Filed pursuant to Rule 424(b)(3)
Registration No. 333-14549
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED NOVEMBER 12, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus Dated November 6, 1996)
1,440,000 SHARES
TEL-SAVE HOLDINGS, INC.
COMMON STOCK
($.01 PAR VALUE)
This Prospectus Supplement and the accompanying Prospectus covers the offering
for resale by the persons named herein (the 'Selling Stockholders') of 1,440,000
shares of Common Stock, par value $.01 per share (the 'Common Stock'), of
Tel-Save Holdings, Inc. (the 'Company'), which the Company issued or will issue
upon the exercise of warrants. The Company will receive no part of the proceeds
of sales made hereunder, although certain portions of the proceeds will be used
to repay indebtedness to the Company. On November 11, 1996, the last reported
sale price for the Common Stock, as reported on the Nasdaq National Market, was
$24.125 per share. See 'Price Range of Common Stock.'
SEE 'RISK FACTORS' BEGINNING AT PAGE 4 OF THE ACCOMPANYING PROSPECTUS AND
'RECENT DEVELOPMENTS' BEGINNING AT PAGE 9 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF INFORMATION THAT SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE
INVESTORS IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) SELLING STOCKHOLDERS
Per Share......................... $ $ $
Total............................. $ $ $
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under
applicable securities laws. See 'Underwriting.'
The shares of Common Stock offered hereby are subject to receipt and acceptance
by the Underwriter, to prior sale and to the Underwriter's right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the shares of Common Stock offered
hereby will be made at the offices of Salomon Brothers Inc, Seven World Trade
Center, New York, New York or through the facilities of The Depository Trust
Company, on or about November , 1996.
- ------------------------------------------------
SALOMON BROTHERS INC
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is November , 1996.
This Prospectus Supplement relates to an effective Registration
Statement under the Securities Act of 1933, and is subject to completion
or amendment. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities
laws of any such State.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET, THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ STOCK MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE EXCHANGE ACT. SEE 'UNDERWRITING.'
The information in this Prospectus Supplement is qualified in its entirety
by the more detailed information and consolidated financial statements and notes
thereto appearing or incorporated by reference in the accompanying Prospectus.
Prior to making an investment decision with respect to the shares of Common
Stock offered hereby, prospective investors should consider carefully the
information contained in this Prospectus Supplement and the accompanying
Prospectus and incorporated by reference therein.
THE OFFERING
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Securities Offered........................ Common Stock, $.01 par value
Common Stock Outstanding as of November
11, 1996................................ 29,917,446 shares
Common Stock Offered by the Selling
Stockholders............................ 1,440,000 shares
Nasdaq Symbol............................. TALK
</TABLE>
USE OF PROCEEDS
The Company will not directly receive any of the proceeds from the sale of
the Common Stock by the Selling Stockholders. A Selling Stockholder, Collective
Communications Services, Inc. ('CCS'), will distribute its proceeds from the
sale of Common Stock to its stockholders, four of whom collectively are indebted
to the Company in the principal amount of $600,000 and have agreed to repay this
indebtedness with part of the proceeds that they will receive from CCS.
S-2
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock by the Selling Stockholder as of the date
of, and as adjusted to reflect, the sale of the shares of Common Stock offered
hereby.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED SHARES OWNED
PRIOR TO OFFERING BEING AFTER OFFERING
------------------ OFFERED ------------------
SELLING STOCKHOLDER NUMBER PERCENT FOR SALE NUMBER PERCENT
- ------------------------------------------------------------ ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Collective Communications Services, Inc..................... 360,000 1.2% 360,000 -- --
Network Plus, Inc.(2)....................................... 200,000 * 100,000 -- --
Anne Marie Co., LLC......................................... 30,000 * 30,000 -- --
James D. Kaylor(1).......................................... 868,446 2.9% 400,000 368,446 1.2%
John S. Streep(1)........................................... 868,446 2.9% 368,446 1.2%
Kristen M. Streep(1)........................................ 868,446 2.9% 368,446 1.2%
J. Ryan Streep(1)........................................... 868,446 2.9% 368,446 1.2%
Jeffrey L. Bockol(1)........................................ 868,446 2.9% 368,446 1.2%
Leslie J. Bockol(1)......................................... 868,446 2.9% 368,446 1.2%
Matthew A. Bockol(1)........................................ 868,446 2.9% 368,446 1.2%
Marcia L. Bockol(1)......................................... 868,446 2.9% 368,446 1.2%
Wayne C. Phipps(1).......................................... 868,446 2.9% 368,446 1.2%
Hubert A. Streep(1)......................................... 868,446 2.9% 368,446 1.2%
Gerard Klauer Mattison & Co., LLC........................... 450,000 1.5% 150,000 300,000 *
The Furst Group, Inc.(2).................................... 0 -- 100,000 0 --
Eastern Telecommunications Incorporated..................... 300,000 * 300,000 -- --
</TABLE>
- ------------------
* Less than 1%.
(1) James D. Kaylor individually owns 403,829 shares, John S. Streep 395,144
shares, Kirsten M. Streep 4,342 shares, J. Ryan Streep 4,342 shares, Jeffrey
L. Bockol 30,395 shares, Leslie J. Bockol 4,342 shares, Marcia L. Bockol
4,342 shares, Wayne C. Phipps 8,684 shares and Hubert A. Streep 8,684 shares
(collectively, the 'Individual Selling Stockholders'). The Individual
Selling Stockholders are offering 400,000 shares in the aggregate pursuant
to this Prospectus Supplement. After the Offering described in this
Prospectus Supplement, James D. Kaylor individually will own shares,
John S. Streep shares, Kristen M. Streep shares, J. Ryan Streep
shares, Jeffrey L. Bockol shares, Leslie J. Bockol shares,
Matthew A. Bockol shares, Marcia A. Bockol shares, Wayne C.
Phipps shares and Hubert A. Streep shares. Each of the
Individual Selling Stockholders acquired his or her shares in connection
with The Furst Group Warrant, as described in the Prospectus, and may be
deemed to have beneficial ownership of 868,446 shares acquired pursuant to
such warrant prior to the Offering (and 368,446 shares after the Offering)
under the regulations of the Securities and Exchange Commission, although
such beneficial ownership is disclaimed. Share ownership reported for the
Individual Selling Stockholders does not include shares to be obtained upon
the transfer and exercise of Network Plus, Inc. warrants described in Note 2
to this table.
(2) The Furst Group, Inc. anticipates receiving a transfer of warrants to
purchase up to 100,000 shares of Common Stock from Network Plus prior to the
closing of this Offering pursuant to a Settlement Agreement and Release with
Network Plus and the Company; the 100,000 shares to be obtained by The Furst
Group upon exercise of such warrants are offered hereby.
S-3
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is traded on the Nasdaq National Market under the symbol
'TALK.' All of the following quotations have been adjusted to reflect the
three-for-two split of the Common Stock effective as of March 15, 1996.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995:
Fourth Quarter (from September 20, 1995).......................................................... $11 $ 8
1996:
First Quarter..................................................................................... 17 8
Second Quarter.................................................................................... 24 16 1/2
Third Quarter..................................................................................... 30 1/8 16 1/4
Fourth Quarter (through November 11, 1996)........................................................ 28 1/2 23 1/2
</TABLE>
The last reported sale price of the Common Stock, as reported on the Nasdaq
National Market on November 11, 1996, was $24.125 per share. As of November ,
1996, there were approximately record holders of Common Stock.
The Company currently intends to retain all future earnings for use in the
operation of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. The declaration and payment in the future
of any cash dividends will be at the election of the Company's Board of
Directors and will depend upon, among other things, the earnings, capital
requirements and financial position of the Company, existing and/or future loan
covenants and general economic conditions.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the 'Underwriting Agreement'), the Selling Stockholders have agreed to sell to
Salomon Brothers Inc (the 'Underwriter'), and the Underwriter has agreed to
purchase from the Selling Stockholders, 1,440,000 shares of Common Stock. In the
Underwriting Agreement, the Underwriter has agreed, subject to the terms and
conditions set forth therein, to purchase all of the shares of Common Stock
offered hereby if any are purchased.
The Underwriter has advised the Company and the Selling Stockholders that
it proposes initially to offer such shares of Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus Supplement.
After the initial public offering, the public offering price may be changed.
The Company and the Selling Stockholders have agreed not to offer, sell or
contract to sell or deliver (by selling short), or otherwise dispose of,
directly or indirectly, or announce the offering of, any other shares of Common
Stock, or securities convertible into or exchangeable for shares of Common
Stock, except the Shares of Common Stock offered in the Offering, for a period
of 120 days following the commencement of the Offering without the prior written
consent of the Underwriter which consent would not be unreasonably withheld;
provided, however, that the Company may issue and sell Common Stock pursuant to
any director or employee stock option plan, stock ownership plan, or dividend
reinvestment plan of the Company in effect at the time of commencement of the
Offering, may issue Common Stock issuable upon the conversion of securities or
the exercise of warrants or options outstanding at the time of commencement of
the Offering, may issue other options to employees so long as such options shall
not become exercisable until 120 days following the commencement of the
Offering, and may agree to issue Common Stock in connection with mergers or
acquisitions, or in transactions with partitions, where any such stock issued is
subject to the restrictions as to disposition applicable to the Company under
the Underwriting Agreement, and Selling Stockholders may make dispositions as
bona fide gifts. Only the Company and the Selling Stockholders whose shares are
sold in this Offering will be bound by the provisions of the Underwrting
Agreement described in the previous sentence.
In connection with the Offering, the Underwriter may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market in
accordance with Rule 10b-6A under the Exchange Act during the two business day
period before commencement of offers or sales of the
S-4
<PAGE>
Common Stock in the Offering. Passive market making transactions must comply
with certain volume and price limitations and be identified as such. In general,
a passive market maker may display its bid at a price not in excess of the
highest independent bid for the security, and if all independent bids are
lowered below the passive market maker's bid, then such bid must be lowered when
certain purchase limits are exceeded.
The Company, and the Selling Stockholders severally, have agreed to
indemnify the Underwriter against, or contribute to payments that the
Underwriter may be required to make in respect of, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby
will be passed upon for the Company by Aloysius T. Lawn, IV, General Counsel and
Secretary of the Company, and for the Underwriter by Cleary, Gottlieb, Steen &
Hamilton, New York, New York. Mr. Lawn holds options, which will vest on
December 4, 1996, to purchase 90,000 shares of Common Stock at a price of $9.50
per share and 30,000 shares of Common Stock at a price of $23.25 per share. Mr.
Lawn's employment contract provides that on December 4, 1996 he shall be granted
immediately exercisable options to purchase an additional 45,000 shares of
Common Stock at the market price of the Common Stock on December 4, 1996.
S-5
<PAGE>
PROSPECTUS
2,308,446 SHARES
TEL-SAVE HOLDINGS, INC.
COMMON STOCK
($.01 PAR VALUE)
This Prospectus covers the offering for resale of 2,308,446 shares (the
'Shares') of common stock, par value $.01 per share (the 'Common Stock'), of
Tel-Save Holdings, Inc., a Delaware corporation (the 'Company'), which the
Company issued or will issue upon the exercise of warrants and may be offered
from time to time by the Selling Stockholders named herein under 'Selling
Stockholders.' The Company will receive no part of the proceeds of sales made
hereunder, although certain portions of the proceeds will be used to repay
indebtedness to the Company. All expenses of registration incurred in connection
with this public offering are being borne by the Company, except for the fees,
expenses and disbursements of the Selling Stockholders' counsel. None of the
Shares have been registered prior to the filing of the Registration Statement of
which this Prospectus is part.
The Common Stock is quoted on the Nasdaq National Market under the symbol
'TALK.' On November 4, 1996, the last reported sale price of the Common Stock
was $24.75 per share.
The Shares may be offered by the Selling Stockholders for sale through
underwriters or dealers or from time to time on the Nasdaq National Market, or
otherwise, at prices then obtainable. The Company has agreed to indemnify the
Selling Stockholders against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the 'Securities Act'). The Selling
Stockholders and any broker executing selling orders on behalf of the Selling
Stockholders may be deemed to be underwriters within the meaning of the
Securities Act. Commissions received by underwriters or by any such broker may
be deemed to be underwriting commissions under the Securities Act. See 'PLAN OF
DISTRIBUTION.'
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE MATTERS DISCUSSED UNDER
'RISK FACTORS' BEGINNING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 6, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and in
accordance therewith files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the 'Commission'). Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street (Suite 1400), Chicago, Illinois 60661. Copies of all or part of such
materials may also be obtained at prescribed rates from the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a
Web site at http://www.sec.gov that contains reports, proxy statements and other
information. Such material also can be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a registration statement (which
term shall encompass any amendments thereto) on Form S-3 under the Securities
Act of 1933, as amended (the 'Securities Act') with respect to the securities
offered hereby (the 'Registration Statement'). This Prospectus, which
constitutes part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in exhibits to the Registration Statement as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the securities offered by this Prospectus, reference is made to the
Registration Statement, including the exhibits thereto, and the financial
statements and notes thereto filed or incorporated by reference as a part
thereof, which are on file at the offices of the Commission and may be obtained
upon payment of the fee prescribed by the Commission, or may be examined without
charge at the offices of the Commission. Statements made in this Prospectus
concerning the contents of any document referred to herein are not necessarily
complete, and, in each such instance, are qualified in all respects by reference
to the applicable documents filed with the Commission. The Registration
Statement and the exhibits thereto filed by the Company with the Commission may
be inspected and copied at the locations described above.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act (Commission File No. 0-26728) are incorporated herein by
reference:
(a) the Company's annual report on Form 10-K for the year ended
December 31, 1995;
(b) the Company's quarterly reports on Form 10-Q for the quarters
ended March 31, 1996 and June 30, 1996;
(c) the description of the Company's Common Stock contained in the
Company's registration statement pursuant to Section 12(g) of the Exchange
Act on Form 8-A, filed on September 8, 1995.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the filing of a post-effective amendment that indicates the termination of this
offering shall be deemed to be incorporated in this Prospectus by reference and
to be a part hereof from the date of filing of such documents.
Any statements contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge to each person to whom this
Prospectus has been delivered, a copy of any or all of the documents referred to
above that have been or may be incorporated by reference herein other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference therein). Requests for such copies should be directed to Tel-Save
Holdings, Inc., 6805 Route 202, New Hope, Pennsylvania 18938 Attention: Aloysius
T. Lawn, IV, General Counsel and Secretary. Telephone requests may be directed
to (215) 862-1500.
THIS PROSPECTUS CONTAINS AND INCORPORATES BY REFERENCE CERTAIN FORWARD
LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND BUSINESS OF THE COMPANY, INCLUDING, WITHOUT LIMITATION,
STATEMENTS HEREIN UNDER 'RECENT DEVELOPMENTS' AND STATEMENTS UNDER THE CAPTION
'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS' IN THE COMPANY'S ANNUAL AND QUARTERLY REPORTS. THESE FORWARD LOOKING
STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN
THAT ANY OF SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS
INCLUDE, AMONG OTHERS, THE FACTORS DISCUSSED IN THE SECTION HEREIN ENTITLED
'RISK FACTORS.'
3
<PAGE>
RISK FACTORS
DEPENDENCE ON AT&T
The design for the Company's long distance network, which is known as 'OBN'
or 'One Better Network,' relies upon AT&T Corp. ('AT&T') transmission
facilities, international long distance services, and operator services. If AT&T
were to terminate the Company's use of AT&T transmission facilities,
international long distance services, or operator services, the Company would
seek to enter into similar arrangements with other long distance providers.
There can be no assurance that the terms of such agreements would be favorable
to the Company. The Company's current operations and strategy with OBN emphasize
the quality and functionality of the AT&T (now Lucent Technologies, Inc.,
hereinafter 'Lucent') manufactured equipment, AT&T-provided transmission
facilities and billing services, and AT&T operator services. Loss of the ability
to market OBN emphasizing the quality of these AT&T-based services could have a
material adverse effect on the Company's results of operations and financial
condition.
The Company also will continue to depend on AT&T to provide the AT&T
telecommunication services that the Company resells directly to end users and to
independent marketing companies known as 'partitions,' which in turn resell the
services on the AT&T network to end users. The Company's ability to resell such
services on the AT&T network depends upon whether it can continue to maintain a
favorable relationship with AT&T. AT&T may terminate the provision of services
under its tariffs for limited reasons, including for nonpayment by the Company,
for national defense purposes or if the provision of services to the Company
were to have a substantial adverse impact on AT&T's network. While AT&T policy
historically has been to provide 30-day notice prior to termination of services,
there are no specific notice requirements with respect to such termination.
Although the Company has no specific contingency arrangements in place to
provide service to end users if AT&T were to discontinue its service to the
Company, based upon discussions that the Company has had with other long
distance providers and based upon such providers' published tariffs, the Company
believes that it could negotiate and obtain contracts with other long distance
providers to resell long distance services at rates comparable to its current
contract tariffs with AT&T. If the Company were to enter into contracts with
another provider, however, the Company believes it would take approximately 14
to 28 days to switch end users to that provider. Although the Company believes
it may have the right to switch end users without their consent to such other
providers, end users have the right to discontinue such service at any time.
Accordingly, the termination or non-renewal of the Company's contract tariffs
with AT&T or the loss of telecommunication services from AT&T would have a
material adverse effect on the Company's result of operations and financial
condition. See 'RECENT DEVELOPMENTS.'
RISKS RELATED TO DEVELOPMENT OF OBN
Prior to the deployment of OBN, the Company marketed services by
emphasizing its use of AT&T's transmission facilities and switches ('AT&T
network') and billing services. Although such marketing can continue for
services on the AT&T network that the Company resells under the new AT&T
contract tariff described herein under the heading 'Recent Developments,' the
Company has had to reduce its emphasis on AT&T in marketing OBN, which makes
less use of the AT&T network. There can be no assurance that the Company will be
able to market OBN successfully, even though OBN uses Company-owned, AT&T (now
Lucent) manufactured switching equipment and AT&T transmission facilities, and
employs the billing services of AT&T and AT&T's College and University Systems
('ACUS'), a wholly-owned strategic business unit of AT&T. Failure to market OBN
successfully would have a material adverse effect on the Company's financial
condition and results of operations.
Additionally, there can be no assurance that the Company will be able to
maintain or secure AT&T contract tariffs for transmission on OBN at
cost-effective rates. Further, to the extent that the Company, rather than AT&T,
is responsible for providing the Company's telecommunications services, the
Company's potential liability increases if such services are not provided.
OBN utilizes AT&T (now Lucent) manufactured 5ESS-2000 switching equipment,
which employs the new Digital Networking Unit-SONET (Synchronous Optical
Network) technology and the 5E10
4
<PAGE>
software. While the 5ESS-2000 switches have operated successfully in the local
environment, the Digital Networking Unit-SONET and 5E10 software offer new
technologies that have not been used extensively, and there can be no assurance
that the switches will function effectively.
Additional management personnel and information systems are required to
support OBN, the costs of which are increasing the Company's overhead. In order
for the Company to provide service over OBN, the Company must operate and be
responsible for the maintenance of its own switching equipment. While the
Company has hired additional personnel with experience in operating a switch-
based provider, there can be no assurance that the Company will be successful in
operating as a switch-based provider.
Moreover, operation as a switch-based provider subjects the Company to risk
of significant interruption in the provision of services on OBN in the event of
damage to the Company's facilities (switching equipment or connections to AT&T
transmission facilities) such as could be caused by fire or natural disaster.
Such interruptions could have a material adverse effect on the Company's
financial condition and results of operations.
The Company's deployment of OBN is intended to increase gross margins,
which have decreased over the past 3 years during which the Company has operated
as a switchless, nonfacilities-based reseller of AT&T services. Gross profit, as
a percentage of sales, has decreased largely as a result of the Company's
offering higher volume discounts to new and larger partitions. Any difficulties
in rendering OBN fully functional could result in a negative impact on margins
and the results of operations, and the more gradual transitioning of existing
end users to OBN that the Company now plans as a result of its new AT&T contract
tariff described herein under the heading 'RECENT DEVELOPMENTS' will delay the
Company's realization of improved gross margins.
POTENTIAL DECLINE IN PRICING OF LONG DISTANCE SERVICES
Although the basic rates of the three largest long distance carriers--AT&T,
MCI Communications Corp. and Sprint Corporation--have consistently increased
over the past three years and remained generally unchanged through the third
quarter of 1996, AT&T and other carriers have announced new price plans aimed at
residential customers with significantly simplified rate structures, which may
have the impact of lowering overall long distance prices. There can be no
assurance that AT&T or other carriers will not make similar offerings available
to the small to medium-sized businesses that the Company serves. Although OBN
makes the Company more price competitive, a reduction in long distance prices
still may have a material adverse impact on the Company's profitability.
DEPENDENCE UPON KEY PERSONNEL
The success of the Company's operations during the foreseeable future will
depend largely upon the continued services of Daniel Borislow and Gary W.
McCulla. Mr. Borislow and Mr. McCulla have entered into employment agreements
with the Company that contain non-competition covenants that extend for a period
of up to 18 months following termination of employment.
The Company's success also depends in part on its ability to manage,
attract and retain qualified personnel. Competition for such personnel is
intense. There can be no assurance that the Company will be successful in
attracting and retaining the personnel that it requires to manage the growth of
its business successfully. The Company's results of operations could be
adversely affected if the Company were unable to attract, manage and retain
these personnel, or if revenue were to fail to increase at a rate sufficient to
absorb the resulting increase in expenses.
RELIANCE ON AT&T BILLING SERVICES
The Company uses billing services provided by AT&T and ACUS. There can be
no assurance that either AT&T or ACUS will continue to offer billing services to
the Company on terms acceptable to the Company. AT&T has begun to remove its
name on bills for which it provides billing services and could further obscure
its role in providing billing services or cease providing billing services
altogether. Loss of the AT&T and ACUS billing services or decreased customer
awareness of the AT&T name could have a material adverse effect on the Company's
marketing strategy and retention of existing partitions and
5
<PAGE>
end users. The Company is developing its own information systems in order to
have its own billing capacity, although the Company has not provided such direct
billing services to end users in the past.
COMPETITION
The long distance telecommunications industry is highly competitive and
affected by the introduction of new services by, and the market activities of,
major industry participants. Competition in the long distance business is based
upon pricing, customer service, billing services and perceived quality. The
Company competes against various national and regional long distance carriers
and competes against the numerous companies in the long distance
telecommunications market that offer essentially the same services as the
Company. Several of the Company's competitors are substantially larger and have
greater financial, technical and marketing resources than the Company. The
Company's competitors that resell non-AT&T services do so at prices below that
which the Company can provide as an AT&T switchless reseller, although the
deployment of OBN enables the Company to be price competitive with non-AT&T
resellers at current industry pricing levels. The ability of the Company to
compete effectively in the telecommunications industry will depend upon the
Company's continued ability to provide high quality services at prices generally
competitive with, or lower than, those charged by its competitors. Although the
Company's gross margins are expected to improve following the deployment of OBN,
revenues could decline if competition for long distance service forced the
Company to offer services at greater discounts.
Recent changes in the regulation of the telecommunications industry may
impact the Company's competitive position. The Telecommunications Act of 1996
(the '1996 Act') effectively opens up the long distance market to competition
from the Bell Operating Companies and Regional Holding Companies (collectively,
'RBOCs'). The entry of these well-capitalized and well-known entities into the
long distance market could significantly alter the competitive environment in
which the Company operates because of the established relationship the RBOCs
have with their local service customers (and the likelihood that the RBOCs will
take advantage of those relationships), as well as the possibility of
interpretations of the 1996 Act favorable to the RBOCs, which may make it more
difficult for other providers, such as the Company, to compete to provide long
distance services.
MAINTENANCE OF END USER BASE
End users are not obligated to purchase any minimum usage amount and can
discontinue service, without penalty, at any time. There can be no assurance
that end users will continue to buy their long distance telephone service
through the Company or through partitions that purchase services from the
Company. In the event that a significant portion of the Company's end users
decides to purchase long distance service from another long distance service
provider, there can be no assurance that the Company will be able to replace its
end user base from other sources. Loss of a significant portion of the Company's
end users would have a material adverse effect on the Company's results of
operations and financial condition.
A high level of customer attrition is inherent in the long distance
industry, and the Company's revenues are affected by such attrition. Attrition
is attributable to a variety of factors, including termination of customers by
the Company for non-payment and the initiatives of existing and new competitors
as they engage in, among other things, national advertising campaigns,
telemarketing programs and the issuance of cash or other forms of incentives.
RELIANCE ON INDEPENDENT CARRIER AND MARKETING COMPANIES; LACK OF CONTROL OVER
MARKETING ACTIVITIES
The Company markets services primarily through independent carriers and
marketing companies known as 'partitions,' which generally have entered into
non-exclusive agreements with the Company. Most partitions to date have made no
minimum use or revenue commitments to the Company under these agreements. If the
Company were to lose access to services on the AT&T network or billing services
or experiences difficulties with OBN, the Company's agreements with partitions
could be adversely impacted.
6
<PAGE>
One partition, The Furst Group, Inc., accounted for approximately 13
percent of the Company's sales in the third quarter of 1996. Two other
partitions together accounted for approximately 8 percent of the Company's sales
in the third quarter of 1996. The Company's direct marketing operations
accounted for less than one percent of the Company's sales in the third quarter
of 1996. In the event that any of the partitions, and particularly the three
significant partitions noted above, were to cease doing business with the
Company, the financial condition or results of operations of the Company could
be materially adversely affected.
Certain marketing practices, including the methods and means to convert a
customer's long distance telephone service from one carrier to another, have
recently been subject to increased regulatory review at both the federal and
state levels. This increased regulatory review could affect possible future
acquisitions of new business from new partitions or other resellers. Provisions
in the Company's partition agreements mandate compliance by the partitions with
applicable state and federal regulations. Because the Company's partitions are
independent carriers and marketing companies, the Company is unable to control
completely such partitions' activities. The Company is also unable to predict
the extent of its partitions' compliance with applicable regulations or the
effect of such increased regulatory review.
GOVERNMENT REGULATION
The Company is subject to regulation by the Federal Communications
Commission ('FCC') and by various state public service and public utility
commissions as a nondominant provider of long distance services. The Company and
its partitions no longer will be required to file tariffs for interstate service
with the FCC under an FCC order adopted on October 29, 1996. See 'RECENT
DEVELOPMENTS.' The Company and its partitions, however, are still required to
file tariffs for international service with the FCC and to obtain approval for
intrastate service provided in most of the states in which they market long
distance services. Changes in existing policies or regulations in any state or
by the FCC could materially adversely affect the Company's results of
operations, particularly if those policies make it more difficult to obtain
service from AT&T or other long distance companies at competitive rates, or
otherwise increase the cost and regulatory burdens of providing services. There
can be no assurance that the regulatory authorities in one or more states or the
FCC will not take action having an adverse effect on the business or financial
condition or results of operations of the Company. Regulatory action by the FCC
or the states also could adversely affect the partitions, or otherwise increase
the partitions' cost and regulatory burdens of providing long distance services.
As it engages in direct marketing to end users, the Company will be subject to
applicable regulatory standards for marketing activities and the increased FCC
and state attention to certain marketing practices may become more significant
to the Company.
ADVERSE EFFECT OF RAPID CHANGE IN TECHNOLOGY AND SERVICE
The telecommunications industry has been characterized by rapid
technological change, frequent new service introductions and evolving industry
standards. The Company believes that its future success will depend on its
ability to anticipate such changes and to offer on a timely basis services that
meet these evolving standards. There can be no assurance that the Company will
have sufficient resources to make necessary investments or to introduce new
services that would satisfy an expanded range of partition and end user needs.
EXPANSION INTO NEW BUSINESS ACTIVITIES
In addition to relying on marketing performed by its partitions, the
Company has begun to market its long distance service directly to end users.
Such direct marketing has and is expected to continue to increase the Company's
costs as it hires new employees, provides increased customer support and
collection services, and acquires additional equipment and facilities. The
Company is required to comply with additional regulatory standards for direct
marketing of telecommunications services. Direct marketing by the Company may
also adversely affect its relationship with its partitions as both the Company
and the partitions will be competing to provide similar services.
7
<PAGE>
The Company plans to provide a full range of telecommunications services to
tenants of multi-tenant office and residential buildings and complexes as a
competitive telecommunications provider or 'CTP.' To provide such services, the
Company will invest in additional equipment and software and augment its
customer service and direct sales force. The Company may also be subject to
additional regulatory requirements. The Company will need the approval of the
owners, developers or mortgagors of the buildings to provide these services, and
there can be no assurance that the Company will be able to obtain the requisite
approvals. The Company has not functioned previously in this context and faces
competition from other providers that offer similar services.
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER CONSIDERATIONS
As of the date of this Prospectus, Mr. Borislow owns beneficially
approximately 45.6% of the outstanding Common Stock, including approximately
12.7% pursuant to a voting trust with Paul Rosenberg. In addition, certain
warrant holders have agreed to hold the shares of Common Stock that they receive
upon the exercise of their warrants in voting trusts, the voting trustee for
which would be Mr. Borislow. See 'SELLING STOCKHOLDERS.' Accordingly, Mr.
Borislow, individually, effectively has the ability to control the election of
all of the members of the Company's Board of Directors and the outcome of
corporate actions requiring majority stockholder approval. Even as to corporate
transactions in which super-majority approval may be required, such as certain
fundamental corporate transactions, Mr. Borislow effectively will control the
outcome of such actions.
The Company also has an authorized class of 5,000,000 shares of preferred
stock that may be issued by the Board of Directors on such terms and with such
rights, preferences and designations as the Board may determine. Issuance of
such preferred stock, depending upon the rights, preferences and designations
thereof, may have the effect of delaying, deterring or preventing a change in
control of the Company. In addition, the Delaware General Corporation Law and
other provisions of the Company's Amended and Restated Certificate of
Incorporation, including the provision of the Amended and Restated Certificate
that provides that the Board of Directors be divided into three classes each of
which is elected for three years, and the Bylaws contain provisions that may
have the effect of delaying or preventing a change in control of the Company.
Such anti-takeover effects may deter a third party who would propose to
acquire the Company or to engage in a similar transaction affecting control of
the Company in which the Company's stockholders might receive a premium for
their shares over the then-current market value.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of the Company's Common Stock could
adversely affect the market price of the Common Stock. As of the date of this
Prospectus, Mr. Borislow owns beneficially 45.6% of the outstanding Common
Stock, and a decision by Mr. Borislow to sell his shares could adversely affect
the market price of the Common Stock. Of the Company's 29,917,446 outstanding
shares of Common Stock, 16,342,446 shares are freely tradeable by persons other
than 'affiliates' of the Company. Of the remaining 13,575,000 shares of Common
Stock, none are, under current interpretations, eligible for resale until after
the expiration of the lock-up period pursuant to Rule 144 under the Securities
Act in September 1997.
There are outstanding options to purchase 3,829,900 shares of Common Stock
held by employees, former employees or directors of the Company. In addition to
the Warrants underlying the shares being offered by this Prospectus, there are
warrants to purchase up to 1,816,000 shares of Common Stock ('Other Warrants').
Paul Rosenberg, the holder of 3,795,000 shares of Common Stock, has the
right, under certain conditions, to participate in future registrations of
Common Stock and to cause the Company to register certain shares of Common Stock
owned by him. Holders of the Other Warrants also have registration rights under
certain conditions.
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, may adversely affect the market price of
the Common Stock.
8
<PAGE>
THE COMPANY
The Company, originally incorporated in 1989 as Tel-Save, Inc., provides
long distance telephone service throughout the United States primarily to small
and medium-sized businesses. For further information about the business and
operations of the Company, reference is made to the Company's reports
incorporated herein by reference. See 'INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.'
The principal executive offices of the Company are located at 6805 Route
202, New Hope, Pennsylvania 18938, and its telephone number is (215) 862-1500.
RECENT DEVELOPMENTS
In October 1996, the Company subscribed to a new AT&T contract tariff,
which permits the Company to continue to resell AT&T long distance services,
including AT&T-SDN service, through mid-1998. The new AT&T contract tariff also
includes other AT&T services (such as international long distance, inbound and
outbound services) that will be used in the Company's new nationwide long
distance network, OBN. The rates that the Company will pay under the new AT&T
contract tariff are more favorable to the Company than under previous tariffs.
During its term, the new AT&T contract tariff will enable the Company to
minimize possible attrition that might result from moving existing end users
from the AT&T network to OBN. The new AT&T contract tariff also permits a more
gradual introduction of OBN, which should reduce the expense of providing the
capacity required in a more rapid phase-in of OBN and lessen the impact of any
technical difficulties during the phase-in of OBN. The more gradual introduction
of OBN, however, will postpone the Company's realization of the anticipated
benefit of the more favorable margins for OBN service, and the new AT&T contract
tariff requires the Company to commit to purchase $240 million of service from
AT&T over the next 4 years. This commitment is larger than any previous
commitment that the Company has made, but the Company believes that it can be
met based on its current purchases of long distance service from AT&T of
approximately $10 million per month. Further, the Company can terminate the new
contract tariff without liability to AT&T at the end of 18 months if the Company
has purchased $90 million in services from AT&T under the new contract tariff.
The Company can also terminate the new contract tariff without liability to AT&T
in the first 18 months if the Company and AT&T enter into a new contact tariff
or another contract with a revenue commitment of at least $5 million per month
and a term of at least the difference between 18 months and the number of months
that the Company subscribed to the contract tariff, provided that the Company
must purchase or pay for AT&T services under the contract tariff of at least $5
million per month for the months prior to such termination.
The Company is continuing the deployment of OBN, which features five
Company-owned, AT&T (now Lucent) manufactured 5ESS-2000 switches connected by
AT&T digital transmission facilities. Installation of the transmission
facilities and the five switches--in Jacksonville, New York City, Chicago,
Dallas and San Francisco--is substantially complete, and testing of the network
is being performed by the Company and the local exchange carriers ('LECs') whose
local networks interconnect with the Company's long distance network. The
Company is now in the process of activating access to the local areas that will
be served by each switch, and has begun placing end users on OBN through the
Jacksonville switch. OBN includes echo cancellation equipment purchased from
Lucent. The Company expects OBN to become functional over the next three months.
The Company believes that gross operating margins for OBN long distance
service will be higher than for AT&T long distance service. AT&T long distance
service is 'bundled,' which means that the Company pays a single, all-inclusive
price to AT&T for switching, transmission, and LEC access. OBN long distance
service is 'unbundled,' which means that the Company provides its own switching,
pays AT&T for transmission, and pays access fees directly to LECs. The
'unbundled' charges per call on OBN are expected to be less than the 'bundled'
charge paid to AT&T. In addition, OBN should result in a faster and more
reliable 'provisioning' process, in which end users who have requested the
Company's services actually begin to receive those services.
9
<PAGE>
OBN is the focus of the Company's current direct marketing efforts to end
users. The Company is also encouraging OBN sales through independent
telecommunications carriers known as 'partitions' that purchase the Company's
services for resale to end users. The Company expects that by the end of the
fourth quarter of 1996 a significant portion of its new end users will be
provisioned to OBN.
OBN also will provide the local service capabilities needed to support the
Company's planned provision of CTP services. The Company intends to begin
activities in planning and marketing CTP services, and purchasing, installing
and testing the switching modules necessary to provide such services after OBN
becomes fully functional.
The Company has used a portion of the proceeds from its 1996 stock offering
for: (i) advances to new and existing partitions to support their marketing
efforts, (ii) procurement of additional hardware and software for OBN, (iii)
direct marketing efforts, including the purchase of a direct marketing center in
Clearwater, Florida, and (iv) the purchase of a new headquarters building in New
Hope, Pennsylvania. The Company intends to use the remaining proceeds: (i) to
further fund new and existing partitions, (ii) to expand direct marketing
efforts, including the build out of the direct marketing center, and (iii) to
take advantage of growth opportunities, including but not limited to, possible
acquisitions and development of CTP services. The Company expects to spend less
of the proceeds of the 1996 stock offering to start up OBN than originally
planned because of the new AT&T contract tariff, which will allow the Company to
avoid some of the costs associated with moving existing end users to OBN and
permit the Company to phase in OBN more cost effectively by not leasing
transmission facilities before traffic levels are sufficient to fill them. There
can be no assurance that the Company's financial performance will meet analyst
expectations in the future.
On October 29, 1996, the FCC announced that, following a nine month
transition period, long distance carriers would no longer file tariffs for
interstate domestic long distance service, and that the relationship between
carriers and their customers would be governed by contracts. Carriers also would
have the option immediately to cease filing tariffs. The FCC's order will be
effective 30 days after publication in the Federal Register. The Company does
not expect the FCC's detariffing order to have a material effect on its
business.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock, $.01 par value per share, and 5,000,000 shares of undesignated
Preferred Stock, $.01 par value per share. As of October 29, 1996, 29,917,446
shares of Common Stock were issued and outstanding. There were no shares of
Preferred Stock designated or issued. For further information about the
Company's authorized capital stock, reference is made to the Company's reports
incorporated herein by reference. See 'INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.'
USE OF PROCEEDS
The Company will not directly receive any of the proceeds from the sale of
the Common Stock offered by this Prospectus. A Selling Stockholder, Collective
Communications Services, Inc. ('CCS'), will distribute its proceeds from the
sale of Common Stock offered by this Prospectus to its stockholders, four of
whom collectively are indebted to the Company in the principal amount of
$600,000 and have agreed to repay this indebtedness with part of the proceeds
that they will receive from CCS. See 'SELLING STOCKHOLDERS--CCS.'
10
<PAGE>
SELLING STOCKHOLDERS
The Selling Stockholders offer for resale in this Prospectus the shares of
Common Stock that they acquired or will acquire upon the exercise of Warrants
that the Company granted to five partitions (the 'Partitions') that market the
Company's telecommunications services and to the managing underwriter of the
Company's initial public offering of Common Stock in September and October 1995,
Gerard Klauer Mattison & Co., LLC, a New York limited liability company ('Gerard
Klauer Mattison' or 'GKM'). The Partitions are Collective Communications
Services, Inc., a Pennsylvania corporation ('CCS'), Network Plus, Inc., a
Massachusetts corporation ('Network Plus' or 'NP'), Anne Marie Co., LLC, a New
Jersey limited liability company ('AMC'), Eastern Telecommunications
Incorporated, a New York corporation ('Eastern'), and The Furst Group, Inc., a
New Jersey corporation ('The Furst Group' or 'TFG'). The Company's grant of the
Warrants to the Partitions and GKM was made pursuant to the exemption from
registration under the Securities Act provided by Section 4(2) thereof.
CCS
The Company entered into a warrant agreement with CCS dated as of January
11, 1996 (the 'CCS Warrant'), which provides that CCS can purchase, subject to
certain conditions and adjustments, 240,000 shares of Common Stock at a price of
$14.00 per share between June 1, 1996 and December 31, 1996. The market price of
the Common Stock on the date of grant of the CCS Warrant was $12.25 per share.
On March 15, 1996, the Company effected a 3-for-2 stock split in the form of a
50% stock dividend, which caused the CCS Warrant to cover as of the date of this
Prospectus 360,000 shares of Common Stock at a price of $9.33 per share. Vesting
of the CCS Warrant is subject to certain performance contingencies related to
conduct of business with the Company, which the Company believes to have been
satisfied as of the date of this Prospectus. Upon exercise of the CCS Warrant,
CCS will hold the shares of Common Stock that it will acquire in a voting trust,
the voting trustee for which will be Daniel Borislow, the Company's Chairman,
Chief Executive Officer and largest stockholder. CCS may sell the shares of
Common Stock in the voting trust at any time, and the voting trust will dissolve
whenever CCS sells all of the shares of Common Stock it obtains upon exercise of
the CCS Warrant. The Company has a right of first refusal upon sale or transfer
of the CCS Warrant or the shares issued upon the exercise thereof. CCS
anticipates distributing proceeds from the sale of shares underlying the CCS
Warrant to its shareholders, four of whom collectively are indebted to the
Company in the amount of $600,000 and have agreed to use a portion of the
proceeds to repay said indebtedness. As of the date of this Prospectus, CCS owns
no shares of the Company's Common Stock and is offering in this Prospectus all
of the shares of Common Stock that it will own upon the exercise of the CCS
Warrant. CCS holds another warrant to purchase 360,000 shares of Common Stock at
a price of $9.33 per share.
NETWORK PLUS
The Company entered into a warrant agreement with Network Plus dated as of
January 11, 1996 (the 'NP Warrant') which provides that NP can purchase, subject
to certain conditions and adjustments, 200,000 shares of Common Stock at a price
of $14.00 per share between September 1, 1996 and January 10, 1997. The market
price of the Common Stock on the date of grant of the NP Warrant was $12.25 per
share. On March 15, 1996, the Company effected a 3-for-2 stock split in the form
of a 50% stock dividend, which caused the NP Warrant to cover as of the date of
this Prospectus 300,000 shares of Common Stock at a price of $9.33 per share.
Pursuant to the terms of a Settlement Agreement and Release, Network Plus has
transferred one third of the NP Warrant to Jenkintown Ltd., a Pennsylvania
corporation. Thus, the following persons (the 'NP Selling Stockholders') offer
the following number of shares underlying the NP Warrant in this Prospectus:
<TABLE>
<S> <C>
Network Plus.................................................. 200,000
Jenkintown, Ltd. ............................................. 100,000
</TABLE>
Vesting of the NP Warrant is subject to certain performance contingencies
related to conduct of business with the Company, which the Company believes to
have been satisfied as of the date of this
11
<PAGE>
Prospectus. Upon exercise of the NP Warrant, the NP Selling Stockholders will
hold the shares of Common Stock that they will acquire in a voting trust, the
voting trustee for which will be Daniel Borislow, the Company's Chairman, Chief
Executive Officer and largest shareholder. The NP Selling Stockholders may sell
the shares of Common Stock in the voting trust at any time, and the voting trust
will dissolve whenever the NP Selling Stockholders sell all of the shares they
obtain upon exercise of the NP Warrant. The Company has a right of first refusal
upon sale or transfer of the NP Warrant or the shares issued upon the exercise
thereof. As of the date of this Prospectus, the NP Selling Stockholders own no
shares of the Company's Common Stock, and are offering in this Prospectus all of
the shares of Common Stock that they will own upon the exercise of the NP
Warrant. Network Plus holds warrants, which have not yet vested, to purchase an
additional 382,500 shares of Common Stock at a price of $9.33 per share. Network
Plus and The Furst Group are negotiating a Settlement Agreement and Release,
which may result in the transfer of warrants to purchase up to 100,000 shares of
Common Stock from Network Plus to The Furst Group. See also '--The Furst Group'
regarding other shares offered in this Prospectus.
AMC
The Company entered into a warrant agreement with AMC dated as of January
12, 1996 (the 'AMC Warrant'), which provides that AMC can purchase, between
September 1, 1996, and January 11, 1997, subject to certain conditions and
adjustments, 20,000 shares of Common Stock at a price of $12.375 per share,
which was the market price of the Common Stock on the date of grant. On March
15, 1996, the Company effected a 3-for-2 stock split in the form of a 50% stock
dividend, which caused the AMC Warrant to cover 30,000 shares of Common Stock at
a price of $8.25 per share. Vesting of the AMC Warrant is subject to certain
performance contingencies related to conduct of business with the Company, which
the Company believes to have been satisfied as of the date of this Prospectus.
AMC has agreed that, upon exercise of the AMC Warrant, it will hold the shares
of Common Stock that it will acquire in a voting trust, the voting trustee for
which will be Daniel Borislow, the Company's Chairman, Chief Executive Officer
and largest shareholder. AMC may sell the shares of Common Stock in the voting
trust at any time, and the voting trust will dissolve whenever AMC sells all of
the shares of Common Stock it obtains upon exercise of the AMC Warrant. The
Company has a right of first refusal upon sale or transfer of the AMC Warrant or
the shares issued upon the exercise thereof. As of the date of this Prospectus,
AMC owns no shares of the Company's Common Stock, and is offering in this
Prospectus all of the shares of Common Stock that it will own upon the exercise
of the AMC Warrant.
EASTERN
The Company entered into a warrant agreement with Eastern dated as of
January 12, 1996 (the 'Eastern Warrant'), which provides that Eastern can
purchase, between May 12, 1996, and February 15, 1997, subject to certain
conditions and adjustments, 200,000 shares of Common Stock at a price of $12.25
per share, which was the market price of the Common Stock on January 11, 1996.
On March 15, 1996, the Company effected a 3-for-2 stock split in the form of a
50% stock dividend, which caused the Eastern Warrant to cover 300,000 shares of
Common Stock at a price of $8.167 per share. Vesting of the Eastern Warrant is
subject to certain performance contingencies related to conduct of business with
the Company, which the Company believes to have been satisfied as of the date of
this Prospectus. Eastern owns no shares of the Company's Common Stock as of the
date of this Prospectus and is offering in this Prospectus all of the shares of
Common Stock that it will own upon the exercise of the Eastern Warrant. Eastern
holds additional warrants, which have not yet vested, to purchase 673,500 shares
of Common Stock at a price of $8.167 per share.
THE FURST GROUP
The Company and The Furst Group entered into a telecommunications services
agreement dated as of March 14, 1996 (the 'TFG Agreement'), pursuant to which
The Furst Group agreed to purchase certain telecommunications services and other
associated services from the Company. Simultaneous
12
<PAGE>
with the execution of the Agreement, the Company issued The Furst Group warrants
(the 'TFG Warrants') to purchase, subject to certain adjustments and conditions,
1,000,000 shares of Common Stock at an exercise price of $17.00 per share, which
was the market price of the Common Stock on the date of the TFG Agreement. The
Company effected a 3-for-2 stock split in the form of a 50 percent stock
dividend on March 15, 1996, which caused the TFG Warrants to cover 1,500,000
shares of Common Stock at an exercise price of $11.33 per share. The TFG
Warrants had a net exercise provision, which provided for a cashless exercise in
which the TFG Warrants were exchanged for shares of Common Stock. The TFG
Warrants were transferable only to TFG's stockholders, and TFG made such a
transfer to its stockholders, who exercised the TFG Warrants, and are offering
the shares of Common Stock obtained upon the exercise of the TFG Warrants in
this Prospectus (the 'TFG Selling Stockholders'). The names of the TFG Selling
Stockholders and the number of shares that they are offering in this Prospectus
are as follows:
<TABLE>
<CAPTION>
SELLING STOCKHOLDER SHARES
- -------------------------------------------------------------- -------
<S> <C>
James D. Kaylor............................................... 403,829
John S. Streep................................................ 395,144
Kristen M. Streep............................................. 4,342
J. Ryan Streep................................................ 4,342
Jeffrey L. Bockol............................................. 30,395
Leslie J. Bockol.............................................. 4,342
Matthew A. Bockol............................................. 4,342
Marcia L. Bockol.............................................. 4,342
Wayne C. Phipps............................................... 8,684
Hubert A. Streep.............................................. 8,684
</TABLE>
Under certain circumstances, the Company has a right of first refusal upon the
sale or transfer of the shares of Common Stock that the TFG Selling Stockholders
hold. As of the date of this Prospectus, the TFG Selling Stockholders own no
shares of Common Stock other than those that they acquired upon the exercise of
the TFG Warrants, and are offering all of the shares of Common Stock that they
acquired upon the exercise of the TFG Warrants in this Prospectus. As described
herein under 'SELLING STOCKHOLDERS--Network Plus,' TFG is negotiating with
Network Plus and may obtain a portion of the NP Warrant to purchase up to
100,000 shares of the Company's Common Stock; the resale of the Common Stock
that TFG would own upon the exercise of that warrant is being registered in this
Prospectus.
GERARD KLAUER MATTISON
In connection with the initial public offering of its Common Stock in
September and October 1995 (the 'IPO'), the Company granted the managing
underwriter of the IPO, GKM, warrants to purchase up to 300,000 shares of its
Common Stock at a price of $17.1875 per share between September 20, 1996 and
September 20, 2000 (the 'GKM Warrants'). The price to the public of Common Stock
in the IPO was $13.75 per share. The GKM Warrants could not be transferred,
sold, assigned or hypothecated for a period of one year commencing from the date
of the IPO, except that they could be transferred in whole or in part to any
person who was an officer or partner of GKM or to any of the underwriters in the
IPO or members of the selling group and/or officers or partners thereof during
such period, subject to compliance with applicable securities laws, and certain
provisions for appropriate adjustments in the event of stock splits, stock
dividends, combinations, reorganizations, recapitalizations and other customary
anti-dilution provisions. On March 15, 1996, the Company effected a 3-for-2
stock split in the form of a 50% stock dividend, which caused the GKM Warrants
to cover as of the date of this Prospectus 450,000 shares of Common Stock at a
price of $11.46 per share. GKM was co-managing underwriter of the Company's
public offering of Common Stock in March and April 1996. As of the date of this
Prospectus, GKM owns no shares of the Common Stock, although from time to time
it owns shares of the Common Stock in its capacity as a market maker in the
Company's Common stock; GKM is offering all of the shares of the Common Stock
that it will acquire upon the exercise of the GKM Warrants in this Prospectus.
13
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PLAN OF DISTRIBUTION
The Selling Stockholders have advised the Company that, depending on market
conditions and other factors, they may sell the Shares of Common Stock offered
hereby from time to time, in one or more transactions, which may involve block
transactions, on the Nasdaq National Market, or otherwise, at market prices
prevailing at the time of sale, at negotiated prices, or at fixed prices, which
may be changed. Such sales may be effected directly, or through agents, or
through underwriters or dealers, which may include Salomon Brothers Inc.
To the extent required pursuant to Rule 424 under the Securities Act, a
Prospectus Supplement will be filed with the Securities and Exchange Commission
with respect to a particular offering setting forth the terms of any offering,
including the name or names of any underwriters or agents, if any, any
underwriting discounts and other items constituting underwriters' compensation,
the offering price and any discounts or concessions allowed or reallowed or paid
to dealers. Any offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If underwriters are used in a sale, shares of Common Stock will be acquired
by the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The shares
may be offered to the public either through underwriting syndicates represented
by one or more managing underwriters or directly by one or more firms acting as
underwriters. The underwriter or underwriters with respect to a particular
underwritten offering of shares to be named in the Prospectus Supplement
relating to such offering and, if an underwriting syndicate is used, the
managing underwriter or underwriters, will be set forth on the cover of such
Prospectus Supplement. Unless otherwise set forth in the Prospectus Supplement
relating thereto, the obligations of the underwriters to purchase the Offered
Securities will be subject to conditions precedent and the underwriters will be
obligated to purchase all of the shares if any are purchased.
If dealers are utilized in the sale of shares of Common Stock in respect of
which this Prospectus is delivered, the Selling Stockholders will sell such
shares to the dealers as principals. The dealers may then resell such shares to
the public at varying prices to be determined by such dealers at the time of
resale. The names of the dealers and the terms of the transaction will be set
forth in a Prospectus Supplement relating thereto.
If an agent is used, the agent will be named, and the terms of the agency
and any commissions will be set forth in a Prospectus Supplement relating
thereto. Unless otherwise indicated in the Prospectus Supplement, any such agent
will be acting on a best efforts basis for the period of its appointment.
Shares of Common Stock may sold directly by the Selling Stockholders to
institutional investors or others, who may be deemed to be underwriters within
the meaning of the Securities Act with respect to any resale thereof. The terms
of any such sales, including the terms of any bidding or auction process, will
be described in the Prospectus Supplement relating thereto.
Agents, dealers and underwriters may be entitled under agreements entered
into with the Selling Stockholders to indemnification against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments which such agents, dealers or underwriters may be
required to make in respect thereof. Agents, dealers and underwriters may be
customers of, engage in transactions with, or perform services for the Company
or the Selling Stockholders in the ordinary course of business.
One of the Selling Stockholders, GKM, served as managing and co-managing
underwriter of the Company's initial public offering of Common Stock in
September and October 1995 and public offering of Common Stock in March and
April 1996, respectively, and received warrants as part of its underwriting
compensation in the initial public offering. See 'SELLING STOCKHOLDERS--Gerard
Klauer Mattison.'
The Company will bear all costs and expenses of the registration of the
Common Stock under the Securities Act and certain state securities laws, other
than fees of counsel for the Selling Stockholders
14
<PAGE>
and any discounts or commissions payable with respect to sales of such Common
Stock. The Selling Stockholders will pay any transaction costs associated with
effecting any sales that occur.
The Selling Stockholders are not restricted as to the price or prices at
which they may sell shares of Common Stock acquired upon the exercise of the
Warrants. Such sales may have an adverse effect on the market price of the
Common Stock. Moreover, the Selling Stockholders are not restricted as to the
number of shares of Common Stock that may be sold at any one time, and it is
possible that a significant number of shares could be sold at the same time,
which also may have an adverse effect on the market price of the Common Stock.
The Company has agreed to indemnify the Selling Stockholders against
certain civil liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Aloysius T. Lawn, IV, the Company's General Counsel and Secretary, will
render an opinion to the effect that the Common Stock offered by this Prospectus
is duly authorized, validly issued, fully paid and non-assessable. Mr. Lawn
holds options, which will vest on December 4, 1996, to purchase 90,000 Shares of
Common Stock at a price of $9.50 per share and 30,000 shares of Common Stock at
a price of $23.25 per share. Mr. Lawn's employment contract provides that on
December 4, 1996 he shall be granted immediately exercisable options to purchase
an additional 45,000 shares of Common Stock at the market price of the Common
Stock on December 4, 1996.
EXPERTS
The consolidated financial statements and schedule incorporated by
reference in this Prospectus have been audited by BDO Seidman LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports incorporated herein by reference, and are incorporated herein in
reliance upon such reports given upon the authority of said firm as experts in
accounting and auditing.
15
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF ITS AGENTS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Offering.................................... S-2
Use of Proceeds............................. S-2
Selling Stockholder......................... S-3
Price Range of Common Stock and Dividends... S-4
Underwriting................................ S-4
Legal Matters............................... S-5
PROSPECTUS
Available Information....................... 2
Incorporation of Certain Documents by
Reference................................. 3
Risk Factors................................ 4
The Company................................. 9
Recent Developments......................... 9
Description of Capital Stock................ 10
Use of Proceeds............................. 10
Selling Stockholders........................ 11
Plan of Distribution........................ 14
Legal Matters............................... 15
Experts..................................... 15
</TABLE>
1,440,000 SHARES
TEL-SAVE HOLDINGS, INC.
COMMON STOCK
($.01 PAR VALUE)
- ------------------------------------------------
SALOMON BROTHERS INC
- ---------------------------------------------------------------------
PROSPECTUS SUPPLEMENT
NOVEMBER , 1996
