As Filed with the Securities and Exchange Commission on October 26, 1999
Post-Effective Amendment No. 2 to Registration Statements
Nos. 333-57613 and 333-59523*
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 2*
to
FORM S-3
REGISTRATION STATEMENTS
Under
THE SECURITIES ACT OF 1933
APPLIED DIGITAL SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 3661 43-1641533
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
400 Royal Palm Way, Suite 410
Palm Beach, Florida 33480
(561) 366-4800
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------------------------------
Garrett A. Sullivan Copies of all correspondence to:
400 Royal Palm Way, Suite 410 Denis P. McCusker, Esq.
Palm Beach, Florida 33480 Bryan Cave LLP
(561) 366-4800 One Metropolitan Square
(Name, address, including zip code, 211 North Broadway,
and telephone number, including area code, Suite 3600
of agent for service) St. Louis, Missouri 63102-2750
(314) 259-2000
Approximate date of commencement of proposed sale to public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this Post-Effective Amendment 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 Post-Effective
Amendment shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Post-Effective Amendment shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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* As the Registrant is once again eligible to use Form S-3, this Post-Effective
Amendment No. 2 on Form S-3 is being filed to convert Post-Effective
Amendment No. 1 on Form S-1 to the following Registration Statements filed
originally on Form S-3: Nos. 333-57613 (filed 6/24/98) and 333-59523 (filed
7/21/98) into Registration Statements on Form S-3.
<PAGE>
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The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the amendment to registration
statement filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities and we are not
soliciting any offer to buy these securities in any state where the offer or
sale is not permitted.
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[OBJECT OMITTED]
Subject to completion, Dated October 26, 1999
3,849,590 Shares
[GRAPHIC OMITTED]
Common Stock
------------------
This combined prospectus relates to 3,849,590 shares of our Common Stock,
par value $.001 per share, which have previously been registered for offering
and sale under two separate registration statements. These shares are to be
issued from time to time upon exchange or redemption of exchangeable shares (the
"Exchangeable Shares") of TigerTel Services Limited, an Ontario corporation
(formerly Commstar Ltd., and referred to herein as "TigerTel") which is one of
our indirect subsidiaries. The Exchangeable Shares were issued in connection
with our acquisition of all of the common shares of TigerTel and TigerTel's
subsequent acquisition of certain assets of Western Inbound Network Inc. More
information about the shares is under "Description of Capital Stock."
The registration statements relating to these shares were originally filed
with the SEC on Form S-3. Since certain financial information which we were
required to file with a report on Form 8-K was filed late during 1998, we were
temporarily ineligible to use Form S-3 for the offering of these shares, and we
amended the prospectus for each registration statement to include the more
detailed information required in a registration statement on Form S-1. However,
we have since become eligible to use Form S-3 again and accordingly, we have
revised the prospectus for each of the above-referenced registration statements
as set forth herein to reflect the information required to be set forth in or
incorporated into a registration statement on Form S-3.
This prospectus also relates to the resale from time to time of the Common
Stock after shares of Common Stock have been issued in exchange for the
Exchangeable Shares. After such issuance the Common Stock may be sold in one or
more transactions (which may include "block transactions") on the NASDAQ Stock
Market, in the over-the-counter market, in negotiated transactions or in a
combination of such methods of sales, at fixed prices which may be changed, at
market prices prevailing at the time of sales, at prices related to such
prevailing market prices or at negotiated prices.
Our shares are listed on the NASDAQ Stock Market under the symbol "ADSX."
On October 22, 1999, the last reported sale price of our Common Stock was
$1 27/32 or $1.84375 per share. See "Price Range of Common Stock."
We will not receive any proceeds from the sale of our Common Stock and we
will bear all the expenses incurred in connection with registering this offering
of Common Stock.
The selling shareholders may sell the shares of Common Stock directly or
through underwriters, dealers or agents. They may also pledge some of the shares
of Common Stock. This prospectus also relates to any sale of shares of Common
Stock that might take place following any foreclosure of such a pledge. More
information about the way the selling shareholders may distribute the Common
Stock is under the heading "Plan of Distribution."
See the information under the heading "Risk Factors" starting on page 4,
which describes certain factors you should consider before purchasing the Common
Stock.
Our principal office is at 400 Royal Palm Way, Suite 410, Palm Beach,
Florida 33480, and our telephone number is (561) 366-4800.
-------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
-------------------------------------
The date of this prospectus is [_____________], 1999.
<PAGE>
TABLE OF CONTENTS
Where You Can Find More Information............................................2
Incorporation Of Certain Documents By Reference................................3
Risk Factors...................................................................4
Our Business...................................................................9
Use of Proceeds...............................................................11
Description Of Capital Stock..................................................11
Price Range of Common Stock...................................................12
Plan Of Distribution..........................................................12
Canadian Tax Considerations...................................................15
United States Federal Tax Considerations......................................19
Legal Opinion.................................................................22
Experts.......................................................................22
WHERE YOU CAN FIND MORE INFORMATION
This prospectus constitutes a part of our Post-Effective Amendment No. 2 on
Form S-3 which has been filed by us with the Securities and Exchange Commission
to convert our Post-Effective Amendment No. 1 on Form S-1 to the following
previously effective registration statements filed originally on Form S-3 (Nos.
333-57613 (filed 6/24/98) and 333-59523 (filed 7/21/98)) into a registration
statement on Form S-3. This prospectus does not contain all of the information
set forth in the registration statement or the exhibits thereto. As permitted by
the rules and regulations of the Securities and Exchange Commission, this
prospectus omits certain information contained or incorporated by reference in
the registration statement. Our description in this prospectus concerning the
contents of any contract, agreement or other document are not necessarily
complete. For those contracts, agreements or other documents that we filed as
exhibits to the registration statement, you should read the exhibit for a more
complete understanding of the documents or subject matter involved. For further
information, reference is hereby made to the registration statement and exhibits
thereto.
On September 14, 1999, our subsidiary Intellesale.com, Inc. filed a
registration statement with the Securities and Exchange Commission in connection
with its proposed initial public offering. In addition to Intellesale.com
selling primary shares, we expect to sell shares of Intellesale.com stock as a
selling shareholder. Although the registration statement has been filed with the
Securities and Exchange Commission, it has not yet become effective, and no
assurances can be given that such offering will be completed.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, file
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy the registration statement, including the
attached exhibits and schedules, and any reports, proxy statements or other
information that we file at the Securities and Exchange Commission's public
reference rooms at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Securities and Exchange Commission's regional
offices located at Northeast Regional Office, Seven World Trade Center, Suite
1300, New York, New York 10048 and Midwest Regional Office, Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies
of these documents by writing to the Securities and Exchange Commission and
paying a duplicating charge. Please call the Securities and Exchange Commission
at 1-800-732-0330 for further information on the operation of its public
reference rooms in other cities. The Securities and Exchange Commission also
makes our filings available to the public on its Internet site
(http:\\www.sec.gov). Quotations relating to our Common Stock appear on the
Nasdaq National Market, and such reports, proxy statements and other information
concerning us can also be inspected at the offices of the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with it. This means that we can disclose
important information to you by referring you to other documents that we have
filed separately with the Securities and Exchange Commission. You should
consider the incorporated information as if we had reproduced it in this
prospectus, except for any information directly superseded by information
contained in this prospectus.
We incorporate by reference into this prospectus, the following documents,
which contain important information about us and our business and financial
results:
1. Our Annual Report on Form 10-K for the fiscal year ended December 31, 1998;
2. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
3. Our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
4. Our Current Report on Form 8-K/A dated June 8, 1998 (filed with the
Securities and Exchange Commission on March 11, 1999);
5. Our Current Report on Form 8-K dated May 25, 1999 (filed with the
Securities and Exchange Commission on June 2, 1999, and as amended on Form
8-K/A filed with the Securities and Exchange Commission on October 5,
1999);
6. Our Current Report on Form 8-K dated June 4, 1999 (filed with the
Securities and Exchange Commission on June 11, 1999, and as amended on Form
8-K/A filed with the Securities and Exchange Commission on August 12,
1999);
7. Our Current Report on Form 8-K dated September 14, 1999 (filed with the
Securities and Exchange Commission September 14, 1999); and
8. Our Registration Statement on Form 8-A filed on May 5, 1995, registering
our Common Stock under Section 12 (g) of the Exchange Act, including any
amendments or reports filed for the purpose of updating such description.
All documents filed by us with the Securities and Exchange Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date hereof and prior to the termination of the offering shall hereby be
deemed to be incorporated by reference in this prospectus and to be a part
hereof from the date of filing of such documents. You should consider any
statement contained in this prospectus (or in a document incorporated or deemed
to be incorporated into this prospectus) to be modified or superseded to the
extent that a statement contained herein or in any other subsequently filed
document incorporated or deemed to be incorporated herein by reference, which
statement is also incorporated herein by reference, modifies or supersedes such
statement. Any such statement so modified or superseded will no longer
constitute a part of this prospectus, except as so modified or superseded.
WE WILL PROVIDE YOU WITH COPIES OF ANY OF THE DOCUMENTS INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS (OTHER THAN EXHIBITS ATTACHED TO THOSE DOCUMENTS,
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE
INFORMATION INCORPORATED HEREIN), WITHOUT CHARGE. PLEASE DIRECT YOUR WRITTEN OR
ORAL REQUEST TO APPLIED DIGITAL SOLUTIONS, INC. 400 ROYAL PALM WAY, SUITE 410,
PALM BEACH, FLORIDA 33480; ATTENTION: KAY LANGSFORD, CORPORATE CONTROLLER
(TELEPHONE: (561) 366-4800).
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION CONCERNING THIS OFFERING EXCEPT THE INFORMATION AND
REPRESENTATIONS WHICH ARE CONTAINED IN THIS PROSPECTUS OR WHICH ARE INCORPORATED
BY REFERENCE IN THIS PROSPECTUS. IF ANYONE GIVES OR MAKES ANY OTHER INFORMATION
OR REPRESENTATION, YOU SHOULD NOT RELY ON IT. THIS PROSPECTUS IS NOT AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO PURCHASE BY ANY PERSON IN ANY CIRCUMSTANCES IN WHICH AN OFFER OR
SOLICITATION IS UNLAWFUL. YOU SHOULD NOT INTERPRET THE DELIVERY OF THIS
PROSPECTUS OR ANY SALE MADE HEREUNDER AS AN INDICATION THAT THERE HAS BEEN NO
CHANGE IN OUR AFFAIRS SINCE THE DATE OF THIS PROSPECTUS. YOU SHOULD ALSO BE
AWARE THAT THE INFORMATION IN THIS PROSPECTUS MAY CHANGE AFTER THIS DATE.
3
<PAGE>
RISK FACTORS
You should carefully consider the risk factors listed below. These risk
factors may cause our future earnings to be less or our financial condition to
be less favorable than we expect. You should read this section together with the
other information in or incorporated by reference into this prospectus.
Forward-Looking Statements and Associated Risk
This prospectus, including the information incorporated herein by
reference, contains "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. All such forward-looking information
involves risks and uncertainties and may be affected by many factors, some of
which are beyond our control. These factors include:
o our growth strategies,
o anticipated trends in our business and demographics,
o our ability to successfully integrate the business operations of
recently acquired companies, and
o regulatory, competitive or other economic influences.
Taxability of the Exchange
The exchange of Exchangeable Shares for shares of our Common Stock is
generally a taxable event in Canada and the United States. A holder's tax
consequences can vary depending on a number of factors, including the residency
of the holder, the method of the exchange (redemption or exchange) and the
length of time that the Exchangeable Shares were held prior to exchange. See
"Canadian Tax Considerations" and "United States Federal Tax Considerations."
Differences in Canada and U.S. Trading Markets
The Exchangeable Shares will not be listed on any stock exchange in Canada
or the United States. We have agreed that our shares of Common Stock issuable
from time to time in exchange for the Exchangeable Shares will be listed on the
NASDAQ Stock Market. There is no current intention to list our Common Stock on
any other stock exchange in Canada or the United States. As a result of the
foregoing, we believe that the market price of the Exchangeable Shares will
reflect essentially the equivalent value of our Common Stock on the NASDAQ Stock
Market. However, if a market for the Exchangeable Shares should develop, there
can be no assurances that the market price of the Exchangeable Shares would
correspond to that of our Common Stock.
Foreign Property
The Exchangeable Shares and our Common Stock will be foreign property under
the Income Tax Act (Canada), as amended (the "Canadian Tax Act"), for trusts
governed by registered pension plans, registered retirement savings plans,
registered retirement income funds and deferred profit sharing plans or for
certain other tax-exempt persons. See "Canadian Tax Considerations."
Uncertainty of Future Financial Results
While we have been profitable for the last three fiscal years, future
financial results are uncertain. There can be no assurance that we will continue
to be operated in a profitable manner. Profitability depends upon many factors,
including the success of our various marketing programs, the maintenance or
reduction of expense levels and our ability to successfully coordinate the
efforts of the different segments of our business.
4
<PAGE>
Future Sales of and Market for the Shares
As of October 22, 1999, there were 47,568,948 shares of Common Stock
outstanding. In addition, 836,472 shares of Common Stock are reserved for
issuance in exchange for the Exchangeable Shares of TigerTel referred to herein
and in exchange for certain exchangeable shares issued by ACT-GFX Canada, Inc.,
one of our Canadian subsidiaries. Since January 1, 1999, we have issued an
aggregate of 12,013,862 shares of Common Stock, of which 5,928,220 shares of
Common Stock were issued as earnout payments in acquisitions, 2,508,668 shares
were issued in exchange for such exchangeable shares, 121,465 shares were issued
to acquire a minority interest, 3,390,843 shares of Common Stock were issued for
acquisitions (including "price protection" shares), and 64,666 shares of Common
Stock were issued for services rendered, including services under employment
agreements and employee bonuses.
Although we previously announced that we intend to limit the use of stock
in future acquisitions, and to focus on cash transactions, we have effected, and
may continue to effect, acquisitions or contract for certain services through
the issuance of Common Stock or our other equity securities, as we have
typically done in the past. In addition, we have agreed to certain "price
protection" provisions in acquisition agreements which may result in additional
shares of common stock being issued to selling shareholders as of the effective
date of the registration of the shares such selling shareholder previously
received as consideration from us. Such issuances of additional securities may
be dilutive of the value of the Common Stock in certain circumstances and may
have an adverse impact on the market price of the Common Stock.
Competition
Each segment of our business is highly competitive, and we expect that
competitive pressures will continue. Many of our competitors have far greater
financial, technological, marketing, personnel and other resources than us. The
areas which we have identified for continued growth and expansion are also
target market segments for some of the largest and most strongly capitalized
companies in the United States, Canada and Europe. There can be no assurance
that we will have the financial, technical, marketing and other resources
required to compete successfully in this environment in the future.
Risks Associated with Acquisitions and Expansion
We have engaged in a continuing program of acquisitions of other businesses
which are considered to be complementary to our lines of business, and we
anticipate that such acquisitions will continue to occur. Our total assets were
approximately $208 million as of June 30, 1999 and $124 million, $61 million,
$33 million and $4 million as of December 31, 1998, 1997, 1996 and 1995,
respectively. Net operating revenue was approximately $125 million for the six
months ended June 30, 1999 and approximately $207 million, $103 million, $20
million and $2 million for the years ended December 31, 1998, 1997, 1996 and
1995, respectively. Managing these dramatic changes in the scope of our business
will present ongoing challenges to management, and there can be no assurance
that our operations as currently structured, or as affected by future
acquisitions, will be successful.
We may require substantial additional capital, and there can be no
assurance as to the availability of such capital when needed, nor as to the
terms on which such capital might be made available to us.
It is our policy to retain existing management of acquired companies, under
the overall supervision of our senior management. The success of the operations
of these subsidiaries will depend, to a great extent, on the continued efforts
of the management of the acquired companies.
We have entered into earnout arrangements with selling shareholders under
which they are entitled to additional consideration for their interests in the
companies they sold to us. Under these agreements, assuming that all earnouts
are achieved, and assuming certain levels of profitability in the future, we are
contingently liable for additional consideration amounting to approximately $4.5
million based on achieved 1999 results, approximately $8.3 million based on
achieved 2000 results, approximately $10.9 million based on achieved 2001
results, and approximately $2 million based on each of 2002 and 2004 achieved
results.
We have entered into put options with the selling shareholders of those
companies in which we acquired less than a 100% interest. These options provide
for us to acquire the remaining portion we do not own after periods ranging from
4 to 5 years from the dates of acquisition at amounts per share generally equal
to 10% - 20% of the average annual earnings per share of the company before
income taxes for, generally, a two-year period ending on the effective date of
the put multiplied by a multiple ranging from 4 to 5. The requirements are
recorded as changes in minority interest based upon current operating results.
5
<PAGE>
Dependence on Key Individuals
Our future success is highly dependent upon our ability to attract and
retain qualified key employees. We are organized with a small senior management
team, with each of our separate operations under the day-to-day control of local
managers. If we were to lose the services of any members of our central
management team, our overall operations could be adversely affected, and the
operations of any of our individual facilities could be adversely affected if
the services of the local managers should be unavailable. We have entered into
employment contracts with our key officers and employees and certain
subsidiaries. The agreements are for periods of one to ten years through June
2009. Some of the employment contracts also call for bonus arrangements based on
earnings.
Lack of Dividends on Common Stock; Issuance of Preferred Stock
We do not have a history of paying dividends on our Common Stock, and there
can be no assurance that such dividends will be paid in the foreseeable future.
Under the terms of our term and revolving credit agreement, we may declare and
pay cash dividends of up to $150,000 in any calendar year. We intend to use any
earnings which may be generated to finance the growth of our businesses. The
Board of Directors has the right to authorize the issuance of preferred stock,
without further shareholder approval, the holders of which may have preferences
over the holders of the Common Stock as to payment of dividends.
Possible Volatility of Stock Price
Our Common Stock is quoted on the NASDAQ Stock Market(R), which stock
market has experienced and is likely to experience in the future significant
price and volume fluctuations which could adversely affect the market price of
our Common Stock without regard to our operating performance. In addition, we
believe that factors such as the significant changes to our business resulting
from continued acquisitions and expansions, quarterly fluctuations in our
financial results or cash flows, shortfalls in earnings or sales below analyst
expectations, changes in the performance of other companies in our same market
sectors and the performance of the overall economy and the financial markets
could cause the price of our Common Stock to fluctuate substantially. During the
12 months preceding the date of this prospectus, the price per share of our
Common Stock has ranged from a high of $5 1/2 to a low of $1 5/8.
Termination Payments
Our employment agreements with three of our executive officers include
"change of control" provisions, under which the employees may terminate their
employment within one year after a change of control, and be entitled to receive
specified severance payments and/or continued compensation payments for 60
months. Also, the agreements for both Richard Sullivan and Garrett Sullivan
provide for certain "triggering events" which include a change in control, the
termination of Richard Sullivan's employment other than for cause, or if Richard
Sullivan ceases to hold his current positions with us for any reason other than
a material breach of the terms of his employment agreement. In that case, we
would be obligated to pay, in cash and/or in stock, $12.1 million and $3.5
million, respectively, to Richard Sullivan and to Garrett Sullivan, in addition
to certain other compensation.
Our obligations to make the payments described in this section could
adversely affect our financial condition or could discourage other parties from
entering into transactions with us which might be treated as a change in control
or triggering event for purposes of these agreements.
6
<PAGE>
Year 2000 Compliance
Background. Some computers, software and other equipment include
programming code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct results if "00" is interpreted to mean 1900, rather
than 2000. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches, and are commonly referred to as the
"Millennium Bug" or "Year 2000 problem."
Assessment. The Year 2000 problem could affect computers, software and
other equipment used, operated, or maintained by us. Accordingly, we are
reviewing our internal computers, software, applications and related equipment
and our systems other than information technology systems to ensure that they
will be Year 2000 compliant. We believe that our Year 2000 plan will be
completed in all material respects prior to the anticipated Year 2000 failure
dates. We spent approximately $.2 million in 1998 on our Year 2000 compliance
plan and estimate an additional $.5 million will be spent in 1999, most of which
relates to new equipment. There can be no assurance however, that the total
costs will be limited to this amount.
Software Sold to Consumers. We are in the process of identifying all
potential Year 2000 problems with any of the software products we develop and
market. However, management believes that it is not possible to determine with
complete certainty that all Year 2000 problems affecting our software products
will be identified or corrected due to the complexity of these products. In
addition, these products interact with other third party vendor products and
operate on computer systems which are not under our control. For non-compliant
products, we are providing recommendations as to how an organization may address
possible Year 2000 issues regarding that product. Software updates are available
for most, but not all, known issues. Such information is the most currently
available concerning the behavior of our products and is provided "as is"
without warranty of any kind. However, variability of definitions of
"compliance" with the Year 2000 and of different combinations of software,
firmware and hardware could likely lead to lawsuits against us. The outcome of
any such lawsuits and the impact on us are not estimable at this time.
Internal Infrastructure. We believe that our major computers, software
applications and related equipment used in connection with our internal
operations are not subject to significant Year 2000 problems, because the
computer programs used by us are primarily off-the-shelf, recently developed
programs from third-party vendors. We are in the process of obtaining assurances
from such vendors as to the Year 2000 compliance of their products. Most vendors
are reluctant to provide written assurances and, although some vendors may make
verbal assurances of Year 2000 compliance, there can be no certainty that the
systems utilized by us will not be affected. We have assessed all 40 of our
operating locations and have determined that 29 of the 40 locations are Year
2000 compliant. Of the remaining 11 locations, 7 are in the process of upgrading
or replacing their current systems and 4 are replacing their systems. All
internal infrastructure systems and equipment are expected to be Year 2000
compliant prior to the anticipated Year 2000 failure dates.
Systems Other than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, photocopiers, telephone switches, security systems, elevators, and
other common devices may be affected by the Year 2000 problem. We have assessed
all 40 of our operating locations and have determined that 38 of the 40
locations are Year 2000 compliant. The remaining 2 locations are in the process
of upgrading or replacing the current systems. All non-information technology
systems and equipment are expected to be Year 2000 compliant prior to the
anticipated Year 2000 failure dates.
Suppliers. We have initiated communications with third party suppliers of
the major computers, software, and other equipment used, operated, or maintained
by us to identify and, to the extent possible, to resolve issues involving the
Year 2000 problem. However, we have limited or no control over the actions of
these third party suppliers. Thus, while we expect that we will be able to
resolve any significant Year 2000 problems with these systems, there can be no
assurance that these suppliers will resolve any or all Year 2000 problems with
these systems before the occurrence of a material disruption to our business or
any of our customers. Any failure of these third parties to resolve Year 2000
problems with their systems in a timely manner could have a material adverse
effect on our business, financial condition, results of operations and cash
flows.
7
<PAGE>
Internet. As more of our business is conducted over the internet, it is
possible that we experience dispersed, intermittent telecommunications problems
experienced by local internet service providers and their users throughout the
country and world, preventing those customers from being able to access our
Website. This could be combined with, or result from, intermittent power
problems which could cause similar problems with accessing the Website.
Additionally, many customers may be using older systems which may not be Year
2000 compliant, and this would prevent them from accessing our Website. Under
this scenario, we would continue operations, but our Website would be
inaccessible to the individuals or groups affected by these problems. If our
credit card processors are not Year 2000 compliant, we will not be able to
process credit card sales. If our vendors are not Year 2000 compliant, we will
not be able to obtain products from our vendors or our vendors may not be able
to ship products sold to our customers. In the event of this worst case
scenario, we could lose significant revenues from customers unable to purchase
from the site, be unable to ensure delivery of products to customers, incur
expenses to repair our systems, face interruptions in the work of our employees,
lose advertising revenue and suffer damage to our reputation.
Contingency Plans. At certain subsidiaries, where we feel it is necessary,
we are preparing contingency plans relating specifically to identified Year 2000
risks and developing cost estimates relating to these plans. Contingency plans
may include stockpiling raw and packaging materials, increasing inventory
levels, securing alternate sources of supply and other appropriate measures. We
anticipate completion of the Year 2000 contingency plans prior to the
anticipated Year 2000 failure dates. Once developed, Year 2000 contingency plans
and related cost estimates will be tested in certain respects and continually
refined as additional information becomes available.
Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 problems that could materially adversely affect our
business operations and cash flows. However, management believes that it is not
possible to determine with complete certainty that all Year 2000 problems
affecting us have been identified or corrected. The number of devices that could
be affected and the interactions among these devices are simply too numerous. In
addition, one cannot accurately predict how many Year 2000 problem-related
failures will occur or the severity, duration, or financial consequences of
these perhaps inevitable failures. As a result, management expects that we may
suffer the following consequences:
A. A significant number of operational inconveniences and
inefficiencies for us and our clients that may divert management's
time and attention and financial and human resources from its ordinary
business activities; and
B. A lesser number of serious system failures that may require
significant efforts by us or our customers to prevent or alleviate
material business disruptions.
Based on the activities described above, we do not believe that the Year
2000 problem will have a material adverse effect on our business, results of
operations or cash flows. The estimate of the potential impact on our financial
position, overall results of operations or cash flows for the Year 2000 problem
could change in the future. The discussion of our efforts, and management's
expectations, relating to Year 2000 compliance are forward-looking statements.
Our ability to achieve Year 2000 compliance and the level of incremental costs
associated therewith, could be adversely impacted by, among other things, the
availability and cost of programming and testing resources, vendors' ability to
modify proprietary software, and unanticipated problems identified in the
ongoing compliance review.
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OUR BUSINESS
General
We are a full service communications company that provides a wide range of
products and services to the wireless, telecommunications and digital data
industry. Our goal is to be a single source communications provider that
businesses can turn to for integrated communications systems. To achieve this
goal, we intend to take advantage of the communication industry's move from
analog to digital and from wireline to wireless systems. Our services include
the construction and installation of communications infrastructure, the
installation of local and wide area networks and the development of specialized
software for business applications. We also provide traditional
telecommunications services such as long distance toll service, one-number
dialing and call centers. We currently operate in the United States, Canada and
the United Kingdom.
The majority of our current operations are the result of acquisitions
completed during the last five years. Our net operating revenues were $207.1
million, $103.2 million, $19.9 million, $2.3 million and $0.3 million
respectively, in 1998, 1997, 1996, 1995 and 1994. Since 1994 we have completed
39 acquisitions. Management analyzes each acquisition opportunity using criteria
including profitability over a two to three year period, the strength of its
balance sheet, the strength of its customer base and the experience of its
management team. Going forward, we intend to make acquisitions that fit within
one of our five primary operating divisions. Since January 1, 1999, we have
completed six acquisitions.
Business Divisions
Prior to March 1999, our business was organized into three, and then
eventually, four business groups, or industry segments: the Services and
Solutions Group (formerly the Retail Group), the Computer Group, the
Manufacturing Group and the International Group. Each operating business was
conducted through a separate subsidiary company directed by its own management
team, and each subsidiary company had its own marketing and operations support
personnel. Each management team originally reported to our President, who was
responsible for overall corporate control and coordination, as well as financial
planning. Later, a Group Vice President was added and the management teams
reported to the Group Vice President, who ultimately reported to our President.
The Chairman was responsible for our overall business and strategic planning.
In March 1999, we announced a corporate reorganization at which time we
named five new divisions as outlined below. Each division is managed by a
division president who reports to the Senior Vice President who in turn reports
to the President. Each division either has in place or is in the process of
hiring a vice president of marketing and a financial controller. We believe we
will attain increased operating efficiencies through this reorganization and
believe this structure will facilitate the cross marketing of our products and
services.
Our primary businesses, other than Intellesale.com (formerly Inteletek,
Inc.) and the Non-Core Business Group, are now organized into five business
divisions:
o Telecommunications -- offers a wide range of communications services
including interconnect and computer telephony integration, flat rate
extended calling area service for commercial and residential accounts,
commercial long distance toll service, toll free service, call centers, one
number dialing, voice messaging and commercial long distance calling cards.
o Network Infrastructure -- provides personal computer network infrastructure
for the development of local and wide area networks as well as site
analysis, configuration proposals, training and customer support services.
o Internet -- is focused on developing electronic commerce sites for
businesses and providing internet access services to customers of our other
divisions.
o Communications Infrastructure-- provides specialty communications
contracting services. It is involved in the fabrication, installation, and
maintenance of microwave, cellular and digital personal communication
services (PCS) towers and the construction and installation of fiber optic,
voice/data communications and switchgear systems. The division also
provides complete installation, service and maintenance of power
distribution systems such as lighting, standby power, alarms, security,
video systems, voice/data, network infrastructure and the installation of
fiber optics within customer premises. The Communications Infrastructure
division has secured contracts and provided services for national accounts
such as Sprint, AT&T Wireless, GTE, MCI WorldCom, Wiltel and Pacific Bell.
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o Application Technology-- provides software applications for data
acquisition, asset management and decision support systems and develops
programs for portable data collection equipment, including wireless
hand-held devices. Its Flex Connect System links corporate systems to
laptops, PDA's, handheld terminals and other mobile devices via wireless or
wireline connections. It is also involved in the design, manufacture and
support of satellite communication technology including satellite modems,
data broadcast receivers and wireless global positioning systems for
commercial and military applications. In addition, the division develops
and markets peripheral enhancement software that creates a user-friendly
environment for sending faxes, email and scanning, copying and managing
documents on a desktop computer with a multi-function peripheral device.
Integration of these capabilities into a single multifunction program is
particularly advantageous to users in small offices, home offices and small
workgroup environments.
As of December 31, 1998, 1997 and 1996, revenues from these divisions
together accounted for 57.0%, 48.8% and 70.1%, respectively, of our total
revenues.
Intellesale.com
Intellesale.com, Inc. (formerly Inteletek, Inc.) provides leasing,
re-marketing, parts-on-demand and consulting services for mainframe, midrange
and PC systems to industrial, commercial and retail organizations. It utilizes
e-commerce and traditional distribution channels to market its products.
Intellesale is also a parts supplier and purchases electronic components and
other scrap for de-manufacturing and reclamation of precious materials, steel,
aluminum and copper.
As of December 31, 1998, 1997 and 1996, revenues from Intellesale accounted
for 29.4%, 38.2% and 10.0%, respectively, of our total revenues.
On September 14, 1999, our subsidiary, Intellesale.com, Inc. filed a
registration statement with the Securities and Exchange Commission in connection
with its proposed initial public offering. In addition to Intellesale.com
selling primary shares, we expect to sell shares of Intellesale.com stock as a
selling shareholder. Although the registration statement has been filed with the
Securities and Exchange Commission, it has not yet become effective, and no
assurances can be given that such offering will be completed.
The Non-Core Business Group
This group is comprised of four individually managed companies whose
businesses are as follows:
o Gavin-Graham Electrical Products is a custom manufacturer of electrical
products, specializing in digital and analog panelboards, switchboards,
motor controls and general control panels. The company also provides custom
manufacturing processes such as shearing, punching, forming, welding,
grinding, painting and assembly of various component structures.
o Ground Effects, Ltd., based in Windsor, Canada, is a certified manufacturer
and tier one supplier of standard and specialized vehicle accessory
products to the automotive industry. The company exports over 80% of the
products it produces to the United States, Mexico, South America, the Far
East and the Middle East.
o Hopper Manufacturing Co., Inc. remanufactures and distributes automotive
parts. This primarily includes alternators, starters, water pumps,
distributors and smog pumps.
o Innovative Vacuum Solutions, Inc. designs, installs and re-manufactures
vacuum systems used in industry.
Cra-Tek Company and C.T. Specialist, Inc., formerly part of this group, are
now part of our Communications Infrastructure division.
As of December 31, 1998, 1997 and 1996, revenues from this business group
accounted for 13.6%, 13.0% and 19.3%, respectively, of our total revenues.
We announced our intention to divest, in the ordinary course of business,
these non-core businesses at such time and on such terms as the board of
directors determines advisable. There can be no assurance that we will divest of
any or all of these businesses or as to the terms of any divestiture
transaction.
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USE OF PROCEEDS
Because shares of our Common Stock will be issued upon exchange or
redemption of the Exchangeable Shares, we will receive no net cash proceeds upon
issuance.
DESCRIPTION OF CAPITAL STOCK
Our Amended and Restated Articles of Incorporation authorize the issuance
of up to 80,000,000 shares of our Common Stock and up to 5,000,000 shares of
preferred stock (the "Preferred Stock"). The Preferred Stock may be issued from
time to time and on such terms as are specified by our Board of Directors,
without further authorization from our shareholders.
As of October 22, 1999, there were 47,568,948 shares of our Common Stock
outstanding. In addition, 836,472 shares of Common Stock are reserved for
issuance in exchange for the Exchangeable Shares of TigerTel referred to herein
and in exchange for certain exchangeable shares issued by ACT-GFX Canada, Inc.,
one of our Canadian subsidiaries.
As of October 22, 1999, (a) there were issued and outstanding warrants to
purchase 2,160,000 shares of our Common Stock at a weighted average exercise
price of $3.56 per share, and (b) options held by our employees to purchase
13,188,229 shares of our Common Stock at a weighted average exercise price of
$2.86 per share. All of the warrants are currently exercisable. Of the
outstanding options, 6,180,700 are now exercisable at a weighted average
exercise price of $3.69 per share, and the rest become exercisable at various
times over the next three years.
Rights of Holders of Our Common Stock
Subject to the prior rights of any shares of preferred stock that may from
time to time be outstanding, holders of our Common Stock are entitled to share
ratably in such dividends as may be lawfully declared by the Board of Directors
and paid by us and, in the event of our liquidation, dissolution or winding up,
are entitled to share ratably in all assets available for distribution. We are
prohibited from declaring or paying dividends on the Common Stock unless
TigerTel is able to, and simultaneously does, declare or pay an equivalent
dividend on its Exchangeable Shares referred to herein and our subsidiary,
ACT-GFX Canada, Inc. is able to, and simultaneously does, declare or pay an
equivalent dividend on certain exchangeable shares issued by ACT-GFX. In the
event of our liquidation, dissolution or winding up, each outstanding
Exchangeable Share (other than Exchangeable Shares held by us, TigerTel or one
of our single wholly-owned subsidiaries) will be purchased by us in exchange for
our Common Stock as described below under "Plan of Distribution - Procedures for
Issuance of Common Stock - Our Liquidation."
The Common Stock is entitled to one vote per share held of record on each
matter submitted to a vote of shareholders. Except as otherwise provided by law
or our Articles of Incorporation, the Common Stock and the Special Preferred
Share referred to below will vote together as a single class in the election of
directors and on all matters submitted to a vote of our shareholders. Holders of
our Common Stock have no preemptive rights to purchase any of our securities or
cumulative voting rights. All outstanding shares of Common Stock are validly
issued, fully paid and nonassessable. We are not prohibited by our Articles of
Incorporation from repurchasing shares of our Common Stock. Any such repurchases
would be subject to any limitations on the amount available for such purpose
under applicable corporate law, any applicable restrictions under the terms of
any outstanding preferred stock or indebtedness and, in the case of market
purchases, such restrictions on the timing, manner and amount of such purchases
as might apply in the circumstances under applicable securities laws.
The transfer agent, registrar and dividend disbursing agent for our Common
Stock is Florida Atlantic Stock Transfer, Inc.
Special Voting Preferred Stock
Our Board of Directors authorized the issuance of a single share of Special
Voting Preferred Stock (the "Special Preferred Share"), to Montreal Trust
Company of Canada (the "Voting Trustee") under a Voting and Exchange Trust
Agreement (the "Voting and Exchange Trust Agreement") which was entered into
among us, TigerTel and the Voting Trustee. Except as otherwise required by law
or our Articles of Incorporation, the Special Preferred Share will be entitled
to a number of votes equal to the number of outstanding Exchangeable Shares not
owned by us or certain of our subsidiaries, and may be voted in the election of
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directors and on all other matters submitted to a vote of our shareholders. The
holders of our Common Stock and the Voting Trustee, as holder of the Special
Preferred Share, will vote together as a single class on all matters, except to
the extent voting as a separate class is required by applicable law or our
Articles of Incorporation. The Voting Trustee will exercise such voting rights
in respect of the Special Preferred Share on behalf of the holders of the
Exchangeable Shares, as provided in the Voting and Exchange Trust Agreement. The
Voting Trustee will not be entitled to receive any dividends or to participate
in any distribution of assets to our shareholders. When all Exchangeable Shares
have been exchanged or redeemed for shares of our Common Stock, the Special
Preferred Share will be cancelled.
PRICE RANGE OF COMMON STOCK
Our Common Stock trades on the NASDAQ Stock Market(R) under the symbol
"ADSX." The following table sets forth the high and low sale prices of the
Common Stock as reported by the NASDAQ for each of the quarters since the
beginning of 1997.
High Low
1997
First Quarter............................ 5 7/8 4
Second Quarter........................... 4 3/8 2 5/8
Third Quarter ........................... 8 3/4 2 13/16
Fourth Quarter .......................... 9 3/4 3 25/32
1998
First Quarter............................ 5 1/2 4 1/32
Second Quarter........................... 4 7/8 3 1/8
Third Quarter ........................... 3 1/2 1 9/16
Fourth Quarter .......................... 5 1/2 1 17/32
1999
First Quarter............................ 4 3/16 2
Second Quarter........................... 3 1/2 2
Third Quarter............................ 3 3/8 1 11/16
Fourth Quarter (through October 22, 1999) 1 29/32 1 5/8
Holders
As of September 30, 1999, there were 1,221 holders of record of our Common
Stock.
PLAN OF DISTRIBUTION
The Acquisition
Pursuant to a Combination Agreement, effective as of May 15, 1998 between
us and TigerTel, we purchased all of the common shares of TigerTel, and TigerTel
became one of our wholly-owned subsidiaries. The outstanding common shares of
TigerTel were exchanged for its Exchangeable Shares. In addition, pursuant to a
Memorandum of Agreement, effective as of July 14, 1998, among us, TigerTel and
Western Inbound Network Inc., a Canadian corporation ("Western Inbound"),
TigerTel acquired certain assets of Western Inbound and, in consideration
therefor, TigerTel issued Exchangeable Shares of TigerTel. The Exchangeable
Shares are further exchangeable into or redeemable for shares of our Common
Stock as described below. Holders of the Exchangeable Shares will have economic
and voting rights which are, as nearly as possible, equivalent to those of
holders of our Common Stock.
Our acquisition of TigerTel was approved by the shareholders of TigerTel at
a meeting held June 22, 1998, pursuant to a Notice of Meeting of Holders of
Common Shares and Management Information Circular dated May 18, 1998, delivered
to such holders pursuant to the requirements of the Business Corporations Act
(Ontario).
Pursuant to a Share Purchase Agreement entered into as of May 7, 1999 (the
"Purchase Agreement"), among us, TigerTel and Contour Telecom Management Inc., a
Canadian corporation ("Contour"), Contour acquired all of the common shares of
TigerTel from us, and in consideration therefore, issued a majority of its
common shares to us. Consequently, Contour became one of our subsidiaries and
TigerTel became our indirect subsidiary.
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Upon the consummation of the Purchase Agreement, all rights with respect to
the Exchangeable Shares remained the same, except that we now will transfer any
Exchangeable Share exchanged for our Common Stock pursuant to the exercise of
the liquidation call right, redemption call right, retraction call right,
exchange right or automatic exchange right, at TigerTel's option, to Contour or
TigerTel for cancellation, without payment from Contour or TigerTel, or where
any such transfer is prohibited by law, hold such Exchangeable Share in trust
for TigerTel.
Exchangeable Shares
The Exchangeable Shares have been issued by TigerTel (i) in exchange with
TigerTel for all of the outstanding common shares of TigerTel, and (ii) in
consideration for the transfer to TigerTel of certain assets of Western Inbound.
After such issuance, the Exchangeable Shares may be exchanged for an equivalent
number of shares of our Common Stock as described below and pursuant to a plan
of arrangement under section 182 of the Business Corporations Act (Ontario) (the
"Plan of Arrangement"). No broker, dealer or underwriter has been engaged in
connection with the offering of our Common Stock covered hereby.
The specific terms under which our Common Stock may be issued in exchange
for or on redemption of the Exchangeable Shares are set forth in the
Exchangeable Share provisions attached to the Plan of Arrangement and in the
Voting and Exchange Trust Agreement. The Plan of Arrangement and the Voting and
Exchange Trust Agreement are included as exhibits to the Registration Statement
of which this Prospectus constitutes a part, and the following description is
qualified in its entirety by reference to the Plan of Arrangement and the Voting
and Exchange Trust Agreement.
Procedures for Issuance of Our Common Stock
Upon any exchange or redemption of Exchangeable Shares referred to below
(whether by TigerTel or us), the holders will receive an equivalent number of
shares of our Common Stock, plus an amount, if any, equal to all declared and
unpaid dividends on the Exchangeable Shares. If only a part of the Exchangeable
Shares represented by any certificate is redeemed or exchanged, a new
certificate for the balance of such Exchangeable Shares will be issued to the
holder at TigerTel's expense.
In lieu of any redemption of Exchangeable Shares referred to below, we may
elect to purchase such Exchangeable Shares, and we have currently agreed to
purchase all such Exchangeable Shares pursuant to our retraction call right. Our
Common Stock (and additional payment, if any, representing declared and unpaid
dividends on the Exchangeable Shares) to be received by the holders of the
Exchangeable Shares will be unaffected by such election.
Upon any exchange or redemption of Exchangeable Shares, the holder must
surrender the Exchangeable Share certificates representing such shares, duly
endorsed in blank and accompanied by such instruments of transfer as we or
TigerTel may reasonably require.
Election by Holders to Exchange Exchangeable Shares. At any time on or
prior to June 29, 2001, holders of the Exchangeable Shares may retract (i.e.,
require TigerTel to redeem) any or all of their Exchangeable Shares, by
presenting the certificates representing the shares to TigerTel's transfer agent
together with a duly executed statement (the "Retraction Request") specifying
the number of Exchangeable Shares the holder wishes to retract and such other
documents and instruments as may be required to effect the retraction of the
Exchangeable Shares. The retraction will become effective at the close of
business on the sixth business day after the request is received by TigerTel's
transfer agent (the "Retraction Date"). The retraction price for such
Exchangeable Shares is to be satisfied by the issuance of our Common Stock.
The Retraction Request shall be substantially in the form attached to this
Prospectus as Exhibit A or in such other form as may be acceptable to us or the
transfer agent for the Exchangeable Shares in their sole discretion. The initial
transfer agent is Montreal Trust Company of Canada.
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Redemption of Exchangeable Shares. TigerTel is required to redeem the
Exchangeable Shares (by exchanging our Common Stock as described above):
(i) on June 30, 2001;
(ii) on a date specified by TigerTel if less than 5% of the
Exchangeable Shares originally issued under the Combination Agreement
referred to above remain outstanding (as such number may be adjusted
as a result of subdivision, consolidation, stock dividend or other
events);
(iii) if there shall be a meeting or vote of the shareholders of
TigerTel to consider any matter on which the holders of Exchangeable
Shares would be entitled to vote as shareholders of TigerTel (but
excluding any meeting or vote described in (iv) below); or
(iv) if the holders of Exchangeable Shares fail to take necessary
action to the extent such action is required to approve or disapprove
any change to, or in the rights of the holders of, Exchangeable Shares
required to maintain the economic and legal equivalence of the
Exchangeable Shares and our Common Stock.
Liquidation of TigerTel. In the event of the liquidation, dissolution or
winding up of TigerTel or any other proposed distribution of the assets of
TigerTel among its shareholders for the purpose of winding up its affairs,
holders of the Exchangeable Shares will be entitled to our Common Stock in
exchange for their Exchangeable Shares as described above before any
distribution to the holders of the common shares or any other shares of TigerTel
ranking junior to the Exchangeable Shares. Upon the bankruptcy or insolvency of
TigerTel, the trustee under the Voting and Exchange Trust Agreement may require
us to purchase the Exchangeable Shares in exchange for our Common Stock as
described above.
Our Liquidation. If any of the following occur, we will be required to
purchase the Exchangeable Shares in exchange for our Common Stock as described
above: (i) any determination by our Board of Directors to institute voluntary
liquidation, dissolution or winding-up proceedings with respect to us or to
effect any other distribution of our assets among our shareholders for the
purpose of winding up our affairs or (ii) receipt by us of notice of, or our
otherwise becoming aware of, any threatened or instituted claim, suit, petition
or other proceeding with respect to our involuntary liquidation, dissolution or
winding up or to effect any other distribution of our assets among our
shareholders for the purpose of winding up our affairs.
Resales of Our Common Stock After Issuance. After the issuance of shares of
our Common Stock in exchange for Exchangeable Shares, shares of our Common Stock
may be sold in one or more transactions (which may include "block" transactions)
on the NASDAQ Stock Market, in the over-the-counter market, in negotiated
transactions or in a combination of such methods of sales, at fixed prices which
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The selling
shareholders may effect such transactions by selling the shares directly to
purchasers, or may sell to or through agents, dealers or underwriters designated
from time to time, and such agents, dealers or underwriters may receive
compensation in the form of discounts, concessions or commissions from the
selling shareholders and/or the purchaser(s) of the shares of our Common Stock
for whom they may act as agent or to whom they may sell as principals, or both.
The selling shareholders may also pledge certain of the shares of our Common
Stock from time to time, and this prospectus also relates to any sale of shares
of our Common Stock that might take place following any foreclosure of such a
pledge. The selling shareholders and any agents, dealers or underwriters that
act in connection with the sale of the shares of our Common Stock might be
deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any discount or commission received by them and any profit
on the resale of the shares as principal might be deemed to be underwriting
discounts or commissions under the Securities Act.
We will receive no portion of the proceeds from the sale of the shares and
will bear all of the costs relating to the registration of this offering. Any
commissions, discounts or other fees payable to a broker, dealer, underwriter,
agent or market maker in connection with the resale of any of the shares will be
borne by the selling shareholders.
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CANADIAN TAX CONSIDERATIONS
Canadian Federal Income Tax Considerations
In the opinion of Meighen Demers, who acted as counsel for TigerTel in
connection with the sale of its common shares to us and its purchase of certain
assets of Western Inbound, the following is a summary of the principal Canadian
federal income tax considerations generally applicable to TigerTel shareholders,
who, for the purposes of the Income Tax Act (Canada) (the "Canadian Tax Act"),
hold their Exchangeable Shares and will hold our Common Stock as capital
property and will deal at arm's length with us and TigerTel. This summary does
not apply to a holder with respect to whom we are a foreign affiliate within the
meaning of the Canadian Tax Act.
Certain provisions of the Canadian Tax Act (the "mark-to-market" rules)
relating to financial institutions (including certain financial institutions,
registered securities dealers and corporations controlled by one or more of the
foregoing) will deem such financial institutions not to hold their Exchangeable
Shares and our Common Stock as capital property for purposes of the Canadian Tax
Act. This summary does not apply to financial institutions to whom the
mark-to-market rules apply. Shareholders that are financial institutions should
consult their own tax advisors to determine the tax consequences to them of the
application of the mark-to-market rules. In addition, all shareholders should
consult their own tax advisors as to whether, as a matter of fact, they hold
their Exchangeable Shares and will hold our Common Stock as capital property for
purposes of the Canadian Tax Act.
This summary is based on the current provisions of the Canadian Tax Act,
the regulations thereunder, the current provisions of the Canada-United States
Income Tax Convention, 1980 (the "Tax Treaty") and counsel's understanding of
the current administrative practices of Revenue Canada, Taxation ("Revenue
Canada"). This summary takes into account the amendments to the Canadian Tax Act
and regulations publicly announced by the Minister of Finance prior to the date
hereof (the "Proposed Amendments") and assumes that all such Proposed Amendments
will be enacted in their present form. However, no assurances can be given that
the Proposed Amendments will be enacted in the form proposed, or at all.
Except for the Proposed Amendments, this summary does not take into account
or anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax considerations described herein.
WHILE THIS SUMMARY IS INTENDED TO ADDRESS ALL PRINCIPAL CANADIAN FEDERAL
INCOME TAX CONSIDERATIONS, IT IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO
BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY
PARTICULAR SHAREHOLDER. THEREFORE, SUCH HOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES. NO ADVANCE INCOME TAX
RULING HAS BEEN OBTAINED FROM REVENUE CANADA TO CONFIRM THE CONSEQUENCES OF ANY
OF THE TRANSACTIONS DESCRIBED HEREIN.
For purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of our Common Stock, including dividends,
adjusted cost base and proceeds of disposition must be determined in Canadian
dollars.
In computing a shareholder's liability for tax under the Canadian Tax Act,
(i) any cash amount received by the shareholder in U.S. dollars must be
converted into the product obtained by multiplying the U.S. dollar amount by the
noon spot exchange rate on such date for U.S. dollars expressed in Canadian
dollars as reported by the Bank of Canada and (ii) the amount of any non-cash
consideration received by the shareholder must be expressed in Canadian dollars,
generally determined at the time such consideration is received.
Shareholders Resident in Canada
The following portion of the summary is applicable to holders of
Exchangeable Shares who, for purposes of the Canadian Tax Act, are resident or
deemed to be resident in Canada.
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Dividends
In the case of a shareholder who is an individual, dividends received or
deemed to be received on the Exchangeable Shares will be included in computing
the shareholder's income, and will be subject to the gross-up and dividend tax
credit rules normally applicable to taxable dividends received from taxable
Canadian corporations.
The Exchangeable Shares will be "taxable preferred shares", "term preferred
shares" and "short-term preferred shares" for purposes of the Canadian Tax Act.
Accordingly, TigerTel will be subject to a 66 2/3% tax under Part VI.1 of the
Canadian Tax Act on dividends paid or deemed to be paid on the Exchangeable
Shares. In certain circumstances, TigerTel will be entitled to a deduction under
Part I of the Canadian Tax Act which will substantially offset the impact of
Part VI.1 tax. Dividends received or deemed to be received on the Exchangeable
Shares will not be subject to the 10% tax under Part IV.1 of the Canadian Tax
Act applicable to certain corporations.
If we or any person with whom we do not deal at arm's length is a
"specified financial institution" under the Canadian Tax Act at a point in time
that a dividend is paid or deemed to be paid on an Exchangeable Share, then,
dividends received or deemed to be received by a shareholder that is a
corporation will not be deductible in computing taxable income but will be fully
includable in taxable income under Part I of the Canadian Tax Act. Such dividend
will not be subject to tax under Part IV of the Canadian Tax Act. A corporation
will generally be a specified financial institution for these purposes if it is
a bank, a trust company, a credit union, an insurance corporation or a
corporation whose principal business is the lending of money to persons with
whom the corporation is dealing at arm's length or the purchasing of debt
obligations issued by such persons or a combination thereof, and corporations
controlled by or related to such entities.
Subject to the foregoing, in the case of a shareholder that is a
corporation, other than a "specified financial institution" as defined in the
Canadian Tax Act, dividends received or deemed to be received on the
Exchangeable Shares will normally be deductible in computing its taxable income.
In the case of a shareholder that is a specified financial institution and
in addition to the foregoing requirements, such a dividend will be deductible in
computing its taxable income only if either:
(a) the specified financial institution did not acquire the Exchangeable
Shares in the ordinary course of the business carried on by such
institution; or
(b) at the time of the receipt or deemed receipt of the dividend by the
specified financial institution, the Exchangeable Shares on which the
dividend has been paid are listed on a prescribed stock exchange in
Canada and the specified financial institution, either alone or
together with persons with whom it does not deal at arm's length, does
not receive (or is not deemed to receive) dividends in respect of more
than 10% of the issued and outstanding Exchangeable Shares on which the
dividend has been paid. We do not expect to list the Exchangeable
Shares on a prescribed stock exchange in Canada.
A shareholder that is a "private corporation" (as defined in the Canadian
Tax Act) or any other corporation resident in Canada and controlled or deemed to
be controlled by or for the benefit of an individual or a related group of
individuals may be liable under Part IV of the Canadian Tax Act to pay a
refundable tax of 33 1/3% on dividends received or deemed to be received on the
Exchangeable Shares to the extent that such dividends are deductible in
computing the shareholder's taxable income.
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Redemption or Exchange of Exchangeable Shares
On the redemption (including a retraction) of an Exchangeable Share by
TigerTel, the holder of an Exchangeable Share will be deemed to have received a
dividend equal to the amount, if any, by which the redemption proceeds (the fair
market value at the time of the redemption of our Common Stock received by the
shareholder from TigerTel on the redemption plus the amount, if any, of all
accrued but unpaid dividends on the Exchangeable Share) exceeds the paid-up
capital, at that time, of the Exchangeable Share so redeemed. The amount of any
such deemed dividend will be subject to the tax treatment accorded to dividends
described above. On the redemption, the holder of an Exchangeable Share will
also be considered to have disposed of the Exchangeable Share, but the amount of
such deemed dividend will be excluded in computing the shareholder's proceeds of
disposition for purposes of computing any capital gain or capital loss arising
on the disposition of the Exchangeable Share. In the case of a shareholder that
is a corporation, in some circumstances the amount of any such deemed dividend
may be treated as proceeds of disposition and not as a dividend under certain
rules contained in the Canadian Tax Act.
On the exchange of an Exchangeable Share by the holder thereof with us for
a share of our Common Stock, including pursuant to the retraction call right,
the holder will realize a capital gain (or a capital loss) equal to the amount
by which the proceeds of disposition of the Exchangeable Share, net of any
reasonable costs of disposition, exceed (or are exceeded by) the adjusted cost
base to the holder of the Exchangeable Share. For these purposes, the proceeds
of disposition will be the fair market value of a share of our Common Stock at
the time of exchange plus the amount of all accrued but unpaid dividends on the
Exchangeable Share received by the holder as part of the exchange consideration.
Three-quarters of any such capital gain (the "taxable capital gain") will
be included in the shareholder's income for the year of disposition.
Three-quarters of any capital loss so realized (the "allowable capital loss")
may be deducted by the holder against taxable capital gains for the year of
disposition. Any excess of allowable capital losses over taxable capital gains
of the shareholder for the year of disposition may be carried back up to three
taxation years or forward indefinitely and deducted against net taxable capital
gains in those other years.
If the holder of an Exchangeable Share is a corporation, the amount of any
capital loss arising from a disposition or deemed disposition of an Exchangeable
Share may be reduced by the amount of dividends received or deemed to have been
received by it on such share or on the TigerTel common shares previously owned
by such holder, to the extent and under circumstances prescribed by the Canadian
Tax Act. Similar rules may apply where a corporation is a member of a
partnership or a beneficiary of a trust that owns Exchangeable Shares or where a
trust or partnership of which a corporation is a beneficiary or a member is a
member of a partnership or a beneficiary of a trust that owns Exchangeable
Shares.
The cost base of a share of our Common Stock received on the retraction,
redemption or exchange of an Exchangeable Share will be equal to the fair market
value of a share of our Common Stock at the time of such event.
As described above, the Canadian federal income tax consequences of a
redemption differ from those of a purchase.
Dividends on Our Common Stock. Dividends received on our Common Stock will
be included in the recipient's income for the purposes of the Canadian Tax Act.
Such dividends received by an individual shareholder will not be subject to the
gross-up and dividend tax credit rules in the Canadian Tax Act. A corporation
which is a shareholder will include such dividends in computing its income and
generally will not be entitled to deduct the amount of such dividends in
computing its taxable income. United States non-resident withholding tax on such
dividends will be eligible for foreign tax credit or deduction treatment where
applicable under the Canadian Tax Act.
Disposition of Our Common Stock. A disposition or deemed disposition of a
share of our Common Stock by a holder will generally result in a capital gain
(or capital loss) equal to the amount by which the proceeds of disposition, net
of any reasonable costs of disposition, exceed (or are exceeded by) the adjusted
cost base to the holder of our Common Stock. See above under "Redemption or
Exchange of Exchangeable Shares" for a discussion of the treatment of capital
gains.
A shareholder that is a "Canadian-controlled private corporation" (as
defined in the Canadian Tax Act) may be liable to pay an additional refundable
tax of 6 2/3% on dividends from Exchangeable Shares or shares of our Common
Stock that are not deductible in computing taxable income and on taxable capital
gains.
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Eligibility for Investment
Qualified Investments. Provided our Common Stock is listed on a prescribed
stock exchange (which currently includes the Nasdaq Stock Market), such
securities will be qualified investments under the Canadian Tax Act for trusts
governed by registered retirement savings plans, registered retirement income
funds and deferred profit sharing plans (collectively, "Tax Deferred Plans").
The voting rights and exchange rights will not be qualified investments under
the Canadian Tax Act. However, we are of the view that the fair market value of
these rights is nominal. The Exchangeable Shares will not be qualified
investments for Tax Deferred Plans.
Where at the end of any month a Tax Deferred Plan holds property that is
not a qualified investment, a penalty tax is imposed by Part XI.1 of the
Canadian Tax Act.
Foreign Property. Our Common Stock and the Exchangeable Shares will be
foreign property under the Canadian Tax Act as will the voting rights and
exchange rights.
A penalty tax is imposed by Part XI of the Canadian Tax Act if the cost
amount of a taxpayer's investment in foreign property exceeds the statutory
limit.
Foreign Property Information Reporting. A holder of our Common Stock who is
a "specified Canadian entity" (as defined in the Canadian Tax Act) and whose
cost amount for such shares at any time in a year or fiscal period exceeds
Canadian $100,000 will be required to file an information return in respect of
such shares disclosing the holder's cost amount, any dividends received in the
year and any gains or losses realized in the year in respect of such shares. A
specified Canadian entity means a taxpayer resident in Canada in the year, other
than a corporation or a trust exempt from tax under Part I of the Canadian Tax
Act, a non-resident-owned investment corporation, a mutual fund corporation, a
mutual fund trust and certain other trusts and partnerships.
Shareholders Not Resident in Canada
The following portion of the summary is applicable to holders of the
Exchangeable Shares who, for purposes of the Canadian Tax Act, have not been and
will not be resident or deemed to be resident in Canada at any time while they
have held the Exchangeable Shares or will hold our Common Stock and in the case
of a non-resident of Canada who carries on an insurance business in Canada and
elsewhere, the shares are not effectively connected with its Canadian insurance
business.
The Exchangeable Shares will be "taxable Canadian property" (as defined in
the Canadian Tax Act) to non-resident shareholders.
Generally, our Common Stock will not be taxable Canadian property to a
non-resident holder, provided that such shares are listed on a prescribed stock
exchange (which currently includes the Nasdaq Stock Market) and the holder,
persons with whom such holder does not deal at arm's length, or the holder and
such persons, has not owned (or had under option) 25% or more of the issued
shares of any class or series of our capital stock at any time within five years
preceding the date in question. A capital gain realized on an exchange
(including on a redemption or a retraction) of an Exchangeable Share and a
capital gain realized on a disposition of our Common Stock which constitutes
taxable Canadian property to a shareholder will be taxable as discussed above,
for shareholders resident in Canada, unless relief is available under an
applicable tax convention, such as the Tax Treaty. Such holders should consult
their own tax advisors to determine the tax consequences in their own situation.
Unless the non-resident holder complies with the procedures contained in
Division D of Part I of the Canadian Tax Act relating to the payment of tax, we
or TigerTel, as the case may be, will be required to withhold a portion of our
Common Stock otherwise payable to the holder.
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Dividends paid or deemed to be paid on the Exchangeable Shares are subject
to non-resident withholding tax under the Canadian Tax Act at the rate of 25%,
although such rate may be reduced under the provisions of an applicable income
tax treaty. For example, under the Tax Treaty, the rate is generally reduced to
15% in respect of dividends paid to a person who is the beneficial owner and who
is resident in the United States for purposes of the Tax Treaty.
A holder whose Exchangeable Shares are redeemed (either under TigerTel's
redemption right or pursuant to the holder's retraction rights) will be deemed
to receive a dividend as described above, for shareholders resident in Canada,
which deemed dividend will be subject to withholding tax as described in the
preceding paragraph. TigerTel will satisfy its withholding and remittance
obligations on behalf of the holder by disposing of our Common Stock otherwise
payable to the holder.
UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a summary of the principal United States federal income
tax considerations generally applicable to a United States Holder (as defined
below) of Exchangeable Shares arising from and relating to the receipt and
ownership of our Common Stock issued in exchange for the Exchangeable Shares and
represents the opinion of our United States counsel, Bryan Cave LLP, as to
certain material United States federal income tax consequences thereof.
This summary is limited to United States Holders who hold Exchangeable
Shares as capital assets. As used herein, a United States Holder is a holder of
Exchangeable Shares who is a "United States person," including: (i) an
individual who is a citizen or resident of the United States for federal income
tax purposes, (ii) a corporation or partnership created or organized in or under
the laws of the United States, or of any political subdivision thereof, (iii) an
estate, the income of which is subject to United States federal income taxation
regardless of source, or (iv) any trust if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more United States persons have authority to control all substantial
decisions of the trust. This summary does not address all aspects of United
States federal income taxation that may be applicable to particular United
States Holders subject to special provisions of United States federal income tax
law, such as tax-exempt organizations, financial institutions, insurance
companies, broker-dealers, persons having a "functional currency" other than the
United States dollar, United States Holders who hold Exchangeable Shares as part
of a straddle, wash sale, hedging or conversion transaction (other than by
virtue of their participation in an exchange of Exchangeable Shares for our
Common Stock as contemplated herein) and United States Holders who acquired
their Exchangeable Shares through the exercise of employee stock options or
otherwise as compensation for services.
This summary is based on United States federal income tax law in effect as
of the date of this Prospectus. No statutory, judicial or administrative
authority exists that directly addresses certain of the United States federal
income tax consequences of the ownership of instruments comparable to the
Exchangeable Shares. Consequently, some aspects of the United States federal
income tax treatment of the exchange of Exchangeable Shares for shares of our
Common Stock are not certain. No advance income tax ruling has been sought or
obtained from the United States Internal Revenue Service (the "IRS") regarding
the tax consequences of the transactions described herein.
This summary does not address aspects of United States taxation other than
United States federal income taxation under the United States Internal Revenue
Code of 1986, as amended (the "U.S. Code"), nor does it address all aspects of
United States federal income taxation that may be applicable to a particular
United States Holder in light of the United States Holder's particular
circumstances. In addition, this summary does not address the United States
Holder's state or local tax consequences or the foreign tax consequences of the
receipt and ownership of our Common Stock.
UNITED STATES HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE UNITED STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES AND THE FOREIGN
TAX CONSEQUENCES OF THE RECEIPT AND OWNERSHIP OF OUR COMMON STOCK.
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Exchange of Exchangeable Shares. A United States Holder that exercises such
Holder's right to exchange its Exchangeable Shares for shares of our Common
Stock generally, subject to the discussion below, should recognize gain or loss
on such exchange, assuming such exchange does not constitute a reorganization.
Such gain or loss will be equal to the difference between the fair market
value of the shares of our Common Stock at the time of the exchange and the
United States Holder's tax basis in the Exchangeable Shares surrendered. The
gain or loss generally will be capital gain or loss, except that, with respect
to any declared but unpaid dividends on the Exchangeable Shares, ordinary income
may be recognized. Noncorporate taxpayers generally are taxed at a maximum rate
of 20 percent on net capital gains attributable to gains realized on the sale of
property held for more than one year. A United States Holder generally, subject
to the discussion below, will have a tax basis in the shares of our Common Stock
received equal to the fair market value of such shares at the time of the
exchange. The holding period for such shares generally, subject to the
discussion below, will begin on the day after the exchange. The IRS could
assert, however, that the Exchangeable Shares and certain of the rights
associated therewith constitute "offsetting positions" for purposes of the
straddle rules set forth in Section 1092 of the U.S. Code. In such case, the
holding period of the Exchangeable Shares would not increase while held by a
United States Holder.
It is also possible that the exchange of Exchangeable Shares for shares of
our Common Stock could be treated as a tax-free exchange if the Exchangeable
Shares were treated as our stock for United States federal income tax purposes.
Given the lack of authority on the treatment of shares having features and
attendant rights similar to the Exchangeable Shares, it is uncertain whether the
Exchangeable Shares will be treated as shares of our Common Stock for this
purpose. Even if the Exchangeable Shares are not treated as shares of our Common
Stock, an exchange of Exchangeable Shares for our Common Stock that otherwise
would be taxable may be characterized as a tax-free exchange depending upon
facts and circumstances existing at the time of the exchange, which cannot be
accurately predicted as of the date hereof.
If the exchange of Exchangeable Shares for our Common Stock did qualify as
a tax-free exchange, a United States Holder would not recognize gain or loss.
The United States Holder's tax basis in the shares of our Common Stock received
would be equal to such Holder's tax basis in the Exchangeable Shares exchanged
therefor. The holding period of the shares of our Common Stock received by such
United States Holder would include the holding period of the Exchangeable Shares
exchanged therefor.
For United States federal income tax purposes, gain realized on the
exchange of Exchangeable Shares for shares of our Common Stock generally will be
treated as United States source gain, except that, under the terms of the Tax
Treaty, such gain may be treated as sourced in Canada. Any Canadian tax imposed
on the exchange may be available as a credit against United States federal
income taxes, subject to applicable limitations. A United States Holder, in lieu
of taking a foreign tax credit with respect to any Canadian tax paid, may be
entitled to a deduction in computing such United States Holder's taxable income.
Passive Foreign Investment Company Considerations. TigerTel may be
classified as a passive foreign investment company ("PFIC") for United States
federal income tax purposes for any taxable year if either (i) 75 percent or
more of its gross income was passive income (as defined for United States
federal income tax purposes) or (ii) on average for such taxable year, 50
percent or more of its assets (as determined in accordance with Section 1297(f)
of the U.S. Code) produced or were held for the production of passive income.
For purposes of applying the foregoing tests, TigerTel is deemed to receive its
pro rata share of income and to own its pro rata share of the assets of any
corporation in which TigerTel owns 25 percent or more of the stock measured by
value.
There can be no assurance with respect to the classification of TigerTel as
a PFIC. Currently, we and TigerTel intend to endeavor to cause TigerTel to avoid
PFIC status in the future, although there can be no assurance that we or
TigerTel will be able to do so or that our intent will not change. For each
year, TigerTel will endeavor to notify United States Holders of Exchangeable
Shares if it believes that TigerTel was a PFIC for that taxable year.
If TigerTel were to be classified as a PFIC, the consequences to a United
States Holder will depend in part on whether the United States Holder has made a
"Mark-to-Market Election" or a "QEF Election" with respect to TigerTel. If
TigerTel is a PFIC during a United States Holder's holding period and the United
States Holder does not make a Mark-to-Market Election or a QEF Election, the
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United States Holder generally will be required to pay a special United States
tax, in lieu of the United States tax that would otherwise apply, if such United
States Holder (a) realizes a gain upon the sale or exchange of Exchangeable
Shares or (b) receives an "excess distribution" from TigerTel on the
Exchangeable Shares. If a United States Holder makes a Mark-to-Market Election
or a QEF Election, it generally will be required to include amounts in income,
based upon TigerTel's income or the value of the Exchangeable Shares, even if
TigerTel does not make actual distributions to Holders of Exchangeable Shares.
The foregoing summary of the possible application of the PFIC rules to
TigerTel and the United States Holders of Exchangeable Shares is only a summary
of certain material aspects of those rules. Because the United States federal
income tax consequences to United States Holders under the PFIC provisions are
significant and complex, United States Holders are urged to discuss those
consequences with their tax advisors.
Shareholders Not Resident in or Citizens of the United States.
The following summary is applicable to holders of Exchangeable Shares or of
our Common Stock that are not United States Holders ("non-United States
Holders"). Subject to the discussion below, a non-United States Holder generally
will not be subject to United States federal income tax gain (if any) recognized
on the exchange of the Exchangeable Shares for our Common Stock or on the sale
or exchange of shares of our Common Stock, unless (i) such gain is attributable
to an office or fixed place of business and is effectively connected with a
trade or business of the non-United States Holder in the United States or, if a
tax treaty applies, is attributable to a permanent establishment maintained by
the non-United States Holder in the United States, (ii) the non-United States
Holder is an individual who holds the Exchangeable Shares or our Common Stock,
as the case may be, as capital assets and is present in the United States for
183 days or more in the taxable year of disposition, and certain other
conditions are satisfied, or (iii) the non-United States Holder is subject to
tax pursuant to the U.S. Code provisions applicable to certain United States
expatriates. If an individual non-United States Holder falls under clause (i) or
(iii) above, he or she will be taxed on his or her net gain derived from the
sale under regular United States federal income tax rates. If the individual
non-United States Holder falls under clause (ii) above, he or she will be
subject to a flat 30 percent tax on the gain derived from the sale, which may be
offset by United States source capital losses (notwithstanding the fact that he
or she is not considered a resident of the United States). Dividends received by
a non-United States Holder with respect to our Common Stock that are not
effectively connected with the conduct by such Holder of a trade or business in
the United States generally will be subject to United States withholding tax at
a rate of 30 percent, which rate may be reduced by an applicable income tax
treaty in effect between the United States and the non-United States Holder's
country of residence (currently 15 percent, generally, on dividends paid to
residents of Canada under the Tax Treaty).
Under current United States Treasury Regulations, dividends paid to an
address in a country outside the United States are presumed to be paid to a
resident of such country for purposes of the withholding discussed above (unless
the payor has knowledge to the contrary) and under the current interpretation of
United States Treasury Regulations, for purposes of determining the
applicability of a tax treaty rate (the "address rule"). Thus, non-United States
Holders who receive dividends at addresses outside the United States generally
are not yet required to file tax forms to obtain the benefit of an applicable
treaty rate. Under recently issued Treasury Regulations scheduled to take effect
January 1, 2001 (the "Final Regulations"), the address rule will no longer
apply, and a non-United States Holder who seeks to claim the benefit of an
applicable treaty rate would be required to satisfy certain certification and
other requirements. The Final Regulations also provide special rules regarding
whether, for purposes of determining the applicability of an income tax treaty,
dividends paid to a non-United States Holder that is an entity should be treated
as being paid to the entity itself or to the persons holding an interest in that
entity.
United States Real Property Holding Corporation. The discussion of the
United States taxation of non-United States Holders assumes that we are at no
time a United States real property holding corporation within the meaning of
Section 897(c) of the U.S. Code. Under present law, we would not be a United
States real property holding corporation so long as (a) the fair market value of
its United States real property interests is less than (b) 50 percent of the sum
of the fair market value of its United States real property interests, its
interests in real property located outside the United States, plus its other
assets that are used or held for use in a trade or business. We believe that we
are not a United States real property holding corporation and do not expect to
become such a corporation.
Federal Estate Tax. Our Common Stock (or our previously triggered
obligation or any of our subsidiaries to deliver our Common Stock along with
unpaid dividends) held by a non-United States Holder at the time of death will
be included in such holder's gross estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
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Information Reporting and Backup Withholding Tax
We must report annually to the IRS and to each holder the amount of
dividends paid to such holder and the tax withheld with respect to those
dividends, regardless of whether withholding was required. Copies of the
information returns reporting those dividends and withholding may also be made
available to the tax authorities in the country in which the holder resides
under the provisions of an applicable income tax treaty or other applicable
agreements.
Backup withholding generally is imposed at the rate of 31% on payments
to persons that fail to furnish the necessary identifying information to the
payor. Backup withholding generally will not apply to dividends paid before
January 1, 2001, to a non-United States Holder at an address outside the United
States, unless the payor has knowledge that the payee is a United States person.
In the case of dividends paid after December 31, 2000, the Final Regulations
provide that non-United States Holders generally will be subject to withholding
tax at a 31% rate unless the non-United States Holder certifies his non United
States status.
The payment of proceeds of a sale of our Common Stock effected by or
through a United States office of a broker is subject to both backup withholding
and information reporting unless the non-United States Holder provides the payor
with his name and address and certifies to non United States status or the
non-United States Holder otherwise establishes an exemption. In general, backup
withholding and information reporting will not apply to the payment of proceeds
of a sale of our Common Stock by or through a foreign office of a broker. If,
however, the broker is, for United States federal income tax purposes, a United
States person, a controlled foreign corporation, or a foreign person that
derives 50% or more of its gross income from the conduct of a trade or business
in the United States, or, in addition, for periods after December 31, 2000, a
foreign partnership that at any time during its tax year either is engaged in
the conduct of a trade or business in the United States or has as partners one
or more United States persons that hold more than 50% of the income or capital
interest in the partnership, the payments will be subject to information
reporting, but not backup withholding, unless the non-United States Holder
provides the broker with documentary evidence as to his non United States status
or the non-United States Holder otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules generally will
be allowed as a refund or a credit against the United States federal income tax
liability, provided the required information is furnished in a timely manner to
the IRS.
LEGAL OPINION
Bryan Cave LLP, St. Louis, Missouri, as our counsel, has issued an opinion
as to the legality of the Common Stock.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K for the year ended December 31,
1998, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. The consolidated financial
statements incorporated in this prospectus by reference to the Annual Report on
Form 10-K for the year ended December 31, 1997, have been so incorporated in
reliance on the report of Rubin, Brown, Gornstein & Co. LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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Exhibit A
NOTICE OF RETRACTION
TO: Commstar Ltd. (the "Corporation") and Applied Cellular Technology, Inc.
("Applied")
This notice is given pursuant to Article 5 of the provisions attaching to the
share(s) (the "Share Provisions") represented by this certificate and all
capitalized words and expressions used in this notice that are defined in the
Share Provisions have the meanings ascribed to such words and expressions in
such Share Provisions.
The undersigned hereby notifies the Corporation that, subject to the Retraction
Call Right referred to below, the undersigned desires to have the Corporation
redeem in accordance with Article 5 of the Share Provisions:
[ ] all shares(s) represented by this certificate,
[ ] or ________________ share(s) only.
The undersigned acknowledges the Retraction Call Right of Applied to purchase
all but not less than all the Retracted Shares from the undersigned and that
this notice shall be deemed to be an irrevocable offer (subject as hereinafter
provided) by the undersigned to sell the Retracted Shares to Applied in
accordance with the Retraction Call Right on the Retraction Date for the
Retraction Call Purchase Price and on the other terms and conditions set out in
Section 5.3 of the Plan of Arrangement. If Applied determines not to exercise
the Retraction Call Right, the Corporation will notify the undersigned of such
fact as soon as possible in which event, the offer contained in this notice may
be revoked by the undersigned by a further notice in writing addressed to the
Corporation and Applied specifically referencing this Notice of Retraction and
delivered to Montreal Trust Company of Canada (the "Transfer Agent").
The undersigned acknowledges that if, as a result of solvency provisions of
applicable law or otherwise, the Corporation fails to redeem all Retracted
Shares, the undersigned will be deemed to have exercised the Exchange Right (as
defined in the Voting and Exchange Trust Agreement) so as to require Applied to
purchase the unredeemed Retracted Shares.
The undersigned hereby represents and warrants that within the meaning
of the Tax Act the undersigned:
[ ] is not a non-resident of Canada, or
[ ] is a non-resident of Canada in which event the undersigned
acknowledges that mandatory withholdings may be required to be
made in connection with this request for retraction unless the
undersigned produces a certificate under Section 116 of the Tax
Act. The undersigned is urged to consult a tax advisor.
The undersigned hereby represents and warrants to the Corporation and Applied
that the undersigned has good title to, and owns, the share(s) represented by
this certificate to be acquired by the Corporation or Applied, as the case may
be, free and clear of all liens.
- ------------------ ---------------------------- ----------------------------
(Date) (Signature of Shareholder) (Guarantee of Signature)
[ ] Please check box if the securities and any cheque(s) resulting from the
retraction or purchase of the Retracted Shares are to be held for
pick-up by the shareholder at the principal transfer office of the
Transfer Agent in Toronto, failing which the securities and any
cheque(s) will be mailed to the last address of the shareholder as it
appears on the register of holders of Exchangeable Shares.
NOTE: This panel must be completed and this certificate, together with such
additional documents as the Transfer Agent may require, must be
deposited with the Transfer Agent at its principal transfer office in
Toronto. The securities and any cheque(s) resulting from the retraction
or purchase of the Retracted Shares will be issued and registered in,
and made payable to, respectively, the name of the shareholder as it
appears on the register of the Corporation and the securities and
cheque(s) resulting from such retraction or purchase will be delivered
to such shareholder as indicated above, unless the form appearing
immediately below is duly completed.
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- --------------------------------------- --------------------------------------
Name of Person in Whose Name Securities Date
or Cheque(s) Are To Be Registered,
Issued or Delivered (please print)
- --------------------------------------- --------------------------------------
Street Address or P.O. Box Signature of Shareholder
- --------------------------------------- --------------------------------------
City-Province Signature Guaranteed by
NOTE: If the notice of retraction is for less than all of the share(s)
represented by this certificate, a certificate representing the
remaining shares of the Corporation will be issued and registered in the
name of the shareholder as it appears on the register of the
Corporation, unless the Share Transfer Power on the share certificate is
duly completed in respect of such shares.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses (other than underwriting
discounts and commissions), which other than the SEC registration fee are
estimates, payable by the Registrant in connection with the sale and
distribution of the shares registered hereby**:
SEC Registration Fee ........................................ $ 3,906
Accounting Fees and Expenses................................. 10,000*
Legal Fees and Expenses...................................... 20,000*
Miscellaneous Expenses....................................... 6,094*
--------
Total ........................................... $ 40,000*
========
- -------------
* Estimated
** The Selling Shareholders will pay any sales commissions or underwriting
discount and fees incurred in connection with the sale of shares
registered hereunder.
Item 15. Indemnification of Directors and Officers.
Sections 351.355(1) and (2) of The General and Business Corporation Law of
the State of Missouri provide that a 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 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, 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, except that, in the case of an action or suit by or in the right
of the corporation, the corporation may not indemnify such persons against
judgments and fines and no person shall be indemnified as to any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the corporation,
unless and only to the extent that the court in which the action or suit was
brought determines upon application that such person is fairly and reasonably
entitled to indemnity for proper expenses. Section 351.355(3) provides that, to
the extent that a director, officer, employee or agent of the corporation has
been successful in the defense of any such action, suit or proceeding or any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred in connection with
such action, suit or proceeding. Section 351.355(7) provides that a corporation
may provide additional indemnification to any person indemnifiable under
subsection (1) or (2), provided such additional indemnification is authorized by
the corporation's articles of incorporation or an amendment thereto or by a
shareholder-approved bylaw or agreement, and provided further that no person
shall thereby be indemnified against conduct which was finally adjudged to have
been knowingly fraudulent, deliberately dishonest or willful misconduct or which
involved an accounting for profits pursuant to Section 16(b) of the Securities
Exchange Act of 1934.
The bylaws of the Registrant provide that the Registrant shall indemnify,
to the full extent permitted under Missouri law, any director, officer, employee
or agent of the Registrant who has served as a director, officer, employee or
agent of the Registrant or, at the Registrant's request, has served as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to such provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.
II-1
<PAGE>
Item 16. Exhibits.
See Exhibit Index.
Item 17. Undertakings.
(a) The undersigned issuer 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;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this registration statement
(or the most recent post-effective amendment hereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in this registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this
registration statement or any material change to such
information in this registration statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
(b) The undersigned Registrant hereby undertakes 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 that is incorporated by reference in this registration
statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") 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-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palm Beach, State of Florida, on October 25, 1999.
APPLIED DIGITAL SOLUTIONS, INC.
By: /S/ David A. Loppert
---------------------------------------
David A. Loppert, Vice President,
Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
RICHARD J. SULLIVAN* Chairman of the Board of
- ------------------------- Directors, Chief Executive October 25, 1999
(Richard J. Sullivan) Officer and Secretary
(Principal Executive Officer)
GARRETT A. SULLIVAN* President and Director (Principal October 25, 1999
- ------------------------- Operating Officer)
(Garrett A. Sullivan)
/S/ DAVID A. LOPPERT Vice President, Treasurer and
- ------------------------- Chief Financial Officer October 25, 1999
(David A. Loppert) (Principal Accounting Officer)
ANGELA M. SULLIVAN* Director October 25, 1999
- -------------------------
(Angela M. Sullivan)
DANIEL E. PENNI* Director October 25, 1999
- -------------------------
(Daniel E. Penni.)
ARTHUR F. NOTERMAN* Director October 25, 1999
- -------------------------
(Arthur F. Noterman)
Director October __, 1999
- -------------------------
(Constance K. Weaver)
*By: /S/ David A. Loppert
--------------------
David A. Loppert
Attorney-in-Fact
II-3
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
4.1 Second Restated Articles of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 4.1 to the
Registrant's Post-Effective Amendment No. 1 on Form S-1 to
Registration Statement (Form S-3 File No. 333-64605) filed with
the Commission on June 23, 1999)
4.2 Resolution of the Board of Directors of the Registrant setting
forth the terms of the Special Voting Preferred Stock *
4.3 Amended and Restated Bylaws of the Registrant dated March 31, 1998
(incorporated herein by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-3 (File No.
333-51067) filed with the Commission on April 27, 1998)
5.1 Opinion of Bryan Cave LLP regarding the validity of the Common
Stock *
8.1 Opinion of Meighen Demers regarding tax matters *
8.2 Opinion of Bryan Cave LLP regarding tax matters *
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Rubin, Brown, Gornstein & Co., LLP
23.3 Consent of Bryan Cave LLP (included in Exhibit 5.1) *
24.1 Power of Attorney *
99.1 Form of Plan of Arrangement of Commstar Ltd. *
99.2 Form of Voting and Exchange Trust Agreement among Applied Cellular
Technology, Inc., Commstar Ltd. and Montreal Trust Company of
Canada *
99.3 Form of Support Agreement between Applied Cellular Technology,
Inc. and Commstar Ltd. *
99.4 Memorandum of Agreement among Applied Cellular Technology, Inc.,
Commstar Ltd. and Western Inbound Network, Inc. *
-------------
* Previously filed
II-4
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 2 to Registration Statement on Form S-3 of Applied Digital
Solutions, Inc. (formerly, Applied Cellular Technology, Inc.) of our report
dated February 19, 1999 relating to the financial statements of Applied Cellular
Technology, Inc., included in Applied Cellular Technology, Inc.'s Form 10-K for
the year ended December 31, 1998. We also consent to the reference to us under
the heading "Experts" in such Registration Statement.
/S/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
St. Louis, Missouri
October 25, 1999
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Post-Effective Amendment No. 2 to the Registration Statement on Form S-3 of
Applied Digital Solutions, Inc. (formerly, Applied Cellular Technology, Inc.) of
our report dated February 24, 1998 relating to the financial statements for the
years ended December 31, 1996 and 1997 of Applied Cellular Technology, Inc.
included in Applied Cellular Technology, Inc.'s Form 10-K for the year ended
December 31, 1998. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/S/ Rubin, Brown, Gornstein & Co. LLP
- -------------------------------------
Rubin, Brown, Gornstein & Co. LLP
St. Louis, Missouri
October 25, 1999
