in the merger of 0.571428 shares of Talk.com common stock for
each share of Access One common stock. MCG has separately agreed to exchange its
warrants in the merger, on the basis of the same exchange ratio, for
approximately 1.2 million shares of Talk.com common stock. MCG will therefore be
treated as though it had exercised its warrants immediately before the merger.
Under a consulting agreement to be entered into with Talk.com, MCG will also
receive a new warrant to purchase 300,000 shares of Talk.com common stock. The
warrant will be exercisable at a price per share equal to the average closing
price of Talk.com common stock during the ten business days preceding the date
of completion of the merger.
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EXCHANGE AGENT
First City Transfer Company, the transfer agent and registrar for
Talk.com's common stock, will act as exchange agent in connection with the
merger.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties made by Access
One to Talk.com, including representations and warranties relating to:
o organization, standing and power,
o capitalization,
o absence of conflicts between organizational documents, laws and
agreements and the transactions under the merger agreement,
o power and authority to enter into and consummate the transactions
under the merger agreement,
o customers and suppliers,
o brokers' and finders' fees with respect to the merger,
o title to assets,
o subsidiaries and ownership of subsidiary stock,
o financial statements and incurrence of liabilities since January 1,
2000,
o conduct of business since January 1, 2000,
o compliance with applicable laws,
o tax matters,
o ownership and leasing of real property and other tangible assets,
o intellectual property,
o material contracts,
o insurance,
o litigation and liabilities,
o employees,
o employee benefits,
o environmental, health and safety matters,
o business relationships with stockholders and their affiliates,
o bank accounts, and
o accounting matters.
The merger agreement also contains representations and warranties made by
Talk.com to Access One, including representations and warranties relating to:
o organization, standing and power,
o capitalization,
o absence of conflicts between organizational documents, laws and
agreements and the transactions under the merger agreement,
o the absence of voting agreements affecting the merger,
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o power and authority to enter into and consummate the transactions
under the merger agreement,
o brokers' and finders' fees with respect to the merger,
o continuity of business, for federal income tax purposes,
o filings with the SEC,
o compliance with the listing requirements of Nasdaq,
o authorization of shares of Talk.com common stock to be issued in the
merger,
o litigation, and
o absence of material adverse effects since the date of the most recent
report filed with the SEC.
The representations and warranties of Talk.com and Access One will survive
for a period of one year following the merger.
COVENANTS
Each of Talk.com and Access One has undertaken several covenants in the
merger agreement. The following summarizes some of these covenants.
Cooperation Covenant. Talk.com and Access One will cooperate with each
other to take all actions and do all things necessary or advisable under the
merger agreement and applicable laws to complete the merger and the other
transactions contemplated by the merger agreement.
Conduct of business of Access One pending the completion of the merger.
Access One is required to conduct its business in the ordinary course consistent
with past practice until the effective time of the merger. In particular, Access
One has agreed that, until the completion of the merger, except as otherwise
permitted by the merger agreement or if Talk.com consents in writing, it and its
subsidiaries will not:
o sell, lease, transfer, or assign any of its assets, tangible or
intangible, other than in the ordinary course of business consistent
with past practice;
o enter into any agreement, contract, lease or license (or series of
related agreements, contracts, leases and licenses) either involving
more than $250,000 or other than in the ordinary course of business
consistent with past practice;
o accelerate, terminate, modify or cancel any agreement, contract, lease
or license (or series of related agreements, contracts, leases and
licenses) involving more than $250,000 to which any of Access One and
its subsidiaries is a party or by which any of them is bound;
o make any capital expenditure (or series of related capital
expenditures) either involving more than $250,000 or other than in the
ordinary course of business consistent with past practice;
o make any capital investment in, any loan to, or any acquisition of the
securities or assets of, any other person (or series of related
capital investments, loans or acquisitions) either involving more than
$50,000 or other than in the ordinary course of business consistent
with past practice;
o issue any note, bond or other debt security or create, incur, assume
or guarantee any indebtedness for borrowed money or capitalized lease
obligation either involving more than $50,000 singly or $250,000 in
the aggregate;
o delay or postpone the payment of accounts payable and other
liabilities other than in the ordinary course of business consistent
with past practice;
o cancel, compromise, waive or release any right or claim (or series of
related rights and claims) either involving more than $50,000 or other
than in the ordinary course of business consistent with past practice;
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o grant any license or sublicense of any rights under or with respect to
any intellectual property;
o other than as contemplated by the merger agreement, make or authorize
any change in the charter or bylaws of Access One or its subsidiaries;
o issue, sell or otherwise dispose of any of its capital stock, or grant
any options, warrants or other rights to purchase or obtain (including
upon conversion, exchange or exercise) any of its capital stock, with
specified exceptions;
o declare, set aside or pay any dividend or made any distribution with
respect to its capital stock (whether in cash or in kind) or redeem,
purchase or otherwise acquire any of its capital stock;
o experience any damage, destruction or loss (whether or not covered by
insurance) to its property which could have a material adverse effect;
o make any loan to, or enter into any other transaction with, any of its
directors, officers or employees other than in the ordinary course of
business consistent with past practice;
o enter into any employment contract or collective bargaining agreement,
written or oral, or modify the terms of any such existing contract or
agreement;
o grant any increase in the base compensation of any of its directors,
officers or employees other than in the ordinary course of business
consistent with past practice;
o adopt, amend, modify or terminate any bonus, profit-sharing,
incentive, severance or other plan, contract or commitment for the
benefit of any of its directors, officers or employees (or take any
such action with respect to any other employee benefit plan);
o make any other change in employment terms for any of its directors,
officers or employees other than in the ordinary course of business
consistent with past practice; or
o make or pledge to make any charitable or other capital contribution
other than in the ordinary course of business consistent with past
practice.
No Solicitation of Alternative Transactions by Access One. Access One and
its subsidiaries and their officers, directors, employees and advisors will not
take action to solicit or encourage an offer for an alternative acquisition
transaction involving Access One.
Other restricted actions include engaging in any discussions with or
furnishing any information to a potential bidder, or knowingly taking any other
action designed to facilitate an alternative transaction.
Access One must provide Talk.com with notice of any unsolicited offer and
must keep Talk.com reasonably informed of the status and details of any offer.
Access One Board's Covenant to Recommend. The Access One board has agreed
to recommend the approval and adoption of the merger agreement to Access One's
stockholders. The Access One board is permitted to withdraw or to modify this
recommendation in a manner adverse to Talk.com if, before the time Access One
stockholder approval is obtained:
o the Access One board determines in good faith, based on the advice of
a nationally recognized financial advisor, that an unsolicited
acquisition proposal is superior to the merger and
o the Access One board determines in good faith, based on a written
opinion of outside legal counsel, that not taking any of these actions
would violate the Access One board's fiduciary duties to the Access
One stockholders.
Covenant to Hold Stockholder Meetings. Talk.com and Access One have agreed
to submit their respective merger proposals to their stockholders at the
stockholder meetings even if their boards of directors no longer recommend that
their stockholders approve the proposals.
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Restriction on Resale of Securities Received in the Merger. Under the
merger, persons who receive shares of Talk.com common stock, or warrants,
options or other rights to purchase the shares, may not offer, sell, contract to
sell, pledge or otherwise dispose of any of those shares, warrants, options or
rights until the earlier of 90 days following the effective time of the merger,
or October 31, 2000. The agreement also prohibits those persons from engaging in
short sales, granting options, or engaging in other hedging or similar
transactions concerning those shares, warrants, options and rights during the
prescribed period.
Other Covenants. The merger agreement contains other mutual covenants of
the parties that are typical for a transaction similar to the merger.
CONDITIONS TO THE COMPLETION OF THE MERGER
The obligations of Talk.com to complete the merger are subject to the
satisfaction or waiver of a number of conditions, including the following:
o approval of the issuance of stock in the merger by Talk.com
stockholders,
o receipt by each party of consents or approvals from any person,
including any relevant regulatory bodies, required for completion of
the merger,
o expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, which has
already occurred before the date of this joint proxy
statement/prospectus,
o accuracy, in all material respects, as of closing of the
representations and warranties made by Access One in the merger
agreement,
o performance in all material respects by Access One of the obligations
required to be performed before or at the closing,
o absence of a legal prohibition on completion of the merger,
o absence of an imposition by any regulatory authority of any condition,
requirement or restriction which:
-- prohibits the completion of the merger,
-- prohibits Talk.com's ownership or operation of, or which compels
Talk.com to dispossess, all or any significant portion of Access
One's business or assets resulting the merger,
-- imposes material limitations on the ability of Talk.com to
acquire or hold or exercise effectively all rights with respect
to the Access One shares it acquires in the merger, or
-- imposes any limitation on the ability of Talk.com effectively to
control in any material respect the business or operations of
Access One,
o receipt of satisfactory opinions of counsel to Access One,
o execution of the escrow agreement, and
o receipt of the resignations of all directors and officers of
Access One and its subsidiaries other than those specified by
Talk.com.
The obligations of Access One to complete the merger are subject to the
satisfaction or waiver of a number of conditions, including the following:
o approval of the merger by the Access One stockholders,
o receipt by each party of consents or approvals from any person,
including any relevant regulatory bodies, required for completion
of the merger,
o expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976,
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o accuracy, in all material respects, as of closing of the
representations and warranties made by Talk.com in the merger
agreement,
o performance in all material respects by Talk.com of the
obligations required to be performed before or at closing,
o absence of a legal prohibition on completion of the merger,
o execution of the escrow agreement,
o payment and satisfaction by Talk.com of outstanding indebtedness
of Access One in an amount not exceeding $18 million,
o election of Kenneth G. Baritz as a director of Talk.com,
o receipt of an opinion of counsel to Access One that the merger
will qualify as a tax-free reorganization,
o receipt of a satisfactory opinion of the general counsel of
Talk.com,
o approval for the listing on the Nasdaq National Market of the
shares of Talk.com common stock to be issued in the merger, and
o absence of an order suspending the effectiveness of the
registration statement of which this document is a part and the
absence of any SEC proceedings, or threatened SEC proceedings,
for that purpose.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated by mutual written consent of
Talk.com and Access One at any time before the merger is effective. In addition,
either Talk.com or Access One can terminate the merger agreement if the merger
has not become effective by March 23, 2001 and the failure to complete the
merger by that date is not due to the action or failure to act by the party
seeking to terminate.
In addition, Talk.com may terminate the merger agreement and abandon the
merger if:
o the Access One board enters into an agreement concerning an
alternative acquisition proposal;
o the Access One board withdraws its recommendation to Access One
stockholders to approve the merger proposal;
o the Access One board, after receipt of an alternative acquisition
proposal, fails to confirm publicly, within ten days of a request
by Talk.com for public confirmation, its recommendation to Access
One stockholders that they adopt and approve the merger;
o Access One or any of its representatives, except as explicitly
permitted in the merger agreement, takes any of the actions
proscribed in Section 5(h) of the merger agreement; or
o Access One breaches any of its representations, warranties or
covenants under the merger agreement and the breach is not cured
within thirty days after written notice is given by Talk.com to
Access One of the breach.
If Talk.com terminates the merger agreement for any of the reasons listed
immediately above, Access One is required to pay Talk.com a termination fee of
$6 million in cash. In addition, if the merger is not completed by March 23,
2001 for reasons that are attributable to action or inaction on the part of
Access One, then Access One has agreed to provide the services required by the
service agreement for the balance of the initial term of the agreement, at rates
equal to the direct incremental cost to it of obtaining and providing those
services.
Finally, Access One may terminate the merger agreement and abandon the
merger if:
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o Talk.com breaches any of its representations, warranties or
covenants under the merger agreement and the breach cannot be or
is not cured within thirty days after written notice is given by
Access One to Talk.com of the breach.
AMENDMENTS AND WAIVERS
Amendments. Any provision of the merger agreement may be amended before the
merger is effective if the amendment is approved by the board of directors of
Talk.com and Access One. After the approval of the merger agreement by the
stockholders of either Talk.com or Access One, any amendment is subject to the
restrictions contained in the Delaware General Corporation Law. No amendment is
valid unless such amendment is in writing and is signed by Talk.com and Access
One.
Waiver. At any time before the merger is effective, by a waiver in writing
and signed by the party against whom the waiver is to be effective, any party
may waive compliance with any of the agreements or conditions contained in the
merger agreement. No waiver of any default, representation or breach of warranty
or covenant under the merger agreement will extend to any part or subsequent
default misrepresentation or breach of warranty or covenant.
VOTING AGREEMENT
Talk.com and Access One have entered into a voting agreement with the
holders of approximately 13.0 million shares of Access One common stock, or
approximately 67.7% of the outstanding Access One common stock. Under the
agreement, these holders have agreed to vote any shares of Access One common
stock they may own in favor of the merger and related transactions and against
any proposal made in opposition to consummation of the merger. These holders
have also granted to Talk.com and individuals designated by it an irrevocable
proxy to vote their shares in such manner.
INDEMNIFICATION AND ESCROW AGREEMENTS
Under an indemnification agreement dated March 24, 2000, Access One, prior
to the merger, and the holders of Access One's common stock and of warrants and
options for its common stock, for a period of one year after the merger, have
agreed to indemnify Talk.com against liabilities and losses resulting from the
breach by Access One of any of its representations, warranties or agreements
contained in the merger agreement. The indemnification is limited to liabilities
and losses of Talk.com exceeding $1,000,000 in the aggregate, and which occur
and are claimed by Talk.com within one year after the merger with a maximum of
up to the value of the shares in escrow. In addition, Talk.com has agreed in the
indemnification agreement to indemnify the holders of Access One's common stock,
or warrants or options for its common stock, against liabilities and losses
occurring within one year after the merger resulting from the breach by Talk.com
of any of its representations, warranties or agreements contained in the merger
agreement. The indemnification is limited to liabilities and losses of Access
One and such holders which occur and are claimed by them within one year after
the merger.
The obligations of Access One and the holders of its stock and warrants
under the indemnification agreement will be secured by an escrow of 10% of the
total amount of common stock and warrants to be issued by Talk.com in the
merger. At the time the merger is effected, Talk.com will deduct those amounts
from the distributions that would otherwise be made to each of the stockholders
and warrantholders of Access One and will deposit those shares and warrants with
an escrow agent under an escrow agreement to be signed at the time of the
merger. Talk.com will be entitled to look only to the stock and warrants
deposited in escrow to satisfy obligations owed to it under the indemnification
agreement. The stock and warrants held in the escrow will be distributed to the
former stockholders and warrantholders of Access One on the first anniversary of
the merger, except to the extent that it is then subject to pending claims for
indemnification made by Talk.com. Kenneth G. Baritz, the former Chairman and
Chief Executive Officer of Access One, will be entitled to defend and settle all
claims brought by Talk.com against the escrow, on behalf of all of the former
Access One stockholders.
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SERVICES AGREEMENT
Access One entered into a Services Agreement with Talk.com Holding Corp.,
Inc., a subsidiary of Talk.com, for an initial term of five years. Under the
agreement, Access One will provide telephone exchange services, exchange access
services, and administrative support services to Talk.com for resale to
Talk.com's customers, for fees and charges at various rates stated in the
agreement. Access One has a right to terminate the services agreement if the
merger is not completed by March 23, 2001 other than by reason of action or
inaction on the part of Access One. If such termination occurs, Talk.com will
have the right to continue to use the services provided under the agreement for
a transition period of up to 180 days. In addition, if the merger is not
completed by that date for reasons that are attributable to action or inaction
on the part of Access One, then Access One has agreed to provide the services
required by the service agreement for the balance of the initial term of the
agreement, at rates equal to the direct incremental cost to it of obtaining and
providing those services.
DIRECTORS AND EXECUTIVE OFFICERS OF TALK.COM AFTER THE MERGER
The following will be the directors and executive officers of Talk.com upon
completion of the merger (assuming, in the case of Messrs. Baritz and Marks,
that they are elected as directors at the annual meeting, and provided that it
is the intention of the parties that Messrs. Baritz and Griffo will resign as
officers of Talk.com and return to Access One if the merger is not completed):
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
Gabriel Battista .................. 55 Chairman of the Board and Chief Executive Officer,
and Director
Kenneth G. Baritz ................. 44 President and Director
Mark S. Fowler .................... 57 Director
Arthur J. Marks ................... 55 Director
Ronald R. Thoma ................... 65 Director
Michael Ferzacca .................. 42 Executive Vice President -- Sales
Kevin Griffo ...................... 40 Executive Vice President -- Local Services
Janet C. Kirschner ................ 46 Controller
Aloysius T. Lawn, IV .............. 41 Executive Vice President -- General Counsel and
Secretary
Edward B. Meyercord, III .......... 34 Executive Vice President -- Chief Financial Officer
and Treasurer
George Vinall ..................... 44 Executive Vice President -- Business Development
</TABLE>
Gabriel Battista became a director and the Chairman of the Board, Chief
Executive Officer and President of Talk.com on January 5, 1999. Prior to
joining Talk.com, 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, Online Technologies Group, Inc. and ViaNet.works Incorporated.
Kenneth G. Baritz was Chairman and Chief Executive Officer of Access One
from June, 1997, through March 24, 2000. On that date, Mr. Baritz entered into
an employment agreement with Talk.com in connection with the merger, resigned
his position as an executive officer of Access One and became President of
Talk.com. He remains a director of Access One. Prior to joining Access One, Mr.
Baritz was Chairman/or Chief Executive Officer of AMNEX, Inc., a
telecommunications company, from January 1994 to March 1997, and a director
from October 1992 through March 1997. Prior to joining AMNEX, Mr. Baritz served
from 1989 to 1993 as a Vice President of Bear, Stearns & Co. Inc., an
investment-banking firm. Mr. Baritz currently serves on the boards of a number
of privately held companies.
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Mark S. Fowler has been a director of Talk.com since September 1999. From
1981 to 1987 he was the Chairman of the FCC. 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, until early 2000, 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, and is a director of Beasley Broadcasting Co., a publicly held
radio station broadcast group company.
Arthur J. Marks has been a director of Talk.com 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.
Ronald R. Thoma is currently a business consultant, having retired in
early 2000 as an Executive Vice President of Crown Cork and Seal Company, Inc.,
a manufacturer of packaging products, where he had been employed since 1955.
Mr. Thoma has served as a director of Talk.com since 1995.
Michael Ferzacca joined Talk.com in January of 1999. He was formerly
Executive Vice President, Sales and Marketing for Pacific Gateway Exchange (a
telecommunications company) before joining Talk.com. Prior to that time, Mr.
Ferzacca served in various roles at Cable & Wireless USA, a telecommunications
provider, including manager of the Alternative Channels Division and Co-Chief
Operating Officer.
Kevin Griffo was President and Chief Operating Officer of Access One from
January, 1998, through March 24, 2000. On that date he entered into an
employment agreement with Talk.com in connection with the merger, resigned his
position as an executive officer of Access One and became Executive Vice
President -- Local Services of Talk.com. He remains a director of Access One.
Prior to joining Access One, Mr. Griffo was employed by AMNEX from January 1995
to December 1997, holding various positions including Chief Operating Officer
and President of AMNEX's Telecommunications Division. Prior to joining AMNEX, he
was a southeastern regional Vice President for LDDS WorldCom from August 1992 to
December 1994. In such capacity, Mr. Griffo had significant operating
responsibility, which included responsibility for operating sales offices and
hiring and supervising sales personnel.
Janet Kirschner joined Talk.com in November 1999. Prior to joining
Talk.com, Mrs. Kirschner spent 16 years in corporate accounting with Bell
Atlantic as a director in senior level positions, including corporate tax,
internal auditing, financial systems implementation and business controls.
Before her tenure with Bell Atlantic, she served six years as a manager and
senior accountant for PriceWaterhouseCoopers, formerly Coopers & Lybrand. Mrs.
Kirschner is a certified public accountant.
Aloysius T. Lawn, IV joined Talk.com in January 1996 and currently serves
as Executive Vice President -- General Counsel and Secretary. Prior to joining
Talk.com, from 1985 through 1995, Mr. Lawn was an attorney in private practice.
Edward B. Meyercord, III currently serves as the Executive Vice President
-- Chief Financial Officer and Treasurer of Talk.com. He joined Talk.com in
September of 1996 as the Executive Vice President, Marketing and Corporate
Development. Prior to joining Talk.com, Mr. Meyercord served as Vice President
in the Global Telecommunications Corporate Finance Group at Salomon Brothers,
Inc., based in New York, and prior to his tenure at Salomon Brothers he worked
in the corporate finance department at Paine Webber Incorporated.
George Vinall joined Talk.com in January of 1999 as Executive Vice
President -- Business Development. Prior to joining Talk.com, he served as
President of International Protocol LLC, a telecommunication consulting
business, as General Manager of Cable & Wireless Internet Exchange, an
international internet service provider, and as Vice President, Regulatory &
Government Affairs of Cable and Wireless North America, a telecommunications
provider.
61
<PAGE>
II. FINANCIAL INFORMATION
TALK.COM UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements give
effect to the merger of Talk.com and Access One under the purchase method of
accounting. These pro forma consolidated financial statements are presented for
illustrative purposes only. The pro forma adjustments are based upon available
information and certain assumptions that management believes are reasonable.
Under the purchase method of accounting, tangible and identifiable
intangible assets acquired and liabilities assumed are recorded at their
estimated fair values. The excess of the purchase price, including estimated
fees and expenses related to the merger, over the net assets acquired is
classified as goodwill on the accompanying unaudited proforma consolidated
balance sheet. The estimated fair values and useful lives of assets acquired and
liabilities assumed are based on a preliminary valuation and purchase price
allocation and are subject to final adjustments which may cause certain of the
intangibles to be amortized over a shorter life than the goodwill amortization
period of 10 years.
The unaudited pro forma consolidated balance sheet as of March 31, 2000 was
prepared by combining the balance sheet at March 31, 2000 for Talk with the
balance sheet of January 31, 2000 for Access One, giving effect to the merger as
though it had been completed on March 31, 2000 and utilizing the shares of
Access One common stock outstanding at January 31, 2000.
The unaudited pro forma consolidated statement of operations for the three
months ended March 31, 2000 was prepared by combining the consolidated
statements of operations for the three months ended March 31, 2000 and January
31, 2000 for Talk.com and Access One, respectively, and the period November 1
through November 29, 1999 for OmniCall. OmniCall, Inc. was acquired by Access
One on November 29, 1999 by issuing 6,439,776 shares of Access One's common
stock, accounting for it under the purchase method of accounting with its
operations included in the Access One consolidated financial statements from
November 30, 1999. The unaudited pro forma consolidated statement of operations
for the year ended December 31, 1999 was prepared by combining the consolidated
statements of operations: (1) for the year ended December 31, 1999 for Talk.com,
(2) for the year ended October 31, 1999 for Access One and (3) for the periods
January 1, 1999 to November 29, 1999 and November 30, 1999 to December 31, 1999
(for which OmniCall adopted a new basis of accounting arising from its
acquisition by Access One) for OmniCall, giving effect to the mergers as though
they had occurred on January 1, 1999.
The pro forma consolidated financial statements do not purport to represent
what the results of operations or financial position of Talk.com would actually
have been if the mergers and related transactions had, in fact, occurred on the
dates indicated above, nor do they purport to project the results of operations
or financial position of Talk.com for any future period or as of any date,
respectively.
The unaudited pro forma consolidated financial statements have been derived
from, and should be read in conjunction with, the historical financial
statements of Talk.com, which are incorporated by reference in this joint proxy
statement/prospectus, and of Access One and OmniCall, which are contained in
this joint proxy statement/prospectus.
62
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
TALK.COM ACCESS ONE CONSOLIDATED
AT AT AT
MARCH 31, JANUARY 31, PRO FORMA MARCH 31,
2000 2000 ADJUSTMENTS 2000
------------- ------------- ------------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................... $ 88,440 $ 1,226 $ (16,418)(c) $ 73,248
Accounts receivable trade, net .............. 64,819 3,656 -- 68,475
Advances to partitions and notes
receivable ................................ 2,798 -- -- 2,798
Prepaid expenses and other current
assets .................................... 4,669 66 -- 4,735
---------- --------- ----------- ----------
Total current assets ...................... 160,726 4,948 (16,418) 149,256
---------- --------- ----------- ----------
Property and equipment, net .................. 65,280 1,039 -- 66,319
Goodwill and other intangibles ............... 1,213 18,495 216,569 (a) 218,828
(c)
(17,449)(a)
Other assets ................................. 4,817 796 (456)(c) 7,332
2,175 (d)
> ---------- --------- ----------- ----------
$ 232,036 $ 25,278 $ 184,421 $ 441,735
========== ========= =========== ==========
LIABILITIES, CONTINGENCIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes Payable ............................... $ -- $ 851 $ (851)(c) $ --
Accounts payable and accrued expenses:
Trade and other ............................. 45,895 4,889 3,000 (a) 53,784
Partitions .................................. 1,788 -- -- 1,788
Taxes and other ............................. 8,109 2,015 (416)(b) 9,708
Deferred revenue ............................ -- 230 -- 230
---------- --------- ----------- ----------
Total current liabilities ................. 55,792 7,985 1,733 65,510
---------- --------- ----------- ----------
Convertible debt ............................. 84,950 -- -- 84,950
Notes payable to related party, net of
original issue discount ..................... -- 2,237 (2,237)(c) --
Long-term debt, less current portion ......... -- 12,025 (11,804)(c) --
(221)(b)
Deferred revenue ............................. 19,150 -- -- 19,150
---------- --------- ----------- ----------
Total liabilities ......................... 159,892 22,247 (12,529) 169,610
---------- --------- ----------- ----------
Commitments and contingencies
Contingent redemption value of
common stock .............................. 12,364 -- -- 12,364
---------- --------- ----------- ----------
Stockholders' equity:
Preferred stock ............................. -- -- -- --
Common stock ................................ 670 19 79 (a) 780
12 (b)
Additional paid-in capital .................. 201,209 15,416 165,476 (a) 384,901
625 (b)
2,175 (d)
Accumulated deficit ......................... (125,920) (12,234) 12,234 (a) (125,920)
Treasury stock, at cost ..................... (16,179) (170) 16,349 (a) --
---------- --------- ------------- ----------
Total stockholders' equity ................ 59,780 3,031 196,950 259,761
---------- --------- ------------- ----------
$ 232,036 $ 25,278 $ 184,421 $ 441,735
========== ========= ============= ==========
</TABLE>
63
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) The following presentation represents a preliminary allocation of the merger
consideration based on management's current estimate. The total merger
consideration of approximately $200.8 million is comprised of the following:
the issuance of 12.2 million shares of Talk.com common stock valued at
$170.4 million, transaction costs estimated at $3.0 million, and issuance of
stock options and warrants in exchange for Access One options and warrants
valued at $27.4 million. For accounting purposes, the common stock was
valued at $14 per share (the average price on the date of the agreement,
March 24, 2000). Goodwill on the acquisition of $216.6 million after the
write-off of Access One historical goodwill will be amortized on a
straight-line basis over 10 years, and is computed as follows:
<TABLE>
<S> <C> <C>
Purchase price $ 200.8
Less:
Fair value of identifiable assets
acquired, net of liabilities assumed $ 3.0
Write-off of unamortized original
issue discount and deferred financing costs (See
note (c)) ( 2.0)
Exercise of Access One
warrants by MCG (See note (b)) 0.6
Write-off of Access One
historical goodwill (17.4) ( 15.8)
------- --------
$ 216.6
========
</TABLE>
(b) Prior to the merger MCG Finance Corporation, Access One's primary lender,
has agreed to exchange its 2,057,889 Access One warrants in the merger for
shares of Talk.com common stock. MCG will offset against unpaid accrued
interest the aggregate strike price under the warrants of $637,000, of which
$416,000 will be offset against unpaid accrued interest and the excess of
$221,000 will be offset against the outstanding loan.
(c) Upon the closing of the merger, up to $18 million of Access One's
indebtedness will be repaid and $1.5 million of unamortized original issue
discount and $456,000 of deferred financing costs will be written off. The
outstanding debt at January 31, 2000 was $15.1 million, net of the original
issue discount.
(d) On the closing date of the merger, it is expected that Talk will enter into
a three year consulting agreement with MCG and will issue to MCG warrants to
purchase 300,000 shares of Talk.com common stock for a period of five years
at the market price in effect on the closing date. Based on a market price
of $9.00 per share, which was in effect on May 15, 2000, the fair value of
the 300,000 warrants using the Black Scholes option model was approximately
$2.2 million.
64
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
----------------------------
OMNICALL
TALK.COM ACCESS ONE JANUARY 1, TO
DECEMBER 31, OCTOBER 31, NOVEMBER 29,
1999 1999 1999
-------------- ------------- ---------------
<S> <C> <C> <C>
Sales ............................ $516,548 $ 15,413 $ 12,745
Cost of sales .................... 317,278 12,178 11,821
-------- -------- --------
Gross profit ..................... 199,270 3,235 924
-------- -------- --------
Operating expenses (income):
General and administrative
expenses ...................... 40,213 6,848 7,790
Promotional, marketing and
advertising expenses .......... 96,264 -- --
Depreciation and amortization 5,956 -- 123
Significant other charges
(income) ...................... (2,718) -- 1,220
-------- -------- --------
Total operating expenses ...... 139,715 6,848 9,133
-------- -------- --------
Operating income (loss) .......... 59,555 (3,613) (8,209)
Interest income (expense), net (793) (1,166) (255)
Other income (expense), net ..... (1,063) (215) 6
-------- -------- --------
Income (loss) before
extraordinary gain .............. $ 57,699 $ (4,994) $ (8,458)
======== ======== ========
Basic earnings per share:
Income before extraordinary
gain per share ................ $ 0.94 $ (0.39)
======== ========
Weighted average common
shares outstanding ............ 61,187 12,793
======== ========
Diluted earnings per share:
Income before extraordinary
gain per share ................ $ 0.90 $ (0.39)
======== ========
Weighted average common
and common equivalent
shares outstanding ............ 64,415 12,793
======== ========
<CAPTION>
PRO FORMA
CONSOLIDATED
OMNICALL FOR THE
NOVEMBER 30, TO YEAR ENDED
DECEMBER 31, PRO FORMA DECEMBER 31,
1999(1) ADJUSTMENTS 1999
----------------- ------------------- -------------
<S> <C> <C> <C>
Sales ............................ $1,416 $ -- $546,122
Cost of sales .................... 1,120 3,569 (c) 345,966
------ ------------ --------
Gross profit ..................... 296 (3,569) 200,156
------ ------------ --------
Operating expenses (income):
General and administrative
expenses ...................... 521 725 (b) 50,520
(5,577) (c)
Promotional, marketing and
advertising expenses .......... -- 999 (c) 97,263
Depreciation and amortization 203 1,009 (c) 28,529
21,657 (a)
(419) (a)
Significant other charges
(income) ...................... -- -- (1,498)
------ ------------ --------
Total operating expenses ...... 724 18,394 174,814
------ ------------ --------
Operating income (loss) .......... (428) (21,963) 25,342
Interest income (expense), net (51) -- (2,265)
Other income (expense), net ..... -- -- (1,272)
------ ------------ --------
Income (loss) before
extraordinary gain .............. $ (479) $ (21,963) $ 21,805
====== ============ ========
Basic earnings per share:
Income before extraordinary
gain per share ................ $ 0.30
========
Weighted average common
shares outstanding ............ 73,355
========
Diluted earnings per share:
Income before extraordinary
gain per share ................ $ 0.28
========
Weighted average common
and common equivalent
shares outstanding ............ 78,374
========
</TABLE>
---------------------
(1) Reflects operations from November 30, 1999 to December 31, 1999, for which
period OmniCall adopted a new basis of accounting arising from its
acquisition by Access One.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1999
(a) To amortize $216.6 million of goodwill on the acquisition over a 10 year
period and reverse amortization of Access One historical goodwill, which is
included in (c) below.
(b) To expense one year of consulting fees arising from the consulting
agreement entered into with MCG.
(c) To reclassify certain expenses of Access One and OmniCall to conform to
Talk.com financial statement presentation.
65
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED PRO FORMA
------------------------- CONSOLIDATED
OMNICALL (1) FOR THE THREE
TALK.COM ACCESS ONE NOVEMBER 1 TO MONTHS ENDED
MARCH 31, JANUARY 31, NOVEMBER 29, PRO FORMA MARCH 31,
2000 2000 1999 ADJUSTMENTS 2000
----------- ------------- --------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Sales ................................ $156,059 $ 8,463 $1,446 $ -- $165,968
Cost of sales ........................ 91,691 6,195 1,174 468 (c) 99,528
-------- ------- ------ ---------- --------
Gross profit ......................... 64,368 2,268 272 (468) 66,440
-------- ------- ------ ---------- --------
Operating expense (income):
General and administrative
expenses .......................... 12,178 4,688 349 181 (b) 15,688
(1,708) (c)
Promotional, marketing and
advertising expenses .............. 36,651 -- 391 540 (c) 37,582
Depreciation and amortization ....... 1,856 -- 165 700 (c) 7,792
5,414 (a)
(343) (a)
-------- ------- ------ ---------- --------
Total operating expenses .......... 50,685 4,688 905 4,784 61,062
-------- ------- ------ ---------- --------
Operating income (loss) .............. 13,683 (2,420) (633) (5,252) 5,378
Interest income (expense), net ...... 290 (529) (68) -- (307)
Other income (expense), net ......... (343) 629 14 -- 300
Income (loss) before provision for
income taxes ........................ 13,630 (2,320) (687) (5,252) 5,371
Provision for income taxes ........... 250 -- -- -- 250
-------- ------- ------ ---------- --------
Net income (loss) .................... $ 13,380 ($ 2,320) ($ 687) ($ 5,252) $ 5,121
======== ======= ====== ========== ========
Basic earnings per share:
Net income per share .............. $ 0.20 $ (0.13) $ 0.07
======== ======= ========
Weighted average common
shares outstanding ............... 65,302 17,211 77,470
======== ======= ========
Diluted earnings per share:
Net income per share .............. $ 0.20 $ (0.13) $ 0.06
======== ======= ========
Weighted average common and
common equivalent shares
outstanding ...................... 68,401 17,211 82,924
======== ======= ========
</TABLE>
---------------------
(1) To reflect OmniCall's results of operations for the period Access did not
own OmniCall during the three months ended January 31, 2000.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 2000
(a) To amortize $216.6 million of goodwill on the acquisition over a 10 year
period and reverse amortization of Access One historical goodwill. The
amounts shown reflect one quarter of amortization.
(b) To expense three months of consulting fees arising from the consulting
agreement entered into with MCG.
(c) To reclassify certain expenses of Access One and OmniCall to conform to
Talk.com financial statement presentation.
66
<PAGE>
TALK.COM BUSINESS
Talk.com Inc. through its subsidiaries provides telecommunications services
to residential and business customers throughout the United States, primarily to
residential consumers through its e-commerce platform. The e-commerce platform
is built around Talk.com's advanced online and web-enabled customer care,
billing and information systems.
Talk.com's telecommunications service offerings include long distance
outbound service, inbound toll-free service and dedicated private line services
for data. Talk.com announced late last year that, in light of recent regulatory
developments, it was planning a strategic initiative to expand its product mix
by offering local telecommunications service bundled with its long distance
service. The proposed merger with Access One provides a significant opportunity
to implement this new strategy. Talk.com has already commenced offering local
service in the southeastern United States and in New York State. Talk.com
believes that it has an opportunity to capture additional market share and
accelerate future growth through its offerings of local and bundled local and
long distance telecommunications services.
Talk.com markets its telecommunications services primarily through
marketing agreements with various partners, including America Online, Inc.,
Prodigy Communications Corporation, Direct Merchants Bank, First USA Bank and
ETM Marketing, and on the Internet through its web site. In connection with its
rollout of local services, Talk.com anticipates that its marketing and
promotional expenditures will continue to increase on an absolute basis and as a
percentage of revenue during the remainder of the current year. In addition,
Talk.com expects to continue to expend significant marketing dollars under its
agreement with AOL, which gives Talk.com the exclusive right, at least until
June 2001, to market long distance telecommunications services through AOL's
online service. In addition, Talk.com also intends to seek new marketing
partnerships and to utilize new marketing channels to extend its local and long
distance services and other product offerings into new and expanded markets.
Talk.com carries a majority of its customers' long distance calls over its
own network. Talk.com's network includes Lucent 5ESS-2000 switches owned by
Talk.com located in selected areas throughout the United States. The network is
further supported by agreements with major interexchange carriers that provide
interconnections among Talk.com's switches and local carriers' switches,
origination and termination of calls, overflow capacity, international long
distance services and other services that Talk.com provides to its customers.
Talk.com has also developed and integrated into its network sophisticated
information and billing systems that allow Talk.com to manage its network
efficiently and to provide its customers with high quality customer care and
billing systems.
RECENT REGULATORY AND OTHER DEVELOPMENTS
On November 5, 1999, the FCC released an order establishing that
traditional incumbent local exchange carriers, or ILECs, nationwide must offer
to competitors, in an individual or combined form, a series of unbundled network
elements that comprise the most important facilities, features, functions, and
capabilities of an incumbent local carrier's network. The price at which such
elements are offered must correspond to the forward-looking cost of providing
these elements. When offered in the combination known as the unbundled network
element platform, or UNE-P, these piece-parts include the loop and switching
elements needed to provide local telephone service to a customer. Although
incumbent local exchange carriers have a general obligation to provide UNE-P,
the obligation is limited in the central business districts of the top 50
metropolitan statistical areas of the nation. In such markets, the obligation to
provide UNE-P currently is limited to carriers serving customers with less than
four telephone lines. The FCC is presently reviewing whether to expand or
further restrict the availability of UNE-P.
Talk.com plans to use UNE-P to provide local telephone service primarily to
residential and small business customers, and Talk.com expects that Access One's
experience in providing local telephone service will help facilitate nationwide
delivery of this product. Because Talk.com plans to focus on residential and
small business markets, the restriction on the UNE-P in the central business
districts of the top 50 metropolitan statistical areas should have minimal
impact on its plans.
67
<PAGE>
Providing local telephone service through use of UNE-P will provide
Talk.com with significant advantages. Foremost, UNE-P will allow Talk.com to
offer local telephone service to customers located virtually anywhere without
deploying costly local network facilities. Talk.com will be able to minimize
current capital expenditures and at the same time maintain network and service
design flexibility for the next generation of telecommunications technology.
In addition, by providing local telephone service using UNE-P, Talk.com
believes it can realize significantly higher margins than competitors that
provide service by reselling the retail services of incumbent local carriers.
Talk.com will not be required to pay local network access fees to incumbent
local telephone carriers in some instances, and Talk.com will be entitled to
collect local network access fees from other companies for delivering calls to
Talk.com's local telephone customers. Importantly, use of UNE-P also will enable
Talk.com to control the underlying network platform used to provide local
telephone service, which will enable the company to create and deploy innovative
products and service applications.
Talk.com's UNE-P deployment strategy presents several risks. In providing
local telephone service using UNE-P, Talk.com must rely on the availability of
network elements from incumbent local telephone carriers. The continued ability
to obtain those network elements in the configuration known as UNE-P depends on
FCC and state regulatory rulings that require incumbent local telephone carriers
to make UNE-P available to carriers. If those rules were modified or eliminated,
the ability to provide local service to customers using UNE-P could be
materially adversely affected. Notably, although Talk.com does not expect
adverse changes, the FCC has been asked by several incumbent telephone companies
to reconsider its order directing them to provide UNE-P. In addition, incumbent
telephone companies have appealed the FCC's requirement that they provide UNE-P
to a federal appeals court, asking the court to overturn the FCC's decision.
Changes in the cost of the network elements that comprise UNE-P also could
materially adversely affect the viability of using UNE-P to provide local
service. The United States Court of Appeals for the Eighth Circuit is currently
considering challenges to the pricing methodology established by the FCC for
setting the rates paid by competitive carriers to incumbent local telephone
carriers for leasing network elements. If the court rejects the FCC's pricing
methodology and that methodology ultimately is replaced with a methodology that
imposes higher rates for network elements, the economic efficiency of UNE-P
would suffer. Similarly, state commissions have the authority to review and
modify the prices paid for unbundled network elements, and a state commission
decision to change the prices of the local loop and switching elements could
materially affect Talk.com's ability to use UNE-P to provide local service. In
addition, state commissions currently are implementing FCC rules that require
incumbent telephone companies to file rates for UNE-Ps that are deaveraged by
geographic density zone. Such geographic rate deaveraging could result in rates
which make use of UNE-P unattractive or uneconomic in less dense geographic
areas.
However, with these and other considerations in mind, Talk.com believes
that UNE-P will provide it with a cost-effective means of adding innovative
local service components to its existing long distance product offerings. Access
One's operational experience in providing local telephone service will enable
Talk.com to begin an aggressive national roll-out of local service using UNE-P,
providing the company with a significant first-mover advantage in delivering
integrated packages of local and long distance services to residential and small
business consumers.
68
<PAGE>
ACCESS ONE SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of Access One should be
read in conjunction with Access One Management's Discussion and Analysis of
Financial Condition and Results of Operations, the financial statements of
Access One, including the notes to those financial statements, and the other
financial data of Access One included elsewhere in this joint proxy statement/
prospectus. The statement of operations data for the years ended October 31,
1999, 1998 and 1997 and the balance sheet data at October 31, 1999 are derived
from Access One's financial statements which have been audited by Nussbaum Yates
& Wolpow, P.C., Access One's independent public accountants, and are included
elsewhere in this joint proxy statement/prospectus. The statements of operations
data for the six months ended April 30, 2000 and 1999, and the balance sheet
data at April 30, 2000, are derived from Access One's unaudited interim
financial statements included elsewhere in this joint proxy
statement/prospectus. Access One's unaudited financial statements have been
prepared on substantially the same basis as the audited consolidated financial
statements and, in the opinion of Access One's management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the results of operations for these periods. You should be aware
that historical results are not necessarily indicative of the results to be
expected in the future, and results of interim periods are not necessarily
indicative of results for the entire year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
---------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
ACCESS ONE CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue .................................... $ 479 $ 5,811 $ 15,413 $ 5,376 $ 18,688
Cost of revenues ........................... 366 5,045 12,178 4,699 11,618
------- -------- -------- -------- --------
Gross profit ............................... 113 766 3,235 677 7,070
Operating expenses:
Administrative ........................... 162 3,084 4,840 1,503 7,310
Selling .................................. 70 726 999 671 844
Depreciation and amortization ............ 23 343 1,009 279 1,606
------- -------- -------- -------- --------
Total operating expenses ................ 255 4,153 6,848 2,453 9,760
------- -------- -------- -------- --------
Operating loss ............................. (142) (3,387) (3,613) (1,776) (2,690)
Interest expense, net .................... (16) (313) (1,166) (307) (1,221)
Other income (expense), net (1) .......... -- (1,061) (215) (214) 629
------- -------- -------- -------- --------
Net loss ................................... $ (158) $ (4,761) $ (4,994) $ (2,297) $ (3,282)
======= ======== ======== ======== ========
Net loss per share -- Basic and Diluted..... $ (0.05) $ (0.41) $ (0.39) $ (0.17) $ (0.18)
======= ======== ======== ======== ========
Weighted average common shares
outstanding -- Basic and Diluted ......... 3,180 11,642 12,793 13,386 18,155
======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT OCTOBER 31, AT APRIL 30,
-------------------------------------- ---------------------
1997 1998 1999 1999 2000
-------- ------------ ------------ ------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ACCESS ONE CONSOLIDATED BALANCE SHEET
Working capital (deficit) ....................... $ 480 $ (2,579) $ (1,695) $ (1,898)
Total assets .................................... 4,110 3,885 6,287 26,657
Long-term debt (2) .............................. 410 181 6,837 16,691
Total stockholders' equity (deficit)(1) ......... 2,097 (496) (5,356) 2,112
</TABLE>
---------------------
(1) See Note 3 to Consolidated Financial Statements for an explanation of the
realized loss resulting from sales of securities.
(2) See Note 8 to Consolidated Financial Statements for an explanation for
borrowings under MCG credit facility agreement and other long-term
borrowings.
69
<PAGE>
ACCESS ONE MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements contained herein which are not historical facts are forward
looking statements that involve risks and uncertainties, including but not
limited to, risks associated with Access One's future growth and operating
results, technological change, competitive and regulatory factors and other
factors described in the "Risk Factors." Actual results may vary significantly
from such forward looking statements.
RESULTS OF OPERATIONS
Six Months Ended April 30, 2000 Compared to Six Months Ended April 30, 1999
Revenues for the six months ended April 30, 2000 were $18,687,837 compared
to $5,376,196 for the six months ended April 30, 1999, an increase of 248%. The
increase in revenue is primarily attributable to the following factors: (a) the
purchase of approximately 15,000 local access lines from e.spire Communication,
Inc. in April of 1999, (b) the merger with OmniCall, Inc. in November of 1999,
resulting in an increase of approximately 14,300 local access lines, (c) the
purchase of an additional 2,000 local access lines from a competitor in March
2000 and (d) internally generated growth through marketing efforts.
Access One's gross profit for the six-month period ending April 30, 2000
was $7,069,937 compared to $676,602 in the six-month period ending April 30,
1999, an increase of 945%. The gross profit percentage increased to 37.8% for
the six-month period ending April 30, 2000 compared to 12.6% for the six-month
period ending April 30, 1999. The increase in the gross profit amount was
primarily a result of the increased revenue of Access One, and the improvement
in the gross percentage was primarily attributable to Access One's ability to
introduce and utilize the unbundled network elements platform, or UNE-P, to a
majority of its customers, which resulted in a lower cost, and consequently a
higher resultant gross margin. Approximately 54,000 local access lines were on
UNE-P pricing as of April 30, 2000 compared to zero local access lines as of
April 30, 1999. Although Access One's gross profit has been increasing, there
can be no assurance that it will continue to increase.
For the six months ended April 30, 2000, selling, general and
administrative expenses totaled $9,759,744, an increase of 298% compared to the
six months ended April 30, 1999 when such expenses amounted to $2,452,544. The
expenses for the six months ended April 30, 2000 increased for a number of
reasons, including: (1) Access One merged with OmniCall on November 29, 1999,
and, accordingly, the selling, general and administrative expenses of OmniCall
are included for the period from November 29, 1999 through April 30, 2000, but
were not part of the expenses of Access One for the comparable six months ended
April 30, 1999, (2) Goodwill amortization of $698,279 relating to the OmniCall
merger was recorded in the six month period ended April 30, 2000 with no similar
amortization cost in the comparable six month period ended April 30, 1999, (3)
Labor and related payroll taxes and fringe benefit costs, customer service
costs, and other operating expenses increased in response to the need of Access
One to service a significantly greater customer base in 2000 as compared to the
similar period in fiscal 1999.
Interest expense and loan fees for the six-months ended April 30, 2000 was
$1,220,989 compared to $306,778 for the six months ended April 30, 1999, an
increase of $914,211. The increase is attributable to a significant increase in
average borrowings outstanding, and higher interest rates.
During the six months ended April 30, 2000, Access One exchanged, with an
existing shareholder of Access One, 400,000 shares of eLEC Communications, Inc.
which Access One acquired for 300,000 shares of Access One's own common stock.
The transaction resulted in Access One recognizing a gain on the sale of
$628,720 and the recording of treasury stock of $850,000. Access One
subsequently issued 240,000 shares of its common stock held in treasury as a
bonus to employees, resulting in compensation expense of $680,000. The
transaction was valued based on the quoted market price of eLEC on the date of
the exchange. During the six months ended April 30, 1999, Access One sold 85,000
shares of eLEC stock for proceeds of $85,000 resulting in a loss of $214,675.
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Year Ended October 31, 1999 Compared to Year Ended October 31, 1998
Revenues for fiscal 1999 were $15,412,640 compared to $5,811,038 for
fiscal, 1998, an increase of 165%. The increase in revenue was primarily
attributable to the purchase of approximately 15,000 local access lines from
e.spire Communications, Inc. in April of 1999 and internally generated growth
through marketing efforts.
Access One's gross profit for fiscal 1999 increased by 323% to $3,234,847
from $765,524 in the year ended October 31, 1998, and the gross profit
percentage increased to 21.0% for fiscal 1999 compared to 13.2% for fiscal 1998.
The increase in the gross profit amount was primarily a result of the increased
revenue of Access One, and the improvement in the gross profit percentage was
primarily attributable to Access One's ability to introduce and utilize UNE-P
pricing to a majority of its customers, which results in a lower cost, and
consequently a higher resultant gross margin. Approximately 27,000 local access
lines were on UNE-P pricing as of October 31, 1999 compared to zero local access
lines as of October 31, 1998.
Selling, general and administrative expenses totaled $6,847,884 for fiscal
1999, an increase of 65% compared to fiscal 1998 when such expenses amounted to
$4,152,988. Fiscal 1999 expenses reflect amortization expense of $626,677
related to purchased customer accounts from e.spire, with no similar cost in
fiscal 1998. Additionally, labor and related payroll taxes and fringe benefit
costs, customer service costs, and other operating expenses increased in
response to the need of Access One to service a significantly greater customer
base in fiscal 1999 as compared to fiscal 1998.
Interest expense and loan fees for fiscal 1999 was $1,166,462 compared to
$312,869 for fiscal 1998, an increase of 273%. The increase was primarily
attributable to an increase in average borrowings and higher interest rates.
During fiscal 1999, Access One sold 85,000 shares of eLEC for proceeds of
$85,000, resulting in a loss of $214,625. During fiscal 1998, Access One sold
690,000 shares of eLEC for proceeds of $1,373,125 resulting in a loss of
$1,061,000.
Year Ended October 31, 1998 Compared to Year Ended October 31, 1997
Revenues for fiscal 1998 were $5,811,038 compared to $479,516 for fiscal
1997, an increase of 1,112%. The increase in revenue was attributable to the
fact that fiscal 1997 contained revenue for only two months, since Access One,
which had been inactive during that year prior to September, commenced
operations that month with the acquisition of The Other Phone Company, Inc., or
OPC, while fiscal 1998 contained a full year of revenue.
Access One's gross profit for fiscal 1998 increased by 576% to $765,524
from $113,273 in fiscal 1997, and the gross profit percentage decreased to 13.2%
for fiscal 1998 compared to 23.6% for fiscal 1997. The increase in the gross
profit amount was primarily a result of the increased revenue of Access One. The
decrease in gross profit percentage was primarily attributable to Access One's
mix of products in fiscal 1997 compared to fiscal 1998.
Selling, general and administrative expenses totaled $4,152,988 for fiscal
1998, an increase of 1,529% from $254,999 for fiscal 1997. Operating expenses
for fiscal 1997 represent only two months of such expenses, since Access One
commenced operations in September 1997 with the acquisition of OPC.
Interest expense and loan fees for fiscal 1998 was $312,869 compared to
$16,372 for fiscal 1997, an increase of 1,811%. The increase was attributable to
the increase in average borrowings, and the fact that borrowings in fiscal 1998
were outstanding for a longer period.
During the year ended October 31, 1998, Access One sold 690,000 shares of
eLEC, for proceeds of $1,373,125, resulting in a loss of $1,061,000.
Access One does not believe that inflation had a significant impact on
Access One's revenues or operations.
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LIQUIDITY, FINANCIAL AND CAPITAL RESOURCES
This discussion of financial resources addresses the Statement of Financial
Position and the Statement of Cash Flows.
Financial Condition
In fiscal 1999, and for the first six months of fiscal 2000, Access One
improved its liquidity and expanded its borrowing capability substantially. By
replacing its previous principal lender, Receivables Funding Corporation with a
new lender, MCG Finance Corporation, Access One has increased its borrowing
credit line to $15,000,000. Access One has used acquisitions to provide a
significant portion of its growth. The source of financing for these
acquisitions has been through borrowings. Consequently, Access One is highly
leveraged, with a debt to equity ratio of 11.62 to 1.00 at April 30, 2000.
Operating Activities
Operating activities have resulted in a use of cash in each of fiscal 1999,
1998 and 1997 and also in the six-month period ending April 30, 2000. Access One
has incurred substantial operating losses which have been a major factor in the
aforementioned use of cash. As of April 30, 2000, Access One's cash position was
$1,500,585.
Investing Activities
For the six months ended April 30, 2000, investing activities resulted in
the use of cash of $505,496. For fiscal 1999, 1998, and 1997, investing
activities provided (used) cash of ($2,660,726), $1,169,363 and ($1,017,969),
respectively. Significant investing activities that resulted in uses of cash
were from business acquisitions, purchases of equipment, and purchases of Access
One's equity securities. Significant investing activities that resulted in
sources of cash were from the proceeds from the sale of eLEC common stock.
Financing Activities
For the six months ended April 30, 2000, and for fiscal 1999, 1998, and
1997, financing activities provided cash of $5,818,403, $5,189,658, $663,963,
and $1,162,271, respectively. Significant financing activities that resulted in
sources of cash were from bank borrowings.
In June, 1999, Access One terminated its receivables financing arrangement
and loan agreement with RFC, which provided for borrowing under a credit
facility of up to $1.2 million. Access One and each of its subsidiaries entered
into a new credit facility agreement with MCG, which provided for, among other
things, a term loan of $7.5 million which could be borrowed from time to time on
a senior secured basis. In November, 1999, Access One and MCG amended the MCG
credit facility to include OmniCall as party and to increase the term loan
arrangement to $15 million. Access One is required to pay an origination fee of
$250,000, of which $125,000 is due in June, 2000, and the balance is due in June
2001. The maturity date of the Facility is June, 30, 2002. Borrowings under the
MCG credit facility may be designated by Access One and subdivided into a
maximum of three portions. The outstanding balance under each portion bears
interest at the rate of either (i) the prime rate plus 11% or (ii) at the
three-month London Interbank Offered Rate, or LIBOR, plus 9%. The applicable
rate index for each portion may be changed periodically by Access One in
accordance with the terms of the facility. Interest payable under the MCG credit
facility is subdivided into two components, current interest, and deferred
interest. Current interest on each principal portion is due and payable monthly
only to the extent of the following rates: the prime rate plus 8%, or at the
LIBOR rate plus 6%, depending on the rate assigned to the related portion of the
loan. Deferred interest accrues, calculated at 3%, and is payable in one lump
sum upon the occurrence of any of the following events (at the election of MCG):
(i) the maturity date, (ii) the date that all obligations under the MCG credit
facility are paid in full and the related loan documents are terminated, or
(iii) the occurrence of an event of default. Currently, $15 million is
outstanding under the MCG credit facility.
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The MCG credit facility also contains certain financial and operating
covenants, including minimum local access lines, minimum revenues, certain
specified ratios and other limitations as defined therein. Access One also has
granted MCG a security interest in all of its personal property and assets,
whether then existing or subsequently acquired.
In connection with the MCG credit facility, MCG was granted warrants to
purchase 1,657,889 shares of Access One common stock at $0.01 per share,
exercisable immediately through June 30, 2009. In connection with the amendment
to the MCG credit facility, MCG was granted warrants to purchase an additional
400,000 shares of Access One common stock at $1.55 per share, exercisable
immediately through November 30, 2009.
In October, 1999, OmniCall issued a promissory note to William M. Rogers in
the principal amount of $3 million, which principal amount is payable in
quarterly installments of $750,000 each commencing on January 31, 2001 and
continuing until paid in full. Such indebtedness bears interest at a variable
percentage rate equal to 100 basis points above the index of SouthTrust Bank,
N.A.'s 30-day LIBOR. OmniCall's obligations under such note are subordinate to
all of Access One's and its subsidiaries' indebtedness to MCG under the
facility.
RECENT DEVELOPMENTS
In April, 1999, Access One acquired approximately 15,000 local access lines
from e.spire Communications, Inc. in consideration for approximately $1,850,000
payable at closing and a promissory note in the amount of $1,350,000, bearing
interest at the rate of 10.625%, payable in eleven equal monthly installments
which commenced on August 31, 1999.
In November, 1999, Access One acquired OmniCall through a merger between
OmniCall and a subsidiary of Access One. Pursuant to the terms of the merger,
each outstanding share of OmniCall common stock was converted into a number of
shares of Access One common stock equal to 6,493,776 shares divided by the
number of then outstanding shares of common stock of OmniCall. OmniCall
shareholders were also entitled to receive additional shares of Access One
common stock based upon the performance of the division of OmniCall known as
OmniWeb or BizKick. This earn out payment was to be based on the gross sales of
BizKick during the period from the closing of the OmniCall merger through
December 31, 2000. The rights of the former OmniCall stockholders under the earn
out provisions have been settled under an agreement providing for issuance of
19,285 shares of Talk.com common stock to those stockholders, together with the
repayment of certain outstanding debt and cash payments by Access One for
consulting and other services. The operations of the BizKick division were
terminated and its assets have been returned to the former OmniCall
stockholders.
On March 24, 2000, Access One entered into the merger agreement. On that
date, Kenneth G. Baritz resigned his posts as Chairman and Chief Executive
Officer of Access One to become President of Talk.com. As a condition to the
merger, Mr. Baritz will also become a member of the Talk.com board of directors.
In addition, Kevin Griffo resigned as President and Chief Operating Officer of
Access One to become Executive Vice President, Local Services, of Talk.com.
Messrs. Baritz and Griffo have continued in their role as directors of Access
One. The board of directors of Access One has elected Elizabeth Stallings, the
Treasurer of Access One, to the additional office of President of Access One, in
replacement of Mr. Griffo.
In March 2000, Access One acquired approximately 2,000 local access lines
from Atlantic Telecom for approximately $386,000.
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ACCESS ONE BUSINESS
Access One is a virtual facilities-based competitive local exchange
carrier, or CLEC, that operates under the unbundled network element platform.
Under the unbundled network element platform, or UNE-P, Access One purchases the
same necessary elements from the incumbent local exchange carriers, or ILECs,
that allows them to operate virtually like a facilities-based carrier without
building the redundant facilities. Under UNE-P, Access One is charged a fixed
rate for business and residential lines with all vertical features received
without additional charge. Access One offers a bundled package of
telecommunications products, including local and long distance telephony,
calling cards, voicemail, teleconferencing, Internet access, DSL where
available, and other enhanced and value-added services. Access One focuses its
principal marketing efforts on small and medium-sized businesses having fewer
than 10 local access lines in any one location and has recently commenced
marketing its services to residential customers. Access One's strategy is to
expand its customer base by being more flexible, innovative and responsive to
the needs of its target customers than the regional Bell operating companies, or
RBOCs, and the first-tier interexchange carriers, or IXCs, which have
historically concentrated their sales and marketing efforts on residential and
large business customers. Access One differentiates itself by providing an
integrated, customized package of telecommunications services on a single bill
and responsive customer service. Access One has recently introduced a flat rate
"bundled" product to simplify pricing for its customers.
Access One was incorporated under the laws of the State of New Jersey in
October 1991, under the name PRS Sub II Inc. and commenced its current
operations in January 1997. Access One changed its name to CLEC Holding Corp. in
August 1997, and changed its name to Access One Communications Corp. in April
1998. Access One's principal executive offices are located at 3427 Northwest
55th Street, Fort Lauderdale, Florida 33309, and its telephone number is (954)
714-0000.
The Other Phone Company Inc. or OPC, was incorporated under the laws of the
State of Florida in April 1996, and is a subsidiary of Access One, substantially
all the stock of which is owned by Access One. On September 9, 1997, OPC
Acquisition Corp., a company controlled by Kenneth G. Baritz, acquired 95% of
the outstanding common stock of OPC, referred to herein as the OPC Acquisition,
in consideration of an aggregate of $2,250,000, consisting of (1) a cash payment
of $1 million, (2) the issuance of a promissory note in the principal amount of
$250,000, which was subsequently paid, (3) the assumption of $250,000 of
indebtedness, which was subsequently repaid, and (4) the issuance of a secured
promissory note in the principal amount of $750,000 which was subsequently
repaid. OPC Acquisition Corp. issued debt and equity securities in the aggregate
amount of $1 million to finance the cash portion of the purchase price. On
September 30, 1997, Access One issued 4,000,000 shares of common stock in
exchange for all of the outstanding capital stock of OPC Acquisition Corp. As of
the date of this joint proxy statement/prospectus, Access One owns more than 99%
of the outstanding common stock of OPC.
OmniCall, Inc., or OmniCall, was incorporated under the laws of the State
of South Carolina in May, 1996, and is a wholly owned subsidiary of Access One.
In November, 1999, Access One acquired OmniCall through a merger between
OmniCall and a subsidiary of Access One. Under the terms of the merger, each
outstanding share of OmniCall common stock was converted into a number of shares
of Access One common stock equal to 6,493,776 shares divided by the number of
then outstanding shares of OmniCall common stock. OmniCall shareholders were
also entitled to receive additional shares of Access One common stock based upon
the performance of the division of OmniCall known as OmniWeb or BizKick. The
earn out payment was to be based on the gross sales of BizKick during the period
from the closing of the OmniCall merger through December 31, 2000. The rights of
the former OmniCall stockholders under the earn out provisions have been settled
under an agreement providing for issuance of 19,285 shares of Talk.com common
stock to those stockholders, together with the repayment of certain outstanding
debt and cash payments by Access One for consulting and other services. The
operations of the BizKick division were terminated and its assets have been
returned to the former OmniCall stockholders.
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COMPETITIVE ADVANTAGES
Access One has achieved rapid growth in its customer base. Local access
lines in service have increased from approximately 2,000 at the time of the
acquisition of OPC to more than 61,000 as of the date of this joint proxy
statement/prospectus.
Access One believes it has the following competitive advantages:
o Resale/UNE-P Agreements. OPC and OmniCall have executed local exchange
resale and UNE-P agreements with BellSouth for all states in its region at
rates at least as favorable as those of other potential resellers of
BellSouth local services. Access One currently offers services in Florida,
Kentucky, Alabama, Georgia, Louisiana, Mississippi, North Carolina, South
Carolina and Tennessee and plans to expand to other parts of the United
States by providing local service through resale and UNE-P agreements.
Access One is the first CLEC to negotiate, sign and implement a region wide
UNE-P platform. In March 1998, Access One entered into a resale agreement
with Sprint for services in Sprint's Florida territory.
o Complementary Relationships with ILECs. Access One believes that the ILECs'
networks will continue to be the predominant means for providing local
telecommunications services to Access One's target customers for the
foreseeable future. By moving aggressively to enter into UNE-P agreements
with ILECs, Access One believes that it will be able to capitalize on the
ILECs' networks without corresponding increases in capital expenditures.
o Electronic Provisioning and Interface Systems. Access One's primary
provisioning functionality utilizes a third party application provided by
Mantiss Information Corp. Mantiss provides a compliant, user-friendly,
fully functional interconnection gateway solution to facilitate
flow-through ordering and provisioning. Access One has the ability to use
Mantiss' applications with multiple ILECs.
o Strategic Flexibility. Access One believes that its business strategy
affords it more flexibility to take advantage of regulatory and industry
dynamics than its facilities-based competitors. For example, Access One has
not spent substantial capital resources building facilities and is not tied
to any long term or restrictive contracts that would prevent it from
developing new ways to provide services to its customers.
o Proprietary Billing System. Access One utilizes a proprietary system for
billing, tracking and customer service. The system was designed to be
flexible enough to be able to both mirror RBOC rate plans in all regions
and to utilize custom rate plans specific to Access One. Access One
believes that, by adding hardware, the system will have the ability to
handle a substantial increase in capacity.
BUSINESS STRATEGY
A key element in building Access One's customer base while minimizing churn
has been, and will continue to be, the implementation of a marketing and
operating strategy which emphasizes an integrated telecommunications solution to
its target market. Access One believes that its target customers have not
previously been provided the opportunity to purchase bundled services. Access
One attracts and retains customers by providing high-quality service at a cost
which is usually only afforded to large business customers. Specifically, Access
One provides a single source and bill for integrated local and long distance
telephony, calling cards, voicemail, Internet access, DSL where available, and
other enhanced and value-added telecommunications services, product inquiries,
repairs and billing questions. Access One's business strategy includes the
following:
o Provide Integrated Telecommunications Services to Small and Medium-Sized
Businesses. Access One primarily markets local and long distance services
to small and medium-sized businesses having fewer than 10 business lines in
any one location. Access One believes that these customers prefer a single
source for all their telecommunications services. Access One has chosen to
focus on this segment based on its expectations that higher gross margins
will generally be available on services provided to these customers as
compared to larger
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businesses, and that ILECs and facilities-based CLECs may be less likely to
apply significant resources towards obtaining or retaining these customers.
Access One expects to attract and retain these customers through a direct
sales and telemarketing effort, and by offering bundled local and long
distance services, as well as enhanced telecommunication services, a
competitive long distance rate and responsive customer service and support.
o Provide Integrated Telecommunications Services to Residential Customers. In
addition to marketing to small and medium sized businesses as mentioned
above, Access One has recently commenced marketing its services to
residential customers. Access One expects to attract and retain these
customers through a telemarketing effort, direct mail, by developing
marketing partnerships, and by offering bundled local, long distance and
enhanced telecommunication services at a fixed rate, as well as offering
responsive customer service and support.
o Develop Customer Service Organizations. Access One has developed an
experienced customer service organization. Access One currently has
approximately 50 customer support representatives. To increase customer
satisfaction, Access One emphasizes personalized care. Access One plans to
continue to build its customer service staff to one representative for
every 1,250 lines.
o Leverage Ubiquitous Networks. Access One believes that a key factor in its
success has been its ability to provide the complete range of local
services currently provided by ILECs located in its service territories.
Access One believes that there is currently no competing network with the
product breadth, capacity and geographic reach of the ILECs. Through the
use of a UNE-P platform, Access One is able to offer to its customers all
products and features that the ILECs offer to their customers. Access One's
service is available in 100% of the ILECs' territories. Unlike a competing
facilities-based carrier, Access One is not restricted by "on-net/off-net"
conditions of network buildout.
o Provide Consolidated Billing and Branding. Access One has determined that
multi-site organizations greatly desire consolidated billing for all their
locations and Access One has the ability to provide such consolidated
billings. Currently, CLECs rarely provide multi-site organizations with the
option to consolidate their invoices into one bill. Similarly, most
residential customers receive an average of three bills for their
telecommunications services. Access One believes that consumers would
prefer a single bill for all of their telecommunications needs.
SALES AND MARKETING
Marketing Strategy
Access One has a dual marketing strategy to increase its penetration. It is
primarily targeting small and medium sized business customers and residential
customers. Access One offers a package of integrated communications services to
its customers on a single bill. As a means of differentiating its product,
Access One focuses on repackaging its services and pricing in a clearer, easy to
understand format. Access One's pricing is set at a discount from the ILEC
retail rate. Additionally, providing prompt and courteous customer service to
its base of customers is an important aspect of differentiating Access One from
the ILECs.
Telemarketing
Prior to January 2000, Access One relied primarily on outside telemarketers
and has made a strategic decision to bring telemarketing in-house. Currently,
Access One uses internal telemarketers to acquire small and medium business
customer accounts. This business segment is generally characterized as having a
single location with less than 10 local access lines per location. These
customers are offered a 10% discount off the price of all of their current
services. Access One has targeted these customers because it believes that this
market segment has been underserved in the past. By using in-house telemarketers
since January 1, 2000, Access One has lowered its selling,
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general and administrative expenses associated with account acquisition.
Currently, Access One has 40 telemarketers and plans to increase that number to
approximately 100 by January 1, 2001. Access One has recently commenced using
its telemarketers to sell to the residential market. Access One intends to offer
residential customers flat rate pricing that bundles local, long distance and
vertical features.
Agent Sales
Access One also utilizes an outside agent sales force to target larger
business customers. This sales force is managed by in-house direct agent
managers. The agent sales force will target businesses with multiple locations
and line counts above 10 per location. This customer segment will be offered
"One Simple Solution" for local and long-distance service. The focus will be to
provide businesses with "simple and easy" products and therefore the pricing
plan will offer a 10% discount on local services and flat rate long-distance
pricing. Additional discounts will be available if the customer signs a term
contract of at least one year. Additional services, such as long distance,
calling cards and voice mail will also be sold at the point of sale. All
services will be billed on one monthly statement. Multi-location businesses will
also have the option to get one bill for all of their locations. By utilizing a
trained agent sales force, Access One expects not only to increase its
penetration of access lines, but also the average revenue generated per access
line. Access One also believes that customers with more than one service with
Access One will also be less likely to switch to another carrier.
Acquisitions
As an additional method of customer acquisition, Access One has expanded
its customer base by acquiring the customer bases of other carriers. In
connection with Access One's acquisition of OmniCall in November 1999, it
acquired approximately 14,300 local access lines. Access One acquired the offnet
customer bases of e.spire Communications, Inc. in April 1999, and Atlantic
Telecommunications Systems, Inc., a reseller, in March 2000, adding
approximately 15,000 and 2,000 local access lines, respectively. Access One
plans to consider new opportunities to acquire customers through future
acquisitions.
CUSTOMER CARE
Customer service is important if Access One is to gain a competitive
advantage over an ILEC. Access One maintains an emphasis on customer care to
differentiate itself from its competitors and reduce churn. Access One provides
ongoing personalized contact to address its customers' needs. In addition,
Access One has customer service representatives available 24-hours-per-day,
365-days-per-year to facilitate customer care and customer service requests. At
Access One's customer care center, customers' calls are answered by experienced
customer care representatives, many of whom are cross-trained in the
provisioning process. Access One's equipment allows its service representatives
to identify a caller prior to answering the phone.
MANAGEMENT INFORMATION SYSTEMS
Access One is committed to the continued development and successful
implementation of billing and customer care systems that provide accurate and
timely information to both Access One and its customers. Access One has
developed and utilizes a proprietary internally designed billing, back-office
support and provisioning system, and has also developed interfacing software and
systems in order to better track and sort customers account data from the RBOC's
and ILEC's.
VENDOR AGREEMENTS
Introduction
Access One has executed comprehensive local exchange resale and UNE-P
agreements with BellSouth, and a resale agreement with Sprint. Through its new
UNE-P agreement with BellSouth, Access One now receives services at a lower
price than under its other vendor agreements. Access
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One continuously evaluates opportunities to enter into agreements with
additional RBOCs, other local and long distance providers and enhanced and other
value-added service providers in order to aggressively build its customer base
as well as to provide additional services to its existing customers while
reducing costs. In addition, Access One has entered into a long distance resale
agreement with Frontier Communications of the West, Inc..
BellSouth UNE-P Agreement
OPC has entered into a UNE-P agreement with BellSouth under which BellSouth
provides resale, access and interconnection services to OPC. The UNE-P agreement
was originally executed in April, 1999. In February 2000, in order to comply
with an FCC order released in November, 1999, which provided, among other
things, that the price of the foregoing services must correspond to the
forward-looking cost of providing such services, the UNE-P agreement was
renegotiated. The new UNE-P agreement provides for more favorable pricing than
the original UNE-P agreement. Under the new UNE-P agreement, OPC purchases the
same necessary elements from BellSouth that allows it to operate virtually like
a facilities based carrier without building the redundant facilities. OPC is
charged a fixed rate for business and residential lines with all vertical
features received without additional charge.
BellSouth Resale Agreements
In April, 1997, and in March, 1998, OPC entered into agreements with
BellSouth under which OPC purchases local exchange service at discounted rates
in the BellSouth region, which includes Alabama, Florida, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina and Tennessee. The
agreements each provide for an initial two-year term and are automatically
renewable for two additional one-year periods, unless otherwise terminated 60
days prior to the end of the respective existing contract terms. The level of
discounts of the resold services provided under these agreements varies based on
the state and the nature of services resold, such as local access lines, local
calls, toll calls or features.
Sprint Agreement
In February 1998, OPC entered into a local resale agreement with Sprint
under which Sprint makes available its retail telecommunications services at
wholesale prices for resale by OPC. Services covered under the resale agreement
include the typical telecommunication products and services provided by Sprint
(e.g., local exchange calling and attendant features) toward fulfillment of
Sprint's obligations under applicable law. The term of the agreement is
perpetual unless terminated upon 90 days' prior notice by either party, (ii)
upon 60 days' prior notice in the event of a default or (iii) upon the transfer
by Sprint of substantially all of its assets.
Premiere Agreements
In February, 1998, Access One also entered into a three year agreement with
Premiere Communications, Inc. under which Access One agreed to exclusively use
Premiere's products and services designed for voice messaging, including maximum
greeting length, maximum message length, message retention and maximum number of
messages. The agreement provides that Access One cannot use, endorse or sell any
competitive messaging services. The agreement is automatically renewable for a
three year period unless either party gives written notice to terminate not less
than three months prior to the first anniversary of the agreement.
In March, 1998, Access One entered into another three year agreement with
Premiere under which Access One participates in Premiere's proprietary calling
card system. The initial term of the agreement is automatically renewable for
successive periods of twelve months, unless either party gives notice to
terminate not less than 60 days prior to the end of any particular term.
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Frontier Agreements
In March 1998, OPC entered into an agreement with Frontier to purchase
various long distance telecommunications services for resale by OPC. The
agreement provides for a term of eighteen months and is automatically renewable
for successive one-year terms, unless earlier terminated. OPC may cancel, upon
30 days notice, any of the services being provided by Frontier in the event of a
rate increase.
In March 1998, OmniCall also entered into a carrier services switchless
agreement with Frontier to purchase various long distance telecommunication
services for resale by OmniCall. The agreement provides for a term of four years
and is automatically renewable for successive one-year terms, unless earlier
terminated. Either party may terminate the services agreement at any time upon
90 days prior notice to the other party. In October 1999, the agreement was
amended to provide that it would continue in effect until October 2002.
COMPETITION
Access One operates in a highly competitive environment and has no
significant market share in any market in which it operates. Access One expects
that competition will continue to intensify in the future due to regulatory
changes, including continued implementation of the Telecommunications Act, and
the increase in the size, resources and number of market participants. In each
of its markets, Access One faces competition in the local telecom service market
from larger, better capitalized incumbent providers. Additionally, the long
distance market is already significantly more competitive than the local
exchange market because the ILECs, including the RBOCs, have historically had a
monopoly position within the local exchange market.
In the local exchange market, Access One also faces competition or
prospective competition from one or more CLECs, many of which have significantly
greater financial resources than Access One, and from other competitive
providers. For example, BellSouth, AT&T, WorldCom and Sprint, among other
carriers, have each begun to offer local telecommunications services in major
U.S. markets using their own facilities or by entering into resale agreements
with ILECs' or other providers' services. These competitors either have begun or
in the near future likely will begin offering local exchange service in those
states, subject to the joint marketing restrictions under the Telecommunications
Act described below. In addition to these long distance service providers,
entities that currently offer or are potentially capable of offering switched
services include CLECs, cable television companies, electric utilities, other
long distance carriers, microwave carriers, wireless telephone system operators
and large customers who build private networks.
With respect to wireless telephone system operators, the FCC has authorized
cellular, personnel communications service, or PCS, and other commercial mobile
radio service, or CMRS, providers to offer wireless services to fixed locations,
rather than just to mobile customers, in whatever capacity such CMRS providers
choose. Previously, cellular providers could provide service to fixed locations
only on an ancillary or incidental basis. This authority to provide fixed as
well as mobile services will enable CMRS providers to offer wireless local loop
service and other services to fixed locations (e.g., office and apartment
buildings) in direct competition with Access One and other providers of
traditional fixed telephone service. In addition, in August 1996, the FCC
promulgated regulations that classify CMRS providers as telecommunications
carriers, thus giving them the same rights to interconnection and reciprocal
compensation under the Telecommunications Act as other non-LEC
telecommunications carriers, including Access One.
Under the Telecommunications Act and related federal and state regulatory
initiatives, barriers to local exchange competition are being removed. The
availability of broad-based local resale and the introduction of
facilities-based local competition are required before the RBOCs may provide
in-region interexchange long distance services. The RBOCs are currently allowed
to offer certain in-region "incidental" long distance services (such as
cellular, audio and visual programming and certain interactive storage and
retrieval functions) and to offer virtually all out-of-region long distance
services.
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The Telecommunications Act prohibits an RBOC from providing long-distance
service that originates (or in certain cases terminates) in one of its in-region
states until the RBOC has satisfied certain statutory conditions in that state
and has received the approval of the FCC. Bell Atlantic recently obtained FCC
approval to begin providing long distance services in New York, and it has begun
the process to obtain similar authority in other states. The FCC also recently
approved an application by SBC to begin providing long distance services in
Texas, and other Bell operating companies are expected to file similar
applications in the near future.
Once the RBOCs are allowed to offer widespread in-region long distance
services, both they and the largest IXCs will be in a position to offer
single-source local and long distance services similar to those offered by
Access One.
While new business opportunities will be made available to Access One
through the Telecommunications Act and other federal and state regulatory
initiatives, regulators are likely to provide the ILECs with an increased degree
of flexibility with regard to pricing of their services as competition
increases. If the ILECs elect to lower their rates and sustain lower rates over
time, this may adversely affect the revenues of Access One and place downward
pressure on the rates Access One can charge. In addition, if future regulatory
decisions afford the ILECs excessive pricing flexibility or other regulatory
relief, such decisions could have a material adverse effect on Access One.
Competition for Access One's products and services is based on price,
quality, network reliability, service features and responsiveness to customer
needs. While Access One believes that it currently has certain advantages
relating to the timing and cost savings resulting from its resale and UNE-P
agreements, there is no assurance that Access One will be able to maintain these
advantages. A continuing trend toward business combinations and alliances in the
telecommunications industry may create significant new competitors to Access
One. Many of Access One's existing and potential competitors have financial,
technical and other resources significantly greater than those of Access One. In
addition, in December 1997, the FCC issued rules to implement the provisions of
the World Trade Organization Agreement on Basic Telecommunications, which was
drafted to liberalize restrictions on foreign ownership of domestic
telecommunications companies and to allow foreign telecommunications companies
to enter domestic markets. The new FCC rules went into effect in February 1998
and make it substantially easier for many non-U.S. telecommunications companies
to enter the U.S. market, thus further increasing the number of competitors. The
new rules will also give non-U.S. individuals and corporations greater ability
to invest in U.S. telecommunications companies, thus increasing the financial
and technical resources available to Access One and its existing and potential
competitors.
GOVERNMENT REGULATION
The following summary of regulatory developments and legislation describes
the primary present and proposed federal, state, and local regulation and
legislation that is related to the Internet service and telecommunications
industries and would have a material effect on Access One's business. Existing
federal and state regulations are currently subject to judicial proceedings,
legislative hearings and administrative proposals that could change, in varying
degrees, the manner in which these industries operate. Access One cannot predict
the outcome of these proceedings or their impact upon the Internet service and
telecommunications industries or upon it.
Overview
Access One's telecommunications services are subject to regulation by
federal, state and local government agencies. Generally, Internet and certain
data services are not directly regulated, although the underlying
telecommunications services may be regulated in certain instances. Access One
holds various federal and state regulatory authorizations for its regulated
service offerings. The FCC has jurisdiction over Access One's facilities and
services to the extent those facilities are used in the provision of interstate
or international telecommunications. State regulatory commissions also have
jurisdiction over its facilities and services to the extent they are used in
intrastate
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telecommunications. Municipalities and other local government agencies may
require telecommunications services providers to obtain licenses or franchises
regulating use of public rights-of-way necessary to install and operate their
networks, although Access One believes that no such local franchise
authorizations are required for Access One's current operations. The networks
also are subject to certain other local regulations such as building codes and
generally applicable public safety and welfare requirements. Many of the
regulations issued by these regulatory bodies may change and are the subject of
various judicial proceedings, legislative hearings and administrative proposals.
Access One cannot predict what impact, if any, these proceedings or changes will
have on its business or results of operations.
Federal Regulation
The FCC regulates Access One as a non-dominant common carrier, or one that
is not considered to be dominant over other service providers in the relevant
product or geographic markets in which it operates. Non-dominant carriers are
subject to lesser regulation than dominant carriers but remain subject to the
general requirements that they offer just and reasonable rates and terms of
service and do not unreasonably discriminate in the provision of services.
Access One has obtained authority from the FCC to provide domestic interstate
long distance services and international services between the United States and
foreign countries and have filed the required tariffs. While Access One believes
it is in compliance with applicable laws and regulations, it cannot assure you
that the FCC or third parties will not raise issues with regard to its
compliance.
The Telecommunications Act
In February 1996, the Telecommunications Act was passed by the United
States Congress and signed into law by President Clinton. This comprehensive
telecommunications legislation was designed to increase competition in the long
distance and local telecommunications industries. The Telecommunications Act
imposes a variety of duties on competitive telecommunications providers to
facilitate competition in the provision of local telecommunications and access
services. Like all local telecommunications carriers, where Access One provides
local telephone services, it is required to:
o interconnect its networks with those of other telecommunications
carriers;
o originate calls to and terminate calls from competing providers on a
reciprocal basis;
o permit resale of its services;
o permit users to retain their telephone numbers when changing
providers; and
o provide competing providers with access to poles, ducts, conduits and
rights-of-way, if any.
Traditional telephone companies, such as the regional Bell operating
companies, are subject to requirements in addition to these, including the duty
to:
o undertake additional obligations applicable to the interconnection of
their networks with those of competitors;
o permit colocation of competitors' equipment at their central offices;
o provide access to individual network elements and "unbundled
elements," including network facilities, features and capabilities, on
non-discriminatory and cost-based terms; and
o offer their retail services for resale at wholesale rates.
The Telecommunications Act also eliminates certain pre-existing
prohibitions on the provision of traditional long distance services by the
regional Bell operating companies and GTE on a phased-in basis. Regional Bell
operating companies currently are permitted to provide long distance service
outside those states in which they provide local telecommunications service. In
order to provide this category of long distance services, the regional Bell
operating companies must receive all requisite state or federal regulatory
approvals customary to the provision of long distance services. Regional Bell
operating companies will be permitted to provide traditional long distance
service within the
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regions in which they also provide local telecommunications service only upon
demonstrating to the FCC, with input from state regulatory agencies and the
Department of Justice, that they have complied with a statutory checklist of
requirements intended to open local telephone markets to competition. GTE and
other non-Bell traditional telephone companies are not limited by this regional
restriction. To date, only Bell Atlantic has been granted approval to provide
in-region long distance services and that is restricted to long distance calls
originating in New York. However, Bell Atlantic has begun the process of
obtaining permission to provide long distance services in other states and other
Bell operating companies, including BellSouth, either already have started or
are expected to soon begin the process of seeking long distance authority within
their local operating territories. Southwestern Bell filed an application with
the FCC on January 12, 2000, seeking permission to provide long distance
services to customers in Texas. Entry of BellSouth into the long distance
business could result in substantial competition to Access One's services and
may have a material adverse effect on it and its customers. When the FCC permits
BellSouth to provide traditional long distance service in its local telephone
service region, which is the same region initially served by Access One, they
will be able to offer integrated local and long distance services and may enjoy
a significant competitive advantage.
The FCC is charged with establishing national rules implementing certain
portions of the Telecommunications Act. In August 1996, the FCC released an
order adopting an extensive set of regulations governing network
interconnection, network unbundling and resale of traditional telephone company
services, under the Telecommunications Act. In July 1997, the United States
Court of Appeals for the Eighth Circuit issued a decision vacating substantial
portions of these rules, principally on the ground that the FCC had improperly
intruded into matters reserved for state jurisdiction. In January 1999, the
United States Supreme Court reversed many aspects of the Eighth Circuit's
decision, concluding that the FCC has jurisdiction to implement the local
competition provisions of the Telecommunications Act. In so doing, the Supreme
Court found that the FCC has authority to establish pricing guidelines
applicable to the provision of unbundled network elements and the resale of
traditional telephone company services, to prevent traditional telephone
companies from disaggregating existing combinations of network elements, and to
establish rules enabling competitors to select all or portions of any existing
traditional telephone company interconnection agreements for use in their own
interconnection agreements with traditional telephone companies. The Supreme
Court, however, did not evaluate the specific pricing methodology adopted by the
FCC and has remanded the case to the Eighth Circuit for further consideration.
While the Supreme Court resolved many issues, including the FCC's jurisdictional
authority, other issues remain subject to further consideration by the courts
and the FCC. Although most of these FCC rules were upheld by the Supreme Court,
the Court found that the FCC had not adequately considered certain statutory
criteria for requiring traditional telephone companies to make unbundled network
elements available to competitive telecommunications providers. The FCC then
conducted new proceedings to reexamine which unbundled network elements
traditional telephone companies must provide. On November 5, 1999, the FCC
released an order in which it required that traditional telephone companies make
available most, but not all, of the network elements specified in its initial
order, as well as certain new network elements not included on the original
list. The FCC also clarified the obligation of traditional telephone companies
to provide certain combinations of network elements. Various interested parties
have sought reconsideration and filed appeals of the FCC's order.
In the first half of 1998, four regional Bell operating companies,
including BellSouth, petitioned the FCC to be relieved of certain regulatory
requirements in connection with their provision of advanced telecommunications
services. Advanced telecommunications services are wireline, broadband
telecommunications services, as opposed to traditional voice services, and are
widely used for Internet access, often relying on DSL technology and
data-switched technology. In response, in August 1998, the FCC issued an order
and notice which clarified its views on the applicability to advanced services
of existing statutory requirements in the Telecommunications Act relating to
network interconnection and unbundling. The FCC also solicited public comments
on a wide variety of issues associated with the provision of advanced services
by wireline carriers. The FCC generally determined that advanced
telecommunications services are subject to its interconnection and
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unbundling rules. The FCC has not yet ruled on a preliminary FCC proposal that
would permit traditional telephone companies to deploy advanced
telecommunications services through a separate affiliate, which would not be
regulated as a traditional telephone company and therefore would not be subject
to the Telecommunications Act's unbundling and resale provisions. These orders
have been appealed and are the subject of further FCC proceedings as well. In an
order approving the merger of Southwestern Bell with Ameritech, the FCC
authorized SBC to transfer some advanced services, equipment and capabilities to
a separate affiliate. If other incumbent local telephone companies were
authorized to do the same, Access One could encounter additional difficulty
obtaining access to network elements useful in providing DSL and other advanced
services.
In March 1999, the FCC adopted a further order strengthening the rights of
competitive telecommunications providers to obtain physical colocation for
purposes of interconnecting with traditional telephone company networks, as well
as requiring that traditional telephone companies permit competitive
telecommunications providers to colocate equipment used for interconnection
and/or access to unbundled network elements. The FCC also adopted rules designed
to limit traditional telephone companies' ability to deny competitive
telecommunications providers the ability to deploy transmission hardware in
colocation space by asserting that the equipment will cause electrical
interference with other wires, requiring the construction of caged enclosures,
and imposing large minimum space requirements and space preparation fees, among
other things, and it proposed rules making these requirements more specific. On
March 17, 2000, the United States Court of Appeals for the District of Columbia
vacated significant portions of these FCC colocation rules, and remanded the
matter to the FCC for further consideration. Among other things, the appeals
court vacated new FCC rules that would have required traditional telephone
companies to permit colocation of equipment usable to provide enhanced services,
use colocation space to cross connect to third party carriers, and colocate
their equipment in any unused space in their central offices. Further FCC and
appellate proceedings are expected.
Rates charged for unbundled network elements are established through
negotiation or by state regulatory commissions, subject to general FCC rules
governing pricing methodology. FCC rules require traditional telephone companies
to establish geographically deaveraged pricing for network elements, and such
deaveraging could result in a substantial price increase for network elements in
certain non-urban markets served by Access One.
Unbundled Network Element-Platform
On November 5, 1999, the FCC released an order establishing that incumbent
local exchange carriers, or ILECs, nationwide must offer to competitors, in an
individual or combined form, a series of unbundled network elements that
comprise the most important facilities, features, functions, and capabilities of
an incumbent local carrier's network. The price at which such elements are
offered must correspond to the forward-looking cost of providing these elements.
When offered in the combination known as the unbundled network element platform,
or UNE-P, these piece-parts include the loop and switching elements needed to
provide local telephone service to a customer. Although ILECs have a general
obligation to provide UNE-P where such elements are currently combined in the
network, the obligation is limited in the central business districts of the top
50 metropolitan statistical areas of the nation. In such markets, the obligation
to provide UNE-P currently is limited to carriers serving customers with less
than four telephone lines. Numerous parties have asked the FCC to reconsider the
details of its order requiring that circuit switching be made available as an
unbundled network element, and that combinations of network elements be made
available to competitors. The FCC is presently reviewing whether to expand or
further restrict the availability of UNE-P. ILECs also have appealed the order,
and have asked a federal appeals court to set aside these requirements.
Access Regulation
The FCC regulates the interstate access rates charged by traditional
telephone companies for the origination and termination of interstate long
distance traffic. Those access rates make up a significant portion of the cost
of providing these long distance services. Over the past few years, the FCC has
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implemented changes in interstate access rules that result in the restructuring
of the access charge system and changes in access charge rate levels. On remand
from an appeals court, the FCC is conducting further proceedings to explain and
refine its recent reforms affecting access charge rate levels. On May 31, 2000,
the FCC adopted several proposals to further reform access charge rate
structures, relying heavily on a proposal submitted by a coalition of long
distance companies and RBOCs referred to as "CALLS". These and related actions
will result in significant changes to access rate structures and rate levels. As
access rates are reduced, expenses entailed in providing Access One's long
distance services may be reduced. However, access revenues of all
telecommunications carriers which provide local access services, including
Access One, may also be reduced. The costs to traditional telephone companies
and long distance carriers to provide long distance services may also be reduced
significantly. The impact of these new changes will not be known until they are
fully implemented.
The FCC also has raised the issue of whether it should begin to regulate
the access charges imposed by competitive telecommunications providers.
Currently, competitive telecommunications providers are free to charge access
rates at any levels they deem appropriate so long as they are "just and
reasonable" and nondiscriminatory. The current proceeding seeks comment from the
industry on whether competitive telecommunications providers should be required
to cost-justify the access charges they impose on long distance carriers or
whether such rates should be limited to a prescribed range of "reasonable"
charges. A decision by the FCC to regulate competitive telecommunications
providers' access charges could result in the reduction of those charges for all
competitive telecommunications providers, including Access One. Over the past
few years, the FCC has granted traditional telephone companies significant
flexibility in pricing their interstate special and switched access services.
Access One anticipates that this pricing flexibility will result in traditional
telephone companies lowering their prices in high traffic density areas, the
probable areas of competition with Access One. Access One also anticipates that
the FCC will grant traditional telephone companies increasing pricing
flexibility as the number of potential competitors increases in each of these
markets.
In August 1999, the FCC released an order that granted substantial
additional pricing flexibility to traditional telephone companies for certain
interstate services. Among other things, the FCC granted immediate pricing
flexibility to many traditional telephone companies in the form of streamlined
introduction of new services, the ability to change rates for certain interstate
services based on geographic location, and removal, after certain local toll
dialing restrictions are lifted, of certain interstate long distance services
from restrictive pricing regulation. The FCC also established a framework for
granting many traditional telephone companies greater flexibility in the pricing
of all interstate access services once they satisfy certain prescribed
competitive criteria. The FCC also invited public comment on proposals for
further traditional telephone company pricing flexibility.
In addition, in various contexts, certain traditional telephone companies
have asked the FCC to rule that certain calls made over the Internet are subject
to regulation as telecommunications services including the assessment of
interstate switched access charges and universal service fund assessments.
Although the FCC has suggested that Internet-based telephone-to-telephone calls
may be considered telecommunications services, it has not reached a final
decision on that issue.
Universal Service
In 1997, the FCC established a significantly expanded universal service
regime to subsidize the cost of telecommunications services to high-cost areas,
and to low-income customers and qualifying schools, libraries and rural health
care providers. Providers of telecommunications services, like Access One, as
well as certain other entities, must pay for these programs. Access One's share
of the payments into these subsidy funds will be based on its share of certain
defined telecommunications end-user revenues. Currently, the FCC is assessing
these payments on the basis of a telecommunications services provider's
interstate and international revenue for the previous year. Various states are
also in the process of implementing their own universal service programs. Access
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One is currently unable to quantify the amount of subsidy payments it will be
required to make in the future or the effect that these required payments will
have on its financial condition. Moreover, the FCC's universal service rules
remain subject to change, which could increase Access One's costs.
Detariffing
In November 1996, the FCC issued an order that required non-dominant, long
distance carriers, like Access One, to cease filing tariffs for domestic long
distance services. Tariffing is a traditional requirement of telephone companies
whereby such companies publish for public inspection at state and federal
regulatory agencies all terms, conditions, pricing, and available services
governing the sale of all such services to the public. Traditional long distance
service and interstate access tariffs are filed with the FCC and tariffs for
local telephone services are filed with state regulatory commissions. The FCC's
order required mandatory detariffing for long distance services and gave
interstate long distance service providers nine months to withdraw federal
tariffs and move to contractual relationships with their customers. This order
subsequently was stayed by a federal appeals court, and it is unclear at this
time whether or when the detariffing order will be implemented.
In March 1999, the FCC adopted further rules that, while still maintaining
mandatory detariffing, required long distance carriers to make specific public
disclosures on the services providers' Internet websites of their rates, terms
and conditions for domestic interstate services. The effective date of these
rules also was delayed until an appeals court could rule on the appeal of the
FCC's detariffing order. On April 8, 2000, the United States Court of Appeals
for the D.C. Circuit upheld the FCC's decision. The FCC subsequently issued a
notice establishing a nine-month transition to mandatory detariffing. By January
31, 2001, carriers' must cancel all tariffs for interstate domestic
interexchange services. After that date, the prices, terms and conditions
pursuant to which domestic providers offer service to customers will be governed
by contract. When the FCC's orders become effective, non-dominant interstate
services providers will no longer be able to rely on the filing of tariffs with
the FCC as a means of providing notice to customers of prices, terms and
conditions under which they offer their domestic interstate services, and will
have to rely more heavily on individually negotiated agreements with customers.
In June 1997, the FCC issued another order stating that non-dominant local
services providers may withdraw their tariffs for interstate access services
provided to long distance carriers. The FCC continues to require that services
providers obtain authority to provide service between the United States and
foreign points and file tariffs for international service.
Reciprocal Compensation
In decisions rendered in late 1998 and early 1999, the FCC determined that
both dedicated access and dial-up calls from a customer to an Internet service
provider are primarily interstate in nature and therefore are to be considered
interstate calls, subject to the FCC's jurisdiction. The FCC's orders were
appealed to the United States Court of Appeals for the District of Columbia. On
March 17, 1999, the Court of Appeals vacated the FCC's order determining that
dial-up calls placed to Internet service providers are not subject to federal
reciprocal compensation requirements, and remanded the matter to the FCC for
further consideration. The FCC has initiated a proceeding to determine the
effect that this regulatory classification will have on the obligation of a
service provider to pay reciprocal compensation for dial-up calls to Internet
service providers that originate on one service provider's network and terminate
on another service provider's network. Currently, the FCC has permitted existing
reciprocal compensation arrangements between service providers, as set forth in
interconnection agreements and approved by state regulatory commissions, to
remain intact.
The FCC is currently determining whether a new compensation mechanism
should be implemented. A decision which invalidates current reciprocal
compensation arrangements could result in the reduction, or elimination, of
potential revenues Access One may receive from reciprocal compensation payments
for traffic terminated over its network to Internet service providers. Federal
legislation also has been introduced which, if enacted, could preclude the
payment of reciprocal compensation for traffic delivered to Internet Service
providers.
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Customer Privacy and Truth-in-Billing
The Communications Act of 1934 and FCC rules protect the privacy of certain
information that a telecommunications carrier such as Access One acquires in
connection with providing telecommunications services to such customers. Such
protected information, known as Customer Proprietary Network Information,
includes information related to the quantity, technological configuration, type,
destination and amount of use of a customer. Under the FCC's rules, a carrier
may not, without the approval of the affected customers, use this information
acquired through one of its offerings of telecommunications services to market
certain other services. The United States Court of Appeals for the Tenth
Circuit, however, recently overturned significant portions of the FCC's rules
regarding the use and protection of this information.
The FCC also recently adopted new "Truth-in-Billing" regulations which
govern the content and format of bills rendered by telecommunications carriers
to customers.
Customer Carrier Selection
The FCC has adopted detailed rules governing customer selection of
preferred long distance telecommunications carriers. These rules are intended to
ensure that consumers make a knowing and informed choice of carriers, and that
unauthorized switching of customers -- often referred to as "slamming" -- is
deterred. Substantial fines and penalties, including forfeiture of revenues,
attach to violation of these rules. The FCC has issued a tentative conclusion
that the use of electronic signatures to obtain customer letters of
authorization or "LOAs" to switch carriers is not permitted under its existing
rules. If this conclusion is made final, such a ruling could have a material
adverse impact on Talk.com, since the company relies on obtaining electronic
signatures over the Internet to create Letters of Authorization in support of a
majority of its sales. However, the FCC has not finalized its decision, and
numerous parties have asked the FCC to reconsider its tentative conclusion. In
addition, the FCC has sought industry comment and suggestions on alternative
methods of order verification that could resolve its concerns over the use of
electronic signatures for Letters of Authorization.
State Regulation
The Telecommunications Act preempts state and local statutes and
regulations that would tend to prohibit the provision of competitive
telecommunications services. As a result, Access One expects to be free to
provide the full range of local, long distance and data services in all states
in which it currently operates, and in any states into which it may wish to
expand. While this action greatly increases its potential for growth, it also
increases the amount of competition to which it may be subject. Because Access
One provides intrastate common carrier services, it is subject to various state
laws and regulations. Most state public utility and public service commissions
require some form of certification or registration. Access One must acquire this
authority before commencing service. In most states, it is also required to file
tariffs or price lists setting forth the terms, conditions and prices for
services that are classified as intrastate.
Access One is required to update or amend these tariffs when it adjusts its
rates or adds new products and is subject to various reporting and
record-keeping requirements in these states. Many states also require prior
approval for transfers of control of certified providers, corporate
reorganizations, acquisitions of telecommunications operations, assignment of
carrier assets, carrier stock offerings and incurrence of significant debt
obligations. States generally retain the right to sanction a service provider or
to revoke certification if a service provider violates applicable laws or
regulations. If any regulatory agency were to conclude that Access One is or was
providing intrastate services without the appropriate authority or in violation
of any regulation, the agency could initiate enforcement actions, which could
include the imposition of fines, a requirement to disgorge revenues or the
refusal to grant the regulatory authority necessary for the future provision of
intrastate telecommunications services.
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Either Access One or Talk.com is authorized to provide competitive
telecommunications services in most states, and Talk.com has authority to
provide intrastate long distance services in virtually all states. Access One
expects to apply for additional state authority in the future. However, there
can be no assurance that it will receive such authorizations.
Local Interconnection
The Telecommunications Act imposes a duty upon all traditional telephone
companies to negotiate in good faith with potential competitive
telecommunications providers to provide interconnection to their networks,
exchange local traffic, make unbundled network elements available and permit
resale of most local telephone services. In the event that negotiations do not
succeed, Access One has a right to seek arbitration of any unresolved issues
with the state regulatory authority. Arbitration decisions involving
interconnection arrangements in several states have been challenged and appealed
to federal courts. Access One may experience difficulty in obtaining timely
traditional telephone company implementation of local interconnection
agreements, and it can provide no assurance it will offer local services in
these areas in accordance with its projected schedule, if at all. Access One has
entered into interconnection agreements with BellSouth in all of its
territories, and Talk.com has begun to negotiate similar agreements with other
traditional telephone companies where it has obtained status as a competitive
telecommunications provider. It is uncertain how successful the companies will
be in negotiating the terms critical to their provision of local data and voice
services and they may be forced to arbitrate certain provisions of such
agreements.
FACILITIES
Access One currently leases approximately 4,100 square feet of office space
in Fort Lauderdale, Florida, approximately 10,000 square feet in Orlando,
Florida and approximately 10,000 square feet of office space in Greenville,
South Carolina. Aggregate annual rent is approximately $450,000. Due to the
rapid growth of its business, Access One is seeking additional office space in
the same general areas.
EMPLOYEES
As of April 7, 2000, Access One had 190 full-time employees. Access One
believes that its relations with its employees are good. None of Access One's
employees is represented by a labor union or covered by a collective bargaining
agreement.
LEGAL PROCEEDINGS
Access One is a party to a legal proceeding incurred in the ordinary course
of its business. While any legal proceeding has an element of uncertainty,
Access One believes that the final outcome of such matter will not have a
material adverse effect on Access One's financial position or future liquidity.
Furthermore, Access One knows of no material legal proceedings, pending or
threatened, or judgments entered, against any director or officer of Access One
in his or her capacity as such.
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ACCESS ONE MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following are the executive officers and directors of Access One:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------ ----- ------------------------
<S> <C> <C>
Kenneth G. Baritz ............ 44 Director
Kevin Griffo ................. 40 Director
Elizabeth Stallings .......... 29 President and Treasurer
William Rogers ............... 52 Director
Paul H. Riss ................. 44 Director
Wesly Minella ................ 34 Secretary and Director
</TABLE>
Kenneth G. Baritz was Chairman and Chief Executive Officer of Access One
from June 1997, through March 24, 2000. On that date, he entered into an
employment agreement with Talk.com in connection with the merger, resigned his
position as an executive officer of Access One, and became President of
Talk.com. He remains a director of Access One. Prior to joining Access One, Mr.
Baritz was Chairman/or Chief Executive Officer of AMNEX, Inc., a
telecommunications company, from January 1994 to March 1997, and a director from
October 1992 through March 1997. Prior to joining AMNEX, Mr. Baritz served from
1989 to 1993 as a Vice President of Bear, Stearns & Co. Inc., an investment
banking firm. Mr. Baritz currently serves on the boards of a number of privately
held companies. It is the intention of the parties that if the merger is not
completed for any reason, then Mr. Baritz' employment agreement with Talk.com
will be terminated and he will return to his former position at Access One.
Kevin Griffo was President and Chief Operating Officer of Access One from
January 1998, through March 24, 2000. On that date, he entered into an
employment agreement with Talk.com in connection with the merger, resigned his
position as an executive officer of Access One, and became Executive Vice
President - Local Services of Talk.com. He remains a director of Access One.
Prior to joining Access One, Mr. Griffo was employed by AMNEX from January 1995
to December 1997, holding various positions including Chief Operating Officer
and President of AMNEX's Telecommunications Division. Prior to joining AMNEX, he
was a southeastern regional Vice President for LDDS WorldCom from August 1992 to
December 1994. In such capacity, Mr. Griffo had significant operating
responsibility, which included responsibility for operating sales offices and
hiring and supervising sales personnel. It is the intention of the parties that
if the merger is not completed for any reason, then Mr. Griffo's employment
agreement with Talk.com will be terminated and he will return to his former
position at Access One.
Elizabeth Stallings has been Treasurer and Director of Finance and
Administration of Access One since January 1998. Effective March 24, 2000, Ms.
Stallings was also elected the President of Access One and will serve in that
capacity until completion of the merger. From May 1993 to January 1998, Ms.
Stallings was employed at AMNEX where she rose from the position of Staff
Accountant to Manager of Finance and Administration.
William M. Rogers became a director of Access One in November of 1999. Mr.
Rogers was also the founder and has been the principal executive officer of
Teleco, Inc., a telecommunications company, since 1981. Mr. Rogers currently
serves on the board of directors of Teleco, Inc. and has served on the board of
directors of Multi-Media Telecommunications Association (formerly North
American Telecommunications Association) for over 10 years, and has also served
on the board of directors of Corporate Telemanagement Group, a long distance
reselling company. In 1999, Mr. Rogers founded Seruus Telecom, LP, an
investment partnership, and Foresight Technologies, a speech recognition
company. Mr. Rogers was a co-founder and principal executive officer of
Omnicall from 1996 through 1999, when Omnicall merged with Access One.
Paul H. Riss has been a director of Access One since August 1997. Mr. Riss
has been Chief Executive Officer of eLEC since September 1999, and has been
Chief Financial Officer and Treasurer
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of eLEC since November 1996. From June 1992 to November 1996, Mr. Riss was
Chief Financial Officer of Sequins International, Inc. From August 1990 to June
1992, Mr. Riss was Chief Financial Officer of Component Guard Inc.
Wesly Minella has been secretary and a director of Access One since August
1997. Mr. Minella has been President and Chief Executive Officer of Pursuit, a
corporate financial consulting and venture capital company, since May 1993.
Each director serves until his successor is duly elected and qualified.
Officers serve at the discretion of the board of directors.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information for the fiscal years ended
October 31, 1999, 1998 and 1997 as to the compensation paid by Access One to
Messrs. Baritz and Griffo. Under employment agreements signed by them on March
24, 2000, Messrs. Baritz and Griffo became executive officers of Talk.com on
that date, and will remain executive officers of Talk.com on completion of the
merger.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------- ------------------------------
SECURITIES
YEAR ENDED STOCK UNDERLYING
NAME AND PRINCIPAL POSITION OCTOBER 31, SALARY(1) BONUS(1) BONUS (#) OPTIONS/SARS
---------------------------------- ------------- ----------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Kenneth G. Baritz, Chairman and
Chief Executive Officer ......... 1999 $121,461 -- -- 100,000(2)
1998 $120,960 -- -- --
1997 -- -- -- 250,000
Kevin Griffo, President and Chief
Operating Officer ............... 1999 $131,885 -- -- 100,000(2)
1998 $122,308 -- 200,000 800,000
1997 -- -- -- --
</TABLE>
----------
(1) The costs of certain benefits are not included because they did not exceed,
in the case of each of the above executive officers, the lesser of $50,000
or 10% of the total annual salary and bonus reported in the above table.
(2) Non-qualified options granted under the Access One 1999 Stock Option Plan.
Each of such 100,000 option grants vests as follows: 33,333 options one year
from the date of grant, an additional 33,333 options on the second
anniversary of the date of grant, and the balance of the options on the
third anniversary of the date of grant. Mr. Baritz' options were granted at
an exercise price of $1.65 per share, and expire on June 15, 2004. Mr.
Griffo's options were granted at an exercise price of $1.50 and expire on
June 15, 2009. The options granted to Messrs. Baritz and Griffo in each case
represent approximately 28.7% of the total number of options granted to
Access One employees in fiscal year 1999. Upon a change of control of Access
One, including that which will occur if the merger is completed, the vesting
schedule of the options accelerates and all such options become vested and
exercisable in full at the end of one year after the occurrence of the
change in control. Neither Mr. Baritz nor Mr. Griffo exercised any options
during fiscal year 1999.
ACCESS ONE PRINCIPAL STOCKHOLDERS
The following table sets forth as of May 15, 2000 the number of shares of
Access One common stock and the percentage of the outstanding shares of such
class that are beneficially owned by (i) each person that is the beneficial
owner of more than 5% of the outstanding shares of Access One common stock, (ii)
each of the directors of Access One, (iii) each of the executive officers of
Access One and (iii) all of the directors and executive officers of the Access
One as a group.
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<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER (1) BENEFICIALLY OWNED (2) BENEFICLALY OWNED
------------------------------------------------------------- ------------------------ ------------------
<S> <C> <C>
eLec Communications Corp. ................................... 4,430,000(3) 22.5%
Kenneth G. Baritz ........................................... 3,098,333(4) 15.9%
William M. Rogers ........................................... 2,721,473(5) 14.2%
Wesly Minella ............................................... 1,117,500(6) 5.8%
Kevin Griffo ................................................ 1,133,333(7) 5.7%
Paul H. Riss ................................................ 100,000(9) 0.5%
Elizabeth Stallings ......................................... 57,500(10) 0.3%
Frank Rogers ................................................ 971,953 5.1%
MCG Finance Corporation ..................................... 2,057,889(11) 9.7%
All officers and directors as a group (six persons) ......... 8,228,139(12) 39.1%
</TABLE>
---------------------
(1) Unless otherwise indicated, the address of each stockholder is in care of
Access One, 12001 Science Drive, Suite 130, Orlando, Florida 32826.
(2) Unless otherwise indicated, Access One believes that all persons named in
the table have sole voting and investment power with respect to all shares
of common stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities which may be acquired by such person within
60 days from the date of this joint proxy statement/prospectus upon the
exercise of options, warrants, options or convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that the
warrants, options or convertible securities that are held by such person
(but not those held by any other person) and which are exercisable or
convertible within 60 days of the date of this joint proxy
statement/prospectus, have been exercised.
(3) Includes warrants to purchase 500,000 shares of common stock. The principal
office of eLec Communications Corp. is 509 Westport Avenue, Norwalk, CT
06851.
(4) Includes warrants to purchase 250,000 shares of common stock and options to
purchase 33,333 shares of common stock.
(5) Includes 1,992,506 shares of common stock held of record by Rogers Family
Investments, L.P. The voting and investment power of the shares held by
Rogers Family Investments are shared by Mr. Rogers and his wife. Includes
(i) 242,989 shares of common stock held of record by William M. Rogers II
Living Trust, (ii) 242,989 shares of common stock held of record by
Christian J. Rogers Living Trust and (iii) 242,989 shares of common stock
held of record by Jacqueline A. Rogers Living Trust. The voting and
investment power of such shares are shared by William Rogers and each of his
respective children.
(6) Represents shares held by Pursuit Holdings Corp., a corporation controlled
by Mr. Minella.
(7) Includes options to purchase 833,333 shares of common stock.
(9) Represents options to purchase 100,000 shares of common stock.
(10) Includes options to purchase 47,500 shares of common stock.
(11) Represents warrants to purchase 2,057,889 shares of common stock. The
principal office of MCG Finance Corporation is 1100 Wilson Boulevard, Suite
800, Arlington, VA 22209.
(12) Includes (i) options to purchase 1,080,833 shares of common stock and (ii)
warrants to purchase 750,000 shares of common stock.
III. CERTAIN LEGAL INFORMATION
COMPARISON OF ACCESS ONE AND TALK.COM STOCKHOLDER RIGHTS
Upon consummation of the Merger, the stockholders of Access One, a New
Jersey corporation, will become stockholders of Talk.com, a Delaware
corporation, and their rights will be governed by Talk.com's charter and
by-laws, which differ in certain material respects from Access One's charter and
by-laws. As stockholders of Talk.com, the rights of the former stockholders of
Access One will be governed by the Delaware General Corporation Law. Copies of
the Access One charter, the Access One by-laws, the Talk.com charter and
Talk.com by-laws, in each case as in effect on the date of this joint proxy
statement/prospectus, are incorporated by reference and will be sent to holders
of shares of Talk.com and Access One common stock upon request. See "Where You
Can Find More Information." The summary contained in the following chart is not
intended to be complete and is
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qualified by reference to Delaware and New Jersey law, the Access One charter,
the Access One by-laws, the Talk.com charter and the Talk.com by-laws, in each
case as in effect on the date of this joint proxy statement/prospectus.
SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF ACCESS ONE AND
TALK.COM STOCKHOLDERS AND THE RIGHTS ACCESS ONE STOCKHOLDERS WILL HAVE AS
TALK.COM STOCKHOLDERS FOLLOWING THE MERGER
<TABLE>
<CAPTION>
TALK.COM STOCKHOLDER RIGHTS ACCESS ONE STOCKHOLDER RIGHTS
------------------------------------- --------------------------------------
<S> <C> <C>
Authorized The authorized capital stock of The authorized capital stock of
Capital Stock: Talk.com consists of 300,000,000 Access One consists of 50,000,000
shares of common stock and shares of common stock and
5,000,000 shares of preferred 7,500,000 shares of preferred
stock. stock.
Number of The Talk.com board currently The Access One board consists of
Directors: consists of four directors. In five directors serving one-year
connection with the merger, the terms.
number of directors will be
increased to five.
Classification of The Talk.com board is divided Access One does not have a
Board of Directors: into three classes, as nearly equal classified board. The Access One
in number of directors as possible, by-laws require that all directors
with each class serving a be elected at each annual meeting
three-year staggered term of stockholders for a term of one
year.
Removal of Talk.com directors may be Access One directors may be
Directors: removed only for cause, on the removed for cause or without
vote of a majority of the cause by an affirmative vote of a
outstanding capital stock entitled majority of votes cast by the
to vote for the election of holders of shares entitled to vote
directors. for the election of directors. The
Access One Board may remove directors
for cause and suspend directors
pending a final determination
that cause exists for removal.
Calling of Special The Talk.com by-laws provide that The Access One by-laws provide
Meetings of a special meeting of the Talk.com that a special meeting of the
Stockholders: stockholders may be called by the Access One stockholders may be
board of directors, the chairman called by Access One directors or
of the board, or the holders of at by its president or by any officer
least 50% of the shares of capital instructed by the directors to call a
stock entitled to vote at the meeting.
meeting.
</TABLE>
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<TABLE>
<CAPTION>
TALK.COM STOCKHOLDER RIGHTS ACCESS ONE STOCKHOLDER RIGHTS
------------------------------------ ----------------------------------
<S> <C> <C>
Nominations for The Talk.com by-laws provide that The Access One by-laws contain
Director by nominations for director by no special provision with respect
Stockholders: stockholders must be made by to nominations of directors.
written notice to the Chairman of Directors may be nominated in
the Board not less than 14 nor any manner permitted by law.
more than 50 days prior to a
meeting called to elect directors,
containing the name of the
nominee and other information.
Amendment of The Talk.com charter may be The by-laws and charter of Access
Charter and By-laws: amended in the manner provided One may each be amended in any
by statute. The by-laws of manner provided by statute.
Talk.com may be amended by a
majority of the Talk.com
stockholders entitled to vote or by
the board of directors, but any
amendment adopted by the board
may be amended or repealed by a
majority of the stockholders
entitled to vote.
Stockholder Rights Talk.com has a stockholder rights Access One has no stockholder
Plan: plan, which could deter another rights plan.
party from gaining control of
Talk.com.
</TABLE>
DESCRIPTION OF TALK.COM CAPITAL STOCK
The following summary of the terms of the capital stock of Talk.com prior
to and after completion of the merger is not meant to be complete and is
qualified by reference to the Talk.com charter and Talk.com by-laws. Copies of
the Talk.com charter and Talk.com by-laws are incorporated by reference and will
be sent to holders of shares of Talk.com common stock and Access One common
stock upon request. See "Where You Can Find More Information."
AUTHORIZED CAPITAL STOCK
Under the Talk.com charter, Talk.com's authorized capital stock consists of
300,000,000 shares of Talk.com common stock, $0.01 par value per share, and
5,000,000 shares of preferred stock, $0.01 par value per share.
TALK.COM COMMON STOCK
Talk.com Common Stock Outstanding. The outstanding shares of Talk.com
common stock are, and the shares of Talk.com common stock issued in the merger
will be, duly authorized, validly issued, fully paid and nonassessable. At March
24, 2000, there were 66,972,960 shares of Talk.com common stock outstanding.
Voting Rights. Each holder of Talk.com common stock is entitled to one vote
for each share of Talk.com common stock held of record on the applicable record
date on all matters submitted to a vote of stockholders.
Dividend Rights; Rights Upon Liquidation. The holders of Talk.com common
stock are entitled to receive, from funds legally available for the payment
thereof, dividends when and as declared by resolution of the Talk.com board,
subject to any preferential dividend rights granted to the holders of
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any outstanding Talk.com preferred stock. In the event of liquidation, each
share of Talk.com common stock is entitled to share pro rata in any distribution
of Talk.com's assets after payment or providing for the payment of liabilities
and the liquidation preference of any outstanding Talk.com preferred stock.
Preemptive Rights. Holders of Talk.com common stock have no preemptive
rights to purchase, subscribe for or otherwise acquire any unissued or treasury
shares or other securities.
TALK.COM PREFERRED STOCK
Of the 5,000,000 shares of authorized preferred stock, none was outstanding
on May 15, 2000.
Blank Check Preferred Stock. The 5,000,000 authorized shares of preferred
stock may be issued from time to time by the Talk.com board without stockholder
approval. The Talk.com board has the authority to create one or more classes or
series within a class of preferred stock, to issue shares of preferred stock in
such class or series up to the maximum number of shares of the relevant class or
series of preferred stock authorized, and to determine the preferences, rights,
privileges and restrictions of any such class or series, including the dividend
rights, voting rights, the rights and terms of redemption, the rights and terms
of conversion, liquidation preferences, the number of shares constituting any
such class or series and the designation of such class or series. Acting under
this authority, the Talk.com board could create and issue a class or series of
preferred stock with rights, privileges or restrictions, and adopt a stockholder
rights plan, having the effect of discriminating against an existing or
prospective holder of securities as a result of such stockholder beneficially
owning or commencing a tender offer for a substantial amount of Talk.com common
stock. One of the effects of authorized but unissued and unreserved shares of
capital stock may be to render more difficult or discourage an attempt by a
potential acquiror to obtain control of Talk.com by means of a merger, tender
offer, proxy contest or otherwise, and thereby protect the continuity of
Talk.com's management. The issuance of such shares of capital stock may have the
effect of delaying, deferring or preventing a change in control of Talk.com
without any further action by the stockholders of Talk.com.
TRANSFER AGENT AND REGISTRAR
First City Transfer Company is the transfer agent and registrar for the
Talk.com common stock.
THE NASDAQ NATIONAL MARKET LISTING
It is a condition to the merger that the shares of Talk.com common stock to
be issued in the merger be approved for quotation on The Nasdaq National Market,
subject to official notice of issuance.
PREFERRED STOCK PURCHASE RIGHTS
On August 19, 1999, Talk.com adopted a Stockholders Rights Plan designed to
deter coercive takeover tactics and prevent an acquirer from gaining control of
Talk.com without offering a fair price to all of Talk.com's stockholders.
Under the terms of the plan, preferred stock purchase rights were
distributed as a dividend at the rate of one right for each share of Talk.com
common stock held as of the close of business on August 30, 1999. Until the
rights become exercisable, all shares common stock issued by Talk.com, including
those issued in the merger, will also have one right attached. Each right will
entitle holders to buy one three-hundredth of a share of Series A Junior
Participating Preferred Stock of Talk.com at an exercise price of $55. Each
right will thereafter entitle the holder to receive upon exercise Talk.com
common stock (or, in certain circumstances, cash, property or other securities
of Talk.com) having a value equal to two times the exercise price of the right.
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The rights will be exercisable only if a person or group acquires
beneficial ownership of 20% or more of Talk.com's common stock or announces a
tender or exchange offer which would result in such person or group owning 20%
or more of Talk.com, or if the board of directors declares that a 15% or more
stockholder has become an "adverse person" as defined in the plan.
Talk.com, except as otherwise provided in the plan, will generally be able
to redeem the rights at $0.001 per right at any time during a ten-day period
following public announcement that a 20% position in Talk.com has been acquired
or after the board of directors declares that a 15% or more stockholder has
become an "adverse person." The rights are not exercisable until the expiration
of the redemption period. The rights will expire on August 19, 2009, subject to
extension by the board of directors.
DESCRIPTION OF ACCESS ONE CAPITAL STOCK
The following summary of the terms of the capital stock of Access One prior
to completion of the merger is not meant to be complete and is qualified by
reference to the Access One charter and Access One by-laws. Copies of the Access
One charter and Access One by-laws are incorporated by reference and will be
sent to holders of shares of Access One common stock and Talk.com common stock
upon request. See "Where You Can Find More Information."
AUTHORIZED CAPITAL STOCK
Under the Access One charter, Access One's authorized capital stock
consists of 50,000,000 shares of common stock, $0.001 par value per share, and
7,500,000 shares of preferred stock, $0.001 par value per share. If the merger
is completed, the corporate existence of Access One will terminate and it will
cease to have any authorized capital stock.
ACCESS ONE COMMON STOCK
Access One Common Stock Outstanding. As of the record date for the special
meeting, shares of Access One common stock were issued and outstanding. The
outstanding shares of Access One common stock are duly authorized, validly
issued, fully paid and nonassessable.
Voting Rights. Each holder of Access One common stock is entitled to one
vote for each share of Access One common stock held of record on the applicable
record date on all matters submitted to a vote of stockholders.
Dividend Rights; Rights Upon Liquidation. The holders of Access One common
stock are entitled to receive, from funds legally available for the payment
thereof, dividends when and as declared by resolution of the Access One board,
subject to any preferential dividend rights granted to the holders of any
outstanding Access One preferred stock. In the event of liquidation, each share
of Access One common stock is entitled to share pro rata in any distribution of
Access One's assets after payment or providing for the payment of liabilities
and the liquidation preference of any outstanding Access One preferred stock.
Preemptive Rights. Holders of Access One common stock have no preemptive
rights to purchase, subscribe for or otherwise acquire any unissued or treasury
shares or other securities.
ACCESS ONE PREFERRED STOCK
Access One Preferred Stock Outstanding. As of the record date for the
special meeting, shares of Access One preferred stock were issued and
outstanding.
Blank Check Preferred Stock. Under the Access One charter, the Access One
board has the authority, without stockholder approval, to create one or more
classes or series within a class of preferred stock, to issue shares of
preferred stock in such class or series up to the maximum number of shares of
the relevant class or series of preferred stock authorized, and to determine the
preferences, rights, privileges and restrictions of any such class or series,
including the dividend rights,
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voting rights, the rights and terms of redemption, the rights and terms of
conversion, liquidation preferences, the number of shares constituting any such
class or series and the designation of such class or series. Acting under this
authority, the Access One board could create and issue a class or series of
preferred stock with rights, privileges or restrictions, and adopt a stockholder
rights plan, having the effect of discriminating against an existing or
prospective holder of securities as a result of such stockholder beneficially
owning or commencing a tender offer for a substantial amount of Access One
common stock. One of the effects of authorized but unissued and unreserved
shares of capital stock may be to render more difficult or discourage an attempt
by a potential acquiror to obtain control of Access One by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
Access One's management. The issuance of such shares of capital stock may have
the effect of delaying, deferring or preventing a change in control of Access
One without any further action by the stockholders of Access One. Access One has
no present intention to adopt a stockholder rights plan, but could do so without
stockholder approval at any future time.
TRANSFER AGENT AND REGISTRAR
Old Monmouth Stock Transfer Co., Inc. is the transfer agent and registrar
for the Access One common stock.
LEGAL MATTERS
The validity of the Talk.com common stock to be issued to Access One
stockholders in the merger will be passed upon for Talk.com by Kelley Drye &
Warren LLP. It is a condition to the completion of the merger that Access One
receive an opinion from its counsel, Blank Rome Tenzer Greenblatt LLP, that the
merger will qualify as a tax-free reorganization.
EXPERTS
The consolidated financial statements and schedules of Talk.com and its
subsidiaries as of December 31, 1998 and 1999 and for each of the years in the
three year period ended December 31, 1999, incorporated by reference in this
joint proxy statement/prospectus and elsewhere in the registration statement
have been audited by BDO Seidman, LLP, independent public accountants, as
indicated in their report with respect thereto and are included herein in
reliance upon the authority of that firm as experts in giving said reports.
The consolidated financial statements of Access One and its subsidiaries as
of October 31, 1998 and 1999 and for each of the years in the three year period
ended October 31, 1999, included in this joint proxy statement/prospectus have
been audited by Nussbaum Yates & Wolpow, P.C., independent public accountants,
as indicated in their report with respect thereto and are included herein in
reliance upon the authority of that firm as experts in giving said reports.
The financial statements of OmniCall, Inc. as of December 31, 1998 and
1997, and for each of the years in the two-year period ended December 31, 1998,
have been included herein in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The report of KPMG LLP covering the December 31, 1998, financial statements
contains an explanatory paragraph that states that OmniCall incurred substantial
losses in 1998, had insufficient net current assets to satisfy its current
liabilities, and had total liabilities in excess of total assets, which raises
substantial doubt about the entity's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
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IV. OTHER TALK.COM ANNUAL MEETING PROPOSALS
PROPOSAL 2 - ELECTION OF DIRECTORS
Talk.com's Amended and Restated Certificate of Incorporation provides that
the board of directors 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, provided that it will be reduced to four if the Access One merger is not
effected and Mr. Baritz does not become a director of Talk.com. Under the terms
of Talk.com's Amended and Restated Certificate of Incorporation, the board of
directors is divided into three classes, as nearly equal in number as reasonably
possible, with terms currently scheduled to expire at the annual meeting of
stockholders in 2001 (Class I), this annual meeting of stockholders in 2000
(Class II) and the annual meeting of stockholders in 2002 (Class III),
respectively.
At the annual meeting, each of Arthur J. Marks and Kenneth G. Baritz is to
be elected as a Class II director, for a term to expire at the annual meeting of
stockholders in 2003. Arthur J. Marks currently serves as a director of
Talk.com. Mr. Baritz's election as a director of Talk.com is a condition to the
completion of the merger by Access One. His becoming a director is also subject
to the effectiveness of the merger. If the merger is not completed, Mr. Baritz
will not become a director; if Mr. Baritz is elected as a director, his
directorship will begin on the effective date of the merger. Each director will
serve until his successor has been elected and qualified. The proxies solicited
hereby, unless directed to the contrary therein, will be voted for each of the
nominees. Each of Mr. Marks and Mr. Baritz has consented to being named in this
joint proxy statement/prospectus and to serve if elected. The board has no
reason to believe that either of the nominees for election as a director will
not be a candidate or will be unable to serve, but if either occurs as to Mr.
Marks, it is intended that the shares represented by proxies will be voted for
such substituted nominee as the board, in its discretion, may designate, and, if
either occurs as to Mr. Baritz, it is intended that the number of members of the
whole board of directors will be reduced to four, as discussed above.
The following sets forth certain biographical information, present
occupation and business experience for the past five years for each of the
nominees for election as a director and the continuing Class I and Class III
directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE CLASS II NOMINEES LISTED BELOW.
CLASS II: NOMINEE WHOSE TERM WILL EXPIRE IN 2003
ARTHUR J. MARKS, AGE 55, has been a director of Talk.com 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.
KENNETH G. BARITZ, AGE 44, became President of Talk.com on March 24, 2000
under an employment agreement with Talk.com signed in connection with the
merger agreement. From June 1997 until that date, he was Chairman and Chief
Executive Officer of Access One. While he resigned his position as an executive
officer of Access One at that time, he remains a director of Access One. Prior
to joining Access One, Mr. Baritz was Chairman and Chief Executive Officer of
AMNEX, Inc., a telecommunications company, from January 1994 to March 1997, and
a director from October 1992 through March 1997. Prior to joining AMNEX, Mr.
Baritz served from 1989 to 1993 as a Vice President of Bear, Stearns & Co.
Inc., an investment banking firm. Mr. Baritz currently serves on the boards of
a number of privately held companies.
CLASS I: INCUMBENTS WHOSE TERMS WILL EXPIRE IN 2001
GABRIEL BATTISTA, AGE 55. Mr. Battista became a director and the Chairman
of the Board, Chief Executive Officer and President of Talk.com on January 5,
1999. Prior to joining Talk.com, Mr. Battista served as Chief Executive Officer
of Network Solutions Inc., an Internet domain name registration company. Prior
to joining Network Solutions in 1996, Mr. Battista served from 1995 to
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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 and Computer Technology Corporation, Online Technologies
Group, Inc. and ViaNet.works Incorporated.
RONALD R. THOMA, AGE 65. Mr. Thoma is currently a business consultant,
having retired in early 2000 as an Executive Vice President of Crown Cork and
Seal Company, Inc., a manufacturer of packaging products, where he had been
employed since 1955. Mr. Thoma has served as a director of Talk.com since 1995.
CLASS III: INCUMBENT WHOSE TERM WILL EXPIRE IN 2002
MARK S. FOWLER, AGE 57, has been a director of Talk.com since September
1999. From 1981 to 1987 he was the Chairman of the FCC. 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 Chief Executive Officer of
PowerFone Holdings Inc., a telecommunications company. In 1994, he founded and,
until early 2000, 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, and is a director of Beasley Broadcasting Co., a
publicly held radio station broadcast group company.
THE BOARD OF DIRECTORS
The board met or acted by unanimous written consent 15 times in 1999.
During the fiscal year ended December 31, 1999, 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 of directors has established the following two committees, the
function and current members of which are noted below.
Audit Committee. Throughout most of 1999, the Audit Committee consisted of
Messrs. Harold First, George Farley and Ronald R. Thoma. Since late in 1999, the
Audit Committee has consisted of Messrs. Arthur J. Marks and Ronald R. Thoma.
The Audit Committee oversees and monitors all aspects of Talk.com's accounting
and financial reporting processes, including, without limitation, the oversight
and monitoring of the participation of the company's management and its
independent auditors in such processes, the company's financial statements and
financial reporting process, the systems of internal accounting and financial
controls, any internal audit function, the annual independent audit of
Talk.com's financial statements, and the legal compliance and ethics programs as
established by management and the board of directors. It also has the authority
and responsibility to take any actions as it may deem desirable or appropriate
to provide for the reliability and credibility of Talk.com's financial
statements and the integrity of its financial reporting process. The Audit
Committee met two times in 1999.
Compensation Committee. In 1999, the Compensation Committee consisted of
George P. Farley, Mark S. Fowler and Ronald R. Thoma (Chairman). It currently
consists of Messrs. Fowler and Thoma. The Compensation Committee is responsible
for determining compensation for Talk.com'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
Talk.com. The Compensation Committee met or took action by written consent 15
times during 1999.
Although the board of directors 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
Talk.com'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
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Talk.com 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 Talk.com 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 Talk.com 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 Talk.com 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
Talk.com currently pays non-employee directors an annual retainer of
$10,000. 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, 1999, 1998 and 1997 as to the compensation paid by Talk.com to the
Chief Executive Officer for services rendered and the four other most highly
compensated executive officers of Talk.com whose annual salary and bonus
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------------- -------------
SECURITIES
UNDERLYING
OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS (1) (2)
-------------------------------------------- ------ ------------------- ------------------- -------------
<S> <C> <C> <C> <C>
Gabriel Battista, Chairman, Chief
Executive Officer and President ........... 1999 $ 1,500,000(3) $ 750,000 --
1998 -- $ 3,000,000(4) 1,650,000
1997 -- -- --
Michael Ferzacca,
Executive Vice President -- Sales ......... 1999 $ 300,000 $ 250,000 --
1998 -- $ 1,313,125(5) 350,000
1997 -- -- --
Aloysius T. Lawn, IV,
Executive Vice President -- General
Counsel and Secretary ..................... 1999 $ 233,269 $ 150,000 210,000
1998 $ 150,000 $ 120,336(6) 50,000
1997 $ 150,000 $ 5,929(6) --
Edward B. Meyercord, III --
Executive Vice President Chief
Financial Officer and Treasurer ........... 1999 $ 225,385 $ 150,000 450,000
1998 $ 200,000 $ 128,338(6) --
1997 $ 210,000 $ 150,000 --
George Vinall,
Executive Vice President Business
Development ............................... 1999 $ 200,000 $ 150,000 --
1998 -- $ 175,000 (7) 240,000
1997 -- -- --
</TABLE>
----------------
(1) The costs of certain benefits are not included because they did not exceed,
in the case of any executive officer named in the table, the lesser of
$50,000 or 10% of the total annual salary and bonus reported in the above
table.
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(2) Options to purchase Talk.com common stock. The options granted to Messrs.
Lawn and Meyercord were granted under Talk.com's 1998 Long Term Incentive
Plan. In 1999, Mr. Lawn was granted options that vest over three years to
purchase 210,000 shares of Talk.com common stock at an exercise price of
$9.88 per share, and in 1998, was granted options to purchase 50,000 shares
at an exercise price of $5.75 per share. In 1999, Mr. Meyercord, III was
granted options that vest over three years to purchase 450,000 shares of
Talk.com common stock at an exercise price of $15.94 per share. The other
options shown as granted were granted in connection with the hiring of the
respective executive officers. In 1998, Mr. Battista was granted options
that vest over three years to purchase 1 million shares of Talk.com common
stock at an exercise price of $10.4375 per share, and options that vested
immediately upon execution of his employment agreement to purchase an
additional 650,000 shares at an exercise price of $7.00 per share. In 1998,
Mr. Ferzacca was granted options that vest over three years to purchase
350,000 shares of Talk.com common stock at an exercise price of $8.5625 per
share. In 1998, Mr. Vinall was granted options that vest over three years to
purchase 240,000 shares of Talk.com common stock at an exercise price of
$8.5625 per share.
(3) Under his employment agreement with Talk.com, Mr. Battista is entitled to a
minimum annual salary of $500,000. Mr. Battista's salary shown for 1999
includes, in addition to the $500,000 annual base salary for 1999,
$1,000,000 representing a prepayment of $500,000 in salary for each of the
years 2000 and 2001, as provided in Mr. Battista's employment agreement with
Talk.com.
(4) Mr. Battista received a cash sign-on bonus of $3,000,000, which was paid in
December 1998.
(5) Mr. Ferzacca received a cash sign-on bonus of $200,000 and 130,000 shares of
Talk.com common stock with a fair market price per share on the date of
grant of $8.5625 and an aggregate value of $1,113,125, which was paid and
issued, respectively, in December 1998.
(6) Bonus paid in shares of Talk.com common stock and in-kind property valued in
each case at the then current market value.
(7) Mr. Vinall received a cash sign-on bonus of $175,000, which was paid in
December 1998.
STOCK OPTION GRANTS
The following table sets forth further information regarding grants of
options to purchase Talk.com common stock made by Talk.com during the fiscal
year ended December 31, 1999 to the executive officers named in the Summary
Compensation Table, above.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO POTENTIAL REALIZABLE VALUE
OPTIONS/SARS EMPLOYEES IN EXERCISE PRICE EXPIRATION AT ASSUMED ANNUAL RATES
NAME GRANTED (1) 1999 PER SHARE ($SHARES) DATE OF STOCK OPTION TERM (2)
---------------------------------- -------------- ----------------- --------------------- ------------ ---------------------------
5%($) 10%($)
------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gabriel Battista ................. -- -- -- -- -- --
Michael Ferzacca ................. -- -- -- -- -- --
Aloysius T. Lawn, IV ............. 210,000 5.9 9.88 4/1/09 $1,304,831 $ 3,306,697
Edward B. Meyercord, III ......... 450,000 12.8 15.94 11/1/09 $4,511,061 $11,431,915
George Vinall .................... -- -- -- -- -- --
</TABLE>
(1) All options to the named executive officers in 1999 were granted under the
Talk.com 1998 Long Term Incentive Plan.
(2) Disclosure of the 5% and 10% assumed annual compound rates of stock
appreciation are mandated by the rules of the SEC and do not represent
Talk.com's estimate or projection of future common stock prices. The actual
value realized may be greater or less than the potential realizable value
set forth in the table.
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The following table sets forth further information concerning the 1999
year-end value of unexercised in-the-money options held by each of the executive
officers named in the Summary Compensation Table, above.
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END (#) FISCAL YEAR-END($)(1)
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
------------------------------ ------------- ------------- --------------------- ------------------------
<S> <C> <C> <C> <C>
Gabriel Battista ............. -- -- 983,333/666,667 $9,424,998/$4,875,002
Michael Ferzacca ............. -- -- 116,667/233,333 $1,071,878/$2,143,747
Aloysius T. Lawn, IV ......... -- -- 50,000/210,000 $ 600,000/$1,652,700
Edward B. Meyercord, III . 800,000 $5,793,800 0/450,000 $ 0/$ 814,500
George Vinall ................ -- -- 80,000/160,000 $ 735,000/$1,470,000
</TABLE>
---------------------
(1) Calculated as the difference between the exercise/base price of the
options/SARs and a year-end fair market value of the underlying securities
equal to $17.75.
EMPLOYMENT CONTRACTS
Gabriel Battista is party to an employment agreement with Talk.com 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
Talk.com 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
Talk.com's assets, a merger into another entity or a transaction that results in
Talk.com's common stock no longer being required to be registered under the
Securities Exchange Act of 1934), Mr. Battista will receive an additional bonus
of $1,000,000 if the price per share for Talk.com'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 Talk.com, all of Mr. Battista's options immediately vest.
Edward B. Meyercord, III entered into a five-year employment agreement with
Talk.com effective as of September 5, 1996. Under the contract, Mr. Meyercord is
entitled to a minimum annual base salary of $300,000 for each year.
Michael Ferzacca entered into a three-year employment agreement with
Talk.com effective as of December 28, 1998. Under the contract, Mr. Ferzacca is
entitled to minimum annual base salary of $300,000 for each year. In connection
with the agreement, Mr. Ferzacca was granted an option to purchase 350,000
shares of Talk.com common stock at an exercise price of $8 9/16 per share.
Aloysius T. Lawn entered into a two-year employment agreement with Talk.com
effective as of December 1, 1998. Under the contract, Mr. Lawn is entitled to a
minimum annual base salary of $250,000 for each year.
George Vinall entered into a three-year employment agreement with Talk.com
effective as of December 28, 1998. Under the contract, Mr. Vinall is entitled to
a minimum annual base salary of $250,000 for each year. In connection with the
agreement, Mr. Vinall was granted an option to purchase 240,000 shares of
Talk.com common stock at an exercise price of $8 9/16 per share.
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Each of the agreements for Messrs. Ferzacca, Lawn and Vinall provide for
immediate vesting of options in event of a "change in control" (as defined in
the agreements) and provide for severance benefits in the event employment is
terminated by Talk.com without cause prior to the end of the term.
Each of the above-described agreements require the executive to maintain
the confidentiality of Talk.com information and assign inventions to Talk.com.
In addition, each of the executive officers has agreed that he will not compete
with Talk.com by engaging in any capacity in any business that is competitive
with the business of Talk.com during the term of his respective agreement and
thereafter for specified periods.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Talk.com board of directors reviews and
approves salaries and certain incentive compensation arrangements for management
and key employees of Talk.com.
The principal elements of Talk.com's compensation structure are described
below:
Annual Compensation. The minimum annual base salaries for the current
executive officers of Talk.com have been established under employment contracts
negotiated with each of the executive officers of Talk.com. Talk.com believes
that such employment contracts help to attract and retain qualified individuals.
In addition, the employment agreements require Talk.com's executive officers to
maintain the confidentiality of Talk.com information and prevent such persons
from competing with Talk.com in any capacity in any business that is competitive
with the business of Talk.com during the term of the respective agreement and
thereafter for specified periods of time. Such contractual minimum annual base
salaries may be increased in the discretion of the Compensation Committee and
the board of directors.
In addition, bonuses above such contractual minimum base salaries may be
granted in any year in the discretion of the Compensation Committee based on its
subjective assessment of individual performance in the year. Mr. Battista, as
the Chief Executive Officer, considers and recommends to the Compensation
Committee any adjustments in base salaries and bonuses for the executive
officers other than himself. He does not participate in the review of any
adjustments to his salary or any bonuses to him, which are fixed by the
Compensation Committee.
On December 3, 1999, the Compensation Committee met and awarded the bonuses
set forth in the Summary Compensation Table, based on its review of Mr.
Battista's recommendations as to the other executive officers and its own
assessment of the business progress that had been achieved by Talk.com in 1999.
In particular, the Committee considered for all of the executive officers their
roles in the significant increases in 1999 gross revenues and gross profits over
those of the previous year, as well as the 1999 expansion of Talk.com's partners
and base, and, in the case of Mr. Battista, the significant progress that
Talk.com had made since he took over as chief executive officer in January 1999,
in each case in light of any general bonus standards that may have been included
in the executives' respective employment agreements.
Long Term Incentive Compensation. In general, Talk.com has granted stock
options to key executives as an inducement to such executives' entering into
employment contracts with Talk.com and as added incentive to existing employees.
Talk.com believes that stock options are an effective tool for directly
linking the financial interests of executive officers and key employees with
those of Talk.com'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 Talk.com for all of its stockholders. Future option grants under the 1995
Employee Stock Option Plan, the 1998 Long Term Incentive Plan and the 2000 Long
Term Incentive Plan will be made in the discretion of the Compensation Committee
or in connection with the negotiation of individual employment arrangements.
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Chief Executive Officer's 1999 Compensation. As set forth in the Summary
Compensation Table, Mr. Battista's total base salary and bonus for 1999 was
$1,250,000, with an additional $1,000,000 having been paid to him as prepayment
of $500,000 of base salary for each of 2000 and 2001, as provided in his
employment agreement. Mr. Battista's base salary is established by the terms of
his employment agreement. On December 3, 1999, the Compensation Committee met
and awarded Mr. Battista's bonus set forth in the Summary Compensation Table as
summarized above.
THE COMPENSATION COMMITTEE
Mark S. Fowler
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 Talk.com 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 Talk.com common
stock commenced, through December 31, 1999. The comparison assumes that $100 was
invested on September 21, 1995 in Talk.com 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>
SEPT. 21 DEC. 29 DEC. 29 DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1995 1995 1995 1996 1997 1998 1999
---------- --------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Talk.com Inc. ......... 100 96 87 272 372 187 335
S&P 400 Index ......... 100 100 105 126 162 206 268
S&P Long Distance
Index ................. 100 102 102 100 144 209 267
</TABLE>
PROPOSAL 3: APPROVAL OF THE 2000 LONG TERM INCENTIVE PLAN
The board of directors of Talk.com has approved Talk.com's 2000 Long Term
Incentive Plan, subject to the approval of Talk.com's stockholders.
Approximately 250,000 shares remain currently available for award under the
existing 1998 Long Term Incentive Plan. The new Long Term Plan provides for the
issuance of up to 5,000,000 shares of Talk.com common stock. Talk.com's board of
directors believes that the availability of share awards under the new Long Term
Plan will give Talk.com the needed compensation flexibility to continue to
attract and retain key employees. The Long Term Plan will increase the ability
of the board of directors to adapt the compensation of such employees to the
changing needs of Talk.com's business and to competitive trends in executive
compensation practices. The board of directors also believes that in order to
more closely align the
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interests of such employees with the interests of the stockholders of Talk.com,
increased ownership of Talk.com's stock by these individuals is desirable.
The following is a summary description of the new Long Term Plan. A copy of
this Long Term Plan will be made available, without charge, upon written request
to the Secretary of Talk.com addressed or directed to Talk.com's corporate
offices as provided on page __ of this joint proxy statement/prospectus.
ELIGIBILITY AND TYPES OF AWARDS
All employees and directors of Talk.com and its subsidiaries are eligible
to participate in the new Long Term Plan. Eligible employees to whom awards will
be granted under the Long Term Plan will be selected by the committee of
Talk.com's board of directors that administers the Plan, as discussed below. The
Long Term Plan permits the granting of the following types of awards: (1) stock
options, including options designated as incentive stock options under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or ISOs, and
options not so designated, (2) stock appreciation rights or SARs, (3) restricted
stock, and (4) incentive shares. Dividends or interest or their equivalent may
also be paid or credited in connection with any award. Since the number and
identity of employees to whom awards may be granted under the new Long Term Plan
and the form of such awards are at the discretion of the committee administering
the Plan, it is not possible at this time to predict precisely the number or
identity of the individuals to whom awards may be granted in the future or the
type or size of such awards. It is expected, however, that the individuals
receiving awards will include officers named in the summary compensation table
above under the heading "Executive Compensation". The awards of restricted stock
and options reflected in such compensation table as having been made with
respect to 1999 were not made, and no other awards have yet been made, under the
new Long Term Plan.
ADMINISTRATION OF LONG TERM PLAN
The Long Term Plan will be administered by a committee of the board of
directors, which initially will be the Compensation Committee. This committee
has the authority (i) to select employees to whom awards are granted, (ii) to
determine the size and types of awards granted, (iii) to determine the terms and
conditions of such awards in a manner consistent with the Long Term Plan
(discussed below), (iv) to interpret the Long Term Plan and any instrument or
agreement entered into under the Long Term Plan, (v) to establish such rules and
regulations relating to the administration of the Long Term Plan as it deems
appropriate and (vi) to make all other determinations that may be necessary or
advisable for the administration of the Long Term Plan. The committee may amend
the terms of any award, or substitute new awards for previously granted awards,
provided that such amendment or substitution may not impair the rights of any
participant with respect to any outstanding award without his consent.
The board of directors may amend, alter or terminate the Long Term Plan at
any time, provided that no such action may impair the rights of a participant
with respect to any outstanding award without the participant's consent and
provided that no amendment may be made without stockholder approval if such
approval is required to comply with applicable law or requirements of any
interdealer quotation system or stock exchange on which the Talk.com common
stock is listed or quoted.
SHARES SUBJECT TO LONG TERM PLAN
Subject to adjustment as described below, 5,000,000 shares of Talk.com
common stock shall be available for grant under the Long Term Plan. If any
shares subject to any award are forfeited, or if any award is terminated without
issuance of shares or satisfied with other consideration, the shares subject to
such award shall again be available for future grants.
STOCK OPTIONS
The purchase price per share under any option will be determined by the
administering committee, provided that it shall not be less than 25% of the fair
market value of a share on the date of grant of the option, nor less than the
par value of a share. The term of each option shall be fixed
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by the committee, provided that no ISO shall have a term extending beyond ten
years from the date the option is granted. Options are exercisable during their
term as provided by the Committee. Options shall be exercised by payment of the
purchase price, either in cash, in shares valued at the fair market value on the
date the option is exercised, in any combination thereof or in such other form
of consideration as the committee shall determine, provided, that, if the
committee so provides, an option may be exercised by delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
deliver promptly to Talk.com the amount of sale or loan proceeds necessary to
pay the purchase price and applicable withholding taxes in full and such other
documents as the committee shall determine. The ability to deliver shares in
lieu of cash on the exercise of options could permit the successive, immediate
exercise of options with shares received upon earlier or substantially
simultaneous exercises. Whether an option holder uses shares to exercise an
entire option in a single exercise or through successive exercises, the net
increase in shares held by such person will be identical. The committee may
accept as partial payment on the exercise of options a promissory note, which
may be secured by the shares to be received upon such exercise. The maximum
number of shares with respect to which Options may be granted to any employee
under the Long Term Plan in any calendar year is 1,000,000 shares. Talk.com has
agreed to file a registration statement with the Securities and Exchange
Commission to register the resale by option holders of the shares issuable upon
exercise of the options granted under the Long Term Plan.
STOCK APPRECIATION RIGHTS
An SAR may be granted either alone or in conjunction with any other award
under the Long Term Plan. SARs related to any option (i) must be granted at the
time such option is granted, and (ii) if such option is an ISO may be
exercisable only upon exercise of the related option. Upon exercise of an SAR,
the holder thereof is entitled to receive the excess of the fair market value of
the shares for which the right is exercised (calculated as of the exercise date)
over either the exercise price per share of the related option or, if none, over
the fair market value of such number of shares on the date the SAR was granted
(hereinafter, the "exercise price"). Payment by Talk.com upon exercise of an SAR
may be made in cash or shares, or any combination thereof, as the administering
committee shall determine.
RESTRICTED STOCK
The administering committee shall determine the terms and conditions,
including acceleration and forfeiture provisions and other provision and
restrictions (which may include restrictions on the right to vote such shares
and the right to receive any dividends with respect thereto) that shall be
placed on restricted stock awarded under the Long Term Plan. This restricted
stock may not be disposed of by the recipient until any such restrictions lapse.
Restricted stock may be issued for no cash consideration or for such minimum
consideration as may be required by applicable law. Upon termination of
employment during the restricted period, all restricted stock shall be
forfeited, subject to such exceptions, if any, as are authorized by the
committee relating to termination of employment on retirement, disability, death
or other special circumstances.
INCENTIVE SHARE AWARDS
The committee may grant incentive share awards, which shall provide for the
issuance of shares at such times and subject to such terms and conditions as the
committee shall deem appropriate, including without limitation terms that
condition the issuance of such shares upon the achievement of performance goals.
ASSIGNABILITY OF AWARDS
Subject to approval by the administering committee, an award and the shares
subject to an award may be assigned, transferred, pledged or otherwise
encumbered by a participant.
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ADJUSTMENTS
In the event of any change in corporate structure of Talk.com affecting the
shares (e.g., merger, consolidation, recapitalization, reclassification or stock
dividend), the committee may make such adjustments as it deems appropriate to
the number, class and option price of shares subject to outstanding Options
granted under the Long Term Plan, and in the value of, or number or class of
shares subject to, other awards granted or available to be granted under the
Long Term Plan and to individual employees.
FEDERAL INCOME TAX CONSEQUENCES
Under current law, the Federal income tax treatment of options and SARs
granted under the Long Term Plan is as set forth below:
Nonstatutory Stock Options. The grant of an option that is not an ISO will
have no immediate tax consequences to Talk.com or the employee. The exercise of
such an option will require an employee to include in his gross income the
amount by which the aggregate fair market value of the acquired shares on the
exercise date (or the date on which any substantial risk of forfeiture lapses)
exceeds the aggregate purchase price paid for such shares. Upon a subsequent
sale or taxable exchange of shares acquired upon exercise of an option that is
not an ISO, an employee will recognize long or short-term capital gain or loss
equal to the difference between the amount realized on the sale and the tax
basis of such shares.
Talk.com will be entitled (provided applicable income tax reporting
requirements are met) to a deduction at the same time and in the same amount as
the employee is in receipt of income in connection with his exercise of an
option that is not an ISO.
Incentive Stock Options. The grant of an ISO will have no immediate tax
consequences to Talk.com or the employee. Upon exercise of an ISO, the employee
generally recognizes no income. If an employee disposes of the shares acquired
on the exercise of an incentive stock option within two years after the grant of
the option or within one year after the date of the transfer of such shares to
him (a "disqualifying disposition"), he will be required to include in income,
as compensation, the lesser of (i) the difference between the aggregate purchase
price paid and the fair market value of the acquired shares on the exercise date
(or the date on which any substantial risk of forfeiture lapses) or (ii) the
amount of gain realized on such disposition. Any additional gain or loss
recognized will be capital gain or loss.
If an employee does not make a disqualifying disposition, he will realize
no compensation income and any gain or loss that he realizes on a subsequent
disposition of such shares will be treated as capital gain or loss. For purposes
of computing the employee's alternative minimum taxable income, however, the
option generally will be treated as if it were an option that is not an ISO.
Talk.com will be entitled to a deduction at the same time and in the same
amount as the employee is in receipt of compensation income as a result of a
disqualifying disposition. If there is no disqualifying disposition, no
deduction will be available to Talk.com.
SARs. The grant of SARs, will not result in taxable income to the recipient
or a tax deduction for Talk.com at the time of grant. Upon the exercise of SARs,
an employee recognizes ordinary income equal to the amount of cash received plus
the fair market value of any shares issued or transferred and Talk.com is
entitled to a tax deduction in an equal amount.
ACCOUNTING TREATMENT
Under present accounting rules, the grant of options at an exercise price
equal to or greater than market value on the date of grant does not result in a
charge against Talk.com's earnings. However, the excess, if any, from time to
time of the fair market value of the common stock subject to SARs, over the
exercise price of such SARs, will result in a charge against Talk.com's
earnings. The amount of the charge will increase or decrease based on changes in
the market value of the common stock and will decrease to the extent SARs, are
canceled. Talk.com has not issued any SAR's to date.
106
<PAGE>
VOTING REQUIRED FOR APPROVAL OF ADOPTION OF THE LONG TERM PLAN
Talk.com is submitting the new Long Term Plan to its stockholders for
approval as required by NASD rules governing Nasdaq-traded issuers. Under these
rules, the affirmative vote of the holders of a majority of the votes cast at
the annual meeting is required to ratify the adoption of the Long Term Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE
ADOPTION OF THE LONG TERM PLAN.
PROPOSAL 4: RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The board has appointed the firm of BDO Seidman, LLP as independent
auditors of Talk.com for the current fiscal year. This firm has served as
Talk.com's independent auditors since 1995 and has no direct or indirect
financial interest in Talk.com.
Although not legally required to do so, the board is submitting the
selection of BDO Seidman, LLP as Talk.com'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 Talk.com.
A representative of BDO Seidman, LLP will be present at the Talk.com 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
SELECTION OF BDO SEIDMAN, LLP AS INDEPENDENT AUDITORS OF TALK.COM.
107
<PAGE>
PRINCIPAL STOCKHOLDERS OF TALK.COM
The following table sets forth certain information known to Talk.com with
respect to beneficial ownership of Talk.com's common stock as of April 26, 2000
(except as otherwise noted) by (i) each stockholder who is known by Talk.com to
own beneficially more than five percent of the outstanding common stock, (ii)
each of Talk.com's directors and nominees for director, (iii) each of the
executive officers named below and (iv) all current directors and executive
officers of Talk.com as a group. Except as otherwise indicated below, Talk.com
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 PERCENT OF SHARES
NAME OF BENEFICIAL OWNER OR IDENTITY OF GROUP BENEFICIALLY OWNED (1) BENEFICIALLY OWNED
-------------------------------------------------- ------------------------ -------------------
<S> <C> <C>
Massachusetts Financial Services Company ......... 7,160,400(2) 10.9%
500 Boylston Street
Boston, Massachusetts 02116
America Online, Inc. ............................. 6,843,356(3) 10.0%
22000 AOL Way
Dulles, Virginia 20166
Legg Mason, Inc. ................................. 5,997,900(6)(8) 9.1%
100 Light Street
P. O. Box 1476
Baltimore, MD 21203
Paul Rosenberg ................................... 5,759,985(4) 8.8%
650 N. E. 5th Avenue
Boca Raton, Fl 33432
Geocapital, LLC .................................. 3,743,825(6) 5.7%
767 Fifth Avenue, 45th Floor
New York , New York 10153
Gabriel Battista ................................. 1,003,334(7) 1.5%
Edward B. Meyercord, III ......................... 106,131 *
Aloysius T. Lawn, IV ............................. 198,650(7) *
Michael Ferzacca ................................. 66,667(7) *
George Vinall .................................... 80,000(7) *
Ronald R. Thoma .................................. 97,934(7) *
Arthur J. Marks .................................. 25,000(5) *
Mark S. Fowler ................................... 10,000 *
Kenneth G. Baritz ................................ --(9) *
Kevin Griffo ..................................... --(10) *
All directors and executive officers as a group
(11 persons) .................................... 1,756,957 2.5%
</TABLE>
----------------
* 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 SEC 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.
(2) Massachusetts Financial Services Company ("MFS"), an investment adviser,
filed an amendment to a Schedule 13G with the SEC on February 11, 2000 (the
"MFS 13G"), in which it reported beneficial ownership of 7,160,400 shares,
6,437,800 of which are also beneficially owned by MFS Series Trust II-MFS
Emerging Growth Fund, an investment company, and 722,600 of which are also
owned by certain non-reporting entities as well as MFS. The foregoing
information is derived from the MFS 13G.
108
<PAGE>
(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 the Schedule 13D/A filed by Paul
Rosenberg, the Rosenberg Family Limited Partnership, PBR, Inc. and the New
Millennium Charitable Foundation on February 12, 1999.
(5) Excludes shares of Talk.com common stock, if any, held in various client
accounts managed by Mr. Marks' spouse. Mr. Marks disclaims beneficial
ownership of such shares of Talk.com common stock.
(6) The foregoing information is derived from the Schedule 13G filed by
Geocapital, LLC on February 8, 2000.
(7) Includes shares of Talk.com common stock that could be acquired upon
exercise of vested options.
(8) Includes 5,500,000 shares of Talk.com common stock beneficially owned by
Legg Mason Special Investment Trust and 497,900 shares beneficially owned by
Legg Mason Capital Management, Inc.
(9) Mr. Baritz holds options to purchase an aggregate of 1,300,000 shares of
Talk.com common stock, which vest and become exercisable in installments
commencing on March 23, 2001. He will also receive shares of Talk.com common
stock, and warrants and additional options to purchase Talk.com common
stock, upon conversion in the merger of his shares of Access One common
stock and Access One warrants and stock options. Based on his holdings of
Access One common stock, warrants and stock options as of May 15, 2000, Mr.
Baritz will be entitled to receive in the merger approximately 1.6 million
shares of Talk.com common stock, and warrants and options to purchase an
aggregate of approximately 257,000 shares of Talk.com common stock.
(10) Mr. Griffo holds options to purchase an aggregate of 1,300,000 shares of
Talk.com common stock, which vest and become exercisable in installments
commencing on March 23, 2001. He will also receive shares of Talk.com
common stock and additional options to purchase Talk.com common stock upon
conversion in the merger of his shares of Access One common stock and
Access One stock options. Based on his holdings of Access One common stock
and stock options as of May 15, 2000, Mr. Griffo will be entitled to
receive in the merger approximately 171,000 shares of Talk.com common
stock, and options to purchase an aggregate of approximately 571,000 shares
of Talk.com common stock.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under Section 16(a) of the Securities Exchange Act of 1934, as amended,
Talk.com's directors and certain officers and persons who are the beneficial
owners of more than 10 percent of Talk.com's common stock are required to report
their ownership of 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 Talk.com is required to report in this joint proxy
statement/prospectus any failure to file by such dates in 1999. Talk.com
believes that all of the required filings have been made in a timely manner. In
making this statement, Talk.com has relied on copies of the reporting forms
received by it.
109
<PAGE>
V. ADDITIONAL INFORMATION FOR STOCKHOLDERS
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING OF TALK.COM 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
Talk.com in connection with the annual meeting of stockholders in 2001 must
submit it so it will be received by Talk.com by March 12, 2001, unless Talk.com
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
Talk.com begins to print and mail its proxy materials. Any stockholder proposals
for the 2001 annual meeting of stockholders that are submitted outside the
processes of Rule 14a-8 under the Securities Act of 1934 will be considered
untimely if not received by Talk.com within a reasonable time prior to its
printing its proxy materials in 2001. In addition, any stockholder proposal for
next year's annual meeting submitted after May 26, 2001 or, if Talk.com changes
the date of the 2001 annual meeting by more than 30 days from this year's, after
a reasonable time before Talk.com mails its proxy materials for next year's
annual meeting, will not be considered filed on a timely basis with Talk.com
under SEC Rule 14a-4(c)(1). For proposals that are not timely filed, Talk.com
retains discretion to vote proxies it receives. For proposals that are timely
filed, Talk.com retains discretion to vote proxies it receives provided (1)
Talk.com 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.
WHERE YOU CAN FIND MORE INFORMATION
Talk.com files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission, or SEC. You can
inspect and copy these reports, proxy statements and other information at the
public reference facilities of the SEC, in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at 7
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You can call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Talk.com's SEC filings are also available to the public from the SEC's website
at http://www.sec.gov.
------------------
Talk.com has filed a registration statement on Form S-4 to register with
the SEC the Talk.com common stock to be issued to Access One stockholders upon
completion of the merger. This joint proxy statement/prospectus is a part of
that registration statement and constitutes a prospectus of Talk.com in addition
to being a proxy statement of Talk.com and Access One for their respective
stockholder meetings. As allowed by SEC rules, this joint proxy
statement/prospectus does not contain all the information you can find in the
registration statement or the exhibits to the registration statement.
Both Talk.com and Access One maintain web sites. The information contained
on those web sites is not part of this joint proxy statement/prospectus, and
should not be relied on in connection with the matters presented here.
The SEC allows Talk.com to incorporate by reference the information that it
files with the SEC, which means that it can disclose important information to
you by referring you to those documents. The information incorporated by
reference is considered to be part of this joint proxy statement/ prospectus,
and information that Talk.com will file later with the SEC will automatically
update and supersede this information. Talk.com is incorporating by reference
the documents listed below:
o Talk.com's annual report on Form 10-K for the fiscal year ended December
31, 1999, filed with the SEC on March 23, 2000 (SEC file no. 0-26728);
o Amendment No. 1 to the annual report on Form 10-K for the fiscal year
ended December 31, 1999, filed with the SEC on April 28, 2000 (SEC file
no. 0-26728);
110
<PAGE>
o Talk.com's current report on Form 8-K, filed with the SEC on April 7, 2000
(SEC file no. 0-26728);
o Talk.com's quarterly report on Form 10-Q for the fiscal quarter ended
March 31, 2000, filed with the SEC on May 15, 2000 (SEC file no. 0-26728);
o the description of Talk.com's capital stock contained in its registration
statement on Form 8-A, dated September 8, 1995; and
o the description of Talk.com's preferred stock purchase rights contained in
its registration statement on Form 8-A, filed with the SEC on August 27,
1999.
Talk.com is also incorporating by reference any future filings (File No.
0-26728) with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 after the date of this joint proxy statement/prospectus and
on or prior to the date on which the offering of Talk.com common stock under
this joint proxy statement/prospectus shall be terminated.
You may request a copy of these filings, at no cost, by writing or
telephoning at the following address and telephone number:
Ms. Ruth Abeshaus
Director of Investor and Public Relations
Talk.com Inc.
6805 Route 202
New Hope, Pennsylvania 18938
Telephone: (215) 862-1500
Talk.com's principal executive offices are located at 12020 Sunrise Valley
Drive, Reston, Virginia 22091, and its telephone number is (703) 391-7500.
This joint proxy statement/prospectus is part of a registration statement
on Form S-4 we filed with the SEC. You should rely only on the information or
representations provided in this prospectus. We have not authorized anyone to
provide information other than that provided in this prospectus. Talk.com has
not authorized anyone to provide you with different information. Talk.com is 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.
111
<PAGE>
INDEX TO ACCESS ONE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
Report of Independent Auditors F-2
Consolidated balance sheets -- October 31, 1999 and 1998 F-3
Consolidated statements of operations -- Years ended
October 31, 1999, 1998 and 1997 F-4
Consolidated statements of stockholders' equity (deficiency) --
Years ended October 31, 1999, 1998 and 1997 F-5
Consolidated statements of cash flows -- Years ended
October 31, 1999, 1998 and 1997 F-6
Notes to consolidated financial statements -- Years ended
October 31, 1999, 1998 and 1997 F-7
Consolidated balance sheets - April 30, 2000 (unaudited) and
October 31, 1999 F-16
Consolidated statements of operations - Three and six months
ended April 30, 2000 and 1999 (unaudited) F-17
Consolidated statement of stockholders' equity (deficiency) --
Six months ended April, 2000 (unaudited) F-18
Consolidated statements of cash flows - Six months ended
April 30, 2000 and 1999 (unaudited) F-19
Notes to consolidated financial statements (unaudited) F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Access One Communications Corp.
Orlando, Florida
We have audited the accompanying consolidated balance sheets of Access One
Communications Corp. and subsidiaries as of October 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for the years ended October 31, 1999, 1998 and
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Access
One Communications Corp. and subsidiaries as of October 31, 1999 and 1998, and
the consolidated results of their operations and cash flows for the years ended
October 31, 1999, 1998 and 1997, in conformity with generally accepted
accounting principles.
NUSSBAUM YATES & WOLPOW, P.C.
Melville, New York
January 28, 2000
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 913,596 $ 118,042
Investment securities 675,000 396,175
Accounts receivable, net of allowance for doubtful
accounts of $645,865 and $333,946 in 1999 and 1998 1,472,429 1,057,271
Prepaid expenses and other current assets 50,690 49,735
------------ ------------
Total current assets 3,111,715 1,621,223
------------ ------------
Property and equipment, net 300,206 254,060
------------ ------------
OTHER ASSETS:
Deferred financing costs, net of accumulated
amortization of $32,908 263,265 --
Purchased customer accounts, net of accumulated
amortization of $626,677 701,021 --
Goodwill, net of accumulated amortization of
$568,750 and $293,446 in 1999 and 1998 1,358,428 1,633,732
Deposits 552,474 376,334
------------ ------------
2,875,188 2,010,066
------------ ------------
$ 6,287,109 $ 3,885,349
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Note payable, e.spire Communications, Inc. $ 850,811 $ --
Loans payable, Receivables Funding Corporation -- 1,054,046
Due to related parties -- 185,000
Current portion of long-term debt -- 227,291
Accounts payable 3,121,390 2,148,609
Accrued expenses and other current liabilities 834,218 585,759
------------ ------------
Total current liabilities 4,806,419 4,200,705
Long-term debt, less current portion 6,837,119 181,124
------------ ------------
11,643,538 4,381,829
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, $.001 par value, authorized 50,000,000
shares; issued and outstanding 12,801,000 and
12,776,000 shares in 1999 and 1998 12,801 12,776
Preferred stock, $.001 par value, authorized 7,500,000
shares; none issued -- --
Additional paid-in capital 4,090,605 4,534,905
Accumulated other comprehensive income (loss),
unrealized holding gain (loss) on investment
securities 453,720 (124,730)
Accumulated deficit (9,913,555) (4,919,431)
------------ ------------
(5,356,429) (496,480)
------------ ------------
$ 6,287,109 $ 3,885,349
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- --------------- --------------
<S> <C> <C> <C>
Revenue $ 15,412,640 $ 5,811,038 $ 479,516
Cost of service 12,177,793 5,045,514 366,243
------------ ------------ ----------
Gross profit 3,234,847 765,524 113,273
------------ ------------ ----------
OPERATING EXPENSES:
Selling 998,949 725,574 70,283
Administrative 5,848,935 3,427,414 184,716
------------ ------------ ----------
Total operating expenses 6,847,884 4,152,988 254,999
------------ ------------ ----------
Loss from operations (3,613,037) (3,387,464) (141,726)
------------ ------------ ----------
OTHER EXPENSE:
Interest and loan fees, net of interest
income of $4,130 in 1999 1,166,462 312,869 16,372
Loss on sale of investment securities 214,625 1,061,000 --
------------ ------------ ----------
1,381,087 1,373,869 16,372
------------ ------------ ----------
Net loss $ (4,994,124) $ (4,761,333) $ (158,098)
------------ ------------ ----------
Basic and diluted loss per common share $ (.39) $ (.41) $ (.05)
Weighted average number of common
shares outstanding 12,792,575 11,641,592 3,180,000
============ ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
--------------------------- PAID-IN COMPREHENSIVE ACCUMULATED
SHARES AMOUNT CAPITAL INCOME (LOSS) DEFICIT TOTAL
--------------- ----------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 1, 1996 2,500,000 $ 2,500 $ (2,500) $ -- $ -- $ --
Capital contributed -- -- 100 -- -- 100
Stock issued to reimburse
Chairman for expenses 750,000 750 34,250 -- -- 35,000
Stock issued to acquire OPC
Acquisition Corp. 4,000,000 4,000 429,251 -- -- 433,251
Stock issued pursuant to private
placements, net 465,000 465 285,835 -- -- 286,300
Stock issued to eLEC
Communications Corp. in
exchange for 425,000 shares of
eLEC Communications Corp. 3,000,000 3,000 1,497,000 -- -- 1,500,000
Net loss for the year ended
October 31, 1997 -- -- -- -- (158,098) (158,098)
--------- -------- ------------ ---------- ------------ ------------
Balance, October 1, 1997 10,715,000 10,715 2,243,936 -- (158,098) 2,096,553
------------
Net loss for the year ended
October 31, 1998 -- -- -- -- (4,761,333) (4,761,333)
Unrealized loss on investment
arising during the period -- -- -- (124,730) -- (124,730)
------------
Comprehensive income (loss) -- -- -- -- -- (4,886,063)
------------
Stock issued to eLEC
Communications, Inc. in
exchange for 750,000 shares of
eLEC Communications, Inc. 700,000 700 1,454,330 -- -- 1,455,030
Stock issued to related parties in
satisfaction of loans and
accrued interest 846,000 846 422,154 -- -- 423,000
Stock issued to president of The
Other Phone Company Inc. for
compensation 200,000 200 99,800 -- -- 100,000
Stock issued pursuant to private
placements 315,000 315 314,685 -- -- 315,000
---------- -------- ------------ ---------- ------------ ------------
Balance, October 31, 1998 12,776,000 12,776 4,534,905 (124,730) (4,919,431) (496,480)
------------
Net loss for the year ended
October 31, 1999 -- -- -- -- (4,994,124) (4,994,124)
Other comprehensive income:
Unrealized holding gains arising
during period -- -- -- 382,440 -- 382,440
Plus: reclassification adjustment
for losses included in net loss -- -- -- 196,010 -- 196,010
------------
Comprehensive income (loss) -- -- -- -- -- (4,415,674)
------------
Stock issued to eLEC
Communications in exchange
for 1,420,000 shares of eLEC
Communications, Inc. 1,775,000 1,775 1,824,700 -- -- 1,826,475
Exercise of put with eLEC
Communications, Inc. (1,750,000) (1,750) (1,799,000) -- -- (1,800,750)
Purchase of outstanding warrants -- -- (520,000) -- -- (520,000)
Options granted for consulting
services -- -- 50,000 -- -- 50,000
---------- -------- ------------ ---------- ------------ ------------
Balance, October 31, 1999 12,801,000 $ 12,801 $ 4,090,605 $ 453,720 $ (9,913,555) $ (5,356,429)
========== ======== ============ ========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,994,124) $ (4,761,333) $ (158,098)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,008,950 342,897 22,595
Provision for losses on receivables 1,744,945 592,720 16,590
Loss on sale of securities 214,625 1,061,000 --
Stock issued for compensation 100,000 --
Reimbursement of expenses to eLEC Communications 75,000 --
Expenses reimbursed through issuance of common stock -- -- 35,000
Changes in operating assets and liabilities, net of effect of
acquisition in 1997:
Accounts receivable, less amounts purchased (455,745) (1,262,839) (172,679)
Prepaid expenses (955) 5,776 (16,770)
Deferred finance costs (46,174) -- --
Deposits (176,140) (376,334) 3,674
Accounts payable 972,781 1,844,500 159,901
Accrued expenses (1,541) 523,087 44,019
------------ ------------ ------------
Total adjustments 3,260,746 2,905,807 92,330
------------ ------------ ------------
Net cash used in operating activities (1,733,378) (1,855,526) (65,768)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of securities 85,000 1,373,125 --
Purchase of equipment (120,207) (203,762) (17,969)
Purchased customer accounts and accounts receivable (2,105,519) -- --
Repurchase of warrants (520,000) -- --
Acquisition of OPC -- -- (1,000,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities (2,660,726) 1,169,363 (1,017,969)
------------ ------------ ------------
Cash flows from financing activities:
Repayment of loan payable, bank -- (250,000) --
Borrowings (repayments), Receivable Funding
Corporation, net (1,054,046) 1,054,046 --
Repayment to related parties, net (185,000) (239,521) --
Principal payments of long-term debt (408,415) (215,562) (59,822)
Proceeds from issuance of long-term debt 6,837,119 -- 502,442
Proceeds from issuance of common stock and contribution to
capital -- 315,000 719,651
------------ ------------ ------------
Net cash provided by financing activities 5,189,658 663,963 1,162,271
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 795,554 (22,200) 78,534
Cash and cash equivalents, beginning of year 118,042 140,242 61,708
------------ ------------ ------------
Cash and cash equivalents, end of year $ 913,596 $ 118,042 $ 140,242
------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid -- interest $ 1,018,313 $ 312,869 $ 4,462
------------ ------------ ------------
Non-cash investing and financing activities (see Notes 3 and 5)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Access One Communications Corp. and its subsidiaries ("the Company"). All
significant intercompany balances and transactions have been eliminated.
ORGANIZATIONAL BACKGROUND
The Company was formerly known as CLEC Holding Corp. ("CLEC"), formerly PRS
SUB II ("PRS"), was incorporated under the laws of the State of New Jersey in
1991. The Company emerged from bankruptcy, pursuant to a Bankruptcy Court
Order in 1996, and was inactive until September 1997.
On September 9, 1997, the Company acquired 95% of the common stock of The
Other Phone Company, Inc. ("OPC"), a reseller of local and long-distance
telecommunications services to businesses and residential customers in the
Southeastern United States, principally in Florida, which began operations in
January, 1997. The cost of the acquisition, which was accounted for as a
purchase, was $1,927,178 ($1,000,000 paid in cash and the remainder in seller
notes (see Note 8), and the entire purchase price of $1,927,178 was allocated
to goodwill. The consolidated financial statements include the results of
operations of OPC since September 9, 1997.
The following unaudited pro forma consolidated results of operations for the
year ended October 31, 1997 assumes the OPC acquisition occurred as of
November 1, 1996:
<TABLE>
<S> <C>
Net sales $1,723,853
Net loss $ (561,348)
Loss per share $ (.09)
</TABLE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVESTMENT SECURITIES
Marketable equity securities, all of which have represented common shares of
eLEC Communications ("eLEC"), have been categorized as available for sale and
as a result, are stated at fair value. Unrealized holding gains and losses
are included as a component of stockholders' equity until realized. Realized
gains and losses are determined based on the specific identification method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is being provided by
the straight-line method over the estimated useful lives of the assets,
generally three to seven years. Leasehold improvements are amortized, using
the straight-line method, over the term of the lease or the useful life of
the improvements, whichever is shorter.
EARNINGS PER SHARE
For the year ended October 31, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which
replaces the presentation of primary earnings per share ("EPS") and fully
diluted EPS with a presentation of basic EPS and diluted
F-7
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997 - (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
EPS. Basic EPS excludes common stock equivalents and is computed by dividing
net income (loss) available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if common stock equivalents such as stock
options and warrants were exercised. The effect of stock options and warrants
on the calculation of earnings per common share was anti-dilutive in all
years but may be dilutive in the future.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized to interest expense over the life of
the relating financing.
PURCHASED CUSTOMER ACCOUNTS
Purchased customer accounts are amortized over three years on a straight-line
basis or the termination of the customer account, whichever is shorter.
GOODWILL
The excess of the cost of subsidiaries over the equity in underlying net
assets at the dates of acquisition (goodwill) is being amortized over 7
years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its intangible assets and other long-lived assets for
impairment at each balance sheet date or whenever events or changes in
circumstances indicate that the carrying amount of an asset should be
assessed. Management evaluates the intangible assets related to each
acquisition individually to determine whether an impairment has occurred. An
impairment is recognized when the undiscounted future cash flows estimated to
be generated by the acquired business is insufficient to recover the current
unamortized balance of the intangible asset, with the amount of any such
deficiency charged to income in the current year. Estimates of future cash
flows are based on many factors, including (i) current operating results of
the applicable business, (ii) projected future operating results of the
applicable business, (iii) the occurrence of any significant regulatory
changes which may have an impact on the continuity of the business, and (iv)
any other material factors that affect the continuity of the applicable
business.
REVENUE RECOGNITION
Revenues are recognized in the period services are provided to customers and
consist primarily of charges for use of local and long-distance services.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Under the asset and liability method specified by SFAS 109, deferred
tax assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities as measured by
the enacted tax rates which will be in effect when these differences reverse.
Deferred tax expense is the result of changes in deferred tax assets and
liabilities. The principal type of differences between assets and liabilities
for financial statement and tax return purposes are allowances for doubtful
accounts, depreciation and amortization, and net operating losses.
F-8
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997 - (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
ADVERTISING COSTS
The Company expenses advertising costs in the period incurred. Advertising
expense was $30,170, $2,267 and $-0- for the years ended October 31, 1999,
1998 and 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's principal financial instruments consist of cash and cash
equivalents, investment securities, and loans and notes payable. The Company
believes that the carrying amount of such instruments approximates fair
value.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 requires companies to classify items of other comprehensive
income by their nature in a financial statement and display the accumulated
balance of other comprehensive income separately from retained earnings, and
is effective for financial statements issued for fiscal years beginning after
December 15, 1997. The Company has adopted SFAS No. 130 as reflected in the
accompanying consolidated financial statements.
2. DESCRIPTION OF BUSINESS AND CONCENTRATIONS
The Company provides local and long-distance telecommunications services to
business and residential customers in the Southeastern United States. The
Company's business is highly competitive and is subject to various Federal,
State and local regulations, including the Federal Communications Commission
and various state public service commissions.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of trade receivables. The
Company's trade receivables are geographically concentrated with businesses
and residential customers primarily located in the Southeastern United
States. The Company continually evaluates the creditworthiness of its
customers; however, it generally does not require collateral. The Company's
allowance for doubtful accounts is based on historical trends, current market
conditions and other relevant factors.
During the years ended October 31, 1999, 1998 and 1997, the Company purchased
in excess of 90% of its telephone services under a resale agreement with one
supplier, BellSouth. BellSouth is one of only a few potential suppliers for
the Company's local telephone resale business and, therefore, the loss of the
Company's relationship with BellSouth could adversely affect the Company's
ability to continue in business.
3. INVESTMENT SECURITIES
On October 22, 1997, the Company exchanged 3,000,000 shares of its common
stock for 375,000 shares of unregistered eLEC Communications, Inc. ("eLEC")
common stock, subject to certain price protection adjustments, which required
eLEC to issue an additional 50,000 shares of
F-9
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997 - (CONTINUED)
3. INVESTMENT SECURITIES - (CONTINUED)
common stock to the Company. The Company valued the entire 425,000 shares at
$1,500,000 at the exchange date and on October 31, 1997, which represented
its estimate of the fair value of the aforementioned eLEC shares. During
fiscal 1998, the aforementioned 425,000 shares were sold for proceeds of
$687,500, resulting in a realized loss of $812,500.
During fiscal 1998, there were two additional exchanges of shares with eLEC.
The first exchange occurred on April 23, 1998 when the Company exchanged
300,000 of its common stock for 350,000 shares of eLEC common stock. This
exchange was valued at $1,233,750. Of this first exchange, 265,000 shares
were sold for proceeds of $685,625, resulting in a realized loss of $248,500.
The second exchange occurred on September 10, 1998 when the Company exchanged
400,000 shares of its common stock for 400,000 shares of eLEC common stock.
This exchange was valued at $221,280.
In March 1999, the Company issued to eLEC 1,775,000 shares of common stock in
consideration for the issuance by eLEC to the Company of 1,420,000 shares of
its common stock. In connection with such transaction, the Company was
granted an option to put to eLEC for repurchase at any time on or before
December 1, 1999 at the original purchase price, all or a portion of the
shares of common stock the Company purchased in March 1999. In connection
with any such exercise of its put option, in whole or in part, the Company
was required to issue to eLEC warrants to purchase 500,000 shares of the
Company common stock at a purchase price of $1.00 per share. Prior to October
31, 1999, the Company notified eLEC of its intention to exercise the option
and, on December 1, 1999, exercised its option with respect to 1,750,000
shares of the Company's common stock which has been reflected in the
accompanying financial statements as of October 31, 1999. As of October 31,
1999 and 1998, the Company owned 400,000 and 485,000 shares of eLEC's common
stock, which represents approximately 4% and 8% of eLEC's common stock,
respectively. As of October 31, 1999 and 1998, eLEC owned approximately 31%
of the Company's common stock. During fiscal 1999, the Company sold 85,000
shares of eLEC's common stock for $85,000, resulting in a realized loss of
$214,675.
The Company's investment in eLEC shares are summarized as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED
HOLDING
COST FAIR VALUE GAIN (LOSS)
----------- ------------ --------------
<S> <C> <C> <C>
October 31, 1999 $221,280 $675,000 $ 453,720
October 31, 1998 $520,905 $396,175 $ (124,730)
</TABLE>
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Furniture and fixtures $ 81,687 $ 63,916
Office equipment 101,846 101,846
Computer equipment 202,062 152,126
Billing software 72,675 20,175
Leasehold improvements 4,268 4,268
---------- ---------
462,538 342,331
Less accumulated depreciation and amortization (162,332) (88,271)
---------- ---------
$ 300,206 $ 254,060
========== =========
</TABLE>
F-10
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997 - (CONTINUED )
5. CUSTOMER BASE ACQUISITION
During the fiscal year ended October 31, 1999, in two transactions with a
competitor, the Company purchased a customer base of approximately 17,500
local access lines and the associated accounts receivable from the competitor
for an aggregate purchase price of approximately $3,600,000. Approximately
$2,300,000 of the purchase price represented accounts receivable, and the
remainder, $1,300,000 was allocated to the customer base (intangible asset).
Approximately $2,100,000 of the purchase price was paid in cash, and
promissory notes aggregating approximately $1,500,000 were executed for the
balance of the purchase price. Principal and interest (interest at 10.625%)
are payable in equal monthly installments through June 30, 2000. As of
October 31, 1999, the principal balance of the note was $850,811, which
reflects adjustments pursuant to the agreement which reduced the amount
outstanding.
6. LOANS PAYABLE, RECEIVABLE FUNDING CORPORATION
The Company had a receivable financing and a senior secured promissory note
with Receivables Funding Corporation ("RFC"). As of October 31, 1998, the
Company had outstanding $1,054,046 under the agreements with an interest rate
of approximately 5.5% above the prime rate and had collateralized it with a
security interest in the accounts receivable and certain shares of eLEC
stock. In connection with the agreement, the Company granted RFC warrants to
purchase 300,000 shares of the Company's stock at $1.00 per share. The
receivables financing was to have expired December 26, 1999 and the note was
to have been paid over 48 months from the date of draw. On June 30, 1999, the
agreement with RFC was terminated as new financing was obtained from MCG
Finance Corporation ("MCG") as described in Note 8. As consideration for
early termination, the Company paid RFC a termination fee of $180,000 which
was charged to expense. Additionally, the warrants were repurchased for
$520,000.
7. DUE TO RELATED PARTIES
<TABLE>
<CAPTION>
1998
----------
<S> <C>
Note payable to Chairman of the Company, payable on demand, interest at 12% $ 20,000
Note payable to eLEC, payable on demand, non-interest bearing 75,000
Note payable to a subsidiary of eLEC, payable on demand, interest at 8% 90,000
--------
$185,000
========
</TABLE>
The above amounts were repaid during fiscal 1999.
8. LONG-TERM DEBT
BORROWINGS UNDER MCG CREDIT FACILITY AGREEMENT
On June 30, 1999, the Company entered into a Credit Facility Agreement ("the
Facility") with MCG Finance Corporation ("MCG") and other lenders that may
subsequently be added to the agreement, collectively referred to as "the
Lenders." Under the terms of the Facility, the Company may request periodic
advances from June 30, 1999 through November 30, 1999, a maximum of $7.5
million. The maturity date of the Facility is June 30, 2002. The Company is
required to pay an origination fee of $250,000, of which $125,000 is due June
2000 and the balance due June 2001. On November 30, 1999, the maximum amount
that the Company may
F-11
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997 - (CONTINUED)
8. LONG-TERM DEBT - (CONTINUED)
borrow under the Facility was increased to $15,000,000 to be requested
through November 2000. The maximum amount of credit available under the
Facility, however, shall not exceed a multiple of a portion of the Company's
collections, as defined in the Facility.
For purposes of determining interest, the Company may designate and subdivide
the outstanding principal balance under the Facility into a maximum of three
portions. The outstanding balance under each such portion will bear interest
fluctuating at two alternative rate indexes, the prime rate plus 11% or, at
the three-month London Interbank Offered Rate ("LIBOR") plus 9%. The
applicable rate index for each portion may be changed by the Company
periodically, as defined in the Facility. Interest payable under the Facility
is subdivided into two components, current interest, and deferred interest.
Current interest on each principal portion is due and payable monthly at the
prime rate plus 8%, or at the LIBOR rate plus 6%, depending on the rate
assigned to the related portion of the loan. Deferred interest, accrues,
calculated at 3%, and shall be due and payable in full in one lump sum, (at
the election of the Lenders) upon the occurrence of any of the following
events: (a) June 30, 2002, (b) the date that all obligations under the
Facility are paid in full and the related loan documents are terminated, or
(c) the occurrence of any event of default, as defined. Upon such occurrence,
the Lenders may accept actual cash payment of such deferred interest, or may
retain the right to exercise certain rights it has under the option under the
terms set forth in an Option and Warrant Agreement. If the Lenders exercise
the option in accordance with the Option and Warrant Agreement, then the
Lenders shall not be entitled to receive payment of such accrued deferred
interest, but may, at their election, treat such accrued deferred interest as
the exercise price paid for the warrant shares if and when such warrants are
exercised. The option to acquire warrants will allow MCG to purchase shares
of the Company representing 10% of the issued and outstanding shares of
capital stock and voting rights of the Company on a fully diluted basis. The
option is exercisable immediately and may be exercised by MCG at any time
prior to the earlier of the following (1) June 30, 2009 and (2) the date on
which MCG accepts payment of the deferred interest.
As of October 31, 1999, the interest rate on the loan was 16.3%, including
the deferred interest portion.
In connection with the November 30, 1999 amendment, MCG was granted warrants
to purchase 400,000 shares of common stock at $1.55 per share, exercisable
immediately through November 30, 2009.
As collateral, The Company has granted the Lender a security interest in
substantially all assets of the Company. As additional collateral for the
Facility, certain shareholders gave a security interest in all of their
equity ownership interests in the Company. The Facility contains various
covenants and ratios. Among others, the Company must maintain (1) an
escalating minimum number of access lines, (2) an escalating minimum gross
profit margin percentage, (3) a minimum operating cash flow (as defined), (4)
an escalating amount of minimum revenue, (5) a leverage ratio of funded debt
(as defined) to qualifying collections (as defined) of 4.5 to 1 through
December 31, 1999 and 4.25 to 1.0 thereafter, and (5) an attrition rate (as
defined) of not more than 5% from September 30, 1999 through December 31,
1999 and 4% thereafter. In addition, the Company (1) has an annual limitation
on capital expenditures of $250,000, (2) cannot create borrowings,
indebtedness, guarantees, liens, other than as defined in the Facility, and
(3), cannot merge with another entity or declare or make any payment or
distribution with respect to, or incur any liability for the purchase
acquisition, redemption or retirement of, any of its equity interests or as a
dividend, return of capital or other payment or distribution of any kind to
any holder of any such equity.
F-12
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997 - (CONTINUED)
8. LONG-TERM DEBT - (CONTINUED)
OTHER
Long-term debt outstanding on October 31, 1998 consisted of notes payable to
John Murray related to the purchase of 95% of OPC. The note was paid in full
during fiscal 1999.
9. INCOME TAXES
At October 31, 1999, the Company has an operating loss carryforward of
approximately $7,000,000 which is available to offset future taxable income.
A valuation allowance has been recognized to offset the full amount of the
deferred tax asset of approximately $2,800,000 and $1,200,000 at October 31,
1999 and 1998 due to the uncertainty of realizing the benefit of the loss
carryforwards. The loss carryforwards will expire in March 2019.
The valuation allowance at October 31, 1997 was $30,000.
The Company's effective income tax rate differs from the federal statutory
rates as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
Utilization of net operating loss carryforwards (34.0) (34.0) (34.0)
----- ----- -----
-- -- --
===== ===== =====
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
LEASES
On October 21, 1999, the Company executed a noncancelable lease for a new
facility to commence in December 1999. The commencement date of the lease is
later. The lease expires five years after the commencement date. The Company
will be responsible for a pro rate share of operating expenses for the
building. With the exception of real estate taxes, insurance and utilities,
Landlord shall cap increases in operating expenses at five percent (5%) per
annum.
The Company also leases other office facilities and certain equipment under
operating leases that expire through 2004. The leases require minimum annual
rental and certain other expenses including maintenance and taxes. Rent
expense for the years ended October 31, 1999, 1998 and 1997 was approximately
$107,000, $86,000 and $7,000.
As of October 31, 1999, the Company's future minimum rental commitments are
as follows:
<TABLE>
<S> <C>
2000 $213,238
2001 185,386
2002 196,076
2003 198,966
2004 142,434
--------
$936,100
========
</TABLE>
11. STOCKHOLDERS' EQUITY
STOCK ISSUED FOR COMPENSATION
On December 1, 1997, pursuant to an employment agreement, the Company issued
200,000 shares of unregistered common stock to the new President of OPC.
Compensation expense of $100,000 was recorded in fiscal 1998 for these
shares.
F-13
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997 - (CONTINUED)
11. STOCKHOLDERS' EQUITY - (CONTINUED)
STOCK OPTIONS
On October 22, 1997, the Company, pursuant to the eLEC Stock Purchase
Agreement, granted to eLEC's nominee to the Board of Directors options to
purchase up to 100,000 shares of common stock for up to three years at an
exercise price of $1.00 per share.
On December 1, 1997, the Company granted options to the President of OPC to
purchase 800,000 shares of common stock for up to three years at an exercise
price of $.50 per share.
In December 1997, January 1998 and February 1998, the Company granted options
to employees to purchase 200,000 shares of common stock at an exercise price
of $1.00 per share. These options were issued to four officers of OPC.
Options to purchase 50% of the shares of common stock will vest at the
one-year anniversary of grant, 25% at the two-year anniversary of grant and
the balance of 25% at the three-year anniversary of grant. These options will
expire in five years.
In June 1999, the Company adopted the 1999 Stock Option Plan. Under the Plan,
the Company may grant options to its employees, directors and consultants for
up to 1,600,000 shares of its common stock, subject to adjustment. Incentive
stock options may be granted at no less than the fair market value of the
Company's stock on the date of grant, and in the case of an optionee who owns
directly or indirectly more than 10% of the outstanding voting stock, 110% of
the market price on the date of the grant. The maximum term of an option is
ten years.
Also, in June 1999, the Company granted options to employees to purchase
351,000 shares of common stock and options to a consultant to purchase
100,000 shares of common stock at an exercise price ranging from $1.50 to
$1.65. Options to purchase the shares vest equally over three years. These
options will expire in ten years. The Company recorded expense of $50,000 in
connection with the options granted the consultant who is also a shareholder.
No options were exercised during the years ended October 31, 1999, 1998 and
1997.
The following is a summary of outstanding options:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER EXERCISE PRICE EXERCISE
OF SHARES PER SHARE PRICE
------------- ---------------- ----------
<S> <C> <C> <C>
Outstanding, November 1, 1996 -- $ -- $ --
Granted during the year ended October 31, 1997 100,000 $ 1.00 $ 1.00
-------
Outstanding October 31, 1997 100,000 $ 1.00 $ 1.00
-------
Granted during the year ended October 31, 1998 1,000,000 $.50 - $1.00 $ .60
Canceled during the year ended October 31, 1998 (50,000) $ 1.00 $ 1.00
---------
Outstanding October 31, 1998 1,050,000 $.50 - $1.00 $ .62
Granted during the year ended October 31, 1999 451,000 $1.50 - $1.65 $ 1.53
---------
Outstanding October 31, 1999 1,501,000 $.50 - $1.65 $ .89
---------
Options exercisable, October 31, 1998 900,000 $.50 - $1.00 $ .56
---------
Options exercisable, October 31, 1999 975,000 $.50 - $1.00 $ .59
---------
</TABLE>
F-14
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997 - (CONTINUED)
11. STOCKHOLDERS' EQUITY - (CONTINUED)
The following table summarizes information about the options outstanding at
October 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- --------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE OUTSTANDING PRICE
-------------------- ------------- -------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$ .50 800,000 3.08 $ .50 800,000 $ .50
$ 1.00 250,000 3.10 $ 1.00 175,000 $ 1.00
$1.50 - $1.65 451,000 9.62 $ 1.53 -- --
</TABLE>
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123"),
established a fair value method of accounting for employee stock options
and similar equity instruments. The fair value method requires compensation
cost to be measured at the grant date, based on the value of the award, and
recognized over the service period. SFAS No. 123 allows companies to either
account for stock-based compensation under the provision of SFAS No. 123 or
under the provisions of APB No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"). The Company has elected to account for its
stock-based compensation in accordance with the provisions of APB No. 25
and has provided pro forma disclosures of net loss as if the fair value
method has been adopted.
For disclosure purposes, the fair value of each stock option grant is
estimated on the date of grant using the Black Scholes option-pricing model
with the following weighted average assumptions used for stock options
granted: annual dividends of $0.00 for all years, expected volatility of 0%
for all years, risk-free interest rate of 5.80% for fiscal 1999, 5.96% for
fiscal 1998 and 6.33% for fiscal 1997, and expected life of ten years for
options granted during fiscal 1999 and five years for all other grants. The
weighted-average fair value of stock options granted in fiscal 1999, 1998 and
1997 was $.63, $.15 and $.27, respectively.
Under the above model, the total value of stock options granted in fiscal
1999, 1998 and 1997 was $220,803, $139,569 and $26,772, respectively, which
would be amortized ratably on a pro forma basis over the related vesting
periods, which range from immediate vesting to three years. Had the Company
determined compensation cost for these plans in accordance with SFAS No. 123,
the Company's pro forma net loss would have been ($5,071,314) in fiscal 1999,
($4,876,001) in fiscal 1998 and ($184,870) in fiscal 1997, the Company's pro
forma loss per share would be ($.40) for fiscal 1999, ($.42) for fiscal 1998
and $.06 for fiscal 1997.
STOCK WARRANTS
On September 9, 1997, in connection with borrowings from related parties, the
Company granted warrants to such related parties to purchase 500,000 shares
of common stock. The exercise price is $1.20 for a period of three years. On
December 25, 1997, the Company granted warrants to purchase 25,000 shares of
common stock to an individual. The exercise price is $1.20 for a period of
three years. The Company has determined that the warrants did not have any
significant value at the date of issuance and, accordingly, no portion of the
proceeds of the related debt was allocated to the warrants. None of the
warrants were exercised during the years ended October 31, 1999, 1998 and
1997.
12. SUBSEQUENT EVENTS
On November 29, 1999, the Company acquired OmniCall, Inc. ("OmniCall"), a
competitive local exchange carrier located in South Carolina. The acquisition
will be accounted for as a purchase and was effectuated by the Company
issuing 6,493,776 of its common stock for all the issued and outstanding
shares of OmniCall. The purchase price will be allocated to the assets
acquired and the liabilities assumed based upon their estimated fair values.
F-15
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
---------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,500,585 $ 913,596
Investment securities -- 675,000
Accounts receivable, net of allowance for doubtful accounts of $1,635,794 and
$645,865, respectively 4,433,804 1,472,429
Prepaid expenses and other current assets 22,014 50,690
------------- ------------
Total current assets 5,956,403 3,111,715
------------- ------------
Property and equipment, net of accumulated depreciation and amortization of
$478,718 and $162,332, respectively 1,157,915 300,206
------------- ------------
Other assets:
Deferred financing costs, net of accumulated amortization of $127,176 and $32,908,
respectively 408,497 263,265
Purchased customer accounts, net of accumulated amortization of $799,393 and
$626,677, respectively 972,764 701,021
Goodwill, net of accumulated amortization of $1,404,681 and $568,750, respectively 17,281,264 1,358,428
Deposits and other 880,066 552,474
------------- ------------
Total other assets 19,542,591 2,875,188
------------- ------------
$ 26,656,909 $ 6,287,109
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Note payable, e.spire Communications, Inc. $ 850,811 $ 850,811
Accounts payable 4,215,688 3,121,390
Accrued expenses and other current liabilities 2,387,107 834,218
Deferred revenues 400,333 --
------------- ------------
Total current liabilities 7,853,939 4,806,419
Note payable to related party, net of original issue discount 2,376,080 --
Long-term debt, net of original issue discount at April 30, 2000 14,315,354 6,837,119
------------- ------------
24,545,373 11,643,538
------------- ------------
Stockholders' equity (deficiency):
Common stock, $.001 par value, authorized 50,000,000 shares; issued and
outstanding 19,240,776 and 12,801,000 shares, respectively 19,241 12,801
Preferred stock, $.001 par value, authorized 7,500,000 shares; none issued -- --
Additional paid-in capital 15,457,926 4,090,605
Accumulated other comprehensive income, unrealized holding gain on investment
securities -- 453,720
Accumulated deficit (13,195,631) (9,913,555)
Treasury stock, at cost 60,000 and no shares, respectively (170,000) --
------------- ------------
Total stockholders' equity (deficiency) 2,111,536 (5,356,429)
------------- ------------
$ 26,656,909 $ 6,287,109
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED APRIL 30, ENDED APRIL 30,
----------------------------------- -------------------------------------
2000 1999 2000 1999
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues $ 10,224,973 $ 3,316,186 $ 18,687,837 $ 5,376,196
Cost of revenues 5,423,130 2,914,959 11,617,900 4,699,594
------------ ------------- ------------- -------------
Gross profit 4,801,843 401,227 7,069,937 676,602
------------ ------------- ------------- -------------
Operating expenses:
Selling 304,437 278,415 844,411 671,388
Administrative 4,767,530 936,867 8,915,333 1,781,156
------------ ------------- ------------- -------------
Total operating expenses 5,071,967 1,215,282 9,759,744 2,452,544
------------ ------------- ------------- -------------
Loss from operations (270,124) (814,055) (2,689,807) (1,775,942)
Other income (expense):
Interest and loan fees (691,570) (171,408) (1,220,989) (306,778)
Gain (loss) on sale of investment
securities -- (88,375) 628,720 (214,625)
------------ ------------- ------------- -------------
Net loss $ (961,694) $ (1,073,838) $ (3,282,076) $ (2,297,345)
============ ============= ============= =============
Net loss per common share -- basic
and diluted $ (0.05) $ (0.08) $ (0.18) $ (0.17)
============ ============= ============= =============
Weighted average common shares
outstanding 19,180,776 13,395,980 18,154,920 13,386,218
============ ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE SIX MONTHS ENDED APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ACCUMULATED
ADDITIONAL OTHER
PAID-IN COMPREHENSIVE
SHARES AMOUNT CAPITAL INCOME (LOSS)
------------ ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance, November 1, 1999 12,801,000 $ 12,801 $ 4,090,605 $ 453,720
Comprehensive loss:
Net loss for the six months
ended April 30, 2000 -- -- -- --
Reclassification adjustment for
gains included in net loss -- -- -- (453,720)
---------- -------- ----------- ----------
Total comprehensive loss
Issuance of common stock in
connection with acquisition
of Omnicall, Inc. 6,439,776 6,440 9,614,381 --
Acquisition of treasury stock -- -- -- --
Issuance of treasury stock for
compensation -- -- -- --
Warrants issued to related party -- -- 855,000 --
Warrants issued to primary
lender of long-term debt -- -- 816,000 --
Capital contribution by
stockholder -- -- 40,000 --
Options granted as
compensation -- $287,793,
less unearned compensation
of $245,853 -- -- 41,940 --
---------- -------- ----------- ----------
Balance, April 30, 2000
(unaudited) 19,240,776 $ 19,241 $15,457,926 $ --
========== ======== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
TREASURY STOCK
ACCUMULATED ---------------------------
DEFICIT SHARES AMOUNT TOTAL
---------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Balance, November 1, 1999 $ (9,913,555) -- $ -- $ (5,356,429)
Comprehensive loss:
Net loss for the six months
ended April 30, 2000 (3,282,076) -- -- (3,282,076)
Reclassification adjustment for
gains included in net loss -- -- -- (453,720)
------------- -- ---------- ------------
Total comprehensive loss (3,735,796)
Issuance of common stock in
connection with acquisition
of Omnicall, Inc. -- -- -- 9,620,821
Acquisition of treasury stock -- (300,000) (850,000) (850,000)
Issuance of treasury stock for
compensation -- 240,000 680,000 680,000
Warrants issued to related party -- -- -- 855,000
Warrants issued to primary
lender of long-term debt -- -- -- 816,000
Capital contribution by
stockholder -- -- -- 40,000
Options granted as
compensation -- $287,793,
less unearned compensation
of $245,853 -- -- -- 41,940
------------- -------- ---------- ------------
Balance, April 30, 2000
(unaudited) $ (13,195,631) (60,000) $ (170,000) $ 2,111,536
============= ======== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED APRIL 30,
-------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,282,076) $ (2,297,345)
------------- -------------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,606,176 279,386
Provision for losses on receivables 472,815 457,277
Issuance of treasury stock as compensation 680,000 --
Options granted as compensation 41,940 --
(Gain) loss on sale of securities (628,720) 214,625
Forgiveness of debt by stockholder 40,000 --
Changes in assets and liabilities, net of effect of acquisition of Omnicall, Inc.:
Accounts receivable (3,287,253) (743,678)
Prepaid expenses and other current assets 37,229 (12,617)
Deposits (327,592) (53,539)
Accounts payable (664,774) 998,338
Accrued expenses and other current liabilities 186,004 634,709
Deferred revenues 400,333 --
------------- -------------
Total adjustments (1,443,842) 1,774,501
------------- -------------
Net cash used in operating activities (4,725,918) (522,844)
------------- -------------
Cash flows from investing activities:
Cash acquired in acquisition of Omnicall, Inc. 450,158 --
Purchase of customer accounts, net (347,022) (2,105,519)
Proceeds from sale of marketable securities -- 85,000
Purchase of equipment (608,632) (223,153)
------------- -------------
Net cash used in investing activities (505,496) (2,243,672)
------------- -------------
Cash flows from financing activities:
Net payments under revolving line of credit (1,999,718) --
Borrowings, Receivable Funding Corporation, net -- 2,993,101
Deferred financing costs (239,500) --
Payments to related parties -- (40,000)
Net increase (decrease) in long-term debt 8,057,621 (111,674)
------------- -------------
Net cash provided by financing activities 5,818,403 2,841,427
------------- -------------
Net increase in cash and cash equivalents 586,989 74,911
Cash and cash equivalents, beginning of period 913,596 118,042
------------- -------------
Cash and cash equivalents, end of period $ 1,500,585 $ 192,953
============= =============
Supplemental disclosure:
Interest paid $ 1,115,000 $ 307,000
============= =============
Noncash financing activities:
Issuance of common stock warrants in connection with extension of note payable
by related party $ 855,000 $ --
Issuance of common stock warrants in connection with amendment to long-term
debt 816,000 --
Exchange of investment securities for treasury stock 850,000 --
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Access One
Communications Corp. and its wholly-owned subsidiaries (collectively, the
"Company"). All intercompany balances and transactions have been eliminated.
The consolidated financial statements and related notes thereto as of April
30, 2000 and for the three and six months ended April 30, 2000 and 1999 are
presented as unaudited but, in the opinion of management, include all
recurring accruals. The consolidated balance sheet information for October
31, 1999 was derived from the Company's audited financial statements. These
interim financial statements should be read in conjunction with such audited
financial statements. The interim results are not necessarily indicative of
the results for any future periods.
2. RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize all
derivative financial instruments as either assets or liabilities in the
balance sheet and measure these instruments at fair value. SFAS No. 133, as
amended by SFAS No. 137, is effective for all fiscal years beginning after
June 15, 2000. The Company does not presently enter into any transactions
involving derivative financial instruments and, accordingly, does not
anticipate that the new standard will have any effect on its financial
statements.
3. BUSINESS ACQUISITION
On November 29, 1999, the Company acquired all of the outstanding shares of
Omnicall, Inc. ("Omnicall"), a competitive local exchange carrier located in
South Carolina, by issuing 6,439,776 shares of its common stock, valued at
$9,620,821. The acquisition has been accounted for under the purchase method
of accounting and, accordingly, operations of the acquired business have been
included in the consolidated financial statements from the acquisition date.
The excess of the consideration given over the fair value of net assets
acquired has been recorded as goodwill of $16,758,767 and is being amortized
on a straight-line basis over a ten-year period.
The following consolidated pro forma financial information is based on the
historical financial statements of the Company and Omnicall for the six
months ended April 30, 2000 and 1999 and is presented as if the acquisition
had occurred on November 1, 1998. The pro forma financial information is
unaudited and is not necessarily indicative of what the actual results of
operations of the Company would have been assuming the acquisition had been
completed as of November 1, 1998, and neither is it necessarily indicative of
the results of operations for future periods.
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Revenues $ 20,134,000 $ 10,824,000
Net loss (3,972,000) (7,208,000)
</TABLE>
The above unaudited consolidated pro forma financial information has been
adjusted to reflect amortization of intangibles as generated by the
acquisition over a ten-year period and an officer's employment agreement
entered into at the date of acquisition.
4. PURCHASED CUSTOMER ACCOUNTS
In March 2000, in a transaction with a competitor, the Company purchased a
customer base of approximately 2,000 access lines and the associated accounts
receivable and payable from the competitor for an aggregate purchase price of
approximately $469,000. Approximately $25,000 of the
F-20
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
4. PURCHASED CUSTOMER ACCOUNTS - (CONTINUED)
purchase price represented accounts receivable, and the remainder,
approximately $444,000, was allocated to the customer base and included in
purchased customer accounts. Approximately $347,000 of the purchase price was
paid in cash, and liabilities aggregating approximately $122,000 were assumed
for the balance of the purchase price.
5. DUE TO RELATED PARTY
On November 29, 1999, in connection with the acquisition of Omnicall, the
terms of a note payable for $3,000,000 to Omnicall's majority stockholder
were renegotiated and extended for consideration of 500,000 warrants to
purchase the Company's common stock at an exercise price of $1.55 per share,
exercisable immediately and expiring on November 30, 2004. The estimated fair
value of these warrants at the date issued was $1.71 per share using the
Black-Scholes option pricing model. Consequently, the Company has recorded an
original issue discount of $855,000 as an offset to the note payable to
stockholder and a contribution of capital in the statement of stockholders'
equity (deficiency). The discount is being amortized over the remaining term
of the loan and is included in administrative expenses in the statement of
operations. As of April 30, 2000, accumulated amortization of the discount
was $231,080 .
The note is repayable in quarterly installments of $750,000 beginning January
31, 2001 and bears interest at LIBOR plus 1%. Upon acquisition of Omnicall by
the Company, the promissory note was amended to provide for immediate
repayment upon change in control or an initial public offering of the
Company.
6. LONG-TERM DEBT
On November 30, 1999, the Company amended its Credit Facility Agreement (the
"Facility") with MCG Finance Corporation ("MCG"). Under the terms of the
amended agreement, the Company can borrow up to $15,000,000. The maximum
amount of credit available under the Facility, however, shall not exceed a
multiple portion of the Company's collections, as defined in the Facility.
The remaining terms of the agreement remain unchanged.
In connection with the Facility, MCG was granted warrants to purchase 400,000
shares of the Company's common stock at $1.55 per share, exercisable
immediately and expiring on November 30, 2009. The estimated fair value of
these warrants at the date issued was $2.04 per share using the Black-Scholes
option pricing model. Consequently, the Company has recorded an original
issue discount of $816,000 as an offset to long-term debt. The discount is
being amortized over the remaining term of the loan and is included in
administrative expenses in the statement of operations. As of April 30, 2000,
accumulated amortization of the discount was $131,612.
7. STOCKHOLDERS' EQUITY (DEFICIENCY)
TREASURY STOCK
During November 1999, the Company exchanged, with an existing stockholder of
the Company, 400,000 shares of eLEC Communications, Inc. ("eLEC") common
stock (a publicly-traded security) for 300,000 shares of its own common
stock. The transaction resulted in the Company recognizing a gain on the sale
of $628,720 and the recording of treasury stock in the amount of $850,000,
which represented the fair market value of the eLEC common stock at the date
of the transaction. The transaction liquidated the Company's remaining
position in eLEC. Soon thereafter, the Company's Board of Directors approved
the issuance of 240,000 of the 300,000 shares of the treasury stock as a
bonus to employees. Compensation expense of $680,000 was recorded in the
quarter ended January 31, 2000, which reflects the estimated fair value of
the issued shares.
F-21
<PAGE>
ACCESS ONE COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
7. STOCKHOLDERS' EQUITY (DEFICIENCY) - (CONTINUED)
STOCK OPTIONS
During the six months ended April 30, 2000, the Company granted options to
employees to purchase 682,978 shares of common stock at an exercise price
ranging from $1.00 - $3.00. The options vest over three years and expire in
ten years after the grant date. Deferred compensation of approximately
$288,000, resulting from the excess of the estimated fair value of such
options granted over their respective exercise price, is amortized over the
vesting period of the option. Compensation expense of approximately $41,940
relating to such deferred compensation was recognized during the six months
ended April 30, 2000.
No options were exercised during the six months ended April 30, 2000.
The following is a summary of outstanding options:
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE AVERAGE
NUMBER PRICE PER EXERCISE
OF SHARES SHARE PRICE
------------- --------------- ---------
<S> <C> <C> <C>
Outstanding, November 1, 1999 1,501,000 $0.50 - $1.65 $ 0.89
Granted during the six months ended April 30, 2000 682,978 $1.00 - $3.00 $ 2.52
Canceled during the six months ended April 30, 2000 (28,000) $1.00 - $1.50 $ 1.05
Converted from Omnicall options on November 29, 1999 24,300 $0.60 - $2.00 $ 1.72
--------- --------------- ------
Outstanding, April 30, 2000 2,180,278 $0.50 - $3.00 $ 1.41
========= =============== ======
Options exercisable, April 30, 2000 1,012,500 $0.50 - $2.00 $ 0.63
========= =============== ======
</TABLE>
8. MATERIAL EVENT
On March 24, 2000, the Company and a wholly-owned subsidiary of Talk.com Inc.
("Merger Sub") entered into an Agreement and Plan of Merger (the "Merger
Agreement") which provides, among other things, for the merger (the "Merger")
of Merger Sub with and into the Company. Under the terms of the Merger
Agreement, upon consummation of the Merger, the Company will become a
wholly-owned subsidiary of Talk.com Inc. ("Talk.com") and Company
stockholders will receive 0.571428 shares of Talk.com common stock in
exchange for each share of the Company's common stock held by such
stockholders at the effective time of the Merger. The transaction has been
approved by the Boards of Directors of both the Company and Talk.com, but is
contingent upon, among other things, approvals of both the Company's and
Talk.com's stockholders, certain regulatory approvals (including approval
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and certain
telecommunications regulatory approvals) and other customary conditions.
Under a Voting Agreement entered into on March 24, 2000, the holders of
approximately 67.7% of the Company's outstanding common stock have agreed to
vote in favor of the Merger. In connection with the Merger, the Company has
also entered into a five-year agreement to provide certain telecommunications
services to Talk.com and its subsidiaries. The Company has the right to
terminate that agreement if the Merger is not consummated.
F-22
<PAGE>
INDEX TO OMNICALL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
OMNICALL, INC.
Independent auditors' report F-24
Balance sheets - December 31, 1998 and 1997 F-25
Statements of operations - Years ended December 31, 1998 and 1997 F-26
Statements of stockholders' equity (deficit) - Years ended December 31, 1998 and 1997 F-27
Statements of cash flows - Years ended December 31, 1998 and 1997 F-28
Notes to financial statements - December 31, 1998 and 1997 F-29
OMNICALL, INC. (UNAUDITED)
Statement of operations - January 1 through November 29, 1999 (unaudited) F-33
Statement of cash flows - January 1 through November 29, 1999 (unaudited) F-34
Notes to financial statements - January 1 through November 29, 1999 (unaudited) F-35
</TABLE>
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Omnicall, Inc.:
We have audited the accompanying balance sheets of Omnicall, Inc. as of December
31, 1998 and 1997 and the related statements of operations, stockholders' equity
(deficit), and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Omnicall, Inc. as of December
31, 1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 8 to the
financial statements, the Company incurred substantial losses in 1998, had
insufficient net current assets to satisfy its current liabilities, and had
total liabilities in excess of total assets, which raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in note 8. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
KPMG LLP
Greenville, South Carolina
March 15, 1999, except for note 3,
as to which the date is March 31, 1999
F-24
<PAGE>
OMNICALL, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 105,221 930
RECEIVABLES:
Trade, net of allowance for uncollectible accounts of $71,599 in
1998 and $2,500 in 1997 882,214 91,163
Other 6,277 10,960
Prepaid expenses and other current assets 13,866 3,540
------------ ------
Total current assets 1,007,578 106,593
FURNITURE, FIXTURES, AND EQUIPMENT:
Furniture and fixtures 72,411 8,554
Computer equipment 350,310 132,773
Other equipment 51,396 30,838
Telephone switching equipment -- project in process 1,124,208 1,017,000
------------ ---------
1,598,325 1,189,165
Less accumulated depreciation and amortization 84,135 5,333
------------ ---------
Net furniture, fixtures, and equipment 1,514,190 1,183,832
------------ ---------
$ 2,521,768 1,290,425
============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line of credit (note 3) 1,999,718 600,000
Accounts payable 1,555,046 136,921
Accrued expenses 870,630 21,713
------------ ---------
Total current liabilities 4,425,394 758,634
Note payable to bank (note 3) 1,900,000 --
Other long-term liabilities (notes 4 and 5) 110,000 950,000
------------ ---------
Total liabilities 6,435,394 1,708,634
------------ ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value, authorized 25,000,000 and 5,000,000 shares, in 1998
and 1997; 1,000,000 shares in 1998 and 1997
issued and outstanding 8,000 8,000
Additional paid-in-capital 2,000,000 --
Accumulated deficit (5,921,626) (426,209)
------------ ---------
Total stockholders' deficit (3,913,626) (418,209)
------------ ---------
Commitments and contingencies (notes 7, 8, and 9) $ 2,521,768 1,290,425
============ =========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
OMNICALL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------------- -------------
<S> <C> <C>
Revenues $ 4,510,999 126,195
Cost of services 4,266,146 111,099
------------- -------
Gross profit 244,853 15,096
Selling, general, and administrative expenses 5,472,815 416,928
Depreciation and amortization 78,802 5,333
------------- -------
Operating loss (5,306,764) (407,165)
OTHER INCOME (EXPENSE):
Interest expense, net (215,560) (19,044)
Other income 26,907 --
------------- --------
Total other income (expense) (188,653) (19,044)
Net loss before income taxes (5,495,417) (426,209)
Income taxes (note 6) -- --
------------- --------
Net loss $ (5,495,417) (426,209)
============= ========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
OMNICALL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK PAID-IN- STOCKHOLDERS'
------------------------ CAPITAL ACCUMULATED EQUITY
SHARES AMOUNT AMOUNT DEFICIT (DEFICIT)
----------- ---------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,000,000 $ 8,000 -- -- 8,000
Net loss -- -- -- (426,209) (426,209)
--------- ------- ------- --------- --------
Balance at December 31, 1997 1,000,000 8,000 -- (426,209) (418,209)
Capital contribution (note 4) -- -- 2,000,000 -- 2,000,000
Net loss -- -- -- (5,495,417) (5,495,417)
--------- ------- --------- ---------- ----------
Balance at December 31, 1998 1,000,000 $ 8,000 2,000,000 (5,921,626) (3,913,626)
========= ======= ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
OMNICALL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,495,417) (426,209)
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization 78,802 5,333
Changes in operating assets and liabilities:
Trade receivables (791,051) (91,163)
Other receivables 4,683 (10,960)
Prepaid expenses and other current assets (10,326) 2,003
Accounts payable 1,418,125 134,039
Accrued expenses 848,917 21,713
Other long-term liabilities 110,000 --
------------- --------
Net cash used in operating activities (3,836,267) (365,244)
------------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture, fixtures, and equipment (409,160) (1,189,165)
------------- ----------
Net cash used in investing activities (409,160) (1,189,165)
------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit (note 3) 1,399,718 600,000
Net borrowings (payments) of notes payable to stockholders (950,000) 950,000
Issuance of note payable to bank (note 3) 1,900,000 --
Contributions to capital 2,000,000 --
------------- ----------
Net cash provided by financing activities 4,349,718 1,550,000
------------- ----------
Net increase (decrease) in cash 104,291 (4,409)
Cash at beginning of period 930 5,339
------------- ----------
Cash at end of period $ 105,221 930
============= ==========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 124,619 19,044
============= ==========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
OMNICALL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
Omnicall, Inc. (the "Company") was formed on May 2, 1996 and began
operations in December 1996 with the first revenues being recognized in
October 1997. The Company purchases local, long distance, and internet
services from major carriers and resells these services to customers
utilizing volume discounts. The Company provides services throughout the
United States.
(B) REVENUE RECOGNITION
Revenue is recognized as services are provided to customers. The Company
bills customers in arrears for actual usage amounts and in advance for
fixed monthly services fees. Accounts receivable as of December 31, 1998
and 1997 include revenues of approximately $122,000 and $50,000,
respectively, for which services were provided in December and billed in
the subsequent period.
(C) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company has not experienced significant losses related
to receivables from individual customers or groups of customers in a
particular industry or geographic area. As a result, management
believes no additional credit risk beyond amounts provided for
collection losses is inherent in accounts receivable. More than a
majority of the Company's net revenues in 1998 were received from the
sale of services purchased from a single provider.
(D) FURNITURE, FIXTURES, AND EQUIPMENT
Furniture, fixtures, and equipment are stated at cost. Depreciation on
furniture, fixtures, and equipment is calculated using the
straight-line method over the estimated useful lives of the assets
ranging from 3 to 10 years.
The Company began purchasing telephone switching equipment in December
1997. This telephone switching equipment will be used to route calls to
consumer homes or businesses as well as other switches. The switch is
currently being tested and will begin depreciation when tests are
complete and service begins.
(E) INCOME TAXES
The Company records income taxes under the asset and liability method.
As such, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and net operating loss carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
(F) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
F-29
<PAGE>
OMNICALL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997 - (CONTINUED )
(2) RELATED PARTY TRANSACTIONS
The Company provides communications services to several entities which are
wholly or partially owned by certain stockholders of the Company. The
Company also purchases equipment and services from several entities which
are wholly or partially owned by certain stockholders of the Company. The
Company leases office space from an entity in which a stockholder has an
indirect interest, and the Company has borrowed from stockholders.
Summarized below are balances and transactions between the Company and its
related parties, as set forth above as of and for the years ended December
31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Equipment purchases $ 59,620 40,192
Accounts payable 152,995 33,932
Notes payable to stockholders (see note 4) -- 950,000
Revenues billed 45,124 10,477
Selling, general, and administrative expenses:
Office rent expense (see note 7) 98,559 17,500
Other expenses 41,257 3,318
Interest expense (see note 4) 89,069 9,062
</TABLE>
(3) LINE OF CREDIT AND NOTE PAYABLE TO BANK
At December 31, 1998 and 1997, the Company had $1,999,718 and $600,000,
respectively, outstanding under a line of credit agreement which is
guaranteed by a stockholder of the Company. The line of credit bears
interest at LIBOR plus 1.5% (5.6% at December 31, 1998). The agreement
allows borrowings up to $2,000,000 and expires in 1999.
On March 31, 1999, the Company negotiated a new note payable to bank to
refinance its pre-existing note payable which had a balance of $1,900,000
outstanding at December 31, 1998. Although the pre-existing agreement
matures March 31, 1999, the amount has been reclassified as long-term based
on the refinancing.
The new note payable to bank bears interest at LIBOR plus 1% and matures
January 1, 2000. The pre-existing note payable to bank bore interest at
5.7%.
(4) NOTES PAYABLE TO STOCKHOLDERS
During 1998 and 1997, the Company entered into various promissory notes with
stockholders of the Company. At December 31, 1997, the Company had
outstanding notes payable of $800,000 and $150,000 bearing interest at 7.25%
and LIBOR plus 1.5% (8.5% at December 31, 1997), respectively. These notes
were classified as other long-term liabilities on the balance sheet. During
1998, the Company borrowed an additional $3,100,000 from stockholders. As of
October 1, 1998, the stockholders agreed to a capital call of $2.00 per
share totaling $2,000,000 as a contribution to paid-in-capital which reduced
notes payable to stockholders. At December 31, 1998, the remaining notes
payable to stockholders had been paid in full.
(5) LEGAL SETTLEMENT
During 1998, the Company sought to acquire the assets of a company which
provided internet web page design services. A letter of intent was signed
which called for an initial payment of $55,000 and additional payments based
on performance. The Company disputed the additional
F-30
<PAGE>
OMNICALL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997 - (CONTINUED)
(5) LEGAL SETTLEMENT - (CONTINUED)
payments as performance did not meet expectations. Both parties agreed to
mediation in January 1999. Mediation resulted in the Company's commitment to
pay installments through October 2001 totaling $375,000 along with the
initial payment of $55,000. Losses associated with this legal settlement
totaled $353,813 and were classified as general expenses in the statement of
operations. Installment payments to be made after 1999 total $110,000 and
are classified as other long-term liabilities.
(6) INCOME TAXES
Income tax benefit for 1998 and 1997 differed from the amounts computed by
applying the Federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
1998 1997
----------------- -------------
<S> <C> <C>
Computed "expected" tax benefit $ (1,868,400) (144,900)
Increase (decrease) in income taxes resulting from:
State and local income taxes, net of Federal
income tax effect (181,300) (14,000)
Change in the valuation allowance for deferred tax
assets allocated to income tax expense 2,045,300 158,600
Other, net 4,400 300
------------- --------
Actual tax benefit $ -- --
============= ========
Deferred tax assets:
Accrued liabilities and allowances $ 109,300 4,100
Capitalized start-up costs 52,800 66,500
Net operating loss carryforwards 2,065,100 89,300
------------- --------
Total gross deferred tax assets 2,227,200 159,900
Less valuation allowance (2,203,900) (158,600)
------------- --------
Net deferred tax assets 23,300 1,300
------------- --------
Deferred tax liabilities:
Fixed assets, principally due to differences in
depreciation (23,300) (1,300)
------------- --------
Net deferred tax liability $ -- --
============= ========
</TABLE>
At December 31, 1998, the Company has a net operating loss carryforward for
Federal and state income tax purposes of approximately $5,535,000 which is
available to offset future taxable income, if any, through the year 2018.
The net change in the tax valuation allowance for the years ended December
31, 1998 and 1997 was an increase of $2,045,300 and $158,600, respectively.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. In order to
fully realize the deferred tax asset, the Company will need to generate
future taxable income prior to the expiration of the net operating loss
carryforward. Based upon the level of taxable
F-31
<PAGE>
OMNICALL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997 - (CONTINUED)
(6) INCOME TAXES - (CONTINUED)
losses incurred during the start-up phase and projections for future taxable
income over the periods which the deferred tax assets are deductible,
management believes it has established an appropriate valuation allowance at
December 31, 1998.
(7) LEASES
The Company leases office space and other equipment. The office space is
leased from a related party (see note 2) under an agreement which expires in
December 2001. This lease has been classified as an operating lease for
financial reporting purposes and rent expense for the years ended December
31, 1998 and 1997 totaled $98,559 and $17,500, respectively. Rent expense
for all other operating leases totaled $40,411 for the year ended December
31, 1998. Future minimum lease payments under all of the noncancelable
operating leases for the years subsequent to December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999 $ 261,303
2000 259,970
2001 175,086
2002 8,208
2003 3,994
---------
Total minimum lease payments $ 708,561
=========
</TABLE>
(8) LIQUIDITY
For the year ended December 31, 1998, the Company lost approximately $5.5
million. At December 31, 1998, the Company's current liabilities exceeded
its current assets by $3,417,816 and it had an accumulated stockholders'
deficit of $3,913,626. Management believes that the Company's cash flow
requirements will be met from proceeds of equity offerings, additional
borrowings from stockholders, and improved cash flows from operations.
(9) YEAR 2000
The Company has completed an impact analysis to determine the scope of its
Year 2000 issues. Systems which are not Year 2000 compliant will be replaced
or reprogrammed, and then tested for Year 2000 compliance. The failure to
detect and correct a material Year 2000 problem could result in an
interruption in normal business activities or operations. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of third party suppliers and customers, the Company is unable to
determine whether the consequences of Year 2000 failures will have a
material impact on the Company's operations.
F-32
<PAGE>
OMNICALL, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1
THROUGH
NOVEMBER
29, 1999
----------------
(UNAUDITED)
<S> <C>
REVENUES (Note 2) $ 12,745,131
COST OF SERVICES 11,820,893
------------
Gross profit 924,238
------------
OPERATING EXPENSES:
Selling, general and administrative expenses (Note 2) 7,789,775
Loss on abandonment of telephone switching
equipment (Note 1(d)) 1,220,167
Depreciation and amortization 123,607
------------
Total operating expenses 9,133,549
------------
Operating loss (8,209,311)
------------
OTHER INCOME (EXPENSE):
Interest expense, net (Note 2) (254,951)
Other income 5,746
------------
Total other expense (249,205)
------------
NET LOSS $ (8,458,516)
============
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
OMNICALL, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1
THROUGH
NOVEMBER
29, 1999
----------------
(UNAUDITED)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,458,516)
Adjustment to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 123,607
Allowance for uncollectible accounts 445,515
Loss on abandonment of telephone switching
equipment 1,220,167
Stock issued for compensation 787,195
Changes in operating assets and liabilities:
Trade receivables 264,867
Other receivables 6,277
Prepaid expenses and other current assets 5,313
Accounts payable 116,610
Accrued expenses (793,155)
Other long-term liabilities (5,000)
------------
Net cash used in operating activities (6,287,120)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture, fixtures and equipment (219,229)
------------
Net cash used in investing activities (219,229)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under line of credit (Note 3) (1,999,718)
Net borrowings under note payable to bank (Note 3) 1,100,000
Advances from Access 2,890,604
Private placement of common stock (Note 5) 3,900,000
Capital contributions (Note 4) 800,000
Exercise of common stock options 160,400
------------
Net cash provided by financing activities 6,851,286
------------
Net increase in cash 344,937
Cash, beginning of period 105,221
------------
Cash, end of period $ 450,158
============
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 254,951
============
NONCASH FINANCING ACTIVITY:
Assumption of note payable by majority stockholder
(Note 3) $ 3,000,000
============
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
OMNICALL, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD JANUARY 1 THROUGH NOVEMBER 29, 1999 (UNAUDITED)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
Omnicall, Inc. (the "Company") was formed on May 2, 1996 and began
operations in December 1996 with the first revenues being recognized in
October 1997. The Company purchases local, long distance, and internet
services from major carriers and resells these services to customers
utilizing volume discounts. The Company provides services throughout
the United States.
On November 29, 1999, the Company was acquired by Access One
Communications Corp. ("Access"). The acquisition was accounted for as a
purchase and was effectuated by Access issuing 6,493,776 shares of its
common stock for all the issued and outstanding shares of common stock
of the Company. The purchase price was allocated to the assets acquired
and the liabilities assumed based upon their estimated fair value. All
references to stockholders of the Company relate to those stockholders
prior to the acquisition by Access.
(B) REVENUE RECOGNITION
Revenue is recognized as services are provided to customers. The
Company bills customers in arrears for actual usage amounts and in
advance for fixed monthly services fees.
(C) CONCENTRATION OF CREDIT RISK AND MAJOR VENDOR
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company has not experienced significant losses related
to receivables from individual customers or groups of customers in a
particular industry or geographic area. As a result, management
believes no additional credit risk beyond amounts provided for
collection losses is inherent in accounts receivable.
More than a majority of the Company's net revenues in 1999 were earned
from the sale of services purchased from a single provider.
(D) FURNITURE, FIXTURES, AND EQUIPMENT
Furniture, fixtures, and equipment are stated at cost. Depreciation of
furniture, fixtures, and equipment is calculated using the
straight-line method over the estimated useful lives of the assets
ranging from 3 to 10 years.
The Company began purchasing telephone-switching equipment in December
1997. This telephone switching equipment was to be used to route calls
to consumer homes or businesses as well as other switches. During the
second half of 1999, in conjunction with the sale of the Company, the
Company abandoned the switching equipment, which resulted in a loss of
$1,220,167.
(E) EVALUATING RECOVERABILITY OF LONG-LIVED ASSETS
The Company reviews the carrying value of its long-lived and
identifiable assets for possible impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may
not be recoverable. The Company assesses recoverability of these assets
by estimating future nondiscounted cash flows. Any long-lived assets
held for disposal are reported at the lower of their carrying amounts
or fair value less cost to sell. No impairments have been recorded
through November 29, 1999, except for the abandonment of the switching
equipment discussed in Note 1(d).
F-35
<PAGE>
OMNICALL, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD JANUARY 1 THROUGH NOVEMBER 29, 1999 (UNAUDITED) - (CONTINUED)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(F) INCOME TAXES
The Company records income taxes under the asset and liability method.
As such, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and net operating loss carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
(G) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(H) STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 encourages
entities to adopt the fair value method in place of the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," for all arrangements under which employees
receive shares of stock or other equity instruments of the employer or
the employer incurs liabilities to employees in amounts based on the
price of the stock.
The Company has not adopted the fair value method encouraged by SFAS
No. 123 and will continue to account for such transactions in
accordance with APB No. 25.
(I) COMPREHENSIVE INCOME
The Company has no items of comprehensive income or expense.
Accordingly, the Company's comprehensive loss and net loss are equal
for all periods presented.
(J) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to
recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. SFAS No.
133, as amended by SFAS No. 137, is effective for all fiscal years
beginning after June 15, 2000. The Company anticipates that the new
standard will have no effect on its financial statements.
(2) RELATED PARTY TRANSACTIONS
The Company provides communications services to several entities which
are wholly or partially owned by certain stockholders of the Company.
The Company leases office space from an entity in which a stockholder
has an indirect interest, and the Company has borrowed from
stockholders (see also Note 4).
F-36
<PAGE>
OMNICALL, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD JANUARY 1 THROUGH NOVEMBER 29, 1999 (UNAUDITED) - (CONTINUED)
(2) RELATED PARTY TRANSACTIONS - (CONTINUED)
Summarized below are balances and transactions between the Company and its
related parties, as set forth above for the period January 1 through
November 29, 1999:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Revenues billed $251,978
Selling, general, and administrative expenses:
Office rent expense (see Note 7) 154,200
Other expenses 228,665
Interest expense (see Note 4) 24,597
</TABLE>
(3) LINE OF CREDIT AND NOTE PAYABLE TO BANK
At December 31, 1998, the Company had $1,999,718 outstanding under a line of
credit agreement which was guaranteed by a stockholder of the Company. The
line of credit bore interest at LIBOR plus 1.5% (5.6% at December 31, 1998).
The agreement allowed for borrowings up to $2,000,000 and was fully repaid
on November 29, 1999 from the proceeds of advances made to the Company by
Access.
On March 31, 1999, the Company negotiated a new note payable to a bank to
refinance its pre-existing note payable which had a balance of $1,900,000
outstanding at December 31, 1998. Although the pre-existing agreement
matured March 31, 1999, the amount was reclassified as long-term based on
the refinancing as of December 31, 1998. The pre-existing note payable to
bank bore interest at 5.7%. The new note payable to bank bore interest at
LIBOR plus 1% and was to mature January 1, 2000. The note payable, which had
a balance of $3,000,000 outstanding as of October 15, 1999, was assumed by
the Company's majority stockholder on that date. As a result, the Company
issued a note payable for $3,000,000 to the majority stockholder (see Note
4).
(4) NOTE PAYABLE TO STOCKHOLDER
As discussed in Note 3, on October 15, 1999, the Company issued a note
payable for $3,000,000 to its majority stockholder, as consideration for the
assumption by the majority stockholder of the Company's liability under a
note payable to a bank. The note was originally due on January 31, 2000;
however, immediately following the acquisition of the Company by Access, the
note was renegotiated and extended by the stockholder for consideration of
warrants to purchase 500,000 shares of Access common stock at an exercise
price of $1.55 per share. The estimated fair value of these warrants at the
date issued was $1.71 per share using the Black-Scholes option-pricing
model. Consequently, Access recorded an original issue discount of $855,000
as an offset to the note payable to stockholder and a credit to additional
paid-in capital by the majority stockholder in its statement of
stockholders' equity immediately following its acquisition of the Company.
The discount will be amortized over the remaining term of the loan.
The note is repayable in quarterly installments of $750,000 beginning
January 31, 2001 and bears interest at LIBOR plus 1%. Upon acquisition of
the Company by Access, the promissory note was amended to provide for
immediate repayment upon change in control or initial public offering of
Access.
During 1999, the Company's majority stockholder made advances to the Company
totaling $840,000 to fund continuing operations. On November 29, 1999, upon
acquisition of the Company by Access, $800,000 of the advances were
contributed to additional paid-in capital by the majority stockholder.
F-37
<PAGE>
OMNICALL, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD JANUARY 1 THROUGH NOVEMBER 29, 1999 (UNAUDITED) - (CONTINUED )
(5) STOCKHOLDERS' DEFICIT
Stock Split
Effective January 1, 1999, the Company's Board of Directors approved a
10-for-1 stock split.
Private Placement
The Company issued, primarily during the second quarter of 1999, 1,950,000
shares of common stock in a private placement at a price of $2.00 per share.
The net proceeds of the offering were $3,900,000, which were used to fund
the Company's continuing operations.
Stock Issued for Compensation
During 1999, the Company instituted an Equity Participation Program (the
"Program") for its outside independent marketing force ("Dealers"). Under
the Program, Dealers earned shares of the Company's common stock by meeting
certain sales criteria. The Program allowed for vesting of the common stock
over a three-year period, barring change in control of the Company, upon
which the shares would vest immediately. As a result of the acquisition of
the Company by Access, 1,093,327 of the Dealer shares vested on November 29,
1999. The Company recorded $787,195 as selling, general and administrative
expense with a corresponding increase in common stock, which represents the
estimated fair value of such Dealer shares as of that date.
Stock Options
During 1999, the Company granted certain employees and non-employee
directors of the Company 446,500 non-qualified options to purchase shares of
the Company's common stock. These options generally become exercisable in 10
years from the date of grant. All such remaining options as of the date of
the acquisition of the Company by Access were converted to options to
purchase shares of Access common stock.
The following table contains information on stock options for the period
January 1 through November 29, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------------- -----------------
<S> <C> <C>
Outstanding, January 1, 1999 -- $ --
Granted 446,500 0.69
Exercised (319,000) 0.51
Forfeited/cancelled (67,500) 0.60
Outstanding, November 29, 1999 60,000 $ 1.77
</TABLE>
Immediately following the acquisition of the Company by Access, the 60,000
stock options outstanding were converted to options to purchase Access
common stock.
(6) INCOME TAXES
Income tax benefit for 1999 differed from the amounts computed by applying
the Federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Computed "expected" tax benefit $ (2,880,000)
Increase (decrease) in income taxes resulting from:
</TABLE>
F-38
<PAGE>
OMNICALL, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD JANUARY 1 THROUGH NOVEMBER 29, 1999 (UNAUDITED) - (CONTINUED)
(6) INCOME TAXES - (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
State and local income taxes, net of Federal
income tax effect (254,000)
Change in the valuation allowance for deferred
tax assets allocated to income tax expense 3,134,000
---------
Actual tax benefit $ --
=========
</TABLE>
At November 29, 1999, the Company has net operating loss carryforwards for
Federal and state income tax purposes of approximately $14,000,000 which are
available to offset future taxable income, if any, through the year 2019.
Internal Revenue Code Section 382 provides for the limitation for the use of
net operating loss carryforwards in years subsequent to a more that 50%
cumulative change in ownership. Since a more than 50% cumulative change in
ownership occurred on November 29, 1999, utilization of the net operating
loss carryforwards is limited to approximately $500,000 annually.
(7) LEASES
The Company leases office space and other equipment under leases through
2003. The office space is leased from a related party (see Note 2) under an
agreement which expires in December 2001. This lease has been classified as
an operating lease for financial reporting purposes and rent expense for the
period January 1 through November 29, 1999 totaled $141,851. Rent expense
for all other operating leases totaled $107,102 for the period January 1
through November 29, 1999. Future minimum lease payments under all of the
noncancelable operating leases for years subsequent to December 31, 1999 are
as follows (future minimum lease payments for periods subsequent to November
29, 1999 are not substantially different than for years subsequent to
December 31, 1999):
<TABLE>
<S> <C>
2000 .................................... $ 272,000
2001 .................................... 188,000
2002 .................................... 16,000
2003 .................................... 5,000
---------
Total minimum lease payments ................... $ 481,000
=========
</TABLE>
F-39
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER AMONG
TALK.COM, INC.,
ALADDIN ACQUISITION CORP.,
AND
ACCESS ONE COMMUNICATIONS CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. DEFINITIONS A-1
2. THE TRANSACTION A-5
(a) The Merger A-5
(b) The Closing A-5
(c) Actions at the Closing A-5
(d) Effect of Merger A-6
(e) Procedure for Exchange A-7
(f) Escrow A-9
(g) Closing of Transfer Records A-9
3. REPRESENTATIONS AND WARRANTIES OF THE TARGET A-9
(a) Organization, Qualification, and Corporate Power A-10
(b) Capitalization A-10
(c) Noncontravention A-10
(d) Compliance with Laws; Licenses A-11
(e) Customers A-11
(f) Suppliers A-11
(g) Brokers' Fees A-11
(h) Title to Assets A-11
(i) Subsidiaries A-11
(j) Financial Statements A-12
(k) Events Subsequent to Most Recent Fiscal Year End A-12
(l) Undisclosed Liabilities A-14
(m) Legal Compliance A-14
(n) Tax Matters A-14
(o) Real Property A-15
(p) Intellectual Property A-16
(q) Tangible Assets A-16
(r) Inventory A-16
(s) Contracts A-16
(t) Notes and Accounts Receivable A-17
(u) Powers of Attorney A-17
(v) Insurance A-17
(w) Litigation A-18
(x) Employees A-18
(y) Employee Benefits A-18
(z) Guaranties A-20
(aa) Environmental, Health and Safety Matters A-20
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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(bb) Certain Business Relationships with the Target and its
Subsidiaries A-21
(cc) Accounts; Lockboxes; Safe Deposit Boxes A-21
(dd) Securities A-21
(ee) Accounting Matters A-21
(ff) Disclosure A-21
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PARENT
SUBSIDIARY A-21
(a) Organization A-21
(b) Capitalization A-21
(c) Authorization of Transaction A-22
(d) Noncontravention A-22
(e) Brokers' Fees A-22
(f) Continuity of Business A-22
(g) Securities Exchange Act Reports A-22
(h) Disclosure A-22
(i) Authorization for Parent Shares A-23
(j) NASDAQ Compliance A-23
(k) Litigation A-23
(l) No Material Adverse Changes A-23
5. COVENANTS A-23
(a) General A-23
(b) Notices and Consents A-23
(c) Regulatory Matters and Approvals A-23
(d) Operation of the Business A-25
(e) Preservation of Business A-25
(f) Full Access A-25
(g) Notice of Developments A-25
(h) Exclusivity A-25
(i) Continuity of Business A-26
(j) Employment Agreements A-27
(k) Listing A-27
(1) Services Agreement A-27
(m) Voting Agreement A-27
(n) MCG Finance Agreement A-27
(o) Lockup Agreement A-27
6. CONDITIONS TO OBLIGARTION TO CLOSE A-27
(a) Conditions to Obligation of Parent and the Parent Subsidiary A-27
(b) Conditions to Obligation of the Target and Stockholders A-29
7. REMEDIES FOR BREACHES OF THIS AGREEMENT A-30
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(a) Survival of Representations and Warranties A-30
(b) Indemnification Agreement A-30
(c) Other Indemnification Provisions A-30
(d) Directors' and Officers' Indemnity A-30
8. TERMINATION A-30
(a) Termination of Agreement A-30
(b) Effect of Termination A-31
9. MISCELLANEOUS A-31
(a) Press Releases and Public Announcements A-31
(b) No Third-Party Beneficiaries A-31
(c) Entire Agreement A-31
(d) Binding Effect; Assignment A-32
(e) Counterparts A-32
(f) Headings A-32
(g) Notices A-32
(h) GOVERNING LAW A-33
(i) Amendments and Waivers A-33
(j) Severability A-33
(k) Expenses A-33
(l) Incorporation of Exhibits A-33
(m) Construction A-33
(n) Incorporation of Exhibits and Schedules A-34
(o) Specific Performance A-34
(p) Submission to Jurisdiction A-34
(q) WAIVER OF JURY TRIAL A-34
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is dated effective
March 24, 2000, by and among TALK.COM, INC., a Delaware corporation ("Parent"),
ALADDIN ACQUISITION CORP., a Delaware corporation and a direct wholly-owned
Subsidiary of Parent (the "Parent Subsidiary"), and ACCESS ONE COMMUNICATIONS
CORP., a New Jersey corporation (the "Target"). Parent, the Parent Subsidiary
and the Target are referred to collectively herein as the "Parties."
WITNESSETH:
WHEREAS, this Agreement contemplates a transaction whereby Parent will
acquire all of the outstanding capital stock of the Target through a merger of
the Parent Subsidiary with and into the Target;
WHEREAS, the Board of Directors of each of Parent, the Parent Subsidiary
and the Target has approved the acquisition of the Target by Parent, including
the merger of the Parent Subsidiary with and into the Target (the "Merger"),
upon the terms and subject to the conditions set forth herein;
WHEREAS, the Board of Directors of the Target has determined that the
Merger is advisable and is fair to and in the best interests of the holders of
the Target's capital stock, par value $.001 per share (the "Target Shares"), and
has resolved to recommend the approval of the Merger and the adoption of this
Agreement by the Stockholders;
WHEREAS, the Board of Directors of Parent has determined that the Merger is
advisable and is fair to and in the best interests of the holders of Parent's
capital stock, par value $0.01 per share (the "Parent Shares")
WHEREAS, the Stockholders that are signatory to the Voting Agreement have
agreed to vote for the Merger on the terms and subject to the conditions set
forth in this Agreement; and
WHEREAS, this Agreement contemplates that for U.S. Federal income tax
purposes the Merger will qualify as a reorganization within the meaning of Code
Section 368(a).
NOW, THEREFORE, in consideration of the premises and the mutual promises
set forth herein, and in consideration of the representations, warranties and
covenants set forth herein, the Parties agree as follows:
1. Definitions.
"Acquisition Proposal" means any proposal or offer (including, without
limitation, any proposal or offer to the Stockholders) with respect to a merger,
acquisition, consolidation, recapitalization, reorganization, liquidation,
tender offer or exchange offer or similar transaction involving, or any purchase
of 25% or more of the consolidated assets of, or any equity interest
representing 25% or more of the outstanding shares of capital stock in, the
Target.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
Section 1504(a) or any similar group defined under a similar provision of
federal, state, local or foreign law.
"Agreement" has the meaning set forth in the preamble.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act or transaction that forms or could form the basis for any
specified consequence.
"Certificate of Merger" has the meaning set forth in Section 2(c) below.
"Closing" has the meaning set forth in Section 2(b) below.
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"Closing Date" has the meaning set forth in Section 2(b) below.
"Closing Sales Price per Parent Share" means, on any day, the average of
the last reported sale price of one Parent Share on the Nasdaq for each of the
five trading days immediately preceding such day.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of ERISA
and Code Section 4980B and of any similar state law.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreements" means the letter agreements dated February 9,
2000 and March 8, 2000, between Parent and the Target, providing that, among
other things, each Party would maintain confidential certain information of the
other Party.
"Deferred Intercompany Transaction" has the meaning set forth in Treas.
Reg. Section 1.1502-13.
"Delaware General Corporation Law" means Title 8, Chapter 1 of the Delaware
Code, as amended.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"Employee Benefit Plan" means any "employee benefit plan" (as such term is
defined in ERISA Section 3(3)) and any other employee benefit plan, program or
arrangement of any kind.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1).
"Employment Agreement" has the meaning set forth in Section 5(j) below.
"Environmental, Health, and Safety Requirements" means all federal, state,
local and foreign statutes, regulations, ordinances and other provisions having
the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychiorinated biphenyl, noise or radiation, each as amended and as now or
hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity that is treated as a single employer
with the Target for purposes of Code Section 414.
"Escrow Agent" has the meaning set forth in Section 2(0(i) below.
"Escrow Agreement" has the meaning set forth in Section 2(0(i) below.
"Escrow Amount" has the meaning set forth in Section 2(e)(i) below.
"Excess Loss Account" has the meaning set forth in Treas. Reg. Section
1.1502-19.
"Exchange Agent" has the meaning set forth in Section 2(e)(i) below.
"Exchange Fund" has the meaning set forth in Section 2(e)(i) below.
"FCC" means the Federal Communications Commission.
"Fiduciary" has the meaning set forth in ERISA Section 3(2 1).
"Financial Statements" has the meaning set forth in Section 3(j) below.
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"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Governmental Entity" means any United States federal, state or local or
any foreign government, governmental regulatory or administrative authority,
agency, commission (including any department or political subdivision of any of
the foregoing), court, tribunal or judicial or arbitral body.
"Governmental Order" means any order, ruling, writ, judgment, injunction,
decree, charge, stipulation, determination or award entered by or with any
Governmental Entity.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indemnification Agreement" has the meaning set forth in Section 7(b)
below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names and corporate names, together with all translations, adaptations,
derivations and combinations thereof and including all goodwill associated
therewith, and all applications, registrations and renewals in connection
therewith, (c) all copyrightable works, all copyrights and all applications,
registrations and renewals in connection therewith, (d) all mask works and all
applications, registrations and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulae, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Laws" mean any laws, statutes, rules, ordinances, regulations, codes,
plans, injunctions, judgments, orders, writs, decrees, rulings and charges
thereunder of any Governmental Entity.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Licenses" has the meaning set forth in Section 3(d)(i) below.
"Material Adverse Effect" means, relative to any occurrence of whatever
nature (including any adverse determination in any litigation, arbitration or
governmental investigation or proceeding), a material adverse change to, or, as
the case may be, a materially adverse effect on (x) the business, assets,
revenues, financial condition, operations or prospects of Target or any of its
Subsidiaries identified at or prior to Closing in any writing; (y) the ability
of Target or any of its Subsidiaries to perform any of its or their payment
obligations when due or to perform any other material obligations; or (z) any
right, remedy or benefit of Parent, Parent Subsidiary or Surviving Corporation
hereunder or under any related document.
"MCG" has the meaning set forth in Section 5(n) below.
"MCG Agreement" has the meaning set forth in Section 5(n) below.
"Merger" has the meaning set forth in the preamble.
"Merger Consideration" has the meaning set forth in Section 2(d)(v) below.
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
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"Most Recent Financial Statements" has the meaning set forth in Section
3(j) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 3(j)
below. "Most Recent Fiscal Year End" has the meaning set forth in Section 3(j)
below. "Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"NASD" means the National Association of Securities Dealers, Inc. "Nasdaq" means
the Nasdaq National Market.
"Ordinary Course of Business" means the ordinary course of business
consistent with past practice.
"Parent" has the meaning set forth in the preamble.
"Parent Board" means the board of directors of Parent.
"Parent Fairness Opinion" means an opinion of Bear Stearns & Co. Inc.,
addressed to the Parent Board, as to the fairness of the Merger to Parent from
a financial point of view.
"Parent SEC Documents" has the meaning set forth in Section 4(g) below.
"Parent Shares" has the meaning set forth in the preamble.
"Parent Special Meeting" has the meaning set forth in Section 5(c)(ii)
below.
"Parent Stockholder" means any Person who or which holds any Parent Shares.
"Parent Subsidiary" has the meaning set forth in the preamble.
"Parties" has the meaning set forth in the preamble.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or a Governmental Entity.
"Per Share Merger Consideration" has the meaning set forth in Section
2(d)(v) below.
"Pledgee" has the meaning set forth in the preamble of the Escrow
Agreement.
"Principal Executive" has the meaning set forth in Section 5(j) below.
"Process Agent" has the meaning set forth in Section 9(p) below.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Registration Statement" has the meaning set forth in Section 5(c)(v)
below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Representative" has the meaning set forth in Section 5(h)(i) below.
"Requisite Stockholder Approval" means the affirmative vote of the holders
of the outstanding Target Shares in favor of the adoption of this Agreement in
accordance with the New Jersey Business Corporation Act of the State of New
Jersey.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
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"Security Interest" means any mortgage, pledge, lien, encumbrance, charge
or other security interest, other than (a) mechanic's, materialman's and similar
liens; (b) liens for taxes not yet due and payable; (c) purchase money liens and
liens securing rental payments under capital lease arrangements; and (d) other
liens arising in the Ordinary Course of Business and not incurred in connection
with the borrowing of money.
"Services Agreement" has the meaning set forth in Section 5(1) below.
"Stockholder" has the meaning set forth in Section 3(b) below.
"Stock Rights" means each option, warrant, purchase right, subscription
right, conversion right, exchange right or other contract, commitment or
security providing for the issuance or sale of any capital stock, or otherwise
causing to become outstanding any capital stock.
"Subsidiary" of a specified Person means any corporation, limited liability
company, partnership, joint venture or other legal entity of which the specified
Person (either alone or together with any other Subsidiary of the specified
Person) owns, directly or indirectly, more than 50% of the stock or other
equity, partnership, limited liability company or equivalent interests, the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity, or
otherwise has the power to vote or direct the voting of sufficient securities to
elect a majority of such board of directors or other governing body.
"Superior Proposal" has the meaning set forth in Section 5(h)(ii) below.
"Surviving Corporation" has the meaning set forth in Section 2(a) below.
"SWDA" has the meaning set forth in Section 3(aa)(iii). "Target" has the
meaning set forth in the preamble.
"Target Board" means the board of directors of the Target. "Target Shares"
has the meaning set forth in the preamble.
"Target Special Meeting" has the meaning set forth in Section 5(c)(i)
below.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any report, return, declaration or other information
required to be supplied to a taxing authority in connection with Taxes.
"Voting Agreement" has the meaning set forth in Section 5(m) below.
2. The Transaction
(a) The Merger. On and subject to the terms and conditions of this
Agreement, the Parent Subsidiary will merge with and into the Target at the
Effective Time. The Target shall be the corporation surviving the Merger (the
"Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Kelley Drye &
Warren LLP, 1200 19th Street, N.W., Washington, D.C. 20036, commencing at 9:00
a.m. local time on the third business day following the satisfaction or waiver
of all conditions to the obligations of the Parties to consummate the
transactions contemplated by this Agreement (other than conditions with respect
to actions the respective Parties will take at the Closing itself) or such other
date as the Parties may mutually determine (the "Closing Date").
(c) Actions at the Closing. At the Closing, (i) the Target will deliver to
Parent and the Parent Subsidiary the various certificates, instruments and
documents referred to inSection 6(a) below; (ii) Parent and the Parent
Subsidiary will deliver to the Target the various certificates, instruments and
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documents referred to in Section 6(b) below; (iii) the Target and the Parent
Subsidiary will file with the Secretary of State of the State of Delaware and
with the Secretary of State of the State of New Jersey a Certificate of Merger
in the form attached as Exhibit A (the "Certificate of Merger") and (iv) Parent
will deliver or cause to be delivered the Exchange Fund to the Exchange Agent in
the manner provided below in this Section 2.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") the Target and the Parent Subsidiary file the
Certificate of Merger with the Secretary of State of the State of
Delaware and with the Secretary of State of the State of New Jersey or
at such later time as the Parties may agree and specify in the
Certificate of Merger. The Merger shall have the effects set forth in
the Delaware General Corporation Law and the New Jersey Business
Corporation Act. The Surviving Corporation may, at any time after the
Effective Time, take any action (including executing and delivering any
document) in the name and on behalf of either the Target or the Parent
Subsidiary in order to carry out and effectuate the transactions
contemplated by this Agreement.
(ii) Certificate of Incorporation. At the Effective Time, the
certificate of incorporation of the Surviving Corporation shall be
amended to read in its entirety in the form of Exhibit B and, as so
amended, shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended in accordance with its terms and as
provided by law.
(iii) By-laws. The By-laws of the Surviving Corporation shall be
amended and restated at and as of the Effective Time to read in their
entirety as did the By-laws of the Parent Subsidiary in effect
immediately prior to the Effective Time and shall be the By-laws of the
Surviving Corporation until amended in accordance with their terms and
as provided by law.
(iv) Directors and Officers. The directors and officers of the Parent
Subsidiary immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation at and as of the
Effective Time (retaining their respective positions and terms of
office), until the earlier of their respective resignation, removal or
otherwise ceasing to be a director or officer, respectively, or until
their respective successors are duly elected and qualified, as the case
may be.
(v) Conversion of Target Shares. At and as of the Effective Time, (A)
each issued and outstanding Target Share will be converted into the
right to receive .571428 Parent Shares (the "Per Share Merger
Consideration"), and all such Target Shares will no longer be
outstanding, will be canceled and will cease to exist, and each holder
of a certificate representing any such Target Shares will thereafter
cease to have any rights with respect to such Target Shares, except the
right to receive the Per Share Merger Consideration for each such Target
Share towhich the holder of such Target Shares is entitled pursuant to
Section 2(e) upon the surrender of such certificate in accordance with
Section 2(e) (collectively, the "Merger Consideration") except that the
Per Share Merger Consideration shall be subject to equitable and
proportionate adjustment in the event of any stock split, stock dividend
or reverse stock split by Parent between the date of this Agreement and
the Closing Date, and (B) each Target Share owned by the Target shall be
canceled without payment therefor. No Target Share shall be deemed to be
outstanding or to have any rights other than those set forth above in
this Section 2(d)(v) after the Effective Time. Notwithstanding anything
to the contrary in this Section 2(d)(v), no fractional Parent Shares
shall be issued to then former holders of Target Shares. In lieu
thereof, each then former holder of a Target Share who would otherwise
have been entitled to receive a fraction of a Parent Share (after taking
into account all certificates delivered by such then former holder at
any one time) shall receive an amount in cash equal to such fraction of
a Parent Share multiplied by $14.
(vi) Conversion of Stock Rights. The Target shall take all such
action as may be necessary to cause, at the Effective Time, each Stock
Right granted by the Target to
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purchase Target Shares that is outstanding and unexercised immediately
prior thereto (whether or not vested or exercisable), to be converted
automatically into an equivalent Stock Right to purchase Parent Shares in
an amount and at an exercise price determined as follows:
(x) The number of Parent Shares to be subject to the new Stock
Right will be equal to the product of the number of Target Shares
subject to the original Stock Right multiplied by the Per Share
Merger Consideration, provided that any fractional Parent Shares
resulting from this multiplication will be rounded as provided in the
instrument governing the Stock Right or, if there is no such
instrument, up to the next whole share; and
(y) The exercise price per Parent Share under the new Stock Right
will be equal to the quotient of the exercise price per Target Share
under the original Stock Right divided by the Per Share Merger
Consideration, provided that the exercise price resulting from this
division will be rounded as provided in the instrument governing the
Stock Right or, if there is no instrument, up to the next whole cent.
The adjustments provided in this Section 2(d)(vi) with respect to any
original Stock Rights that are "incentive stock options" (as defined in
Section 422 of the Code) must be and are intended to be effected in a
manner that is consistent with Section 424(a) of the Code. The option
plan of the Target under which the original Stock Rights were issued will
be assumed by Parent, and the duration and other terms of the new Stock
Rights will be the same as the original Stock Rights, except that all
references to the Target will be deemed to be references to Parent.
Promptly following the Effective Time, Parent shall deliver to the former
holdersof original Stock Rights appropriate agreements representing the
right to acquire Parent Shares on the terms and conditions set forth in
this Section 2(d)(vi); provided, however, that a portion of any warrants
issuable under such agreements, equal in an amount that when added to the
portion of the Merger Consideration to be withheld and delivered to the
Escrow Agent in accordance with Section 2(e)(i) constitutes 10% of the
total Merger Consideration, shall be withheld from each of the Pledgees
(as defined in the Escrow Agreement) under such agreements under the
Escrow Agreement proportionately, based on the Merger Consideration to
which each such Pledgee is entitled pursuant to this Agreement.
The Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of Parent Shares for delivery on exercise of
the new Stock Rights in accordance with this Section 2(d)(vi). At the
Effective Time, Parent shall file a registration statement on Form S-8
(or any successor form) or another appropriate form, and seek to cause
this Form S-8 to become effective at or as soon as practicable after the
Effective Time, with respect to Parent Shares subject to new employee
stock options included in the Stock Rights and shall use best efforts to
maintain the effectiveness of this registration statement or registration
statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as these options remain
outstanding. With respect to those individuals who subsequent to the
Merger will be subject to the reporting requirements under Section 16(a)
of the Securities Exchange Act, Parent shall administer the option plans
assumed pursuant to this Section 2(d)(vi) in a manner that complies with
Rule 1 6b-3 promulgated under the Securities Exchange Act to the extent
the Target option plan complied with this rule prior to the Merger.
(vii) Conversion of Capital Stock of the Parent Subsidiary. At and as
of the Effective Time, each share of common stock, $.01 par value per
share, of the Parent Subsidiary will be converted into one share of
common stock, $.0l par value per share, of the Surviving Corporation.
(e) Procedure for Exchange.
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(i) Immediately after the Effective Time, (A) Parent shall furnish to
First City Transfer Company, its transfer agent, or such other bank or
trust company reasonably acceptable to the Target, to act as exchange
agent (the "Exchange Agent") a corpus (the "Exchange Fund") consisting
of Parent Shares and cash sufficient to permit the Exchange Agent to
make full payment of the Merger Consideration to the holders of all of
the issued and outstanding Target Shares (other than any Target Shares
owned by the Target), less such portion of the Parent Shares to be
delivered to the holders of the issued and outstanding Target Shares
which when added to the other Merger Consideration to be delivered to
the Escrow Agent pursuant to the Escrow Agreement pursuant to Section
2(d)(vi) above constitutes 10% of the total Merger Consideration (the
"Escrow Amount") which will be withheld from each of the Pledgees under
the Escrow Agreement proportionately, based on the Merger Consideration
to which each such Pledgee is entitled pursuant to this Agreement and
(B) Parent will causethe Exchange Agent to mail a letter of transmittal
(with instructions for its use) in a form to be mutually agreed upon by
the Target and Parent prior to Closing to each holder of issued and
outstanding Target Shares (other than any Target Shares owned by the
Target) for the holder to use in surrendering the certificates that,
immediately prior to the Effective Time, represented his or its Target
Shares against payment of the Merger Consideration to which the holder
is entitled pursuant to Section 2(e)(ii), subject to the escrow of the
Escrow Amount pursuant to the Escrow Agreement. Upon surrender to the
Exchange Agent of these certificates, together with the letter of
transmittal, duly executed and completed in accordance with the letter
of transmittal instructions, subject to the escrow of the Escrow Amount
pursuant to the Escrow Agreement, Parent shall promptly cause to be
issued a certificate representing that number of whole Parent Shares and
a check representing the amount of cash in lieu of any fractional shares
to which the Persons are entitled, after giving effect to any required
tax withholdings. No interest will be paid or accrued on the cash in
lieu of fractional shares payable to recipients of Parent Shares. If
payment is to be made to a Person other than the registered holder of
the certificate surrendered, it shall be a condition of payment that the
surrendered certificate must be properly endorsed or otherwise in proper
form for transfer and that the Person requesting such payment shall pay
any transfer or other taxes required by reason of the payment to a
Person other than the registered holder of the certificate surrendered
or establish to the reasonable satisfaction of the Surviving Corporation
or the Exchange Agent that this tax has been paid or is not applicable.
If any certificate representing Target Shares is lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person
claiming a certificate to be lost, stolen or destroyed, the Exchange
Agent will issue in exchange for this lost, stolen or destroyed
certificate the Merger Consideration deliverable in respect thereof
except that, the Person to whom this Merger Consideration is paid shall,
as a condition precedent to the payment thereof, indemnify the Surviving
Corporation in a manner reasonably satisfactory to it against any claim
that may be made against the Surviving Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed. No dividends
or other distributions declared after the Effective Time with respect to
Parent Shares and payable to the holders of record thereof will be paid
to the holder of any unsurrendered certificate until the holder thereof
shall surrender this certificate in accordance with this Section 2(e).
After the surrender of a certificate in accordance with this Section
2(e), the record holder thereof is entitled to receive any such
dividends or other distributions, without any interest thereon, which
previously had become payable with respect to the Parent Shares
represented by such certificate. No holder of an unsurrendered
certificate is entitled, until the surrender of such certificate, to
vote the Parent Shares into which his or its Target Shares shall have
been converted.
(ii) The Parent shall pay, or shall cause the Surviving Corporation to
pay, all charges and expenses of the Exchange Agent.
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(f) Escrow.
(i) At the Effective Time, Parent, the Parent Subsidiary, Target,
Kenneth G. Baritz and the Escrow Agent shall execute and deliver an
escrow agreement substantially in the form of the attached Exhibit C
(the "Escrow Agreement") under which a person mutually satisfactory to
Parent, the Parent Subsidiary and Target shall act as escrow agent (the
"Escrow Agent") with respect to the Parent Shares and other securities
convertible into Parent Shares deposited with the Escrow Agent. Parent
shall deposit the Escrow Amount with the Escrow Agent, which shall be
withheld from the Merger Consideration as provided in Section 2(e) in
connection with the indemnification obligations set forth in Section 7
below and the Indemnification Agreement.
(ii) Subject to the provisions of this Section 2(f), the Escrow
Agreement and the Indemnification Agreement, the Escrow Amount shall be
paid to the Stockholders one year following the Effective Time, as
reduced by the amount of any Material Adverse Effect the Parent, Parent
Subsidiary or Surviving Corporation may suffer based on, arising from or
in connection with all claims for indemnification asserted in writing
within such one year period pursuant to the Indemnification Agreement
that have not been fully resolved.
(iii) For all purposes of this Agreement and the Escrow Agreement,
whenever Parent Shares shall be required to be delivered to satisfy an
indemnity or contribution obligation of any Party hereto, each Parent
Share shall be valued at the Closing Sales Price per Parent Share on the
date when a notice asserting a claim under the Indemnification Agreement
is given pursuant thereto. In the event of any stock split, reverse
stock split, stock combination or reclassification of the Parent Shares
or any merger, consolidation or combination of Parent with any other
entity or entities, the deemed value specified above for the Parent
Shares shall be proportionally adjusted so that the deemed value of the
Parent Shares after such event shall be the same as the deemed value of
the Parent Shares prior to such event. All such adjustments shall be
made successively.
(iv) Kenneth G. Baritz and his representatives shall be entitled to
inspect all of the work papers, schedules and other supporting
documentation relating to the calculation of any Material Adverse Effect
pursuant to Section 2(f)(ii).
(g) Closing of Transfer Records. After the Effective Time, no transfer of
Target Shares outstanding prior to the Effective Time may be made on the stock
transfer books of the Surviving Corporation. If, after the Effective Time,
certificates representing such shares are presented for transfer to the Exchange
Agent, they shall be canceled and exchanged for certificates representing Parent
Shares and cash in lieu of fractional shares, if any, as provided in Section
2(e).
3. Representations and Warranties of the Target. The Target represents and
warrants to the Parent and Parent Subsidiary that the statements contained in
this Section 3 are correct andcomplete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3 unless otherwise specifically provided), except as set
forth in the disclosure schedule delivered by the Target to the Parent on the
date hereof and initialed by the Parties (the "Disclosure Schedule"). Nothing in
the Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein, however, unless the Disclosure Schedule
identifies the exception with particularity and describes the relevant facts.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). All information that is necessary to make a given section of the
Disclosure Schedule complete and accurate, but is not fully disclosed therein,
shall nevertheless be deemed to be complete and accurate if it is contained in
any other paragraph of the Disclosure Schedule provided that appropriate
cross-references are included in all applicable sections of the Disclosure
Schedule. The Disclosure Schedule will be arranged in paragraphs corresponding
to the lettered and numbered paragraphs contained in this Section 3.
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(a) Organization, Qualification, and Corporate Power. Each of the Target
and its Subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation. Each of
the Target and its Subsidiaries is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required except if such failure would not have a Material Adverse Effect. Each
of the Target and its Subsidiaries has full corporate power and authority and
all licenses, permits, and authorizations necessary to carry on the businesses
in which it is engaged and in which it presently proposes to engage and to own
and use the properties owned and used by it. Section 3(a) of the Disclosure
Schedule lists for each of the Target and its Subsidiaries (i) the directors and
officers; (ii) the state of incorporation; and (iii) the jurisdictions in which
the corporation is qualified to do business. The Target has delivered to the
Parent correct and complete copies of the charter and bylaws of each of the
Target and its Subsidiaries (as amended to date). The minute books (containing
the records of meetings of the stockholders, the board of directors, and any
committees of the board of directors), the stock certificate books, and the
stock record books of each of the Target and its Subsidiaries are correct and
complete, and the Target has delivered to the Parent copies of all such items.
None of the Target and its Subsidiaries is in default under or in violation of
any provision of its charter or bylaws.
(b) Capitalization. The entire authorized capital stock of the Target
consists of 57,500,000 Target Shares, of which 50,000,000 shares are designated
as common stock and7,500,000 shares are designated as preferred stock. Of the
authorized common stock, 19,236,833 Target Shares are issued and outstanding and
30,000 Target Shares are held in treasury. All of the issued and outstanding
Target Shares have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by the respective stockholders as set
forth in Section 3(b) of the Disclosure Schedule (each a "Stockholder" and
collectively, "Stockholders"). Other than options that are exercisable into
2,180,278 Target Shares and warrants that are exercisable into 3,582,889 Target
Shares (as identified in Section 3(b) of the Disclosure Schedule with all
relevant material infornrntion including but not limited to exercise price,
exercise term, transferability restrictions, employment related conditions (if
any) and vesting rights), there are no outstanding or authorized options,
warrants, purchase rights, subscriptionrights, conversion rights, exchange
rights, or other contracts or commitments that could require the Target to
issue, sell, or otherwise cause to become outstanding any of its capital stock.
There are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Target. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of the capital stock of the Target (other than the Voting Agreement).
Each Stockholder holds of record and, to Target's Knowledge, owns beneficially
the number of Target Shares set forth next to his or its name in Section 3(b) of
the Disclosure Schedule, free and clear of any restrictions on transfer (other
than any restrictions under the Securities Act and state securities laws),
Taxes, Security Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims and demands. To Target's Knowledge, no Stockholder
is a party to any option, warrant, purchase right or other contract or
commitment that could require the Stockholder to sell, transfer or otherwise
dispose of any capital stock of the Target (other than this Agreement).
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any Law or Governmental Order to which any of the Target and its
Subsidiaries is subject or any provision of the charter or bylaws of any of the
Target and its Subsidiaries or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which any of the Target and its Subsidiaries is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any Security Interest upon any of its assets). None of the Target and its
Subsidiaries needs to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any Governmental Entity in order for the
Parties to consummate the transactions contemplated by this Agreement except for
(x) the filing of a Notification and Report Form by Target under the
Hart-Scott-Rodino Act; (y) the filings pursuant to the Delaware General
Corporation Law and the New Jersey Business Corporation Act; and (z) the filings
with and the approvals of the FCC and state public utility commissions or other
Governmental Entities identified in Section 3(c) of the Disclosure Schedule.
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(d) Compliance with Laws; Licenses. Except as set forth in Section 3(d) of
the Disclosure Schedule, Target and its Subsidiaries have conducted and continue
to conduct their respective businesses in accordance with all Laws, Licenses and
Governmental Orders applicable to any of the businesses in which any of the
Target and its Subsidiaries is engaged and in which they presently propose to
engage, and Target and its Subsidiaries are not in violation of any such Law,
License or Governmental Order except to the extent that noncompliance would not
have a Material Adverse Effect.
(i) Target and its Subsidiaries hold all permits, licenses,
certificates, variances, exemptions, orders, approvals, tariffs, rate
schedules and similar documents from Governmental Entities
(collectively, "Licenses") that are necessary to own, lease and operate
the assets and properties they currently own, lease and operate and to
conduct their respective businesses and operations in the manner
previously conducted and as proposed to be conducted. Section 3(d)(i) of
the Disclosure Schedule sets forth all Licenses issued by the FCC or any
state public utility commission and all other Licenses held by Target or
its Subsidiaries,together with any pending applications filed by Target
or its Subsidiaries for other Licenses. Target has delivered to Parent
correct and complete copies of all Licenses (including the applications
related thereto) and all pending applications listed on Section 3(d)(i)
of the Disclosure Schedule. No event has occurred with respect to any
such License or application that would permit the revocation,
termination, suspension or denial thereof or would result in any
impairment of the rights of the holder thereof. No notice has been
received and to Target's Knowledge no investigation or review is pending
or threatened by any Governmental Entity with regard to any alleged
violation by Target or any of its Subsidiaries of any License or any
alleged failure by Target or any of its Subsidiaries to have any
Licenses.
(e) Customers. Listed in Section 3(e) of the Disclosure Schedule are the
names and addresses of the ten most significant customers (by revenue) of Target
and its Subsidiaries for the twelve-month period ended December 31, 1999 and the
amount for which each such customer was invoiced during such period. Target has
not received any notice or has any Knowledge that any significant customer of
Target or any of its Subsidiaries has ceased, or will cease, to use the
products, equipment, goods or services of Target or any of its Subsidiaries, or
has substantially reduced or will substantially reduce, the use of such
products, equipment, goods or services at any time.
(f) Suppliers. Listed in Section 3(f) of the Disclosure Schedule are the
names and addresses of all the suppliers from which Target or any of its
Subsidiaries ordered services, raw materials, supplies, merchandise and other
goods from with an aggregate purchases price of $500,000 or more during the
twelve-month period ended December 31, 1999. Except as disclosed in Section 3(f)
of the Disclosure Schedule, Target has not received any notice or has any
Knowledge that any such supplier will not sell services, raw materials,
supplies, merchandise and other goods to Target or any of its Subsidiaries at
any time, on terms and conditions substantially similar to those used in its
current sales to Target or any of its Subsidiaries, subject only to general and
customary price increases.
(g) Brokers' Fees. Neither the Target and its Subsidiaries nor any
Stockholder has any Liability or obligation to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions contemplated by
this Agreement.
(h) Title to Assets. Except as identified in Section 3(h) of the Disclosure
Schedule, the Target and its Subsidiaries have good and marketable title to, or
a valid leasehold interest in, the properties and assets used by them, located
on their premises, or shown on the Most Recent Balance Sheet or acquired after
the date thereof, free and clear of all Security Interests, except for
properties and assets disposed of in the Ordinary Course of Business since the
date of the Most Recent Balance Sheet.
(i) Subsidiaries. Section 3(i) of the Disclosure Schedule sets forth for
each Subsidiary of the Target (i) its name and jurisdiction of incorporation,
(ii) the number of shares of authorized capital stock of each class of its
capital stock, (iii) the number of issued and outstanding shares of each class
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of its capital stock, the names of the holders thereof, and the number of shares
held by each such holder, and (iv) the number of shares of its capital stock
heldin treasury. All of the issued and outstanding shares of capital stock of
each Subsidiary of the Target have been duly authorized and are validly issued,
fully paid and nonassessable. All of the outstanding shares of each Subsidiary
of the Target is free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims and demands. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights or other contracts or commitments that could require any of the Target
and its Subsidiaries to sell, transfer or otherwise dispose of any capital stock
of any of its Subsidiaries or that could require any Subsidiary of the Target to
issue, sell or otherwise cause to become outstanding any of its own capital
stock. There are no outstanding stock appreciation, phantom stock, profit
participation or similar rights with respect to any Subsidiary of the Target.
There are no voting trusts, proxies or other agreements or understandings with
respect to the voting of any capital stock of any Subsidiary of the Target. None
of the Target and its Subsidiaries controls directly or indirectly or has any
direct or indirect equity participation in any corporation, partnership, trust
or other business association which is not a Subsidiary of the Target.
(j) Financial Statements. Attached hereto as Exhibit D are the following
financial statements (collectively the "Financial Statements"): (i) audited
consolidated balance sheets and statements of income, changes in stockholders'
equity, and cash flow as of and for the fiscal years ended October 31, 1997,
October 31, 1998, and October 31, 1999 (the "Most Recent Fiscal Year End") for
the Target and its Subsidiaries; and (ii) unaudited consolidated balance sheets
and statements of income, changes in stockholders' equity, and cash flow (the
"Most Recent Financial Statements") as of and for the month ended December 31,
1999 (the "Most Recent Fiscal Month End") for the Target and its Subsidiaries.
The Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of the Target and its
Subsidiaries as of such dates and the results of operations of the Target and
its Subsidiaries for such periods, are correct and complete, and are consistent
with the books and records of the Target and its Subsidiaries (which books and
records are correct and complete).
(k) Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent
Fiscal Year End, there has not been any Material Adverse Effect involving any of
the Target and its Subsidiaries. Without limiting the generality of the
foregoing, since that date:
(i) none of the Target and its Subsidiaries has sold, leased,
transferred, or assigned any of its assets, tangible or intangible,
other than in the Ordinary Course of Business;
(ii) none of the Target and its Subsidiaries has entered into any
agreement, contract, lease or license (or series of related agreements,
contracts, leases and licenses) either involving more than $250,000 or
other than in the Ordinary Course of Business;
(iii) no party (including any of the Target and its Subsidiaries) has
accelerated, terminated, modified or cancelled any agreement, contract,
lease or license (or series of related agreements, contracts, leases and
licenses) involvingmore than $250,000 to which any of the Target and its
Subsidiaries is a party or by which any of them is bound;
(iv) none of the Target and its Subsidiaries has made any capital
expenditure (or series of related capital expenditures) either involving
more than $250,000 or other than in the Ordinary Course of Business;
(v) none of the Target and its Subsidiaries has made any capital
investment in, any loan to, or any acquisition of the securities or
assets of, any other Person (or series of related capital investments,
loans or acquisitions) either involving more than $50,000 or other than
in the Ordinary Course of Business;
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(vi) none of the Target and its Subsidiaries has issued any note, bond
or other debt security or created, incurred, assumed or guaranteed any
indebtedness for borrowed money or capitalized lease obligation either
involving more than $50,000 singly or $250,000 in the aggregate;
(vii) none of the Target and its Subsidiaries has delayed or postponed
the payment of accounts payable and other Liabilities other than in the
Ordinary Course of Business;
(viii) none of the Target and its Subsidiaries has cancelled,
compromised, waived or released any right or claim (or series of related
rights and claims) either involving more than $50,000 or other than in
the Ordinary Course of Business;
(ix) none of the Target and its Subsidiaries has granted any license
or sublicense of any rights under or with respect to any Intellectual
Property;
(x) other than as contemplated by this Agreement, there has been no
change made or authorized in the charter or bylaws of any of the Target
and its Subsidiaries;
(xi) none of the Target and its Subsidiaries has issued, sold or
otherwise disposed of any of its capital stock, or granted any options,
warrants or other rights to purchase or obtain (including upon
conversion, exchange or exercise) any of its capital stock other than as
described in Section 3(k)(xi) of the Disclosure Schedule;
(xii) none of the Target and its Subsidiaries has declared, set aside
or paid any dividend or made any distribution with respect to its
capital stock (whether in cash or in kind) or redeemed, purchased or
otherwise acquired any of its capital stock;
(xiii) none of the Target and its Subsidiaries has experienced any
damage, destruction or loss (whether or not covered by insurance) to its
property which could have a Material Adverse Effect;
(xiv) none of the Target and its Subsidiaries has made any loan to, or
entered into any other transaction with, any of its directors, officers
or employees other than in the Ordinary Course of Business;
(xv) none of the Target and its Subsidiaries has entered into any
employment contract or collective bargaining agreement, written or oral,
or modified the terms of any such existing contract or agreement;
(xvi) none of the Target and its Subsidiaries has granted any increase
in the base compensation of any of its directors, officers or employees
other than in the Ordinary Course of Business;
(xvii) none of the Target and its Subsidiaries has adopted, amended,
modified or terminated any bonus, profit-sharing, incentive, severance
or other plan, contract or commitment for the benefit of any of its
directors, officers or employees (or taken any such action with respect
to any other Employee Benefit Plan);
(xviii) none of the Target and its Subsidiaries has made any other
change in employment terms for any of its directors, officers or
employees other than in the Ordinary Course of Business;
(xix) none of the Target and its Subsidiaries has made or pledged to
make any charitable or other capital contribution other than in the
Ordinary Course of Business;
(xx) there has not been any other occurrence, event, incident, action,
failure to act or transaction other than in the Ordinary Course of
Business involving any of the Target and its Subsidiaries that could
have a Material Adverse Effect; and
(xxi) none of the Target and its Subsidiaries has committed to any of
the foregoing.
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(l) Undisclosed Liabilities. None of the Target and its Subsidiaries has
any Liability (and to the Knowledge of the Target) there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against any of them giving rise to any Liability),
except for (i) Liabilities set forth on the face of the Most Recent Balance
Sheet and (ii) Liabilities which have arisen after the Most Recent Fiscal Month
End in the Ordinary Course of Business (none of which results from, arises out
of, relates to, is in the nature of or was caused by any breach of contract,
breach of warranty, tort, infringement or violation of law).
(m) Legal Compliance. Each of the Target, its Subsidiaries, and their
respective predecessors and Affiliates has complied in all material respects
with all Laws, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or, to the Target's
Knowledge, commenced against any of them alleging any failure so to comply the
failure of which could have a Material Adverse Effect.
(n) Tax Matters.
(i) Each of the Target and its Subsidiaries has filed all Tax Returns
that it was required to file. All such Tax Returns were correct and
complete in all material respects. All Taxes owed by any of the Target
and its Subsidiaries (whether or not shown on any Tax Return) have been
paid. None of the Target and its Subsidiaries currently is the
beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by a Governmental Entity in a
jurisdiction where any of the Target and its Subsidiaries does not file
Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the assets of
any of the Target and its Subsidiaries that arose in connection with any
failure (or alleged failure) to pay any Tax.
(ii) Each of the Target and its Subsidiaries has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor,
stockholder or other third party.
(iii) There is no dispute or claim concerning any Liability for any
Tax of any of the Target and its Subsidiaries either (A) claimed or
raised by any Governmental Entity in writing received by the Target or
any of its Subsidiaries or (B) as to which any of the directors and
officers (and employees responsible for Tax matters) of the Target and
its Subsidiaries has Knowledge based on personal contact with any agent
of such Governmental Entity. Section 3(n) of the Disclosure Schedule
lists all federal, state, local and foreign income Tax Returns filed
with respect to any of the Target and its Subsidiaries for taxable
periods ended on or after October 31, 1998, indicates those Tax Returns
that have been audited, and indicates those Tax Returns that currently
are the subject of audit. The Target has delivered to the Parent correct
and complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to by
any of the Target and its Subsidiaries since October 31, 1998.
(iv) None of the Target and its Subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(v) None of the Target and its Subsidiaries has filed a consent under
Code Section 34 1(f) concerning collapsible corporations. None of the
Target and its Subsidiaries has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G. None of the Target and its
Subsidiaries has been a United States real property holding corporation
within the meaning of Code Section 897(c)(2) during the applicable
period specified in Code Section 897(c)(1)(A)(ii). Each of the Target
and its Subsidiaries has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Taxwithin the meaning of Code Section
6662. None of the Target and its Subsidiaries is a party to any Tax
allocation
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or sharing agreement. None of the Target and its Subsidiaries (A) has
been a member of an Affiliated Group filing a consolidated federal income
Tax Return (other than a group the common parent of which was the Target)
or (B) has any Liability for the Taxes of any Person (other than any of
the Target and its Subsidiaries) under Treas. Reg. Section 1.1502-6 (or
any similar provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise.
(vi) Section 3(n) of the Disclosure Schedule sets forth the following
information with respect to each of the Target and its Subsidiaries (or,
in the case of clause (B) below, with respect to each of the
Subsidiaries) as of the most recent practicable date (as well as on an
estimated pro forma basis as of the Closing giving effect to the
consummation of the transactions contemplated hereby): (A) the amount of
any net operating loss, net capital loss, unused investment or other
credit, unused foreign tax, or excess charitable contribution allocable
to the Target or Subsidiary; and (B) the amount of any deferred gain or
loss allocable to the Target or Subsidiary arising out of any Deferred
Intercompany Transaction. Promptly following the execution of this
Agreement, Target shall update Section 3(n) of the Disclosure Schedule
to add (C) the basis of the Target or Subsidiary in its assets; and (D)
the basis of the stockholder(s) of the Subsidiary in its stock (or the
amount of any Excess Loss Account).
(vii) The unpaid Taxes of the Target and its Subsidiaries (A) did not,
as of the Most Recent Fiscal Month End, exceed the reserve for Taxes
(other than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) and (B) do
not exceed that reserve as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the
Target and its Subsidiaries in filing their Tax Returns.
(o) Real Property.
(i) Neither the Target nor any of its Subsidiaries owns any real
property.
(ii) Section 3(o)(ii) of the Disclosure Schedule lists and describes
hriefly all real property leased or subleased to any of the Target and
its Subsidiaries. The Target has delivered to the Parent correct and
complete copies of the leases and subleases listed in Section 3(o)(ii)
of the Disclosure Schedule (as amended to date). With respect to each
lease and sublease listed in Section 3(o)(ii) of the Disclosure
Schedule:
(1) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect;
(2) the lease or sublease will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby;
(3) no party to the lease or sublease is in breach or default, and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default or permit termination, modification or acceleration
thereunder;
(4) no party to the lease or sublease has repudiated any provision
thereof;
(5) there are no disputes, oral agreements or forbearance programs in
effect as to the lease or sublease;
(6) with respect to each sublease, the representations and warranties set
forth in subsections (1) through (5) above are true and correct with respect
to the underlying lease;
(7) none of the Target and its Subsidiaries has assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
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(8) all facilities leased or subleased thereunder have received all
approvals of Governmental Entities (including Licenses) required in
connection with the operation thereof and have been operated and maintained
in accordance with all Laws;
(9) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said facilities;
and
(10) to the Knowledge of the Target, there are no restrictions that
impair the current use or occupancy of the property that is subject to the
lease.
(p) Intellectual Property.
(i) Set forth in Section 3(p) of the Disclosure Schedule is a complete
and correct list of all Intellectual Property owned or used by the
Target or its Subsidiaries. Except as set forth in 3(p) of the
Disclosure Schedule, (A) the Target and/or its subsidiaries own or have
the right to use all of such Intellectual Property free and clear of any
Security Interest, license or other restriction; (B) no proceedings have
been instituted, are pending or, to the Knowledge of the Target are
threatened, which challenge the rights of the Target and/or its
Subsidiaries in respect of such Intellectual Property or the validity
thereof and, to the Knowledge of the Target, there is no Basis for any
such proceedings; (C) none of such Intellectual Property violates any
Laws, or has at any time infringed on or violated any rights of others,
or is being infringed by others; and (D) none of such Intellectual
Property is subject to any outstanding Governmental Order.
(ii) The Target and its Subsidiaries own or have the right to use
pursuant to license, sublicense, agreement or permission all
Intellectual Property necessary or desirable for the operation of the
businesses of the Target and its Subsidiaries as presently conducted and
as presently proposed to be conducted. Each item of Intellectual
Property owned or used by any of the Target and its Subsidiaries
immediately prior to the Closing hereunder will be owned or available
for use by the Surviving Corporation or the Target's Subsidiary on
identical terms and conditions immediately subsequent to the Closing
hereunder. Each of the Target and its Subsidiaries has taken all
necessary and desirable action to maintain and protect each item of
Intellectual Property that it owns or uses. None of the Target and its
Subsidiaries has ever agreed to indemnify any Person for or against any
interference, infringement, misappropriation or other conflict with
respect to any item included in such Intellectual Property.
(q) Tangible Assets. The Target and its Subsidiaries own or lease all
buildings, machinery, equipment and other tangible assets necessary for the
conduct of their businesses as presently conducted and as presently proposed to
be conducted. Each such tangible asset is free from defects (patent and latent),
has been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used and presently is
proposed to be used.
(r) Inventory. Neither the Target nor its Subsidiaries holds any supplies,
manufactured or purchased parts, goods in process or finished goods for sale in
the Ordinary Course of Business.
(s) Contracts. Section 3(s) of the Disclosure Schedule lists the following
contracts and other agreements to which any of the Target and its Subsidiaries
is a party:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for annual lease
payments in excess of $50,000 per annum;
(ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products or other
personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year,
result in a loss to any of the Target and its Subsidiaries, or involve
annual consideration in excess of $250,000;
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(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it has
created, incurred, assumed or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $50,000 or
under which it has imposed a Security Interest on any of its assets,
tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with any of the Stockholders and their Affiliates
(other than the Target and its Subsidiaries);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance or other plan or
arrangement for the benefit of its current or former directors, officers
or employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting or other basis providing annual
compensation in excess of $70,000 or providing severance benefits;
(x) any agreement under which it has advanced or loaned any amount to
any of its directors, officers or employees outside the Ordinary Course
of Business;
(xi) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect; or
(xii) any other agreement (or group of related agreements) the
performance of which involves annual consideration in excess of $50,000.
The Target has delivered to the Parent a correct and complete copy of each
written agreement listed in Section 3(s) of the Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 3(s) of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C) no
party is in material breach or material default, and no event has occurred which
with notice or lapse of time would constitute a material breach or material
default, or permit termination, modification or acceleration under the
agreement; and (D) no party has repudiated any material provision of the
agreement.
(t) Notes and Accounts Receivable. All notes and accounts receivable of the
Target and its Subsidiaries are reflected properly on their books and records,
are valid receivables and subject to no setoffs or counterclaims, are current
and collectible (except as described in Section 3(t) of the Disclosure
Schedule), subject only to the reserve for bad debts set forth on the face of
the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for
the passage of time through the Closing Date in accordance with the past custom
and practice of the Target and its Subsidiaries. Listed in Section 3(t) of the
Disclosure Schedule are notes or accounts receivable of the Company or any of
its Subsidiaries in excess of $50,000.
(u) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of any of the Target and its Subsidiaries.
(v) Insurance. Section 3(v) of the Disclosure Schedule sets forth the
following information with respect to each current insurance policy (including
policies providing property,casualty, liability and workers' compensation
coverage and bond and surety arrangements) to which any of the Target and its
Subsidiaries are a party, a named insured, or otherwise the beneficiary of
coverage:
(i) the name, address and telephone number of the agent;
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(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was on
a claims made, occurrence or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate)
of coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither any of the Target and its Subsidiaries nor any other party
to the policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and to the Knowledge of the Target, no event
has occurred which, with notice or the lapse of time, would constitute such a
breach or default, or permit termination, modification or acceleration under the
policy; and (D) no party to the policy has repudiated any provision thereof Each
of the Target and its Subsidiaries has been covered during the past 5 years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. Neither Target nor any of
its Subsidiaries has maintained any self-insurance arrangements during the past
5 years.
(w) Litigation. Section 3(w) of the Disclosure Schedule sets forth each
instance in which any of the Target and its Subsidiaries (i) is subject to any
outstanding Governmental Order or (ii) is a party or to the Knowledge of the
Target is threatened to be made a party to any action, suit, proceeding, hearing
or investigation of, in or before, any Governmental Entity or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction or
before any arbitrator or mediator. Except as set forth in Section 3(w) of the
Disclosure Schedule, none of such actions, suits, proceedings, hearings and
investigations could result in any Material Adverse Effect.
(x) Employees. To the Knowledge of the Target, no executive, key employee,
or group of employees has any plans to terminate employment with any of the
Target and its Subsidiaries and there is no organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
employees of any of the Target and its Subsidiaries. None of the Target and its
Subsidiaries is a party to or bound by any collective bargaining agreement, nor
has any of them experienced any strikes, grievances, claims of unfair labor
practices, or other collective bargaining disputes. None of the Target and its
Subsidiaries has committed any unfair labor practice.
(y) Employee Benefits.
(i) Section 3(y) of the Disclosure Schedule lists each Employee
Benefit Plan that any of the Target and its Subsidiaries maintains, to
which any of the Target and its Subsidiaries contributes or has any
obligation to contribute, and describes any Liability or potential
Liability that may be incurred by or imposed on the Target or any of its
Subsidiaries with respect thereto.
(1) To the Knowledge of the Target, each such Employee Benefit Plan (and
each related trust, insurance contract or fund) has been maintained, funded
and administered in accordance with the terms of such Employee Benefit Plan
and complies in form and in operation in all material respects with the
applicable requirements of ERISA, the Code, and other applicable laws.
(2) To the Knowledge of the Target, all material required reports and
descriptions (including annual reports (IRS Form 5500), summary annual
reports, and summary plan descriptions) have been timely filed and/or
distributed in accordance with the applicable
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requirements of ERISA and the Code with respect to each such Employee Benefit
Plan. To the Knowledge of the Target, the requirements of COBRA have been met
in all material respects with respect to each such Employee Benefit Plan
which is an Employee Welfare Benefit Plan subject to COBRA.
(3) All material contributions (including all employer contributions and
employee salary reduction contributions) which are due have been made within
the time period prescribed by ERISA to each such Employee Benefit Plan which
is an Employee Pension Benefit Plan and all material contributions for any
period ending on or before the Closing Date which are not yet due have been
made to each such Employee Pension Benefit Plan or accrued in accordance
with the past custom and practice of the Target and its Subsidiaries. All
premiums or other payments for all periods ending on or before the Closing
Date, that are due on or before the Closing Date, have been paid with
respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(4) Each such Employee Benefit Plan which is intended to meet the
requirements of a "qualified plan" under Code Section 401(a) has received a
determination from the Internal Revenue Service that such Employee Benefit
Plan is so qualified, and to the Knowledge of the Target nothing has
occurred since the date of such determination that could adversely affect
the qualified status of any such Employee Benefit Plan.
(5) The market value of assets under each such Employee Benefit Plan
which is an Employee Pension Benefit Plan (other than any Multiemployer
Plan) equals or exceeds the present value of all vested and nonvested
Liabilities thereunder as determined by the independent actuary for the
Employee Pension Benefit Plan in accordance with PBGC methods, factors, and
assumptions applicable to an Employee Pension Benefit Plan terminating on
the Closing Date.
(6) The Target has delivered to the Parent correct and complete copies of
the plan documents and summary plan descriptions, the most recent
determinationletter received from the Internal Revenue Service, the most
recent annual report (IRS Form 5500, with all applicable attachments), and
all related trust agreements, insurance contracts, and other funding
arrangements which implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that any of the
Target, its Subsidiaries, and any ERISA Affiliate maintains, to which
any of them contributes or has any obligation to contribute, and
describes any Liability or potential Liability that may be incurred by
or imposed on the Target or any of its Subsidiaries with respect
thereto:
(1) No such Employee Benefit Plan which is an Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been completely or partially
terminated or to the Knowledge of the Target been the subject of a
Reportable Event. No proceeding by the PBGC to terminate any such Employee
Pension Benefit Plan (other than any Multiemployer Plan) has been instituted
or threatened.
(2) To the Knowledge of the Target, there have been no Prohibited
Transactions with respect to any such Employee Benefit Plan. No Fiduciary
has any material Liability for breach of fiduciary duty or any other failure
to act or comply in connection with the administration or investment of the
assets of any such Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other than
routine claims for benefits) is pending or to the Knowledge of the Target is
threatened. None of the directors and officers (and employees with
responsibility for employee benefits matters) of the Target and its
Subsidiaries has any Knowledge of any Basis for any such action, suit,
proceeding, hearing or investigation.
(3) None of the Target and its Subsidiaries has incurred any material
Liability to the PBGC (other than with respect to PBGC premium payments not
yet due) or otherwise under Title IV of ERISA (including any withdrawal
liability as defined in ERISA Section 4201) or under the
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Code with respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan, or under COBRA with respect to any such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.
(iii) None of the Target, its Subsidiaries, and any ERISA Affiliate
contributes to, has any obligation to contribute to, or has any
Liability (including withdrawal liability as defined in ERISA Section
4201) under or with respect to any Multiemployer Plan.
(iv) Section 3(y)(iv) of the Disclosure Schedule lists each Employee
Welfare Benefit Plan that any of the Target and its Subsidiaries
maintains, to which any of the Target and its Subsidiaries contributes
or has any obligation to contribute, and describes any Liability or
potential Liability that may be incurred by or imposed on the Target or
any of its Subsidiaries with respect to medical, health or life
insurance or other welfare-type benefits for current or future retired
or terminated employees, their spouses, or their dependents (other than
in accordance with COBRA).
(z) Guaranties. None of the Target and its Subsidiaries is a guarantor or
otherwise is liable for any Liability or obligation (including indebtedness) of
any other Person.
(aa) Environmental, Health and Safety Matters.
(i) The properties and facilities currently occupied by the Target and
its Subsidiaries are not being used by Target or its Subsidiaries to
make, store, handle, treat, dispose, generate, or transport hazardous
substances in violation of any Environmental, Health, and Safety
Requirement.
(ii) To the Knowledge of Target, hazardous substances have never been
made, stored, handled, treated, disposed of, generated, or transported
on or from the properties and facilities occupied by the Target and its
Subsidiaries during the term of such occupancy, except in accordance
with Law.
(iii) The properties, facilities and operations of the Target and its
Subsidiaries and their respective predecessors and Affiliates have
complied and are in compliance in all material respects with all
applicable Environmental, Health, and Safety Requirements. Without
limiting the generality of the foregoing, each of the Target, its
Subsidiaries and their respective Affiliates has obtained and complied
with, and is in compliance with, all permits, licenses and other
authorizations that are required pursuant to Environmental, Health, and
Safety Requirements for the occupation of its facilities and the
operation of its business; a list of all such permits, licenses and
other authorizations is set forth in Section 3(aa)(iii) of the
Disclosure Schedule.
(iv) To the Knowledge of Target, none of the properties, facilities or
operations of the Target and its Subsidiaries is subject to any judicial
or administrative proceedings alleging the violation of any applicable
Environmental, Health, and Safety Requirements.
(v) To the Knowledge of Target, none of the properties, facilities or
operations of the Target and its Subsidiaries is the subject of federal,
state or local investigation evaluating whether any remedial action is
needed to respond to a release of any hazardous or toxic waste,
substance or constituent, any petroleum or petroleum product, or any
other hazardous, illegal or unlawful substance into the environment.
(vi) Neither the Target nor its Subsidiaries has filed any notice
under any Law indicating past or present treatment or disposal of a
hazardous waste, hazardous substance or any petroleum or petroleum
product, or reporting a spill or release of a hazardous or toxic waste,
substance or constituent, any petroleum or petroleum product, or any
other substance into the environment.
(vii) None of the Target and its Subsidiaries have within the past
year received written notice nor are they aware of any contingent
liability in connection with any release of any hazardous or toxic
waste, substance orconstituent, any petroleum or petroleum product, or
any other substance into the environment.
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(bb) Certain Business Relationships with the Target and its Subsidiaries.
Except as described in Section 3(bb) of the Disclosure Schedule, none of the
Stockholders and their Affiliates has been involved in any business arrangement
or relationship with any of the Target and its Subsidiaries within the past 12
months, and none of the Stockholders and their Affiliates owns any asset,
tangible or intangible, which is used in the business of any of the Target and
its Subsidiaries.
(cc) Accounts; Lockboxes; Safe Deposit Boxes. Section 3(cc) of the
Disclosure Schedule contains a true and complete list of (i) the names of each
bank, savings and loan association, securities or commodities broker or other
financial institution in which any of the Target and its Subsidiaries has an
account, including cash contribution accounts, and the names of all persons
authorized to draw thereon or have access thereto and (ii) the location of all
lockboxes and safe deposit boxes of the Target or its Subsidiaries and the names
of all persons authorized to draw thereon or have access thereto. At the
Effective Time, neither Target nor any of its Subsidiaries shall have any such
account, lockbox or safe deposit box other than those listed in Section 3(cc) of
the Disclosure Schedule, nor shall any additional person have been authorized,
from the date of this Agreement, to draw thereon or have access thereto. The
Stockholders and their Affiliates have not commingled monies or accounts of
Target or its Subsidiaries with other monies or accounts of the Stockholders and
their Affiliates or relating to their other businesses nor have the Stockholders
or their Affiliates transferred monies or accounts of Target or its Subsidiaries
other than to an account of Target or its Subsidiaries. At the Effective Time,
all monies and accounts of Target and its Subsidiaries shall be held by, and be
accessible only to, Target or its Subsidiaries.
(dd) Securities. To the Knowledge of the Target, the outstanding shares of
Target were issued in accordance with the registration or qualification
provisions of the Securities Act, and any relevant state securities laws or
pursuant to valid exemptions therefrom.
(ee) Accounting Matters. Listed in Section 3(ee) of the Disclosure Schedule
are all predecessor companies of the Target, the names of any Persons from
which, since January 1, 1994, the Target previously acquired material properties
or assets, and the changes in the Target's capital structure and capital stock
ownership since October 1, 1998.
(ff) Disclosure. All written information contained in any schedule, report,
certificate or any other document furnished to Parent by Target or any other
Person (on behalf of Target) in connection with this Agreement is true, accurate
and complete, and no such Person (including Target) has stated therein (or
included in any such document) any untrue material fact or omitted to state any
material fact necessary to make such information not misleading. The
representations and warranties contained in this Section 3 do not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements and information contained in this Section 3 not
misleading.
4. Representations and Warranties of Parent and the Parent Subsidiary. The
Parent represents and warrants to the Target that the statements contained in
this Section 4 are correctand complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4).
(a) Organization. Each of the Parent and the Parent Subsidiary is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation.
(b) Capitalization. The entire authorized capital stock of the Parent
consists of 305,000,000 Parent Shares, of which 300,000,000 shares are
designated as common stock and 5,000,000 shares are designated as preferred
stock. Of the authorized common stock, 66,972,960 shares are issued and
outstanding and 1,183,808 shares are held in treasury. The entire authorized
capital stock of the Parent Subsidiary consists of 1,000 shares, $.01 par value
per share, all of one class designated as common, of which 100 shares are issued
and outstanding. Other than options that are outstanding as of March 17, 2000
for 7,205,595 shares of Parent's common stock and convertible debentures that
are convertible into 3,437,756 shares of Parent's common stock, there are no
outstanding options,
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warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments as of such date that could require the
Parent to issue, sell or otherwise cause to become outstanding any of its
capital stock.
(c) Authorization of Transaction. Each of the Parent and the Parent
Subsidiary has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of each of the Parent and the Parent Subsidiary, enforceable in accordance with
its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any Law or Governmental Order to which either the Parent or the
Parent Subsidiary is subject or any provision of the charter or bylaws of either
the Parent or the Parent Subsidiary or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which either the Parent or the Parent Subsidiary is a party or by
which it is bound or to which any of its assets is subject. Other than in
connection with the provisions of the Hart-Scott-Rodino Act, the Delaware
General Corporation Law, the New Jersey Business Corporation Act, the Securities
Exchange Act, the Securities Act, the Trust Indenture Act, the state securities
laws and the FCC's and the state public utility commissions' or similar state
regulatory bodies' rules, regulations and policies, neither the Parent nor the
Parent Subsidiary needs to give any notice to, make any filing with, or obtain
any authorization, consent or approval of any Governmental Entity in order for
the Parties to consummate the transactions contemplated by this Agreement.
(e) Brokers' Fees. Neither the Parent nor the Parent Subsidiary has any
Liability or obligation to pay any fees or commissions to any broker, finder,
or agent with respect to the transactions contemplated by this Agreement for
which any of the Target and its Subsidiaries could become liable or obligated;
provided, however, that the parties acknowledge that theParent has retained
Bear Stearns & Co. Inc. in connection with the Merger for which the Parent
shall be obligated to pay any fees or commissions.
(f) Continuity of Business. It is the present intention of the Parent to
continue at least one significant historic business line of the Target, or to
use at least a significant portion of the Target's historic business assets in
a business, in each case within the meaning of Treas. Reg. Section 1.368-1(d).
(g) Securities Exchange Act Reports. Parent has filed all reports, proxy
statements, forms and other documents required to be filed with the SEC prior to
the date of this Agreement. The Parent has delivered to the Target and the
Stockholders complete and accurate copies of a (i) Parent's Annual Report on
Form 10-K for the year ended December 31, 1999, as filed under the Securities
Exchange Act with the SEC, (ii) all of Parent's Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1999, June 30, 1999 and September 30, 1999, as
filed under the Securities Exchange Act with the SEC and (iii) all of Parent's
proxy statements and annual reports to shareholders used in connection with
meetings of Parent Stockholders held since December 31, 1998 (the "Parent SEC
Documents"). As of their respective dates, the Parent SEC Documents (x) did not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and (y)
complied as to form in all material respects with applicable laws and rules and
regulations of the SEC.
(h) Disclosure. All written information contained in any schedule, report,
certificate or any other document furnished to Target by Parent or any other
Person (on behalf of Parent) in connection with this Agreement is true, accurate
and complete, and no such Person (including Parent) has stated therein (or
included in any such document) any untrue material fact or omitted to state any
material fact necessary to make such information not misleading. The
representations and warranties
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contained in this Section 4 do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements and information contained in this Section 4 not misleading.
(i) Authorization for Parent Shares. Parent will take all necessary action
prior to the Closing Date to permit it to issue the number of Parent Shares and
options and/or warrants to purchase Parent Shares required to be issued in the
Merger pursuant to this Agreement. All of the Parent Shares to be issued in the
Merger have been duly authorized and, upon consummation of the Merger, will be
validly issued, fully paid and nonassessable, and no Person will have any
preemptive right of subscription or purchase in respect thereof All Parent
Shares issued pursuant to this Agreement will, when issued, be registered or
exempt from registration. under the Securities Act and the Securities Exchange
Act and registered or exempt from registration under any applicable state
securities laws.
(j) NASDAQ Compliance. Parent is in compliance with all applicable
maintenance criteria and other requirements necessary to permit continued
listing of the Parent Shares on the NASDAQ, and Parent has not received evidence
to the contrary from the NASD.
(k) Litigation. Exhibit E sets forth each instance in which any of the
Parent and its Subsidiaries (i) is subject to any outstanding Governmental Order
or (ii) is a party or to theKnowledge of the Parent and the Parent Subsidiary is
threatened to be made a party to any action, suit, proceeding, hearing or
investigation of, in or before, any Governmental Entity or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction or
before any arbitrator or mediator.
(l) No Material Adverse Changes. Since the date of filing of the most
recent Parent SEC Document, there has been no Material Adverse Effect involving
the Parent or its Subsidiaries.
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement.
(a) General. Each of the Parties will use its best efforts to take all
action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 6 below).
(b) Notices and Consents. The Target will give (and will cause each of its
Subsidiaries to give) any notices to third parties, and the Target will use
commercially reasonable efforts (and will cause each of its Subsidiaries to use
its best efforts) to obtain any third party consents, that the Parent may
request in connection with the matters referred to in Section 3(c) above. Each
of the Parties will (and the Target will cause each of its Subsidiaries to) give
any notices to, make any filings with, and use commercially reasonable efforts
to obtain any authorizations, consents and approvals of Governmental Entities in
connection with the matters referred to in Sections 3(c) and 4(d) above. Without
limiting the generality of the foregoing, each of the Parties will file (and the
Target will cause each of its Subsidiaries to file) any Notification and Report
Forms and related material that it may be required to file with the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice under the Hart-Scott-Rodino Act, will use commercially reasonable
efforts to obtain (and the Target will cause each of its Subsidiaries to use its
best efforts to obtain) an early termination of the applicable waiting period,
and will make (and the Target will cause each of its Subsidiaries to make) any
further filings pursuant thereto that may be necessary, proper, or advisable in
connection therewith.
(c) Regulatory Matters and Approvals. Each of the Parties, promptly after
the date hereof, will (and the Target, promptly after the date hereof, will
cause each of its Subsidiaries to) give any notices to, make any filings with
and use all commercially reasonable efforts to obtain any authorizations,
consents and approvals of Governmental Entities in connection with the matters
referred to in Section 3(c) and 4(d) above. Without limiting the generality of
the foregoing:
(i) New Jersey Business Corporation Act. The Target will take all
action, to the extent necessary in accordance with applicable law, its
certificate of incorporation and by-laws, to convene a special meeting
of its Stockholders (the "Target Special Meeting"), as soon as
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reasonably practicable in order that the Stockholders may consider and
vote on the adoption of this Agreement and theapproval of the Merger in
accordance with the New Jersey Business Corporation Act of the State of
New Jersey.
(ii) Delaware General Corporation Law. The Parent will take all
action, to the extent necessary in accordance with applicable law, its
certificate of incorporation and by-laws, to convene a special meeting
of the Parent Stockholders (the "Parent Special Meeting"), as soon as
reasonably practicable in order that the Parent Stockholders may
consider and vote on the adoption of this Agreement and the approval of
the Merger in accordance with Delaware General Corporation Law.
(iii) Hart-Scott-Rodino Act. Each of the Parties shall file (and the
Target will cause each of its Subsidiaries to file) any Notification and
Report Forms and related material that it may be required to file with
the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the Hart-Scott-Rodino Act, will use
its best efforts to obtain (and the Target will cause each of its
Subsidiaries to use its best efforts to obtain) an early termination of
the applicable waiting period, and will make (and the Target will cause
each of its Subsidiaries to make) any further filings pursuant thereto
that may be necessary, proper or advisable.
(iv) Telecommunications Laws. Parent shall be responsible for
preparing and filing the appropriate applications, notifications and
other documentation necessary or appropriate to request from
Governmental Entities with jurisdiction over the telecommunications
industry all necessary authorizations, consents and approvals to the
Merger and the transactions contemplated hereby. The Target, at its sole
cost and expense, will cooperate with Parent in this regard, providing
such assistance as Parent shall reasonably request.
(v) Securities Act. With respect to the Parent Shares to be issued in
connection with the Merger and any Parent Shares into which any warrants
that are part of the Stock Rights to be issued by Parent in connection
with the Merger, Parent shall promptly prepare and file with the SEC a
registration statement on Form S-4 (the "Registration Statement") under
the Securities Act and will use its best efforts to cause such
Registration Statement to become effective at the earliest possible
time, and with respect to the Parent Shares into which any warrants that
are part of the Stock Rights to be issued by Parent in connection with
the Merger to maintain the effectiveness of such Registration Statement
for a period of one year, which Registration Statement shall comply as
to form in all material respects with the provisions of the Securities
Act and the rules and regulations promulgated thereunder, and will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that Parent makes no and shall
not make any representation, warranty or covenant with respect to any
information furnished to it by the Target, the Stockholders or any of
their accountants, counsel or authorized representatives specifically
for inclusion in the Registration Statement. The Target represents and
covenants that it can deliver and it shall cause to be delivered to
Parent at the earliest possible time any financial statements that may
be required to be filed with the Registration Statement together with a
letter from Target's independent certified public accountant that such
financial statements comply with the requirements of Regulation S-X (17
CFR Part 210). The Target hereby indemnifies and holds harmless the
Parent (and its directors, officers, employees, financial advisors,
stockholders, agents and representatives) against any losses, claims,
damages or liabilities to which any of such Persons may become subject
based on any untrue statement of any material fact contained in the
Registration Statement, or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, but only to the extent that such untrue statement
or alleged untrue statement or omission or alleged omission was made in
the Registration Statement in reliance on and in conformity with
information furnished to the
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<PAGE>
Parent by the Target, the Stockholders or any of their accountants,
counsel or authorized representatives specifically for use therein. The
Parent and the Parent Subsidiary hereby indemnify and hold harmless the
Target (and its directors, officers, employees, financial advisors,
stockholders, agents and representatives) against any losses, claims,
damages or liabilities to which any of such Persons may become subject
based on any untrue statement of any material fact contained in the
Registration Statement, or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, except to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement in reliance on and in conformity with information
furnished to the Parent by the Target, the Stockholders or any of their
accountants, counsel or authorized representatives specifically for use
therein.
(d) Operation of the Business. The Target shall not (and shall not cause or
permit any of its Subsidiaries to) engage in any practice, take any action, or
enter into any transaction other than in the Ordinary Course of Business.
Without limiting the generality of the foregoing, the Target shall not (and
shall not cause or permit any of its Subsidiaries to) (i) declare, set aside, or
pay any dividend or make any distribution with respect to its capital stock or
redeem, purchase or otherwise acquire any of its capital stock or (ii) otherwise
engage in any practice, take any action, or enter into any transaction of the
sort described in Section 3(k) above.
(e) Preservation of Business. The Target shall keep (and will cause each of
its Subsidiaries to keep) its business and properties substantially intact,
including its present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers and employees.
(f) Full Access. Each Party shall permit (and shall cause each of its
Subsidiaries to permit) representatives of the other Parties to have full access
to all premises,properties, personnel, books, records (including Tax records),
contracts and documents of or pertaining to each Party and their respective
Subsidiaries.
(g) Notice of Developments. Each Party shall give prompt written notice to
the other Party of any material adverse development causing a breach of any of
its own representations and warranties in Section 3, and Section 4 above. No
disclosure by any Party pursuant to this Section 5(g), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty or breach of covenant.
(h) Exclusivity.
(i) The Target shall, and shall cause its Subsidiaries and any of
their respective Affiliates to, immediately cease and terminate any
existing solicitation, initiation, encouragement, activity, discussion
or negotiation with any Persons conducted heretofore by the Target, its
Subsidiaries or any of their respective Affiliates, officers, directors,
employees, financial advisors, stockholders, agents or representatives
(each a "Representative") with respect to any proposed, potential or
contemplated Acquisition Proposal.
(ii) From and after the date hereof, without the prior written consent
of Parent, the Target will not authorize or permit any of its
Subsidiaries to, and shall cause any and all of its Representatives not
to, directly or indirectly, (A) solicit, initiate or encourage any
inquiries or proposals that constitute, or could reasonably be expected
to lead to, an Acquisition Proposal, or (B) engage in negotiations or
discussions with any Third Party concerning, or provide any nonpublic
information to any person or entity relating to, an Acquisition
Proposal, or (C) enter into any letter of intent, agreement in principle
or any acquisition agreement or other similar agreement with respect to
any Acquisition Proposal; provided, however, that nothing contained in
this Section 5(h)(ii) shall prevent the Target or the Target Board, from
furnishing non-public information to, or entering into discussions or
negotiations with, any Third Party in connection with an unsolicited,
bona fide written
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<PAGE>
proposal for an Acquisition Proposal by such Third Party, if and only to
the extent that (1) such Third Party has made a written proposal to the
Target Board to consummate an Acquisition Proposal, (2) the Target Board
determines in good faith, based on the advice of a financial advisor of
nationally recognized reputation, that such Acquisition Proposal is
reasonably capable of being completed on substantially the terms
proposed, and would, if consummated, result in a transaction that would
provide greater value to the holders of the Target Shares than the
transaction contemplated by this Agreement (a "Superior Proposal"), (3)
the failure to take such action would, in the reasonable good faith
judgment of the Target Board, based on a written opinion of Target's
outside legal counsel, be a violation of its fiduciary duties to the
Stockholders under applicable law, and (4) prior to furnishing such
non-public information to, or entering into discussions or negotiations
with, such Person, the Target Board receives from such Person an executed
confidentiality agreement with material terms no less favorable to the
Target than those contained in the Confidentiality Agreements and
provides prior notice to the Parent of its decisionto take such action.
The Target shall not release any Third Party from, or waive any provision
of, any standstill agreement to which it is a party or any
confidentiality agreement between it and another Person who has made, or
who may reasonably be considered likely to make, an Acquisition Proposal,
unless the failure to take such action would, in the reasonable good
faith judgment of the Target Board, based on a written opinion of
Target's outside legal counsel, be a violation of its fiduciary duties to
the Stockholders under applicable law. Without limiting the foregoing, it
is understood that any violation of the restrictions set forth in the
preceding sentence by any Representative of the Target or any of its
Subsidiaries shall be deemed to be a breach of this Section 5(h) by the
Target.
(iii) The Target shall notify Parent promptly after receipt by the
Target or the Target's Knowledge of the receipt by any of its
Representatives of any Acquisition Proposal or any request for
non-public information in connection with an Acquisition Proposal or for
access to the properties, books or records of the Target by any Person
that informs such party that it is considering making or has made an
Acquisition Proposal. Such notice shall be made orally and in writing
and shall indicate the identity of the offeror and the terms and
conditions of such proposal, inquiry or contact. The Target shall keep
Parent informed of the status (including any change to the material
terms) of any such Acquisition Proposal or request for non-public
information.
(iv) The Target Board may not withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent, the approval or
recommendation by the Target Board of this Agreement or the Merger
unless, following the receipt of a Superior Proposal, in the reasonable
good faith judgment of the Target Board, based on the written opinion of
Target's outside legal counsel, the failure to do so would be a
violation of the Target Board's fiduciary duties to the Stockholders
under applicable law; provided, however, that, the Target Board shall
submit this Agreement and the Merger to the Stockholders for adoption
and approval, whether or not the Target Board at any time subsequent to
the date hereof determines that this Agreement is no longer advisable or
recommends that the Stockholders reject it or otherwise modifies or
withdraws its recommendation. Unless the Target Board has withdrawn its
recommendation of this Agreement in compliance herewith, the Target
shall use commercially reasonable efforts to solicit from the
Stockholders proxies in favor of the adoption and approval of this
Agreement and the Merger and to secure the vote or consent of the
Stockholders required by the New Jersey Business Corporation Act and its
certificate of incorporation and by-laws to adopt and approve this
Agreement and the Merger.
(i) Continuity of Business. Parent, Surviving Corporation or any
other member of the qualified group (as defined in Treas. Reg. Section
1.368-1(d)) shall, for the foreseeable future, continue at least one
significant historic business line of the Target or use at least a
significant portion of the Target's historic business assets in a
business, in each case within the meaning of Treas. Reg. Section
1.368-1(d).
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<PAGE>
(j) Employment Agreements. Contemporaneously with the execution of this
Agreement, each of Kenneth G. Baritz and Kevin Griffo (the "Principal
Executives") shall enter into an employment agreement with Parent in the form
attached as Exhibit F (the "Employment Agreement").
(k) Listing. Parent shall use commercially reasonable efforts to cause the
Parent Shares to be issued in connection with the Merger to be approved for
listing on Nasdaq, subject to official notice of issuance, prior to the Closing
Date.
(l) Services Agreement. Contemporaneously with the execution of this
Agreement, Parent (or a Subsidiary of Parent) and Target shall enter into the
Services Agreement in the form attached as Exhibit G (the "Services Agreement")
pursuant to which for a five (5) year term Target shall furnish to Parent (or to
a Subsidiary of Parent) the services it delivers in the ordinary course of
business to its end user customers or is capable of delivering to its end user
customers, at Target's cost, for resale by Parent (or by a Subsidiary of Parent)
to the end user customers of Parent and its Subsidiaries.
(m) Voting Agreement. Contemporaneously with the execution of this
Agreement, Parent and the other signatories identified in the Voting Agreement
in the form attached as Exhibit H (the "Voting Agreement") shall enter into the
Voting Agreement pursuant to which such signatories shall grant to Parent their
proxy to vote their Target Shares in favor of the Merger.
(n) MCG Finance Agreement. Within 30 days of the execution of this
Agreement, Target shall secure and furnish a copy thereof to Parent the written
agreement of MCG Finance Corporation ("MCG"), in form and substance acceptable
to Parent in its reasonable discretion, to accept at the Closing a warrant
exercisable for Parent Shares in full satisfaction of MCG's rights under the
Warrant Agreement by and between MCG and Target dated June 30, 1999, such
warrant for Parent Shares to be consistent with the provisions set forth in
Section 2(d)(vi) above (the "MCG Agreement").
(o) Lockup Agreement. The Parties agree that for the period ending on the
earlier of October 31, 2000 or 90 days following the Effective Time, the holders
of Target securities that receive Merger Consideration as part of the Merger
shall not offer, sell, contract to sell, pledge, grant any option to purchase,
make any short sale or otherwise dispose of any part of the Merger Consideration
consisting of Parent Shares, any options or warrants convertible or exercisable
into Parent Shares, or any other securities convertible into, exchangeable for
or that represent the right to receive the Parent Shares (except pursuant to the
Escrow Agreement and the Indemnification Agreement). The foregoing restriction
is expressly agreed to preclude the such holders of Target securities from
engaging in any hedging or other transaction that is designed to or which
reasonably could be expected to lead to or result in a sale or disposition of
such securities received as part of the Merger Consideration even if such Merger
Consideration would be disposed of by someone other than such holder of a.Target
security. Such prohibited hedging or other transactions would include without
limitation any short sale or any purchase, sale or grant of any right (including
without limitation any put or call option) with respect to any of the Merger
Consideration or with respect to any security that includes, relates to, or
derives any part of its value from such Merger Consideration.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of Parent and the Parent Subsidiary. The
obligation of each of Parent and the Parent Subsidiary to consummate the Merger
is subject to satisfaction or waiver by Parent or Parent Subsidiary of the
following conditions at or prior to the Closing Date:
(i) this Agreement and the Merger shall have received the Requisite
Stockholder Approval;
(ii) the Target and its Subsidiaries shall have procured all of the
third party consents specified in Section 3(c) above;
(iii) the representations and warranties set forth in Section 3 and
Section 4 above shall be true and correct in all material respects at
and as of the Closing Date;
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<PAGE>
(iv) the Target shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(v) neither any Law or Governmental Order shall be enacted,
promulgated, entered, enforced or deemed applicable to the Merger nor
any other action shall have been taken by any Governmental Entity (A)
that prohibits the consummation of the transactions contemplated by this
Agreement; (B) that prohibits Parent's or the Parent Subsidiary's
ownership or operation of all or any portion of their or the Target's
business or assets, or which compels Parent or the Parent Subsidiary to
dispose of or hold separate all or any portion of Parent's or the Parent
Subsidiary's or the Target's business or assets as a result of the
transactions contemplated by this Agreement; (C) that makes the purchase
of, or payment for, some or all of the Target Shares illegal; (D) that
imposes limitations on the ability of Parent or the Parent Subsidiary to
acquire or hold or to exercise effectively all rights of ownership of
Target Shares, including, without limitation, the right to vote any
Target Shares purchased by Parent on all matters properly presented to
the Stockholders; or (E) that imposes any limitations on the ability of
Parent or the Parent Subsidiary, or any of their respective
Subsidiaries, effectively to control in any respect the business or
operations of the Target or any of its Subsidiaries;
(vi) the Target shall have delivered to Parent and the Parent
Subsidiary a certificate to the effect that each of the conditions
specified above in Section 6(a)(i) -- 6(a)(v) is satisfied in all
respects;
(vii) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated;
(viii) the Parent and the Parent Subsidiary shall have received from
counsel to the Target an opinion in form and substance as set forth in
Exhibit Iattached hereto, addressed to the Parent and the Parent
Subsidiary, and dated as of the Closing Date;
(ix) the Parent and the Parent Subsidiary shall have received from
counsel to the Target that is reasonably acceptable to Parent and its
counsel an opinion concerning regulatory matters in form and substance
reasonably acceptable to Parent and its counsel, addressed to the Parent
and the Parent Subsidiary, and dated as of the Closing Date;
(x) the Parent and the Parent Subsidiary shall have received the
resignations, effective as of the Closing, of each director and officer
of the Target and its Subsidiaries other than those whom the Parent
shall have specified in writing at least five business days prior to the
Closing;
(xi) Target and Kenneth G. Baritz shall have delivered to Parent and
the Parent Subsidiary an executed counterpart of the Escrow Agreement;
(xii) each of the Employment Agreements shall be in full force and
effect;
(xiii) the Parent shall have received the Parent Fairness Opinion;
(xiv) the Parent shall have procured all of the third party consents
specified in Section 5(c) above;
(xv) the MCG Agreement shall be in full force and effect;
(xvi) the Indemnification Agreement shall be in full force and
effect; and
(xvii) all actions to be taken by the Target in connection with
consummation of the transactions contemplated by this Agreement and all
certificates, opinions, instruments and other documents required to
effect the transactions contemplated herein will be reasonably
satisfactory in form and substance to the Parent and the Parent
Subsidiary.
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<PAGE>
Subject to the provisions of applicable law, Parent and the Parent
Subsidiary may waive, in whole or in part, any condition specified in this
Section 6(a) if they execute a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Target and Stockholders. The obligation
of the Target and the Stockholders to consummate the Merger is subject to
satisfaction or waiver by the Target of the following conditions at or prior to
the Closing Date:
(i) this Agreement and the Merger shall have received the Requisite
Stockholder Approval;
(ii) the Parent shall have procured all of the third party consents
specified in Section 5(c) above;
(iii) the representations and warranties set forth in Section 4 above
shall be true and correct in all material respects at and as of the
Closing Date;
(iv) each of Parent and the Parent Subsidiary shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
(v) neither any Law or Governmental Order shall be enacted,
promulgated, entered, enforced or deemed applicable to the Merger nor
any other action shall have been taken by any Governmental Entity (A)
that prohibits the consummation of the transactions contemplated by this
Agreement; (B) that prohibits Parent's or the Parent Subsidiary's
ownership or operation of all or any portion of their or the Target's
business or assets, or which compels Parent or the Parent Subsidiary to
dispose of or hold separate all or any portion of Parent's or the Parent
Subsidiary's or the Target's business or assets as a result of the
transactions contemplated by this Agreement; (C) that makes the purchase
of, or payment for, some or all of the Target Shares illegal;
(vi) the Parent shall have delivered to the Target a certificate to
the effect that each of the conditions specified above in Section
6(b)(i) - 6(b)(v) is satisfied in all respects;
(vii) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated;
(viii) Parent shall have delivered to Target an executed counterpart
of the Escrow Agreement;
(ix) each of the Employment Agreements shall be in full force and
effect;
(x) Parent shall have satisfied and paid in full the liabilities
listed on Section 6(b)(x) of the Disclosure Schedule (representing those
liabilities and obligations that are required by contractual terms to be
satisfied as a result of the transactions contemplated herein), which
payment in no circumstances shall eceed $17 million;
(xi) The Registration Statement shall be declared effective by the SEC
and no stop order shall be issued in connection therewith;
(xii) The Parent Shares to be issued in connection with the Merger
shall be approved for listing on Nasdaq, subject to official notice of
issuance; (xiii) Kenneth G. Baritz shall be elected to the Parent Board;
(xiii) Kenneth G. Baritz shall be elected to the Parent Board;
(xiv) the Target shall have received from general counsel of the
Parent an opinion in form and substance as set forth in Exhibit J
attached hereto, addressed to the Target, and dated as of the Closing
Date;
(xv) the Target shall have received an opinion from counsel of its
choice that the Merger qualifies as a "reorganization" within the
meaning of Code Section 368(a); and
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<PAGE>
(xvi) all actions to be taken by the Parent and the Parent Subsidiary
in connection with consummation of the transactions contemplated by this
Agreement and all certificates, opinions, instruments and other
documents required to effect the transactions contemplated herein will
be reasonably satisfactory in form and substance to the Target.
Subject to the provisions of applicable law, the Target may waive, in whole
or in part, any condition specified in this Section 6(b) if it executes a
writing so stating at or prior to the Closing.
7. Remedies for Breaches of this Agreement.
(a) Survival of Representations and Warranties. All of the representations
and warranties of the Parties contained in this Agreement shall survive the
Closing hereunder (even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty or covenant at the time of Closing) and
continue in full force and effect for one year thereafter (subject to any
applicable statutes of limitations).
(b) Indemnification Agreement. Contemporaneously with the execution of
this Agreement, Parent and Target shall execute and deliver an indemnification
agreement substantially in the form of the attached Exhibit K (the
"Indemnification Agreement")
(c) Other Indemnification Provisions. No Stockholder shall make any claim
for indemnification against any of the Surviving Corporation, the Target and its
Subsidiaries by reason of the fact that he or it was a director, officer,
employee or agent of any such entity or was serving at the request of any such
entity as a partner, trustee, director, officer, employee or agent of another
entity (whether such claim is for judgments, damages, penalties, fines, costs,
amounts paid in settlement, losses, expenses, or otherwise and whether such
claim is pursuant to any statute, charter document, bylaw, agreement or
otherwise) with respect to any action, suit, proceeding, complaint, claim or
demand brought by the Parent, Parent Subsidiary or Surviving Corporation against
such Stockholder (whether such action, suit, proceeding, complaint, claim or
demand is pursuant to this Agreement, applicable law or otherwise). Nothing
contained in this Agreement shall void, abrogate or otherwise eliminate the
rights of a former director or officer of Target or any of its Subsidiaries
under any directors and officers insurance policy previously maintained by
Target or its Subsidiaries (including any "tail" coverage purchased in
connection therewith).
(d) Directors' and Officers' Indemnity. Notwithstanding anything to the
contrary contained in this Agreement, following the Effective Time, Parent will
take no action to abrogate or diminish any right accorded under the articles of
incorporation or by-laws of Target as they existed immediately prior to the
Effective Time to any person who, on or prior to the Effective Time, was a
director or officer of Target to indemnification from or against losses,
expenses, claims, demands, damages, liabilities, judgements, fines, penalties,
costs, expenses (including without limitation reasonable attorneys fees) and
amounts paid in settlement pertaining to or incurred in connection with any
threatened or actual action, suit, claim, or proceeding (whether civil,
criminal, administrative, arbitration, or investigative) arising out of events,
matters, actions, or omissions that are specifically described in the Disclosure
Schedule, and Parent will honor such obligations in accordance with their terms
with respect to events, acts or omissions that are specifically described in the
Disclosure Schedule.
8. Termination.
(a) Termination of Agreement. The Parties may terminate this Agreement with
the prior authorization of their respective board of directors as provided
below:
(i) the Parties may terminate this Agreement, and the Merger may be
abandoned, by mutual written consent at any time prior to the Effective
Time before or after the approval by the Stockholders, or the Parent
Subsidiary stockholder;
(ii) the Parent may terminate this Agreement by giving written notice
to the Target at any time prior to the Closing in the event the Target
has breached any representation, warranty or covenant contained in this
Agreement in any material respect, the Parent has notified the Target of
the breach, and the breach has continued without cure for a period of 30
days after the notice of breach;
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<PAGE>
(iii) the Target may terminate this Agreement by giving written notice
to the Parent at any time prior to the Closing in the event the Parent
or Parent Subsidiary has breached any representation, warranty or
covenant contained in this Agreement in any material respect, the Target
has notified the Parent of the breach, and the breach has continued
without cure for a period of 30 days after the notice of breach;
(iv) the Parent may terminate this Agreement by giving written notice
to the Target at any time prior to the Closing (A) if the Target Board
in the exercise of its fiduciary duty (x) enters into an agreement or
agreement in principle with respect to an Acquisition Proposal, (y)
withdraws it recommendation to the Stockholders of this Agreement or the
Merger or (z) after the receipt of an Acquisition Proposal, fails to
confirm publicly, within ten days after the request of Parent, its
recommendation to the Stockholders that the Stockholders adopt and
approve this Agreement and the Merger or (B) if the Target or any of its
Representatives takes any of the actions that would be proscribed by
Section 5(h) above, notwithstanding the exceptions therein allowing
certain actions to be taken pursuant to the proviso in the first
sentence of Section 5(h)(ii) above; or
(v) either the Target or the Parent may terminate this Agreement by
giving written notice to the other Parties if the Closing shall not have
occurred on or before March 23, 2001, by reason of the failure of any
condition precedent under Section 6 hereof (unless the failure results
primarily from the terminating Party's breach of any representation,
warranty or covenant contained in this Agreement or under any other
agreement contemplated hereunder).
(b) Effect of Termination.
(i) Except as provided in clauses (ii) or (iii) of this Section 8(b),
if any Party terminates this Agreement pursuant to Sections 8(a)(i) --
8(a)(v) above, all rights and obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party; except
that the provisions of the Confidentiality Agreements shall survive any
such termination.
(ii) If this Agreement is terminated by the Parent pursuant to Section
8(a)(ii) or Section 8(a)(iv), then within five (5) days after such
termination, the Target shall pay the Parent the sum of $6,000,000 plus
all expenses incurred by Parent to third parties in connection with the
transactions contemplated hereunder in immediately available funds and
the Services Agreement shall remain in full force and effect.
(iii) If this Agreement is terminated by the Target pursuant to
Section 8(a)(iii), then within five (5) days after such termination, the
Parent shall pay the Target the sum of $6,000,000 plus all expenses
incurred by Target to third parties in connection with the transactions
contemplated hereunder in immediately available funds and the Services
Agreement shall terminate in accordance with its terms.
9. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Parties; except that
any Party may make any public disclosure it believes in good faith is required
by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use all
reasonable efforts to advise the other Parties prior to making the disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the Confidentiality
Agreements and the other documents referred to herein) constitutes the entire
agreement among the Parties and supersedes any prior understandings, agreements
or representations by or among the Parties, written or oral, to the extent they
related in any way to the subject matter hereof.
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<PAGE>
(d) Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors and
permitted assigns. No Party may assign or delegate either this Agreement or any
of its rights, interests or obligations hereunder, by operation of law or
otherwise, without the prior written approval of the other Parties. Any
purported assignment or delegation without such approval shall be void and of no
effect.
(e) Counterparts. This Agreement may be executed (including by facsimile)
in one or more counterparts, each of which shall be deemed an original but all
of which together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid and addressed to the intended recipient as set forth
below:
<TABLE>
<S> <C>
If to the Target: Access One Communications Corp.
3427 NW 55th Street
Fort Lauderdale, FL 33309
Attention: Kenneth G. Baritz
Facsimile: (954) 739-2476
with a Copy to: Blank Rome Tenzer Greenblatt LLP
405 Lexington Avenue
New York, NY 10174
Attention: Michael S. Muliman, Esq.
Facsimile: (212) 885-5001
If to Parent: Talk.com, Inc.
6805 Route 202
New Hope, PA 18938
Attention: Aloysius T. Lawn, IV, Esq.
Executive Vice President -
General Counsel and Secretary
Facsimile: (215) 862-1960
with a Copy to: Kelley Drye & Warren LLP
1200 19th Street, N.W., Suite 500
Washington, DC 20036
Attention: Joseph B. Hoffman, Esq.
Facsimile: (202) 955-9792
If to the Parent Subsidiary: Aladdin Acquisition Corp.
6805 Route 202
New Hope, PA 18938
Attention: Aloysius T. Lawn, IV, Esq.
Executive Vice President -
General Counsel and Secretary
Facsimile: (215) 862-1960
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
with a Copy to: Kelley Drye & Warren LLP
1200 19th Street, N.W., Suite 500
Washington, DC 20036
Attention: Joseph B. Hoffman, Esq.
Facsimile: (202) 955-9792
</TABLE>
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using
personal delivery, expedited courier, messenger service, telecopy or ordinary
mail, but no such notice, request, demand, claim or other communication shall be
deemed to have been duly given unless and until it actually is received by the
intended recipient. Any Party may change the address to which notices, requests,
demands, claims and other communications hereunder are to be delivered by giving
the other Parties notice in the manner set forth in this Section 9(g), provided
that no such change of address shall be effective until it actually is received
by the intended recipient.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED [N
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT
TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
(i) Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time with the prior
authorization of their respective boards of directors; except that any amendment
effected subsequent to Requisite Stockholder Approval will be subject to the
restrictions contained in the Delaware General Corporation Law, to the extent
applicable. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by all of the Parties. No waiver
by any Party of any default, misrepresentation or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Except as expressly set forth elsewhere in this Agreement,
each of Target and Parent shall bear its own costs and expenses (including legal
fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby.
(l) Incorporation of Exhibits. The Exhibits identified in this Agreement
are incorporated herein by reference and made a part hereof.
(m) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The phrase "business
day" shall mean any day other than a day on which banks in the State of New York
are required or authorized to be closed. The Parties intend that each
representation, warranty and covenant contained herein shall have independent
significance. If any Party has breached any representation, warranty or covenant
contained herein in any respect, the fact that there exists another
representation, warranty or
A-33
<PAGE>
covenant relating to the same subject matter (regardless of the relative levels
of specificity) that the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty or covenant.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o) Specific Performance. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 9(p)
below), in addition to any other remedy to which they may be entitled, at law or
in equity.
(p) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in the Commonwealth of
Virginia in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each Party also agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the Parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety
or other security that might be required of any other Party with respect
thereto. Each Party appoints C-T Corporation (the "Process Agent") as his or its
agent to receive on his or its behalf service of copies of the summons and
complaint and any other process that might be served in the action or
proceeding. Any Party may make service on any other Party by sending or
delivering a copy of the process (A) to the Party to beserved at the address and
in the manner provided for the giving of notices in Section 9(g) above or (B) to
the Party to be served in care of the Process Agent at the address and in the
manner provided for the giving of notices in Section 9(g) above. Nothing in this
Section 9(p), however, shall affect the right of any Party to serve legal
process in any other manner permitted by law or at equity. Each Party agrees
that a final judgment in any action or proceeding so brought shall be conclusive
and may be enforced by suit on the judgment or in any other manner provided by
law or at equity.
(q) WAIVER OF JURY TRIAL. EACH OF PARENT, THE PARENT SUBSIDIARY AND TARGET,
AND EACH INDEMNIFIED PARTY, HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
A-34
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
effective the date first above written.
ACCESS ONE COMMUNICATIONS CORP.
By: /s/ Ken Baritz
-------------------------------------
Name: Ken Baritz
Title: CEO
ALADDIN ACQUISITION CORP.
By: /s/ Aloysius T. Lawn IV
-------------------------------------
Name: Aloysius T. Lawn IV
Title: EVP - General Counsel &
Secretary
TALK.COM, INC.
By: /s/ Aloysius T. Lawn IV
-------------------------------------
Name: Aloysius T. Lawn IV
Title: EVP - General Counsel &
Secretary
A-35
<PAGE>
EXECUTION COPY
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "Amendment") is dated
as of June 29, 2000, by and among TALK.COM, INC., a Delaware corporation
("Parent"), ALADDIN ACQUISITION CORP., a Delaware corporation and a direct
wholly-owned Subsidiary of Parent (the "Parent Subsidiary"), and ACCESS ONE
COMMUNICATIONS CORP., a New Jersey corporation (the "Target"). Parent, the
Parent Subsidiary and the Target are referred to collectively herein as the
"Parties.
WITNESSETH:
WHEREAS, the Parties have entered into that certain Agreement and Plan of
Merger dated effective March 24, 2000 (the "Agreement"), pursuant to which
Parent will acquire all of the outstanding capital stock of the Target through a
merger of the Parent Subsidiary with and into the Target; and
WHEREAS, the Parties desire to amend the Agreement as provided herein.
NOW, THEREFORE, the Parties hereby agree as follows:
1. Amendment to Agreement. Section 6(b)(x) of the Agreement is hereby
amended by striking "$17 million" and inserting in lieu thereof "$18 million".
2. Continuity. (a) Subject to Section 1 hereof, the terms and conditions
of the Agreement shall remain in full force and effect.
(b) Whenever the Agreement is referred to in the Agreement or any of the
instruments, agreements or other documents or papers executed and delivered in
connection therewith, it shall be deemed to mean the Agreement as amended
hereby.
3. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT
TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
4. Counterparts. This Amendment may be executed (including by facsimile)
in one or more counterparts, each of which shall be deemed an original, but all
of which together will constitute one and the same Amendment.
[SIGNATURE PAGE TO FOLLOW]
A-36
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Amendment effective the
date first above written.
ACCESS ONE COMMUNICATIONS CORP.
By: /s/ Elizabeth Stallings
------------------------------------
Name: Elizabeth Stallings
Title: President
ALADDIN ACQUISITION CORP.
By: /s/ Aloysius T. Lawn IV
------------------------------------
Name: Aloysius T. Lawn IV
Title: EVP - General Counsel &
Secretary
TALK.COM, INC.
By: /s/ Aloysius T. Lawn IV
------------------------------------
Name: Aloysius T. Lawn IV
Title: EVP - General Counsel &
Secretary
A-37
<PAGE>
ANNEX B
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is dated as of March 24, 2000 by
and among TALK.COM, INC., a Delaware corporation ("Parent"), ALADDIN ACQUISITION
CORP., a Delaware corporation and a wholly-owned subsidiary of Parent ("Parent
Subsidiary"), ACCESS ONE COMMUNICATIONS CORP., a New Jersey corporation
("Company") and all of the other signatories identified on the signature pages
hereto (collectively, the "Stockholder").
W I T N E S S E T H:
WHEREAS, Parent, Company and Parent Subsidiary are entering into an
Agreement and Plan of Merger of even date herewith (the "Merger Agreement"),
pursuant to which Parent will acquire all of the outstanding shares of voting
common stock, $0.00 1 par value per share and all derivative securities issued
by the Company convertible or exercisable into such Company voting common stock
(collectively, the "Common Stock"), of the Company pursuant to a merger of
Parent Subsidiary with and into Company (the "Merger");
WHEREAS, Stockholder collectively owns, as of the date hereof, 15,885,786
shares of Common Stock (the "Existing Shares," and together with any shares of
Common Stock acquired by Stockholder after the date hereof and prior to the
termination hereof, the "Shares") as reflected on Exhibit A attached hereto;
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, and in reliance on Stockholder's representations, warranties,
covenants and agreements hereunder, Parent and Parent Subsidiary have requested
that Stockholder agree, and Stockholder has agreed, to enter into this
Agreement; and
WHEREAS, this Agreement is being entered into concurrently with the
execution of the Merger Agreement.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements herein contained, the parties agree as follows.
Capitalized terms not otherwise defined herein shall have the meaning set forth
in the Merger Agreement.
1. Agreement to Vote. Stockholder hereby agrees that, during the term of
this Agreement, at any meeting of the stockholders of Company, however called,
and in any action by consent of the stockholders of Company, however taken,
Stockholder shall cause the Shares to be present for quorum purposes and to vote
at such meeting and shall cause the Shares to be voted in any such consent, and
in either case, shall: (a) vote the Shares in favor of the adoption of the
Merger Agreement; (b) vote the Shares against any action or agreement that
would, or could reasonably be expected to, result in a breach of any covenant,
representation or warranty or any other obligation or agreement of Company or
its stockholders under the Merger Agreement or that would result in a failure to
satisfy any condition on the part of the Company or its stockholders to be
satisfied under the Merger Agreement; (c) vote the Shares against any action or
agreement that would, or could reasonably be expected to, impede, interfere
with, delay, postpone or attempt to discourage the Merger, including but not
limited to (i) any extraordinary corporate transaction (other than the Merger),
such as a merger, other business combination, recapitalization, reorganization
or liquidation, involving the Company (a "Business Combination Transaction"),
(ii) a sale or transfer of a material amount of assets of the Company or any of
its Subsidiaries, (iii) any change in the management or board of directors of
the Company, except as otherwise agreed to in writing by Parent, (iv) any
material change in the present capitalization of the Company or (v) any other
material change in the corporate structure or business of the Company; and (d)
without limiting the foregoing, consult with Parent prior to any such meeting or
consent and, in either case, vote the Shares in such manner as is determined by
Parent to be in compliance with the provisions of this Section 1. Stockholder
<PAGE>
acknowledges receipt and review of a copy of the Merger Agreement. In
furtherance of this Section 1, Stockholder hereby irrevocably grants to, and
appoints, Parent, and any individual designated in writing by Parent, and each
of them individually, as its proxy and attorney-in-fact (with full power of
substitution), for and in its name, place and stead, to vote the Shares at any
meeting of the stockholders of the Company called with respect to any of the
matters specified in this Agreement. Stockholder understands and acknowledges
that Parent is entering into the Merger Agreement in reliance on Stockholder's
execution and delivery of this Agreement. Stockholder hereby affirms that the
irrevocable proxy set forth in this Section 1 is given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy is given to
secure the performance of the duties of Stockholder under this Agreement. Except
as otherwise provided for herein, Stockholder hereby (i) affirms that the
irrevocable proxy is coupled with an interest and may under no circumstances be
revoked, (ii) ratifies and confirms all that the proxies appointed hereunder may
lawfully do or cause to be done by virtue hereof and (iii) affirms that this
irrevocable proxy is executed and intended to be irrevocable in accordance with
the provisions of Section 14A:5-19 of the New Jersey Business Corporation Act.
Notwithstanding any other provision of this Agreement, the irrevocable proxy
granted hereunder shall automatically terminate on the termination of this
Agreement pursuant to Section 4.
2. Representations and Warranties of Stockholder. Stockholder represents
and warrants to Parent and Parent Subsidiary with respect to that part of the
Existing Shares owned by it as follows:
2.1 Ownership of Shares. On the date hereof, Stockholder is the sole
record and beneficial owner of the Existing Shares, except as set forth on
Schedule 2.1 attached hereto. For purposes of this Agreement, beneficial
ownership of securities shall be determined in accordance with Rule 1 3d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
On the date hereof and at the Closing Date, neither Stockholder nor any
Affiliate of Stockholder (other than Company) owns or will own, of record or
beneficially, solely or jointly with others, (i) any shares of Common Stock
other than the Existing Shares and shares of Common Stock acquired on the
exercise of employee stock options granted by the Company or warrants issued
by the Company (as listed on Schedule 2.1 attached hereto) or (ii) any
securities convertible into or exchangeable or exercisable for shares of
Common Stock or any rights to acquire any shares of Common Stock other than
employee stock options granted by Company or warrants issued by the Company
(as listed on Schedule 2.1 attached hereto). Except as set forth on Schedule
2.1 attached hereto, Stockholder currently has with respect to the Existing
Shares, and at Closing will have with respect to the Shares, good, valid and
marketable title, free and clear of all liens, encumbrances, restrictions,
options, warrants, rights to purchase, voting agreements or voting trusts,
and claims of every kind (other than the encumbrances created by this
Agreement and other than restrictions on transfer under applicable federal
and state securities laws).
2.2 Power; Binding Agreement. Stockholder has the full legal right, power
and authority to enter into and perform all of Stockholder's obligations
under this Agreement. The execution, delivery and performance of this
Agreement by Stockholder will not violate any other agreement to which
Stockholder is a party including, without limitation, any voting agreement,
stockholder agreement or voting trust. This Agreement has been duly executed
and delivered by Stockholder and constitutes a legal, valid and binding
agreement of Stockholder, enforceable in accordance with its terms. Neither
the execution or delivery of this Agreement nor the consummation by
Stockholder of the transactions contemplated hereby will (a) require any
consent or approval of or filing with any third party, including any
governmental or other regulatory body, other than filings required under the
federal securities laws and consents or waivers listed on Schedule 2.2
attached hereto, all of which have been obtained, or (b) constitute a
violation of, conflict with or constitute a default under, any contract,
commitment, agreement, understanding, arrangement or other restriction of any
kind to which Stockholder is a party or by which Stockholder or its property
is bound.
2.3 Finder's Fees. No person or entity is, or will be, entitled to any
commission or finder's fees from Stockholder in connection with this
Agreement or the transactions contemplated herein exclusive of any commission
or finder's fees referred to in the Merger Agreement.
B-2
<PAGE>
3. Representations and Warranties of Parent and Parent Subsidiary. Each of
Parent and Parent Subsidiary represents and warrants to Stockholder as follows:
3.1 Authority. Each of Parent and Parent Subsidiary has the full legal
right, power and authority to enter into and perform all of its obligations
under this Agreement. The execution, delivery and performance of this
Agreement by each of Parent and Parent Subsidiary will not violate or
conflict with any other agreement to which it is a party. This Agreement has
been duly executed and delivered by each of Parent and Parent Subsidiary and
constitutes a legal, valid and binding agreement of each of Parent and Parent
Subsidiary, enforceable against Parent and Parent Subsidiary in accordance
with its terms. Neither the execution or delivery of this Agreement nor the
consummation of the transactions contemplated hereby by each of Parent and
Parent Subsidiary will (a) require any consent or approval of or filing with
any third party, including any governmental or other regulatory body, other
than filings required under the federal securities laws, or (b) constitute a
violation of, conflict with or default under, any contract, commitment,
agreement, understanding, arrangement or other restriction of any kind to
which Parent or Parent Subsidiary is a party or by which either of them or
their property is bound.
3.2 Finder's Fees. No person or entity is, or will be, entitled to any
commission or finder's fee from Parent or Parent Subsidiary in connection
with this Agreement or the transactions contemplated herein exclusive of any
commission or finder's fees referred to in the Merger Agreement.
4. Termination. The term of this Agreement commences on the execution and
delivery of this Agreement by all of the parties hereto and continues until it
is terminated in accordance with its terms. This Agreement shall terminate on
the earliest of (a) the Effective Time (as defined in the Merger Agreement) or
(b) the date 90 days after the termination of the Merger Agreement in accordance
with its terms and, in addition, (i) the provisions of Sections 5 and 7 through
17 shall survive any termination of this Agreement, and (ii) the provisions of
Sections 2 and 3 shall survive for a period of one year after any termination of
this Agreement.
5. Expenses. Each party hereto will pay all of its expenses in connection
with the transactions contemplated by this Agreement, including, without
limitation, the fees and expenses of its counsel and other advisers.
6. Covenants
6.1 Except in accordance with the provisions of this Agreement,
Stockholder (and the Company, pursuant to Section 6.3 hereof) agrees, prior
to the termination of this Agreement as provided in Section 4 above, not to,
directly or indirectly:
(a) sell, transfer, pledge, encumber, assign or otherwise dispose of
(including by merger, testamentary disposition, interspousal disposition
pursuant to a domestic relations proceeding or otherwise or otherwise by
operation of law), or enter into any contract, option or other
arrangement or understanding with respect to the sale, transfer, pledge,
encumbrance, assignment or other disposition of, any of the Shares;
except that Stockholder may transfer Shares, with the prior written
consent of Parent which shall not be unreasonably withheld, to a trust of
which there are no beneficiaries other than the parents, spouse or
children of Stockholder, or otherwise make transfers for estate planning
purposes, so long as the trust and the trustee(s) or other transferee(s)
thereof deliver a written agreement to Parent, reasonably acceptable to
Parent, to be bound by the restrictions set forth in this Agreement, and
Parent receives an opinion of counsel reasonably satisfactory to it that
this Agreement is binding on such trust and the trustee(s) or other
transferee(s) thereof, as if such trust and trustee(s) or other
transferee(s) were Stockholder. Any action taken in violation of this
Section 6.1(a) shall be void and of no effect;
(b) grant any proxies with respect to any Shares, deposit any Shares
into a voting trust or enter into a voting agreement with respect to any
Shares; or
B-3
<PAGE>
(c) take any action to solicit, initiate or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, an
Acquisition Proposal (as defined in the Merger Agreement) or engage in
negotiations or discussions with any person or entity (or group of
persons and/or entities) other than Parent or its Affiliates concerning,
or provide any non-public information to any person or entity relating,
to an Acquisition Proposal or otherwise assist or facilitate any effort
or attempt by any person or entity (other than Parent and Parent
Subsidiary) to make or implement an Acquisition Proposal. Stockholder
will immediately cease and terminate any existing solicitation,
initiation, encouragement, activity, discussion or negotiation on its
part with any parties conducted heretofore with respect to any proposed,
potential or contemplated Acquisition Proposal, and will notify Parent
promptly if it becomes aware of any Acquisition Proposal or any request
for non-public information in connection with an Acquisition Proposal or
for access to the properties, books or records of the Company by any
person or entity that informs the Company (or its officers, directors,
representatives, agents, Affiliates or associates) that it is considering
making or has made an Acquisition Proposal. Such notice shall be made
orally and in writing and shall indicate the identity of the offeror and
the terms and conditions of such proposal, inquiry or contact.
6.2 Stockholder agrees, during the term of this Agreement, to notify
Parent promptly of the number of any shares of Common Stock acquired by
Stockholder after the date hereof.
6.3 The Company recognizes and agrees to use its best efforts to enforce
the transfer restrictions placed on the Shares under this Agreement.
7. Survival of Representations and Warranties. Except as expressly provided
otherwise, all representations, warranties, covenants and agreements made by
Stockholder, Parent or Parent Subsidiary in this Agreement shall survive the
termination of this Agreement as set forth in Section 4 and any investigation at
any time made by or on behalf of any party.
8. Notices. All notices or other communications required or permitted
hereunder shall be in writing (except as otherwise provided herein), given in
the manner provided in the Merger Agreement, and shall be deemed duly given when
received, addressed as follows:
If to Parent or Parent Subsidiary:
Talk.com, Inc.
6805 Route 202
New Hope, Pennsylvania 18938
Aloysius T. Lawn, IV, Esq.
Executive Vice President --General Counsel and Secretary
Facsimile:(215) 862-1960
With a copy to:
Kelley Drye & Warren LLP 1200 19th Street, N.W.
Suite 500
Washington, D.C. 20036
Attention:Joseph B. Hoffman, Esq.
Facsimile:(202) 955-9792
If to Stockholder:
To the address and facsimile number set forth on the signature
page opposite such Stockholder's name
B-4
<PAGE>
If to Company:
Access One Communications Corp.
3427 NW 55th Street
Fort Lauderdale, FL 33309
Attention:Kenneth G. Baritz
Facsimile: (954) 739-2476
With a copy to:
Blank Rome Tenzer Greenblatt LLP
405 Lexington Avenue
New York, NY 10174
Attn: Michael S. Mullman, Esq.
Facsimile: (212) 885-5001
9. Entire Agreement; Amendment. This Agreement, together with the documents
expressly referred to herein, constitute the entire agreement among the parties
hereto with respect to the subject matter contained herein and supersede all
prior agreements and understandings among the parties with respect to such
subject matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by Parent, Parent
Subsidiary, Company and Stockholder.
10. Legend. In addition to any other legend that may be required by
applicable law, each share certificate representing Shares that are subject to
this Agreement shall have endorsed, to the extent appropriate, on its face the
following words:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNLESS SUCH TRANSFER COMPLIES WITH THE PROVISIONS OF A VOTING AGREEMENT
DATED AS OF MARCH __, 2000 (THE "VOTING AGREEMENT"), A COPY OF WHICH IS
ON FILE AND MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE COMPANY. NO
TRANSFER OF THE SECURITIES WILL BE MADE ON THE BOOKS OF THE COMPANY
UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH
VOTING AGREEMENT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
ALSO SUBJECT TO OTHER RIGHTS AND OBLIGATIONS AS SET FORTH IN THE VOTING
AGREEMENT.
11. Assigns. This Agreement shall be binding on and inure to the benefit of
the parties hereto and their respective successors, assigns and personal
representatives, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of the other parties.
12. Governing Law. Except as expressly set forth below, this Agreement
shall be governed by and construed in accordance with the domestic laws of the
State of Delaware without giving effect to any choice or conflict of law
provision or rule (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware. Each of the parties hereto submits to the jurisdiction of any
state or federal court sitting in the Commonwealth of Virginia in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding may be heard and determined in any
such court. Each party hereto also agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other court. Each of the
parties hereto waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety or other
security that might be required of any other party with respect thereto.
B-5
<PAGE>
Each party hereto appoints C-T Corporation (the "Process Agent") as his or its
agent to receive on his or its behalf service of copies of the summons and
complaint and any other process that might be served in the action or
proceeding. Any party hereto may make service on any other party by sending or
delivering a copy of the process (A) to the party to be served at the address
and in the manner provided for the giving of notices in Section 8 above or (B)
to the party to be served in care of the Process Agent at the address and in the
manner provided for the giving of notices in Section 8 above. Nothing in this
Section 12, however, shall affect the right of any party hereto to serve legal
process in any other manner permitted by law or at equity. Each party hereto
agrees that a final judgment in any action or proceeding so brought shall be
conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity. EACH OF PARENT, PARENT SUBSIDIARY, COMPANY AND
STOCKHOLDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
13. Injunctive Relief. The parties agree that in the event of a breach of
any provision of this Agreement, the aggrieved party may be without an adequate
remedy at law. The parties therefore agree that in the event of a breach of any
provision of this Agreement, the aggrieved party shall be entitled to obtain in
any court of competent jurisdiction a decree of specific performance or to
enjoin the continuing breach of such provision, in each case without the
requirement that a bond be posted and without having to prove actual damages, as
well as to obtain damages for breach of this Agreement. By seeking or obtaining
such relief, the aggrieved party will not be precluded from seeking or obtaining
any other relief to which it may be entitled.
14. Counterparts; Facsimile Signatures. This Agreement may be executed,
including execution by facsimile, in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute
one and the same document.
15. Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
16. Further Assurances. Each party hereto shall execute and deliver such
additional documents and take such additional actions as may be necessary or
desirable to consummate the transactions contemplated by this Agreement.
17. Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, shall be construed to give any person or entity other than the parties
hereto any legal or equitable right, remedy or claim under or by reason of this
Agreement or any provision contained herein.
B-6
<PAGE>
IN WITNESS WHEREOF, Parent, Parent Subsidiary, Stockholder and Company have
executed this Agreement or caused this Agreement to be executed by their duly
authorized officers, as the case may be, each as of the date and year first
above written.
ACCESS ONE COMMUNICATIONS CORP.
By: /s/ Kenneth G. Baritz
-------------------------------------
Name: Kenneth G. Baritz
Title: CEO
ALADDIN ACQUISITION CORP.
By: /s/ Aloysius T. Lawn IV
-------------------------------------
Name: Aloysius T. Lawn IV
Title:
TALK.COM, INC.
By: /s/ Aloysius T. Lawn IV
-------------------------------------
Name:
Title:
<TABLE>
<S> <C>
/s/ Kenneth G. Baritz
6558 Landings Ct. ----------------------------------------
Boca Raton, FL 33496 Kenneth G. Baritz
/s/ Kevin Griffo
3837 Norbury Ct. ----------------------------------------
Orlando, FL 32835 Kevin Griffo
/s/ William M. Rogers
----------------------------------- ----------------------------------------
/s/ Frank G. Rogers
----------------------------------- ----------------------------------------
/s/ Robert J. Rogers
----------------------------------- ----------------------------------------
</TABLE>
B-7
<PAGE>
<TABLE>
<S> <C>
/s/ Michael E. Burman
----------------------------------- ----------------------------------------
/s/ Leonard Baritz
----------------------------------- ----------------------------------------
/s/ Lynn Minella
----------------------------------- ----------------------------------------
/s/ W. Minella
----------------------------------- ----------------------------------------
Pursuit Holding Corp.
by Wesly Minella, CEO
/s/ Paul H. Riss
----------------------------------- ----------------------------------------
eLEC Communications Corp.
by Paul H. Riss, CEO
MCG Finance Corporation
1100 Wilson Blvd.
Arlington, VA 72209 /s/ Steven F. Tunney
----------------------------------- ----------------------------------------
COO/CFO
</TABLE>
B-8
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
STOCKHOLDER NUMBER OF SHARES
------------------------------------ -----------------
<S> <C>
eLEC Communications, Inc. ............................ 3,930,000
Kenneth G. Baritz .................................... 2,815,000
Wesly Minella ........................................ 1,117,500
Lynn Minella ......................................... 680,000
Joel Dupre ........................................... 306,000
Kevin Griffo ......................................... 300,000
Michael Burman ....................................... 300,000
Len Baritz ........................................... 200,000
Bill Rogers .......................................... 1,992,503
Frank Rogers ......................................... 971,953
Bob Rogers ........................................... 728,965
Christian Rogers ..................................... 242,988
William Rogers II .................................... 242,988
MCG Credit Corporation ............................... 2,057,889 *
</TABLE>
* Warrants
B-9
<PAGE>
SCHEDULE 2.1
NONE.
B-10
<PAGE>
SCHEDULE 2.2
NONE.
B-11
<PAGE>
ANNEX C
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made effective March
24, 2000 by and among Talk.com, Inc., a Delaware corporation, ("Purchaser") and
Access One Communications Corp., a New Jersey corporation (the "Company" or the
"Surviving Corporation").
WHEREAS, Purchaser, Aladdin Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Purchaser ("Merger Subsidiary"), and the Company
entered into an Agreement and Plan of Merger dated March 24, 2000 (the "Merger
Agreement"), providing for the merger of Merger Subsidiary with and into the
Company (the "Merger").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth herein, and as an inducement to consummate the Merger, the parties
hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used and not defined herein have the
respective meanings ascribed to them in the Merger Agreement.
2. Indemnification by the Company and the Stockholders.
(a) Subject to the limitations of Section 2(b), the Company, prior to the
Effective Time agrees, and all of the holders of the Company's securities
(including but not limited to holders of capital stock, warrants and/or options)
(the "Stockholders"), jointly and severally, after the Effective Time agree, to
indemnify in full Purchaser, Merger Subsidiary and the Company and their
respective officers, directors, employees, agents and shareholders
(collectively, the "Purchaser Indemnified Parties") and hold them harmless
against any loss, liability, deficiency, damage, expense or cost (including
reasonable legal expenses), actually incurred or paid (collectively, "Losses"),
which Purchaser Indemnified Parties may suffer, sustain or become subject to,
prior to the first anniversary of the Effective Time, as a result of (i) any
misrepresentation in any of the representations and warranties of the Company
contained in the Merger Agreement or in any exhibits, schedules, certificates or
other documents delivered or to be delivered by or on behalf of the Company
pursuant to the terms of the Merger Agreement or otherwise referenced or
incorporated in the Merger Agreement (collectively, the "Company Documents") or
(ii) any breach of, or failure to perform, any agreement or covenant of the
Company or the Stockholders contained in the Merger Agreement, the Voting
Agreement, this Agreement or any of the Company Documents (collectively,
"Purchaser Losses").
(b) The Company and the Stockholders will be liable to the Purchaser
Indemnified Parties for any Purchaser Losses (i) only if Purchaser Indemnified
Parties deliver to the Company and the Stockholders written notice, setting
forth in reasonable detail the identity, nature and amount of Purchaser Losses
related to such claim or claims prior to the first anniversary of the Effective
Time and (ii) only if the aggregate amount of all Purchaser Losses exceeds One
Million Dollars ($1,000,000) (the "Basket Amount"), in which case the Company
and the Stockholders shall be obligated to indemnify the Purchaser Indemnified
Parties for the excess of the aggregate amount of all such Purchaser Losses over
the Basket Amount. A Purchaser Indemnified Party's failure to provide the detail
required by clause (i) in the preceding sentence shall not constitute either a
breach of this Agreement by the Purchaser Indemnified Party or any basis for the
Company or the Stockholders to assert that a Purchaser Indemnified Party did not
comply with the terms of this Section 2 sufficient to cause the Purchaser
Indemnified Party to have waived its rights under this Section 2.
Notwithstanding the foregoing, the Company and the Stockholders shall not be
liable for Purchaser Losses that cannot be satisfied from the proceeds of Parent
Shares held pursuant to the Escrow Agreement.
<PAGE>
3. Indemnification by Purchaser.
(c) Subject to the limitations of Section 3(b), Purchaser agrees to
indemnify in full the Stockholders (collectively, the "Stockholder Indemnified
Parties") and hold them harmless against any Losses which any of the Stockholder
Indemnified Parties may suffer, sustain or become subject to prior to the first
anniversary of the Effective Time: (i) as a result of any misrepresentation in
any of the representations and warranties of Purchaser and Merger Subsidiary
contained in the Merger Agreement and (ii) as a result of any breach of, or
failure to perform, any agreement of Purchaser or Merger Subsidiary contained in
the Merger Agreement (collectively, "Stockholder Losses").
(d) Purchaser will be liable to the Stockholder Indemnified Parties for any
Stockholder Losses only if Stockholder Indemnified Parties deliver to Purchaser
written notice, setting forth in reasonable detail the identity, nature and
amount of Stockholder Losses related to such claim or claims prior to the first
anniversary of the Effective Time. A Stockholder Indemnified Party's failure to
provide the detail required by the preceding sentence shall not constitute
either a breach of this Agreement by the Company or the Stockholders or any
basis for Purchaser to assert that the Company or the Stockholders did not
comply with the terms of this Section 3 sufficient to cause either the Company
or the Stockholders to have waived their rights under this Section 3.
4. Method of Asserting Claims. As used herein, an "Indemnified Party" shall
refer to a "Purchaser Indemnified Party" or "Stockholder Indemnified Party," as
applicable, the "Notifying Party" shall refer to the party hereto whose
Indemnified Parties are entitled to indemnification hereunder, and the
"Indemnifying Party" shall refer to the party hereto obligated to indemnify such
Notifying Party's Indemnified Parties.
(e) In the event that any of the Indemnified Parties is made a defendant in
or party to any action or proceeding, judicial or administrative, instituted by
any third party for liabilities (or the related costs or expenses of which) are
Losses (any such third party action or proceeding being referred to as a
"Claim"), the Notifying Party shall give the Indemnifying Party prompt notice
thereof. The failure to give such notice shall not affect any Indemnified
Party's ability to seek reimbursement unless such failure has materially and
adversely affected the Indemnifying Party's ability to defend successfully a
Claim. The Indemnifying Party shall be entitled to contest and defend such
Claims provided that the Indemnifying Party (i) has a reasonable basis for
concluding that such defense may be successful and (ii) diligently contests and
defends such Claim. Notice of the intention so to contest and defend shall be
given by the Indemnifying Party to the Notifying Party within twenty (20)
business days after the Notifying Party's notice of such Claim (but, in all
events, at least five (5) business days prior to the date that answer to such
Claims is due to be filed). Such contest and defense shall be conducted by
reputable attorneys employed by the Indemnifying Party. The Notifying Party
shall be entitled at any time, at its own cost and expense (which expense shall
not constitute a Loss unless the Notifying Party reasonably determines that the
Indemnifying Party is not adequately representing or, because of a conflict of
interest, may not adequately represent, any interests of the Indemnified
Parties, and only to the extent that such expenses are reasonable), to
participate in such contest and defense and to be represented by attorneys of
its or their own choosing. If the Notifying Party elects to participate in such
defense, the Notifying Party will cooperate with the Indemnifying Party in the
conduct of such defense. Neither the Notifying Party nor the Indemnifying Party
may concede, settle or compromise any Claim without the consent of the other
party, which consents will not be unreasonably withheld. Notwithstanding the
foregoing, (i) if a Claim seeks equitable relief or (ii) if the subject matter
of a Claim relates to the ongoing business of any of the Indemnified Parties,
which Claim, if decided against any of the Indemnified Parties, would materially
adversely affect the ongoing business or reputation of any of the Indemnified
Parties, then, in each such case, the Indemnified Parties alone shall be
entitled to contest, defend and settle such Claim in the first instance and, if
the Indemnified Parties do not contest, defend or settle such Claim, the
Indemnifying Party shall have the right to contest and defend (but not settle)
such Claim.
(f) In the event any Indemnified Party should have a claim against any
Indemnifying Party that does not involve a Claim, the Notifying Party shall
deliver a notice of such claim with reasonable promptness to the Indemnifying
Party. If the Indemnifying Party notifies the Notifying Party that it
C-2
<PAGE>
does not dispute the claim described in such notice or fails to notify the
Notifying Party within thirty (30) days after delivery of such notice by the
Notifying Party whether the Indemnifying Party disputes the claim described in
such notice, the Loss in the amount specified in the Notifying Party's notice
will be conclusively deemed a liability of the Indemnifying Party and the
Indemnifying Party shall pay the amount of such Loss to the Indemnified Party on
demand. If the Indemnifying Party has timely disputed its Liability with respect
to such claims, the Chief Executive Officers of each of the Indemnifying Party
and the Notifying Party (or the principal individuals involved in the case of
the Stockholders) will proceed in good faith to negotiate a resolution of such
dispute, and if not resolved through the negotiations of such Chief Executive
Officers or principal individuals within sixty (60) days after the delivery of
the Notifying Party's notice of such claims, such dispute shall be resolved
fully and finally by an arbitrator selected pursuant to, and an arbitration
governed by the Commercial Arbitration Rules of the American Arbitration
Association. The arbitrator shall resolve the dispute within thirty (30) days
after selection and judgment on the award rendered by such arbitrator may be
entered in any court of competent jurisdiction.
(g) After the Closing, the rights set forth in this Agreement and the
Escrow Agreement shall be each party's sole and exclusive remedies against the
other party hereto for misrepresentations or breaches of covenants contained in
the Merger Agreement or this Agreement and the Related Documents.
Notwithstanding the foregoing, nothing herein shall prevent any of the
Indemnified Parties from bringing an action based upon allegations of fraud or
other intentional breach of an obligation of or with respect to either party in
connection with the Merger Agreement or this Agreement and the Related
Documents. In the event such action is brought, the prevailing party's
attorneys' fees and costs shall be paid by the nonprevailing party.
5. Contribution. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Agreement for
any reason is held to be unenforceable although applicable in accordance with
its terms, the Stockholders, jointly and severally, agree to contribute the
Escrow Amount to satisfy the Purchaser Losses.
6. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7. No Third-Party Beneficiaries. Notwithstanding any term or provision of
this Agreement, this Agreement does not create any right of subrogation or
enforcement on the part of (and shall not inure to the benefit of) any person
other than the parties hereto or their respective successors and permitted
assigns.
8. Governing Law; Forum; Jury Trial Waiver. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF
DELAWARE WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR
RULE (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD
CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF
DELAWARE. Each of the parties submits to the jurisdiction of any state or
federal court sitting in the Commonwealth of Virginia in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding may be heard and determined in any
such court. Each party also agrees not to bring any action or proceeding arising
out of or relating to this Agreement in any other court. Each of the parties
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety or other security that might
be required of any other party with respect thereto. Each party appoints C-T
Corporation (the "Process Agent") as his or its agent to receive on his or its
behalf service of copies of the summons and complaint and any other process that
might be served in the action or proceeding. Any party may make service on any
other party by sending or delivering a copy of the process (A) to the party to
be served at the address and in the manner provided for the giving of notices in
Section 10 below or (B) to the party to be served in care of the Process Agent
at the address and in the manner provided for the giving of notices in Section
10 below. Nothing in this Section 8, however, shall affect the right of any
party to
C-3
<PAGE>
serve legal process in any other manner permitted by law or at equity. Each
party agrees that a final judgment in any action or proceeding so brought shall
be conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity. EACH PARTY HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY.
9. Assignability. This Agreement shall not be assignable by any party
hereto without the prior written consent of the other parties hereto; provided,
however, that in the event of the death of any Stockholder, such Stockholder's
estate, personal representatives, executors, heirs and legatees shall be bound
hereby as if a party hereto.
10. Notices. Any notices required to be given hereunder shall be delivered
in accordance with Section 9(g) of the Merger Agreement, with notices to the
Stockholders being sent to the respective addresses specified on the signature
pages hereof.
11. Entire Agreement. This Agreement (together with the Merger Agreement
and the Related Documents) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof.
12. Severability. If any term or other provision of this Agreement is
invalid, illegal or unenforceable, all other provisions of this Agreement shall
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party.
IN WITNESS WHEREOF, the undersigned have executed this Agreement effective
on the date first set forth above.
TALK.COM, INC.
By: /s/ Aloysius T. Lawn IV
------------------------------------
Its: EVP - General Counsel & Secretary
ACCESS ONE COMMUNICATIONS CORP.
By: /s/ K. Baritz
------------------------------------
Its: CEO
C-4
<PAGE>
ANNEX D
FORM OF
ESCROW AGREEMENT
This ESCROW AGREEMENT (the "Agreement") is dated effective , 2000 by
and among TALK.COM, INC., a Delaware corporation ("Parent"), ALADDIN
ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Parent Subsidiary"), ACCESS ONE COMMUNICATIONS CORP., a New Jersey
corporation (the "Target"), KENNETH G. BARITZ (the "Representative"), and ,
(the "Escrow Agent").
W I T N E S S E T H
WHEREAS, Parent, Parent Subsidiary and Target entered into an Agreement and
Plan of Merger dated March 24, 2000 (the "Merger Agreement"), pursuant to which
Parent agreed to acquire all of the outstanding shares of voting common stock,
$0.00 1 par value per share (the "Common Stock"), of the Target pursuant to a
merger of Parent Subsidiary with and into Target (the "Merger");
WHEREAS, at and as of the effective time of the Merger each holder of
Common Stock, including holders of warrants convertible into Common Stock, will
be converted into the right to receive a certain number of Parent's common
stock, par value $0.01 per share (the "Parent Shares");
WHEREAS, certain indemnification obligations exist under the Merger
Agreement and the Indemnification Agreement (as defined in the Merger Agreement)
and these indemnification obligations are secured by the pledge of the amount of
Parent Shares as provided in the Merger Agreement (constituting 10% of the
Merger Consideration) and identified on Exhibit A attached hereto and
incorporated herein (the "Pledged Stock") by the holders thereof ("Pledgees");
and
WHEREAS, to provide for the appropriate administration of the Pledged
Stock, Target, Parent and Parent Subsidiary desire to establish an escrow
account with the Escrow Agent subject to the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, the receipt and sufficiency of which are hereby
acknowledged, Parent, Parent Subsidiary, Target and the Escrow Agent
(collectively, the "Parties" and sometimes, individually, a "Party"), intending
to be legally bound, hereby agree as follows:
1. Appointment. Parent, Parent Subsidiary and Target hereby appoint the
Escrow Agent as escrow agent, and the Escrow Agent hereby accepts such
appointment, on the terms and conditions set forth herein. Target hereby
appoints the Representative to act as the agent of the holders of the Pledged
Stock hereunder, which Representative shall have full authority to act on behalf
of the Pledgees with respect to the Pledged Stock for purposes of this Agreement
and the Indemnification Agreement.
2. Establishment of Escrow.
(a) Concurrently herewith, Target is depositing stock certificates and
warrant certificates representing the Pledged Stock with the Escrow Agent,
together with stock powers executed in blank related thereto.
(b) The Escrow Agent shall hold and disburse the Pledged Stock deposited
with the Escrow Agent under this Agreement (the "Escrow Stock") pursuant to and
in accordance with this Agreement.
(c) The Escrow Agent shall disburse Escrow Stock only when and to the
extent required by Section 3 hereof.
<PAGE>
3. Release from Escrow. Escrow Period.
(a) Parent and Parent Subsidiary may at any time, and from time to time,
prior to the termination of this Agreement deliver written instructions to the
Escrow Agent directing the Escrow Agent to disburse all or a portion of the
Escrow Stock to any person (including Parent and Parent Subsidiary) in the
amounts specified therein for the purpose (but only for the purpose) of
satisfying any obligation based on, arising from or in connection with all
claims for indemnification asserted in writing by the Parent, Parent Subsidiary
or Surviving Corporation pursuant to the Indemnification Agreement. Promptly
after receipt of these instructions and in any event within 3 business days
thereafter, the Escrow Agent shall send a copy of these instructions to
Representative and shall notify Parent and Parent Subsidiary in writing of the
date on which this copy was sent. On the fifteenth business day after delivery
of these instructions to Representative, and provided that the Representative
has not objected to such notice in writing delivered to both the Parent and
Escrow Agent and the dispute has not been resolved as provided in the
Indemnification Agreement, Escrow Agent shall release to Parent and Parent
Subsidiary all or part of the Escrow Stock in accordance with these
instructions. All such disputes shall be resolved as provided in the
Indemnification Agreement.
(b) On or promptly after , 2001, or, if earlier, on the date on which the
Representative, Parent and Parent Subsidiary deliver to the Escrow Agent a
written statement that no further liability exists pursuant to the Merger
Agreement, the Escrow Agent shall disburse to the Pledgees all Escrow Stock then
held by it (i) less any amounts which it shall have then previously been
instructed to disburse pursuant to Section 3(a) hereof but shall not have
disbursed for any reason.
(c) Upon receipt by the Escrow Agent from time to time and at any time
during the term of this Agreement of joint written instructions executed by the
Representative, Parent and Parent Subsidiary or a court order or arbitration
award directing disbursement of Escrow Stock, the Escrow Agent shall promptly
disburse Escrow Stock then held by it to the persons and in the amounts
specified therein.
(d) Notwithstanding anything contained herein to the contrary, the Escrow
Agent shall not be required at any time to disburse more than the aggregate
amount of Escrow Stock then held by it.
(e) Nothing contained herein shall obligate or be construed to obligate the
Representative, Parent and Parent Subsidiary to submit any dispute or claim to
arbitration.
(f) This Agreement, except Sections 4, 5 and 6, shall terminate on
disbursement of all Escrow Stock.
4. Responsibilities and Duties of Escrow Agent.
(a) The Escrow Agent shall not incur any liability for following the
instructions herein contained or provided for in any written instructions given
jointly by the Representative, Parent and Parent Subsidiary. In the event that
the Escrow Agent shall be uncertain as to its duties or rights hereunder, shall
fail to receive written instructions or shall receive instructions, claims or
demands from any other Party which, in its opinion, conflict with any of the
provisions of this Agreement, it shall be entitled to refrain from taking any
action and its sole obligation shall be to keep safely all property held in
escrow until it shall be directed otherwise in writing by all of the other
Parties or by a final order or judgment of a court of competent jurisdiction.
(b) The Escrow Agent may rely and shall be protected in acting or
refraining from acting on any written notice, instruction or request furnished
to it hereunder. The Escrow Agent shall not have any responsibility for the
genuineness or validity of any document or other material presented to or
deposited with it nor any liability for any action taken, suffered or omitted in
accordance with any written instructions or certificates given to it hereunder
and believed by it to be signed by the proper party or parties.
(c) The Escrow Agent shall not be liable for any action taken by it in good
faith and believed by it to be authorized or within the rights or powers
conferred on it by this Agreement. The Escrow Agent may consult with counsel of
its choice, and shall not be liable for any action taken, suffered or omitted by
it in good faith in accordance with the opinion of such counsel.
D-2
<PAGE>
(d) The Escrow Agent shall not be required to institute legal proceedings
of any kind and shall not be required to initiate or defend any legal
proceedings that may be instituted against it by third parties with respect to
the subject matter of this Agreement. If the Escrow Agent does elect to act it
will do so only to the extent that it is indemnified to its satisfaction against
the cost and expense of such defense or initiation.
(e) The duties and responsibilities of the Escrow Agent are those herein
specifically provided and no other. The Escrow Agent shall not have any
liability under, or duty to inquire into, the terms and provisions of the Merger
Agreement or of any other agreement or instrument, other than this Agreement.
Its duties are ministerial in nature and the Escrow Agent shall not incur any
liability whatsoever other than for its own willful misconduct or gross
negligence.
5. Indemnification. Parent, Parent Subsidiary and the Representative on
behalf of the Pledgees hereby, jointly and severally, agree to indemnify, defend
and hold the Escrow Agent harmless from and against any and all loss, damage,
tax, liability and expense that may be incurred by the Escrow Agent arising out
of or in connection with its duties, obligations or performance as escrow agent
under this Agreement, except as caused by its gross negligence or willful
misconduct, including the legal costs and expenses of defending itself against
or initiating any claim or liability in connection with its performance
hereunder. The terms of this paragraph shall survive the termination of (i) this
Agreement and, (ii) with respect to claims arising in connection with the Escrow
Agent's duties while acting as such, the resignation or removal of the Escrow
Agent.
6. Expenses of Escrow Agent. The Representative on behalf of the Pledgees,
Parent and Parent Subsidiary, jointly and severally, agree to pay or reimburse
the Escrow Agent on request for all expenses, disbursements and advances,
including reasonable attorneys' fees, incurred or made by it in connection with
carrying out its duties hereunder.
7. Discharge and Resignation of Escrow Agent. The Escrow Agent may resign
and be discharged from its duties or obligations hereunder by giving the
Representative, Parent and Parent Subsidiary at least 30 days prior notice in
writing of such resignation, but such resignation shall not be effective until a
successor escrow agent shall have been appointed and shall have accepted such
appointment in writing. As soon as practicable after its resignation, the Escrow
Agent shall turn over to a successor escrow agent appointed by the
Representative, Parent and Parent Subsidiary the Escrow Stock on presentation of
the document appointing the successor escrow agent and its acceptance thereof
whereupon all of the Escrow Agent's duties and obligations hereunder shall cease
and terminate. If no successor escrow agent is so appointed within the 30 day
period following such notice of resignation, the resigning Escrow Agent may
petition any court of competent jurisdiction for the appointment of a successor
escrow agent.
8. Notice. All notices required or permitted to be given pursuant to this
Agreement shall be given in writing, shall be transmitted by registered or
certified mail, postage prepaid, and shall be addressed as follows:
When Escrow Agent is the intended recipient:
[NAME AND ADDRESS]
Attention:
If to Parent or Parent Subsidiary:
Talk.com, Inc.
6805 Route 202
New Hope, PA 18938
Attention: Aloysius T. Lawn, IV, Esq.
Executive Vice President -- General Counsel and Secretary
Facsimile: (215) 862-1960
D-3
<PAGE>
With a copy to
Kelley Drye & Warren LLP 200 19th Street, N.W.
Suite 500
Washington, D.C. 20036
Attention: Joseph B. Hoffman, Esq.
Facsimile: (202) 955-9792
When the Pledgees or the Representative are the intended recipients:
Kenneth G. Baritz
3427 NW 55th Street
Fort Lauderdale, FL
Facsimile: (954) 739-2476
A Party may designate a new address to which notices required or permitted
to be given pursuant to this Agreement shall thereafter be transmitted by giving
written notice to that effect to the other Parties. Each notice transmitted in
the manner described in this Section 8 shall be deemed to have been given,
received and become effective for all purposes at the time it shall have been
delivered to the addressee as indicated by the return receipt.
9. Entire Agreement; Binding Effect; Assignment. The terms and provisions
of this Agreement together with the Indemnification Agreement constitute the
entire agreement between the Parties with respect to the subject matter hereof.
This Agreement shall be binding on and inure to the benefit of the Parties and
their respective successors and assigns. No Party shall assign any of its rights
or delegate any of its duties under this Agreement (by operation of law or
otherwise) without the prior written consent of the other Parties. In the case
of any inconsistency or conflict between the provisions of this Agreement and
the provisions of the Merger Agreement, the provisions of this Agreement shall
govern.
10. Amendments. The Escrow Agent shall not be bound by any modification,
amendment, termination, cancellation, rescission or supersession of this
Agreement unless the same shall be in writing and signed by all of the other
Parties and, if its rights, duties, immunities or indemnities as Escrow Agent
are affected thereby, unless it shall have given its prior written consent
thereto.
11. Governing Law; Jurisdiction. Except as expressly set forth below, this
Agreement shall be governed by and construed in accordance with the domestic
laws of the State of Delaware without giving effect to any choice or conflict of
law provision or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Delaware. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in the Commonwealth of
Virginia in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each Party also agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the parties hereto waives any defense of inconvenient forum
to the maintenance of any action or proceeding so brought and waives any bond,
surety or other security that might be required of any other Party with respect
thereto. Each Party appoints C-T Corporation (the "Process Agent") as his or its
agent to receive on his or its behalf service of copies of the summons and
complaint and any other process that might be served in the action or
proceeding. Any Party may make service on any other Party by sending or
delivering a copy of the process (A) to the Party to be served at the address
and in the manner provided for the giving of notices in Section 8 above or (B)
to the party to be served in care of the Process Agent at the address and in the
manner provided for the giving of notices in Section 8 above. Nothing in this
Section 11, however, shall affect the right of any Party to serve legal process
in any other manner permitted by law or at equity. Each Party agrees that a
final judgment in any action or proceeding so brought shall be conclusive and
may be enforced by suit on the judgment or in any other manner provided by law
or at equity. EACH OF PARENT, PARENT SUBSIDIARY, TARGET,
D-4
<PAGE>
REPRESENTATIVE (ON BEHALF OF PLEDGEES) AND ESCROW AGENT HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.
12. Headings; Counterparts. The headings in this Agreement have been
inserted for convenience of reference only, shall not be considered a part of
this Agreement and shall not limit, modify or affect in any way the meaning or
interpretation of this Agreement. This Agreement may be signed in any number of
counterparts.
13. No Modification of Merger Agreement. Except as expressly provided
herein, the rights and obligations of Parent, Parent Subsidiary and Target in
this Agreement shall in no way affect their respective rights and obligations
under the Merger Agreement.
D-5
<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed this Agreement effective
the date first above written.
ACCESS ONE COMMUNICATIONS CORP.
By:
-------------------------------------
Name:
Title:
ALADDIN ACQUISITION CORP.
By:
-------------------------------------
Name:
Title:
TALK.COM, INC.
By:
-------------------------------------
Name:
Title:
----------------------------------------
Kenneth G. Baritz (as Representative)
[ESCROW AGENT]
By:
-------------------------------------
Name:
Title:
D-6
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
PLEDGEE NUMBER OF SHARES OF PLEDGED STOCK
---------- ----------------------------------
<S> <C>
*
*Warrants
</TABLE>
D-7
<PAGE>
ANNEX E
BEAR STEARNS BEAR, STEARNS & CO. INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
TEL: (212) 272-2000
ATLANTA o BOSTON
CHICAGO o DALLAS o LOS ANGELES
NEW YORK o SAN FRANCISCO
SAO PAULO o LONDON o PARIS o GENEVA
BEIJING o HONG KONG o SHANGHAI o TOKYO
March 24, 2000
The Board of Directors
Talk.com, Inc.
6805 Route 202
New Hope, PA 18938
Members of the Board:
We understand that Talk.com, Inc. ("Talk.com") and Access One
Communications Corp. ("Access One") propose to enter into an Agreement and Plan
of Merger (the "Agreement"), pursuant to which a newly-formed subsidiary of
Talk.com will be merged with and into Access One (the "Merger"), and Access One
will continue as the surviving corporation in the Merger as a wholly-owned
subsidiary of Talk.com. We further understand that, pursuant to the Agreement,
each outstanding share of common stock, par value $0.001 per share, of Access
One ("Access One Common Stock") shall be converted into and become exchangeable
for 0.571428 shares (the "Exchange Ratio") of common stock, par value $0.01 per
share, of Talk.com ("Talk.com Common Stock"). In addition, all Stock Rights to
purchase shares of Access One Common Stock shall be converted into an equivalent
Stock Right to purchase shares of Talk.com Common Stock, subject to adjustment
based on the Exchange Ratio. The terms and conditions of the Merger are more
fully set forth in the Agreement, a copy of which has been provided to us. All
capitalized terms not otherwise defined herein shall have the same meaning as
defined in the Agreement.
You have asked us to render our opinion as to whether the Exchange Ratio is
fair, from a financial point of view, to the holders of shares of Talk.com
Common Stock.
In the course of performing our review and analyses for rendering this
opinion, we have:
o reviewed the Agreement in substantially final form;
o reviewed Talk.com's (i) Annual Reports on Form 10-K for the years ended
December 31, 1996, December 31, 1997 and December 31, 1998 and a draft of
Form 10-K for the year ending December 31, 1999, and (ii) Current Reports
on Form 8-K filed during the three calendar years ended December 31, 1999
and through March 23, 2000;
o reviewed Access One's (i) audited financial statements for the fiscal years
ended October 31, 1997, October 31, 1998 and October 31, 1999 and (ii)
interim unaudited financial statements through January 31, 2000;
<PAGE>
Talk.com, Inc.
March 24, 2000
Page 2
o reviewed certain operating and financial information related to Talk.com's
business and prospects on a standalone basis, including certain projections
for the ten year period through December 31, 2009, prepared and provided to
us by Talk.com's management;
o reviewed certain operating and financial information related to Access
One's business and prospects on a standalone basis, prepared and provided
to us by Access One's management, and certain projections for the ten year
period through December 31, 2009 relating to Access One, prepared and
provided to us by Talk.com's management;
o reviewed certain estimates of revenue enhancements, cost savings and other
combination benefits expected to result from the Merger, prepared and
provided to us by Talk.com's management;
o met with certain members of Talk.com's and Access One's senior management
to discuss each company's respective business, operations, historical and
projected financial results and future prospects as well as certain
estimates of revenue enhancements, cost savings and other combination
benefits for the combined company expected to result from the Merger;
o reviewed the historical prices, trading multiples and trading volumes of
the shares of Talk.com Common Stock;
o reviewed publicly available financial data, stock market performance data
and trading multiples of companies which we deemed generally comparable to
Talk.com and Access One;
o reviewed the terms of recent precedent mergers and acquisitions involving
companies which we deemed generally comparable to Access One;
o performed discounted cash flow analyses relating to each of Talk.com and
Access One on a standalone basis and also on a pro forma combined basis,
both including and excluding the estimated combination benefits;
o reviewed the pro forma financial results, financial condition and
capitalization of Talk.com on a pro forma basis giving effect to the
Merger; and
o conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including
without limitation certain projections and estimates of combination benefits,
provided to us by Talk.com and Access One. With respect to such projections and
estimated combination benefits that could be achieved upon consummation of the
Merger, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the senior
managements of Talk.com and Access One as to the expected future performance of
each of Talk.com and Access One on a standalone basis as well as Talk.com on a
pro forma basis giving effect to the Merger. We have not independently verified
any such information or the projections and estimates of combination benefits
provided to us, and we have further relied upon the assurances of the senior
managements of Talk.com and Access One that they are unaware of any facts that
would make the information, projections and estimated combination benefits
provided to us incomplete or misleading.
In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets or liabilities of Talk.com or Access One,
nor have we been furnished with any such appraisals. We have assumed that the
Merger will qualify as a tax-free "reorganization" within the meaning of Section
3 68(a) of the Internal Revenue Code. We also have assumed that the Merger will
be consummated in a timely manner and in accordance with the Agreement without
any regulatory limitations, restrictions, conditions, amendments or
modifications that collectively would have a material effect on Talk.com or
Access One or Talk.com on a pro forma basis giving effect to the Merger. You
have informed us that the Merger will be treated for accounting purposes as a
purchase transaction.
We do not express any opinion as to the price or range of prices at which
the shares of Talk.com Common Stock may trade subsequent to the announcement of
the Merger or as to the price or range of prices at which the shares of Talk.com
Common Stock may trade subsequent to the consummation of the Merger.
E-2
<PAGE>
Talk.com, Inc.
March 24, 2000
Page 3
We have acted as a financial advisor to Talk.com in connection with the
Merger and will receive a customary fee for such services, a substantial portion
of which is contingent upon consummation of the Merger. Bear Stearns has been
previously engaged by TaIk.com to provide certain investment banking and
financial advisory services for which we received customary fees. In the
ordinary course of business, Bear Stearns may actively trade the equity and debt
securities of Talk.com for our own account and for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
It is understood that this letter is intended for the benefit and use of
the Board of Directors of Talk.com and does not constitute a recommendation to
the Board of Directors of Talk.com or any holders of shares of Talk.com Common
Stock as to how to vote in connection with the Merger. This opinion does not
address Talk.com's underlying business decision to pursue the Merger. This
letter is not to be used for any other purpose, or be reproduced, disseminated,
quoted from or referred to at any time, in whole or in part, without our prior
written consent; provided, however, that this letter may be included in its
entirety in any joint proxy statement I prospectus to be distributed to the
holders of shares of Talk.com Common Stock in connection with the Merger and in
filings to be made by Talk.com with the Securities and Exchange Commission. Our
opinion is subject to the assumptions and conditions contained herein and is
necessarily based on economic, market and other conditions, and the information
made available to us, as of the date hereof. We assume no responsibility for
updating or revising our opinion based on circumstances or events occurring
after the date hereof.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair, from a financial point of view, to the
holders of shares of Talk.com Common Stock.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ James A. Ferency
----------------------------------------
Senior Managing Director
E-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a Delaware corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding") (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. A Delaware corporation may indemnify any person under such
Section in connection with a proceeding by or in the right of the corporation to
procure judgment in its favor, as provided in the preceding sentence, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action, except that no
indemnification shall be made with respect thereto unless, and then only to the
extent that, a court of competent jurisdiction shall determine upon application
that such person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. A Delaware corporation must indemnify
present or former directors and officers who are successful on the merits or
otherwise in defense of any action, suit or proceeding or in defense of any
claim, issue or matter in any proceeding, by reason of the fact that he is or
was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith. A Delaware corporation may pay for the expenses (including attorneys'
fees) incurred by an officer or director in defending a proceeding in advance of
the final disposition upon receipt of an undertaking by or on behalf of such
officer or director to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation. Article VI of the
Bylaws of Talk.com provides for indemnification of its directors and executive
officers to the maximum extent permitted by the DGCL. Additionally, Talk.com has
entered into indemnification agreements with certain of its directors and
officers. These agreements provide for indemnification to the fullest extent
permitted by law and, in certain respects, may provide greater protection than
that specifically provided for by provide indemnification for, among other
things, conduct which is adjudged to be fraud, deliberate dishonesty or willful
misconduct.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director shall not be personally liable to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for any
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) with respect to certain unlawful dividend
payments or stock redemptions or repurchases or (iv) for any transaction from
which the director derived an improper personal benefit. Article Ninth of
Talk.com's Certificate of Incorporation eliminates the liability of directors to
the fullest extent permitted by Section 102(b)(7) of the DGCL.
Section 145 of the DGCL permits a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other employee against any liability asserted against
such person and incurred by such person in such capacity, or arising out of
their status as such, whether or not the corporation would have the power to
indemnify directors and officers against such liability. Talk.com has purchased
an insurance policy that purports to insure the officers and directors against
certain liabilities incurred by them in the discharge of their functions as
officers and directors.
II-1
<PAGE>
Talk.com has agreed in the merger agreement to honor provisions for
indemnification of the directors and officers of Access One contained in the
Certificate of Incorporation and Bylaws of Access One, with respect to actual or
threatened actions, suits, claims or proceedings arising out of any events, acts
or omissions that are specifically identified in the schedules to the merger
agreement.
Under the indemnification agreement, Access One and the holders of its
common stock and of warrants and options for its common stock have agreed to
jointly and severally indemnify Talk.com, Aladdin Acquisition Corp., Access One
and their respective officers, directors, employees, agents and shareholders
against liabilities and losses resulting from (i) any misrepresentations in any
of the representations, and warranties of Access One contained in the merger
agreement or in other documents delivered in connection with the merger
agreement or (ii) any breach of, or failure to perform, any agreement or
covenant of Access One or its stockholders contained in the merger agreement or
other documents executed in connection with the merger agreement. The
indemnification is limited to liabilities and losses of such indemnified parties
exceeding $1,000,000 in the aggregate, and which occur and are claimed by such
parties within one year after the merger with a maximum of up to the value of
the shares in escrow. In addition, Talk.com has agreed in the indemnification
agreement to indemnify the holders of Access One's common stock or warrants or
options for its common stock against liabilities and losses occurring within one
year after the merger resulting from (i) any misrepresentations in any of the
representations and warranties of Talk.com and Aladdin Acquisition Corp.
contained in the merger agreement or (ii) any breach of, or failure to perform,
any agreement or covenant of Talk.com or Aladdin Acquisition Corp. contained in
the merger agreement. The indemnification is limited to liabilities and losses
of such holders which occur and are claimed by them within one year after the
merger.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) List of Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------------- ---------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of March 24, 2000, by
and among Talk.com Inc., Aladdin Acquisition Corp. and Access
One Communications Corp., and Amendment thereto, dated as of
June __, 2000 (included as Annex A to the Joint Proxy
Statement/Prospectus contained in this Registration
Statement).
3.1(i) Composite form of Amended and Restated Certificate of
Incorporation of Talk.com Inc., as amended through April 26,
1999 (incorporated by reference to Exhibit 3.1 to Talk.com
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999).
3.1(ii) Bylaws of Talk.com Inc. (incorporated by reference to Exhibit
3.2 to Talk.com Inc.'s Registration Statement on Form S-1
(File No. 33-94940)).
3.2(i) Certificate of Incorporation of Access One Communications
Corp. (filed herewith).
3.2(ii) Bylaws of Access One Communications Corp. (filed herewith).
3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock of Talk.com Inc. dated August 27, 1999
(incorporated by reference to Exhibit A to Exhibit 1 to
Talk.com Inc.'s Registration Statement on Form 8-A (File No.
000-26728)).
4.1 Specimen of Talk.com Inc. common stock certificate (filed
herewith).
5.1 Opinion of Kelley Drye & Warren LLP regarding the validity of
the securities being registered (filed herewith).
8.1 Opinion of Blank Rome Tenzer Greenblatt LLP regarding
material federal income tax consequences relating to the
merger (filed herewith).
10.1 Voting Agreement, dated as of March 24, 2000, by and among
Talk.com Inc., Aladdin Acquisition Corp. and Access One
Communications Corp. (included as Annex B to the Joint Proxy
Statement/Prospectus contained in this Registration
Statement).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
---------- -------------------------------------------------------------------
<S> <C>
10.2 Indemnification Agreement, effective as of March 24, 2000 by
Talk.com Inc. and Access One Communications Corp. (included as
Annex C to the Joint Proxy Statement/ Prospectus contained in this
Registration Statement).
10.3 Form of Escrow Agreement effective _________, 2000 by and among
Talk.com Inc., Aladdin Acquisition Corp. and Access One
Communications Corp. (included as Annex D to the Joint Proxy
Statement/Prospectus contained in this Registration Statement).
10.4 Services Agreement dated as of March 24, 2000, between Access One
Communications Corp. and Talk.com Holding Corp., Inc. (filed
herewith).
10.5 Employment Agreement between Talk.com Inc. and Kenneth G. Baritz
(filed herewith).
10.6 Confidentiality Agreement dated as of March 8, 2000, between
Talk.com Inc. and Access One Communications Corp. (filed
herewith).
10.7 Employment Agreement dated as of March 24, 2000, between Talk.com
Inc. and Kevin Griffo (filed herewith).
10.8 Employment Agreement between Talk.com Inc. and Aloysius T. Lawn,
IV dated October 13, 1998 (incorporated by reference to Exhibit
10.3 to Talk.com Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1998).
10.9 Employment Agreement between Talk.com Inc. and Edward B.
Meyercord, III (incorporated by reference to Exhibit 10.6 to
Talk.com Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1996).
10.10 Indemnification Agreement between Talk.com Inc. and Aloysius T.
Lawn, IV (incorporated by reference to Exhibit 10.12 to Talk.com
Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1995)
10.11 Indemnification Agreement between Talk.com Inc. and Edward B.
Meyercord, III (incorporated by reference to Exhibit 10.12 to
Talk.com Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
10.12 Tel-Save Holdings, Inc. 1995 Employee Stock Option Plan
(incorporated by reference to Exhibit 10.15 to Talk.com Inc.'s
Registration Statement on Form S-1 (File No. 33-94940)).
10.13 Telecommunications Marketing Agreement by and among Talk.com Inc.,
Tel-Save, Inc. and America Online, Inc, dated February 22, 1997
(incorporated by reference to Exhibit 10.32 to Talk.com Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1996).+
10.14 Amendment No. 1, dated as of January 25, 1998, to the
Telecommunications Marketing Agreement dated as of February 22,
1987 by and among Talk.com Inc., Tel-Save, Inc. and America
Online, Inc. (incorporated by reference to Exhibit 10.31 to
Talk.com Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997).+
10.15 Amendment No. 2, dated May 14, 1998, among Talk.com Inc.,
Tel-Save, Inc. and America Online, Inc., which amends that certain
Telecommunications Marketing Agreement, dated as of February 22,
19997, as corrected and amended by letter, dated April 23, 1997,
and amended by an Amendment No. 1, dated January 25, 1998
(incorporated by reference to Exhibit 10.1 to Talk.com Inc.'s
Quarterly Report on Form 10-Q dated August 14, 1998).+
10.16 Amendment No. 3, effective as of October 1, 1998, among Talk.com
Inc., Tel-Save, Inc. and America Online, Inc., which amends that
certain Telecommunications Marketing Agreement, dated as of
February 22, 1997, as corrected and amended by Letter, dated April
23, 1997, and amended by an Amendment No. 1, dated January 25,
1998, and an Amendment No. 2 dated May 14, 1998 (incorporated by
reference to Exhibit 10.22 to Talk.com Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1998).+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
---------- ------------------------------------------------------------------
<S> <C>
10.17 Letter dated August 25, 1999 from America Online, Inc. to Talk.com
Inc. (incorporated by reference to Exhibit 99.2 to Talk.com Inc.'s
Current Report on Form 8-K dated August 27, 1999).
10.18 Indenture dated as of September 9, 1997 between Talk.com Inc. and
First Trust of New York, N.A. (incorporated by reference to
Exhibit 4.3 to Talk.com Inc.'s registration statement on Form S-3
(SEC File No. 333-30787)).
10.19 Indenture dated as of December 10, 1997 between Talk.com Inc. and
First Trust of New York, N.A. (incorporated by reference to
Exhibit 10.34 to Talk.com Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1997).
10.20 Employment Agreement, dated as of November 13, 1998, between
Talk.com Inc. and Gabriel Battista (incorporated by reference to
Exhibit 10.1 to Talk.com Inc.'s Current Report on Form 8-K dated
January 20, 1999).
10.21 Indemnification Agreement, dated as of December 28, 1998, between
Talk.com Inc. and Gabriel Battista (incorporated by reference to
Exhibit 10.2 to Talk.com Inc.'s Current Report on Form 8-K dated
January 20, 1999).
10.22 Stock Option Agreement, dated as of November 13, 1998, between
Talk.com Inc. and Gabriel Battista (incorporated by reference to
Exhibit 10.3 to Talk.com Inc.'s Current Report on Form 8-K dated
January 20, 1999).
10.23 Stock Option Agreement, dated as of November 13, 1998, between
Talk.com Inc. and Gabriel Battista (incorporated by reference to
Exhibit 10.4 to Talk.com Inc.'s Current Report on Form 8-K dated
January 20, 1999).
10.24 Severance Agreement, dated as of December 31, 1998, between
Talk.com Inc. and Daniel Borislow (incorporated by reference to
Exhibit 10.5 to Talk.com Inc.'s Current Report on Form 8-K dated
January 20, 1999).
10.25 Exchange Agreement, dated as of December 31, 1998, among Talk.com
Inc., Tel-Save, Inc., and Mark Ravel, as Trustee of that certain
D&K Grantor Retained Annuity Trust dated June 15, 1998
(incorporated by reference to Exhibit 10.7 to the Company's
Current Report on Form 8-k dated January 20, 1999).
10.26 Modification of the Exchange Agreement, dated ___, 1999, by and
among Talk.com Inc., Tel-Save, Inc. and Mark Pavol (incorporated
by reference to Exhibit 10.34 to Talk.com Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1998).
10.27 Registration Rights Agreement, dated as of December 31, 1998,
among Talk.com Inc., Daniel Borislow, mark Pavol, as Trustee of
that certain D&K Grantor Retained Annuity Trust, dated June 15,
1998 and the Trustee of that certain D&K Grantor Retained Annuity
Trust II (incorporated by reference to Exhibit 10.8 to Talk.com
Inc. Current Report on Form 8-K dated January 20, 1999).
10.28 Amendment of Registration Rights Agreement dated as of March 18,
1999, by and among Talk.com Inc., Daniel M. Borislow, and Seth
Tobias (incorporated by reference to Exhibit 10.36 to Talk.com
Inc.'s annual Report on Form 10-K for the year ended December 31,
1998).
10.29 Amendment of Registration Rights Agreement dated as of March 18,
1999, by and among Talk.com Inc. and Mark Pavol (incorporated by
reference to Exhibit 10.37 to Talk.com Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1998).
10.30 1998 Long-Term Incentive Plan of Talk.com Inc. (incorporated by
reference to Exhibit 10.14 to Talk.com Inc.'s Current Report on
Form 8-K dated January 20, 1999).
10.31 2000 Long-Term Incentive Plan of Talk.com Inc. (filed herewith)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------- ------------------------------------------------------------------
<S> <C>
10.32 Investment Agreement, dated as of December 31, 1998, as amended on
February 22, 1999, among Talk.com Inc., America Online, Inc., and,
solely for purposes of Sections 4.5, 4.6 and 7.3 (g) thereof,
Daniel Borislow, and solely for purposes of Section 4.12 thereof,
Tel-Save, Inc., and the D&K Retained Annuity Trust dated June 15,
1998 by Mark Pavol. Trustee (incorporated by reference to Exhibit
10.41 to Talk.com Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1998).
10.33 Registration Rights Agreement, dated as of January 5, 1999,
between Talk.com Inc. and America Online, Inc. (incorporated by
reference to Exhibit 10.42 to Talk.com Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1998).
10.34 Sublease Agreement, dated January ___, 1997, by and between Gemini
Air Cargo, LLC and RMS International, Inc. (incorporated by
reference to Exhibit 10.43 to Talk.com Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1998).
10.35 Sublease Agreement, dated as of January 20, 1999, by and between
RMS International and Tel-Save, Inc. (incorporated by reference to
Exhibit 10.44 to Talk.com Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1998).
10.36 Lease by and between Aetna Life Insurance Company and Potomac
Financial Group, L.L.C. (incorporated by reference to Exhibit
10.45 to Talk.com Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1998).
10.37 Agreement, effective as of February 28, 1999, by and among
Talk.com Inc., Communication Telesystems International, d.b.a.
WorldxChange Communications, Tel-Save, Inc., Mark Pavol, Roger B.
Abbott and Rosalind Abbot, and Edward Soren (incorporated by
reference to Exhibit 10.46 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
10.38 Form of Indemnification Agreement, dated as of January 5, 1999,
for each of George Vinall, Michael Ferzacca and Norris M. Hall,
III (incorporated by reference to Exhibit 10.50 to Talk.com Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1998).
10.39 Form of Non-Qualified Stock Option Agreement, dated as of December
16, 1998, for each of George Vinall, Michael Ferzacca and Norris
M. Hall, III (incorporated by reference to Exhibit 10.51 to
Talk.com Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998).
10.40 Employment Agreement, dated as of December 16, 1998, between
Talk.com Inc. and Michael Ferzacca (incorporated by reference to
Exhibit 10.60 to Talk.com Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1998).
10.41 Employment Agreement, dated as of December 16, 1998, between
Talk.com Inc. and Norris M. Hall, III (incorporated by reference
to Exhibit 10.61 to Talk.com Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1998).
10.42 Employment Agreement, dated as of December 16, 1998, between
Talk.com Inc. and George Vinall (incorporated by reference to
Exhibit 10.62 to Talk.com Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1998).
10.43 Rights Agreement dated as of August 19, 1999 by and between
Talk.com Inc. and First City Transfer Company, as Rights Agent
(incorporated by reference to Exhibit 1 to Talk.com Inc.'s
registration statement on Form 8-A (File No. 0-26728)).
10.44 Employment Agreement by and between Janet C. Kirschner and
Talk.com Inc. dated as of October 14, 1999 (incorporated by
reference to Exhibit 10.39 to Talk.com Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1999).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------- ------------------------------------------------------------------
<S> <C>
10.45 Indemnification Agreement by and between Janet C. Kirschner and
Talk.com Inc. dated as of October 14, 1999 (incorporated by
reference to Exhibit 10.40 to Talk.com Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1999).
10.46 Non-Qualified Stock Option Agreement by and between Janet C.
Kirschner and Talk.com dated as of October 14, 1999 (incorporated
by reference to Exhibit 10.41 to Talk.com Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1999).
10.47 Interconnect Agreement between BellSouth and The Other Phone
Company (filed herewith).
10.48 Agreement and Plan of Merger dated October 15, 1999, among Access
Communications Corp., OmniCall Acquisition Corp. and OmniCall,
Inc. (filed herewith).
10.49 Promissory Note dated November 30, 1999 between OmniCall, Inc. and
William M. Rogers (filed herewith).
10.50 Credit Facility Agreement, dated as of June 30, 1999, among Access
One Communications Corp. and its Subsidiaries and MCG Finance
Corporation (filed herewith).
10.51 Option and Warrant Agreement dated as of June 30, 1999 by and
between Access One Communications Corp. and MCG Finance
Corporation (filed herewith)
10.52 Warrant Agreement dated as of November 30, 1999 by and between
Access One Communications Corp. and MCG Finance Corporation (filed
herewith)
10.53 Amendment Number One to Access One Communications Corp. Loan
Documents, dated as of November 30, 1999, among Access One
Communications Corp. and its Subsidiaries, MCG Finance Corporation
and certain other parties. (filed herewith)
10.54 Agreement Regarding MCG Warrants and Options, dated as of July 5,
2000 among MCG Finance Corporation, Talk.com Inc. and Access One
Communications Corp. (filed herewith)
10.55 Consulting Agreement dated as of July 5, 2000 between MCG Credit
Corporation and Access One Communications Corp. (filed herewith)
21.1 Subsidiaries of Talk.com Inc. (filed herewith).
21.2 Subsidiaries of Access One Communications Corp. (filed herewith).
23.1 Consent of BDO Seidman LLP (filed herewith).
23.2 Consent of Nussbaum Yates & Walpow, P.C. (filed herewith)
23.3 Consent of KPMG LLP (filed herewith).
23.4 Consent of Kelley Drye & Warren LLP (to be included in the opinion
filed as Exhibit 5.1 to this Registration Statement).
23.5 Consent of Blank Rome Tenzer Greenblatt LLP (to be included in the
opinion filed as Exhibit 8.1 to this Registration Statement).
23.6 Consent of Bear, Stearns & Co. Inc. (contained in its opinion
included as Annex E to the Joint Proxy Statement/Prospectus
contained in this Registration Statement).
24 Power of Attorney (included in signature page).
99.1 Form of Proxy Card for Talk.com Inc. Annual Meeting (included as
Exhibit 99.1 to the Joint Proxy Statement/Prospectus contained in
this Registration Statement).
99.2 Form of Proxy Card for Access One Communications Corp. Special
Meeting (included as Exhibit 99.2 to the Joint Proxy
Statement/Prospectus contained in this Registration Statement).
</TABLE>
----------
+ Confidential treatment previously has been granted for a portion of this
exhibit.
(b) Supplemental Financial Statement Schedules:
None.
II-6
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(6) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the Joint Proxy Statement/Prospectus pursuant to Item 4,
10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request.
II-7
<PAGE>
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Reston, State of
Virginia, on this 6th day of July, 2000.
TALK.COM INC.
BY: /s/ GABRIEL BATTISTA
-----------------------------------
Gabriel Battista
Chairman of the Board,
Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Gabriel Battista and Aloysius T. Lawn,
IV, and each of them as his true and lawful attorneys-in-fact and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (i) any and all
pre-effective and post-effective amendments to this registration statement, (ii)
any exhibits to any such pre-effective or post-effective amendments, (iii) any
and all applications and other documents in connection with any such
pre-effective or post-effective amendments, and (iv) generally to do all things
and perform any and all acts and things whatsoever requisite and necessary or
desirable to enable the Registrant to comply with the provisions of the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on July 6, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------ ----------------------------------- -------------
<S> <C> <C>
/s/ GABRIEL BATTISTA Chairman of the Board, Chief July 6, 2000
--------------------------- Executive Officer and Director
Gabriel Battista (Principal Executive Officer)
/s/ EDWARD B. MEYERCORD, III Executive Vice President -- Chief July 6, 2000
--------------------------- Financial Officer and Treasurer
Gabriel Battista (Principal Financial Officer)
/s/ JANET C. KIRSCHNER Controller (Principal Accounting July 6, 2000
--------------------------- Officer)
Janet C. Kirschner
/s/ MARK S. FOWLER Director July 6, 2000
---------------------------
Mark S. Fowler
/s/ ARTHUR J. MARKS Director July 6, 2000
---------------------------
Arthur J. Marks
/s/ RONALD R. THOMA Director July 6, 2000
---------------------------
Ronald R. Thoma
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE><CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------- --------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of March 24, 2000, by
and among Talk.com Inc., Aladdin Acquisition Corp. and Access
One Communications Corp., and Amendment thereto, dated as of
June __, 2000 (included as Annex A to the Joint Proxy
Statement/Prospectus contained in this Registration
Statement).
3.1(i) Composite form of Amended and Restated Certificate of
Incorporation of Talk.com Inc., as amended through April 26,
1999 (incorporated by reference to Exhibit 3.1 to Talk.com
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999).
3.1(ii) Bylaws of Talk.com Inc. (incorporated by reference to Exhibit
3.2 to Talk.com Inc.'s Registration Statement on Form S-1
(File No. 33-94940)).
3.2(i) Certificate of Incorporation of Access One Communications
Corp. (filed herewith).
3.2(ii) Bylaws of Access One Communications Corp. (filed herewith).
3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock of Talk.com Inc. dated August 27, 1999
(incorporated by reference to Exhibit A to Exhibit 1 to
Talk.com Inc.'s Registration Statement on Form 8-A (File No.
000-26728)).
4.1 Specimen of Talk.com Inc. common stock certificate (filed
herewith).
5.1 Opinion of Kelley Drye & Warren LLP regarding the validity of
the securities being registered (filed herewith).
8.1 Opinion of Blank Rome Tenzer Greenblatt LLP regarding material
federal income tax consequences relating to the merger (filed
herewith).
10.1 Voting Agreement, dated as of March 24, 2000, by and among
Talk.com Inc., Aladdin Acquisition Corp. and Access One
Communications Corp. (included as Annex B to the Joint Proxy
Statement/Prospectus contained in this Registration
Statement).
10.2 Indemnification Agreement, effective as of March 24, 2000 by
Talk.com Inc. and Access One Communications Corp. (included as
Annex C to the Joint Proxy Statement/Prospectus contained in
this Registration Statement).
10.3 Form of Escrow Agreement effective _________, 2000 by and
among Talk.com Inc., Aladdin Acquisition Corp. and Access One
Communications Corp. (included as Annex D to the Joint Proxy
Statement/Prospectus contained in this Registration
Statement).
10.4 Services Agreement dated as of March 24, 2000, between Access
One Communications Corp. and Talk.com Holding Corp., Inc.
(filed herewith).
10.5 Employment Agreement between Talk.com Inc. and Kenneth G.
Baritz (filed herewith).
10.6 Confidentiality Agreement dated as of March 8, 2000, between
Talk.com Inc. and Access One Communications Corp. (filed
herewith).
10.7 Employment Agreement dated as of March 24, 2000, between
Talk.com Inc. and Kevin Griffo (filed herewith).
10.8 Employment Agreement between Talk.com Inc. and Aloysius T.
Lawn, IV dated October 13, 1998 (incorporated by reference to
Exhibit 10.3 to Talk.com Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1998).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- ---------------------------------------------------------------------
<S> <C>
10.9 Employment Agreement between Talk.com Inc. and Edward B. Meyercord,
III (incorporated by reference to Exhibit 10.6 to Talk.com Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1996).
10.10 Indemnification Agreement between Talk.com Inc. and Aloysius T. Lawn,
IV (incorporated by reference to Exhibit 10.12 to Talk.com Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1995)
10.11 Indemnification Agreement between Talk.com Inc. and Edward B.
Meyercord, III (incorporated by reference to Exhibit 10.12 to
Talk.com Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1996).
10.12 Tel-Save Holdings, Inc. 1995 Employee Stock Option Plan (incorporated
by reference to Exhibit 10.15 to Talk.com Inc.'s Registration
Statement on Form S-1 (File No. 33-94940)).
10.13 Telecommunications Marketing Agreement by and among Talk.com Inc.,
Tel-Save, Inc. and America Online, Inc, dated February 22, 1997
(incorporated by reference to Exhibit 10.32 to Talk.com Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1996).+
10.14 Amendment No. 1, dated as of January 25, 1998, to the
Telecommunications Marketing Agreement dated as of February 22, 1987
by and among Talk.com Inc., Tel-Save, Inc. and America Online, Inc.
(incorporated by reference to Exhibit 10.31 to Talk.com Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997).+
10.15 Amendment No. 2, dated May 14, 1998, among Talk.com Inc., Tel-Save,
Inc. and America Online, Inc., which amends that certain
Telecommunications Marketing Agreement, dated as of February 22,
19997, as corrected and amended by letter, dated April 23, 1997, and
amended by an Amendment No. 1, dated January 25, 1998 (incorporated
by reference to Exhibit 10.1 to Talk.com Inc.'s Quarterly Report on
Form 10-Q dated August 14, 1998).+
10.16 Amendment No. 3, effective as of October 1, 1998, among Talk.com
Inc., Tel-Save, Inc. and America Online, Inc., which amends that
certain Telecommunications Marketing Agreement, dated as of February
22, 1997, as corrected and amended by Letter, dated April 23, 1997,
and amended by an Amendment No. 1, dated January 25, 1998, and an
Amendment No. 2 dated May 14, 1998 (incorporated by reference to
Exhibit 10.22 to Talk.com Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1998).+
10.17 Letter dated August 25, 1999 from America Online, Inc. to Talk.com
Inc. (incorporated by reference to Exhibit 99.2 to Talk.com Inc.'s
Current Report on Form 8-K dated August 27, 1999).
10.18 Indenture dated as of September 9, 1997 between Talk.com Inc. and
First Trust of New York, N.A. (incorporated by reference to Exhibit
4.3 to Talk.com Inc.'s registration statement on Form S-3 (SEC File
No. 333-30787)).
10.19 Indenture dated as of December 10, 1997 between Talk.com Inc. and
First Trust of New York, N.A. (incorporated by reference to Exhibit
10.34 to Talk.com Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1997).
10.20 Employment Agreement, dated as of November 13, 1998, between Talk.com
Inc. and Gabriel Battista (incorporated by reference to Exhibit 10.1
to Talk.com Inc.'s Current Report on Form 8-K dated January 20,
1999).
10.21 Indemnification Agreement, dated as of December 28, 1998, between
Talk.com Inc. and Gabriel Battista (incorporated by reference to
Exhibit 10.2 to Talk.com Inc.'s Current Report on Form 8-K dated
January 20, 1999).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
---------- -------------------------------------------------------------------
<S> <C>
10.22 Stock Option Agreement, dated as of November 13, 1998, between
Talk.com Inc. and Gabriel Battista (incorporated by reference to
Exhibit 10.3 to Talk.com Inc.'s Current Report on Form 8-K dated
January 20, 1999).
10.23 Stock Option Agreement, dated as of November 13, 1998, between
Talk.com Inc. and Gabriel Battista (incorporated by reference to
Exhibit 10.4 to Talk.com Inc.'s Current Report on Form 8-K dated
January 20, 1999).
10.24 Severance Agreement, dated as of December 31, 1998, between
Talk.com Inc. and Daniel Borislow (incorporated by reference to
Exhibit 10.5 to Talk.com Inc.'s Current Report on Form 8-K dated
January 20, 1999).
10.25 Exchange Agreement, dated as of December 31, 1998, among Talk.com
Inc., Tel-Save, Inc., and Mark Ravel, as Trustee of that certain
D&K Grantor Retained Annuity Trust dated June 15, 1998
(incorporated by reference to Exhibit 10.7 to the Company's Current
Report on Form 8-k dated January 20, 1999).
10.26 Modification of the Exchange Agreement, dated ___, 1999, by and
among Talk.com Inc., Tel-Save, Inc. and Mark Pavol (incorporated by
reference to Exhibit 10.34 to Talk.com Inc.'s Annual Report on Form
10-K for the year ended December 31, 1998).
10.27 Registration Rights Agreement, dated as of December 31, 1998, among
Talk.com Inc., Daniel Borislow, mark Pavol, as Trustee of that
certain D&K Grantor Retained Annuity Trust, dated June 15, 1998 and
the Trustee of that certain D&K Grantor Retained Annuity Trust II
(incorporated by reference to Exhibit 10.8 to Talk.com Inc. Current
Report on Form 8-K dated January 20, 1999).
10.28 Amendment of Registration Rights Agreement dated as of March 18,
1999, by and among Talk.com Inc., Daniel M. Borislow, and Seth
Tobias (incorporated by reference to Exhibit 10.36 to Talk.com
Inc.'s annual Report on Form 10-K for the year ended December 31,
1998).
10.29 Amendment of Registration Rights Agreement dated as of March 18,
1999, by and among Talk.com Inc. and Mark Pavol (incorporated by
reference to Exhibit 10.37 to Talk.com Inc.'s Annual Report on Form
10-K for the year ended December 31, 1998).
10.30 1998 Long-Term Incentive Plan of Talk.com Inc. (incorporated by
reference to Exhibit 10.14 to Talk.com Inc.'s Current Report on
Form 8-K dated January 20, 1999).
10.31 2000 Long-Term Incentive Plan of Talk.com Inc. (filed herewith)
10.32 Investment Agreement, dated as of December 31, 1998, as amended on
February 22, 1999, among Talk.com Inc., America Online, Inc., and,
solely for purposes of Sections 4.5, 4.6 and 7.3 (g) thereof,
Daniel Borislow, and solely for purposes of Section 4.12 thereof,
Tel-Save, Inc., and the D&K Retained Annuity Trust dated June 15,
1998 by Mark Pavol. Trustee (incorporated by reference to Exhibit
10.41 to Talk.com Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1998).
10.33 Registration Rights Agreement, dated as of January 5, 1999, between
Talk.com Inc. and America Online, Inc. (incorporated by reference
to Exhibit 10.42 to Talk.com Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1998).
10.34 Sublease Agreement, dated January ___, 1997, by and between Gemini
Air Cargo, LLC and RMS International, Inc. (incorporated by
reference to Exhibit 10.43 to Talk.com Inc.'s Annual Report on Form
10-K for the year ended December 31, 1998).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
---------- -------------------------------------------------------------------
<S> <C>
10.35 Sublease Agreement, dated as of January 20, 1999, by and between
RMS International and Tel-Save, Inc. (incorporated by reference to
Exhibit 10.44 to Talk.com Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1998).
10.36 Lease by and between Aetna Life Insurance Company and Potomac
Financial Group, L.L.C. (incorporated by reference to Exhibit 10.45
to Talk.com Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998).
10.37 Agreement, effective as of February 28, 1999, by and among Talk.com
Inc., Communication Telesystems International, d.b.a. WorldxChange
Communications, Tel-Save, Inc., Mark Pavol, Roger B. Abbott and
Rosalind Abbot, and Edward Soren (incorporated by reference to
Exhibit 10.46 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998).
10.38 Form of Indemnification Agreement, dated as of January 5, 1999, for
each of George Vinall, Michael Ferzacca and Norris M. Hall, III
(incorporated by reference to Exhibit 10.50 to Talk.com Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1998).
10.39 Form of Non-Qualified Stock Option Agreement, dated as of December
16, 1998, for each of George Vinall, Michael Ferzacca and Norris M.
Hall, III (incorporated by reference to Exhibit 10.51 to Talk.com
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998).
10.40 Employment Agreement, dated as of December 16, 1998, between
Talk.com Inc. and Michael Ferzacca (incorporated by reference to
Exhibit 10.60 to Talk.com Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1998).
10.41 Employment Agreement, dated as of December 16, 1998, between
Talk.com Inc. and Norris M. Hall, III (incorporated by reference to
Exhibit 10.61 to Talk.com Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1998).
10.42 Employment Agreement, dated as of December 16, 1998, between
Talk.com Inc. and George Vinall (incorporated by reference to
Exhibit 10.62 to Talk.com Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1998).
10.43 Rights Agreement dated as of August 19, 1999 by and between
Talk.com Inc. and First City Transfer Company, as Rights Agent
(incorporated by reference to Exhibit 1 to Talk.com Inc.'s
registration statement on Form 8-A (File No. 0-26728)).
10.44 Employment Agreement by and between Janet C. Kirschner and Talk.com
Inc. dated as of October 14, 1999 (incorporated by reference to
Exhibit 10.39 to Talk.com Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1999).
10.45 Indemnification Agreement by and between Janet C. Kirschner and
Talk.com Inc. dated as of October 14, 1999 (incorporated by
reference to Exhibit 10.40 to Talk.com Inc.'s Annual Report on Form
10-K for the year ended December 31, 1999).
10.46 Non-Qualified Stock Option Agreement by and between Janet C.
Kirschner and Talk.com dated as of October 14, 1999 (incorporated
by reference to Exhibit 10.41 to Talk.com Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1999).
10.47 Interconnect Agreement between BellSouth and The Other Phone
Company (filed herewith).
10.48 Agreement and Plan of Merger dated October 15, 1999, among Access
Communications Corp., OmniCall Acquisition Corp. and OmniCall, Inc.
(filed herewith).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
---------- -------------------------------------------------------------------
<S> <C>
10.49 Promissory Note dated November 30, 1999 between OmniCall, Inc. and
William M. Rogers (filed herewith).
10.50 Credit Facility Agreement, dated as of June 30, 1999, among Access
One Communications Corp. and its Subsidiaries and MCG Finance
Corporation (filed herewith).
10.51 Option and Warrant Agreement dated as of June 30, 1999 by and
between Access One Communications Corp. and MCG Finance Corporation
(filed herewith)
10.52 Warrant Agreement dated as of November 30, 1999 by and between
Access One Communications Corp. and MCG Finance Corporation (filed
herewith)
10.53 Amendment Number One to Access One Communications Corp. Loan
Documents, dated as of November 30, 1999, among Access One
Communications Corp. and its Subsidiaries, MCG Finance Corporation
and certain other parties. (filed herewith)
10.54 Agreement Regarding MCG Warrants and Options, dated as of July 5,
2000 among MCG Finance Corporation, Talk.com Inc. and Access One
Communications Corp. (filed herewith)
10.55 Consulting Agreement dated as of July 5, 2000 between MCG Credit
Corporation and Access One Communications Corp. (filed herewith)
21.1 Subsidiaries of Talk.com Inc. (filed herewith).
21.2 Subsidiaries of Access One Communications Corp. (filed herewith).
23.1 Consent of BDO Seidman LLP (filed herewith).
23.2 Consent of Nussbaum Yates & Walpow, P.C. (filed herewith)
23.3 Consent of KPMG LLP (filed herewith).
23.4 Consent of Kelley Drye & Warren LLP (to be included in the opinion
filed as Exhibit 5.1 to this Registration Statement). 23.5 Consent
of Blank Rome Tenzer Greenblatt LLP (to be included in the opinion
filed as Exhibit 8.1 to this Registration Statement).
23.6 Consent of Bear, Stearns & Co. Inc. (contained in its opinion
included as Annex E to the Joint Proxy Statement/Prospectus
contained in this Registration Statement).
24 Power of Attorney (included in signature page).
99.1 Form of Proxy Card for Talk.com Inc. Annual Meeting (included as
Exhibit 99.1 to the Joint Proxy Statement/Prospectus contained in
this Registration Statement).
99.2 Form of Proxy Card for Access One Communications Corp. Special
Meeting (included as Exhibit 99.2 to the Joint Proxy
Statement/Prospectus contained in this Registration Statement).
</TABLE>
---------------------
+ Confidential treatment previously has been granted for a portion of this
exhibit.
