Filed under Rule 424(b)3 of the Securities Act of 1933 relating to the
Registration Statement on Form S-3, Registration No. 333-23193
Prospectus
7,063,825 Shares
Tel-Save Holdings, Inc.
Common Stock
This Prospectus covers the offering for resale of up to 7,063,825 shares of
common stock, par value $.01 per share (the "Common Stock"), of Tel-Save
Holdings, Inc., a Delaware corporation (the "Company"), which may be offered
from time to time by the Selling Stockholders named herein under "SELLING
STOCKHOLDERS" or by their respective transferees, pledgees, donees or successors
(and any transferees, pledgees, donees or successors of any thereof)
(collectively, the "Selling Stockholders"). The Company will receive no part of
the proceeds of the sales made by the Selling Stockholders hereunder. All
expenses of registration incurred in connection with this public offering are
being borne by the Company, except for the fees, expenses and disbursements of
counsel for any of the Selling Stockholders.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"TALK." On November 4, 1997, the last reported sale price of the Common Stock
was $20.
The shares of Common Stock offered hereby may be offered for sale through
underwriters or dealers or from time to time on the Nasdaq National Market
System, or otherwise, at prices then obtainable. The Selling Stockholders and
any broker executing selling orders on behalf of the Company or the Selling
Stockholders may be deemed to be underwriters within the meaning of the
Securities Act. Commissions received by underwriters or any such broker may
deemed to be underwriting commissions under the Securities Acts. See "PLAN OF
DISTRIBUTION."
Prospective investors should carefully consider the matters discussed under
"RISK FACTORS" beginning on page 6.
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 7, 1997
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2
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations other than those contained in or
incorporated by reference in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any of its agents. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of the Company since the date as of which
information is given in this Prospectus. This Prospectus does not constitute an
offer or solicitation by anyone in any jurisdiction in which the person making
such offer or solicitation is not qualified to do so or to any person to whom,
it is unlawful to make such solicitation.
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3
AVAILABLE INFORMATION
The Company is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street (Suite 1400), Chicago, Illinois 60661. Copies of all or part of such
materials may also be obtained at prescribed rates from the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a
Web site at http://www.sec.gov that contains reports, proxy statements and other
information. Such material also can be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a registration statement (which term
shall encompass any amendments thereto) on Form S-3 under the Securities Act of
1933, as amended (the "Securities Act") with respect to the securities offered
hereby (the "Registration Statement"). This Prospectus, which constitutes part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain items of which are contained in exhibits
to the Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered by this Prospectus, reference is made to the Registration
Statement, including the exhibits thereto, and the financial statements and
notes thereto filed or incorporated by reference as a part thereof, which are on
file at the offices of the Commission and may be obtained upon payment of the
fee prescribed by the Commission, or may be examined without charge at the
offices of the Commission. Statements made in this Prospectus concerning the
contents of any document referred to herein are not necessarily complete, and,
in each such instance, are qualified in all respects by reference to the
applicable documents filed with the Commission. The Registration Statement and
the exhibits thereto filed by the Company with the Commission may be inspected
and copied at the locations described above.
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4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company, unless otherwise indicated, with
the Commission pursuant to the Exchange Act (Commission File No. 0-26728) are
incorporated herein by reference:
1. the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
2. Amendments Nos. 1 and 2 to the Company's Annual Report on Form 10-K/A
for the fiscal year ended December 31, 1996;
3. the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997, Amendments No. 1 and No. 2 to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended March 31,
1997 and Amendment No. 1 to the Company's Quarterly Report on Form 10-Q/A
for the quarter ended June 30, 1997;
4. the Company's 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 the Company's Current
Reports on Form 8-K/A dated February 3, 1997, February 28, 1997 and August
15, 1997;
5. the description of the Company's capital stock contained in the
Company's Registration Statement on Form 8-A dated September 8, 1995;
6. 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
7. 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.
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5
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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6
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 October 8, 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.
DEPENDENCE ON AT&T AND LUCENT
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7
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
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
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8
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 Technologies
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
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9
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 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
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10
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 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.
<PAGE>
11
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 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
<PAGE>
12
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 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.
<PAGE>
13
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 October 8, 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.
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 Company's outstanding 4.5% convertible subordinated 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.
<PAGE>
14
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.
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.
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. A
proposal to amend the Company Charter to increase the authorized capital stock
to 305,000,000, consisting of 300,000,000 shares of Common Stock and 5,000,000
shares of Preferred Stock, will be considered at a meeting of the Company's
stockholders scheduled for December 1, 1997. As of October 8, 1997, 65,610,949
shares of Common Stock were issued and outstanding, and there were no shares of
Preferred Stock designated or issued. For further information about the
Company's authorized capital stock, reference is made to the Company's reports
incorporated herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of any of
the shares of Common Stock offered by the Selling Stockholders under this
Prospectus.
<PAGE>
15
SELLING STOCKHOLDERS
The "Selling Stockholders" include collectively the following stockholders
specifically identified below, and their respective transferees, pledgees,
donees or successors (and any transferees, pledgees, donees or successors of any
thereof), who are identified as "Selling Stockholders" in a supplement to this
Prospectus (a "Prospectus Supplement"):
The D&K Charitable Foundation offers for sale in this Prospectus
1,200,000 shares that were contributed to it by Daniel Borislow, the Company's
Chairman, Chief Executive Officer and controlling shareholder, on March 7, 1997.
Certain investment companies for which Massachusetts Financial Services
Company acts as investment advisor and Putnam OTC & Emerging Growth Fund (the
"Investors") offer for resale in this Prospectus 3,411,000 shares that they
acquired in a private sale on March 10, 1997 (the "Private Sale") from Mr.
Borislow.
Network Plus, Inc., a Massachusetts corporation ("Network Plus"),
offers for sale in this Prospectus 765,000 shares of Common Stock that it
acquired upon exercise of warrants. Network Plus is a partition of the Company
that markets the Company's telecommunications services. None of these shares
may, under an agreement with the Company, be sold prior to the earlier of the
date of the consummation of the Shared Technologies Merger and January 4, 1998.
Anschutz Family Investment Company LLC, a Colorado limited liability
company, offers for sale in this Prospectus 1,347,000 shares of Common Stock
that it acquired from Group Long Distance, Inc., a Florida corporation ("GLD"),
which acquired such shares upon exercise of warrants. GLD is a partition of the
Company that markets the Company's telecommunications services.
Least Cost Routing, Inc., a Delaware corporation ("LCR"), and Long
Distance Charges, Inc., a California corporation ("LDC"), offer for sale in this
Prospectus 70,413 shares and 70,412 shares, respectively, of Common Stock that
they acquired from the Company pursuant to a restructuring and settlement
agreement. Under the terms of such agreement, the Company transferred 52,810
shares and 52,809 shares to LCR and LDC, respectively, and deposited an
additional 35,206 shares in escrow for the benefit of LCR and LDC, to be divided
equally between them. While the terms of such agreement provide that as of
September 21, 1997 twenty-five percent (25%) of the shares held by each of LCR
and LDC may be sold, such terms also provide that twenty-five percent (25%) of
such shares held may not be sold prior to March 21, 1998, twenty-five percent
(25%) of such shares held may not be sold prior to September 21, 1998 and
twenty-five percent (25%) of such shares held may not be sold prior to March 21,
1999.
Black Brook Capital, L.L.C., a Delaware limited liability company of
which George P. Farley, Chief Financial Officer, Treasurer and a director of the
Company is the managing member, offers for sale in this Prospectus 200,000
shares of Common Stock that were acquired from a former executive officer of the
Company in connection with Mr. Farley's joining the Company as an executive
officer.
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock by the Selling Stockholders
and as adjusted to reflect the respective offerings made herein.
<PAGE>
16
<TABLE>
<CAPTION>
Beneficial Number Beneficial
Ownership of Ownership
Prior to Offering Shares After Offering
----------------- ------ --------------
Selling Stockholder Number Percentage Offered Number Percentage
- ------------------- ------ ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C>
D&K Charitable
Foundation(1) 1,200,000(1) 1.8% 1,200,000 0 0
485 Sylvan Avenue
Englewood Cliffs, NJ 07632
Certain investment companies
managed by
Massachusetts 6,965,800 10.6% 3,000,000(2) 3,965,800 6.0%
Financial
Services Company(2)
500 Boylston St.
Boston, MA 02116
Putnam OTC & Emerging 1,255,800 1.9% 411,000(3) 844,800 1.3%
Growth Fund(3)
One Post Office
Square
Boston, MA 02109
Network Plus, Inc.
234 Copeland Street
Quincy, MA 02169 765,000 1.2% 765,000 0 0
Anschutz Family 1,347,000 2.1% 1,347,000 0 0
Investment Company LLC
2400 Anaconda Tower
555 Seventeenth Street
Denver, CO 80202
Least Cost Routing, Inc. 70,413 * 70,413 0 0
1801 East Edinger Avenue,
Suite 125
Santa Ana, CA 92705
Long Distance Charges, Inc. 70,412 * 70,412 0 0
1801 East Edinger Avenue,
Suite 155
Santa Ana, CA 92705
Black Brook Capital, L.L.C. 200,000 * 200,000 0 0
c/o Mr. George P. Farley
485 Sylvan Avenue
Englewood Cliffs, NJ 07632
</TABLE>
* less than 1%
(1) As of the date of this Prospectus, D&K Charitable Foundation, a
District of Columbia non-profit corporation (the "Charitable
Foundation"), owns 1,200,000 shares of Common Stock contributed by Mr.
Borislow. The Charitable Foundation's directors are Mr. Borislow, Michele
Luff, who is Mr. Borislow's wife, and George P. Farley, who is Chief
Financial Officer, Treasurer and a director of the Company.
(2) Of the 3,000,000 shares that were acquired in the Private Sale,
2,588,700 are owned by MFS Series Trust II on behalf of MFS Emerging
Growth Fund, 186,900 shares by MFS/Sun Life Series Trust on behalf of
Capital Appreciation Series, 134,900 by MFS Growth Opportunities Fund,
and 89,500 by the Sun Life Assurance Company of Canada (U.S.) on behalf
of Capital Appreciation Variable Account (the forgoing named entities
that collectively own the 3,000,000 shares that were acquired in the
Private Sale to be referred to herein as the "MFS Selling Stockholders").
As of October 31, 1997, the MFS Selling Stockholders are the beneficial
owners of 6,965,800 shares. As of October 31, 1997, clients of
Massachusettes Financial Services Company, including the MFS Selling
Stockholders, are the beneficial owners of 7,149,449 shares.
(3) As of November 7, 1997, Putnam OTC & Emerging Growth Fund is the
beneficial owner of 1,255,800 shares, including 411,000 shares
<PAGE>
17
acquired in the Private Sale. As of November 7, 1997, clients of
subsidiaries of Putnam Investments, Inc., of which Putnam OTC & Emerging
Growth Fund is one, are the beneficial owners of 7,788,547 shares.
PLAN OF DISTRIBUTION
The Selling Stockholders have advised the Company that they may,
depending on market conditions and other factors, offer and sell the shares of
Common Stock offered hereby from time to time, in one or more transactions,
which may involve underwritten offerings or in open market or block transactions
or otherwise, on the Nasdaq National Market System, or such other national
securities exchange or automated interdealer quotation system on which shares of
Common Stock are then listed, in the over-the-counter market, in private
transactions or otherwise at prices related to prevailing market prices at the
time of sale, at negotiated prices, or at fixed prices, which may be changed.
Such sales may be effected directly or through agents, underwriters or dealers.
To the extent required pursuant to Rule 424 under the Securities Act, a
Prospectus Supplement will be filed with the Commission with respect to a
particular offering setting forth the terms of any offering, including the name
or names of any underwriters or agents, if any, any underwriting discounts and
other items constituting underwriters' compensation, the offering price and any
discounts or concessions allowed or reallowed or paid to dealers. Any offering
price and any discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time.
If underwriters are used in a sale, shares of Common Stock will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The shares may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more
firms acting as underwriters. The underwriter or underwriters with respect to a
particular underwritten offering of shares to be named in the Prospectus
Supplement relating to such offering and, if an underwriting syndicate is used,
the managing underwriter or underwriters, will be set forth on the cover of such
Prospectus Supplement. Unless otherwise set forth in the Prospectus Supplement
relating thereto, the obligations of the underwriters to purchase the offered
securities will be subject to conditions precedent and the underwriters will be
obligated to purchase all of the shares if any are purchased.
Some or all of the shares of Common Stock may be sold through brokers
acting on behalf of the Selling Stockholders or to dealers for resale by such
dealers. In connection with such sales, such brokers and dealers may receive
compensation in the form of discounts or commissions from the Selling
Stockholders and may receive commissions from the purchasers of such shares for
whom they act as broker or agent (which discounts and commissions are not
anticipated to exceed those customary in the types of transactions involved).
The Selling Stockholders may offer to sell and may sell all of its shares of
Common Stock in options transactions or deliver such shares to cover short sales
against the box. If necessary, a Prospectus Supplement or amended Prospectus
will describe the method of sale in greater detail. In effecting sales, brokers
or dealers engaged by the Selling Stockholders and/or purchasers of the Common
Stock may arrange for other brokers or dealers to participate. In addition, any
of the Common Stock covered by this Prospectus that qualifies for sale pursuant
to Rule 144 under the Securities Act may be sold under Rule 144 rather than
pursuant to this Prospectus.
If dealers are utilized in the sale of shares of Common Stock in respect
of which this Prospectus is delivered, the Selling Stockholders will sell such
shares to the dealers as principals. The dealers may then resell such shares to
the public at varying prices to be determined by such dealers at the time of
resale. The names of the dealers and the terms of the transaction will be set
forth in a Prospectus Supplement relating thereto.
If an agent is used, the agent will be named, and the terms of the agency
and any commissions will be set forth in a Prospectus Supplement relating
thereto. Unless otherwise indicated in the Prospectus, any such agent will be
acting on a best efforts basis for the period of its appointment.
Shares of Common Stock may be sold directly by the Selling Stockholders
to institutional investors or others, who may be deemed to be underwriters
within the meaning of the Securities Act with respect to any resale thereof. The
term of any such sales, including the terms of any bidding or auction process,
will be described in the Prospectus
<PAGE>
18
Supplement relating thereto.
Agents, dealers and underwriters may be entitled to indemnification from
the Company, a Selling Stockholder or both against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which such agents, dealers or underwriters may be required to make
in respect thereof. Agents, dealers and underwriters may be customers of, engage
in transactions with, or perform services for the Company or the Selling
Stockholders in the ordinary course of business.
The Company will bear all costs and expenses of the registration of the
Common Stock under the Securities Act and certain state securities laws, other
than fees of counsel for any of the Selling Stockholders and any discounts or
commissions payable with respect to sales of such Common Stock. The Selling
Stockholders will pay any transaction costs associated with effecting any sales
by them that occur.
The Selling Stockholders are not restricted as to the price or prices at
which they may sell shares of Common Stock. Such sales may have an adverse
effect on the market price of the Common Stock. Moreover, except as described
above under "SELLING STOCKHOLDERS," the Selling Stockholders are not restricted
as to the number of shares of Common Stock that may be sold at any one time, and
it is possible that a significant number of shares could be sold at the same
time, which also may have an adverse effect on the market price of the Common
Stock.
Mr. Borislow has agreed to indemnify the Investors against certain
civil liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Aloysius T. Lawn, IV, the Company's General Counsel and Secretary, will render
an opinion to the effect that the shares of Common Stock offered by this
Prospectus are duly authorized, validly issued, fully paid and non-assessable.
Mr. Lawn owns 114,330 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.
<PAGE>
19
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 4
RISK FACTORS 6
THE COMPANY 14
DESCRIPTION OF CAPITAL STOCK 14
USE OF PROCEEDS 14
SELLING STOCKHOLDERS 15
PLAN OF DISTRIBUTION 17
LEGAL MATTERS 18
EXPERTS 18
