Pursuant to Rule 424(b)(3)
Registration No. 333-39787
PROSPECTUS
$300,000,000 AGGREGATE PRINCIPAL AMOUNT OF
4 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2002
[TEL-SAVE HOLDINGS, INC. LOGO]
12,185,834 SHARES OF COMMON STOCK
This Prospectus relates to the offer and sale from time to time by the holders
named herein or by their transferees, pledgees, donees or successors
(collectively, the "Selling Holders") of up to $300,000,000 aggregate principal
amount of 4 1/2% Convertible Subordinated Notes due 2002 (the "Notes") of
Tel-Save Holdings, Inc. (the "Company") and up to 12,185,834 shares of common
stock, par value $.01 per share, of the Company (the "Common Stock") issuable
upon the conversion of the Notes in full (the "Shares" and, together with the
Notes, the "Securities").
The Notes are convertible, at the option of the holder thereof, at any time
after 90 days following the date of original issuance thereof and prior to
maturity, unless previously redeemed, into Common Stock at the conversion price
of $24.61875 per share, subject to adjustment in certain events. The Common
Stock is quoted on the Nasdaq National Market under the symbol "TALK." On
November 5, 1997, the last reported sale price of the Common Stock was $21 3/8.
The Notes will mature on September 15, 2002, and interest, at the rate per annum
set forth above, on the Notes will be paid semiannually on March 15 and
September 15 of each year, commencing March 15, 1998.
The Notes are redeemable, in whole or in part, at the option of the Company, at
any time on or after September 15, 2000, at the redemption prices set forth
herein, together with accrued interest. The Notes do not provide for any sinking
fund. Upon the occurrence of a Designated Event (as defined herein), holders of
the Notes will have the right, subject to certain restrictions and conditions,
to require the Company to purchase all or any part of the Notes at a purchase
price equal to 101% of the principal amount thereof together with accrued and
unpaid interest to the date of purchase. See "DESCRIPTION OF THE NOTES --
Repurchase at the Option of Holders."
The Notes were issued and sold to the Initial Purchasers (as defined herein) on
September 3, 1997 (the "Original Offering") in transactions exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"). The Initial Purchasers have advised the Company that the
Notes have been resold (i) in the United States to "Qualified Institutional
Buyers" (as defined in Rule 144A under the Securities Act) or to "Institutional
Accredited Investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) that agreed in writing to comply with the transfer restrictions
and other conditions set forth in the Purchase Agreement, and (ii) outside the
United States in transactions complying with the provisions of Regulation S
under the Securities Act. The Company has filed the Registration Statement of
which this Prospectus is a part to satisfy its obligations under the
registration agreement, dated September 3, 1997, entered into with the Initial
Purchasers (the "Registration Agreement"). See "DESCRIPTION OF THE NOTES --
Registration Rights."
All of the Securities offered hereby are being offered for sale and sold, from
time to time, by the Selling Holders. The Company will receive no part of the
proceeds of sales made hereunder. The Company has agreed to bear certain
expenses incident to the registration of the Securities under federal or state
securities laws and to indemnify the Selling Holders against certain
liabilities, including liabilities under the Securities Act. None of the
Securities have been registered prior to the filing of the Registration
Statement of which this Prospectus is part.
The Securities may be offered for sale by the Selling Holders from time to time
in one or more transactions at fixed prices, at prevailing market prices at the
time of sale, at varying prices determined at the time of sale or at negotiated
prices. The Selling Holders may effect such transactions directly or indirectly
through underwriters, broker-dealers or agents acting on their behalf, and in
connection with such sales, such broker-dealers or agents may receive
compensation in the form of commissions, concessions, allowances or discounts
from the Selling Holders and/or the purchasers of the Securities for whom they
may act as agent or to whom they sell Securities as principal or both (which
commissions, concessions, allowances or discounts might be in excess of
customary amounts thereof). The Selling Holders and any underwriters,
broker-dealers or agents that participate in the distribution of the Securities
may be deemed to be "underwriters" within the meaning of the Securities Act, and
any discounts, commissions, concessions, allowances or other compensation
received by them and any profit realized on the sale of the Securities by them
may be deemed to constitute underwriting commissions, concessions, allowances or
discounts under the Securities Act. To the extent required, the names of any
underwriters, broker-dealers or agents, the amount and nature of any
commissions, concessions, allowances or discounts and any other required
information with respect to any particular offer of Securities by the Selling
Holders will be set forth in a Prospectus Supplement. See "PLAN OF
DISTRIBUTION."
The Notes are unsecured obligations of the Company and are subordinate in right
of payment to all existing and future Senior Debt (as defined herein) of the
Company. The Notes also are structurally subordinated to all liabilities of the
Company's subsidiaries. As of August 29, 1997, the Company had approximately
$130 million in indebtedness that would have constituted Senior Debt. In
addition, as of June 30, 1997, the Company's subsidiaries had liabilities of
approximately $37.1 million. See "DESCRIPTION OF THE NOTES -- Subordination of
Notes."
The Company does not intend to apply for listing of the Notes on any securities
exchange or for the inclusion of the Notes on any automated inter-dealer
quotation system.
The Notes offered hereby will be represented by one or more Public Global Notes
registered in the name of The Depository Trust Company ("DTC") or its nominee.
Interest in the Public Global Notes will be shown on, and transfers thereof will
be effected only through, records maintained by DTC (with respect to
participants' interests) and its direct and indirect participants, including the
Euroclear System ("Euroclear") and Cedel Bank, Societe Anonyme ("Cedel Bank").
Except under certain limited circumstances described herein, Notes in definitive
form will not be issued. See "DESCRIPTION OF NOTES."
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PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEGINNING ON PAGE 4.
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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 13, 1997.
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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 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.
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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, 1996 and Amendments Nos. 1 and 2 thereto;
b. the Company's Quarterly Report on Form 10-Q for the quarters
ended March 31, 1997 and June 30, 1997; Amendments Nos. 1 and 2 to the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997; and Amendment No. 1 to
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997;
c. Current Reports on Form 8-K dated March 6, 1997, April 24, 1997,
July 22, 1997, September 2, 1997, September 5, 1997, October 29, 1997, November
5, 1997 and November 7, 1997 and Current Reports on Form 8-K/A dated February 3,
1997, February 28, 1997 and August 15, 1997;
d. the description of the Company's capital stock contained in the
Company's Registration Statement on Form 8-A dated September 8, 1995;
e. the Consolidated Balance Sheets of Shared Technologies Fairchild
Inc. ("Shared Technologies") and subsidiaries as of December 31, 1996 and 1995
and the related Consolidated Statements of Operations, Stockholders' Equity and
Cash Flows for each of the years in the three-year period ended December 31,
1996, together with the Notes to the Financial Statements and the Reports of
Independent Public Accountants thereon, included in the Annual Report on Form
10-K for the year ended December 31, 1996 of Shared Technologies (Commission
File No. 0-17366); and
f. the Unaudited Pro Forma Combined Condensed Financial Statements
of the Company giving effect to the proposed merger of Shared Technologies with
and into a wholly-owned subsidiary of the Company, included on pages 76 through
93 of the Joint Proxy Statement/Prospectus, dated October 30, 1997, filed by the
Company (Commission File No. 0-26728) pursuant to Section 14 of the Exchange
Act.
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 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."
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RISK FACTORS
PROPOSED SHARED TECHNOLOGIES MERGER
The Company has entered into an Agreement and Plan of Merger, dated
as of July 16, 1997 (the "Merger Agreement"), among the Company, TSHCo, Inc., a
Delaware corporation and wholly owned subsidiary of the Company ("Merger Sub"),
and Shared Technologies Fairchild Inc., a Delaware corporation ("Shared
Technologies"). Pursuant to the Merger Agreement, among other things, Shared
Technologies would be merged with and into Merger Sub and thereby become a
wholly-owned subsidiary of the Company, and the outstanding Shared Technologies
Common Stock (the "STF Common") would be converted into such number of shares of
the Company's Common Stock as equals the quotient (the "Exchange Ratio") of (a)
$11.25 plus the product of (x) .3 times (y) the amount, if any, by which the
average closing price per share of the Company's Common Stock on the Nasdaq
National Market for the fifteen consecutive trading days ending on the trading
day three trading days immediately preceding the date of the closing of the
Shared Technologies Merger (the "Closing Date Market Price") exceeds $20,
divided by (b) the Closing Date Market Price, provided that the Exchange Ratio
shall not exceed 1.125. As of November 5, 1997, there were approximately 17.2
million shares of STF Common outstanding and approximately 7.9 million shares of
STF Common Stock reserved for issuance upon conversion or exercise of
outstanding Shared Technologies convertible preferred stock, warrants and stock
options. The consummation of the Shared Technologies Merger is subject to the
approval of the stockholders of both the Company and Shared Technologies, at a
meeting scheduled for December 1, 1997, as well as other conditions, including
termination of all applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act, applicable federal and state regulatory approvals
and consents, the Shared Technologies Merger's qualifying as a pooling of
interests transaction for accounting purposes, the absence of injunctions or
other legal restraints preventing the consummation of the Shared Technologies
Merger and other closing conditions. There can be no assurance that the Shared
Technologies Merger will be consummated.
While the Company's management expects to realize operating
synergies and cost savings as a result of the Shared Technologies Merger, there
can be no assurance that the Company will achieve all of the benefits that
management expects to realize in connection with the Shared Technologies Merger
or that such benefits will occur within the time frame contemplated. Realization
of operating synergies and cost savings could be affected by a number of factors
beyond the Company's control, such as general economic conditions, increased
operating costs, the response of competitors or customers, regulatory
developments and delays in implementation. In addition, certain benefits are
dependent upon the Company's taking certain actions that will result in one-time
charges or expenses. See "-- Some Future Potential Charges."
The Shared Technologies Merger contemplates the integration of the
administrative, finance, sales and marketing organizations of STF and the
Company. STF is a significantly larger company, in terms of employees and
facilities managed and operated, than the Company and is engaged in a number of
businesses that are different than those in which the Company has historically
engaged. In addition, STF and its predecessors have also been involved in a
number of acquisitions in recent years, including the acquisition, in March,
1996, of Fairchild Industries, Inc., the operations and management of which are
still being integrated by STF. The integration of the businesses of the Company
and STF will require substantial attention from the Company's management team,
which will include STF employees who have not previously worked with the
Company. The retention of certain key STF personnel will be important for the
management of the STF business. Also, both STF's and the Company's customers
will need to be reassured that their services will continue uninterrupted. All
of these efforts will place significant pressure on the Company's existing
management, staff and other resources (see " -- Recent Rapid Growth; Ability to
Manage Growth", below). Moreover, integration of STF will require the Company's
senior management to oversee business in which they have limited or no direct
experience. The diversion of management attention, inability to satisfy the
foregoing needs and any other difficulties encountered in the transition process
could have an adverse effect on the Company's business, operating results or
financial condition.
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DEPENDENCE ON AT&T AND LUCENT
The design for the Company's telecommunications network, which is
known as "OBN," "One Better Net" 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's
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 and Lucent-based services could have a material adverse effect on the
Company's results of operations and financial conditions.
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 long distance and 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 the Company 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 likely would have a material adverse effect
on the Company's results of operations and financial condition.
The Company uses billing services provided by AT&T and AT&T's
College and University Systems ("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 removed 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 awareness of the AT&T name could
have a material adverse effect on the Company's marketing strategy and retention
of existing partitions and end users. The Company is developing its own
information systems in order to have its own billing capacity, including in
connection with its anticipated services under the AOL Agreement discussed
below, although the Company has not provided such direct billing services to end
users in the past.
AOL AGREEMENT
The Company entered into a Telecommunications Marketing Agreement
(the "AOL Agreement"), dated as of February 22, 1997 and effective as of
February 25, 1997, with America Online, Inc. ("AOL"), under which the Company
will provide long distance telecommunications services to be marketed by AOL to
all of the subscribers of AOL's online network. The Company made an initial
payment of $100 million to AOL at signing and agreed to provide marketing
payments to AOL based on a percentage of the Company's profits from the services
(between 50% and 70% depending on the level of revenues from the services). The
AOL Agreement provides that $43 million of the initial payment will be offset
and recoverable by the Company through reduction of such profit-based marketing
payments during
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the initial term of the AOL Agreement or, subject to certain monthly reductions
of the amount thereof, directly by AOL upon certain earlier terminations of the
AOL Agreement. The $57 million balance of the initial payment is solely
recoverable by offset against a percentage of such profit-based marketing
payments made after the first five years of the AOL Agreement (when extended
beyond the initial term) and by offset against a percentage of AOL's share of
the profits from the services after termination or expiration of the AOL
Agreement. Any portion of the $43 million not previously repaid or reduced in
amount would be added to the $57 million and would be recoverable similarly. The
Company service was launched on the AOL online network on October 9, 1997 on a
limited basis, with the general public promotion of the service anticipated to
begin late in the 1997 fourth quarter.
Also under the AOL Agreement, the Company issued to AOL at signing
two warrants to purchase shares of the Company Common Stock at a premium over
the market value of such stock on the issuance date. One warrant is for 5
million shares, at an exercise price of $15.50 per share, one-half of which
shares vested on October 9, 1997 when the Company service was launched on the
AOL online network in accordance with the AOL Agreement and the balance of which
will vest on the first anniversary of issuance if the AOL Agreement has not
terminated. The other warrant is for up to 7 million shares, at an exercise
price of $14.00 per share, which will vest, commencing December 31, 1997, based
on the number of subscribers to the services and would vest fully if there are
at least 3.5 million such subscribers at any one time. The Company also agreed
to issue to AOL an additional warrant to purchase 1 million shares of the
Company Common Stock, at market value at the time of issuance, upon each of the
first two annual extensions by AOL of the term of the AOL Agreement, which
warrants also will vest based on the number of subscribers to the services.
The profitability of the AOL Agreement for the Company depends on
the Company's ability to develop in a timely fashion, and to continue to develop
and to maintain, online ordering, call detail, billing and customer services for
the AOL members, which will require, among other things, the ability to identify
and employ sufficient personnel qualified to provide the necessary programming;
the ability of the Company and AOL to work together effectively to develop
jointly the online marketing contemplated by the AOL Agreement; a rapid response
rate to online promotions to AOL's online subscribers, most of whom are expected
to be potential residential customers rather than business customers to which
Tel- Save has marketed historically; the Company's ability to expand OBN to
accommodate increased traffic levels; and AOL's ability to execute successfully
its publicly stated business plan and implement its announced network changes to
improve member access to its online service. Since the $100 million payment is
recoverable only through the profits from the services, to the extent that the
AOL Agreement is unsuccessful, such amount is subject to potential non-recovery
or limited recovery by the Company. The Company currently estimates that between
2% and 6% of AOL's customers will need to sign up for the Company's long
distance service in order for the Company to break even on its investment in the
AOL Agreement.
RECENT RAPID GROWTH; ABILITY TO MANAGE GROWTH
The Company began operations in 1989 (as Tel-Save, Inc.) as a
reseller of AT&T services. Over the past eight years, the Company has grown
dramatically, becoming a public company in 1995, with revenues in 1996 of $232
million and approximately 390 employees. Although the Company has experienced
significant growth in a relatively short period of time and regularly considers
growth opportunities through acquisitions, joint ventures and partnerships as
well as other business expansion opportunities, there can be no assurance that
the growth experienced by the Company will continue or that the Company will be
able to achieve the growth contemplated by its business strategy. This strategy
reflects significant changes from the Company's historical business and includes
the Company's operation of its own network, One Better Net or OBN, which has
changed the Company from a pure reseller of AT&T services to a switch-based
provider (see "-- Risks Related to OBN"); the AOL Agreement, for which the
Company made a significant payment (see "-- AOL Agreement") and that will
require, among other things, additional personnel, new billing capacity, a new
marketing orientation to residential customers and potential expansion of OBN
capacity; the Shared Technologies Merger, which involves the acquisition by the
Company of a company that, in terms of numbers of employees and facilities, is
significantly larger than the Company and that engages in a number of businesses
in which the Company has no experience (see "-- Proposed Shared Technol-
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ogies Merger"). The Company's strategy has also resulted in significant recent
changes to its balance sheet composition over the past several years, including
significant debt incurred, which has increased financial management
requirements.
Implementation of the Company's strategy, including maintaining
(and, as appropriate, expanding) OBN, maintaining and supporting the existing
business with partitions, launching the AOL marketing approach and managing
customer accounts over the AOL online service and integrating the Shared
Technologies business into the Company's, is placing and will continue to place
significant demands on the Company's management, operational, financial and
other resources and will require the Company to enhance further its operations,
management, financial and information systems and controls and to expand, train
and manage its employee base in certain areas including customer service support
and financial and marketing and administrative resources. Success in this regard
depends, among other things, on the Company's ability to fund or finance
significant investments of resources for OBN expansion and to manage, attract
and retain qualified personnel (competition for whom is intense). There can be
no assurance that the Company will successfully manage its expanding operations
and, if the Company's management is unable to manage growth effectively, the
Company's business, operating results and financial condition would be
materially and adversely affected.
SOME POTENTIAL FUTURE CHARGES
Of the $100 million payment to AOL (plus the value of the 5 million
share AOL warrant, which is valued, subject to possible increase, at $9.1
million, and $.6 million of AOL Agreement-related costs), the Company
anticipates that, with the commercial launch of the Company service in early
October 1997, an aggregate of approximately $46 million will be charged to
expense in the third and fourth quarters of 1997 (an aggregate of $14.4 million
was so charged in the first and second quarters of 1997). The balance will be
recognized ratably over the balance of the term of the AOL Agreement, the
initial term of which expires on June 30, 2000, as advertising services are
received. The AOL warrant for up to 7 million shares will be valued and charged
to expense as and when subscribers to the Company's services under the AOL
Agreement sign-up and the shares under such warrant vest. The amount of such
charges, which could be significant, will be based on the extent to which such
AOL warrants vest and the market prices of the Company Common Stock at the time
of vesting and therefore such charges are not currently determinable. Generally,
the higher the market price of the Company Common Stock at the time of vesting,
the larger the amount of the charge will be. The Company also anticipates that
it will incur additional promotional expenses in the 1997 fourth quarter and the
1998 first quarter in connection with the general public promotion of its
service under the AOL Agreement. If the AOL Agreement should prove unsuccessful,
any remaining amount of the total value paid under the AOL Agreement could be
written off earlier.
In connection with the Company's decision in October 1997 to
discontinue its internal telemarketing operations as part of its restructuring
of its sales and marketing efforts (see "-- Direct Telemarketing Risks"), the
Company will write-off approximately $25.2 million (pretax) in the 1997 fourth
quarter.
In connection with the Shared Technologies Merger, the Company
anticipates that it will record acquisition and transaction-related pre-tax
charges (including charges related to the Company's acquisition and, as of the
consummation of the Shared Technologies Merger, retirement of Shared
Technologies' Subordinated Notes) of approximately $60 million in the quarter in
which the Shared Technologies Merger is consummated, which is anticipated to be
in the 1997 fourth quarter. In addition, the Company anticipates that various
other special costs will be incurred in realizing some of the benefits of the
Shared Technologies Merger, including the costs of enhancing the direct sales
force of the combined companies and costs associated with systems modifications
and other integration-related charges after the Shared Technologies Merger.
While the exact timing, nature and amount of these other charges cannot be
predicted, the Company currently estimates that additional pretax charges in
connection with the consolidation and centralization of the facilities of Shared
Technologies and the related program of upgrading equipment and eliminating
duplicative and obsolete equipment and incurred in realizing some of the other
benefits of the Shared Technologies Merger, will range from $50.0 million to
$70.0
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million. These charges currently are anticipated to be recorded during the 1997
fourth quarter and first half of 1998. It is also possible, as the Company
proceeds with the integration of Shared Technologies with the Company, that
further charges may be incurred.
The Company granted an option to an executive officer to purchase
800,000 shares of Company Common Stock at an exercise price of $11.125 per
share. The option granted is subject to the approval of the Company stockholders
and is being submitted for approval at the Company's stockholders meeting
scheduled for December 1, 1997. Approval of the option grant will result in
compensation expense equal to the difference between the exercise price and the
market value of the Company Common Stock on the date of such approval; for
example, were the market value on the date of such approval to be $20 (the last
reported sale price of the Company Common Stock on November 4, 1997), such
compensation expense would be approximately $7,100,000. In addition, a newly
appointed executive officer, in connection with his employment, purchased
200,000 shares of Company Common Stock at a price of $4.25 per share from a
former executive officer of the Company. This purchase will result in
compensation expense in the fourth quarter of 1997 of approximately $3,400,000
based on the difference between the purchase price and market value of the
Company Common Stock on the date of purchase.
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 believes that gross margins will improve as more customers are
provisioned on OBN, revenues could decline if competition for long distance
service forced the Company to offer services at greater discounts.
Changes in the regulation of the telecommunications industry may
impact the Company's competitive position. The Telecommunications Act of 1996
(the "Telecommunications 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 Telecommunications 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. Consolidation and
alliances across geographic regions (e.g., Bell Atlantic/Nynex and SBC
Communications Inc./Pacific Telesis Group domestically and BT/MCI and France
Telecom/Deutsche Telekom/Sprint internationally) and across industry segments
(e.g., WorldCom/MFS/UUNet) and other pending and possible deals (e.g.,
WorldCom/MCI and GTE/MCI) may also impact competition in the telecommunications
market and the position of the Company.
Although the basic rates of the three largest long distance
carriers -- AT&T, MCI Communications Corp. and Sprint Corporation -- have
historically increased, AT&T and other carriers have announced new price plans
and significant simplified rate structures aimed at residential customers (the
Company's primary target audience under the AOL contract), 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
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offerings available to the small to medium-sized businesses that the Company
serves. Although OBN is expected to make the Company more price competitive,
further reductions in long distance prices charged by competitors still may have
a material adverse impact on the Company's profitability.
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," independent carriers and
marketing companies 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.
DIRECT TELEMARKETING RISKS
In 1996, the Company began to telemarket its long distance service
directly to small and medium- sized businesses and, in December 1996, acquired
substantially all of the assets, and hired substantially all of the employees,
of American Business Alliance, Inc. ("ABA"), a switchless reseller of long
distance services and a partition of the Company, which acquisition
significantly increased the Company's direct telemarketing capabilities. A
portion of the acquisition price was accounted for as goodwill and was being
amortized over a 15-year period. In the second quarter of 1997, the Company
determined to change its business practice and deemphasize the use of direct
telemarketing to solicit customers for the Company as the carrier, and, in
October 1997, the Company decided to discontinue its internal telemarketing
operations, which were primarily conducted through the ABA business that it had
acquired, and focus on the development of a direct sales force. See "-- Some
Potential Future Charges." Both federal and state officials are tightening the
rules governing the telemarketing of telecommunications services and the
requirements imposed on carriers acquiring customers in that manner. Customer
complaints of unauthorized conversion or "slamming" are widespread in the long
distance industry and are beginning to occur with respect to newly-competitive
local services. While the Company's discontinuance of its internal telemarketing
operations should reduce its exposure to customer complaints and federal or
state enforcement actions with respect to telemarketing practices, certain state
officials have made inquiries with respect to the marketing of the Company's
services and there is the risk of enforcement actions by virtue of its direct
telemarketing efforts and its ongoing support of its customer/partitions.
RELIANCE ON INDEPENDENT CARRIER AND MARKETING COMPANIES;
LACK OF CONTROL OVER MARKETING ACTIVITIES
Historically, the Company has marketed its services primarily
through partitions, which generally have entered into non-exclusive agreements
with Tel-Save. 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 experience
difficulties with OBN, the Company's agreements with partitions could be
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. Provisions in the Company's partition agreements
mandate compliance by the partitions with applicable state and federal
regulations. Because the Company's
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partitions are independent carriers and marketing companies, however, the
Company is unable to control 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. This increased
regulatory review could also affect possible future acquisitions of new business
from new partitions or other resellers.
GOVERNMENT REGULATION
The Company is subject to regulation by the Federal Communications
Commission (the "FCC") and by various state public service and public utility
commissions as a non-dominant provider of long distance services. Under an FCC
order adopted on October 29, 1996, effectiveness of which has been suspended as
of the date hereof by a court order, the Company, its partitions and all other
non-dominant interexchange carriers would after nine months be required to
withdraw their tariffs for interstate service with the FCC. The Company and its
partitions, however, are still required to file tariffs for international
service with the FCC and to obtain authority and file tariffs 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. The
Company will also be subject to applicable regulatory standards for marketing
activities, and the increased FCC and state attention to certain marketing
practices could be significant to the Company.
Shared Technologies' services business is subject to specific
regulations in several states. Within various states, such regulations may
include limitations on the number of lines or PBX switches per system,
limitations of shared telecommunications systems to single buildings or building
complexes, requirements that such building complexes be under common ownership
or common ownership, management and control and the imposition of local exchange
access rates that may be higher than those for similar single-user PBX systems.
Shared Technologies' systems business is generally exempt from governmental
regulation with respect to marketing and sales. However, various regulatory
bodies, including the FCC, require that manufacturers of equipment obtain
certain certifications.
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.
RISKS RELATED TO OBN
In early 1997, the Company deployed its own nationwide
telecommunications network, One Better Net, or OBN. OBN currently provides
services to approximately 150,000 of the over 500,000 current end users of the
Company's services. 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, 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 continue to
market OBN successfully, even though OBN uses the Company-owned, AT&T (now
Lucent) manufactured switching equipment and AT&T transmission facilities and
employs the billing services of AT&T and ACUS. Failure to continue to market OBN
successfully would have a material adverse effect on the
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Company's financial condition and results of operations. Additionally, there can
be no assurance that the Company will be able to maintain or secure future AT&T
contract tariffs or contracts for transmission at cost-effective rates. Further,
to the extent that the Company, rather than AT&T, is responsible for providing
the Company's telecommunications services, Tel- Save'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 initially utilized the 5E10 software, which was
recently upgraded to 5E11 software. While the 5ESS-2000 switches have operated
successfully in the local environment, the Digital Networking Unit-S0NET and
5E11 software offer new technologies that have not been used extensively, and
there can be no assurance that the switches will continue to function
effectively.
Additional management personnel and information systems are
required to support OBN, the costs of which have increased the Company's
overhead. In order for the Company to provide service over the 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, the
Company must be able to expand OBN to add capacity as needed, which may require
significant expenditures for hardware and software.
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 or other difficulties in operating OBN could have a material
adverse effect on the Company's financial condition and results of operations.
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER
CONSIDERATIONS
As of November 6, 1997, Mr. Borislow owned beneficially
approximately 38.0% of the outstanding Company Common Stock. Accordingly, Mr.
Borislow may have the ability to control the election of all of the members of
the Company 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 may have the ability to control the outcome of such
actions. It is anticipated that Mr. Borislow will continue to be the single
largest beneficial owner of the Company Common Stock after the issuance of
Company Common Stock upon consummation of the Shared Technologies Merger,
although his ownership percentage will be reduced.
The Company also has an authorized class of 5,000,000 shares of
preferred stock that may be issued by the Company 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 Restated
Certificate of Incorporation (the "Company Charter"), including the provision of
the Company Charter that provides that the Company Board of Directors be divided
into three classes, each of which is elected for three years, and the Company
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 from acquiring
the Company or engaging in a similar transaction affecting control of the
Company in which the Company stockholders might receive a premium for their
shares over the then-current market value.
COMPANY SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Company Common Stock could
adversely affect the market price of Company Common Stock. As of October 8,
1997, Mr. Borislow owned of record or had dispositive power with respect to
23.3% of the outstanding Company Common Stock and a decision by Mr. Borislow to
sell his shares could adversely affect the market price of the Company Common
Stock.
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As of October 8, 1997, there were outstanding options to purchase
8,388,108 shares of Company Common Stock held by employees, former employees or
directors of the Company. In addition, there were warrants to purchase up to
12,997,000 shares of Company Common Stock and 12,185,833 shares reserved for
issuance upon conversion of the Notes.
Upon effectiveness of the Shared Technologies Merger, and based on
the numbers of outstanding shares of STF Common and Shared Technologies' Series
I Convertible Preferred Stock outstanding as of October 8, 1997, up to
24,029,350 shares of Company Common Stock could be issued. In addition, Shared
Technologies options, convertible preferred stock and warrants outstanding as of
October 8, 1997 could be exercisable or convertible after the Shared
Technologies Merger into up to approximately 4.5 million shares of Company
Common Stock.
Paul Rosenberg, the holder of 7,440,000 shares of Company Common
Stock, has the right, under certain conditions, to participate in future
registrations of Company Common Stock and to cause the Company to register
certain shares of Company Common Stock owned by him. Holders of warrants also
have registration rights under certain conditions.
Sales of substantial amounts of Company Common Stock in the public
market, or the perception that such sales could occur, may adversely affect the
market price of the Company Common Stock.
FUTURE COMPANY TRANSACTIONS
If the amendment to the Company Charter increasing the number of
authorized shares of Company Common Stock from 100,000,000 to 300,000,000 is
approved at the Company's stockholders meeting scheduled for December 1, 1997,
the Company will be authorized to issue up to an aggregate of 300,000,000 shares
of Company Common Stock. The Company may use authorized and unissued shares of
Company Common Stock for various corporate purposes, including, but not limited
to, acquisition transactions, and such shares may be issued by the Company Board
without further stockholder action unless the issuance is in connection with a
transaction for which stockholder approval is otherwise required under the
Company Charter, applicable law, regulation or agreement.
On October 29, 1997, the Company, in a letter to the Chairman of
the Board of ACC Corp. ("ACC"), proposed for consideration by ACC a merger
transaction between the Company and ACC, in which ACC would be acquired by the
Company and ACC's stockholders would receive Company Common Stock in exchange
for their ACC common stock. As proposed in the letter and subsequently amended
to the date of this prospectus, the Company would exchange $50 in the Company
Common Stock for each share of ACC common stock. ACC is an international
telecommunications holding company whose common stock is traded on the NASDAQ
National Market under the symbol "ACCC". As of August 1, 1997, there were
approximately 16.8 million shares of ACC common stock reported to be
outstanding.
Any such transaction is subject, among other things, to the
satisfactory completion of due diligence reviews, the negotiation of a mutually
satisfactory agreement, approval thereof by the companies' respective boards of
directors, the transaction being accounted for as a pooling-of-interests
transaction, any necessary regulatory approvals and any necessary stockholder
approvals. The Company is unable to predict whether the ACC board of directors
will favorably consider the proposal or whether a mutually acceptable agreement
can be reached or the terms of any such agreement, should it be reached and
approved.
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, the
Company's Chairman and Chief Executive Officer. Mr. Borislow has entered into an
employment agreement with the Company that contains non-competition covenants
that extend for a period of up to 18 months following termination of employment.
ABSENCE OF DIVIDENDS
The Company has not paid cash dividends since inception. 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. Furthermore, the Company's existing bank credit facility
restricts the payment of dividends on the Company Common Stock.
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ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes constitute a new issue of securities, have no established
trading market and may not be widely distributed. Although the Initial
Purchasers have informed the Company that they currently intend to make a market
in the Notes as permitted by applicable laws and regulations, they are not
obligated to do so and may discontinue market making at any time without notice.
In addition, such market making activity will be subject to the limits imposed
by the Securities Act and the Exchange Act. The Company does not intend to list
the Notes on any securities exchange or to seek the admission thereof to trading
in the Nasdaq National Market. There can be no assurances as to the development
of any market or liquidity of any market that may develop for the Notes.
SUBORDINATION OF NOTES; HOLDING COMPANY STRUCTURE
The Notes are subordinate in right of payment to all current and
future Senior Debt (as defined herein) of the Company. Senior Debt includes
indebtedness (whether secured or unsecured) borrowed under the Company's $65
million credit facility (the "Credit Facility") or successor credit facilities
and substantially all other indebtedness of the Company, whether existing on or
created or incurred after the date the Notes are issued, that is not made
subordinate to or pari passu with the Notes by the instrument creating the
indebtedness. As of August 29, 1997, the Company had approximately $130 million
in indebtedness and other balance sheet liabilities of the Company's
subsidiaries to which the Notes are effectively subordinated was approximately
$37.1 million. The Indenture does not limit the amount of additional
indebtedness, including Senior Indebtedness, which the Company can create,
incur, assume or guarantee. By reason of the subordination of the Notes, if any
insolvency, bankruptcy, liquidation, reorganization, dissolution or winding up
of the business of the Company occurs, the assets of the Company will be
available to pay the amounts due on the Notes only after all the Senior Debt has
been paid in full.
The Company, as a holding company whose principal assets are the
shares of capital stock of its subsidiaries, does not generate any operating
revenues of its own. Consequently, it depends on dividends, advances and
payments from its subsidiaries to fund activities and meet its cash needs,
including its debt services requirements. The subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due pursuant to the Notes or to make funds available therefor. Their
ability to pay dividends or make other payments or advances to the Company will
depend on their operating results and will be subject to various business
considerations and to applicable state laws. In addition, holders of the Notes
are effectively subordinated to the claims of creditors of the Company's
subsidiaries to the extent of the assets of such subsidiaries. If any
insolvency, bankruptcy, liquidation, reorganization, dissolution or winding up
of the business of any subsidiary of the Company occurs, creditors of that
subsidiary generally will have the right to be paid in full before any
distribution is made to the Company or the holders of the notes.
Substantially all of the subsidiaries of the Company are parties
to, or have guaranteed the payment of the Company's obligations under, the
Credit Facility.
LIMITATIONS ON REPURCHASE OF NOTES IF A DESIGNATED EVENT
OCCURS
If a Designated Event, which consists of either a Change in Control
or a Termination of Trading (each as defined herein), occurs, each holder of the
Notes will have the right, at its option and subject to certain restrictions and
conditions, to require the Company to repurchase all or any part of the Notes at
a purchase price equal to 101% of the principal amount thereof plus accrued
interest to the repurchase date. The Company's ability to repurchase Notes
following a Designated Event (i) may be limited by the terms of the Senior Debt
and the subordination provisions of the Indenture and (ii) will depend on the
availability of sufficient funds and compliance with applicable securities laws.
Accordingly, no assurance can be given the Company will repurchase Notes
following a Designated Event. The term "Designated Event" is limited to certain
specified transactions and may not include other events, such as a highly
leveraged business combination or reorganization not involving a Designated
Event, that might adversely affect the financial condition of the Company. See
"DESCRIPTION OF THE NOTES."
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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.
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, 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 8, 1997, 65,610,949 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."
DESCRIPTION OF THE NOTES
GENERAL
The Notes were issued pursuant to an Indenture dated as of
September 9, 1997 (the "Indenture"), between the Company and First Trust of New
York, National Association, as trustee (the "Trustee"). A copy of the form of
the Indenture and the Registration Agreement were available from the Trustee or
the Company upon request by a registered holder of Notes. The following summary
of certain provisions of the Indenture and the Registration Agreement does not
purport to be complete and is qualified in its entirety by reference to the
Indenture and the Registration Agreement, including the definitions in the
Indenture of certain terms used in the following summary. The definitions of
certain terms used in the following summary are set forth below under "--Certain
Definitions."
The Notes are unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Debt of the Company to the
extent set forth in the Indenture. The Indenture does not limit the amount of
other Indebtedness or securities that may be issued by the Company or any of its
Subsidiaries.
The operations of the Company are conducted through its
Subsidiaries and, therefore, the Company is dependent upon the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the Notes.
As a result, the Notes are effectively subordinated to all existing and future
Indebtedness and other liabilities and commitments of such Subsidiaries.
FORM, DENOMINATION AND REGISTRATION
The Notes have been issued in fully registered form, without
coupons, in denomination of $1,000 in principal amount and integral multiples
thereof.
Notes currently held by "qualified institutional buyers" as defined
in Rule 144A under the Securities Act or by persons who are not U.S. persons who
acquired such Notes in "offshore transactions" in reliance on Regulation S under
the Securities Act are currently evidenced by restricted global Notes (the
"Restricted Global Notes") which were deposited with, or on behalf of, DTC and
registered in the name of Cede and Co.
("Cede") as DTC's nominee.
Any purchaser (a "Public Holder") of Notes pursuant to this
Prospectus will receive a beneficial interest in an unrestricted global note
(the "Public Global Note") which will be deposited with, or on behalf of, DTC
and registered in the name of Cede as DTC's nominee. Except as set forth below,
the record ownership of the Public Global Note may be transferred in whole or in
part, only to another nominee of DTC or to a successor of DTC or its nominee.
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A Public Holder may hold its interest in the Public Global Note
directly through DTC if such Public Holder is a participant in DTC, or
indirectly through organizations which are participants in DTC ("Participant" or
"Participants"). Transfers between Participants are effected in the ordinary way
in accordance with DTC rules and will be settled in same day funds.
Public Holders who are not Participants may beneficially own
interests in the Public Global Notes held by DTC only through Participants or
certain banks, brokers, dealers, trust companies and other parties that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly ("Indirect Participants"). So long as Cede, as the nominee of DTC,
is the registered owner of the Public Global Note, Cede for all purposes is
considered the sole holder of the Public Global Note.
Except in limited circumstances, owners of interests in the Notes
will not be entitled to receive physical delivery of Notes in definitive form.
See "Book Entry System; Delivery and Form -- DTC." No service charge will be
made for any registration of transfer or exchange of the Notes, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
PRINCIPAL, MATURITY AND INTEREST
The Notes bear interest from September 9, 1997, at 4 1/2 percent
per annum and will mature on September 15, 2002.
Interest on the Notes will be payable semiannually on March 15 and
September 15 of each year (each an "Interest Payment Date"), commencing on March
15, 1998, to holders of record at the close of business on the March 1 or
September 1 (each a "Regular Record Date") immediately preceding such Interest
Payment Date. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months.
Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from September 9,
1997.
Payment in respect of the Notes (including principal, premium, if
any, and interest) held of record by DTC (including Notes evidenced by the
Public Global Note) will be made in immediately available funds. Payments in
respect of the Notes held of record by holders other than DTC may, at the option
of the Company, be made by check and mailed to such holders of record as shown
on the Register for the Notes.
If a payment date is not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
The Company has initially appointed the Trustee as its corporate
trust office in The City of New York as the Paying Agent and Conversion Agent.
The Company may at any time terminate the appointment of the Paying Agent or
Conversion Agent and appoint additional or other Paying Agents and Conversion
Agents, provided that until the Notes have been delivered to the Trustee for
cancellation, or moneys sufficient to pay the principal of, premium, if any, and
interest on the Notes have been made available for payment and either paid or
returned to the Company as provided in the Indenture, it will maintain an office
or agency in New York, New York for payments with respect to the Notes and for
the surrender of Notes for conversion. Notice of any such termination or
appointment and of any change in the office through which the Paying Agent or
Conversion Agent will act will be given in accordance with "--Notices" below.
OPTIONAL REDEMPTION
The Notes will not be subject to redemption prior to September 15,
2000 and will be redeemable on such date and thereafter at the option of the
Company, in whole or in part (in any integral multiple of $1,000), upon not less
than 30 nor more than 60 days prior notice by mail at the following redemption
prices (expressed as percentages of the principal amount), in each case,
together with accrued interest to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on an
Interest Payment Date). If redeemed during the 12-month period beginning
September 15 of the years indicated, such redemption price shall be as
indicated:
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YEAR REDEMPTION PRICE
---- ----------------
2000....................... 101.80%
2001 and thereafter........ 100.90%
On or after the redemption date, interest will cease to accrue on the Notes, or
portion thereof, called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking
fund payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Upon the occurrence of a Designated Event, each holder of Notes
shall have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such holder's Notes pursuant to
the offer described below (the "Designated Event Offer") at a purchase price
equal to 101% of the principal amount thereof, together with accrued and unpaid
interest thereon to the Designated Event Payment Date (the "Designated Event
Payment"). Within 30 days following any Designated Event, the Company shall mail
a notice to each holder stating: (1) that the Designated Event Offer is being
made pursuant to the covenant described in this paragraph and that all Notes
tendered will be accepted for payment; (2) the purchase price and the purchase
date, which shall be no earlier than 30 days nor later than 40 days from the
date such notice is mailed (the "Designated Event Payment Date"); (3) that any
Notes not tendered will continue to accrue interest; (4) that, unless the
Company defaults in the payment of the Designated Event Payment, all Notes
accepted for payment pursuant to the Designated Event Offer shall cease to
accrue interest after the Designated Event Payment Date; (5) that holders
electing to have any Notes purchased pursuant to a Designated Event Offer will
be required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, to a Paying Agent at the
address specified in the notice prior to the close of business on the third
Business Day preceding the Designated Event Payment Date; (6) that holders will
be entitled to withdraw their election if a Paying Agent receives, not later
than the close of business on the second Business Day preceding the Designated
Event Payment Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the holder, the principal amount of Notes delivered for
purchase, and a statement that such holder is withdrawing his election to have
such Notes purchased; and (7) that holders whose Notes are being purchased only
in part will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered, which unpurchased portion must be equal to
$1,000 in principal amount or an integral multiple thereof.
The Company will comply with the requirements of Rules 13e-4 and
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes in connection with a Designated Event.
On the Designated Event Payment Date, the Company will, to the
extent lawful, (1) accept for payment Notes or portions thereof duly tendered
pursuant to the Designated Event Offer, (2) deposit with the Trustee or a Paying
Agent an amount equal to the Designated Event Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers" Certificate identifying
the Notes or portions thereof tendered to the Company. The Trustee or a Paying
Agent shall promptly mail to each holder of Notes so accepted payment in an
amount equal to the purchase price for such Notes, and the Trustee shall
promptly authenticate and mail to each holder a new certificate representing a
Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new certificate representing a Note
shall be in a principal amount of $1,000 or an integral multiple thereof. The
Company will publicly announce the results of the Designated Event Offer on or
as soon as practicable after the Designated Event Payment Date.
Except as described above with respect to a Designated Event, the
Indenture does not contain any other provisions that permit the holders of the
Notes to require that the Company repurchase or redeem the Notes in the event of
a takeover, recapitalization or similar restructuring.
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The Designated Event purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company, and,
thus, the removal of incumbent management. The Designated Event purchase
feature, however, is not the result of management's knowledge of any specific
effort to accumulate the Company's stock or to obtain control of the Company by
means of a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of anti-takeover provisions. Instead, the
Designated Event purchase feature is a result of negotiations between the
Company and the Initial Purchasers. Management has no current intention to
engage in a transaction involving a Designated Event, although it is possible
that the Company could decide to do so in the future. Subject to the limitations
on mergers, consolidations and sales of assets described herein, the Company
could, in the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Designated
Event under the Indenture, but that could increase the amount of indebtedness
(including Senior Debt) outstanding at such time or otherwise affect the
Company's capital structure or credit ratings. The payment of a Designated Event
Payment is subordinated to the prior payment of Senior Debt as described under
"-- Subordination of Notes" below.
The Company's ability to repurchase Notes upon the occurrence of a
Designated Event is subject to limitations. If a Designated Event were to occur,
there can be no assurance that the Company would have sufficient financial
resources, or would be able to arrange financing, to pay the repurchase price
for all Notes tendered by holders thereof. In addition, the terms of certain of
the Company's existing debt agreements and lease facilities prohibit the Company
from purchasing any Notes under certain circumstances and also identify certain
events that would constitute a Change in Control, as well as certain other
events with respect to the Company or certain of its subsidiaries, which would
constitute an event of default under such debt agreements and lease agreements.
Any future credit agreements or other agreements relating to Indebtedness of the
Company (including Senior Debt) may contain similar prohibitions or restrictions
on the Company's ability to effect a Designated Event Payment. In the event a
Designated Event occurs at a time when such prohibitions or restrictions are in
effect, the Company could seek the consent of its lenders to the purchase of
Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will be effectively prohibited from purchasing Notes. In
such case, the Company's failure to purchase tendered Notes would constitute an
Event of Default under the Indenture whether or not such repurchase is permitted
by the subordination provisions of the Indenture. Any such default may, in turn,
cause a default under Senior Debt of the Company. As a result, in each case, any
repurchase of the Notes would, absent a waiver, be prohibited under the
subordination provisions of the Indenture until the Senior Debt is paid in full.
See "--Subordination of Notes" below and "Risk Factors--Subordination of Notes;
Holding Company Structure. "
A "Designated Event" will be deemed to have occurred upon a Change
of Control or Termination of Trading.
A "Change of Control" will be deemed to have occurred when: (i) any
"person" or "group" (as such terms are used in Section 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act) of shares representing more than 50% of the
combined voting power of the then outstanding securities entitled to vote
generally in elections of directors of the Company ("Voting Stock"), (ii) the
Company consolidates with or merges into any other corporation, or any other
corporation merges into the Company, and, in the case of any such transaction,
the outstanding Common Stock of the Company is reclassified into or exchanged
for any other property or security, unless the stockholders of the Company
immediately before such transaction own, directly or indirectly immediately
following such transaction, at least a majority of the combined voting power of
the outstanding voting securities of the corporation resulting from such
transaction in substantially the same proportion as their ownership of the
Voting Stock immediately before such transaction, (iii) the Company conveys,
transfers or leases all or substantially all of its assets (other than to one or
more wholly-owned subsidiaries of the Company) or (iv) any time the Continuing
Directors do not constitute a majority of the Board of Directors of the Company
(or, if applicable, a successor corporation to the Company).
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The definition of Change of Control includes a phrase relating to
the lease, transfer or conveyance of "all or substantially all" of the assets of
the Company. Although there is a developing body of case law interpreting the
phrase "substantially all," there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a holder of Notes to
require the Company to repurchase such Notes as a result of a lease, transfer or
conveyance of less than all of the assets of the Company to another person or
group may be uncertain.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of the Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
A "Termination of Trading" will be deemed to have occurred if the
Common Stock (or other common stock into which the Notes are then convertible)
is neither listed for trading on a United States national securities exchange
nor approved for trading on an established automated over-the-counter trading
market in the United States.
SELECTION AND NOTICE
If less than all of Notes are to be redeemed at any time, selection
of Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate, provided
that no Notes of $1,000 or less shall be redeemed in part. Notice of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
ceases to accrue on Notes or portions thereof called for redemption.
REGISTRATION RIGHTS
The Company and the Initial Purchasers have entered into a
Registration Agreement, pursuant to which the Company filed with the Commission
on November 7, 1997, a registration statement on Form S-3 (the "Shelf
Registration Statement"), of which this Prospectus is a part, to cover resales
of Transfer Restricted Securities (as defined below) by the holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. Notwithstanding the foregoing,
the Company will be permitted to prohibit offers and sales of Transfer
Restricted Securities pursuant to the Shelf Registration Statement under certain
circumstances and subject to certain conditions (any period during which offers
and sales are prohibited being referred to as a "Suspension Period"). "Transfer
Restricted Securities" means each Note and each Share until the date on which
such Note or Share has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement, the date on
which such Note or Share is distributed to the public pursuant to Rule 144 under
the Securities Act or the date on which such Note or Share may be sold or
transferred pursuant to Rule 144(k) (or any similar provision then in force).
Holders of the Transfer Restricted Securities not already included
under "SELLING HOLDERS" below will be required to deliver information to be used
in connection with, and to be named as Selling Holders in, the Shelf
Registration Statement and to provide any comments they may wish to make on the
Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Transfer Restricted
Securities included in the Shelf Registration Statement. The Transfer Restricted
Securities of any holder who elects not to include such securities in the Shelf
Registration Statement could be deemed to be less liquid than if such securities
were included in the Shelf Registration Statement. In addition, there can be no
assurance that the Company will be able to
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maintain an effective and current registration statement as required. The
absence of such a registration statement may limit the holder's ability to sell
such Transfer Restricted Securities or adversely affect the price at which such
Transfer Restricted Securities can be sold.
The Company will cause the Shelf Registration Statement to be
continuously effective under the Securities Act until the earliest of (a) the
second anniversary of September 9, 1997, (b) the date on which the Notes or the
Shares may be sold by non-affiliates of the Company pursuant to paragraph (k) of
Rule 144 (or any successor provision) promulgated by the Commission under the
Securities Act and (c) the date as of which all the Notes or Shares have been
sold pursuant to Shelf Registration Statement.
If the Company fails to keep the Shelf Registration Statement
continuously effective for the period specified above, then at such time as the
Shelf Registration Statement is no longer effective and on each date thereafter
that is the successive 30th day subsequent to such time and until the earliest
of (i) the date that the Shelf Registration Statement is again deemed effective,
(ii) the date that is the second anniversary of September 9, 1997 and (iii) the
date as of which the Notes and/or the Common Stock issuable upon conversion
thereof are sold pursuant to the Shelf Registration Statement, the per annum
interest rate on the Notes will increase by an additional 25 basis points;
provided, however, that the interest rate will not increase by more than 50
basis points pursuant to this sentence. The Company will be permitted to suspend
the use of this Prospectus which is a part of the Shelf Registration Statement
for a period not to exceed 30 days in any three-month period or for three
periods not to exceed an aggregate of 90 days in any twelve-month period under
certain circumstances relating to pending corporate developments, public filings
with the Commission and similar events.
The Company will provide or cause to be provided to each holder of
the Notes, or the Common Stock issuable upon conversion of the Notes, copies of
this Prospectus, which is a part of such Shelf Registration Statement, and take
certain other actions as are required to permit unrestricted resales of the
Notes or the Common Stock issuable upon conversion of the Notes. A holder of
Notes or the Shares that sells such Securities pursuant to the Shelf
Registration Statement will be required to be named as a selling security holder
in the related prospectus (or any supplement thereto) and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Agreement that are applicable to
such holder (including certain indemnification and contribution rights or
obligations).
The foregoing summary of certain provisions of the Registration
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the provisions of the Registration Agreement.
Copies of the Registration Agreement are available from the Company.
CONVERSION
The holder of any Note has the right, exercisable at any time after
90 days following the date of original issuance thereof and prior to the close
of business on the Business Day immediately preceding the maturity date of the
Notes, to convert the principal amount thereof (or any portion thereof that is
an integral multiple of $1,000) into shares of Common Stock at the conversion
price set forth on the cover page of this Offering Memorandum, subject to
adjustment as described below (the "Conversion Price"), except that if a Note is
called for redemption, the conversion right will terminate at the close of
business on the Business Day immediately preceding the date fixed for
redemption. Except as described below, no adjustment will be made on conversion
of any Notes for interest accrued thereon or for dividends on any Common Stock
issued. If Notes not called for redemption are converted after a record date for
the payment of interest and prior to the next succeeding Interest Payment Date,
such Notes must be accompanied by funds equal to the interest payable on such
succeeding Interest Payment Date on the principal amount so converted. No
fractional shares will be issued upon conversion but a cash adjustment will be
made for any fractional interest.
Beneficial owners of interests in a Note may exercise their right
of conversion by delivering to DTC the appropriate instruction form for
conversion pursuant to DTC's conversion program and, in the case of conversions
through Euroclear or Gedel Bank, in accordance with Euroclear's or Cedel Bank's
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normal operating procedures when application has been made to make the
underlying Common Stock eligible for trading on Cedel Bank or Euroclear. To
convert a Note held in certificated form into shares of Common Stock, a holder
must (i) complete and manually sign the conversion notice on the back of the
Note (or complete and manually sign a facsimile thereof) and deliver such notice
to the Trustee in New York, New York, (ii) surrender the Note to the Trustee in
New York, New York, as the case may be, (iii) if required, furnish appropriate
endorsements and transfer documents, (iv) if required, pay all transfer or
similar taxes, and (v) if required, pay funds equal to interest payable on the
next interest payment date. Pursuant to the Indenture, the date on which all of
the foregoing requirements have been satisfied is the date of surrender for
conversion. Such notice of conversion can be obtained from the Trustee at its
corporate trust office or the office of the Conversion Agent. As promptly as
practicable on or after the conversion date, the Company will issue and deliver
to the Trustee a certificate or certificates for the number of full shares of
Common Stock issuable upon conversion, together with payment in lieu of any
fraction of a share in an amount determined as set forth below. Such certificate
will be sent by the Trustee to the Conversion Agent for delivery to the holder.
Such Common Stock issuable upon conversion of the Notes will be fully paid and
nonassessable. Any Note surrendered for conversion during the period from the
close of business on any Regular Record Date to the opening of business on the
next succeeding Interest Payment Date (except Notes called for redemption on a
redemption date or to be repurchased on a Designated Event Payment Date during
such period) must be accompanied by payment of an amount equal to the interest
payable on such Interest Payment Date on the principal amount of Notes being
surrendered for conversion. In the case of any Note which has been converted
after any Regular Record Date, but on or before the next Interest Payment Date,
interest on such Note shall be payable on such Interest Payment Date
notwithstanding such conversion. Such interest shall be paid to the holder of
such Note on such Regular Record Date. As a result, a holder that surrenders
Notes for conversion on a date that is not an Interest Payment Date will not
receive any interest for the period from the Interest Payment Date next
preceding the date of conversion to the date of conversion or for payment of
interest on Notes called are surrendered after a notice of redemption (except
for the payment of interest on Notes called for redemption on a redemption date
or to be repurchased on a Designated Event Payment Date between a Regular Record
Date and the Interest Payment Date to which it relates.) No other payment or
adjustment for interest, or for any dividends in respect of Common Stock, will
be made upon conversion. Holders of Common Stock issued upon conversion will not
be entitled to receive any dividends payable to holders of Common Stock as of
any record time before the close of business on the conversion date.
The Conversion Price is subject to adjustment upon the occurrence
of certain events, including: (i) the issuance of shares of Common Stock as a
dividend or distribution on the Common Stock; (ii) the subdivision or
combination of the outstanding Common Stock, (iii) the issuance to substantially
all holders of Common Stock of rights or warrants to subscribe for or purchase
Common Stock (or securities convertible into Common Stock) at a price per share
less than the then Current Market Price per share, as defined; (iv) the
distribution of shares of capital stock of the Company (other than Common
Stock), evidences of indebtedness or other assets (excluding dividends in cash,
except as described in clause (v) below) to all holders of Common Stock; (v) the
distribution, by dividend or otherwise of cash to all holders of Common Stock in
an aggregate amount that, together with the aggregate of any other distributions
of cash that did not trigger a Conversion Price adjustment to all holders of its
Common Stock within the 12 months preceding the date fixed for determining the
stockholders entitled to such distribution and all Excess Payments in respect of
each tender offer or other negotiated transaction by the Company or any of its
Subsidiaries for Common Stock concluded within the preceding 12 months not
triggering a Conversion Price adjustment, exceeds 15% of the product of the
Current Market Price per share (determined as set forth below) on the date fixed
for the determination of stockholders entitled to receive such distribution
times the number of shares of Common Stock outstanding on such date; (vi)
payment of an Excess Payment in respect of a tender offer or other negotiated
transaction by the Company or any of its Subsidiaries for Common Stock, if the
aggregate amount of such Excess Payment, together with the aggregate amount of
cash distributions made with the preceding 12 months not triggering a Conversion
Price adjustment and all Excess Payments in respect of each tender offer or
other negotiated transaction by the Company or any of its Subsidiaries for
Common Stock concluded within the preceding 12 months not triggering a
Conversion Price adjustment, exceeds 15% of the
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product of the Current Market Price per share (determined as set forth below) on
the expiration of such tender offer or the date of payment of such negotiated
transaction consideration times the number of shares of Common Stock outstanding
on such date; and (vii) the distribution to substantially all holders of Common
Stock of rights or warrants to subscribe for securities (other than those
securities referred to in clause (iii) above). In the event of a distribution to
substantially all holders of Common Stock of rights to subscribe for additional
shares of the Company's capital stock (other than those securities referred to
in clause (iii) above), the Company may, instead of making any adjustment in the
Conversion Price, make proper provision so that each holder of a Note who
converts such Note after the record date for such distribution and prior to the
expiration or redemption of such rights shall be entitled to receive upon such
conversion, in addition to shares of Common Stock, an appropriate number of such
rights. No adjustment of the Conversion Price will be made until cumulative
adjustments amount to one percent or more of the Conversion Price as last
adjusted.
If the Company reclassifies or changes its outstanding Common
Stock, or consolidates with or merges into any person or transfers or leases all
or substantially all its assets, or is a party to a merger that reclassifies or
changes its outstanding Common Stock, the Notes will become convertible into the
kind and amount of securities, cash or other assets which the holders of the
Notes would have owned immediately after the transaction if the holders had
converted the Notes immediately before the effective date of the transaction.
The Indenture also provides that if rights, warrants or options
expire unexercised the Conversion Price shall be readjusted to take into account
the actual number of such warrants, rights or options which were exercised.
In the Indenture, the "Current Market Price" per share of Common
Stock on any date shall be deemed to be the average of the Daily Market Prices
for the shorter of (i) 30 consecutive Business Days ending on the last full
trading day on the exchange or market referred to in determining such Daily
Market Prices prior to the time of determination (as defined in the Indenture)
or (ii) the period commencing on the date next succeeding the first public
announcement of the issuance of such rights or warrants or such distribution
through such last full trading day prior to the time of determination.
"Excess Payment" means the excess of (A) the aggregate of the cash
and fair market value of other consideration paid by the Company or any of its
Subsidiaries with respect to the shares acquired in the tender offer or other
negotiated transaction over (B) the Daily Market Price on the Trading Day
immediately following the completion of the tender offer or other negotiated
transaction multiplied by the number of acquired shares.
The Company from time to time may to the extent permitted by law
reduce the Conversion Price by any amount for any period of at least 20 days
(each such reduction, an "Induced Conversion Adjustment"), in which case the
Company shall give at least 15 days' notice of such reduction, if the Board of
Directors has made a determination that such reduction would be in the best
interests of the Company, which determination shall be conclusive. The Company
may, at its option, make such reductions in the Conversion Price, in addition to
those set forth above, as the Board of Directors deems advisable to avoid or
diminish any income tax to holders of Common Stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any event treated
as such for income tax purposes. See "CERTAIN U.S. FEDERAL INCOME TAX
CONSIDERATIONS."
SUBORDINATION OF NOTES
The Notes are subordinate in right of payment to all existing and
future Senior Debt. The Indenture does not restrict the amount of Senior Debt or
other Indebtedness of the Company or any Subsidiary of the Company. In addition,
the Notes are structurally subordinated to all indebtedness and other
liabilities of the Company's subsidiaries.
The payment of the principal of, interest on or any other amounts
due on the Notes is subordinated in right of payment to the prior payment in
full of all Senior Debt of the Company. No payment on account of principal of,
redemption of, interest on or any other amounts due on the Notes, including,
without limitation, any payments on the Designated Event Offer, and no
redemption, purchase or other
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acquisition of the Notes may be made unless (i) full payment of amounts then due
on all Senior Debt have been made or duly provided for pursuant to the terms of
the instrument governing such Senior Debt, and (ii) at the time for, or
immediately after giving effect to, any such payment, redemption, purchase or
other acquisition, there shall not exist under any Senior Debt or any agreement
pursuant to which any Senior Debt has been issued, any default which shall not
have been cured or waived and which shall have resulted in the full amount of
such Senior Debt being declared due and payable. In addition, the Indenture
provides that if any of the holders of any issue of Designated Senior Debt
notify (the "Payment Blockage Notice") the Company and the Trustee that a
default has occurred giving the holders of such Designated Senior Debt the right
to accelerate the maturity thereof, no payment on account of principal,
redemption, interest or any other amounts due on the Notes and no purchase,
redemption or other acquisition of the Notes will be made for the period (the
"Payment Blockage Period") commencing on the date the Payment Blockage Notice is
received and ending on the earlier of (A) the date on which such event of
default shall have been cured or waived or (B) 180 days from the date the
Payment Blockage Notice is received. Notwithstanding the foregoing (but subject
to the provisions contained in the first sentence of this Section), unless the
holders of such Designated Senior Debt or the Representative of such holders
shall have accelerated the maturity of such Designated Senior Debt, the Company
may resume payments on the Securities after the end of such Payment Blockage
Period. Not more than one Payment Blockage Notice may be given in any
consecutive 365-day period, irrespective of the number of defaults with respect
to Senior Debt during such period.
Upon any distribution of its assets in connection with any
dissolution, winding-up, liquidation or reorganization of the Company or
acceleration of the principal amount due on the Notes because of an Event of
Default, all Senior Debt must be paid in full before the holders of the Notes
are entitled to any payments whatsoever.
If payment of the Notes is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify the holders of Senior
Debt or the trustee(s) for such Senior Debt of the acceleration. The Company may
not pay the Notes until five business days after such holders or trustee(s) of
Senior Debt receive notice of such acceleration and, thereafter, may pay the
Notes only if the subordination provisions of the Indenture otherwise permit
payment at that time. As a result of these subordination provisions, in the
event of the Company's insolvency, holders of the Notes may recover ratably less
than general creditors of the Company.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or
merge with or into any Person (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets unless (i) (a) the Company
is the surviving or continuing corporation or (b) the Person formed by or
surviving any such consolidation or merger (if other than the Company) or the
Person which acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of the Company is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made assumes all the Obligations of the Company, pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, under the Notes and
the Indenture; (iii) such sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of the Company's properties or assets
shall be as an entirety or virtually as an entirety to one Person and such
Person shall have assumed all the obligations of the Company, pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee, under
the Notes and the Indenture; (iv) immediately after such transaction no Default
or Event of Default exists; and (v) the Company or such Person shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such transaction and the supplemental indenture comply with
the Indenture and that all conditions precedent in the Indenture relating to
such transaction have been satisfied.
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REPORTS
Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company will file with the
Commission and furnish to the holders of Notes all quarterly and annual
financial information required to be contained in a filing with the Commission
on Forms 10-Q and 10-K, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
consolidated financial statements only, a report thereon by the Company's
independent auditors.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an
Event of Default: (i) default for 30 days in the payment when due of interest on
the Notes; (ii) default in payment when due of principal on the Notes; (iii)
failure by the Company to comply with the provisions described under "Repurchase
at the Option of Holders"; (iv) failure by the Company for 60 days after the
receipt of written notice to comply with certain other covenants and agreements
contained in the Indenture or the Notes; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Material Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Material Subsidiaries), which default (a) Is caused by a
failure to pay when due principal or interest on such Indebtedness within the
grace period provided in such Indebtedness (which failure continues beyond any
applicable grace period) (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its express maturity without such
acceleration being rescinded or annulled and, in each case, the principal amount
of any such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default of the maturity of
which has been so accelerated, aggregates $10 million or more; (vi) failure by
the Company or any Material Subsidiary of the Company to pay final
non-appealable judgments (other than any judgment as to which a reputable
insurance company has accepted full liability) aggregating in excess of $5
million, which judgments are not stayed within 60 days after their entry; and
(vii) certain events of bankruptcy or insolvency with respect to the Company or
any of its Material Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or
the holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any Material
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
By notice to the Trustee, the holders of a majority in aggregate
principal amount of the Notes then outstanding may, on behalf of the holders of
all of the Notes, waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of the Designated Event Payment or interest on, or the principal
of, the Notes.
The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company is required,
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
TRANSFER AND EXCHANGE
The Company has initially appointed the Trustee as Registrar in New
York, New York. The Company reserves the right to vary or terminate the
appointment of the Registrar or to appoint additional or other Registrars or to
approve any change in the office through which the Registrar acts.
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A holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company is not required to exchange or register the transfer of any Note
selected for redemption. Also, the Company is not required to exchange or
register the transfer of any Note for a period of 15 days before a selection of
Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Indenture
or the Notes may be amended or supplemented with the consent of the holders of
at least a majority in principal amount of the then outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver
may not (with respect to any Notes held by a nonconsenting holder of Notes) (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes,
(iii) reduce the rate of or change the time for payment of interest on any Note,
(iv) waive a default in the payment of principal of or interest on any Notes
(except a rescission of acceleration of the Notes by the holders of at least a
majority in aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration), (v) make any Note payable in
money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of holders of Notes to receive payments of principal of or interest on the
Notes, (vii) waive a redemption payment with respect to any Note, (viii) impair
the right to convert the Notes into Common Stock, (ix) modify the conversion or
subordination provisions of the Indenture in a manner adverse to the holders of
the Notes or (x) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any holder of
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to holders of the Notes
in the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such holder, or to
comply with requirements of the Commission in order to qualify, or maintain the
qualification of, the Indenture under the Trust Indenture Act.
NOTICES
Notice to holders of the Notes will be given by mail to the
addresses of such holders as they appear in the Register (as defined). Such
notices will be deemed to have been given on the date of such mailing or on the
date of the first such publication, as the case may be.
GOVERNING LAW
The Indenture, the Notes and the Registration Agreement are
governed by and construed in accordance with the laws of the State of New York,
United States of America.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
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The holders of a majority in principal amount of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that, in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Notes, unless such holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Day" means any day that is not a Legal Holiday.
"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated) of equity
interests in any entity, including, without limitation, corporate stock and
partnership interests.
"Default" means any event that is or, with the passage of time or
the giving of notice or both, would be an Event of Default.
"Designated Senior Debt" means (i) any Senior Debt which, as of the
date of the Indenture, has an aggregate principal amount outstanding of at least
$15 million and (ii) any Senior Debt which, at the date of determination, has an
aggregate principal amount outstanding of, or commitments to lend up to, at
least $15 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Debt as "Designated Senior Debtor
purposes of the Indenture.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect from time to
time.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Indebtedness" means, with respect to any person, all obligations,
whether or not contingent, of such person (i) (a) for borrowed money (including,
but not limited to, any indebtedness secured by a security interest, mortgage or
other lien on the assets of such person which is (1) given to secure all or part
of the purchase price of property subject thereto, whether given to the vendor
of such property or to another, or (2) existing on property at the time of
acquisition thereof), (b) evidenced by a note, debenture, bond or other written
instrument, (c) under a lease required to be capitalized on the balance sheet of
the lessee under GAAP or under any lease or related document (including a
purchase agreement) which provides that such person is contractually obligated
to purchase or to cause a third party to purchase such leased property, (d) in
respect of letters of credit, bank guarantees or bankers' acceptances (including
reimbursement obligations with respect to any of the foregoing), (e) with
respect to Indebtedness secured by a mortgage, pledge, lien, encumbrance, charge
or adverse claim affecting title or resulting in an encumbrance to which the
property, or assets of such person are subject, whether or not the obligation
secured thereby shall have been assumed or guaranteed by or shall otherwise be
such person's legal liability, (f) in respect of the balance of deferred and
unpaid purchase price of any property or assets and (g) under interest rate or
currency swap agreements. cap, floor and collar agreements, spot and forward
contracts and similar agreements and arrangements; (ii) with respect to any
obligation of others of the type described in the preceding clause (i) or under
clause (iii) below
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assumed by or guaranteed in any manner by such person or in effect guaranteed by
such person through an agreement to purchase (including, without limitation,
"take or pay" and similar arrangements), contingent or otherwise (and the
obligations of such person under any such assumptions, guarantees or other such
arrangements); and (iii) any and all deferrals, renewals, extensions,
refinancings and refundings of, or amendments, modifications or supplements to,
any of the foregoing.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the State of New York are not required to be open. If a
payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period. If any other operative date
for purposes of the Indenture shall occur on a Legal Holiday then for all
purposes the next succeeding day that is not a Legal Holiday shall be such
operative date.
"Material Subsidiary" means any Subsidiary of the Company which at
the date of determination is a "significant subsidiary" as defined in Rule
1-02(w) of Regulation S-X under the Securities Act and the Exchange Act (as such
Regulation is in effect on the date hereof).
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, and other liabilities payable under
the documentation governing any Indebtedness.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
limited liability company or government or any agency or political subdivision
thereof.
"Representative" means the trustee, agent or representative (if
any) for an issue of Senior Debt.
"Senior Debt" means the principal of, interest on and other amounts
due on Indebtedness of the Company, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed by the Company;
unless, in the instrument creating or evidencing such Indebtedness or pursuant
to which such Indebtedness is outstanding, it is expressly provided that such
Indebtedness is not senior in right of payment to the Notes. Senior Debt
includes, with respect to the obligations described above, interest accruing,
pursuant to the terms of such Senior Debt, on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company, whether or
not post-filing interest is allowed in such proceeding, at the rate specified in
the instrument governing the relevant obligation. Notwithstanding anything to
the contrary in the foregoing, Senior Debt shall not include: (a) Indebtedness
of or amounts owed by the Company for compensation to employees, or for goods,
services or materials purchased in the ordinary course of business; (b)
Indebtedness of the Company to a Subsidiary of the Company other than such
Indebtedness that would be subject to a prior claim by the lenders under the
Company's existing credit facilities; or (c) any liability for Federal, state,
local or other taxes owed or owing by the Company.
"Subsidiary" of a person means any corporation, association or
other business entity of which more than 50% of the total voting power of shares
of Capital Stock entitled (without regard to the occurrence of any contingency)
to vote in the election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by that person or one or more
of the other Subsidiaries of that person or a combination thereof.
ABSENCE OF PUBLIC MARKET; TRANSFER RESTRICTIONS
Upon their original issuance, the Notes became eligible for trading
on the PORTAL Market. However, the Notes sold pursuant to this Prospectus will
no longer be eligible for trading on the PORTAL Market. There can be no
assurance that an active trading market for the Notes will develop or as to the
liquidity or sustainability of any such market, the ability of the holders to
sell their Notes or at what price holders of the Notes will be able to sell
their Notes. Future trading prices of the Notes will depend upon many factors
including, among other things, prevailing interest rates, the Company's
operating results, the price of the Common Stock and the market for similar
securities.
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BOOK-ENTRY SYSTEM; DELIVERY AND FORM
GENERAL
The Notes offered hereby will be represented by one or more fully
registered global securities (each a "Public Global Note"). The Public Global
Notes have been deposited with the Trustee as custodian for DTC and registered
in the name of Cede as DTC's nominee. For purposes of this Prospectus, "Public
Global Note" refers to the Public Global Note or Public Global Notes
representing the entire issue of Notes offered hereby. Except in the limited
circumstances described below, the Notes will not be issued in definitive
certificated form. The Public Global Note may be transferred, in whole and not
in part, only to another nominee of DTC.
The Company understands as follows with respect to the rules and
operating procedures of DTC, and with respect to secondary market trading of
Morgan Guaranty Trust Bank of New York, Brussels office, as operator for
Euroclear, and Cedel Bank, which effect transfers of interests in the Public
Global Note.
DTC
DTC is a limited purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participants ("Participants") and to
facilitate the clearance and settlement of securities transactions, such as
transfers and pledges, between Participants through electronic computerized
book-entry changes in the accounts of its Participants, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. DTC is owned by a number of Participants
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and
the National Association of Securities Dealers, Inc. Indirect access to the DTC
system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Persons who are not Participants may beneficially own Notes held by
DTC only through Participants or Indirect Participants (including Euroclear and
Cedel Bank). Beneficial ownership of Notes may be reflected (i) for investors
who are Participants, in the records of DTC, (ii) for investors holding through
a Participant, in the records of such Participant, whose aggregate interests on
behalf of all investors holding through such Participant will be reflected in
turn in the records of DTC, or (iii) for investors holding through an Indirect
Participant, in the records of such Indirect Participant, whose aggregate
interests on behalf of all investors holding through such Indirect Participant
will be reflected in turn in the records of a Participant. Accordingly,
transfers of beneficial ownership in a Public Global Note can only be effected
through DTC, a Participant or an Indirect Participant. Investors may also hold
beneficial interests in a Public Global Note directly through Euroclear or Cedel
Bank as an Indirect Participant in DTC, if they are participants in such
systems, or indirectly through organizations that are participants in such
systems. Euroclear and Cedel Bank hold beneficial interests in a Public Global
Note on behalf of their participants through customers' securities accounts in
their respective names on the books of their respective depositories, which in
turn hold such securities in customers' securities accounts in the depositories'
names on the books of DTC. The Chase Manhattan Bank, N.A. ("Chase") initially
will act as depository for Euroclear, and Citibank, N.A. ("Citibank") initially
will act as depository for Cedel Bank.
Interests in the Public Global Note will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
Participants. The Public Global Note will trade in DTC's SDFS System until
maturity, and secondary market trading activity for the Public Global Note will
therefor settle in immediately available funds. The laws of some states require
that certain persons take physical delivery in definitive form of securities.
Consequently, the ability to transfer beneficial interests in the Public Global
Note to such persons may be limited.
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So long as Cede, as the nominee of DTC, is the registered owner of
the Public Global Note, Cede for all purposes will be considered the sole holder
of the Notes under the Indenture. Except as provided below, owners of beneficial
interests in the Public Global Note will not be entitled to have Notes
registered in their names, will not receive or be entitled to receive physical
delivery of Notes in definitive form, and will not be considered the holders
thereof under the Indenture. Accordingly, any person owning a beneficial
interest in the Public Global Note must rely on the procedures of DTC and, if
such person is not a Participant in DTC, on the procedures of the Participant
through which such person, directly or indirectly, owns its interest, to
exercise any rights of a holder of Notes.
Because DTC can only act on behalf of Participants, who in turn act
on behalf of Indirect Participants and certain banks, the ability of an owner of
a beneficial interest in Notes to pledge such Notes to persons or entities that
do not participate in the DTC system, or otherwise take actions in respect of
such Notes, may be affected by the lack of a physical certificate for such
Notes.
Payment of principal of and interest on the Notes will be made to
Cede, the nominee for DTC, as the registered owner of the Public Global Note.
Neither the Company nor the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Public Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Upon receipt of any payment of principal of or interest on the
Public Global Note, DTC will credit the Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amounts of the Public Global Note as shown on the records of DTC. Payments by
Participants to owners of beneficial interests in the Public Global Note held
through such Participants will be the responsibility of such Participants, as is
now the case with securities held for the accounts of customers registered in
"street name." Distributions with respect to beneficial interests in the Public
Global Note held through Euroclear or Cedel Bank will be credited to the cash
accounts of Euroclear participants or Cedel Bank participants in accordance with
the relevant system's rules and procedures, to the extent received by its
depository.
DTC will take any action permitted to be taken by a holder of Notes
only at the direction of one or more Participants to whose account with DTC the
Notes are credited and only in respect of such position of the aggregate
principal amount of the Notes as to which such Participant or Participants has
or have given such direction. The Trustee will act upon instructions received
from DTC in respect of the aggregate percentages of interests in the Notes
necessary for the Trustee to take action pursuant to the Indenture.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of Notes among its Participants, it is under no obligation
to perform or continue to perform such procedures and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
If an Event of Default has occurred and is continuing, or if DTC
notifies the Company that it is at any time unwilling or unable to continue as
depositary for any Public Global Note or if at any time DTC ceases to be a
"clearing corporation" registered under the Exchange Act and a successor
depositary is not appointed by the Company within 90 days of such notice, the
Company will issue individual certificated Notes in definitive form in exchange
for such Public Global Note. In addition, the Company may at any time determine
not to have the Notes represented by Public Global Notes. In any such instance,
an owner or a beneficial interest in a Public Global Note will be entitled to
physical delivery of individual certificated Notes in definitive form equal in
principal amount to such beneficial interest in such Public Global Notes and to
have all such certificated Notes registered in its name. Individual certificated
Notes so issued in definitive form will be issued in minimum denominations of
$1,000 and integral multiples thereof and will be issued in registered form
only, without coupons.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes represented by a Public Global Note will
be made in immediately available funds. All payments of principal and interest
will be made by the Company in immediately available funds.
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The Notes will trade in DTC's SDFS System until maturity, and
secondary market trading activity in the Notes will therefore be required by DTC
to settle in immediately available funds.
GLOBAL CLEARANCE AND SETTLEMENT
Although DTC, Euroclear and Cedel Bank have agreed to the
procedures provided below in order to facilitate transfers of Notes among
participants of DTC, Euroclear and Cedel Bank, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
modified or discontinued at any time. Neither the Company nor the Trustee will
have any responsibility for the performance by DTC, Euroclear or Cedel Bank or
their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
EUROCLEAR AND CEDEL BANK
Euroclear and Cedel Bank each hold securities for participating
organizations and facilitate the clearance and settlement of securities
transactions between their respective participants by electronic book-entry
changes in the accounts of such participants. Euroclear and Cedel Bank provide
to their participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Euroclear and Cedel Bank also deal with
domestic securities markets in several countries through established depositary
and custodial relationships. Euroclear and Cedel Bank participants are financial
institutions such as underwriters, securities brokers and dealers, banks, trust
companies and certain other organizations. Indirect access to Euroclear and
Cedel Bank is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Euroclear or Cedel Bank participant, either directly or indirectly.
SECONDARY MARKET TRADING
Because the purchaser determines the place of delivery, it is
important to establish at the time of trading any Notes where both the
purchaser's and seller's accounts are located to ensure that settlement can be
made on the desired value date.
TRADING BETWEEN DTC PARTICIPANTS
Secondary market trading between DTC Participants (other than
depositories for Euroclear and Cedel Bank, respectively) will be settled using
the procedures applicable to U.S. corporate debt obligations in same-day funds.
TRADING BETWEEN EUROCLEAR AND/OR CEDEL BANK
PARTICIPANTS
Secondary market trading between Euroclear participants and/or
Cedel Bank participants will be settled using the procedures applicable to
conventional Eurobonds in same day funds.
TRADING BETWEEN DTC SELLER AND EUROCLEAR OR
CEDEL BANK PURCHASER
When Notes are to be transferred from the account of a DTC
Participant (other than Chase and Citibank as depositories for Euroclear and
Cedel Bank, respectively) to the account of a Euroclear participant or a Cedel
Bank participant, the purchaser must send instructions to Euroclear or Cedel
Bank through a participant at least one business day prior to settlement.
Euroclear or Cedel Bank, as the case may be, will instruct their respective
depositary to receive the Notes against payment. Payment will include interest
accrued on the Notes from and including the last payment date to and excluding
the settlement date, on the basis of a calendar year consisting of twelve 30-day
calendar months. For transactions settling on the 31st day of the month, payment
will include interest accrued to and excluding the first day of the following
month. Payment will then be made by the relevant depositary of Euroclear or
Cedel Bank to the DTC Participant's account against delivery of the Notes. After
settlement has been completed, the Notes will be credited to the respective
clearing system and by the clearing system, in accordance with its usual
procedures, to the Euroclear participant's or Cedel Bank
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participants's account. Credit for the Notes will appear on the next day
(European time) and cash debit will be back-valued to, and the interest on the
Notes will accrue from the value date (which would be the preceding day when
settlement occurs in New York). If settlement is not completed on the intended
value date (i.e., the trade fails), the Euroclear or Cedel Bank cash debit will
be valued instead as of the actual settlement date.
Euroclear participants and Cedel Bank participants will need to
make available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-position
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Euroclear or Cedel Bank. Under
this approach, they may take on credit exposure to Euroclear or Cedel Bank until
the Notes are credited to their accounts one day later.
As an alternative, if Euroclear or Cedel Bank has extended a line
of credit to them, participants can elect not to pre-position funds and allow
that credit line to be drawn upon to finance settlement. Under this procedure,
Euroclear participants or Cedel Bank participants purchasing Notes would incur
overdraft charges for one day, assuming they cleared the overdraft when the
Notes were credited to their accounts. However, interest on the Notes would
accrue from the value date. Therefore, in many cases, the investment income on
Notes earned during that one-day period may reduce or offset the amount of such
overdraft charges, although this result will depend on each participant's
particular cost of funds.
Because the settlement is taking place during New York business
hours, DTC Participants can employ their usual procedures for sending Notes to
the respective depositaries of Euroclear or Cedel Bank, as the case may be, for
the benefit of Euroclear participants or Cedel Bank participants. The sale
proceeds will be available to the DTC seller on the settlement date. Thus, to
the DTC Participant, a cross-market transaction will settle no differently than
a trade between two DTC Participants.
TRADING BETWEEN EUROCLEAR OR CEDEL BANK SELLER AND
DTC PURCHASER
Due to time zone differences in their favor, Euroclear participants
and Cedel Bank participants may employ their customary procedures for
transactions in which Notes are to be transferred by the respective clearing
system, through their respective depositaries to another DTC Participant. The
seller must send instructions to Euroclear or Cedel Bank through a participant
at least one business day prior to settlement. In these cases, Euroclear or
Cedel Bank will instruct their respective depositaries to credit the Notes to
the DTC Participant's account against payment. Payment will include interest
accrued on the Notes from and including the last payment date to and excluding
the settlement date on the basis of a calendar year consisting of twelve 30-day
calendar months. For transactions settling on the 31st day of the month, payment
will include interest accrued to and excluding the first day of the following
month. The payment will then be reflected in the account of the Euroclear
participant or Cedel Bank participant the following day, and receipt of the cash
proceeds in the Euroclear or Cedel Bank participant's account will be
back-valued to the value date (which would be the preceding day when settlement
occurs in New York). If the Euroclear participant or Cedel Bank participant has
a line of credit with its respective clearing system and elects to draw on such
line of credit in anticipation of receipt of the sale proceeds in its account,
the back-valuation will offset any overdraft charges incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Euroclear or Cedel Bank
participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use Euroclear or Cedel Bank and that
purchase Notes from DTC Participants for credit to Euroclear participants or
Cedel Bank participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
1. borrowing through Euroclear or Cedel Bank for one day
(until the purchase side of the day trade is reflected in their
Euroclear account or Cedel Bank account) in accordance with the
clearing system's customary procedures;
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2. borrowing the Notes in the United States from a DTC
Participant no later than one day prior to settlement, which would
give the Notes sufficient time to be reflected in the borrower's
Euroclear account or Cedel Bank account in order to settle the sale
side of the trade; or
3. staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the
sale to the Euroclear participant or Cedel Bank participant.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following general discussion summarizes certain of the material
U.S. federal income tax consequences to a prospective holder of Notes from the
acquisition, ownership, disposition and conversion of the Notes. This discussion
is a summary for general information only and does not consider all aspect of
U.S. federal income tax that may be relevant to the purchase, ownership,
disposition and conversion of the Notes by a prospective investor in light of
that investor's particular circumstances. This discussion also deals only with
Notes held by a Holder as capital assets within the meaning of Section 1221 of
the U.S. Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"). This summary does not address all of the tax consequences that may be
relevant to a holder of Notes, nor does it address the federal income tax
consequences to holders subject to special treatment under the federal income
tax laws, such as broker or dealers in securities of currencies, certain
securities traders, tax-exempt entities, banks, thrifts, insurance companies,
other financial institutions, persons that hold the Notes as a position in a
"straddle" or as part of a "synthetic security," "hedging," "conversion" or
other integrated instrument, persons that have a "functional currency" other
than the U.S. dollar, investors in pass-through entities and certain U.S.
expatriates. Further, this summary does not address (i) the income tax
consequences to shareholders in or partners or beneficiaries of, a holder of the
Notes, (ii) the United States federal alternative minimum tax consequences of
the purchase, ownership disposition or conversion of Notes, or (iii) any state,
local or foreign tax consequences of the purchase, ownership, disposition or
conversion of Notes.
This discussion is based upon the Code, existing and proposed
regulations thereunder, and current administrative rulings and court decisions.
All of the foregoing are subject to change, possibly on a retroactive basis, and
any such change could affect the continuing validity of this discussion.
PERSON CONSIDERING THE PURCHASES OF NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE APPLICATION OF FEDERAL INCOME TAXES LAWS, AS WELL AS
THE LAWS OF ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION, TO THEIR
PARTICULAR SITUATIONS.
U.S. HOLDERS
For purposes of this discussion, "U.S. Holder" generally means (i)
a citizen or resident (as defined in 770 1(b)(1) of the Code) of the United
States, (ii) a corporation or partnership created or organized under the laws of
the United States or any political subdivision thereof, (iii) an estate the
income of which is includible in its gross income for U.S. federal income tax
purposes without regard to its source, or (iv) a trust if a court within the
United States is able to exercise primary supervision over its administration
and at least one United States fiduciary has the authority to control all
substantial decisions of the trust. Certain U.S. federal income consequences
relevant to a holder other than a U.S. Holder (a "Non-U.S. Holder") are
discussed separately below.
STATED INTEREST
Stated interest on a Note will generally be taxable to a U.S.
Holder as ordinary interest income at the time it is paid or accrued in
accordance with such holder's method of accounting for U.S. federal income tax
purposes. This general rule is based, in part, on the determination by the
Company that certain contingencies relating to the amount of interest and the
timing of principal payments on the Notes are "remote" within the meaning of
certain Treasury regulations.
31
<PAGE>
In the event the Company is required to make Additional Interest
Payments, the Notes would be treated as reissued for OID purposes of the
Original Issue Discount ("OID") regulations and, depending on the facts at that
time, the deemed of reissued Notes may be treated as having OID that would be
accrued into a U.S. Holder's income as required by the applicable OID rules in
the Code and Treasury regulation. In the event that a Designated Event occurs
triggering the Holders rights to require repurchase of the Notes at more than
their stated principal amount, there may be additional consequences under the
OID rules.
BOND PREMIUM
If a U.S. Holder purchases a Note at a cost greater than the Note's
principal amount plus the value of the conversion feature, the excess generally
is treated as amortizable bond premium. A U.S. Holder may elect to deduct such
amortizable bond premium (with a corresponding reduction in the U.S. Holder's
tax basis) over the remaining term of the Note (or a shorter period to the first
call date, if a smaller deduction would result) on an economic accrual basis.
The election would apply to all taxable debt instruments held by the U.S. Holder
at any time during the first taxable year to which the election applies and to
any such debt instruments which are later acquired by the U.S. Holder. The
election may not be revoked without the consent of the Internal Revenue Service
("IRS").
MARKET DISCOUNT
If a U.S. Holder purchases a Note for an amount that is less than
its principal amount, the amount of the difference will be treated as market
discount for U.S. federal income tax purposes, unless such difference is less
than a specified de minimis amount. Under the market discount rules, a U.S.
Holder must accrue market discount on a straight-line basis, or may elect to
accrue it on an economic accrual basis. A U.S. Holder will be required to treat
any principal payment on, or any amount received on the sale, exchange,
retirement or other disposition of, a Note as ordinary income to the extent of
accrued market discount which has not previously been included in income. In
addition, the U.S. Holder may be required to defer, until the maturity of the
Note or its earlier disposition in a taxable transaction, the deduction of a
portion of the interest expense of any indebtedness incurred or continued to
purchase or carry such.
A U.S. Holder of a Note acquired at a market discount may elect to
include market discount in income as interest as it accrues, in which case the
interest deferral rule would not apply. This election would apply to all bonds
with market discount acquired by the electing U.S. Holder on or after the first
day of the first taxable year to which the election applies and is separate from
the election concerning the rate of accrual described above. The election may be
revoked only with the consent of the IRS.
SALE OR REDEMPTION OF THE NOTES
Upon the disposition of a Note by sale, exchange or redemption, the
U.S. Holder will generally recognize gain or loss equal to the difference, if
any, between (i) the amount realized on the disposition (other than amounts
attributable to accrued interest) and (ii) the U.S. Holder's tax basis in the
Note. A U.S. Holder's tax basis in a Note generally will equal the cost of the
Note to the U.S. Holder, increased by OID or market discount previously included
(or currently includible) in such holder's gross income to the date of
disposition, and reduced by any payments other than payments of qualified stated
interest made on such Note. When a Note is sold, disposed of or redeemed between
Interest Payment Dates, the portion of the amount realized on the disposition
that is attributable to interest accrued to the date of sale (i) must be
reported as interest income by a cash method investor and (ii) is received
tax-free by an accrual method investor that has already included the interest in
income as it accrued.
Assuming the Note is held as a capital asset, such gain or loss
will generally constitute capital gain or loss and will be long-term capital
gain or loss if the U.S. Holder has held such Note for longer than one year.
Federal income tax rates on long-term capital gain received by individuals vary
based on the individual's income and the holding period for the asset. In
particular, different maximum tax rates apply
32
<PAGE>
to gains recognized by an individual from the sale of (i) assets held for more
than one year but no more than 18 months and (ii) assets held for more than 18
months. Holders should contact their tax advisors for more information or for
the capital gains tax rate applicable to particular Notes.
CONVERSION INTO COMMON STOCK OF THE COMPANY
In general, no gain or loss will be recognized for U.S. federal
income tax purposes upon a conversion of Notes into Common Stock. However, cash
paid in lieu of a fractional share of Common Stock will result in taxable gain
(or loss) to the extent that the amount of such cash exceeds (or is exceeded by)
the portion of the adjusted tax basis of the Note allocable to such fractional
share. The initial tax basis of Common Stock received on conversion of the Notes
will equal the adjusted tax basis of the converted Notes on the date of
conversion, reduced by the portion of such adjusted tax basis allocated to any
fractional share of Common Stock considered to be exchanged for cash. The
holding period for Common Stock received on conversion will include the period
during which the converted Notes were held.
ADJUSTMENT OF CONVERSION PRICE
The conversion ratio of a Note is subject to adjustment under
certain circumstances. Section 305 of the Code and Treasury regulations issued
thereunder may treat U.S. Holders of the Notes as having received a constructive
distribution, resulting in ordinary income to the extent of the Company's
current and accumulated earnings and profits (as determined for U.S. federal
income tax purposes), if, and to the extent that certain adjustments of the
conversion ratio increase the proportionate interest of a U.S. Holder of the
Notes in the fully diluted share ownership of the Company, whether or not such
U.S. Holder exercises the conversion privilege. Moreover, if there is not a full
adjustment of the conversion ratio of the Notes to reflect a stock dividend or
other event that increases the proportionate interest of holders of outstanding
Common Stock in the assets or earnings and profits of the Company, then such
increase in the proportionate interest of holders of the Common Stock generally
will be treated as a taxable distribution to such holders with respect to their
Common Stock.
DIVIDENDS PAID ON THE SHARES
A U.S. Holder generally will be required to include in gross income
as ordinary dividend income the amount of any distributions paid on the Common
Stock to the extent that such distributions are paid out of the Company's
current or accumulated earnings and profits as determined for U.S. federal
income tax purposes. Distributions in excess of such earnings and profits will
be applied against and will reduce the U.S. Holder's tax basis in its Common
Stock and, to the extent in excess of such tax basis, will be treated as gain
from a sale or exchange of such Common Stock.
DISPOSITION OF SHARES
Upon the sale or other disposition of Common Stock, a U.S. Holder
generally will recognize capital gain or loss equal to the difference between
the amount realized on the sale and such holder's adjusted tax basis in the
Common Stock. Gain or loss upon the disposition of the Common Stock will be
long-term if, at the time of the disposition, the holding period for the Common
Stock exceeds one year (which, in the case of Common Stock acquired upon
conversion of a Note, would include the period during which the converted Note
was held). Federal income tax rates on long-term capital gain received by
individuals vary based on the individual's income and the holding period for the
asset. See "--Sale or Redemption of the Notes" above. The deduction of capital
losses is subject to limitations for U.S. federal income tax purposes.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a Note who or which is a Non-U.S. Holder.
33
<PAGE>
This discussion does not deal with all aspects of U.S. federal
income and estate taxation that may be relevant to the purchase, ownership or
disposition of the Notes by any particular Non-U.S. Holder in light of that
holder's personal circumstances, including holding the Notes through a
partnership. For example, persons who are partners in foreign partnerships and
beneficiaries of foreign trusts or estates who are subject to U.S. federal
income tax because of their own status, such as United States residents or
foreign persons engaged in a trade or business in the United States, may be
subject to U.S. federal income tax even though the entity is not subject to such
tax on the disposition of its Note.
STATED INTEREST
Under current United States federal income tax law, payment on a
Note or coupon by the Company or any paying agent to a holder that is a Non-U.S.
Holder will not be subject to withholding of U.S. federal income tax, provided
that, with respect to payments of interest, (i) the holder does not actually or
constructively own 10 percent or more of the combined voting power of all
classes of stock of the Company and is not a controlled foreign corporation
related to the Company through stock ownership and (ii) the beneficial owner
provides a statement signed under penalties of perjury that includes its name
and address and certifies (on an IRS Form W-8 or a substantially similar
substitute form) that it is a Non-U.S. Person in compliance with applicable
requirements.
Payments of interest on a Note that are effectively connected with
the conduct of a trade or business in the United States by a Non-U.S. Holder,
although exempt from the withholding tax, may be subject to graduated U.S.
federal income tax as if such amounts were earned by a U.S. Holder.
SALE OR REDEMPTION OF NOTES OR COMMON STOCK; CONVERSION
OF NOTES
Except as described below and subject to the discussion concerning
backup withholding, a Non-U.S. Holder generally will not be subject to
withholding of U.S. federal income tax with respect to any gain realized upon
the sale or redemption of Notes or Common Stock or on the conversion of a Note.
Further, a Non-U.S. Holder generally will not be subject to U.S. federal income
tax with respect to any such gain unless (i) the gain is effectively connected
with a U.S. trade or business of such Non-U.S. Person, (ii) subject to certain
exceptions, the Non-U.S. Holder is an individual who holds the Note as a capital
asset and is present in the United States for 183 days or more in the taxable
year of the disposition, or (iii) the Non-U.S. Holder is subject to tax pursuant
to the provisions of U.S. tax law applicable to certain U.S. expatriates.
DIVIDENDS ON COMMON STOCK
Any distribution on Common Stock to a Non-U.S. Holder will
generally be subject to United States federal income tax withholding at a rate
of 30%, unless (i) a lower rate is provided by an applicable tax treaty or (ii)
the distribution is effectively connected with the conduct of a trade or
business in the United States by the Non-U.S. Holder. For either of these
exceptions to apply, the Non-U.S. Holder may be required to provide a properly
executed certificate claiming the benefits of a treaty or exemption (currently
Form 1001 or 4224, as applicable).
FEDERAL ESTATE TAX
The Notes will not be includible in the estate of a Non-U.S. Holder
who is not domiciled in the United States if interest paid on the Notes at the
time of his or her death would have been exempt from U.S. federal income and
withholding tax as described under "Non-U.S. Holders-Stated Interest (without
regard to the requirement that a non-U.S. beneficial ownership statement has
been received). An individual Non-U.S. Holder who is treated as the owner of or
has made certain lifetime transfers of an interest in Common Stock will be
required to include the value thereof in his gross estate for U.S. Federal
estate tax purposes, and may be subject to U.S. Federal estate tax unless an
applicable estate tax treaty provides otherwise.
34
<PAGE>
INFORMATION REPORTING
In general, information reporting requirements will apply to
payments made on, and proceeds from the sale of, the Notes held by a
noncorporate U.S. Holder within the United States. In addition, payments made
on, and payments of proceeds from the sale of, the Notes to or through the
United States office of a broker are subject to information reporting unless the
holder thereof certifies as to its non-United States status or otherwise
establishes an exemption from information reporting and backup withholding. See
"Backup Withholding."
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Notes may be
subject to a "backup" withholding tax of 31% unless the holder complies with
certain identification or exemption requirements. Any amounts so withheld will
be allowed as a credit against the holder's income tax liability, or refunded,
provided the required information is provided to the IRS.
NEW REGULATIONS RELATING TO WITHHOLDING AND INFORMATION
REPORTING
In October 1997, the IRS issued final regulations relating to
withholding, backup withholding and information reporting with respect to
payments made to Non-U.S. Persons. The regulations generally apply to payments
made after December 31, 1998. However, withholding certificates that are valid
under the present rules on December 31, 1998, remain valid until the earlier of
December 31, 1999 or the expiration date of the certificate under the present
rules (unless otherwise invalidated due to changes in the circumstances of the
person whose name is on the certificate).
When effective, the new regulations will streamline and, in some
cases, alter the types of statements and information that must be furnished to
claim a reduced rate of withholding. While various IRS forms (such as IRS Forms
1001 and 4224) currently are used to claim exemption from withholding or a
reduced withholding rate, the preamble to the regulations states that the IRS
intends most certifications to be made on revised Form W-8. The regulations also
clarify the duties of U.S. payors making payments to foreign persons and modify
the rules concerning withholding on payments made to Non-U.S. Persons through
foreign intermediaries.
With some exceptions, the new regulations treat a payment to a
foreign partnership as a payment directly to the partners. The regulations also
eliminate the address rule under which dividends paid to a foreign address were
presumed to be paid to a resident at that address and therefore eligible for the
benefit of any applicable tax treaty.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of
the Notes or Common Stock issuable upon conversion thereof offered by this
Prospectus.
SELLING HOLDERS
The Notes were originally issued by the Company to Salomon Brothers
Inc, Deutsche Morgan Grenfell Inc., Bear, Stearns & Co. Inc., Smith Barney Inc.,
Robertson, Stephens & Company LLC and First Union Capital Markets Corp.
(collectively, the "Initial Purchasers"). The Initial Purchasers subsequently
advised the Company that they resold the Notes, in transactions exempt from the
registration requirements of the Securities Act (i) in the United States to
Qualified Institutional Buyers in reliance on Rule 144A under the Securities Act
or to Institutional Accredited Investors that agreed in writing to comply with
the transfer restrictions and other conditions set forth in the Purchase
Agreement, and (ii) outside the United States in transactions complying with the
provisions of Regulation S under the Securities Act. Each of the Selling Holders
is a direct or indirect transferee of an Initial Purchaser. The Selling Holders
(which term includes their transferees, pledgees, donees or their successors)
may from time to time offer and sell pursuant to this Prospectus any or all of
the Notes and Shares issued upon conversion of the Notes held by such Selling
Holders.
35
<PAGE>
The following table sets forth information with respect to the Selling
Holders and the respective principal amounts of Notes beneficially owned by each
Selling Holder that may be offered pursuant to this Prospectus. Such information
has been obtained from the Selling Holders. The Shares into which the Notes are
convertible are also offered pursuant to this Prospectus, and the formula for
conversion is set forth herein under "DESCRIPTION OF THE NOTES -- Conversion."
To the Company's knowledge, none of the Selling Holders has, or within the past
three years has had, any position, office or other material relationship with
the Company or any of its predecessors or affiliates. Because the Selling
Holders may offer all or some portion of the Notes or Shares issuable upon
conversion thereof pursuant to this Prospectus, no estimate can be given as to
the amount of the Notes or Shares issuable upon conversion thereof that will be
held by the Selling Holders upon termination of any such sales. In addition, the
Selling Holders identified below may have sold, transferred or otherwise
disposed of all or a portion of their Notes, since the date on which they
provided the information regarding their Notes, in transactions exempt from the
registration requirements of the Securities Act.
<TABLE>
<CAPTION>
PRINCIPAL
PRINCIPAL AMOUNT OF
AMOUNT OF NOTES NOTES COVERED
BENEFICIALLY BY THIS
SELLING HOLDER NAME OWNED PROSPECTUS
- ------------------------------------------------------------------ ----------------- --------------
<S> <C> <C>
AAM/Zazove Institutional Income Fund, L.P. ..................... $ 1,500,000 $ 1,500,000
Allstate Insurance Company .................................... $ 4,500,000 $ 4,500,000
BancAmerica Robertson Stephens* ............................... $ 1,150,000 $ 1,150,000
Black Diamond Ltd.* ............................................. $ 446,000 $ 446,000
Black Diamond Partners L.P.* ................................. $ 434,000 $ 434,000
Brown & Williamson Convertible Retirement Trust ............... $ 300,000 $ 300,000
Carlson Capital, L.P.* .......................................... $ 74,000 $ 74,000
Catholic Mutual Relief Society of America* ..................... $ 250,000 $ 250,000
Catholic Mutual Relief Society Retirement Plan and Trust* ...... $ 130,000 $ 130,000
Century National Insurance Company* ........................... $ 500,000 $ 500,000
Christian Science Trustees for Gifts and Endowments ............ $ 150,000 $ 150,000
Chrysler Corporation Master Retirement Trust* .................. $ 3,470,000 $ 3,470,000
Combined Insurance Company of America* ........................ $ 625,000 $ 625,000
CFW-C, L.P. ................................................... $13,000,000 $13,000,000
Daiwa Europe Limited .......................................... $ 1,500,000 $ 1,500,000
Declaration of Trust for the Defined Benefit Plan of ICI American
Holdings Inc. ................................................ $ 650,000 $ 650,000
Declaration of Trust for the Defined Benefit Plan of Zeneca
Holdings Inc. ................................................ $ 450,000 $ 450,000
Delaware Group Dividend and Income Fund, Inc.* .................. $ 1,230,000 $ 1,230,000
Delaware Group Equity Funds V, Inc. Retirement Income Fund
Series* ...................................................... $ 60,000 $ 60,000
Delaware Group Global Dividend and Income Fund, Inc.* ......... $ 615,000 $ 615,000
Delaware Group Premium Fund, Inc. Convertible Securities
Series* ...................................................... $ 95,000 $ 95,000
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
PRINCIPAL AMOUNT OF
AMOUNT OF NOTES NOTES COVERED
BENEFICIALLY BY THIS
SELLING HOLDER NAME OWNED PROSPECTUS
- ------------------------------------------------------------------- ----------------- --------------
<S> <C> <C>
Delaware State Employees Retirement Fund ........................ $ 2,100,000 $ 2,100,000
Delta Air Lines Master Trust* .................................... $ 2,600,000 $ 2,600,000
First Church of Christ, Scientist -- Endowment .................. $ 150,000 $ 150,000
General Motors Employee Domestic Group Pension Trust ............ $ 5,544,000 $ 5,544,000
General Motors Employees Domestic Group Trust .................. $ 7,300,000 $ 7,300,000
General Motors Foundation, Inc. ................................. $ 203,000 $ 203,000
Highbridge Capital Corp.* ....................................... $ 3,046,000 $ 3,046,000
Hillside Capital Incorporated Corporate Account .................. $ 190,000 $ 190,000
Hughes Aircraft Company Master Retirement Trust* ............... $ 1,855,000 $ 1,855,000
J.P. Morgan & Co. Incorporated ................................. $ 4,009,000 $ 4,009,000
J.W. McConnell Family Family Foundation ........................ $ 400,000 $ 400,000
MainStay Convertible Fund ....................................... $ 3,500,000 $ 3,500,000
McMahan Securities Co., L.P. .................................... $ 1,000,000 $ 1,000,000
Merrill Lynch Pierce Fenner & Smith Inc.* ........................ $ 500,000 $ 500,000
Motors Insurance Corporation .................................... $ 1,253,000 $ 1,253,000
New York Life Separate Account #7 .............................. $ 1,700,000 $ 1,700,000
OCM Convertible Limited Partnership* ........................... $ 250,000 $ 250,000
OCM Convertible Trust* .......................................... $ 4,820,000 $ 4,820,000
Oppenheimer Bond Fund for Growth* .............................. $ 2,000,000 $ 2,000,000
PaineWebber Balanced Fund* .................................... $ 436,000 $ 436,000
PaineWebber Growth and Income Fund* ........................... $ 1,914,750 $ 1,914,750
PaineWebber Series Trust -- Balanced Portfolio* ............... $ 79,781 $ 79,781
PaineWebber Series Trust -- Growth and Income Portfolio* ...... $ 26,594 $ 26,594
Partner Reinsurance Company, Ltd.* .............................. $ 355,000 $ 355,000
Provident Life and Accident Insurance Company* .................. $10,000,000 $10,000,000
Public Employees' Retirement Association of Colorado ............ $ 1,000,000 $ 1,000,000
Santander Merchant Bank Limited ................................. $ 2,000,000 $ 2,000,000
State Employees' Retirement Fund of the State of Delaware* ...... $ 1,460,000 $ 1,460,000
State of Connecticut Combined Investment Funds* .................. $ 4,220,000 $ 4,220,000
Summer Hill Global Partners L.P. .............................. $ 50,000 $ 50,000
Swiss Bank Corporation -- London Branch* ........................ $ 3,750,000 $ 3,750,000
Thermo Electron Balanced Investment Fund ........................ $ 560,000 $ 560,000
The TCW Group, Inc. ............................................. $ 9,970,000 $ 9,970,000
Vanguard Convertible Securities Fund, Inc.* ..................... $ 2,970,000 $ 2,970,000
Van Kampen American Capital Harbor Fund ........................ $ 2,950,000 $ 2,950,000
Vista Growth and Income Fund* .................................... $ 3,500,000 $ 3,500,000
</TABLE>
This table is based on information provided by the Selling Holders to the
Company by November 7, 1997, unless the Selling Holder's name is followed by an
asterisk, in which case the information is based on information provided by the
Selling Holders to the Company between November 8, 1997 and November 13, 1997.
The foregoing list of Selling Holders does not include holders of
$181,208,875 aggregate principal amount of Notes which have been registered for
future sale under the Registration Statement of which
37
<PAGE>
this Prospectus is a part. Additional Selling Holders will be listed, together
with the amount of Notes to be offered by such holders, in one or more
supplements to this Prospectus. Any such supplement will be circulated with this
Prospectus and will be deemed to be a part hereof as of the date of such
supplement. Only the Selling Holders listed in this Prospectus or in any
supplement thereto (or the transferees, pledgees or donees of such Selling
Holders, or their successors) will be entitled to offer their Notes by means of
this Prospectus, as supplemented from time to time.
PLAN OF DISTRIBUTION
The Securities offered hereby may be sold from time to time to purchasers
directly by the Selling Holders. Alternatively, the Selling Holders may from
time to time offer the Securities to or through underwriters, broker-dealers or
agents, who may receive compensation in the form of commissions, concessions,
allowances or discounts from the Selling Holders or the purchasers of Securities
for whom they may act as agents or to whom they sell Securities as principal or
both (which commissions, concessions, allowances or discounts might be in excess
of customary amounts thereof). The Selling Holders and any underwriters,
broker-dealers or agents that participate in the distribution of Securities may
be deemed to be "underwriters" within the meaning of the Securities Act and any
profit on the sale of Securities by them and any commissions, concessions,
allowances or discounts or other compensation received by any such underwriter,
broker-dealer or agent may be deemed to be underwriting commissions,
concessions, allowances or discounts under the Securities Act.
The Securities may be sold from time to time in one or more transactions at
fixed prices, at prevailing market prices at the time of sale, at varying prices
determined at the time of sale or at negotiated prices. The sale of Securities
may be effected in transactions (which may involve crosses or block
transactions) (i) on any national securities exchange or quotation service on
which the Securities may be listed or quoted at the time of sale, (ii) in the
over-the-counter market, (iii) in transactions otherwise than on such exchanges
or in the over-the-counter market or (iv) through the writing of options. At the
time a particular offering of the Securities is made, a Prospectus Supplement,
if required, will be distributed which will set forth the aggregate amount and
type of Securities being offered and the terms of the offering, including the
name or names of any underwriters, broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the Selling Holders
and any discounts, commissions or concessions allowed or reallowed or paid to
broker-dealers.
In connection with the distribution of the Securities, certain of the
Selling Holders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Securities in the course of hedging the positions they assume with the
Selling Holders. The Selling Holders may also sell the Securities short and
redeliver the Securities to close out the short positions. The Selling Holders
may also enter into option or other transactions with broker-dealers which
require the delivery of the Securities to the broker-dealer. The Selling Holders
may also loan or pledge the Securities.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Securities by the Selling
Holders. The foregoing may affect the marketability of the Securities.
Pursuant to the Registration Agreement, all expenses of the registration of
the Securities will be paid by the Company, including, without limitation,
Commission filing fees and expenses of compliance with state securities or "blue
sky" laws, provided, however, that the Selling Holders will pay all underwriting
discounts and selling commissions, if any. The Selling Holders will be
indemnified by the Company against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith. The Company will be indemnified by the Selling Holders
against certain civil liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith.
38
<PAGE>
LEGAL MATTERS
Aloysius T. Lawn, IV, the Company's General Counsel and Secretary, will
render an opinion to the effect that the Securities offered by this Prospectus
are duly authorized, validly issued, fully paid and non-assessable. Mr. Lawn
owns 180,000 shares of the Company's Common Stock and holds vested options to
purchase 60,000 shares at a price of $11.625 per share and 90,000 shares at a
price of $10.56 per share.
EXPERTS
The consolidated financial statements and schedule of the Company and
subsidiaries incorporated by reference in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their reports incorporated 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.
The consolidated financial statements of Shared Technologies and
subsidiaries at December 31, 1996 and for the year ended December 31, 1996
incorporated by reference in this Prospectus have been audited by Arthur
Andersen LLP, independent certified public accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving such reports.
The consolidated financial statements and schedule of Shared Technologies
and subsidiaries at December 31, 1995 and for each of the two years in the
period ended December 31, 1995 incorporated by reference in this Prospectus have
been audited by Rothstein, Kass & Company, P.C., independent certified public
accountants, as indicated in their report, which includes an explanatory
paragraph relating to the changing of the method of accounting for its
investment in one of its subsidiaries, with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing.
39
<PAGE>
====================================== ========================================
NO DEALER, SALESPERSON OR OTHER
INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE $300,000,000 AGGREGATE PRINCIPAL
CONTAINED IN OR INCORPORATED BY AMOUNT OF 4 1/2% CONVERTIBLE
REFERENCE IN THIS PROSPECTUS IN SUBORDINATED NOTES DUE 2002
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 12,185,834 SHARES
NOT CONSTITUTE AN OFFER OR OF COMMON STOCK
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
PAGE [GRAPHIC OMITTED]
-----
Available Information .............. 2
Incorporation of Certain Documents
by Reference ................... 3
Risk Factors ....................... 4
The Company ........................ 14 PROSPECTUS
Description of Capital Stock ....... 14
Description of the Notes ........... 14
Book-Entry System; Delivery and
Form ............................ 27
Certain U.S. Federal Income Tax
Consequences ................... 31
Use of Proceeds .................... 35
Selling Holders .................... 35 DATED NOVEMBER 13, 1997
Plan of Distribution ............... 38
Legal Matters ...................... 39
Experts ............................ 39
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