As filed with the Securities and Exchange Commission on October 30, 1997
REGISTRATION NO. 333-38943
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TEL-SAVE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 4813 23-2827736
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
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<TABLE>
<S> <C>
6805 ROUTE 202 ALOYSIUS T. LAWN, IV, ESQ.
NEW HOPE, PENNSYLVANIA 18938 GENERAL COUNSEL AND SECRETARY
(215) 862-1500 TEL-SAVE HOLDINGS, INC.
6805 ROUTE 202
NEW HOPE, PENNSYLVANIA 18938
(215) 862-1500
(Address, including Zip Code, and Telephone (Name, Address, including Zip Code, and
Number, including Area Code, of Telephone Number, including Area
Registrant's Principal Executive Offices) Code, of Agent for Service)
</TABLE>
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Copies of all Communications to:
<TABLE>
<S> <C>
JONATHAN C. STAPLETON, ESQ. HELENE R. BANKS, ESQ.
ARNOLD & PORTER CAHILL GORDON & REINDEL
399 PARK AVENUE 80 PINE STREET
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10005
(212) 715-1000 (212) 701-3000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement and the effective time of the merger (the "Merger") of Shared
Technologies Fairchild Inc. ("STF") and TSHCo, Inc. ("Merger Sub"), a wholly
owned subsidiary of the Registrant, as described in the Agreement and Plan of
Merger, dated as of July 16, 1997, among the Registrant, Merger Sub and STF,
attached as Annex A to the Joint Proxy Statement/Prospectus forming a part of
this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION,
DATED OCTOBER 30, 1997
TEL-SAVE HOLDINGS, INC.
6805 ROUTE 202
NEW HOPE, PENNSYLVANIA 18938
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 1, 1997
To the Stockholders of
Tel-Save Holdings, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Tel-Save Meeting") of Tel-Save Holdings, Inc., a Delaware corporation
("Tel-Save"), will be held on Monday, December 1, 1997, at The Inn at
Lambertville Station, 11 Bridge Street, Lambertville, New Jersey 08530,
commencing at 9:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve and authorize the
transactions contemplated by the Agreement and Plan of Merger, dated as of July
16, 1997 (the "Merger Agreement"), among Tel-Save, TSHCo, Inc., a Delaware
corporation and wholly owned subsidiary of Tel-Save ("Merger Sub"), and Shared
Technologies Fairchild Inc., a Delaware corporation ("STF"), including, without
limitation,
(a) the merger of STF with and into Merger Sub, with Merger Sub being the
surviving corporation and continuing as a wholly owned subsidiary of Tel-Save
(the "Merger");
(b) the issuance, upon effectiveness of the Merger, of (i) shares of
Tel-Save Common Stock, par value $.01 per share (the "Tel-Save Common
Stock"), in exchange for (a) the shares of STF Common Stock, par value $.004
per share (the "STF Common Stock"), outstanding at the effective time of the
Merger (the "Effective Time"), and (b) the shares of STF Series I 6%
Cumulative Convertible Preferred Stock outstanding at the Effective Time;
(ii) shares of Series A Preferred Stock, par value $.01 per share, of
Tel-Save (the "Tel-Save Series A Preferred") in exchange for the shares of
STF Series D Preferred Stock outstanding at the Effective Time; and (iii)
cash in exchange for the shares of STF Series J Redeemable Special Preferred
Stock;
(c) the assumption by Tel-Save of the STF warrants to purchase STF Common
Stock outstanding at the Effective Time (the "Assumed Warrants"), and of the
STF employee and director stock options to purchase STF Common Stock (the
"STF Options") outstanding at the Effective Time;
(d) the amendment of the Tel-Save Amended and Restated Certificate of
Incorporation, as amended (the "Tel-Save Charter"), to increase the number of
authorized shares of Tel-Save Common Stock by such number as is required to
satisfy the issuances of Tel-Save Common Stock pursuant to the Merger
Agreement, including upon conversion or exercise of the Tel-Save Series A
Preferred, the Tel-Save Warrants and the STF Options to be assumed by
Tel-Save pursuant to the terms of the Merger Agreement (to the extent the
Charter Amendment referred to below is not approved); and
(e) the election of two persons who are directors of STF (the "STF
Designees") as directors of Tel-Save for three-year terms.
2. To consider and vote upon a proposal to approve an amendment to the
Tel-Save Charter (the "Charter Amendment") to increase the total number of
shares of capital stock that Tel-Save has the authority to issue from
105,000,000 to 305,000,000 and the total number of shares of Tel-Save Common
Stock that Tel-Save has the authority to issue from 100,000,000 to 300,000,000.
3. To consider and vote upon a proposal to elect three directors, not
including the STF Designees.
4. To consider and vote upon a proposal to ratify and approve the
designation of BDO Seidman, LLP as the independent certified public accountants
for Tel-Save for 1997.
5. To consider and vote upon a proposal to ratify and approve the grant of
certain stock options to an executive officer of Tel-Save.
6. To transact such other business as may properly come before the Tel-Save
Meeting or any adjournment or postponement of the Tel-Save Meeting.
<PAGE>
A copy of the Merger Agreement is attached as Annex A to the accompanying
Joint Proxy Statement/Prospectus.
Stockholders of record at the close of business on October 8, 1997 are
entitled to notice of, and to vote at, the Tel-Save Meeting and any adjournment
or postponement of the Tel-Save Meeting.
All stockholders are cordially invited to attend in person. However, to
ensure your representation at the meeting, you are urged to complete, sign and
return the enclosed proxy card as promptly as possible in the enclosed
postage-prepaid envelope.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE THE
ABOVE MENTIONED PROPOSALS. THESE PROPOSALS AND OTHER INFORMATION RELATING TO THE
ANNUAL MEETING ARE DESCRIBED IN DETAIL IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS.
By Order of the
Board of Directors
Aloysius T. Lawn, IV, Secretary
New Hope, Pennsylvania
October 30, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
SUBJECT TO COMPLETION,
DATED OCTOBER 30, 1997
SHARED TECHNOLOGIES FAIRCHILD INC.
100 GREAT MEADOW ROAD, SUITE 104
WETHERSFIELD, CONNECTICUT 06109
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 1, 1997 AT 9:00 A.M.
To the Stockholders of
Shared Technologies Fairchild Inc.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "STF
Meeting") of Shared Technologies Fairchild Inc., a Delaware corporation ("STF"),
will be held on Monday, December 1, 1997 at 9:00 a.m. local time, at STF, 100
Great Meadow Road, Suite 104, Wethersfield, Connecticut 06109 to consider and
act upon a proposal to approve the merger of STF with and into TSHCo, Inc.
("Merger Sub"), a wholly owned subsidiary of Tel-Save Holdings, Inc.
("Tel-Save"), with Merger Sub as the surviving corporation (the "Merger")
pursuant to the terms of an Agreement and Plan of Merger, dated as of July 16,
1997 (the "Merger Agreement"), and to transact such other business as may be
properly brought before the STF Meeting or any adjournment or postponement
thereof.
Upon the Merger becoming effective, each share of Common Stock, par value
$.004 per share, of STF (the "STF Common Stock") will be converted into the
right to receive, and become exchangeable for, shares of common stock, par value
$.01 per share, of Tel-Save, calculated according to the ratio as set forth in
the Merger Agreement and as described in the accompanying Joint Proxy Statement/
Prospectus but in any event no greater than 1.125, and subject to increase or
decrease in certain circumstances as set forth in the Merger Agreement and as
described in the accompanying Joint Proxy Statement/Prospectus and each share of
Series D Preferred Stock, par value $.01 per share, outstanding will be
converted into the right to receive shares of Series A Preferred Stock, par
value $.01 per share, of Tel-Save.
Only holders of record of STF Common Stock at the close of business on
October 8, 1997, are entitled to notice of and to vote at the STF Meeting. The
affirmative vote of the holders of a majority of the STF Common Stock
outstanding is required to approve the Merger. Holders of approximately 53% of
the outstanding STF Common Stock have agreed to vote their Shares in favor of
the Merger.
Holders of STF Series D Preferred who object to the Merger Agreement and
follow the procedures set forth in Section 262 of the Delaware General
Corporation Law (the "DGCL") will have the right to "fair value" for their
shares of STF Series D Preferred judicially determined and paid to them in cash
if the Merger Agreement is adopted, the Merger is approved and if the Merger is
consummated. See Section 262 of the DGCL attached as Annex D to the accompanying
Joint Proxy Statement/Prospectus.
By Order of the
Board of Directors
Kenneth M. Dorros, Secretary
Dated: October 30, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ASSURE REPRESENTATION OF YOUR SHARES AT THE MEETING. NO POSTAGE NEED BE
AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES. THE GIVING OF SUCH PROXY
DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON. YOU MAY REVOKE YOUR PROXY AT ANY
TIME BEFORE IT IS VOTED. PROPERLY EXECUTED PROXIES WILL BE VOTED IN THE MANNER
DIRECTED BY THE STOCKHOLDER. IF NO SUCH DIRECTION IS MADE, THE PROXY WILL BE
VOTED "FOR" THE MERGER.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 30, 1997
TEL-SAVE HOLDINGS, INC.
AND
SHARED TECHNOLOGIES FAIRCHILD INC.
JOINT PROXY STATEMENT
TEL-SAVE HOLDINGS, INC.
PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to holders of
Common Stock, par value $.01 per share (the "Tel-Save Common Stock"), of
Tel-Save Holdings, Inc., a Delaware corporation ("Tel-Save"), in connection with
the solicitation of proxies by the Board of Directors of Tel-Save (the "Tel-Save
Board") for use at the Annual Meeting of Stockholders of Tel-Save (the "Tel-Save
Meeting") to be held on Monday, December 1, 1997, at The Inn at Lambertville
Station, 11 Bridge Street, Lambertville, New Jersey 08530, commencing at 9:00
a.m., local time, and at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Common Stock, par value $.004 per share (the "STF Common Stock"), of Shared
Technologies Fairchild Inc., a Delaware corporation ("STF"), in connection with
the solicitation of proxies by the Board of Directors of STF (the "STF Board")
for use at the Special Meeting of Stockholders of STF (the "STF Meeting") to be
held on Monday, December 1, 1997, at STF, 100 Great Meadow Road, Suite 104,
Wethersfield, Connecticut 06109, commencing at 9:00 a.m., local time, and at any
adjournment or postponement thereof.
Tel-Save has filed a Registration Statement on Form S-4 (including the
exhibits and amendments thereto, the "Registration Statement") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), covering up to
28,515,233 shares of Tel-Save Common Stock, up to 57,950 shares of Series A
Preferred Stock, par value $.01 per share, of Tel-Save (the "Tel-Save Series A
Preferred") and Tel-Save warrants (the "Tel-Save Warrants") to purchase up to
2,107,744 shares of Tel-Save Common Stock that may be issued pursuant to the
Agreement and Plan of Merger, dated as of July 16, 1997 (the "Merger
Agreement"), among Tel-Save, TSHCo, Inc., a Delaware corporation and wholly
owned subsidiary of Tel-Save ("Merger Sub"), and STF, upon the effectiveness of
the merger (the "Merger") of STF with and into Merger Sub provided for in the
Merger Agreement, in exchange for shares of STF Common Stock, shares of STF
Series D Preferred Stock (the "STF Series D Preferred"), shares of STF Series I
6% Cumulative Convertible Preferred Stock (the "STF Series I Preferred"), and
STF warrants (the "Assumed Warrants") to purchase STF Common Stock outstanding
at the effective time of the Merger (the "Effective Time"), and that may be
issued upon subsequent conversion of the Tel-Save Series A Preferred.
Pursuant to the Merger Agreement, STF will be merged with and into Merger
Sub, with Merger Sub being the surviving corporation (the "Surviving
Corporation") in the Merger and continuing as a wholly owned subsidiary of
Tel-Save, and (i) each outstanding share of STF Common Stock will be converted
into such number of shares of Tel-Save Common Stock as equals the quotient
(rounded to four decimal places) (such fraction, 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 Tel-Save Common Stock on The Nasdaq Stock
Market's National Market (the "Nasdaq National Market") for the fifteen
consecutive trading days ending on the trading day three trading days
immediately preceding the date of the Effective Time (the "Closing Date Market
Price") exceeds $20, divided by (b) the Closing Date Market Price, provided,
however, that the Exchange Ratio shall not exceed 1.125; (ii) each outstanding
share of STF Series D Preferred will be converted into one share of Tel-Save
Series A Preferred; (iii) each outstanding share of STF Series I Preferred will
be converted into such number of shares of Tel-Save Common Stock as would be
issuable, at the Exchange Ratio, in respect of the shares of STF Common Stock
issuable upon conversion of such STF Series I Preferred in accordance with its
terms as of the Effective Time; (iv) each outstanding Assumed Warrant will be
converted into a Tel-Save Warrant to purchase such number of shares of Tel-Save
Common Stock as would be issuable, at the Exchange Ratio, in respect of the
shares of STF Common Stock issuable upon exercise of such Assumed Warrant in
accordance with its terms as of the Effective Time; and (v) the shares of STF
Series J Redeemable Special Preferred Stock (the "STF Special Preferred") will
be converted into an amount of cash equal to the amount payable, in accordance
with the terms of such STF Special Preferred, upon redemption of such STF
Special Preferred as of the Effective Time, which amount would be approximately
$21,917,808 as of the Tel-Save and STF Meetings.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Based upon the number of outstanding shares of Tel-Save Common Stock and
STF Common Stock and STF Series I Preferred as of October 8, 1997, and assuming
Exchange Ratios of 1.125 (a Closing Date Market Price of $10 or less) and .5625
(a Closing Date Market Price of $20), the stockholders of STF immediately prior
to the consummation of the Merger would own approximately 26.8% and 15.5%,
respectively, of the outstanding shares of Tel-Save Common Stock immediately
following consummation of the Merger, and up to approximately 30.3% and 17.9%,
respectively, assuming conversion of the Tel-Save Series A Preferred to be
issued and exercise of the Tel-Save Warrants to be issued in exchange for the
STF Series D Preferred and the Assumed Warrants, respectively, and exercise of
the STF Options to be assumed by Tel-Save. On October 24, 1997, the last
reported sales price of the Tel-Save Common Stock on the Nasdaq National Market
was $25 1/4 per share, and the last reported sales price of the STF Common Stock
on the Nasdaq National Market was $12 7/16 per share.
Approval of the transactions contemplated by the Merger Agreement will
require the favorable vote of the holders of a majority of all shares of
Tel-Save Common Stock outstanding and entitled to vote at the Tel-Save Meeting.
The close of business on October 8, 1997 has been fixed as the record date (the
"Tel-Save Record Date") for determining stockholders entitled to vote at the
Tel-Save Meeting and any and all adjournments thereof. As of the Tel-Save Record
Date, there were 65,610,949 issued and outstanding shares of Tel-Save Common
Stock held of record by approximately 112 Tel-Save stockholders. As of the
Tel-Save Record Date, the members of the Tel-Save Board and the executive
officers of Tel-Save owned an aggregate of 26,625,248 shares (approximately
40.6% of the total shares of Tel-Save Common Stock outstanding). Mr. Daniel
Borislow, Chairman and Chief Executive Officer of Tel-Save, who was entitled to
vote in the aggregate approximately 38.0% of Tel-Save Common Stock outstanding
as of the Tel-Save Record Date, has entered into an agreement with STF (the
"Borislow Voting Agreement") under which he has agreed to vote such shares of
Tel-Save Common Stock in favor of the Merger. See "MERGER RELATED TRANSACTIONS
- -- Voting Agreements." For additional information concerning the beneficial
ownership of shares of Tel-Save Common Stock, see "INFORMATION ABOUT TEL-SAVE --
Security Ownership of Certain Beneficial Owners and Management."
Approval of the transactions contemplated by the Merger Agreement will
require the favorable vote of the holders of a majority of all shares of STF
Common Stock outstanding and entitled to vote at the STF Meeting. The close of
business on October 8, 1997 has been fixed as the record date (the "STF Record
Date") for determining stockholders entitled to vote at the STF Meeting and any
and all adjournments thereof. As of the STF Record Date, there were 17,167,905
issued and outstanding shares of STF Common Stock held of record by
approximately 220 STF stockholders. As of the STF Record Date, the members of
the STF Board and the executive officers of STF owned an aggregate of 3,468,895
shares (approximately 20.2% of the total shares of STF Common Stock
outstanding). RHI Holdings, Inc. ("RHI"), J.J. Cramer & Co., Mentor Partners,
L.P. and Mr. Anthony D. Autorino, the Chairman and Chief Executive Officer of
STF, who owned and were entitled to vote in the aggregate approximately 53% of
the outstanding STF Common Stock as of the STF Record Date, have entered into
separate agreements with Tel-Save (the "STF Voting Agreements") pursuant to
which each has agreed to vote its or his respective shares of STF in favor of
the Merger. See "MERGER RELATED TRANSACTIONS -- Voting Agreements." For
additional information concerning the beneficial ownership of shares of STF
Common Stock, see "INFORMATION ABOUT STF -- Security Ownership of Certain
Beneficial Owners and Management."
The Tel-Save Board believes that the Merger is fair to the Tel-Save
stockholders and in the best interest of Tel-Save and the Tel-Save stockholders,
and the Tel-Save Board recommends that the Tel-Save stockholders vote for the
approval of the Merger. In making this recommendation, the Tel-Save Board is
relying upon, among other things, the opinion of Salomon Brothers Inc ("Salomon
Brothers"), which Tel-Save retained to determine the fairness, from a financial
point of view, to Tel-Save of the consideration to be paid by Tel-Save in the
Merger (the "Tel-Save Merger Consideration"). See "THE MERGER -- Opinion of
Tel-Save Financial Advisor."
The STF Board believes that the Merger is fair to the STF stockholders and
in the best interest of STF and the STF stockholders, and the STF Board
recommends that the STF stockholders vote for the approval of the Merger. In
making this recommendation, the STF Board is relying upon, among other things,
the opinion of Deutsche Morgan Grenfell Inc. ("DMG"), which STF retained to
determine the fairness, from a financial point of view, to the holders of STF
Common Stock of the consideration to be received by such holders in the Merger
(the "STF Merger Consideration"). See "THE MERGER -- Opinion of STF Financial
Advisor."
2
<PAGE>
IF THE MERGER IS APPROVED BY THE STOCKHOLDERS OF TEL-SAVE AND STF, IT IS
EXPECTED THAT THE CLOSING OF THE MERGER WILL OCCUR ON DECEMBER 1, 1997,
IMMEDIATELY FOLLOWING THE TEL-SAVE AND STF MEETINGS, AND THAT THE MERGER
CONSIDERATION WILL BE DETERMINED FOLLOWING THE CLOSING OF TRADING OF TEL-SAVE
COMMON STOCK ON NOVEMBER 25, 1997. STF AND TEL-SAVE STOCKHOLDERS CAN OBTAIN A
QUOTATION OF THE MERGER CONSIDERATION CALCULATED AS OF SUCH TIME FREE OF CHARGE
BY CALLING 1-888-251-7155 AT ANY TIME AFTER 8:00 P.M., E.S.T., NOVEMBER 25,
1997, AND PRIOR TO THE TEL-SAVE AND STF MEETINGS. TEL-SAVE AND STF STOCKHOLDERS
MAY CAST OR CHANGE THEIR VOTES, EVEN IF THEY HAVE PREVIOUSLY SUBMITTED PROXIES,
BY SUBMITTING SIGNED PROXIES BY FAX TO 1-888-404-7977 IN THE CASE OF TEL-SAVE
STOCKHOLDERS AND 1-800-509-5586 (ATTN: PROXY DEPT.) IN THE CASE OF STF
STOCKHOLDERS, AND IN EACH CASE AT ANY TIME PRIOR TO THE RESPECTIVE MEETING.
This Joint Proxy Statement/Prospectus constitutes the Prospectus of
Tel-Save comprising a part of the Registration Statement. The Merger Agreement
is attached as Annex A to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference. As used herein, the term "Combined Company"
means Tel-Save and STF and their respective subsidiaries as a consolidated
entity following the Merger.
All information contained in this Joint Proxy Statement/Prospectus relating
to Tel-Save has been supplied by Tel-Save, and all information relating to STF
has been supplied by STF.
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY BOTH TEL-SAVE AND STF STOCKHOLDERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus is dated October 30, 1997 and is
first being mailed to stockholders of Tel-Save and STF on or about October 30,
1997.
3
<PAGE>
TABLE OF CONTENTS
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<S> <C>
AVAILABLE INFORMATION ...................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE .............................. 1
SUMMARY ..................................................................... 3
The Companies ............................................................... 3
Date, Place and Time of the Meetings ....................................... 3
Stockholders Entitled to Vote ............................................. 3
Purposes of the Meetings ................................................... 4
Votes Required ............................................................ 4
Effects of the Merger ...................................................... 5
Board Recommendations ...................................................... 7
Opinions of Financial Advisors ............................................. 7
Interests of Certain Persons in the Merger ................................. 8
Certain Merger Related Transactions ....................................... 9
Operation of STF Following the Merger ....................................... 10
Accounting Treatment ...................................................... 10
Material U.S. Federal Income Tax Consequences .............................. 10
Appraisal Rights ............................................................ 10
Conditions to the Merger ................................................... 11
Termination ............................................................... 11
STF's Termination Rights Related to Tel-Save Common Stock Price ............ 11
Effective Time of the Merger ................................................ 12
Certain Effects of the Merger on the Rights of Holders of STF Common Stock 12
Selected Historical Consolidated Financial Information ..................... 12
Summary Unaudited Pro Forma Combined Financial Data ........................ 16
Selected Historical and Pro Forma Per Share Data ........................... 18
RISK FACTORS ............................................................... 20
Risks Relating to the Merger ................................................ 20
Certain Company Risks ...................................................... 21
THE TEL-SAVE ANNUAL MEETING ................................................ 29
General ..................................................................... 29
Purpose of the Tel-Save Meeting ............................................. 29
Date, Place and Time ...................................................... 29
Record Date ............................................................... 29
Tel-Save Voting Rights; No Appraisal Rights ................................. 29
Voting by Proxy ............................................................ 30
Solicitation of Proxies ................................................... 30
THE STF SPECIAL MEETING ...................................................... 31
General ..................................................................... 31
Purpose of the STF Meeting ................................................ 31
Date, Place and Time ...................................................... 31
Record Date ............................................................... 31
STF Voting Rights; Appraisal Rights ....................................... 31
Voting by Proxy ............................................................ 32
Solicitation of Proxies ................................................... 32
</TABLE>
i
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PAGE
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THE MERGER ........................................................................... 32
Background of the Merger; Material Contacts Between the Parties ..................... 32
Tel-Save Reasons for the Merger; Recommendation of the Tel-Save Board of Directors ... 34
Opinions of Tel-Save Financial Advisor ............................................... 35
STF Background and Reasons for the Merger; Recommendation of the STF Board of Direc-
tors 39
Opinions of STF Financial Advisor .................................................. 41
Interests of Certain Persons in the Merger .......................................... 44
Operation of STF Following the Merger ................................................ 46
Accounting Treatment ............................................................... 46
Material U.S. Federal Income Tax Consequences ....................................... 47
Regulatory Approvals ............................................................... 48
Resales of Tel-Save Common Stock, Tel-Save New Preferred Stock, and Tel-Save Warrants
Received in the Merger ............................................................ 49
Stock Market Quotation ............................................................... 50
Appraisal Rights ..................................................................... 50
Comparative Per Share Market Prices and Dividends .................................... 52
THE MERGER AGREEMENT .................................................................. 54
General .............................................................................. 54
Conversion of Shares ............................................................... 54
Options and Warrants ............................................................... 56
Representations and Warranties ...................................................... 56
Certain Covenants .................................................................. 57
No Solicitation ..................................................................... 57
Board Representation ............................................................... 58
Related Matters After the Merger ................................................... 58
Director and Officer Indemnification ................................................ 58
Conditions ........................................................................... 58
Termination; Termination Fees and Expenses .......................................... 60
Amendment and Waiver ............................................................... 61
Amendment of Tel-Save's Charter ...................................................... 61
MERGER RELATED TRANSACTIONS ......................................................... 62
STF Agreement ........................................................................ 62
Voting Agreements .................................................................. 62
Tel-Save Purchase of STF Notes ...................................................... 63
INFORMATION ABOUT TEL-SAVE ............................................................ 64
Business ........................................................................... 64
Security Ownership of Certain Beneficial Owners and Management ..................... 64
Executive Officers .................................................................. 66
Compensation of Executive Officers ................................................... 67
Employment Contracts ............................................................... 69
Report on Executive Compensation ................................................... 69
Compensation Committee Interlocks and Insider Participation ........................ 70
Performance Graph .................................................................. 71
INFORMATION ABOUT STF ............................................................... 71
Business ........................................................................... 71
Security Ownership of Certain Beneficial Owners and Management ..................... 72
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS ........................ 75
DESCRIPTION OF TEL-SAVE CAPITAL STOCK ............................................. 93
Common Stock ..................................................................... 93
Preferred Stock .................................................................. 93
Transfer Agent .................................................................. 94
COMPARISON OF STOCKHOLDER RIGHTS ................................................... 94
Authorized Capital Stock ......................................................... 94
Voting Rights ..................................................................... 94
Preemptive Rights; Cumulative Voting ............................................. 95
Action by Written Consent of Stockholders ....................................... 95
Special Meetings of Stockholders ................................................ 95
Quorum and Voting Requirements for Stockholder Meetings ........................... 95
Stockholder Proposals ............................................................ 95
Board of Directors ............................................................... 95
Vacancies and Newly Created Directorships ....................................... 96
Limitation on Director's Liability ................................................ 96
Removal of Directors ............................................................ 96
Indemnification .................................................................. 96
Amendments to Charter and Bylaws ................................................ 96
TEL-SAVE PROPOSAL 2: AMENDMENT OF TEL-SAVE'S CHARTER .............................. 97
TEL-SAVE PROPOSAL 3: ELECTION OF DIRECTORS ....................................... 98
General ........................................................................... 98
Nominees and Directors ............................................................ 98
Biographical Information ......................................................... 99
Compensation of Directors ......................................................... 100
Board Meetings and Committees ................................................... 100
Section 16(a) Beneficial Ownership Reporting Compliance ........................... 101
TEL-SAVE PROPOSAL 4: RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS ..................................................................... 102
TEL-SAVE PROPOSAL 5: GRANT OF STOCK OPTIONS ....................................... 103
LEGAL MATTERS ..................................................................... 104
EXPERTS ........................................................................... 104
FUTURE STOCKHOLDER PROPOSALS ...................................................... 104
OTHER BUSINESS ..................................................................... 104
Annex A Agreement and Plan of Merger dated as of July 16, 1997 among Tel-Save Hold-
ings, Inc., TSHCo, Inc. and Shared Technologies Fairchild Inc. A-1
Annex B Opinion of Salomon Brothers Inc .......................................... B-1
Annex C Opinion of Deutsche Morgan Grenfell Inc. ................................. C-1
Annex D Section 262 of the Delaware General Corporation Law ..................... D-1
</TABLE>
iii
<PAGE>
AVAILABLE INFORMATION
Tel-Save and STF are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission"). The
reports, proxy and information statements and other information filed by
Tel-Save and STF with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the Commission's Regional Offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, Washington, D.C. 20549. In
addition, Tel-Save and STF are each required to file electronic versions of such
material with the Commission through the Commission's Electronic Data Gathering,
Analysis and Retrieval (EDGAR) system. The Commission maintains a World Wide Web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Tel-Save Common Stock and STF Common Stock are both quoted
on the Nasdaq National Market. Reports, proxy and information statements and
other information concerning Tel-Save and STF may also be inspected at the
offices of the National Association of Securities Dealers, Inc., Market Listing
Section, 1735 K Street, N.W., Washington, D.C. 20006.
Tel-Save has filed with the Commission a Registration Statement on Form S-4
under the Securities Act with respect to the shares of Tel-Save Common Stock,
the Tel-Save Series A Preferred and the Tel-Save Warrants to be issued pursuant
to the Merger Agreement. This Joint Proxy Statement/ Prospectus does not contain
all the information set forth in the Registration Statement. For further
information with respect to Tel-Save, STF, Tel-Save Common Stock, Tel-Save
Series A Preferred and the Tel-Save Warrants, reference is hereby made to the
Registration Statement (including the exhibits and schedules thereto).
Statements contained in this Joint Proxy Statement/Prospectus or in any document
incorporated by reference in this Joint Proxy Statement/Prospectus as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document (if any) filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following Tel-Save documents filed with the Commission are incorporated
by reference in this Joint Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1996;
2. Amendments Nos. 1 and 2 to Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1996;
3. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and
June 30, 1997, Amendments No. 1 and No. 2 to Quarterly Report on Form
10-Q/A for the quarter ended March 31, 1997 and Amendment No. 1 to
Quarterly Report on Form 10-Q/A for the quarter ended June 30, 1997;
4. Current Reports on Form 8-K dated March 6, 1997, April 24, 1997, July
22, 1997, September 2, 1997, September 5, 1997 and October 29, 1997, and
Current Reports on Form 8-K/A dated February 3, 1997, February 28, 1997
and August 15, 1997; and
5. The description of Tel-Save's capital stock contained in Tel-Save's
Registration Statement on Form 8-A dated September 12, 1995.
The following STF documents filed with the Commission are incorporated by
reference in this Joint Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the year ended December 31, 1996;
1
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2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and
June 30, 1997;
3. Current Report on Form 8-K dated July 31, 1997; and
4. The description of STF's common stock contained in STF's Registration
Statement on Form 8-A dated December 8, 1988 and any amendment or report
filed to update such information.
All documents and reports subsequently filed by Tel-Save or STF pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement/Prospectus and prior to December 1, 1997, the date of the
Tel-Save Meeting and the STF Meeting, shall be deemed to be incorporated by
reference in this Joint Proxy Statement/Prospectus and to be part hereof from
the date of filing of such documents or reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document that 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 Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST, WITHOUT CHARGE, BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS
WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST, IN THE CASE OF DOCUMENTS
RELATING TO TEL-SAVE, DIRECTED TO ALOYSIUS T. LAWN, IV, ESQ. (TELEPHONE NUMBER
215-862-1500), ATTENTION: SECRETARY, OR, IN THE CASE OF DOCUMENTS RELATING TO
STF, DIRECTED TO KENNETH M. DORROS, ESQ. (TELEPHONE NUMBER 860-258-2400),
ATTENTION: SECRETARY. IN ORDER TO ENSURE TIMELY DELIVERY OF ANY OF SUCH
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY NOVEMBER 20, 1997.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY TEL-SAVE,
STF OR ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF TEL-SAVE
OR STF SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
2
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained, or
incorporated by reference, in this Joint Proxy Statement/ Prospectus and the
Annexes attached hereto. Unless otherwise defined herein, capitalized terms used
in this summary have the respective meanings ascribed to them elsewhere in this
Joint Proxy Statement/Prospectus. Certain of the information contained or
incorporated by reference in this Joint Proxy Statement/Prospectus may
constitute forward-looking statements, including statements as to the benefits
and synergies expected to be realized as a result of the Merger and as to future
financial performance and the analyses used by the financial advisors to
Tel-Save and STF. See "THE MERGER -- Background of the Merger; Material Contacts
Between the Parties," "-- Tel-Save Reasons for the Merger; Recommendation of the
Tel-Save Board of Directors," "-- Opinion of Tel-Save Financial Advisor," "--
STF Background and Reasons for the Merger; Recommendation of the STF Board of
Directors," and "-- Opinion of STF Financial Advisor." There are a number of
important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements. Such factors include,
without limitation, those set forth in this Joint Proxy Statement/Prospectus
under the heading "RISK FACTORS." STOCKHOLDERS ARE URGED TO READ THIS JOINT
PROXY STATEMENT/PROSPECTUS AND THE ANNEXES ATTACHED HERETO IN THEIR ENTIRETY.
THE COMPANIES
TEL-SAVE
Tel-Save provides long distance telecommunications services primarily to
small and medium-sized businesses located throughout the United States.
Tel-Save's long distance service offerings include outbound service, inbound
toll-free 800 service, and dedicated private line services for data. The
principal executive office of Tel-Save is located at 6805 Route 202, New Hope,
Pennsylvania 18938, and its telephone number is (215) 862-1500. As used in this
Joint Proxy Statement/ Prospectus, the term "Tel-Save" refers to Tel-Save and
its wholly owned subsidiaries, unless the context otherwise requires.
STF
STF is engaged in providing shared telecommunication services and
telecommunications systems to tenants of modern, multi-tenant office buildings.
The principal executive office of STF is located at 100 Great Meadow Road, Suite
104, Wethersfield, Connecticut 06109, and its telephone number is (860)
258-2400. As used in this Joint Proxy Statement/Prospectus, the term "STF"
refers to STF and its wholly owned subsidiaries, unless the context otherwise
requires.
DATE, PLACE AND TIME OF THE MEETINGS
The Tel-Save Meeting will be held on December 1, 1997 at The Inn at
Lambertville Station, 11 Bridge Street, Lambertville, New Jersey 08530,
commencing at 9:00 a.m., local time.
The STF Meeting will be held December 1, 1997 at STF, 100 Great Meadow
Road, Suite 104, Wethersfield, Connecticut 06109, commencing at 9:00 a.m., local
time.
STOCKHOLDERS ENTITLED TO VOTE
Holders of record of shares of Tel-Save Common Stock at the close of
business on October 8, 1997 (the Tel-Save Record Date) are entitled to notice of
and to vote at the Tel-Save Meeting. At such date, there were 65,610,949 shares
of Tel-Save Common Stock outstanding, each of which will be entitled to one vote
on each matter to be acted upon or that may properly come before the Tel-Save
Meeting.
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<PAGE>
Holders of record of shares of STF Common Stock at the close of business on
October 8, 1997 (the STF Record Date) are entitled to notice of and to vote at
the STF Meeting. At such date, there were 17,167,905 shares of STF Common Stock
outstanding, each of which will be entitled to one vote on each matter to be
acted upon or that may properly come before the STF Meeting.
PURPOSES OF THE MEETINGS
TEL-SAVE MEETING
The purpose of the Tel-Save Meeting is to consider and vote upon the
following proposals: (i) the approval and authorization of the transactions
contemplated by the Merger Agreement, including the merger of STF with and into
Merger Sub, with Merger Sub continuing as a wholly owned subsidiary of Tel-Save,
the issuance of up to 28,515,233 shares of Tel-Save Common Stock in exchange for
shares of STF Common Stock and STF Series I Preferred pursuant thereto and up to
57,950 shares of Tel-Save Series A Preferred in exchange for shares of STF
Series D Preferred, the amendment of Tel-Save's Amended and Restated Certificate
of Incorporation, as amended (the "Tel-Save Charter") to increase the number of
authorized shares of Tel-Save Common Stock by such number as is necessary to
satisfy such issuances of Tel-Save Common Stock (to the extent the Charter
Amendment referred to below is not approved) and the election of the STF
Designees (as defined below) as directors of Tel-Save for three-year terms (the
"Merger Proposal"); (ii) an amendment to the Tel-Save Charter (the "Charter
Amendment"), to increase the total number of shares of capital stock Tel-Save
has the authority to issue from 105,000,000 to 305,000,000 and the total number
of shares of Tel-Save Common Stock that Tel-Save has the authority to issue from
100,000,000 to 300,000,000; (iii) the election of three directors (not including
the STF Designees); (iv) the ratification of the designation of BDO Seidman, LLP
as the independent certified public accountants for Tel-Save (the "Auditor
Ratification"); (v) the approval of certain stock options granted to an
executive officer in connection with such officer's employment by Tel-Save (the
"Option Proposal"); and (vi) such other matters as may properly be brought
before the Tel-Save Meeting, or any adjournment or postponement thereof.
STF SPECIAL MEETING
The purpose of the STF Meeting is to consider and vote upon (i) a proposal
to approve and adopt the Merger Agreement and (ii) such other matters as may
properly be brought before the STF Meeting, or any adjournment or postponement
thereof.
VOTES REQUIRED
TEL-SAVE
The approval of the Merger Proposal, the Charter Amendment and the Option
Proposal will require the affirmative vote of the holders of a majority of the
shares of Tel-Save Common Stock outstanding on the Tel-Save Record Date. The
approval of the Auditor Ratification will require the affirmative vote of the
holders of a majority of the shares present in person or represented by proxy at
the Tel-Save Meeting and entitled to vote, assuming a quorum is present. The
nominees for election as directors who receive the greatest number of votes cast
at the Tel-Save Meeting, assuming that a quorum is present, shall be elected as
directors. The election of Messrs. Jeffrey J. Steiner and Anthony D. Autorino
(the "STF Designees") will be effected by the approval of the Merger Proposal
and the consummation of the Merger. Mr. Daniel Borislow, Chairman and Chief
Executive Officer of Tel-Save, who was entitled to vote in the aggregate
approximately 38.0% of the Tel-Save Common Stock outstanding as of the Tel-Save
Record Date, has entered into the Borislow Voting Agreement under which he has
agreed to vote such shares of Tel-Save Common Stock in favor of the Merger
Proposal. As of the Tel-Save Record Date, all of Tel-Save's other directors and
all of Tel-Save's executive officers owned an aggregate of 160,400 shares of
Tel-Save
4
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Common Stock, representing approximately .24% of the total votes entitled to be
cast at the Tel-Save Meeting. Each of such other directors and each of such
executive officers has indicated that he or she intends to vote for the approval
of the Merger Proposal. If the shares beneficially owned by all such persons,
including the shares subject to the Borislow Voting Agreement, are voted in
favor of the approval of the Merger Proposal, then an additional 7,743,535
affirmative votes, representing approximately 11.8% of the votes entitled to be
cast in respect of shares not owned by such persons, will be required for the
approval of the Merger Proposal. See "THE TEL-SAVE ANNUAL MEETING -- Tel-Save
Voting Rights; No Appraisal Rights" and "MERGER RELATED TRANSACTIONS -- Voting
Agreements."
STF
The approval and adoption of the Merger Agreement will require the
affirmative vote of the holders of a majority of the shares of STF Common Stock
outstanding on the STF Record Date. RHI, J.J. Cramer & Co., Mentor Partners,
L.P. and Anthony D. Autorino, a director, Chairman of the Board and Chief
Executive Officer of STF, who beneficially owned in the aggregate approximately
53% of the outstanding STF Common Stock as of the STF Record Date, have entered
into the STF Voting Agreements, pursuant to which each has agreed to vote its or
his respective shares of STF Common Stock in favor of the Merger. As of the STF
Record Date, all of STF's other directors and all of STF's executive officers
owned an aggregate of 114,705 shares of STF Common Stock, representing
approximately .70% of the total votes entitled to be cast at the STF Meeting.
Each of such directors and executive officers has indicated that he or she
intends to vote for the adoption and approval of the Merger Agreement and the
Merger. If the shares beneficially owned by all such persons, including the
shares subject to the STF Voting Agreements, are voted in favor of the adoption
and approval of the Merger Agreement and the Merger, then the Merger Agreement
and the Merger will be adopted and approved by the requisite stockholder vote.
See "THE STF SPECIAL MEETING -- STF Voting Rights; Appraisal Rights" and "MERGER
RELATED TRANSACTIONS -- Voting Agreements."
EFFECTS OF THE MERGER
Upon consummation of the Merger pursuant to the Merger Agreement, (i) STF
will be merged with and into Merger Sub, with Merger Sub being the Surviving
Corporation and continuing as a wholly owned subsidiary of Tel-Save, and (ii)
each outstanding share of STF Common Stock will be converted into such number of
shares of Tel-Save Common Stock as equals the quotient (rounded to four decimal
places) (such fraction has been defined as the Exchange Ratio) of (a) $11.25
plus the product of (x) .3 times (y) the amount, if any, by which the Closing
Date Market Price exceeds $20, divided by (b) the Closing Date Market Price;
provided, however, that the Exchange Ratio shall not exceed 1.125. "Closing Date
Market Price" means the average closing price per share of Tel-Save 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
Effective Time. See "THE MERGER AGREEMENT -- Conversion of Shares" and "--
Termination; Termination Fees and Expenses." Fractional shares of Tel-Save
Common Stock will not be issuable in connection with the Merger. STF
stockholders otherwise entitled to a fractional share will be paid the proceeds
of such fraction in cash. See "THE MERGER AGREEMENT -- Conversion of Shares."
Each outstanding share of Tel-Save Common Stock will remain outstanding and be
unaffected by the Merger.
The table below shows the numbers of shares of Tel-Save Common Stock that
STF stockholders will receive per share of STF Common Stock at the Closing Date
Market Prices illustrated in the table and the approximate values of such
consideration.
5
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<TABLE>
<CAPTION>
DOLLAR VALUE OF THE SHARES OF
TEL-SAVE COMMON STOCK TO
NUMBER OF SHARES OF TEL-SAVE BE ISSUED PER SHARE OF STF
CLOSING DATE MARKET COMMON STOCK TO BE COMMON STOCK BASED ON THE
PRICE OF TEL-SAVE ISSUED FOR EACH SHARE OF CLOSING DATE MARKET PRICE OF
COMMON STOCK STF COMMON STOCK TEL-SAVE COMMON STOCK
<S> <C> <C>
$30.00 ............... 0.4750 $14.25
$29.00 ............... 0.4810 $13.95
$28.00 ............... 0.4875 $13.65
$27.00 ............... 0.4944 $13.35
$26.00 ............... 0.5019 $13.05
$25.00 ............... 0.5100 $12.75
$24.00 ............... 0.5188 $12.45
$23.00 ............... 0.5283 $12.15
$22.00 ............... 0.5386 $11.85
$21.00 ............... 0.5500 $11.55
$20.00 to $10.00 ...... 0.5625 to 1.1250 $11.25
$9.00.................. 1.1250 $10.13
$8.00.................. 1.1250 $ 9.00
</TABLE>
If the Closing Date Market Price had been determined based on the fifteen
consecutive trading days ending on the third trading day immediately prior to
October 22, 1997, the Closing Date Market Price would have been $24.2500, and
.5165 of a share of Tel-Save Common Stock would have been issuable for each
share of STF Common Stock. As discussed above, the Closing Date Market Price
will be determined based on the fifteen consecutive trading days ending on the
trading day three trading days immediately preceding the date of the Effective
Time.
Based upon the number of outstanding shares of Tel-Save Common Stock and
STF Common Stock and STF Series I Preferred as of the Tel-Save and STF Record
Dates, and assuming Exchange Ratios of 1.125 (a Closing Date Market Price of $10
or less) and .5625 (a Closing Date Market Price of $20), the stockholders of STF
immediately prior to the consummation of the Merger would own approximately
26.8% and 15.5%, respectively, of the outstanding shares of Tel-Save Common
Stock immediately following consummation of the Merger, and up to approximately
30.3% and 17.9%, respectively, assuming conversion of the Tel-Save Series A
Preferred to be issued and exercise of the Tel-Save Warrants to be issued for
the STF Series D Preferred and the Assumed Warrants, respectively, and exercise
of the STF Options to be assumed by Tel-Save.
Each share of STF Series D Preferred outstanding at the Effective Time,
other than shares held by dissenting holders (the "Dissenting Preferred
Shares"), shall, at the Effective Time, be converted into the right to receive
shares of Tel-Save Series A Preferred having terms substantially identical to
the terms of the STF Series D Preferred and convertible into a number of shares
of Tel-Save Common Stock equal to the number of shares of STF Common Stock into
which such shares of STF Series D Preferred were convertible immediately prior
to the Effective Time, multiplied by the Exchange Ratio. See "THE MERGER --
Appraisal Rights." As of the STF Record Date, 57,950 shares of STF Series D
Preferred were outstanding and were convertible into an aggregate of 57,950
shares of STF Common Stock.
Each share of STF Series I Preferred outstanding at the Effective Time
shall, at the Effective Time, be converted into the right to receive the number
of shares of Tel-Save Common Stock that would be deliverable in exchange for the
shares of STF Common Stock issuable upon conversion of the STF Series I
Preferred in accordance with its terms. As of October 8, 1997, there were
250,000 shares of STF Series I Preferred outstanding, all of which were held by
RHI, which would be convertible into approximately 4,191,517 shares of STF
Common Stock at the Effective Time.
Each share of STF Series J Redeemable Special Preferred Stock (the "STF
Special Preferred") outstanding at the Effective Time shall, at the Effective
Time, be converted into the right to
6
<PAGE>
receive an amount in cash from Tel-Save determined in accordance with the
certificate of designation of the STF Special Preferred. As of October 8, 1997,
there were 200,000 shares of STF Special Preferred outstanding. The Merger
Agreement provides that such STF Special Preferred will be exchanged for cash at
the Effective Time, which amount would be approximately $21,917,808 as of the
Tel-Save and STF Meetings .
Assumed Warrants and STF employee stock options to purchase STF Common
Stock (the "STF Options") outstanding at the Effective Time will be effectively
assumed by Tel-Save, by which assumption the holder shall have the right, on the
same terms and conditions as were applicable to such Assumed Warrants and STF
Options immediately prior to the Effective Time, to purchase that number of
shares of Tel-Save Common Stock as the holder would have been entitled to
receive pursuant to the Merger had such holder exercised such Assumed Warrants
or STF Options immediately prior to the Effective Time (rounded down to the
nearest whole number, with payment in cash in lieu of any fractional shares).
The purchase price per share of Tel-Save Common Stock shall be the aggregate
price for shares of STF Common Stock purchasable pursuant to Assumed Warrants or
STF Options immediately prior to the Effective Time, divided by the number of
full shares of Tel-Save Common Stock purchasable in accordance with the
foregoing. See "THE MERGER AGREEMENT -- Options and Warrants."
BOARD RECOMMENDATIONS
The Tel-Save Board (a) has unanimously approved the Merger Proposal, the
Charter Amendment and the Option Proposal and (b) unanimously recommends that
holders of Tel-Save Common Stock vote in favor of the Merger Proposal, the
Charter Amendment, the Option Proposal, the Auditor Ratification and the
election of the director nominees named herein.
The STF Board has unanimously approved the Merger Agreement and unanimously
recommends that holders of STF Common Stock vote in favor of the approval and
adoption of the Merger Agreement.
The Tel-Save Board and the STF Board believe that the Merger represents a
strategic fit between two companies with similar business strategies and
complementary products and operations. Both Boards of Directors believe that the
Combined Company will have greater financial strength, operational efficiencies,
earning power and business growth potential than either Tel-Save or STF would
have on its own. See "THE MERGER -- Background of the Merger; Material Contacts
Between the Parties," " -- Tel-Save Reasons for the Merger; Recommendation of
the Tel-Save Board of Directors," and "-- STF Background and Reasons for the
Merger; Recommendation of the STF Board of Directors."
OPINIONS OF FINANCIAL ADVISORS
TEL-SAVE
On July 15, 1997, Salomon Brothers delivered its oral opinion, subsequently
confirmed in writing as of July 16, 1997 and reconfirmed as of the date of this
Joint Proxy Statement/Prospectus, to the Tel-Save Board to the effect that, as
of such date, the Exchange Ratio was fair, from a financial point of view, to
Tel-Save.
The full text of the written opinion of Salomon Brothers, dated October 30,
1997, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with its opinion, is attached hereto as
Annex C and is incorporated herein by reference. HOLDERS OF TEL-SAVE COMMON
STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "THE
MERGER -- Opinion of Tel-Save Financial Advisor."
STF
On July 16, 1997, DMG delivered its oral opinion to the STF Board,
subsequently confirmed in writing as of July 16, 1997 and reconfirmed as of the
date of this Joint Proxy Statement/Prospectus, that, as of such date, the
consideration to be received by the holders of STF Common Stock pursuant to the
Merger was fair, from a financial point of view, to such holders.
7
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The full text of the written opinion of DMG, dated October 30, 1997, which
sets forth assumptions made, matters considered and limitations on the review
undertaken, is attached hereto as Annex D and is incorporated herein by
reference. HOLDERS OF STF COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH
OPINION IN ITS ENTIRETY. See "THE MERGER -- Opinion of STF Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
STF EMPLOYMENT AGREEMENTS
Each of Messrs. Anthony D. Autorino, Jeffrey J. Steiner, Mel D. Borer and
Vincent DiVincenzo, directors and executive officers of STF, has an employment
agreement with STF that provides for two years of base salary plus target bonus
(defined as 50% of base salary) payable upon a "change of control" of STF. The
consummation of the Merger will constitute such a change of control. Pursuant to
such employment agreements, payments of up to $4,155,000 in the aggregate are
payable to these STF executives in the event of a change of control of STF. The
employment agreements of such executives also provide for the vesting of all
options for shares of STF Common Stock owned by such executives upon
consummation of the Merger. Furthermore, following consummation of the Merger,
it is not anticipated that Messrs. Autorino, Steiner and DiVincenzo will
continue to hold the same executive positions, and, pursuant to their employment
agreements, they will be entitled to receive non-compete payments up to
approximately $2,671,000 in the aggregate. See "THE MERGER -- Interests of
Certain Persons in the Merger."
STF STOCK OPTION PLANS
Pursuant to the STF 1987 Stock Option Plan (the "1987 Option Plan"), each
holder of options (the "1987 Options"), under the 1987 Option Plan shall have
the right immediately prior to the Effective Time to exercise his or her 1987
Options in whole or in part; any such 1987 Options not so exercised will
terminate. The vesting of outstanding options granted pursuant to the STF Board
of Directors Stock Option Plan (the "Directors' Plan") or the STF 1996 Equity
Incentive Plan (the "1996 Equity Plan") will not accelerate as a result of the
Merger except as provided in the STF employment agreements. All of the STF
Options outstanding at the Effective Time shall be assumed by Tel-Save pursuant
to the Merger. See "THE MERGER -- Interests of Certain Persons in the Merger"
and "THE MERGER AGREEMENT -- Options and Warrants."
INDEMNITY ARRANGEMENTS
Pursuant to the Merger Agreement, Tel-Save has agreed to maintain in effect
for five years from the Effective Time directors' and officers' liability
insurance for any persons who were directors or officers of STF or a subsidiary
of STF prior to the Effective Time, with respect to any act or failure to act by
any such persons prior to the Effective Time, and the Surviving Corporation will
indemnify such directors and officers to the fullest extent that they would have
been indemnified prior to the Effective Time. See "THE MERGER AGREEMENT --
Director and Officer Indemnification."
SPECIAL PREFERRED PURCHASE
Mr. Jeffrey J. Steiner, a director and Vice Chairman of STF, is also the
Chairman and Chief Executive Officer, and the beneficial owner of approximately
37% of the outstanding common stock and approximately 73% of the voting power,
of The Fairchild Corporation ("TFC"). TFC, through its wholly owned subsidiary,
RHI, owns approximately 36% of the outstanding STF Common Stock and all of the
shares of the STF Series I Preferred and of the STF Special Preferred. The
Merger Agreement provides that such STF Special Preferred will be exchanged for
cash at the Effective Time, which amount would be approximately $21,917,808 as
of the Tel-Save and STF Meetings. See "THE MERGER -- Interest of Certain Persons
in the Merger".
8
<PAGE>
STF OUTSIDE DIRECTOR PAYMENTS
The Merger Agreement provides that STF may make to its non-employee
directors honorarium payments not to exceed $300,000 in the aggregate. STF
intends to make the full amount of such payments should the Merger be
consummated.
TEL-SAVE DIRECTORSHIPS
The Merger Agreement provides that Messrs. Steiner and Autorino, directors
and executive officers of STF, will be elected as directors of Tel-Save for
three-year terms. Approval of the Merger Agreement and the Merger and
consummation of the Merger will effect the election of such individuals as
directors of Tel-Save in the director class expiring in 2000. See "THE MERGER --
Interests of Certain Persons in the Merger" and "THE MERGER AGREEMENT -- Board
Representation."
See "THE MERGER -- Interests of Certain Persons in the Merger" for a
description of the Tel-Save Common Stock and STF Common Stock owned by Tel-Save
and STF directors and officers and their affiliates.
DISCUSSIONS WITH CERTAIN STF AFFILIATES
Certain officers and directors of STF have discussed with STF and Tel-Save
the possibility of acquiring certain of the STF assets after consummation of the
Merger. No agreements have been reached with respect to any such possible
transactions and no such transaction is anticipated to occur before the
Effective Time, if at all. Any agreements reached after the Effective Time would
require the approval of the Tel-Save Board, but would not be subject to the
approval of either the STF or Tel-Save stockholders. See "THE MERGER --
Interests of Certain Persons in the Merger."
CERTAIN MERGER RELATED TRANSACTIONS
STF AGREEMENT
In connection with the Merger Agreement and as a condition to Tel-Save's
entering into the Merger Agreement and the transactions contemplated thereby,
Tel-Save and STF entered into an agreement, dated as of July 16, 1997, (the "STF
Agreement"), pursuant to which Tel-Save would have the right (the "Option"), if
the Merger Agreement were to be terminated by STF under certain circumstances,
to acquire up to 3,000,000 shares of STF Common Stock from STF for $11.25 per
share. See "MERGER RELATED TRANSACTIONS -- STF Agreement" and "THE MERGER
AGREEMENT -- Termination Fees and Expenses."
VOTING AGREEMENTS
Mr. Borislow entered into the Borislow Voting Agreement, under which he has
agreed to vote the shares of Tel-Save Common Stock that he is entitled to vote
at the Tel-Save Meeting in favor of the Merger Proposal. RHI, J.J. Cramer & Co.,
Mentor Partners, L.P. and Mr. Autorino have entered into the STF Voting
Agreement, pursuant to which each has agreed to vote its or his shares of STF
Common Stock in favor of the Merger. See "THE TEL-SAVE ANNUAL MEETING --
Tel-Save Voting Rights; No Appraisal Rights," "THE STF SPECIAL MEETING -- STF
Voting Rights; Appraisal Rights" and "MERGER RELATED TRANSACTIONS -- Voting
Agreements."
PURCHASE OF STF NOTES
Subsequent to the execution of the Merger Agreement, Tel-Save purchased, in
separate, privately negotiated transactions, all of the $163.7 million aggregate
face amount outstanding of the 12 1/4% Senior Subordinated Discount Notes due
2006 (the "STF Notes") of Shared Technologies Fairchild Communications Corp., a
wholly owned subsidiary of STF. See "MERGER RELATED TRANSACTIONS -- Tel-Save
Purchase of STF Notes" and "THE MERGER AGREEMENT -- Conditions."
9
<PAGE>
OPERATION OF STF FOLLOWING THE MERGER
Tel-Save anticipates that it will operate Merger Sub, the name of which
will be changed to Shared Technologies Fairchild Inc., as a subsidiary of
Tel-Save, and Mr. Mel D. Borer, a director and the President of STF, will
continue as the President of Merger Sub.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for financial
reporting purposes. Under this method of accounting, the recorded assets and
liabilities of STF will be carried forward to Tel-Save's consolidated balance
sheet at their recorded amounts. Tel-Save's consolidated operating results will
include the operating results of STF for the entire year in which the Merger
occurs and the reported operating results of Tel-Save and STF for periods prior
to the year in which the combination occurs will be combined and restated as the
consolidated operating results of Tel-Save. A condition to the Merger is that
each of Tel-Save and STF shall have received a letter at the closing of the
Merger from BDO Seidman, LLP, Tel-Save's independent certified public
accountants, stating in substance that the Merger will qualify as a pooling of
interests transaction under Accounting Principles Board Opinion No. 16 and
related interpretations, for the Merger. See "THE MERGER -- Accounting
Treatment" and "THE MERGER AGREEMENT -- Conditions."
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization in which no gain or
loss will be recognized by Tel-Save or STF and no gain or loss will be
recognized by STF stockholders, except in respect of cash received in lieu of
fractional shares, or cash paid to dissenting stockholders of STF or cash paid
to holders of STF Special Preferred. A condition to the Merger is that Tel-Save
and STF each shall have received an opinion of counsel to the effect that the
Merger will constitute a tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). For a
further discussion of the federal income tax consequences of the Merger, see
"THE MERGER -- Material U.S. Federal Income Tax Consequences." See also "THE
MERGER AGREEMENT -- Conditions."
APPRAISAL RIGHTS
TEL-SAVE STOCKHOLDERS
Tel-Save Holdings, Inc. is not a corporation party to the Merger pursuant
to the Delaware General Corporation Law (the "DGCL"), and no holders of Tel-Save
Common Stock will have appraisal rights with respect to the Merger or the Merger
Proposal. In addition, no holders of Tel-Save Common Stock will have appraisal
rights with respect to the Charter Amendment or the Option Proposal. See "THE
MERGER -- Appraisal Rights" and Annex D -- Section 262 of the DGCL.
See also "THE TEL-SAVE ANNUAL MEETING."
STF STOCKHOLDERS
Other than as described in the following sentence, no stockholders of STF
are entitled to appraisal rights. If the Merger is consummated, a holder of STF
Series D Preferred who strictly complies with the procedures set forth under
Section 262 of the DGCL will be entitled to have such shares appraised by the
Delaware Court of Chancery and to receive payment of the "fair value" of such
shares in lieu of the consideration provided for in the Merger Agreement. See
"THE MERGER -- Appraisal Rights" and Annex D -- Section 262 of the DGCL. See
also "THE STF SPECIAL MEETING."
10
<PAGE>
CONDITIONS TO THE MERGER
The obligations of Tel-Save and STF to consummate the Merger are subject to
the satisfaction of certain conditions, including, but not limited to, obtaining
requisite approvals of the stockholders of Tel-Save and STF, obtaining requisite
regulatory approvals (including expiration or earlier termination of the
relevant waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), for which early termination has been
granted), the continuing accuracy as of the Effective Time of the respective
representations and warranties made by Tel-Save and STF in the Merger Agreement,
the receipt of legal opinions with respect to certain tax matters and the
receipt of accountants' letters at the closing of the Merger with respect to
qualification of the Merger as a pooling of interests transaction. Each party
has the right to waive the conditions to its closing referred to above. See "THE
MERGER -- Accounting Treatment," "-- Material U.S. Federal Income Tax
Consequences," and "-- Regulatory Approvals" and "THE MERGER AGREEMENT --
Conditions."
TERMINATION
The Merger Agreement is subject to termination (i) by mutual written
consent of Tel-Save and STF, (ii) by either Tel-Save or STF if the Merger is not
consummated on or before December 15, 1997, unless the Merger has not occurred
by such time by reason of the failure of certain conditions precedent to the
Merger, in which case the date will be extended to January 15, 1998 if Tel-Save
requests, and STF consents to, such extension, (iii) by either Tel-Save or STF
if the STF Board withdraws its recommendation of the Merger and (iv) upon the
occurrence of certain events and circumstances set forth in the Merger
Agreement, including, but not limited to, STF's right to terminate the Merger
Agreement in the event that the Closing Date Market Price of Tel-Save Common
Stock is less than $10.00 or in the event that the average closing price for
shares of Tel-Save Common Stock as reported on the Nasdaq National Market for
any period of 20 consecutive trading days after July 16, 1997 is less than
$10.00 per share. See "THE MERGER AGREEMENT -- Termination; Termination Fees and
Expenses."
Under certain circumstances, if STF terminates the Merger Agreement, STF
may be required to pay Tel-Save a termination fee of $15,000,000. See "THE
MERGER AGREEMENT -- Termination; Termination Fees and Expenses." In addition, in
connection with the Merger Agreement and as a condition to Tel-Save's entering
into the Merger Agreement and the transactions contemplated thereby, Tel-Save
and STF entered into an Agreement, dated as of July 16, 1997 (the "STF
Agreement"), pursuant to which Tel-Save would have the right (the "Option"), if
the Merger Agreement were to be terminated by STF under certain circumstances,
to acquire up to 3,000,000 shares of STF Common Stock from STF for $11.25 per
share. See "MERGER RELATED TRANSACTIONS -- STF Agreement."
STF'S TERMINATION RIGHTS RELATED TO TEL-SAVE COMMON STOCK PRICE
As noted above, pursuant to the terms of the Merger Agreement, STF has the
right to terminate the Merger Agreement in the event that the Closing Date
Market Price of Tel-Save Common Stock is less than $10.00 or in the event that
the average closing price for shares of Tel-Save Common Stock as reported on the
Nasdaq National Market for any period of 20 consecutive trading dates after July
16, 1997 is less than $10.00 per share. See "THE MERGER AGREEMENT --
Termination; Termination Fees and Expenses."
In the event that the Closing Date Market Price of Tel-Save is less than
$10.00 or the Tel-Save Common Stock trades for less than $10.00 for 20
consecutive trading days, members of the STF Board will be required to make a
determination, in the exercise of their fiduciary duties, as to whether the
interests of STF's stockholders are better served by terminating the Merger
Agree-
11
<PAGE>
ment or continuing with the consummation of the Merger. The STF Board, in making
such determination, would consider the opinions of its financial advisors as
well as the reasons for the decline in the Tel-Save Common Stock price.
EFFECTIVE TIME OF THE MERGER
The Merger will be consummated upon the filing by STF and Merger Sub of a
Certificate of Merger with the Secretary of State of the State of Delaware at
the Effective Time. The Effective Time will occur as promptly as practicable
after the requisite stockholder approvals have been obtained and all other
conditions to the Merger have been satisfied or waived. It is currently
anticipated that the Merger will be consummated on the date of the Tel-Save and
STF Meetings or as soon as practicable thereafter.
CERTAIN EFFECTS OF THE MERGER ON THE RIGHTS OF HOLDERS OF STF COMMON STOCK
Upon consummation of the Merger, holders of STF Common Stock and STF Series
D Preferred will become stockholders of Tel-Save. The internal affairs of
Tel-Save are governed by the DGCL, the Tel-Save Charter, and the Bylaws, as
amended, of Tel-Save (the "Tel-Save Bylaws"). The Merger will result in certain
differences in the rights of holders of STF Common Stock. See "DESCRIPTION OF
TEL-SAVE CAPITAL STOCK" and "COMPARISON OF STOCKHOLDER RIGHTS."
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information of Tel-Save and
STF has been derived from their respective historical consolidated financial
statements, including the notes thereto, and should be read in conjunction with
such consolidated financial statements and the notes thereto incorporated by
reference herein. See "Available Information" and "Incorporation of Certain
Documents by Reference." The Tel-Save and STF historical financial information
as of and for the interim periods presented below has been prepared on the same
basis as that derived from historical financial statements prepared on an annual
basis and, in the opinion of management of the respective companies, includes
all adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of the financial position and results of operations of the
respective companies as of such dates and for such periods.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF TEL-SAVE
The selected consolidated financial data below should be read in
conjunction with, and is qualified in its entirety by, Tel-Save's Consolidated
Financial Statements incorporated by reference in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1997
------------ ------------ ------------ -------------- ------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
TEL-SAVE CONSOLIDATED STATE-
MENTS OF OPERATIONS DATA:
Sales ............................. $ 17,668 $ 31,940 $ 82,835 $ 180,102 $ 232,424 $ 146,192
Cost of sales ..................... 14,803 26,715 70,104 156,121 200,597 146,081 (1)
Gross profit ...................... 2,865 5,225 12,731 23,981 31,827 111
Selling, general and administra-
tive expenses .................... 1,476 2,060 3,442 6,280 10,039 7,953
Operating income (loss) ........... 1,389 3,165 9,289 17,701 21,788 (7,842)
Investment and other income, net 32 108 66 331 10,585 7,128
Income (loss) before provision
(benefit) for income taxes ....... 1,421 3,273 9,355 18,032 32,373 (714)
Provision (benefit) for income
taxes(2) ......................... 568 1,309 3,742 7,213 12,205 (279)
Net income (loss)(1)(2) ........... $ 853 $ 1,964 $ 5,613 $ 10,819 $ 20,168 (435)(1)
Net income (loss) per share --
Primary(1) ....................... $ 0.03 $ 0.07 $ 0.18 $ 0.32 $ 0.35 $ (0.01)(1)
Weighted average common and
common equivalent shares out-
standing -- Primary(1) ........... 28,750 29,452 30,663 33,605 57,002 66,367
Net income (loss) per share --
Fully Diluted(1) ................. $ 0.03 $ 0.07 $ 0.18 $ 0.32 $ 0.35 $ (0.01)(1)
Weighted average common and
common equivalent shares out-
standing - Fully Diluted(1) ...... 28,750 29,452 30,663 33,605 58,027 66,479
SELECTED RATIOS:
Ratio of Earnings to Fixed Charg-
es(3) ............................ 517.0x 530.5x 144.1x 89.8x 168.9x 0.2x(1)
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends(4) ............... 517.0x 530.5x 144.1x 89.8x 168.9x 0.2x(1)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
-------------------------------------------------------- ------------
1992 1993 1994 1995 1996 1997
-------- -------- --------- --------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
TEL-SAVE BALANCE SHEETS DATA:
Working capital .................. $1,312 $4,502 $12,265 $38,171 $175,597 $143,394
Total assets ..................... 2,178 6,694 21,435 71,388 257,008 290,273
Long-term debt ................... -- -- -- -- -- --
Total stockholders' equity ....... 1,414 4,687 14,042 41,314 230,720 253,159
</TABLE>
- ----------
(1) Included in Tel-Save's cost of sales for the six months ended June 30, 1997
are charges to cost of sales aggregating $25.9 million, consisting of $11.5
million primarily as a result of Tel-Save's change in its accounting for
customer acquisition costs and $14.4 million related to the AOL Agreement.
The effect of these charges was to reduce net income and net income per
share (fully diluted) by $15.5 million and $.24, respectively. The effect of
these charges also reduced selected ratios as described in Notes 3 and 4
below from 29.9x to 0.2x.
(2) For the years and period ended December 31, 1992, 1993, 1994 and September
19, 1995, Tel-Save's predecessor corporation elected to report as an S
corporation for federal and state income tax purposes. Accordingly, such
predecessor corporation's stockholders included their respective shares of
Tel-Save's taxable income in their individual income tax returns. The pro
forma income taxes reflect the taxes that would have been accrued if
Tel-Save had elected to report as a C corporation.
13
<PAGE>
(3) The ratio of earnings to fixed charges is computed by dividing (i) income
before provision for income taxes plus fixed charges by (ii) fixed charges.
Fixed charges consist of interest on indebtedness including amortization of
deferred financing costs and the estimated interest component of rental
expense which is 33% of actual rental expense.
(4) The ratio of earnings to fixed charges and preferred stock dividends is
computed by dividing (i) income before provision for income taxes plus fixed
charges by (ii) the sum of combined fixed charges and preferred dividends.
Fixed charges consist of interest on indebtedness including amortization of
deferred financing costs and the estimated interest component of rental
expense which is 33% of actual rental expense.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF STF
The selected consolidated financial data below should be read in
conjunction with, and is qualified in its entirety by, STF's Consolidated
Financial Statements incorporated by reference in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------------- ---------------
1992 1993 1994 1995 1996 1997
------------ ---------- ------------ ------------ ----------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STF CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues .............................. $24,077 $ 25,426 $45,367 $ 47,086 $157,241 $ 95,618
Gross margin .......................... 9,254 10,912 19,195 18,214 74,669 48,988
Selling, general and administra-
tive expenses ........................ 9,959 10,102 16,909 16,188 55,329 34,334
Operating income (loss) ............... (705) 810 2,286 2,026 19,340 14,654
Interest expense, net ................. (290) (438) (359) (667) (22,888) (14,480)
Equity in loss of affiliate ........... -- -- -- (1,752) (3,927) (186)
Minority interest in net income of
subsidiaries ...................... (37) (82) (128) -- -- --
Gain on sale of subsidiary stock ...... -- -- -- 1,375 -- --
Income taxes .......................... -- -- 487 (45) (783) (208)
Extraordinary Items: (Loss) gain
on restructuring ..................... 3,756 (150) -- -- -- --
Loss on early retirement of debt ...... -- -- -- -- (311) --
Net income (loss) ..................... 2,724 140 2,286 927 (8,569) (220)
Net income (loss) per common
share applicable to common
stockholders ......................... $ .59 $ (.04) $ .27 $ .06 $ (.79) $ (.16)
Weighted average common
shares outstanding ................... 4,063 5,132 6,792 8,482 13,787 15,788
SELECTED RATIOS:
Ratio of Earnings to Fixed Charg-
es(1) ................................ (0.2)x 1.4x 3.0x 2.9x 0.8x 1.0x
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends(2) ................... (0.1)x 1.0 x 2.0x 2.3x 0.7x 0.9x
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
---------------------------------------------------------------- ------------
1992 1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STF BALANCE SHEETS DATA:
Working capital (deficit) ............. $ (4,506) $ (3,874) $ (3,691) $ (3,393) $ (8,765) $ (7,010)
Total assets .......................... 18,752 20,601 37,925 42,863 369,566 370,448
Notes payable, convertible promis-
sory notes payable, other long-
term debt (incl. current portion
and redeemable preferred stock) ...... 4,745 3,719 4,727 6,998 291,004 295,119
Stockholders' equity .................. 6,034 9,302 20,881 22,844 43,209 41,015
</TABLE>
- ----------
(1) The ratio of earnings to fixed charges is computed by dividing (i) income
before provision for income taxes plus fixed charges by (ii) fixed charges.
Fixed charges consist of interest on indebtedness including amortization of
deferred financing costs and the estimated interest component of rental
expense which is 33% of actual rental expense.
(2) The ratio of earnings to fixed charges is computed by dividing (i) income
before provision for income taxes plus fixed charges by (ii) the sum of
combined fixed charges and preferred dividends. Fixed charges consist of
interest on indebtedness including amortization of deferred financing costs
and the estimated interest component of rental expense which is 33% of
actual rental expense.
15
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables present summary unaudited pro forma combined financial
data after giving effect to the Merger under the pooling of interests method of
accounting as if the Merger had been consummated as of the beginning of the
periods presented for the operating results and as of June 30, 1997 for the
Balance Sheet Data. In addition, the following tables present supplemental
summary unaudited pro forma combined financial data giving effect to the
following transactions for the periods indicated: (i) Tel-Save's decision to
discontinue its internal telemarketing operations in 1997. The estimated costs
of discontinuance have been reflected as an increase in accounts payable and
accrued expenses-trade and other and a decrease in intangibles-net in the
Supplemental Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30,
1997. The Supplemental Unaudited Pro Forma Combined Condensed Statements of
Operations for the six months ended June 30, 1997 and the year ended December
31, 1996 reflect the discontinuance of Tel-Save's internal telemarketing
operations as if it had occurred at January 1, 1996; (ii) An acquisition made
during 1996 by STF accounted for as a purchase. The Supplemental Unaudited Pro
Forma Combined Condensed Statement of Operations for the year ended December 31,
1996 reflects the acquisition as if it had occurred at the beginning of that
year. (iii) Tel-Save's acquisition of the STF Notes subsequent to the signing of
the Merger Agreement and the repayment of STF's outstanding bank credit facility
obligations upon consummation of the Merger using the proceeds of the issuance
of certain long-term debt by Tel-Save have been reflected in the Supplemental
Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30, 1997 and the
Supplemental Unaudited Pro Forma Combined Condensed Statements of Operations for
the year and six months ended December 31, 1996 and June 30, 1997, respectively.
The tables have been derived from, or prepared on a basis consistent with, the
Unaudited Pro Forma Combined Condensed Financial Statements included in this
Joint Proxy Statement/Prospectus. The selected pro forma combined financial data
should be read in conjunction with, and is qualified in its entirety by
reference to, the Unaudited Pro Forma Combined Condensed Financial Statements
and the notes thereto. See "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS." The following data is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred had the Merger, the acquisitions made during 1996, the
discontinuance of Tel-Save's internal telemarketing operations in 1997, the
acquisition of the STF Notes and the repayment of a portion of STF's credit
facility term loans been consummated at the dates indicated, nor is it
necessarily indicative of future operating results or the financial position of
the merged companies.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------------- --------------------------
1994 1995 1996 1996 1997 1997
------------ ------------ ------------ -------------- ------------ -------------
HISTORICAL HISTORICAL HISTORICAL SUPPLEMENTAL HISTORICAL SUPPLEMENTAL
------------ ------------ ------------ -------------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENTS OF
OPERATIONS:
Net sales .................................. $128,202 $227,188 $ 389,665 $ 409,518 $241,810 $208,270
Cost of sales .............................. 96,276 184,993 283,169 289,229 192,711 154,704
Gross margin ............................... 31,926 42,195 106,496 120,289 49,099 53,566
Selling, general and administrative ........ 20,351 22,468 65,368 76,907 42,287 42,287
Operating income ........................... 11,575 19,727 41,128 43,382 6,812 11,279
Other income (expenses) net ............... (421) (723) (16,230) (10,472) (7,538) (2,840)
Income (loss) before provision (benefit),
for income taxes and extraordinary
item ...................................... 11,154 19,004 24,898 32,910 (726) 8,439
Provision (benefit) for income taxes ...... 3,255 7,258 12,988 16,042 (71) 3,134
Income (loss) before extraordinary item .... $ 7,899 $ 11,746 $ 11,910 $ 16,868 $ (655) $ 5,305
Income (loss) before extraordinary item
per share-primary ......................... $ .22 $ .30 $ .15 $ .26 $ (.04) $ .07
Weighted average common and common
equivalent shares outstanding-primary ..... 34,359 38,220 64,504 65,146 74,957 74,957
Income (loss) before extraordinary item
per share-fully diluted ................... $ .22 $ .30 $ .15 $ .25 $ (.04) $ .07
Weighted average common and common
equivalent shares outstanding-fully di-
luted ..................................... 34,359 38,220 65,529 66,171 75,069 75,069
SELECTED RATIOS:
Ratio of Earnings to Fixed Charges(1) ...... 11.9x 13.9x 2.1x 2.8x 1.0x 1.9x
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Divi-
dends(2) .................................. 8.1x 11.2x 2.0x 2.5x 0.8x 1.5x
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------
HISTORICAL SUPPLEMENTAL
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Working capital ................................. $100,127 $172,040
Total assets .................................... 642,621 679,539
Long-term debt, including current portion ....... 255,362 331,644
Total stockholders' equity ...................... 297,674 256,025
</TABLE>
- ----------
(1) The ratio of earnings to fixed charges is computed by dividing (i) income
before provision for income taxes plus fixed charges by (ii) fixed charges.
Fixed charges consist of interest on indebtedness including amortization of
deferred financing costs and the estimated interest component of rental
expense which is 33% of actual rental expense.
(2) The ratio of earnings to fixed charges is computed by dividing (i) income
before provision for income taxes plus fixed charges by (ii) the sum of
combined fixed charges and preferred dividends. Fixed charges consist of
interest on indebtedness including amortization of deferred financing costs
and the estimated interest component of rental expense which is 33% of
actual rental expense.
17
<PAGE>
SELECTED HISTORICAL AND PRO FORMA PER SHARE DATA
The following table sets forth certain historical per share data of
Tel-Save and STF and combined per share data on an unaudited pro forma basis
after giving effect to the Merger on a pooling of interests basis (and assuming
the issuance of .5441 of a share of Tel-Save Common Stock, based on the Closing
Date Market Price of $21.5042 per share, which assumes the closing date of the
Merger is October 1, 1997, in the Merger in exchange for each share of STF
Common Stock). The following table presents summary unaudited pro forma combined
financial data after giving effect to the Merger under the pooling of interests
method of accounting as if the Merger had been consummated as of the beginning
of the periods presented for the operating results and as of June 30, 1997 for
the Balance Sheet Data. In addition, the following table presents summary
unaudited pro forma combined financial data giving effect to the following
transactions for the periods indicated: (i) Tel-Save's decision to discontinue
its internal telemarketing operations in 1997. The estimated costs of
discontinuance have been reflected as an increase in accounts payable and
accrued expenses-trade and other and a decrease in intangibles-net in the
Supplemental Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30,
1997. The Supplemental Unaudited Pro Forma Combined Condensed Statements of
Operations for the six months ended June 30, 1997 and the year ended December
31, 1996 reflect the discontinuance of Tel-Save's internal telemarketing
operations as if it had occurred at January 1, 1996; (ii) An acquisition made
during 1996 by STF accounted for as a purchase. The Supplemental Unaudited Pro
Forma Combined Condensed Statement of Operations for the year ended December 31,
1996 reflects the acquisition as if it had occurred at the beginning of that
year; (iii) Tel-Save's acquisition of the STF Notes subsequent to the signing of
the Merger Agreement and the repayment of a portion of STF's outstanding bank
credit facility obligations upon consummation of the Merger using the proceeds
of the issuance of certain long-term debt by Tel-Save have been reflected in the
Supplemental Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30,
1997 and the Supplemental Unaudited Pro Forma Combined Condensed Statements of
Operations for the year and six months ended December 31, 1996 and June 30,
1997, respectively. This data should be read in conjunction with the selected
historical consolidated financial data and the Unaudited Pro Forma Combined
Condensed Financial Statements included elsewhere in this Joint Proxy Statement/
Prospectus and the separate historical consolidated financial statements of
Tel-Save and STF incorporated by reference herein. The unaudited pro forma
combined financial data are not necessarily indicative of the operating results
or financial position that would have occurred had the Merger, the
discontinuance of Tel-Save's internal telemarketing operations during 1997, the
acquisition made by STF during 1996, the acquisition of the STF Notes and the
repayment of STF's credit facility term loans been consummated at the dates
indicated, nor is it necessarily indicative of future operating results or the
financial position of the merged companies. Neither Tel-Save nor STF has paid
cash dividends on its Common Stock.
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<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE SIX
AT OR FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------- ------------------
1994 1995 1996 1997
------ ------ ---------- ------------------
<S> <C> <C> <C> <C>
HISTORICAL TEL-SAVE:
Net income (loss) per share(1) ........ $.18 $.32 $ .35 $ (.01)
Book value per common share ........... $ 3.94
HISTORICAL STF:
Net income (loss) per share(1) ........ $.27 $.06 $ (.77) $ (.16)
Book value per common share ........... $ 2.59
HISTORICAL PRO FORMA COMBINED TEL-
SAVE AND STF(2):
Income (loss) before extraordinary
item per share(1) ................... $.22 $.30 $ .15 $ (.04)
Book value per common share(3) ........ $ 3.72
HISTORICAL STF PER SHARE
EQUIVALENTS(4): .....................
Income (loss) before extraordinary
item per share(1).................... $.12 $.16 $ .08 $ (.02)
Book value per common share(3) ........ $ 2.02
SUPPLEMENTAL PRO FORMA
COMBINED TEL-SAVE AND STF(2):
Income before extraordinary item
per share(1) ........................ $.22 $.30 $ .25 $ .07
Book value per common share(3) ........ $ 3.20
SUPPLEMENTAL STF PER SHARE EQUIVA-
LENTS(4):
Income before extraordinary item
per share(1) ........................ $.12 $.16 $ .14 $ .04
Book value per common share(3) ........ $ 1.74
</TABLE>
- ----------
(1) Primary and fully-diluted net income per share amounts are the same for the
periods presented.
(2) Combined per share information assumes each STF share has been converted at
a .5441 Exchange Ratio into Tel-Save shares. Pursuant to the Merger
Agreement, the Exchange Ratio is subject to adjustment. See "THE MERGER
AGREEMENT -- Conversion of Shares."
(3) The unaudited pro forma combined condensed balance sheet as of June 30, 1997
includes an adjustment to accrued expenses representing certain Merger
related charges expected by Tel-Save. Included are transaction fees as well
as employee termination costs. The tax benefits associated with the costs,
exclusive of transaction fees that are not tax deductible, is also
reflected. See "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS."
In addition, the Supplemental Unaudited Pro Forma Combined Condensed Balance
Sheet as of June 30, 1997 reflects the write-off of the deferred debt issue
costs and premium over the carrying value of the STF Notes as well as fees
associated with the short-term margin and bridge loans used by Tel-Save to
finance the acquisition of the STF Notes prior to the issuance of certain
long-term debt by Tel-Save. The tax benefit associated with such charges is
also reflected. See "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS."
The Supplemental Unaudited Pro Forma Combined Condensed Balance Sheet as of
June 30, 1997 includes an adjustment to accrued expenses and intangibles
representing certain costs related to the discontinuance of Tel-Save's
internal telemarketing operations. Included are the write-off of goodwill,
transaction fees, severance pay and employee contract termination costs. See
"UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
(4) The equivalents of STF's pro forma per share amounts are calculated by
multiplying the combined pro forma per share amounts by the Exchange Ratio
of .5441 of a share of Tel-Save Common Stock for each share of STF Common
Stock. As set forth in the Merger Agreement, the Exchange Ratio is subject
to adjustment. See "THE MERGER AGREEMENT -- Conversion of Shares."
19
<PAGE>
RISK FACTORS
RISKS RELATING TO THE MERGER
FLUCTUATION IN VALUE OF MERGER CONSIDERATION
The market price of shares of Tel-Save Common Stock is inherently subject
to fluctuation. Therefore, the value of the shares of Tel-Save Common Stock that
STF stockholders will receive in the Merger may increase or decrease prior to
the Effective Time. Although the value of the per share consideration to be
received in the Merger by holders of STF Common Stock is intended to be $11.25,
such per share consideration may have a value at the Effective Time of more or
less than $11.25. The Merger Agreement establishes a maximum number of shares of
Tel-Save Common Stock to be issued in the Merger in respect of each share of STF
Common Stock (i.e., 1.125 shares of Tel-Save Common Stock if the Closing Date
Stock Price is less than $10.00 per share). See "THE MERGER AGREEMENT --
Conversion of Shares."
Fluctuations in the market price of Tel-Save Common Stock may be the result
of the prospects of Tel-Save, market assessments of the likelihood that the
Merger will be consummated and the timing thereof (which assessments may be
unsubstantiated), general market conditions and other factors, many of which are
beyond the control of Tel-Save or STF.
CONDITIONS TO CONSUMMATION OF THE MERGER
The consummation of the Merger is subject to the approval of the
stockholders of both Tel-Save and STF, as well as other conditions, including
termination of all applicable waiting periods under the HSR Act, applicable
federal and state regulatory approvals and consents, the Merger's qualifying as
a pooling of interests transaction for accounting purposes and other closing
conditions. There can be no assurance that the Merger will be consummated. See
"THE MERGER AGREEMENT -- Conditions."
INABILITY TO REALIZE BENEFITS FROM THE MERGER
While Tel-Save's management expects to realize operating synergies and cost
savings as a result of the Merger, there can be no assurance that Tel-Save will
achieve all of the benefits that management expects to realize in connection
with the 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 Tel-Save'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 Tel-Save's taking certain actions that will
result in one-time charges or expenses. See "-- Some Future Potential Charges"
and "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
BUSINESS INTEGRATION
The Merger contemplates the integration of the administrative, finance,
sales and marketing organizations of STF and Tel-Save. STF is a significantly
larger company, in terms of employees and facilities managed and operated, than
Tel-Save and is engaged in a number of businesses that are different than those
in which Tel-Save 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 Tel-Save and STF will require substantial
attention from Tel-Save's management team, which will include STF employees who
have not previously worked with Tel-Save. The retention of certain key STF
personnel will be important for the management of the STF business. Also, both
STF's and Tel-Save's customers will need to be reassured that their services
will continue uninterrupted. All of these efforts will place significant
pressure on Tel-Save's existing management, staff and other resources (see "--
Certain Company Risks -- Recent Rapid Growth; Ability to Manage Growth", below).
Moreover, integration of STF will require Tel-Save's senior management to
oversee business
20
<PAGE>
areas 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 Tel-Save's business, operating results or financial condition.
ABSENCE OF DIVIDENDS
Neither Tel-Save nor STF has paid cash dividends since inception. Tel-Save
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, Tel-Save's existing bank credit facility
restricts the payment of dividends on the Tel-Save Common Stock. See "THE MERGER
- -- Comparative Per Share Market Prices and Dividends."
CERTAIN COMPANY RISKS
DEPENDENCE ON AT&T AND LUCENT
The design for Tel-Save'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 Tel-Save's use of AT&T's transmission
facilities, international long distance services or operator services, Tel-Save
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 Tel-Save. Tel-Save'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 Tel-Save's results of operations and
financial conditions.
Tel-Save also will continue to depend on AT&T to provide the AT&T
telecommunication services that Tel-Save 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. Tel-Save's ability
to resell such services on the AT&T network depends upon whether Tel-Save 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 Tel-Save, for national defense purposes or if the provision of
services to Tel-Save 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 Tel-Save has no specific contingency
arrangements in place to provide service to end users if AT&T were to
discontinue its service to Tel-Save, based upon discussions that Tel-Save has
had with other long distance providers and based upon such providers' published
tariffs, Tel-Save 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 Tel-Save were to enter
into contracts with another provider, however, Tel-Save believes it would take
approximately 14 to 28 days to switch end users to that provider. Although
Tel-Save 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 Tel-Save's
contract tariffs with AT&T or the loss of telecommunication services from AT&T
likely would have a material adverse effect on Tel-Save's results of operations
and financial condition.
Tel-Save 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 Tel-Save on terms acceptable to
Tel-Save. 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 Tel-Save's marketing strategy and retention of existing
21
<PAGE>
partitions and end users. Tel-Save 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 Tel-Save
has not provided such direct billing services to end users in the past.
AOL AGREEMENT
Tel-Save 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 Tel-Save will provide long
distance telecommunications services to be marketed by AOL to all of the
subscribers of AOL's online network. Tel-Save made an initial payment of $100
million to AOL at signing and agreed to provide marketing payments to AOL based
on a percentage of Tel-Save'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 Tel-Save 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 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 Tel-Save
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, Tel-Save issued to AOL at signing two
warrants to purchase shares of Tel-Save 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 Tel-Save 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. Tel-Save also agreed to
issue to AOL an additional warrant to purchase 1 million shares of Tel-Save
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 Tel-Save depends on Tel-Save'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 Tel-Save 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; Tel-Save'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 Tel-Save. Tel-Save currently estimates that between 2%
and 6% of AOL's customers will need to sign up for Tel-Save's long distance
service in order for Tel-Save to break even on its investment in the AOL
Agreement.
RECENT RAPID GROWTH; ABILITY TO MANAGE GROWTH
Tel-Save began operations in 1989 (as Tel-Save, Inc.) as a reseller of AT&T
services. Over the past eight years, Tel-Save has grown dramatically, becoming a
public company in 1995, with revenues in 1996 of $232 million and approximately
390 employees. Although Tel-Save has experienced significant growth
22
<PAGE>
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 Tel-Save will continue or that Tel-Save will be able to
achieve the growth contemplated by its business strategy. This strategy reflects
significant changes from Tel-Save's historical business and includes Tel-Save's
operation of its own network, One Better Net or OBN, which has changed Tel-Save
from a pure reseller of AT&T services to a switch-based provider (see "-- Risks
Related to OBN"); the AOL Agreement, for which Tel-Save 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 Merger, which
involves the acquisition by Tel-Save of a company that, in terms of numbers of
employees and facilities, is significantly larger than Tel-Save and that engages
in a number of businesses in which Tel-Save has no experience (see "-- Risks
Relating to the Merger -- Business Integration"). Tel-Save'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 Tel-Save'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 STF business into
Tel-Save's, is placing and will continue to place significant demands on
Tel-Save's management, operational, financial and other resources and will
require Tel-Save 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 Tel-Save'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
Tel-Save will successfully manage its expanding operations and, if Tel-Save's
management is unable to manage growth effectively, Tel-Save'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), Tel-Save anticipates that, with the
commercial launch of the Tel-Save 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
Tel-Save'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
Tel-Save Common Stock at the time of vesting and therefore such charges are not
currently determinable. Generally, the higher the market price of the Tel-Save
Common Stock at the time of vesting, the larger the amount of the charge will
be. Tel-Save 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. After discussions
with the Commission, Tel-Save determined, prior to the issuance of its second
quarter 1997 results, to change its originally reported accounting treatment for
the AOL Agreement and restated its consolidated financial statements as of and
for the three months ended March 31, 1997. The effect of this restatement was a
decrease in first quarter net income of $2.2 million and no additional
restatement was required. This revised accounting treatment is reflected in
Tel-Save's financial statements incorporated herein by reference and the
historical Tel-Save financial information included herein.
23
<PAGE>
In connection with Tel-Save'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"), Tel-Save will write-off
approximately $25.2 million (pretax) in the 1997 fourth quarter (see "UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS -- Unaudited Pro Forma
Combined Condensed Financial Statements -- Supplemental").
In addition to the approximately $19.0 million one-time acquisition and
transition related pretax charges set forth under "UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS -- Unaudited Pro Forma Combined Condensed
Financial Statements -- Pooling Combination," which will be recorded in the
quarter in which the Merger will be consummated, as indicated above under "--
Risks Relating to the Merger -- Inability to Realize Certain Benefits of the
Merger," above, and the special charges shown as adjustments to the pro forma
financial statements (including pre-tax charges of approximately $39.0 million
related to the acquisition and retirement of the STF Notes), various special
costs are anticipated to be incurred in realizing some of the benefits of the
Merger, including enhancing the Combined Company's direct sales force, and
associated with systems modifications and other integration-related charges
after the Merger. While the exact timing, nature and amount of these charges
cannot be predicted, Tel-Save currently estimates that pretax charges in
connection with the consolidation and centralization of the facilities of STF
and the related program of upgrading equipment and eliminating duplicative and
obsolete equipment and incurred in realizing some of the other benefits of the
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 Tel-Save proceeds with the integration of STF with
Tel-Save, that further charges may be incurred.
Tel-Save granted an option to an executive officer to purchase 800,000
shares of Tel-Save Common Stock at an exercise price of $11.125 per share. The
option granted is subject to the approval of the Tel-Save stockholders and is
being submitted for approval at the Tel-Save Meeting. Approval of the option
grant will result in compensation expense equal to the difference between the
exercise price and the market value of the Tel-Save Common Stock on the date of
such approval. See "TEL-SAVE PROPOSAL 5: GRANT OF STOCK OPTIONS."
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. Tel-Save
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 Tel-Save. Several of
Tel-Save's competitors are substantially larger and have greater financial,
technical and marketing resources than Tel-Save. Tel-Save's competitors that
resell non-AT&T services do so at prices below that which Tel-Save can provide
as an AT&T switchless reseller, although the deployment of OBN enables Tel-Save
to be price competitive with non-AT&T resellers at current industry pricing
levels. The ability of Tel-Save to compete effectively in the telecommunications
industry will depend upon Tel-Save's continued ability to provide high quality
services at prices generally competitive with, or lower than, those charged by
its competitors. Although Tel-Save believes that gross margins will improve as
more customers are provisioned on OBN, revenues could decline if competition for
long distance service forced Tel-Save to offer services at greater discounts.
Changes in the regulation of the telecommunications industry may impact
Tel-Save'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 Tel-Save 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
24
<PAGE>
difficult for other providers, such as Tel-Save, 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
Tel-Save.
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
(Tel-Save'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 Tel-Save serves. Although OBN is expected to make
Tel-Save more price competitive, further reductions in long distance prices
charged by competitors still may have a material adverse impact on Tel-Save'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 Tel-Save or through "partitions," independent carriers and marketing
companies that purchase services from Tel-Save. In the event that a significant
portion of Tel-Save's end users decides to purchase long distance service from
another long distance service provider, there can be no assurance that Tel-Save
will be able to replace its end user base from other sources. Loss of a
significant portion of Tel-Save's end users would have a material adverse effect
on Tel-Save's results of operations and financial condition.
A high level of customer attrition is inherent in the long distance
industry, and Tel-Save's revenues are affected by such attrition. Attrition is
attributable to a variety of factors, including termination of customers by
Tel-Save 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, Tel-Save 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 Tel-Save, which acquisition significantly increased
Tel-Save'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, Tel-Save determined to change its business practice
and deemphasize the use of direct telemarketing to solicit customers for
Tel-Save as the carrier, and, in October 1997, Tel-Save 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 "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS --
Unaudited Pro Forma Combined Condensed Financial Statements -- Supplemental" and
"-- 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 Tel-Save'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 Tel-Save'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.
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RELIANCE ON INDEPENDENT CARRIER AND MARKETING COMPANIES; LACK OF CONTROL
OVER MARKETING ACTIVITIES
Historically, Tel-Save 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 Tel-Save under these agreements. If Tel-Save were to lose access
to services on the AT&T network or billing services or experience difficulties
with OBN, Tel-Save'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 Tel-Save's partition agreements mandate compliance
by the partitions with applicable state and federal regulations. Because
Tel-Save's partitions are independent carriers and marketing companies, however,
Tel-Save is unable to control such partitions' activities. Tel-Save 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
Tel-Save 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, Tel-Save, 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. Tel-Save 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 Tel-Save'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 Tel-Save. 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. Tel-Save 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 Tel-Save.
STF's 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. STF's
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.
The Merger will require permissions or consents from certain state
regulatory agencies. There can be no assurance that Tel-Save and STF can obtain
such permissions or consents, or, if they can be obtained, that the process can
be completed on a timely basis.
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. Tel-Save 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 Tel-Save 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.
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RISKS RELATED TO OBN
In early 1997, Tel-Save 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 Tel-Save's
services. Prior to the deployment of OBN, Tel-Save 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 Tel-Save resells, Tel-Save 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 Tel-Save will be able to continue to market OBN
successfully, even though OBN uses Tel-Save-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 Tel-Save's financial
condition and results of operations.
Additionally, there can be no assurance that Tel-Save 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 Tel-Save, rather than AT&T, is
responsible for providing Tel-Save'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 Tel-Save's overhead. In order for
Tel-Save to provide service over the OBN, Tel-Save must operate and be
responsible for the maintenance of its own switching equipment. While Tel-Save
has hired additional personnel with experience in operating a switch-based
provider, there can be no assurance that Tel-Save will be successful in
operating as a switch-based provider. Moreover, Tel-Save 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 Tel-Save to risk of
significant interruption in the provision of services on OBN in the event of
damage to Tel-Save'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 Tel-Save'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 Tel-Save Common Stock. Accordingly, Mr. Borislow may have the
ability to control the election of all of the members of Tel-Save 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
Tel-Save Common Stock after the issuance of Tel-Save Common Stock upon
consummation of the Merger, although his ownership percentage will be reduced.
Tel-Save also has an authorized class of 5,000,000 shares of preferred
stock that may be issued by the Tel-Save 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 Tel-Save. In addition, the DGCL and other provisions of the
Tel-Save Charter, including the provision
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of the Tel-Save Charter that provides that the Tel-Save Board of Directors be
divided into three classes, each of which is elected for three years, and the
Tel-Save Bylaws contain provisions that may have the effect of delaying or
preventing a change in control of Tel-Save.
Such anti-takeover effects may deter a third party from acquiring Tel-Save
or engaging in a similar transaction affecting control of Tel-Save in which
Tel-Save stockholders might receive a premium for their shares over the
then-current market value.
TEL-SAVE SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Tel-Save Common Stock could
adversely affect the market price of the Tel-Save Common Stock. As of October 8,
1997, Mr. Borislow owned of record or had dispositive power with respect to
23.3% of the outstanding Tel-Save Common Stock and a decision by Mr. Borislow to
sell his shares could adversely affect the market price of the Tel-Save Common
Stock.
As of October 8, 1997, there are outstanding options to purchase 8,388,108
shares of Tel-Save Common Stock held by employees, former employees or directors
of Tel-Save. In addition, there were warrants to purchase up to 12,997,000
shares of Tel-Save Common Stock and 12,185,833 shares reserved for issuance upon
conversion of Tel-Save outstanding convertible debt.
Upon effectiveness of the Merger, and based on the numbers of outstanding
shares of STF Common Stock and STF Series I Preferred outstanding as of October
8, 1997, up to 24,029,350 shares of Tel-Save Common Stock could be issued. In
addition, outstanding STF Options, STF Series D Preferred and Assumed Warrants
will be exercisable or convertible after the Merger into up to 4,485,883 shares
of Tel-Save Common Stock.
Paul Rosenberg, the holder of 7,440,000 shares of Tel-Save Common Stock,
has the right, under certain conditions, to participate in future registrations
of Tel-Save Common Stock and to cause Tel-Save to register certain shares of
Tel-Save Common Stock owned by him. Holders of warrants also have registration
rights under certain conditions.
Sales of substantial amounts of Tel-Save Common Stock in the public market,
or the perception that such sales could occur, may adversely affect the market
price of the Tel-Save Common Stock.
FUTURE TEL-SAVE TRANSACTIONS
If the Charter Amendment is approved, Tel-Save will be authorized to issue
up to an aggregate of 300,000,000 shares of Tel-Save Common Stock. Tel-Save may
use authorized and unissued shares of Tel-Save Common Stock for various
corporate purposes, including, but not limited to, acquisition transactions, and
such shares may be issued by the Tel-Save Board without further stockholder
action unless the issuance is in connection with a transaction for which
stockholder approval is otherwise required under the Tel-Save Charter,
applicable law, regulation or agreement. See "TEL-SAVE PROPOSAL 2: AMENDMENT OF
TEL-SAVE'S CHARTER."
On October 29, 1997, Tel-Save, in a letter to the Chairman of the Board of
ACC Corp. ("ACC"), proposed for consideration by ACC a merger transaction
between Tel-Save and ACC, in which ACC would be acquired by Tel-Save and ACC's
stockholders would receive Tel-Save Common Stock in exchange for their ACC
common stock. As proposed in the letter, Tel-Save would exchange $50 in Tel-Save
Common Stock for each share of ACC common stock unless ACC had consummated (or
was committed to consummate) ACC's previously announced merger with US WATS,
Inc. in which case the exchange rate would be $40 in Tel-Save Common Stock for
each such ACC share. 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 between Tel-Save and ACC is necessarily at the
preliminary stage at the date of this Joint Proxy Statement/Prospectus and 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-
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interests transaction, any necessary regulatory approvals and any necessary
stockholder approvals. Tel-Save 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 Tel-Save's operations during the foreseeable future will
depend largely upon the continued services of Daniel Borislow, Tel-Save's
Chairman and Chief Executive Officer. Mr. Borislow has entered into an
employment agreement with Tel-Save that contains non-competition covenants that
extend for a period of up to 18 months following termination of employment.
STF RELIANCE ON THIRD PARTIES FOR EQUIPMENT
STF supplies its customers with equipment obtained primarily from Northern
Telecom, Inc., AT&T (now Lucent), NEC, Centigram Communications Corporation,
Octel Communications Corporation, Active Voice Corporation and other leading
manufacturers of telecommunications equipment. STF typically obtains this
equipment under distributor agreements that specify the types of products STF
can provide to customers and the geographic areas in which STF may operate as a
distributor. These agreements generally are for a minimum term of one year and
provide for successive one year renewals unless either party objects to such
renewal during a specified period of time prior to the scheduled termination
date. There can be no assurance that these agreements will remain in effect
beyond their current terms or, if extended, that the same provision with respect
to types of products and geographic areas would continue to apply. Other
manufacturers provide similar telecommunications equipment. If STF's distributor
agreements are not extended on the same or similar terms as those currently in
effect, there can be no assurance that STF would be able to secure distributor
agreements with other manufacturers or that the equipment available from those
manufacturers would be suitable for the customers served by STF.
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THE TEL-SAVE ANNUAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Tel-Save in connection with the solicitation of proxies by the
Tel-Save Board for use at the Tel-Save Meeting to be held on Monday, December 1,
1997, and any and all adjournments or postponements thereof.
PURPOSE OF THE TEL-SAVE MEETING
At the Tel-Save Meeting, Tel-Save's stockholders will consider and vote
upon (i) the approval and authorization of the transactions contemplated by the
Merger Agreement, including, without limitation, the issuance of shares of
Tel-Save Common Stock and Tel-Save Series A Preferred in connection with the
Merger and the election of the STF Designees as directors of Tel-Save for
three-year terms, (ii) the Charter Amendment to increase the total number of
shares of capital stock that Tel-Save has the authority to issue from
105,000,000 to 305,000,000 and the total number of shares of Tel-Save Common
Stock that Tel-Save has the authority to issue from 100,000,000 to 300,000,000,
(iii) the election of three directors (other than the STF Designees) , (iv) the
Auditor Ratification, (v) the Option Proposal and (vi) such other matters as may
properly be brought before the Tel-Save Meeting.
DATE, PLACE AND TIME
The Tel-Save Meeting will be held on Monday, December 1, 1997, at The Inn
at Lambertville Station, 11 Bridge Street, Lambertville, New Jersey 08530,
commencing at 9:00 a.m., local time.
RECORD DATE
The close of business on October 8, 1997 has been fixed as the Tel-Save
Record Date for determining stockholders entitled to vote at the Tel-Save
Meeting and any and all adjournments thereof.
TEL-SAVE VOTING RIGHTS; NO APPRAISAL RIGHTS
On the Tel-Save Record Date, Tel-Save had outstanding and entitled to vote
65,610,949 shares of Tel-Save Common Stock (constituting all of the voting stock
of Tel-Save). Each holder of record of shares of Tel-Save Common Stock on the
Tel-Save Record Date is entitled to one vote per share, which may be cast in
person or by properly executed proxy, at the Tel-Save Meeting. The presence, in
person or by properly executed proxy, of the holders of a majority of the
outstanding shares of Tel-Save Common Stock entitled to vote at the Tel-Save
Meeting is necessary to constitute a quorum at the Tel-Save Meeting. The
approval of the Merger Proposal, the Charter Amendment and the Option Proposal
will require the affirmative vote of the holders of a majority of the shares of
Tel-Save Common Stock outstanding on the Tel-Save Record Date. The approval of
the Auditor Ratification will require the affirmative vote of the holders of a
majority of the shares present in person or represented by proxy at the Tel-Save
Meeting and entitled to vote, assuming a quorum is present. The nominees for
election as directors who receive the greatest number of votes cast at the
Tel-Save Meeting, assuming that a quorum is present, shall be elected as
directors. Approval of the Merger Proposal and the consummation of the Merger
will constitute the election of the STF Designees as directors of Tel-Save.
Mr. Daniel Borislow, Chairman and Chief Executive Officer of Tel-Save, who
was entitled to vote in the aggregate approximately 38.0% of the Tel-Save Common
Stock outstanding as of the Tel-Save Record Date, has entered into the Borislow
Voting Agreement pursuant to which he has agreed to vote such shares of Tel-Save
Common Stock in favor of the Merger. As of the Tel-Save Record Date, all of
Tel-Save's other directors and all of Tel-Save's executive officers owned an
aggregate of 160,400 shares of Tel-Save Common Stock, representing approximately
.24% of the total votes entitled to be cast at the Tel-Save Meeting. Each of
such other directors and each of such executive officers has indicated that he
or she intends to vote for the approval of the Merger Proposal. If the shares
beneficially owned by all such persons, including the shares subject to the
Borislow Voting Agreement, are voted in favor of the
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approval of the Merger Proposal, then an additional 7,743,535 affirmative votes,
representing approximately 11.8% of the votes entitled to be cast in respect of
shares not owned by such persons, will be required for the approval of the
Merger Proposal.
Record holders of Tel-Save Common Stock are not entitled to appraisal
rights under Section 262 of the DGCL.
VOTING BY PROXY
Proxy cards for use at the Tel-Save Meeting accompany this Joint Proxy
Statement/Prospectus. A stockholder may use the proxy card if he or she is
unable to attend the meeting or wishes to have his or her shares voted by proxy
even if he or she does attend the meeting. A proxy may be revoked by the person
giving it at any time before it is exercised by providing written notice of such
revocation to the Secretary of Tel-Save, by submitting a proxy having a later
date or by appearing at the meeting and electing to vote in person. TEL-SAVE
STOCKHOLDERS MAY CAST OR CHANGE THEIR VOTES, EVEN IF THEY HAVE PREVIOUSLY
SUBMITTED PROXIES, BY SUBMITTING SIGNED PROXIES BY FAX TO 1-888-404-7977 AT ANY
TIME PRIOR TO THE TEL-SAVE MEETING. Any proxy validly submitted and not revoked
will be voted in the manner specified therein by the stockholder. IF NO
SPECIFICATION IS MADE, SHARES OF TEL-SAVE COMMON STOCK REPRESENTED BY PROXY WILL
BE VOTED FOR APPROVAL AND AUTHORIZATION OF THE TRANSACTIONS CONTEMPLATED BY THE
MERGER AGREEMENT, FOR APPROVAL AND ADOPTION OF THE CHARTER AMENDMENT, FOR
APPROVAL OF THE ELECTION OF THE THREE DIRECTOR NOMINEES, FOR APPROVAL OF THE
AUDITOR RATIFICATION AND FOR APPROVAL OF THE OPTION PROPOSAL. Abstentions and
broker non-votes will have the effect of a vote against the approval and
authorization of the transactions contemplated by the Merger Agreement, against
the approval and adoption of the Charter Amendment and against the approval of
the Option Proposal. Brokers and nominees are precluded from exercising their
voting discretion with respect to non-routine matters such as the Merger
Agreement, the Charter Amendment and the Option Proposal. Since an affirmative
vote of the holders of a majority of the shares of Tel-Save Common Stock
outstanding on the Tel-Save Record Date is required to approve the Merger
Agreement, the Charter Amendment and the Option Proposal, a "broker non-vote"
(i.e. shares held by brokers or nominees that are represented at a meeting but
with respect to which the broker or nominee is not empowered to vote on a
particular issue) will have the effect of a vote against the approval and
adoption of the Merger Agreement, the Charter Amendment and the Option Proposal.
Abstentions and broker non-votes will not affect the outcome of the vote with
respect to the approval of the election of the three director nominees.
Abstentions will have the effect of a vote against the approval of the Auditor
Ratification. Broker non-votes will not affect the outcome of the vote with
respect to the approval of the Auditor Ratification.
SOLICITATION OF PROXIES
Tel-Save will bear the cost of the solicitation of proxies. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation materials to the beneficial
owners of shares held of record by such persons, and Tel-Save will reimburse
such custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses in connection therewith. In addition to solicitation by mail,
directors, officers and employees of Tel-Save may solicit proxies from Tel-Save
stockholders personally or by telephone, telecopy or telegram or other forms of
communication. Such directors, officers and employees will not be additionally
compensated for such solicitation but may be reimbursed for out-of-pocket
expenses in connection therewith.
THE TEL-SAVE BOARD RECOMMENDS THAT THE TEL-SAVE STOCKHOLDERS VOTE "FOR" THE
APPROVAL AND AUTHORIZATION OF THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT, "FOR" APPROVAL AND ADOPTION OF THE CHARTER AMENDMENT, "FOR" APPROVAL
OF THE ELECTION OF THE THREE DIRECTOR NOMINEES, "FOR" APPROVAL OF THE AUDITOR
RATIFICATION AND "FOR" APPROVAL OF THE OPTION PROPOSAL.
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THE STF SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of STF in connection with the solicitation of proxies by the STF
Board for use at the STF Meeting to be held on Monday, December 1, 1997, and any
and all adjournments or postponements thereof.
PURPOSE OF THE STF MEETING
At the STF Meeting, STF's stockholders will consider and vote upon a
proposal to adopt and approve the Merger Agreement and the Merger.
DATE, PLACE AND TIME
The STF Meeting will be held on Monday, December 1, 1997, at STF, 100 Great
Meadow Road, Suite 104, Wethersfield Connecticut 06109, commencing at
9:00 a.m., local time.
RECORD DATE
The close of business on October 8, 1997 has been fixed as the STF Record
Date for determining stockholders entitled to vote at the STF Meeting and any
and all adjournments thereof.
STF VOTING RIGHTS; APPRAISAL RIGHTS
RHI, J.J. Cramer & Co., Mentor Partners, L.P. and Mr. Anthony D. Autorino,
who is a director and the Chairman of the Board and Chief Executive Officer of
STF, who owned of record in the aggregate approximately 53% of the outstanding
STF Common Stock as of the STF Record Date, have entered into the STF Voting
Agreements, pursuant to which each has agreed to vote their respective shares of
STF in favor of the Merger. As of the STF Record Date, all of STF's other
directors and all of STF's other executive officers owned an aggregate of
3,468,895 shares of STF Common Stock, representing approximately 20.2% of the
total votes entitled to be cast at the STF Meeting. Each of such other directors
and each of such other executive officers has indicated that he or she intends
to vote for the adoption and approval of the Merger Agreement and the Merger. If
the shares beneficially owned by all such persons, including the shares subject
to the STF Voting Agreements, are voted in favor of the adoption and approval of
the Merger Agreement and the Merger, then the Merger Agreement and the Merger
will be adopted and approved by the requisite stockholder vote. See "MERGER
RELATED TRANSACTIONS -- Voting Agreements."
The approval and adoption of the Merger Agreement requires the affirmative
vote of the holders of a majority of the shares of STF Common Stock outstanding
on the STF Record Date.
Only the record holders of STF Common Stock on the STF Record Date are
entitled to receive notice of and to vote at the STF Meeting. At the close of
business on the STF Record Date, there were 17,167,905 shares of STF Common
Stock outstanding held by approximately 220 record holders.
Each share of STF Common Stock entitles its owner to one vote. The holders
of at least one-third of the shares entitled to vote at the STF Meeting must be
present in person or by proxy in order to constitute a quorum for all matters to
come before the meeting. In the event a quorum is not present at the STF
Meeting, the meeting will be adjourned or postponed to solicit additional
proxies. The STF Board is not aware of any matters to be presented at the STF
Special Meeting other than the approval and adoption of the Merger Agreement.
Other than as described in the following sentence, no stockholders of STF
are entitled to appraisal rights. If the Merger is consummated, a holder of STF
Series D Preferred who strictly complies with the procedures set forth under
Section 262 of the DGCL will be entitled to have such shares appraised by the
Delaware Court of Chancery and to receive payment of the "fair value" of such
shares in lieu of the consideration provided for in the Merger Agreement. See
"THE MERGER -- Appraisal Rights" and Annex D -- Section 262 of the DGCL.
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VOTING BY PROXY
A proxy card for use at the STF Meeting accompanies this Joint Proxy
Statement/Prospectus. A stockholder may use the proxy card if he or she is
unable to attend the meeting or wishes to have his or her shares voted by proxy
even if he or she does not attend the meeting. A proxy may be revoked by the
person giving it at any time before it is exercised by providing written notice
of such revocation to the Secretary of STF, by submitting a proxy having a later
date or by appearing at the meeting and electing to vote in person. STF
STOCKHOLDERS MAY CAST OR CHANGE THEIR VOTES, EVEN IF THEY HAVE PREVIOUSLY
SUBMITTED PROXIES, BY SUBMITTING SIGNED PROXIES BY FAX TO 1-800-509-5586 (ATTN:
PROXY DEPT.) AT ANY TIME PRIOR TO THE STF MEETING. Any proxy validly submitted
and not revoked will be voted in the manner specified therein by the
stockholder. IF NO SPECIFICATION IS MADE, SHARES OF STF COMMON STOCK REPRESENTED
BY PROXY WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Abstentions and the failure to vote in person or by proxy will have the effect
of a vote against the approval and adoption of the Merger Agreement. Brokers and
nominees are precluded from exercising their voting discretion with respect to
non-routine matters such as the Merger. Since an affirmative vote of the holders
of a majority of the shares of STF Common Stock outstanding on the STF Record
Date is required to approve the Merger, a "broker non-vote" (i.e., shares held
by brokers or nominees that are represented at a meeting but with respect to
which the broker or nominee is not empowered to vote on a particular issue) will
have the effect of a vote against the approval and adoption of the Merger
Agreement.
SOLICITATION OF PROXIES
STF will bear the cost of the solicitation of proxies. Arrangements will
also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation materials to the beneficial
owners of shares held of record by such person, and STF will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
in connection therewith. In addition to solicitation by mail, directors,
officers and employees of STF may solicit proxies from STF stockholders
personally or by telephone, telecopy or other forms of communication. Such
directors, officers and employees will not be additionally compensated for such
solicitation but may be reimbursed for out-of-pocket expenses connected
therewith.
THE STF BOARD RECOMMENDS THAT THE STF STOCKHOLDERS VOTE "FOR" THE PROPOSAL
TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE MERGER.
THE MERGER
BACKGROUND OF THE MERGER; MATERIAL CONTACTS BETWEEN THE PARTIES
In late May 1997, Salomon Brothers, which historically had had
relationships with both Tel-Save and STF, indicated to Tel-Save that STF was in
the process of exploring strategic alternatives and offered to arrange a meeting
with STF. Tel-Save agreed to an introductory meeting with Mr. Jeffrey J.
Steiner, Vice-Chairman of STF's Board of Directors and also Chairman, Chief
Executive Officer and President of TFC, which owns RHI, the holder of
approximately 36% of the STF Common Stock, to explore potential opportunities
between STF and Tel-Save. Salomon Brothers subsequently scheduled a meeting for
June 5, 1997. Prior to and in preparation for the meeting, Mr. Daniel Borislow,
Chairman and CEO of Tel-Save, telephoned Mr. Mel D. Borer, President and Chief
Operating Officer of STF, to discuss STF and its business. For a discussion of
STF's actions prior to May 1997, see "-- STF Background and Reasons for the
Merger; Recommendation of the STF Board of Directors."
On June 5, 1997, Mr. Borislow and Mr. Edward B. Meyercord, III, Executive
Vice President of Tel-Save, met with Mr. Borer and Mr. Steiner to discuss
possible synergies between STF and Tel-Save. Mr. Borer visited the offices of
Tel-Save in New Hope, Pennsylvania on June 9 to discuss Tel-Save and its
business. On June 10, in a conversation with Mr. Steiner, Mr. Borislow indicated
a willingness on the part of Tel-Save to consider a merger of Tel-Save and STF
at a price of $11 per share in Tel-Save
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Common Stock. Mr. Steiner expressed his belief that STF might be willing to
consider favorably a transaction with Tel-Save in that price range. Mr. Borislow
indicated that he would contact STF when, and if, Tel-Save was prepared to enter
into further discussions.
On June 12, 1997, a meeting was held at TFC's offices, at which Mr.
Steiner, Mr. Autorino, various other executives and directors from STF and
Salomon Brothers discussed the interest of Tel-Save in merging with STF and
other strategic alternatives. Mr. Steiner and Mr. Autorino also spoke with Mr.
Borislow by telephone and discussed further the possibility of a merger at a
price of $11 per share in Tel-Save Common Stock. Mr. Borislow again indicated
that he would contact STF when, and if, Tel-Save was prepared to enter into
further discussions.
On July 7, 1997, Tel-Save contacted STF indicating that Tel-Save was
prepared to pursue the earlier discussions. A conference call was held on July
8, 1997 between Mr. Borislow and Mr. Meyercord of Tel-Save and representatives
of STF, including certain executive officers of STF, STF's attorneys and STF's
financial advisor, Salomon Brothers, and certain officers of TFC, to discuss the
possible terms of a merger, but no agreement was reached. Tel-Save and STF
entered into a reciprocal confidentiality agreement on July 11, 1997 in order to
conduct due diligence investigations with respect to each other. Discussions
between representatives of Tel-Save and STF continued between July 10 and July
13 on due diligence issues, the terms of a possible transaction and the language
of a possible merger agreement. On July 11, 1997, Mr. Vincent DiVincenzo, STF's
Chief Financial Officer, and Mr. Paul R. Barry, Jr., STF's Senior Vice President
of Business Development, met with Tel-Save employees and representatives from
Salomon Brothers, DMG, BDO Seidman, LLP and Arthur Andersen LLP at the offices
of Tel-Save to pursue further due diligence inquiries regarding Tel-Save and
STF.
On the morning of July 14, 1997, in response to trading activity in STF's
common stock, STF publicly announced that it was engaged in discussions
regarding a possible sale or merger of STF. On the afternoon of July 14, Mr.
Autorino received a telephone call from Robert M. Manning, Senior Vice President
and Chief Financial Officer of Intermedia Communications, Inc. ("Intermedia"),
expressing renewed interest on the part of Intermedia in a transaction with STF
at $12 per share payable in cash. Mr. Autorino invited representatives of
Intermedia to meet with him the next day in STF's offices in Wethersfield,
Connecticut.
On July 15, 1997, Mr. Manning and others from Intermedia met with
representatives of STF in STF's Wethersfield offices. At that time, the
representatives of Intermedia indicated that it would only pay one-half of the
purchase price in cash with the remainder in stock of Intermedia. They also
stated that Intermedia would pay cash for the STF Special Preferred held by RHI.
Mr. Steiner spoke by telephone with Mr. David C. Ruberg, Chairman and CEO of
Intermedia, who did not attend the meeting in Wethersfield, and inquired whether
any proposal that Intermedia intended to make would be subject to further due
diligence or other conditions. Mr. Ruberg said he did not know but would call
back Mr. Steiner and list all conditions. Mr. Ruberg returned Mr. Steiner's
call, but was unable to state what conditions or contingencies would be placed
on any offer Intermedia might make. He also noted that he would be unable to
attend any meetings.
Later on the evening of July 15, 1997, in the offices of Intermedia's
financial advisor, representatives of Intermedia and STF met again. At that
meeting, Intermedia indicated that it would not pay any portion of the
acquisition price in cash and that the consideration for any merger would be
paid entirely in the stock of Intermedia, and that Intermedia was not willing to
enter into any definitive agreement with STF until after the close of trading on
July 18, 1997.
On the morning of July 16, 1997, Mr. Borislow telephoned Mr. Autorino and
advised him that the Board of Directors of Tel-Save had voted to approve a
transaction with STF and that he was flying to New York to conclude a deal with
STF. Mr. Borislow indicated that, if no deal were signed with STF on that day,
Tel-Save would terminate all further discussions.
Representatives of STF and Tel-Save met in New York on July 16. STF
informed Tel-Save that it had received an offer from Intermedia and asked
Tel-Save to improve its offer. Tel-Save reiterated its intention to terminate
further discussions if no merger agreement were signed that day. After further
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discussion, including discussions with its financial advisor, Salomon Brothers,
Tel-Save indicated that it would pay a minimum price of $11.25 per share of
Tel-Save Common Stock for each share of STF, with a formula that would permit
the price paid to the stockholders of STF to rise by 30% of any amount above $20
at which the Tel-Save shares traded over fifteen consecutive trading days ending
on the trading day three trading days immediately prior to the time of the
merger, while still allowing STF to terminate the merger agreement if the price
of Tel-Save Common Stock fell below $10 per share for any period of twenty
consecutive trading days. The Tel-Save Common Stock closed at $21 per share on
July 16. Representatives of STF also advised Tel-Save that it would only sign an
agreement that contained a satisfactory provision permitting the STF Board to
terminate any merger agreement if it deemed it necessary to do so in order to
fulfill its fiduciary obligations to STF's stockholders. Tel-Save stated that it
would agree to such a provision in the merger agreement, subject to certain
conditions.
In light of (i) STF's concerns that Intermedia would be unwilling or unable
to conclude a transaction, particularly in light of its inability to reach
agreement on a transaction earlier in the year, its failure to pursue actively a
transaction thereafter and its unwillingness to enter into a definitive
agreement prior to the evening of July 18, and the reasons therefor, (ii) the
continued volatility of Intermedia's stock price, (iii) Intermedia's highly
leveraged capital structure, (iv) the fact that Intermedia's proposal was
subject to uncertain conditions, (v) Tel-Save's stated intention to terminate
its offer if a definitive agreement was not signed on July 16, 1997, (vi) STF's
ability to terminate the merger agreement with Tel-Save if a superior proposal
were made and (vii) the unwillingness of RHI, STF's largest stockholder, to
approve a transaction that did not provide for cash payment of the STF Special
Preferred, STF determined to concentrate its efforts on a transaction with
Tel-Save. Since the public announcement of the Merger on July 17, 1997,
representatives of STF have not had any substantive contact with any
representative of Intermedia.
At a meeting of the STF Board held later on July 16, 1997, the STF Board
approved the Merger.
TEL-SAVE REASONS FOR THE MERGER; RECOMMENDATION OF THE TEL-SAVE BOARD OF
DIRECTORS
As part of its long-term growth strategy, Tel-Save has been seeking to
broaden its telecommunications service product offerings beyond long distance
and to add alternative distribution channels to its core small business customer
base. Through the AOL Agreement, Tel-Save has enhanced its long distance service
offerings, has rights to offer wireless and local services and will obtain a
distribution channel to the residential market. Tel-Save viewed the Merger as an
opportunity to expand into local services and to gain a nationwide distribution
platform for medium to large commercial accounts.
In reaching its determination to approve and adopt the Merger Agreement and
the transactions contemplated thereby, the Tel-Save Board consulted with
Tel-Save management, as well as its financial and legal advisors, and considered
a number of factors, including, without limitation, the following:
(1) its belief that the Merger presents Tel-Save with an opportunity to
expand into the local services ("CLEC") market and to add to the customer base
for its nationwide long distance network, OBN;
(2) the opportunity to use STF's nationwide network service organization of
highly trained service personnel and switch technicians and national sales
organization to deploy switches for the provision of local services and as a
platform to expand a medium to large commercial account sales force;
(3) its assessment of cost-saving synergies that will be realized by the
Merger by (i) offering STF customers services utilizing Tel-Save's network, (ii)
eliminating certain duplicative overhead positions and expenses and (iii)
providing an enhanced credit profile for the refinancing of STF's outstanding
indebtedness;
(4) other information concerning the business, assets, capital structure,
financial performance and condition and prospects of STF and Tel-Save;
(5) the financial presentation of Salomon Brothers and the opinion of
Salomon Brothers as to the fairness to Tel-Save from a financial point of view
of the consideration to be paid by Tel-Save;
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(6) current and historical market prices and trading information with
respect to each company's common stock;
(7) the agreements of certain STF stockholders to vote their STF Common
Stock in favor of the Merger;
(8) the structure and terms of the Merger and the terms and conditions of
the Merger Agreement, including the Exchange Ratio and the intended tax and
accounting treatment; and
(9) the effect of the Merger on the customers and employees of the two
companies.
The foregoing discussion of the information and factors discussed by the
Tel-Save Board is not meant to be exhaustive but is believed to include all
material factors considered by the Tel-Save Board. The Tel-Save Board did not
quantify or attach any particular weight to the various factors that it
considered in reaching its determination that the Merger is in the best
interests of Tel-Save and its stockholders.
FOR THE REASONS DESCRIBED ABOVE, THE TEL-SAVE BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER, AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER PROPOSAL.
OPINIONS OF TEL-SAVE FINANCIAL ADVISOR
At the meeting of the Tel-Save Board on July 15, 1997, Salomon Brothers
delivered its oral opinion, and, on July 16, 1997, upon the change in some of
the terms of the transaction, confirmed such opinion in writing, that, as of
July 16, 1997, the Tel-Save Merger Consideration to be paid by Tel-Save was fair
to Tel-Save from a financial point of view. Salomon Brothers subsequently
confirmed such opinion in writing on October 30,1997.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON BROTHERS DATED OCTOBER 30,
1997, IS ATTACHED AS ANNEX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND SETS
FORTH A COMPLETE DESCRIPTION OF THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN BY SALOMON BROTHERS. NO
LIMITS WERE IMPOSED BY THE TEL-SAVE BOARD UPON SALOMON BROTHERS WITH RESPECT TO
THE INVESTIGATIONS MADE OR THE PROCEDURES FOLLOWED BY SALOMON BROTHERS IN
RENDERING ITS OPINION. HOLDERS OF TEL-SAVE COMMON STOCK ARE URGED TO READ
SALOMON BROTHERS' OPINION IN ITS ENTIRETY. THIS SUMMARY OF THE OPINION AS SET
FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with rendering its opinion, Salomon Brothers reviewed the
principal financial terms of the Merger Agreement. Salomon Brothers also
reviewed certain publicly available information concerning Tel-Save and STF and
certain other financial information concerning Tel-Save and STF, respectively.
Salomon Brothers discussed the past and current business operations, financial
conditions and prospects of Tel-Save and STF with certain officers and employees
of Tel-Save and STF. Salomon Brothers also received financial projections from
the managements of Tel-Save and STF. Salomon Brothers also considered such other
information, financial studies, analyses, investigations and financial,
economic, market and trading criteria that it deemed relevant. In addition,
Salomon Brothers assumed the Merger would qualify as a tax free reorganization
for federal income tax purposes and would be accounted for as a pooling of
interests transaction.
In its review and analysis and in arriving at its opinion, Salomon Brothers
assumed and relied upon the accuracy and completeness of the information
reviewed by Salomon Brothers for the purpose of its opinion and Salomon Brothers
did not assume any responsibility for independent verification of such
information. With respect to the operating and financial forecasts of Tel-Save
and STF, Salomon Brothers assumed that such forecasts were reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
managements of Tel-Save and STF, and Salomon Brothers expressed no opinion with
respect to such forecasts or the assumptions on which they were based. Salomon
Brothers did not assume any responsibility for any independent evaluation or
appraisal of any of the assets (including properties and facilities) or
liabilities of Tel-Save or STF. Salomon Brothers' opinion necessarily was based
upon conditions as they existed and could be evaluated as of the date thereof.
Salomon
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Brothers' opinion did not imply any conclusion as to the likely trading range
for Tel-Save Common Stock following the consummation of the Merger, which may
vary depending upon, among other factors, changes in interest rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. Salomon Brothers' opinion did not address
Tel-Save's underlying business decision to effect the Merger. Salomon Brothers'
opinion was directed only to the fairness to Tel-Save, from a financial point of
view, of the Tel-Save Merger Consideration to be paid by Tel-Save and did not
constitute a recommendation concerning how holders of Tel-Save Common Stock
should vote with respect to the Merger.
The following is a summary of the analyses presented on July 15, 1997, by
Salomon Brothers to the Tel-Save Board in connection with the rendering of
Salomon Brothers' opinion dated July 16, 1997.
(i) Historical Trading Analysis. Salomon Brothers reviewed the history of
trading prices and volumes for shares of STF Common Stock and Tel-Save Common
Stock over the period from January 1, 1996 to July 11, 1997. Salomon Brothers
also reviewed (a) the history of trading prices of STF Common Stock in relation
to a composite index of selected competitive local exchange companies (American
Communications Services, Inc., Brooks Fiber Properties, Inc., GST
Telecommunications, Inc., ICG Communications, Inc., Intermedia Communications,
Inc., McLeod USA Incorporated and Teleport Communications Group Incorporated), a
composite index of selected comparable long-distance companies (ACC Corp., EXCEL
Communications, Inc., IXC Communications, Inc., Midcom Communications Inc.,
Tel-Save Holdings, Inc. and U.S. Long Distance Corp.), the combination of which
Salomon Brothers deemed to be generally comparable to STF, and the Standard &
Poor's Industrial Average (the "S&P 400") and (b) the history of trading prices
of Tel-Save Common Stock in relation to a composite index of selected comparable
long-distance companies (LCI International, Inc., ACC Corp., EXCEL
Communications, Inc., IXC Communications Inc. and U.S. Long Distance) and the
S&P 400. Trading prices for shares of STF Common Stock during the period from
January 1, 1996 to July 11, 1997 ranged from $3.75 to $9.50.
(ii) Exchange Ratio Analysis. Salomon Brothers reviewed the historical
ratio of the daily closing prices of STF Common Stock to Tel-Save Common Stock
over the period from January 1, 1997 to July 11, 1997. Based on such prices and
over such period, the high, low and average exchange ratios implied by such
prices were 0.81, 0.60 and 0.72, respectively, shares of Tel-Save Common Stock
to each share of STF Common Stock. Salomon Brothers also noted that, based on
per share daily closing prices of STF Common Stock and Tel-Save Common Stock
during the one month, three months, six months and twelve months ended July 11,
1997, the average exchange ratios implied by such daily closing prices were
0.75, 0.72, 0.72 and 0.82, respectively, and that on July 11, 1997, the exchange
ratio implied by such daily closing prices was 0.73.
(iii) Discounted Cash Flow Analysis. Using a discounted cash flow ("DCF")
methodology, Salomon Brothers valued STF by estimating the present value of its
future unlevered free cash flows. Unlevered free cash flow is calculated as
unlevered net income plus non-cash expenses, adjusted for any cash effects from
changes in working capital and capital expenditures. Salomon Brothers aggregated
(a) the present value of the unlevered free cash flows over the five fiscal-year
period ranging from 1998 to 2002 with (b) the present value of the range of the
terminal values described below. The range of terminal values was calculated by
applying multiples ranging from 8.5x to 9.5x to STF's estimated earnings before
interest, taxes, depreciation and amortization ("EBITDA") for the fiscal year
ending December 31, 2002. This range of terminal values represented STF's value
beyond 2002. As part of its analysis, Salomon Brothers applied weighted average
costs of capital ("WACCs") of 12.0% to 13.0%. Applying those parameters, the DCF
analysis resulted in implied equity values per share of STF Common Stock
(excluding the present value of synergies, which Salomon Brothers valued at
$4.00 to $6.00 per share) of $8.88 to $11.51.
(iv) Public Market Analysis. Salomon Brothers compared the financial and
market performance of STF with the following group of publicly traded companies:
ACC Corp., EXCEL Communications, Inc., Tel-Save Holdings, Inc. and U.S. Long
Distance Corp. (collectively, the "Selected Long Distance Public Companies").
Salomon Brothers examined the price per share, the equity market capitalization,
the
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ratio ("P/E Ratio") of price to latest twelve month ("LTM") earnings per share
(excluding extraordinary items) ("EPS"), 1997 EPS and 1998 EPS and the ratio of
market capitalization plus total debt and preferred stock less cash and
extraordinary assets ("Firm Value") to LTM revenue, LTM EBITDA and LTM earnings
before interest and taxes ("EBIT"). The P/E Ratio analysis showed median ratios
of price to LTM EPS, 1997 EPS and 1998 EPS of 42.9x, 28.3x and 17.5x,
respectively, for the Selected Long Distance Public Companies, compared to
49.1x, 16.6x and 17.1x, respectively, for STF, assuming estimated pre-tax
synergies of approximately $16 million per annum ("Synergies"). The Firm Value
analysis showed median ratios of Firm Value to LTM revenue, LTM EBITDA and LTM
EBIT of 1.8x, 17.8x and 37.6x, respectively, for the Selected Long Distance
Public Companies compared to 2.9x, 9.1x and 13.1x, respectively, for STF
including Synergies. Salomon Brothers also noted that STF's ratios of Firm Value
to LTM revenue, LTM EBITDA and LTM EBIT, were 2.9x, 12.4x and 21.3x,
respectively, without Synergies.
Salomon Brothers also compared the financial and market performance of STF
with groups of communication companies: Stripped Tier I Long Distance (AT&T
Corporation, MCI Communications, Inc., Sprint Corporation); Stripped Tier II
Long Distance (Frontier Corporation, LCI International, Inc., Worldcom, Inc.);
Tier III Long Distance (ACC Corp., EXCEL Communications, Inc., IXC
Communications, Inc., Midcom Communications Inc., Tel-Save Holdings, Inc., Telco
Communications Group, Inc., U.S. Long Distance Corp.); Stripped RHBCs (Ameritech
Corporation, Bell Atlantic Corporation, BellSouth Corporation, NYNEX
Corporation, SBC Communications, Inc., US West Communications, Inc., GTE
Corporation); Stripped Independents (Aliant Communications Co., ALLTEL
Corporation, Century Telephone Enterprises, Inc., Cincinnati Bell Inc., Southern
New England Telecommunications Corporation, Telephone and Data Systems, Inc.);
Competitive Local Exchange Carriers or CLECs (American Communications Services,
Inc., Brooks Fiber Properties, Inc., GST Telecommunications, Inc., ICG
Communications, Inc., McLeod USA Incorporated, Teleport Communications Group
Incorporated); Cable (Adelphia Communications Corp., Cablevision Systems Corp.,
Century Communications Corp., Comcast Corp., Cox Communications, Inc., TCA Cable
TV Inc., TCI Communications, Jones Intercable, Inc.); Cellular (AirTouch
Communications Inc., Centennial Cellular Corp., PriCellular Corporation, Palmer
Wireless, Inc., United States Cellular Corporation, Vanguard Cellular Systems,
Inc., 360 Communications Company). Stripped long distance multiples compare long
distance company values to operating results from long distance businesses. All
non-telecommunications and non-long distance operating data is stripped out.
Stripped RBHCs and stripped independent multiples isolate operating results and
associated value of businesses derived from the provisioning of local telephone
services.
Salomon Brothers examined 1997E-1998E Revenue Growth, Firm Value (excluding
extraordinary or non-core assets) to LTM Revenues, 1997E-1998E EBITDA Growth,
Firm Value to LTM EBITDA. Revenue growth ranged from 4.8% to 26.7%, Firm Value
(as adjusted) to LTM Revenue ranged from 1.1 to 4.4, 1997E-1998E EBITDA Growth
ranged from 0.1% to 38.1%, Firm Value (as adjusted) to EBITDA ranged from 4.6 to
17.9. Salomon Brothers also noted that for STF the 1997E-1998E Revenue Growth
was 13.3% with and without Synergies (based on management projections), Firm
Value to LTM Revenues was 2.9x with and without Synergies, 1997E-1998E EBITDA
Growth was 10.9% and Firm Value to LTM EBITDA was 12.4x without Synergies and
9.1x with Synergies.
No company used in the Public Market analysis other than Tel-Save or STF
was identical to Tel-Save or STF. Accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading value of the companies to
which they are being compared. Mathematical analysis is not, in itself, a
meaningful method of ensuring comparable company data.
(v) Private Market Analysis. Salomon Brothers reviewed the consideration
paid or proposed to be paid in other recent acquisitions of telecommunications
companies. Specifically, Salomon Brothers reviewed the following transactions:
McLeod USA Incorporated/Consolidated Communications Inc. (announced June 15,
1997); Shared Technologies Inc./Fairchild Industries Inc. (consummated March 13,
1996); MFS Communications/RealCom Office Communications (consummated November
11, 1994); and
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MFS Communications/Centex Telemanagement (consummated May 18, 1994). For such
transactions, Salomon Brothers calculated a range of (a) implied ratios of Firm
Value to LTM revenues, ranging from 0.9x to 2.4x, (b) implied ratios of Firm
Value to LTM EBITDA, ranging from 8.9x to 13.4x and (c) implied ratios of Firm
Value to LTM EBIT, ranging from 15.5x to 17.8x. Salomon Brothers compared the
foregoing to implied ratios of Firm Value to LTM revenues, LTM EBITDA and LTM
EBIT, for STF of 2.9x, 12.4x and 21.3x respectively, without Synergies and 2.9x,
9.1x and 13.1x respectively, with Synergies.
No transaction used in the Private Market analysis summarized above is
identical to the Merger. Accordingly, any such analysis of the value of the
Merger involves complex considerations and judgments concerning differences in
the potential financial and operating characteristics of the comparable
companies and other factors in relation to the trading and acquisition values of
the comparable companies and publicly announced transactions. Mathematical
analysis is not, in itself, a meaningful method of ensuring comparable
transaction data.
(vi) Pro Forma Contribution Analysis. Salomon Brothers compared the
relative Firm Value of Tel-Save and of STF of approximately 64% and 36%,
respectively, in the combined company following consummation of the Merger to
the relative balance sheet and income statement contributions of each of
Tel-Save and STF to the combined company, including (i) revenue, EBITDA, EBIT
and Net Income to Common (in each case, based upon projections for 1997 provided
by Tel-Save and STF management), (ii) Capital Expenditures, EBITDA less Capital
Expenditures (in each case, based upon projections for 1997 provided by Tel-Save
and STF management) and (iii) Total Assets and Stockholders' Equity (in each
case, as of March 31, 1997). No pro forma adjustments were made for the Merger,
and Salomon Brothers assumed that the Tel-Save and STF projections were
accurate. This analysis indicated that, for the year ended December 1997,
Tel-Save and STF would contribute approximately 64% and 36%, respectively, of
revenue of the combined company; approximately 53% and 47%, respectively, of
EBITDA of the combined company; approximately 61% and 39%, respectively, of EBIT
of the combined company; approximately 63% and 37%, respectively, of Capital
Expenditures of the combined company; approximately 48% and 52%, respectively,
of EBITDA less Capital Expenditures of the combined company; and approximately
43% and 57%, respectively, of Total Assets of the combined company.
(vii) Pro Forma Combination Analysis. Salomon Brothers analyzed certain pro
forma effects on Tel-Save and STF resulting from the Merger for fiscal 1998 and
fiscal 1999. This analysis, assuming a stand alone EPS for Tel-Save of $1.37 and
$2.44 for fiscal 1998 and fiscal 1999, respectively, and assuming Synergies
resulting from the Merger, showed accretion of 3.5% and dilution of 4.8% for
fiscal 1998 and fiscal 1999, respectively, assuming the Exchange Ratio multiple
of 0.55, dilution of 2.6% and 10.4% for fiscal 1998 and fiscal 1999,
respectively, assuming the Exchange Ratio multiple of 0.755 and dilution of
11.3% and 18.4% for fiscal 1998 and fiscal 1999, respectively, assuming the
Exchange Ratio multiple of 1.10. Salomon Brothers also considered a projection
scenario for Tel-Save which assumed no meaningful contribution from AOL
transaction. Salomon Brothers also noted, based upon a standalone EPS for
Tel-Save of $0.78 and $1.18 under this projection scenario for fiscal 1998 and
fiscal 1999, respectively, and assuming Synergies resulting from the Merger,
that the Merger would result in accretion of 19.0% and 7.9% for fiscal 1998 and
fiscal 1999, respectively, assuming the Exchange Ratio multiple of 0.55,
accretion of 12.0% and 1.6% for fiscal 1998 and fiscal 1999, respectively,
assuming the Exchange Ratio multiple of 0.755 and accretion of 2.0% and dilution
of 7.5% for fiscal 1998 and fiscal 1999, respectively, assuming the Exchange
Ratio multiple of 1.10.
The preparation of a fairness opinion is a complex process not susceptible
to partial analysis or summary descriptions. The summary set forth above does
not purport to be a complete description of the analyses underlying the Salomon
Brothers opinion or of Salomon Brothers's presentation to the Tel-Save Board.
Salomon Brothers believes that its analysis and the summary set forth above must
be considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the process underlying the analysis set forth in
its opinion. Salomon Brothers has not indicated that any of the analysis which
it performed has a greater significance than any other. The ranges of valuations
resulting from any partic-
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ular analysis described above should not be taken to be the view of Salomon
Brothers of the actual value of Tel-Save, STF or the combined entity.
In performing its analyses, Salomon Brothers made numerous assumptions with
respect to industry performance, general business, financial market and economic
conditions and other matters, many of which are beyond the control of Tel-Save
or STF. The analyses which Salomon Brothers performed are not necessarily
indicative of actual values or factual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Salomon Brothers's analysis of the
fairness to Tel-Save, from a financial point of view, of the Tel-Save Merger
Consideration to be paid by Tel-Save. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be sold or
the prices at which any securities may trade at the present time or any time in
the future. The opinion of Salomon Brothers does not address the relative merits
of the Merger as compared to any alternative business strategies that might
exist for Tel-Save or the effect of any other business combination in which
Tel-Save might have engaged.
In the ordinary course of business, Salomon Brothers may actively trade the
equity securities of Tel-Save and STF for its own account and the accounts of
its customers and, accordingly, may at any time hold a long or short position in
such securities. Pursuant to an engagement letter dated July 7, 1997, Tel-Save
agreed to pay Salomon Brothers a fee of (i) $400,000 upon initial submission of
the Opinion (as defined in such engagement letter) to the Tel-Save Board plus
(ii) an additional fee of 0.5% of the Aggregate Consideration (as defined in
such engagement letter) (less any amount paid under the immediately preceding
clause (i)), such additional fee to be contingent upon the consummation of an
Acquisition Transaction (as defined in such engagement letter and that includes
the Merger) and payable at the closing thereof. Tel-Save also agreed, under
certain circumstances, to reimburse Salomon Brothers for certain out-of-pocket
expenses incurred by Salomon Brothers in connection with the Merger, and agreed
to indemnify Salomon Brothers and certain related persons against certain
liabilities, including liabilities under the federal securities laws, relating
to or arising out of its engagement. In addition, with the consent of Tel-Save,
Salomon Brothers acted as financial advisor to the STF Board in connection with
the Merger and will receive a customary fee for such services.
Salomon Brothers is an internationally recognized investment banking firm
that provides financial services in connection with a wide range of business
transactions. As part of its business, Salomon Brothers regularly engages in the
valuation of companies and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and other
purposes. The Tel-Save Board retained Salomon Brothers based on Salomon
Brothers's expertise in the valuation of companies as well as its familiarity
with companies in the telecommunications industry.
STF BACKGROUND AND REASONS FOR THE MERGER; RECOMMENDATION OF THE STF BOARD OF
DIRECTORS
Since the third quarter of 1996, STF has from time to time explored the
possibility of either a sale of STF or a strategic merger with a third party in
the telecommunications industry.
In the third quarter of 1996, CS First Boston Corporation, acting as
financial advisor for STF, arranged for a meeting between Mr. Autorino, Mr.
Ruberg and Intermedia's financial advisors, Bear Stearns & Co., to explore the
possibility of a merger transaction. Intermedia entered into a confidentiality
agreement with STF on September 18, 1996 and visited STF's facilities on a
number of occasions.
In discussions with STF, Intermedia raised the possibility of a stock
merger at a ratio of approximately .4 shares of Intermedia common stock for
every share of STF Common Stock. Under the Intermedia proposal, the conversion
ratio would have resulted in an exchange of $12 of Intermedia stock (then
trading at $30 per share) for every share of STF Common Stock, with, however, a
right on the part of Intermedia to terminate the transaction if the price of its
stock fell below $25 per share or rose above $35 per share. Given the lack of
substantial liquidity of Intermedia's common stock, Intermedia's highly
leveraged capital structure, and the need to obtain the prior approval of
Intermedia's bondholders, this proposal was deemed unacceptable by
representatives of STF.
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On January 22, 1997, a meeting was held between Mr. Autorino and others on
behalf of STF and Mr. Ruberg and others on behalf of Intermedia. At the meeting,
Intermedia revised their proposal such that one-half of the consideration would
be in common stock of Intermedia and one-half in a form ofpreferred stock, with
the STF Special Preferred held by RHI to be acquired for $10 per share in cash.
Because the preferred stock of Intermedia to be paid to stockholders of STF was
not convertible into common stock, and because of continued concerns regarding
the liquidity of Intermedia's common stock and its highly leveraged capital
structure, the proposal was deemed to be unacceptable by STF.
In March 1997, a discussion took place between Mr. Steiner, Vice-Chairman
of the STF Board and Chairman and Chief Executive Officer of TFC, a holder of
approximately 40% of the STF Common Stock, and Mr. Ruberg in which Mr. Steiner
invited Intermedia to make a further proposal. None was made at the meeting or
at any time prior to July 14, 1997. See "-- Background of the Merger; Material
Contacts Between the Parties."
The price of Intermedia's stock experienced volatility during the fourth
quarter of 1996 and the first quarter of 1997. During first quarter of 1996,
Intermedia's stock closed as high as $33 3/4 and as low as $21 1/2. During the
first quarter of 1997, it ranged from a high of $25 to a low of $16 5/8, the
price at which it closed on the last day of the quarter.
On January 8, 1997, Mr. Autorino met in Tulsa, Oklahoma with Keith E.
Bailey, Chairman and CEO of The Williams Companies, Inc., corporate parent of
WilTel Communications, LLC ("WilTel"). Wiltel entered into a confidentiality
agreement with STF and commenced examination of STFs financial information. Mr.
Autorino indicated to Mr. Bailey that STF was looking for a price in excess of
$10 per share. Wiltel made no proposal.
On February 13, 1997, Mr. Autorino met again with Mr. Bailey in Houston,
Texas. Representatives from SG Warburg were also in attendance. No agreement was
reached.
Providence Equity Partners ("Providence") entered into a confidentiality
agreement on June 13, 1997 in order to examine information relating to STF.
Thereafter, in a conversation with Mr. Donald Miller, a director of STF and a
Senior Vice President of TFC, a representative of Providence offered to pay $9
in cash for STF, which price was deemed to be inadequate.
Representatives of Tel-Save first met with representatives of STF in June
1997. For a discussion of the events transpiring thereafter, see "-- Background
of the Merger; Material Contacts Between the Parties."
On July 16, a Special Meeting of the Board of Directors of STF was held at
which recent developments were reviewed. A representative of Salomon Brothers,
in its capacity as a financial advisor to STF, compared the Tel-Save offer with
features of the proposal from Intermedia. Thereafter, representatives of DMG
made a presentation to the Board relating to the fairness of the Tel-Save offer
and the expected synergies from the proposed merger. DMG opined that, as of that
date, the Tel-Save offer was fair to the holders of the common stock of STF from
a financial point of view.
At a meeting of the STF Board held on July 16, 1997, the STF Board
unanimously (i) determined that the Merger Agreement and the Merger were fair to
and in the best interests of STF's stockholders, (ii) approved the Merger
Agreement and the transactions that it contemplates and (iii) recommended that
the stockholders of STF approve the Merger Agreement and the Merger.
In reaching its conclusion, the STF Board considered the following material
information and factors:
(1) the strategic benefits of a merger with Tel-Save, including the
reasons described above in clauses (1) through (3) under "-- Tel-Save
Reasons for the Merger; Recommendation of the Tel-Save Board of Directors";
(2) the terms and structure of the transaction and the terms and
conditions of the Merger Agreement, including the Exchange Ratio;
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(3) information concerning the business, assets, capital structure,
financial performance and condition and prospects of STF and Tel-Save;
(4) current and historical market prices and trading information with
respect to each company's common shares;
(5) the opinion dated July 16, 1997 of DMG to the STF Board that, based
upon and subject to the factors and assumptions set forth therein, as of
such date, the Exchange Ratio was fair from a financial point of view to the
holders of STF Common Stock (see "-- Opinion of STF Financial Advisor");
(6) the anticipated treatment of the Merger as a pooling of interests for
financial accounting purposes; and
(7) the effect of the Merger on the customers and employees of the two
companies.
The foregoing discussion of the information and factors considered and
given weight by the STF Board is not intended to be exhaustive. In view of the
wide variety of factors considered in connection with its evaluation of the
Merger, the STF Board did not find it practicable to and did not attempt to rank
or assign relative weights to these factors. In addition, individual members of
the STF Board may have given different weights to different factors.
OPINIONS OF STF FINANCIAL ADVISOR
Pursuant to a letter agreement dated July 9, 1997 (the "Engagement Letter")
between STF and DMG, DMG provided a financial fairness opinion to STF in
connection with the Merger. At the meeting of the STF Board on July 16, 1997,
DMG rendered its oral opinion, subsequently confirmed in writing as of July 16,
1997 and reconfirmed in writing on October 30, 1997 (the "DMG Opinion"), that,
as of such dates, based upon and subject to the various considerations set forth
in the DMG Opinion, the STF Merger Consideration to be received by the holders
of STF Common Stock pursuant to the terms of the Merger Agreement was fair from
a financial point of view to such holders.
THE FULL TEXT OF THE DMG OPINION, WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE
SCOPE OF THE REVIEW UNDERTAKEN BY DMG IN RENDERING THE DMG OPINION, IS ATTACHED
AS ANNEX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS. STF STOCKHOLDERS ARE URGED
TO READ THE DMG OPINION CAREFULLY AND IN ITS ENTIRETY. THE DMG OPINION ADDRESSES
ONLY THE FAIRNESS OF THE STF MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW
TO THE HOLDERS OF STF COMMON STOCK AS OF THE DATE OF THE DMG OPINION, AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY STF STOCKHOLDER AS TO HOW SUCH STF
STOCKHOLDER SHOULD VOTE AT THE STF MEETING. THE SUMMARY OF THE DMG OPINION SET
FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE DMG OPINION.
In rendering the DMG Opinion, DMG, among other things: (i) analyzed certain
publicly available financial statements and other information of STF and
Tel-Save; (ii) reviewed and analyzed certain financial projections of STF for
1997 provided by the management of STF; (iii) prepared and analyzed certain
financial projections of STF and Tel-Save (together, the "Projections"), which
were based on separate discussions with senior management of STF and Tel-Save
and were reviewed by senior management of STF and Tel-Save, who confirmed that
such projections were a reasonable basis for forecasting future financial
results of STF and Tel-Save, respectively; (iv) discussed with senior management
of STF and Tel-Save the current operations, financial condition and the
prospects of each company; (v) compared the historical financial performance and
market trading values of STF and Tel-Save with that of certain other generally
comparable publicly traded companies and their securities; (vi) reviewed the
financial terms, to the extent publicly available, of certain comparable
acquisition transactions; (vii) based on the Projections, performed a discounted
cash flow analysis of STF and Tel-Save, including the estimated financial cost
savings arising from a business combination, and analyzed the pro forma
financial effects to STF of the Merger; (viii) discussed with the senior
management of STF other acqui-
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sition proposals and related discussions STF held with other parties; (ix)
reviewed the financial terms of the Merger Agreement; and (x) performed such
other financial analyses and examinations and considered such other factors as
DMG deemed appropriate.
In rendering the DMG Opinion, DMG assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of the DMG Opinion. With respect to the
Projections supplied by or confirmed by STF and Tel-Save, DMG further assumed
that such Projections represented the best currently available estimates and
judgment of the respective managements of STF and Tel-Save as to the expected
future financial performance of STF or Tel-Save, as applicable. DMG did not make
any independent verification of information supplied by or confirmed by STF or
Tel-Save and did not undertake any independent valuation or appraisal of the
assets or liabilities of STF or Tel-Save, nor was DMG furnished with such
appraisals. The DMG Opinion does not imply any conclusion as to the likely
trading range for the Tel-Save Common Stock following the consummation of the
Merger, which may vary depending upon, among other factors, changes in interest
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities. The DMG Opinion does not address
STF's underlying business decision to effect the Merger. DMG assumed that the
Merger will be accounted for as a "pooling-of-interests" business combination in
accordance with U.S. generally accepted accounting principles and will be
consummated in accordance with the terms set forth in the Merger Agreement. The
DMG Opinion is necessarily based on economic, market, financial and other
conditions as in effect on, and the information made available to DMG as of, the
date of the DMG Opinion.
DMG considered two projection scenarios for Tel-Save: one that assumed that
the AOL Agreement is successful and another that assumed no meaningful
contribution from the AOL Agreement (the estimated potential positive
contribution of the AOL Agreement which is based on due diligence discussions
with Tel-Save's management, is referred to herein as the "AOL Estimated
Contribution").
The following is a summary of the analysis performed by DMG in preparation
of the DMG Opinion, and reviewed with the STF Board at its meeting held on July
16, 1997. This analysis was provided to the STF Board for background information
only and was one of the many factors considered by DMG in rendering the DMG
Opinion. No conclusions can be independently drawn from any independent
analysis.
(i) Historical Trading Analysis. DMG reviewed the history of trading prices
and volumes for shares of Tel-Save Common Stock over the period from September
21, 1995 to July 10, 1997. DMG also reviewed the history of trading prices of
Tel-Save Common Stock in relation to a composite index of comparable companies
and the NASDAQ for the same period. DMG also reviewed the historical exchange
ratio of STF Common Stock for Tel-Save Common Stock over the period from
September 21, 1995 to July 10, 1997.
(ii) Peer Group Comparison. DMG performed comparable company analyses for
both STF and Tel-Save. For STF, DMG examined certain publicly available
financial and market information of seven selected publicly traded companies in
various sectors of the telecommunications industry which were deemed comparable
to at least some portion of STF's business for purposes of DMG's financial
analysis. Such sectors included commercial and residential long distance
services, shared tenant services and other telecommunications areas. DMG
compared the financial and market performance of STF with the following group of
publicly traded companies: ACC Corp., IXC Communications, Midcom, Phoenix
Network, Telco Communications Group, Inc., Tel-Save and US Long Distance Corp.
(collectively, the "Selected Long Distance Companies with Tel-Save"). The
aggregate value analysis showed medians for the Selected Long Distance Companies
with Tel-Save 1998 ratios of market capitalization plus total debt and preferred
stock less cash ("Aggregate Value") to revenue, earnings before interest, taxes,
depreciation and amortization ("EBITDA"), and earnings before interest and taxes
("EBIT") of 1.14x, 9.0x, and 12.9x, respectively. DMG compared the financial and
market performance of Tel-Save with the following group of publicly traded
companies: ACC Corp., IXC Communications, Midcom, Phoenix Network, Telco
Communications Group, Inc. and US Long Distance Corp. (collectively, the
"Selected Long Distance Companies without Tel-Save"). The analysis of Aggregate
Value showed medians for the
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Selected Long Distance Companies without Tel-Save 1998 ratios of Aggregate Value
to revenue, EBITDA, and EBIT of 1.17x, 9.7x, and 13.8x, respectively, and a
range of equity value to net income ratios of 20.6x to 22.2x. The analysis for
Tel-Save focused on 1998 median multiples for the peer group of companies
because due to the AOL transaction, Tel-Save is being valued by the stock market
more on 1998 earnings than 1997 earnings.
(iii) Discounted Cash Flow Analysis. DMG performed an analysis of the
present value per share of STF Common Stock based on free cash flows determined
using assumptions and projections for STF that were discussed, reviewed and
confirmed by management for fiscal years 1998 to 2002. DMG assumed a range of
EBITDA exit multiples of 9.0x to 11.0x based on the precedent transactions
analysis and comparable companies analysis and assumed discount rates ranging
from 12.00% to 13.00% based on a weighted average cost of capital ("WACC")
calculation. Based on this analysis, DMG computed a range of estimated present
values per share of STF Common Stock of $8.40 to $12.50 that implied a perpetual
growth rate range of 7.5% to 8.3%. The analysis of the present value per share
of Tel-Save Common Stock for fiscal years 1998 to 2002 included two scenarios:
1) projections assuming the AOL Estimated Contribution and 2) projections
excluding the AOL Estimated Contribution. DMG used a range of EBITDA exit
multiples of 11.00x to 13.00x and a range of discount rates from 10.50% to
11.50% based on a WACC calculation and industry trends. Based on this analysis,
DMG computed a range of estimated present values per share of Tel-Save Common
Stock to be for scenario 1) $24.50 to $29.50 and for scenario 2) $11.65 to
$13.80. This valuation implied a perpetual growth rate of 6.3% to 7.9% and 6.5%
to 8.1% for scenario 1) and scenario 2), respectively.
(iv) Selected Precedent Transactions. DMG reviewed six transactions since
1994 involving companies in the shared tenant services sector which included:
(i) Consolidated Communications Inc./McLeod USA Inc. (June 1997); (ii) ResNet
Communications (LodgNet Entertainment/Tele-Communications Inc. (October 1996);
(iii) Liberty Cable Company Inc./Peter Kiewit Sons Inc./RCN Corp (March 1996);
(iv) Fairchild Industries Inc. (Fairchild Corp.)/Shared Technologies, Inc.
(March 1996); (v) Realcom Office Communications, Inc./MFS Communications Co.,
Inc. (November 1994); and (vi) Centex Tel-management Inc./MFS Communications
Co., Inc. (June 1994). DMG compared some of the financial statistics for these
transactions with those for the Merger. DMG computed various multiples which
resulted in median multiples of aggregate value paid for the target company
compared to last twelve months ("LTM") revenues, EBITDA and EBIT of 1.45x, 10.5x
and 16.4x, respectively. DMG deemed the most directly comparable transaction of
those examined to be the merger of Shared Technologies Inc. and Fairchild
Industries, Inc. In such merger, aggregate value as a multiple of LTM revenues,
EBITDA and EBIT implied multiples of 2.34x, 9.8x and 15.4x, respectively.
Applying the same multiples to the Merger implies a valuation of $7.00 to $9.00
per share of STF Common Stock based on STF LTM revenues, EBITDA and EBIT.
(v) Pro Forma Analysis of the Merger. DMG analyzed certain estimated pro
forma effects of the Merger on the post-Merger earnings per share of Tel-Save.
Such analysis was based on discussions with management and securities research
analysts' estimates for Tel-Save and STF and took into consideration the
following scenarios: 1) Tel-Save including the AOL Estimated Contribution and 2)
Tel-Save excluding the AOL Estimated Contribution. Additionally, DMG's analysis
assumed certain pre-tax synergies which the management of STF considered
achievable. DMG assumed $10 million per year in pre-tax long distance synergies,
$5 million per year in pre-tax overhead synergies, $2.5 million per year in
pre-tax interest savings and $5 million in 1998 for pre-tax restructuring costs
as a one-time charge. DMG determined that using forecasts based on discussions
with management and assuming a Tel-Save Common Stock per share price of $15 and
an implied exchange ratio of .750x and 1) including the AOL Estimated
Contribution, the Merger would result in earnings per share ("EPS") dilution for
holders of Tel-Save Common Stock of 9.9% for fiscal year 1998 and 2) excluding
the AOL Estimated Contribution, the Merger would result in EPS accretion for
holders of Tel-Save Common Stock of 13.7%. DMG also estimated, based on
securities research analysts' estimates and 1) including the AOL Estimated
Contribution, the Merger would result in EPS accretion of 0.8% to Tel-Save for
fiscal year 1998 and 2) excluding the AOL Estimated Contribution, the Merger
would result in EPS dilution of 34.2% to Tel-Save.
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DMG analyzed certain pro forma effects of the Merger on the post-Merger earnings
per share of STF Common Stock. Such analysis was derived from projections based
on discussions with management and securities research analysts' estimates for
Tel-Save and STF, assumed a Tel-Save Common Stock price of $15 and an implied
exchange ratio of .750x and included the following scenarios: 1) Tel-Save
including the effect of the AOL Estimated Contribution, and 2) Tel-Save
excluding the AOL Estimated Contribution. Additionally, DMG's analysis included
the potential synergies set out above before taking into account any one-time
restructuring charges. DMG determined that using forecasts based on discussions
with management and for scenario 1), the Merger would result in an increase in
EPS for 1998 to $0.80; and for scenario 2), the Merger would result in an
increase in EPS for 1998 to $0.43.
In connection with the review of the Merger by the STF Board, DMG performed
a variety of financial and comparative analyses for the purpose of rendering the
DMG Opinion. While the foregoing summary describes all material analyses and
factors reviewed by DMG with the STF Board, it does not purport to be a complete
description of the presentations by DMG to the STF Board or the analyses
performed by DMG in arriving at the DMG Opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. DMG believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, could
create a misleading view of the processes underlying the DMG Opinion. In
addition, DMG may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the range of valuation resulting from any particular
analysis described above should not be taken to be DMG's view of the actual
value of STF or Tel-Save. In performing its analyses, DMG made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of STF or
Tel-Save. The analyses performed by DMG are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. In addition, analyses relating to the
value of businesses or assets do not purport to be appraisals or to necessarily
reflect the prices at which businesses or assets may actually be sold. The
analyses performed were prepared solely as part of DMG's analysis of the
fairness of the STF Merger Consideration, from a financial point of view, to the
holders of STF Common Stock and were provided to the STF Board in connection
with the delivery of the DMG Opinion.
DMG has from time to time provided investment banking and financial
advisory services to Tel-Save and has received fees for rendering such services.
In connection with rendering the DMG Opinion, DMG was not authorized by STF
or the STF Board to solicit, nor has DMG solicited, third-party indications of
interest for the acquisition of all or part of STF.
DMG is an internationally recognized investment banking and advisory firm.
DMG, as part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the ordinary course of its
business, DMG and its affiliates may actively trade the securities and loans of
STF and Tel-Save for their own accounts and for the accounts of their customers
and, accordingly, may at any time hold a long or short position in such
securities and loans.
STF has agreed to pay DMG a fee for its rendering the DMG Opinion in
connection with the Merger. Pursuant to the Engagement Letter, STF has agreed to
pay a fee of $600,000 upon delivery of the DMG Opinion. In addition, STF has
agreed to reimburse DMG for its reasonable out-of-pocket expenses incurred in
connection with its engagement, and to indemnify DMG and certain related persons
against certain liabilities and expenses arising out of or in conjunction with
its rendering of services under its engagement, including certain liabilities
under the federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the STF Board, STF stockholders should
be aware that, as described below, certain members of STF's management and the
STF Board may have interests in the
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Merger that are different from, or in addition to, the interests of STF
stockholders generally and which may create potential conflicts of interest.
STF EMPLOYMENT AGREEMENTS
Each of Messrs. Anthony D. Autorino, Jeffrey J. Steiner, Mel D. Borer and
Vincent DiVincenzo, directors and executive officers of STF, have employment
agreements with STF that provide for two years of base salary plus target bonus
(defined as 50% of base salary) payable upon a "change of control" of STF. The
consummation of the Merger will constitute such a change of control. Pursuant to
such employment agreements, payments of up to $4,155,000 in the aggregate are
payable to the STF executives in the event of a change of control of STF. The
employment agreements of such executives also provide for the vesting of all
options for shares of STF Common Stock owned by such executive upon consummation
of the Merger. Furthermore, following consummation of the Merger, it is not
anticipated that Messrs. Autorino, Steiner and DiVincenzo will continue to hold
the same executive positions, and, pursuant to their employment agreements, they
will be entitled to receive non-compete payments up to approximately $2,671,000
in the aggregate.
Mr. Steiner, a director of STF, is also the Chairman, Chief Executive
Officer and President of TFC. Mr. Steiner is the beneficial owner of
approximately 37% of the outstanding common stock of TFC and has approximately
73% of the voting power of all common stock of TFC. TFC, through RHI owns
approximately 36% of the outstanding STF Common Stock. Natalia Hercot, a
director of STF, is employed by TFC as an International Coordinator and
Translator and is the daughter of Mr. Steiner. Donald E. Miller, a director of
STF, is a Senior Vice President, General Counsel and Secretary of TFC.
STF STOCK OPTION PLANS
1987 Stock Option Plan. Under the 1987 Option Plan, STF is authorized to
issue options to purchase an aggregate of 1,200,000 shares of STF Common Stock.
Options to purchase 409,619 shares of STF Common Stock were outstanding at
October 8, 1997. Pursuant to the 1987 Option Plan, each holder of 1987 Options
shall have the right immediately prior to the Effective Time to exercise his or
her 1987 Options in whole or in part; any such 1987 Options not so exercised
will terminate.
Board of Directors Stock Option Plan. Under the Directors' Plan, options to
purchase 130,000 were outstanding as of October 8, 1997. The vesting of
outstanding options granted pursuant to the Directors' Plan will not accelerate
as a result of the Merger and all of the options outstanding under the
Directors' Plan will be assumed by Tel-Save at the effective Time.
1996 Equity Incentive Plan. The 1996 Equity Plan provides for issuance of
options to key employees to purchase up to 2,250,000 shares of STF Common Stock,
subject to anti-dilutive adjustments, as determined by STF's Compensation
Committee. Options to purchase 1,516,333 shares of STF Common Stock were
outstanding under the 1996 Equity Plan at October 8, 1997. The vesting of
outstanding options granted pursuant to the 1996 Equity Plan will not accelerate
as a result of the consummation of Merger, except as provided in the STF
employment agreements, which provide that an aggregate of 1,492,000 of such
outstanding options will vest at consummation.
INDEMNITY ARRANGEMENTS
Pursuant to the Merger Agreement, Tel-Save has agreed to maintain in effect
for five years from the Effective Time, directors' and officers' liability
insurance for any persons who were directors or officers of STF or a subsidiary
of STF prior to the Effective Time, with respect to any act or failure to act by
any such persons prior to the Effective Time, and the Surviving Corporation will
indemnify such directors and officers to the fullest extent that they would have
been indemnified prior to the Effective Time. See "THE MERGER AGREEMENT --
Director and Officer Indemnification."
SPECIAL PREFERRED PURCHASE
TFC, of which Mr. Steiner, a director and the Vice Chairman of STF, is the
Chairman, Chief Executive Officer and President and significant stockholder,
through RHI, owns approximately 36% of the outstanding STF Common Stock and all
of the shares of the STF Series I Preferred and of the STF Special Preferred.
The Merger Agreement provides that such STF Special Preferred will be exchanged
for approximately $21,917,808 in cash as of the Effective Time.
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STF OUTSIDE DIRECTOR PAYMENTS
The Merger Agreement provides that STF may make to its non-employee
directors honorarium payments not to exceed $300,000 in the aggregate. STF
intends to make the full amount of such payments should the Merger be
consummated.
TEL-SAVE DIRECTORSHIPS
The Merger Agreement provides that Messrs. Steiner and Autorino, directors
and executive officers of STF, will be elected as directors of Tel-Save for
three-year terms. Approval of the Merger Agreement and the Merger and
consummation of the Merger will effect the election of such individual as a
director of Tel-Save in the director class expiring in 2000.
DISCUSSIONS WITH CERTAIN STF AFFILIATES
Messrs. Autorino and DiVincenzo, executive officers and directors of STF,
have had discussions with STF and Tel-Save regarding the possibility of a
transfer, after consummation of the Merger and to an entity controlled by such
persons and certain other affiliates of STF, of STF's interests in Shared
Technologies Communications LLC and ICS Communications LLC (the "STF Venture
Entities"), and STF's interests in the management contracts with such STF
Venture Entities. The STF Venture Entities currently are managed by STF and
provide telecommunications and cable services to tenants of multi-residential
buildings. Prior to the 1997 third quarter, STF had provided management services
to the predecessor businesses of such STF Venture Entities; in the third
quarter, STF and other parties to the these predecessor businesses restructured
them as the STF Venture Entities and STF acquired an equity interest therein,
while continuing to provide management services thereto. Approximately $8.0
million of STF's revenues for the six months ended June 30, 1997 were due to the
inclusion of the management fees from the predecessor companies; the costs
associated with such fee revenues were not material. As a result of the
restructuring of these arrangements, STF anticipates that its future revenues
and profits from the management agreements with the STF Venture Entities will be
significantly reduced. No agreements have been reached regarding such potential
transactions or the terms thereof, including the consideration to be paid for
any such transfer. It is not anticipated that any such transaction would occur
prior to the Effective Time. Agreements as to any possible transactions reached
after the Effective Time would require the approval of the disinterested members
of the Tel-Save Board, but would not be subject to the approval of either the
STF or Tel-Save stockholders.
OPERATION OF STF FOLLOWING THE MERGER
Tel-Save anticipates that it will operate Merger Sub, whose name will be
changed to Shared Technologies Fairchild Inc., as a subsidiary of Tel-Save, and
Mr. Mel D. Borer, a director and the President of STF, will continue as the
President of the Merger Sub.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a "pooling of
interests" transaction under generally accepted accounting principles. Under
such method of accounting, holders of STF Common Stock will be deemed to have
combined their existing voting common stock interest with that of holders of
Tel-Save Common Stock by exchanging their shares for shares of Tel-Save Common
Stock. Accordingly, the book value of the assets, liabilities and stockholders'
equity of STF, as reported on its consolidated balance sheet, will be carried
over to the consolidated balance sheet of Tel-Save and no goodwill will be
created. Tel-Save will be able to include in its consolidated income the
consolidated income of STF for the entire fiscal year in which the Merger
occurs; however, certain expenses incurred to effect the Merger must be treated
by Tel-Save as current charges against income rather than adjustments to its
balance sheet. In order for the Merger to qualify for pooling-of-interests
accounting treatment, among other criteria, substantially all (90% or more) of
the outstanding STF Common Stock must be exchanged for Tel-Save Common Stock.
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Tel-Save's and STF's respective obligations to consummate the Merger are
conditioned upon the receipt by Tel-Save and STF of an opinion from Tel-Save's
independent certified public accountants to the effect that the Merger qualifies
for pooling-of-interests accounting treatment.
The unaudited pro forma combined financial information contained in this
Joint Proxy Statement/ Prospectus has been prepared using the
pooling-of-interests accounting method to account for the Merger. See "SUMMARY
- -- Unaudited Selected Pro Forma Combined Financial Information" and "Selected
Historical and Pro Forma Per Share Data" and "UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS."
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
General. The following is a summary description of the material federal
income tax consequences of the Merger. This summary is not a complete
description of all of the consequences of the Merger and, in particular, may not
address U.S. federal income tax considerations relevant to a STF stockholder
that, at the Effective Time, already owns shares of Tel-Save Common Stock, is
not a U.S. person (as defined below), is a tax-exempt entity, securities dealer,
broker-dealer, insurance company or financial institution or an individual who
acquired STF Common Stock pursuant to an employee stock option or otherwise as
compensation, or exercises some form of control over STF. In addition, no
information is provided herein with respect to the tax consequences of the
Merger under applicable foreign, state or local laws. The following discussion
is based on the Code, U.S. Treasury regulations promulgated thereunder, and
judicial and administrative interpretations thereof, all as in effect on the
date of this Joint Proxy Statement/Prospectus, is subject to any changes in
these or other laws occurring after such date and is without consideration of
the particular facts or circumstances of any holder of STF capital stock.
A "U.S. person" means a holder of STF Common Stock, STF Series D Preferred,
STF Series I Preferred, STF Special Preferred or Dissenting Preferred Shares
that is (i) a citizen or resident of the United States, (ii) a corporation
created in or organized under the laws of the United States or any political
subdivision thereof, (iii) a domestic partnership within the meaning of the Code
(i.e., a partnership created or organized in or under the laws of the United
States of any political subdivision thereof, unless future Treasury regulations
provide otherwise), (iv) an estate the income of which is subject to U.S.
federal income tax regardless of its source, or (v) a trust if (A) a U.S. court
can exercise primary supervision over the administration of such trust and (B)
one or more U.S. persons have the authority to control all of the substantial
decisions of such trust.
EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGES
IN ANY APPLICABLE TAX LAWS.
The Merger. Tel-Save's obligation to effect the Merger is conditioned on
delivery of an opinion to Tel-Save from Arnold & Porter, its special counsel,
and STF's obligation to effect the Merger is conditioned on delivery of an
opinion to STF from Cahill Gordon & Reindel, its special counsel, each dated as
of the Effective Time, substantially to the effect that for U.S. federal income
tax purposes the Merger constitutes a reorganization within the meaning of
Section 368(a) of the Code. Stockholders should be aware that such opinions will
be based on current law and certain representations regarding factual matters
and certain covenants as to future actions by Tel-Save and STF. If these
representations are incorrect in certain material respects or the covenants are
not complied with, the conclusions reached by counsel in its opinion might be
jeopardized.
Assuming that the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code, the material federal income tax
consequences of the Merger will be as follows:
(i) No gain or loss will be recognized by Tel-Save, Merger Sub or STF as a
result of the Merger;
(ii) No gain or loss will be recognized by STF stockholders upon their
exchange of STF Common Stock, STF Series D Preferred or STF Series I Preferred
for Tel-Save Common Stock or Tel-Save Series A Preferred, except that a STF
stockholder who receives cash proceeds in lieu of a fractional share
48
<PAGE>
interest in Tel-Save Common Stock, a holder of STF Special Preferred who
receives cash in exchange for such stock or a holder of Dissenting Preferred
Shares who receives cash instead of Tel-Save Series A Preferred will recognize
gain or loss equal to the difference between such proceeds and the tax basis
allocated to the fractional share interest or the holder's tax basis in such
shares as the case may be, and such gain or loss will constitute capital gain or
loss if such stockholder's shares with respect to which gain or loss is
recognized are held as a capital asset at the Effective Time;
(iii) The tax basis of the Tel-Save Common Stock or Tel-Save Series A
Preferred received by a STF stockholder who exchanges his or her STF Common
Stock, STF Series D Preferred or STF Series I Preferred for Tel-Save Common
Stock or Tel-Save Series A Preferred will be the same as such stockholder's tax
basis in the STF Common Stock, STF Series D Preferred or STF Series I Preferred
surrendered in exchange therefor less the portion of such basis, if any,
allocable to fractional shares; and
(iv) The tax holding period of the Tel-Save Common Stock or Tel-Save Series
A Preferred (including any fractional share interest) received by a STF
stockholder will include the period during which the STF Common Stock, STF
Series D Preferred or STF Series I Preferred surrendered in exchange therefor
was held (provided that such STF Common Stock, STF Series D Preferred or STF
Series I Preferred was held by such stockholder as a capital asset at the
Effective Time).
In the Merger, a holder of Assumed Warrants will exchange such warrants for
warrants to acquire Tel-Save Warrants. This exchange of Assumed Warrants for
Tel-Save Warrants may not qualify for tax-free treatment, however, because
current U.S. Treasury regulations provide that warrants are neither stock nor
securities and hence generally do not qualify for tax-free treatment in an
otherwise tax-free reorganization. Under this approach, a holder of Assumed
Warrants would recongize gain or loss in an amount equal to the difference
between the fair market value of the Tel-Save Warrants received in the exchange
and the holder's adjusted tax basis in the Assumed Warrants surrendered. It
should be noted that the IRS has ruled provately that the assumption in a merger
of options of the target company by the surviving company, on identical terms,
was not a taxable event. Although such private rulings are not binding authority
and may be relied on only by the taxpayer that received the ruling, the ruling
may be useful in determining the position of the IRS.
Proposed U.S. Treasury regulations would treat warrants received in a
reorganization transaction as securities. Under such regulations, the receipt of
warrants of the acquiring company in exchange for warrants of the target company
generally would be tax-free to a holder thereof. The regulations are proposed to
be effective for exchanges occuring on or after the day that is 60 days after
the Treasury decision adopting the regulations is filed with the Federal
Register. There can be no assurance as to whether the proposed regulations will
be adopted or as to the provisions that they will include if and when adopted in
temporary or final form.
NO RULING HAS BEEN REQUESTED FROM THE INTERNAL REVENUE SERVICE (THE "IRS")
WITH RESPECT TO ANY OF THE MATTERS DISCUSSED HEREIN AND THE OPINIONS OF COUNSEL
DESCRIBED ABOVE ARE NOT BINDING ON THE IRS. THERE CAN BE NO ASSURANCE THAT
FUTURE LEGISLATION, REGULATIONS, ADMINISTRATIVE RULINGS OR COURT DECISIONS WILL
NOT ADVERSELY AFFECT THE ACCURACY OF THE STATEMENTS CONTAINED HEREIN.
REGULATORY APPROVALS
No federal or state filing requirements must be made or regulatory
approvals obtained in connection with the Merger Agreement other than (i) the
filing of notification, and the receipt of consents or approvals, required by
applicable provisions of the HSR Act and regulations promulgated pursuant
thereto, (ii) filings with the Commission and (iii) the application for FCC and
various state regulatory approvals of the Merger.
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
specified waiting period requirements have been satisfied. Tel-Save and STF
filed notification and report forms under the HSR Act with the FTC and the
Antitrust Division on August 1, 1997 with respect to the Merger. The FTC granted
Tel-Save and STF early termination of the waiting period on August 11, 1997. Mr.
Jeffrey J. Steiner and Tel-Save filed notification and report forms under the
HSR Act with the FTC and the Antitrust Division on August 11, 1997 with respect
to the acquisition by RHI of Tel-Save Common Stock as a result of the Merger.
The FTC granted Mr. Steiner and Tel-Save early termination of the waiting period
on August 28, 1997. At any time before or after the consummation of the Merger,
the FTC or the Antitrust Division could take such action under the antitrust
laws as it deems necessary or desirable in the public interest, including
seeking to enjoin the consummation of the Merger or seeking divestiture of
assets of Tel-Save or STF. At any time before or after the Effective Time of the
Merger, and notwithstanding that the HSR Act waiting period has been terminated,
any state could take such action under its antitrust laws as it deems necessary
or desirable in the public interest. Such action could include seeking to enjoin
the consummation of the Merger or seeking divestiture of assets of Tel-Save or
STF. Private parties may also seek to take legal action under the antitrust laws
under certain circumstances.
Based on information available to them, Tel-Save and STF believe the Merger
can be effected in compliance with federal and state antitrust laws. However,
there can be no assurance that a challenge to the consummation of the Merger on
antitrust grounds will not be made or that, if such a challenge were made,
Tel-Save and STF would prevail or would not be required to accept certain
conditions, including the divestitures of assets, in order to consummate the
Merger. Based on information available to them, Tel-Save and
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<PAGE>
STF also believe that they have made all other necessary filings or taken all
such other necessary actions in connection with the Merger Agreement and that
the necessary approvals and clearances from the FCC and applicable state
regulatory authorities have been or will be obtained before the Effective Time.
RESALES OF TEL-SAVE COMMON STOCK, TEL-SAVE NEW PREFERRED STOCK, AND TEL-SAVE
WARRANTS RECEIVED IN THE MERGER
The Tel-Save Common Stock, Tel-Save Preferred and Tel-Save Warrants issued
pursuant to the Merger will be freely transferable under the Securities Act,
except for shares or warrants issued to any STF stockholder who may be deemed to
be an affiliate of Tel-Save for purposes of Rule 144 promulgated under the
Securities Act ("Rule 144") or an affiliate of STF for purposes of Rule 145
promulgated under the Securities Act ("Rule 145") (each an "Affiliate").
Affiliates will include persons (generallyexecutive officers, directors and ten
percent stockholders) who control, are controlled by, or are under common
control with (i) Tel-Save or STF at the time of the Tel-Save or STF Meeting,
respectively, or (ii) Tel-Save at or after the Effective Time.
Rules 144 and 145 will restrict the sale of Tel-Save Common Stock, Tel-Save
Preferred and Tel-Save Warrants received in the Merger by Affiliates and certain
of their family members and related interests. Generally speaking, during the
year following the Effective Time, those persons who are Affiliates of STF at
the time of the STF Meeting, provided they are not Affiliates of Tel-Save at or
following the Effective Time, may publicly resell any Tel-Save Common Stock,
Tel-Save Preferred and Tel-Save Warrants received by them in the Merger, subject
to certain limitations as to, among other things, the amount of Tel-Save Common
Stock, Tel-Save Preferred and Tel-Save Warrants, as the case may be, sold by
them in any three-month period and as to the manner of sale. After the one-year
period, such Affiliates may resell their shares without such restrictions so
long as there is adequate current public information with respect to Tel-Save as
required by Rule 144. Persons who become Affiliates of Tel-Save prior to, at or
after the Effective Time may publicly resell the Tel-Save Common Stock, Tel-Save
Preferred and Tel-Save Warrants received by them in the Merger subject to
similar limitations and subject to certain filing requirements specified in Rule
144.
The ability of Affiliates to resell shares of Tel-Save Common Stock,
Tel-Save Preferred and Tel-Save Warrants received in the Merger under Rule 144
or 145 as summarized herein generally will be subject to Tel-Save's having
satisfied its Exchange Act reporting requirements for specified periods prior to
the time of sale. Affiliates also would be permitted to resell Tel-Save Common
Stock, Tel-Save Preferred and Tel-Save Warrants received in the Merger pursuant
to an effective registration statement under the Securities Act or another
available exemption from the Securities Act registration requirements.
This Joint Proxy Statement/Prospectus does not cover any resales of
Tel-Save Common Stock, Tel-Save Preferred or Tel-Save Warrants received by
persons who may be deemed to be Affiliates of Tel-Save or STF in the Merger, or
the shares issuable upon exercise of the Tel-Save Warrants.
Commission guidelines regarding qualifying for the pooling of interests
method of accounting also limit sales of shares of the acquiring and acquired
company by affiliates of either company in a business combination. Commission
guidelines indicate further that the pooling of interests method of accounting
will generally not be challenged on the basis of sales by affiliates of the
acquiring or acquired company if they do not dispose of any of the shares of the
corporation they own or shares of a corporation they receive in connection with
a merger during the period beginning 30 days before the merger and ending when
financial results covering at least 30 days of post-merger operations of the
combined entity have been published.
Each of Tel-Save and STF has agreed in the Merger Agreement to use its best
efforts to cause each person who is an Affiliate (for purposes of Rule 145 and
for purposes of qualifying the Merger for pooling of interests accounting
treatment) of such party to deliver to the other party a written agreement
intended to ensure compliance with the Securities Act and preserve the ability
to treat the Merger as a pooling of interests.
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STOCK MARKET QUOTATION
It is a condition to the Merger that the shares of Tel-Save Common Stock to
be issued pursuant to the Merger Agreement be approved for quotation on the
Nasdaq National Market, subject to official notice of issuance, prior to the
Effective Time. An application will be filed for listing the shares of Tel-Save
Common Stock on the Nasdaq National Market.
APPRAISAL RIGHTS
HOLDERS OF STF COMMON STOCK, STF SERIES I PREFERRED AND STF SPECIAL
PREFERRED DO NOT HAVE ANY APPRAISAL RIGHTS UNDER THE DGCL IN CONNECTION WITH THE
MERGER. HOLDERS OF TEL-SAVE COMMON STOCK DO NOT HAVE ANY APPRAISAL RIGHTS UNDER
THE DGCL IN CONNECTION WITH THE MERGER. SEE "THE TEL-SAVE ANNUAL MEETING" AND
"THE STF SPECIAL MEETING."
If the Merger is consummated, a holder of record of STF Series D Preferred
on the date of making a demand for appraisal, as described below, who continues
to hold such shares through the Effective Time and who strictly complies with
the procedures set forth under Section 262 of the DGCL ("Section 262") will be
entitled to have such shares appraised by the Delaware Court of Chancery under
Section 262 and to receive payment of the "fair value" of such shares in lieu of
the consideration provided for in the Merger Agreement. This Joint Proxy
Statement/Prospectus is being sent to all holders of record of STF Series D
Preferred at the Tel-Save Record Date and constitutes notice of the appraisal
rights available to such holders under Section 262. THE STATUTORY RIGHT OF
APPRAISAL GRANTED BY SECTION 262 REQUIRES STRICT COMPLIANCE WITH THE PROCEDURES
SET FORTH IN SECTION 262. FAILURE TO FOLLOW ANY OF SUCH PROCEDURES MAY RESULT IN
A TERMINATION OR WAIVER OF DISSENTERS' RIGHTS UNDER SECTION 262. The following
is a summary of certain of the provisions of Section 262 and is qualified in its
entirety by reference to the full text of Section 262, a copy of which is
attached to this Joint Proxy Statement/Prospectus as Annex D. A holder of STF
Series D Preferred electing to exercise appraisal rights under Section 262 must
deliver a written demand for appraisal of such stockholder's shares to STF prior
to the vote on the approval of the Merger Agreement. Such written demand must
reasonably inform STF of the identity of the stockholder of record and of such
stockholder's intention to demand appraisal of his shares. All such demands
should be delivered to Kenneth M. Dorros, Esq., Secretary of STF, at STF's
address of 100 Great Meadow Road, Suite 104, Wethersfield, Connecticut 06109.
Only a holder of shares of STF Series D Preferred on the date of making
such written demand for appraisal who continuously holds such shares through the
Effective Time is entitled to seek appraisal. Demand for appraisal must be
executed by or for the holder of record, fully and correctly, as such holder's
name appears on the holder's stock certificates representing shares of STF
Series D Preferred. If STF Series D Preferred is owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, the demand should be made
in that capacity, and if STF Series D Preferred is owned of record by more than
one person, as in a joint tenancy or tenancy in common, the demand should be
made by or for all owners of record. An authorized agent, including one or more
joint owners, may execute the demand for appraisal for a holder of record;
however, such agent must identify the record owner or owners and expressly
disclose in such demand that the agent is acting as agent for the record owner
or owners of such shares.
A record holder such as a broker who holds shares of STF Series D Preferred
as a nominee for beneficial owners, some of whom desire to demand appraisal,
must exercise appraisal rights on behalf of such beneficial owners with respect
to the shares of STF Series D Preferred held for such beneficial owners. In such
case, the written demand for appraisal should set forth the number of shares of
STF Series D Preferred covered by it. Unless a demand for appraisal specifies a
number of shares, such demand will be presumed to cover all shares of STF Series
D Preferred held in the name of such record owner. BENEFICIAL OWNERS WHO ARE NOT
RECORD OWNERS AND WHO INTEND TO EXERCISE APPRAISAL RIGHTS SHOULD INSTRUCT THE
RECORD OWNER TO COMPLY WITH THE STATUTORY REQUIREMENTS WITH RESPECT TO THE
EXERCISE OF APPRAISAL RIGHTS BEFORE THE DATE OF THE STF MEETING.
Within ten days after the Effective Time, Tel-Save is required to send
notice of the effectiveness of the Merger to each stockholder of STF who prior
to the Effective Time complied with the requirements of Section 262.
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<PAGE>
Within 120 days after the Effective Time, Tel-Save or any stockholder who
has complied with the requirements of Section 262 may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
shares of STF Series D Preferred held by all stockholders seeking appraisal. A
dissenting stockholder must serve a copy of such petition on Tel-Save. If no
petition is filed by either Tel-Save or a dissenting stockholder within such 120
day period, the rights of all dissenting stockholders to appraisal shall cease.
STF stockholders seeking to exercise appraisal rights should not assume that
Tel-Save will file a petition with respect to the appraisal of the fair value of
their shares or that Tel-Save will initiate any negotiations with respect to the
fair value of such shares. Tel-Save is under no obligation to and has no present
intention to take any action in this regard. Accordingly, STF stockholders who
wish to seek appraisal of their shares should initiate all necessary action with
respect to the perfection of their appraisal rights within the time periods and
in the manner prescribed in Section 262. FAILURE TO FILE THE PETITION ON A
TIMELY BASIS WILL CAUSE THE STOCKHOLDER'S RIGHT TO AN APPRAISAL TO CEASE.
Within 120 days after the Effective Time, any stockholder who has complied
with subsections (a) and (d) of Section 262 is entitled, upon written request,
to receive from Tel-Save a statement setting forth the aggregate number of
shares of STF Series D Preferred with respect to which demands for appraisal
have been received by STF and the number of holders of such shares. Such
statement must be mailed within 10 days after the written request therefor has
been received by Tel-Save or within 10 days after expiration of the time for
delivery of demands for appraisal under Section 262, whichever is later.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court of Chancery will determine which stockholders are
entitled to appraisal rights and will appraise the shares of STF Series D
Preferred owned by such stockholders, determining the fair value of such shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest to be paid, if any, upon
the amount determined to be the fair value. In determining fair value, the court
is to take into account all relevant factors. The Delaware Supreme Court has
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered in the appraisal proceedings. The Delaware Supreme
Court has stated that, in making this determination of fair value, the court
must consider "market value, asset value, dividends, earnings prospects, the
nature of the enterprise and any other facts which were known or which could be
ascertained as of the date of the merger which throw any light on future
prospects of the merged corporation." The Delaware Supreme Court has also held
that "elements of future value, including the nature of the enterprise, which
are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." In addition, Delaware courts have
decided that the statutory appraisal remedy, depending on factual circumstances,
may or may not be a dissenter's exclusive remedy.
Stockholders considering seeking appraisal should consider that the fair
value of their shares determined under Section 262 could be more, the same, or
less than the value of the consideration to be received pursuant to the Merger
Agreement without the exercise of appraisal rights, and that investment banking
opinions as to fairness from a financial point of view are not necessarily
opinions as to fair value as determined under Section 262. The cost of the
appraisal proceeding may be determined by the Delaware Court of Chancery and
assessed against the parties as the Delaware Court of Chancery deems equitable
in the circumstances. Upon application of a dissenting stockholder, the Delaware
Court of Chancery may order that all or a portion of the expenses incurred by
any dissenting stockholder in connection with the appraisal proceeding
(including without limitation reasonable attorney's fees and the fees and
expenses of experts) be charged pro rata against the value of all shares of the
STF Series D Preferred entitled to appraisal. In the absence of such a
determination or assessment, each party bears its own expenses.
Any stockholder who has fully demanded appraisal in compliance with Section
262 will not, after the Effective Time, be entitled to receive payment of
dividends or other distributions on the STF Series D Preferred, except for
dividends or distributions payable to stockholders of record at a date prior to
the Effective Time.
A STF stockholder may withdraw a demand for appraisal and accept the terms
of the Merger at any time within 60 days after the Effective Time, or thereafter
may withdraw such demand with the written
approval of Tel-Save. In the event an appraisal proceeding is properly
instituted, such proceeding may not be dismissed as to any stockholder without
the approval of the Delaware Court of Chancery, and any such approval may be
conditioned on the terms the Delaware Court of Chancery deems just.
TEL-SAVE AND STF STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR THE TEL-SAVE COMMON STOCK AND THE STF COMMON STOCK. IN VIEW OF THE
COMPLEXITY OF THESE PROVISIONS OF DELAWARE LAW, ANY HOLDER OF THE STF SERIES D
PREFERRED WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS SHOULD CONSULT HIS OR
HER LEGAL ADVISOR.
See "-- Material U.S. Federal Income Tax Consequences" for a brief
description of certain material federal income tax consequences resulting from
the receipt of the fair value of appraised shares.
COMPARATIVE PER SHARE MARKET PRICES AND DIVIDENDS
Tel-Save Common Stock is traded on the Nasdaq National Market under the
symbol "TALK." Tel-Save Common Stock has been traded on the Nasdaq National
Exchange since September 20, 1995. STF Common Stock is traded on the Nasdaq
National Market under the symbol "STCH." STF Common Stock has been traded on the
Nasdaq National Exchange since December 13, 1988.
Effective as of January 31, 1997, Tel-Save effected a two-for-one stock
split of Tel-Save Common Stock. Effective as of March 15, 1996, Tel-Save
effected a three-for-two stock split of Tel-Save Common Stock. In September
1992, STF effected a one-for-four reverse stock split of STF Common Stock and
increased the par value of STF Common Stock from $.001 to $.004 per share.
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The table below sets forth, for the calendar quarters indicated, the
reported high and low sales prices of Tel-Save Common Stock and STF Common Stock
on the Nasdaq National Market as reported by Bloomberg:
<TABLE>
<CAPTION>
TEL-SAVE COMMON STOCK STF COMMON STOCK
------------------------- ------------------------
MARKET PRICE MARKET PRICE
------------------------- ------------------------
HIGH LOW HIGH LOW
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
QUARTER ENDED
March 31, 1995 ................. -- -- $ 5 1/8 $ 3 9/16
June 30, 1995 .................. -- -- 5 1/2 4
September 30, 1995 ............. * * 5 1/4 4 1/8
December 31, 1995 .............. $ 5 21/64* $ 4 27/64* 4 3/4 3 1/4
March 31, 1996 ................. 8 7/16 4 5/64 6 5/16 3 3/4
June 30, 1996 .................. 11 7/8 8 1/4 9 1/8 4 3/8
September 30, 1996 ............. 14 3/4 9 5/8 7 7/8 5 3/8
December 31, 1996 .............. 14 1/2 10 3/8 9 1/2 6 11/16
March 31, 1997 ................. 20 1/2 12 5/8 9 1/8 5 1/8
June 30, 1997 .................. 17 1/4 13 9/16 7 3/4 5
September 30, 1997 ............. 24 1/16 14 1/4 12 3/16 6 7/8
Through October 29, 1997 ....... 25 1/4 23 1/16 12 3/4 11 7/8
</TABLE>
- ----------
* Sales prices represent the high and low sales prices of Tel-Save Common Stock
from September 20, 1995, when Tel-Save Common Stock first traded publicly, to
December 31, 1995.
Neither Tel-Save nor STF has ever paid or declared a dividend on its common
stock. Neither STF nor Tel-Save anticipates paying any dividends on its shares
of common stock in the foreseeable future. In addition, Tel-Save's existing bank
credit facility restricts the payment of dividends on the Tel-Save Common Stock.
On July 16, 1997, the last full trading day prior to the public
announcement of the signing of the Merger Agreement, the last reported sale
price of Tel-Save Common Stock on the Nasdaq National Market was $21 per share,
and the last reported sale price of the STF Common Stock on the Nasdaq National
Market was $8 7/8 per share. Based on the Exchange Ratio (and assuming that the
Closing Date Market Price, as defined, was the $21 per share sale price of
Tel-Save Common Stock), the pro forma equivalent per share value of STF Common
Stock on July 16, 1997 would have been $11.55 per share.
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On October 29, 1997, the most recent practicable date prior to the printing
of this Joint Proxy Statement/Prospectus, the last reported sales price of
Tel-Save Common Stock on the Nasdaq National Market was $23 13/16 per share, and
the last reported sales price of STF Common Stock on the Nasdaq National Market
was $12 per share.
Because the market price of Tel-Save Common Stock is subject to
fluctuation, the market value of the shares of Tel-Save Common Stock that
holders of STF Common Stock will receive in the Merger may increase or decrease
prior to the Merger.
TEL-SAVE AND STF STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR THE TEL-SAVE COMMON STOCK AND THE STF COMMON STOCK.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement. Stockholders of
Tel-Save and STF are urged to read the Merger Agreement in its entirety for a
more complete description of the terms and conditions of the Merger.
GENERAL
The Merger Agreement provides that, following the approval of the Merger
Proposal by the stockholders of Tel-Save, the approval and adoption of the
Merger Agreement and the Merger by the stockholders of STF, and the satisfaction
or waiver of the other conditions to the Merger, STF will be merged with and
into Merger Sub, with Merger Sub continuing as the Surviving Corporation, which
shall be a wholly-owned subsidiary of Tel-Save.
If all conditions to the Merger are satisfied or waived, the Merger will
become effective at the time of the filing by the Surviving Corporation of a
duly executed Certificate of Merger with the Secretary of State of the State of
Delaware (the Effective Time).
CONVERSION OF SHARES
Each outstanding share of STF Common Stock will be converted into such
number of shares of Tel-Save Common Stock as equals the quotient (rounded to
four decimal places) (the Exchange Ratio) of (a) $11.25 plus the product of (x)
.3 times (y) the amount, if any, by which the Closing Date Market Price exceeds
$20, divided by (b) the Closing Date Market Price; provided, however, that the
Exchange Ratio shall not exceed 1.125. "Closing Date Market Price" means the
average closing price per share of Tel-Save 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 Effective Time.
The chart below sets forth a range of possible Closing Date Market Prices
and the corresponding Exchange Ratios. The Closing Date Market Prices set forth
below are for illustrative purposes and are not intended to be an exhaustive
list of possible Closing Date Market Prices.
CLOSING DATE MARKET PRICE EXCHANGE RATIO
<TABLE>
<CAPTION>
CLOSING DATE MARKET PRICE
OF TEL-SAVE COMMON STOCK PRICE EXCHANGE RATIO
-------------------------------- --------------
<S> <C>
$10.00 1.1250
$11.00 1.0227
$12.00 0.9375
$13.00 0.8654
$14.00 0.8036
$15.00 0.7500
$16.00 0.7031
$17.00 0.6618
$18.00 0.6250
$19.00 0.5921
$20.00 0.5625
$21.00 0.5500
$22.00 0.5386
$23.00 0.5283
$24.00 0.5188
$25.00 0.5100
$26.00 0.5019
$27.00 0.4944
$28.00 0.4875
$29.00 0.4810
$30.00 0.4750
</TABLE>
55
<PAGE>
Under the terms of the Merger Agreement (see "-- Termination; Termination
Fees and Expenses"), STF may terminate the Merger Agreement if the Closing Date
Market Price is less than $10.
Based upon the number of outstanding shares of Tel-Save Common Stock and
STF Common Stock and STF Series I Preferred as of October 8, 1997, and assuming
Exchange Ratios of 1.125 (a Closing Date Market Price of $10 or less) and .5625
(a Closing Date Market Price of $20), the stockholders of STF immediately prior
to the consummation of the Merger would own approximately 26.8% and 15.5%,
respectively, of the outstanding shares of Tel-Save Common Stock immediately
following consummation of the Merger, and up to approximately 30.3% and 17.9%,
respectively, assuming conversion of the Tel-Save Series A Preferred to be
issued and exercise of the Tel-Save Warrants to be issued in exchange for the
STF Series D Preferred and the Assumed Warrants, respectively, and exercise of
the STF Options to be assumed by Tel-Save.
Each share of STF Series D Preferred outstanding at the Effective Time
other than shares held by holders of Dissenting Preferred Shares shall, at the
Effective Time, be converted into the right to receive shares of Tel-Save Series
A Preferred having terms substantially identical to the terms of the STF Series
D Preferred, as the case may be, and convertible into a number of shares of
Tel-Save Common Stock equal to the number of shares of STF Common Stock into
which such shares of STF Series D Preferred were convertible immediately prior
to the Effective Time, multiplied by the Exchange Ratio.
Each share of STF Series I Preferred outstanding at the Effective Time
shall, at the Effective Time, be converted into the right to receive the number
of shares of Tel-Save Common Stock that would be deliverable in exchange for the
shares of STF Common Stock issuable upon conversion of the STF Series I
Preferred in accordance with the certificate of designation of the Series I
Preferred.
Each share of STF Special Preferred outstanding at the Effective Time
shall, at the Effective Time, be converted into the right to receive an amount
in cash from Tel-Save determined in accordance with the certificate of
designation of the STF Special Preferred.
If any holder of shares of STF Common Stock or STF Series I Preferred would
be entitled to receive a number of shares of Tel-Save Common Stock that includes
a fraction, then, in lieu of a fractional share, such holder will be entitled to
receive cash in an amount equal to such holder's proportionate interest in the
net proceeds from the sale or sales in the open market by the Exchange Agent (as
defined below) on behalf of all such holders, of the aggregate shares of
fractional Tel-Save Common Stock issued pursuant to the Merger.
As soon as reasonably practicable after the Effective Time, First City
Transfer Company (the "Exchange Agent") will mail transmittal forms and exchange
instructions to each holder of record of STF Common Stock, STF Series D
Preferred or STF Series I Preferred to be used to surrender and exchange
certificates formerly evidencing such shares of STF Common Stock, STF Series D
Preferred or STF Series I Preferred for certificates evidencing the shares of
Tel-Save Common Stock or Tel-Save Series A Preferred to which such holder has
become entitled. After receipt of such transmittal forms, each holder of
certificates formerly representing STF Common Stock, STF Series D Preferred or
STF Series I Preferred will be able to surrender such certificates to the
Exchange Agent, and each such holder will receive in exchange therefor
certificates evidencing the number of whole shares of Tel-Save Common Stock or
Tel-Save Series A Preferred to which such holder is entitled and any cash which
may be payable in lieu of a fractional share of Tel-Save Common Stock. STF
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
After the Effective Time, each certificate formerly representing STF Common
Stock, STF Series D Preferred or STF Series I Preferred, until so surrendered
and exchanged, shall be deemed, for all purposes, to evidence only the right to
receive the number of whole shares of Tel-Save Common Stock or Tel-Save Series A
Preferred that the holder of such certificate is entitled to receive in the
Merger and any cash payment in lieu of a fractional share of Tel-Save Common
Stock. The holder of such unexchanged certificate will not be entitled to
receive any dividends or other distributions payable by Tel-Save until the
certificate has been exchanged. Subject to applicable laws, following surrender
of such certificates, such dividends and distributions, together with any cash
payment in lieu of a fractional share of Tel-Save Common Stock, will be paid
without interest.
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<PAGE>
OPTIONS AND WARRANTS
Each option to purchase shares of STF Common Stock (each an "STF Option")
issued by STF pursuant to STF's 1996 Equity Plan or its Directors' Plan
(collectively, the "STF Stock Option Plans"), outstanding and unexercised as of
the Effective Time whether or not vested or exercisable, shall be assumed by
Tel-Save, and each such STF Option shall constitute an option to acquire, on the
same terms and conditions as were applicable under such assumed STF Option
(giving effect to any accelerated vesting pursuant to an applicable agreement),
the number of shares of Tel-Save Common Stock equal to the product of the
Exchange Ratio and the number of shares of STF Common Stock subject to such STF
Option, at a price per share equal to the aggregate exercise price for the
shares of STF Common Stock subject to such STF Option divided by the number of
full shares of Tel-Save Common Stock deemed, as provided above, to be
purchasable pursuant to such STF Option; provided, however, that (i) subject to
the provisions of clause (ii) below, the number of shares of Tel-Save Common
Stock that may be purchased upon exercise of such STF Option shall not include
any fractional shares and, upon the last such exercise of such STF Option, a
cash payment shall be made for any fractional share based upon the per share
average of the highest and lowest sale price of shares of Tel-Save Common Stock
as reported on the Nasdaq National Market on the date of such exercise and (ii)
in the case of any STF Option to which Section 421 of the Code applies by reason
of its qualification under Section 422 or Section 423 of the Code ("qualified
stock options"), the option price, the number of shares purchasable pursuant to
such STF Option and the terms and conditions of exercise of such STF Option
shall be determined in order to comply with Section 424 of the Code. At the
Effective Time, Tel-Save shall deliver to holders of STF Options appropriate
option agreements representing the right to acquire shares of Tel-Save Common
Stock on the terms and conditions set forth above, upon surrender of the
outstanding STF Options, or Tel-Save shall comply with the terms of the STF
Stock Option Plans as they apply to the STF Options assumed as set forth above.
Pursuant to STF's 1987 Option Plan, all 1987 Options outstanding under the
1987 Option Plan shall terminate at the Effective Time and each holder of a 1987
Option shall have the right immediately prior to the Effective Time to exercise
his or her 1987 Options in whole or in part.
Each Assumed Warrant to purchase shares of STF Common Stock issued by STF
and outstanding and unexercised as of the Effective Time, whether or not
exercisable, shall be assumed by Tel-Save, and shall constitute a right to
acquire, on the same terms and conditions as were applicable under such Assumed
Warrants, the number of shares of Tel-Save Common Stock equal to the product of
the Exchange Ratio and the number of shares of STF Common Stock subject to such
Assumed Warrant at a price per share equal to the aggregate exercise price for
the shares of STF Common Stock for which such Assumed Warrant is exercisable
divided by the number of full shares of Tel-Save Common Stock deemed to be
purchasable pursuant to such Assumed Warrant; provided, however, that the number
of shares of Tel-Save Common Stock that may be purchased upon exercise of such
Assumed Warrant shall not include any fractional shares and, upon the last such
exercise of such Assumed Warrant, a cash payment shall be made for any
fractional share based upon the per share average of the highest and lowest sale
price of shares of Tel-Save Common Stock as reported on NASDAQ on the date of
such exercise. At the Effective Time, Tel-Save shall deliver to holders of
Assumed Warrants appropriate warrants representing the right to acquire shares
of Tel-Save Common Stock on the same terms and conditions as contained in the
outstanding Assumed Warrants (subject to any adjustments required by the
preceding sentence), upon surrender of the outstanding Assumed Warrants.
Tel-Save has agreed to reserve for issuance a sufficient number of shares
of Tel-Save Common Stock for delivery upon exercise of the STF Options and
Assumed Warrants effectively assumed as described above. Tel-Save shall file a
registration statement on Form S-8, effective as of the Effective Time, with
respect to the Tel-Save Common Stock subject to such STF Options and shall use
all reasonable efforts to maintain the effectiveness of such registration
statement for so long as such options remain outstanding.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, (a) due organization, valid
existence and good standing of each of Tel-Save and STF
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<PAGE>
and certain similar corporate matters; (b) the capital structure of each of
Tel-Save and STF; (c) the authorization, execution, delivery and enforceability
of the Merger Agreement, the consummation of the transactions contemplated by
the Merger Agreement and related matters; (d) conflicts under charters or
by-laws, required consents or approvals and violations of any instruments or
law; (e) documents and financial statements filed by each of Tel-Save and STF
with the Commission and the accuracy of information contained therein; (f)
undisclosed liabilities; (g) the absence of certain material adverse events,
changes or events; (h) intellectual property of STF; (i) litigation involving
STF; (j) STF environmental matters; (k) compliance with laws; and (l) the
accuracy of information supplied by each of Tel-Save and STF in connection with
the Registration Statement and this Joint Proxy Statement/ Prospectus.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, STF has agreed that, during the period
from the date of the Merger Agreement until the Effective Time, except as
otherwise consented to in writing by Tel-Save or as contemplated by the Merger
Agreement, it and each of its respective subsidiaries will carry on its business
in the ordinary course in substantially the same manner as previously conducted.
Specifically, STF has agreed not to (a) amend its certificate of incorporation
or bylaws, (b) issue or sell any shares of capital stock or securities
convertible into shares of capital stock, subject to certain exceptions, (c)
effect a stock split or declare or make any dividends or other distribution on
any shares of its capital stock, (d) incur or assume any new debt or make any
loans or capital investments in any other person or entity, (e) adopt or amend
any employee benefit plan or severance arrangement or increase the compensation
of its directors or officers or employees generally, subject to certain
exceptions, (f) enter into, amend, modify or relinquish any material rights
under, any material contract, (g) sell, lease, mortgage, pledge or otherwise
dispose of any assets or property other than in the ordinary course of business,
(h) make or commit to make any material capital expenditure, (i) change its
accounting methods, (j) settle any material claim, (k) make any election under
the Code that would have a material adverse effect on STF or the Merger.
Pursuant to the Merger Agreement, Tel-Save and STF have agreed to use their
respective best efforts to take all actions and to do all things necessary,
proper or advisable to consummate the transactions contemplated by the Merger
Agreement.
NO SOLICITATION
Pursuant to the Merger Agreement, STF has agreed that it will not, and it
will not permit any of its subsidiaries, officers, directors, employees,
representatives and agents to, directly or indirectly, (i) solicit any STF
Takeover Proposal (as defined below) or (ii) participate in any discussions or
negotiations regarding any STF Takeover Proposal; provided, however, that if, at
any time prior to the STF Meeting, the STF Board determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to the STF stockholders under applicable law,
STF may, in response to an STF Takeover Proposal that was not solicited, furnish
confidential information with respect to STF and participate in negotiations
regarding such STF Takeover Proposal. "STF Takeover Proposal" means any inquiry,
proposal or offer from any person relating to any direct or indirect acquisition
or purchase of 20% or more of the assets of STF or its subsidiaries or 20% or
more of any class of equity securities of STF or any of its subsidiaries, any
tender offer or exchange offer or exchange offer that if consummated would
result in any person beneficially owning 20% or more of any class of equity
securities of STF or any of its subsidiaries, any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving STF or any of its subsidiaries, other than the
transactions contemplated by the Merger Agreement, or any other transaction the
consummation of which would reasonably be expected to impede, interfere with,
prevent or materially delay the Merger or that would reasonably be expected to
dilute materially the benefits to Tel-Save of the transactions contemplated by
the Merger Agreement.
In the event that prior to the STF Meeting the STF Board determines in good
faith, after consultation with outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to the STF's stockholders under
applicable law, the STF Board may (subject to this and the following sen-
58
<PAGE>
tences) (x) withdraw or modify its approval or recommendation of the Merger or
(y) approve or recommend a Superior Proposal (as defined below) or terminate the
Merger Agreement (and concurrently with or after such termination, if it so
chooses, cause STF to enter into any Acquisition Agreement with respect to a
Superior Proposal), but in each of the cases set forth in this clause (y), no
action shall be taken by STF pursuant to clause (y) until a time that is after
the fifth business day following Tel-Save's receipt of written notice advising
Tel-Save that the STF Board has received a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal, to the extent such identification of the
person making such proposal does not breach the fiduciary duties of the STF
Board as advised by outside legal counsel. A "Superior Proposal" means any bona
fide proposal made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the
combined voting power of the shares of STF Common Stock and STF preferred stock
then outstanding or all or substantially all the assets of STF and otherwise on
terms that the STF Board determines in its good faith judgment to be more
favorable to STF's stockholders than the Merger.
BOARD REPRESENTATION
The Merger Agreement provides that Mr. Jeffrey J. Steiner, as designee of
TFC, and Mr. Anthony D. Autorino (who are currently directors of STF) will be
elected directors of Tel-Save for three-year terms. Approval of the Merger
Agreement and consummation of the Merger will constitute election of such
persons as directors of Tel-Save.
RELATED MATTERS AFTER THE MERGER
At the Effective Time, STF will be merged with and into Merger Sub, and
Merger Sub will be the Surviving Corporation and a wholly owned subsidiary of
Tel-Save. Each share of Merger Sub Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding after the
Merger.
The Articles of Incorporation of Merger Sub, as in effect immediately prior
to the Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation. The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall become the Bylaws of the Surviving Corporation.
DIRECTOR AND OFFICER INDEMNIFICATION
The Merger Agreement provides that for a period of not less than five years
from the Effective Time, Tel-Save will cause the Surviving Corporation to
maintain in effect a directors' and officers' liability insurance policy
covering those persons who are currently covered by STF's directors' and
officers' liability insurance policy or policies with respect to actions taken
in their capacities as directors and officers of STF with coverage in an amount
at least equal to STF's existing coverage; provided that in no event shall
Tel-Save or the Surviving Corporation be required to expend in excess of two
hundred percent (200%) of the annual premium currently paid by STF for such
coverage.
The Merger Agreement further provides that for a period of six years
following the Effective Time of the Merger, the Surviving Corporation shall
indemnify those persons who were directors or officers of STF or a subsidiary of
STF prior to the Effective Time of the Merger to the fullest extent such persons
could have been indemnified under the DGCL or under the STF Charter or STF
By-Laws or the certificate of incorporation or by-laws of any subsidiary in
effect immediately prior to the Effective Time of the Merger with respect to any
act or failure to act by any such person prior to Effective Time of the Merger.
CONDITIONS
The respective obligations of Tel-Save and STF to effect the Merger are
subject to the satisfaction (or waiver) of the following conditions: (a) the
Merger Proposal shall have been approved by the stockholders of Tel-Save and the
Merger Agreement shall have been approved and adopted by the stockholders of
STF; (b) the waiting period applicable to the consummation of the Merger under
the
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<PAGE>
HSR Act shall have expired or been terminated; (c) the Registration Statement
shall have become effective and shall not be the subject of a stop order or
proceedings seeking a stop order; (d) no order, injunction or judgment, or
statute, rule or regulation, shall be in effect preventing the consummation of
the Merger; (e) no action or proceeding shall have been instituted by any
governmental authority seeking to prevent consummation of the Merger or seeking
material damages in connection with the transactions contemplated by the Merger
and continue to be outstanding; (f) the shares of Tel-Save Common Stock to be
issued in the Merger shall have been approved for quotation on the Nasdaq
National Market; (g) Tel-Save and STF shall have received a letter from BDO
Seidman, LLP to the effect that the Merger will qualify as a pooling of
interests under Accounting Principles Board Opinion No. 16 and related
interpretations; and (h) the lenders under STF's credit facility shall have
consented to the Merger or such facility shall have been terminated.
On July 31, 1997, STF was served with a purported shareholder class action
complaint in an action commenced in the Delaware Chancery Court in New Castle
County, Zicherman v. Autorino, et.al., C.A.No. 15824-NC (the "Complaint"). STF
and its directors are named as defendants. The Complaint seeks injunctive relief
with respect to the Merger. As of October 27, 1997, an agreement in principle
had been reached between STF and counsel for the plaintiff class, which
agreement, subject to court approval, would result in dismissal of the Complaint
with prejudice and release of all claims of the plaintiff class relating to the
Merger.
In addition, the obligations of Tel-Save to effect the Merger are subject
to the satisfaction of the following conditions: (i) STF shall have obtained all
necessary permits and approvals; (ii) the representations and warranties of STF
in the Merger Agreement shall be true and complete as of the date of the Merger
Agreement and (except to the extent such representations and warranties speak as
of an earlier date) as of the Closing Date as though made on and as of the
Closing Date, except for breaches that, individually or in the aggregate, have
not had a material adverse effect upon either STF or the consummation of the
transactions contemplated by the Merger Agreement; (iii) STF shall have
performed in all material respects all obligations required to be performed by
it under the Merger Agreement at or prior to the Closing Date, (iv) Tel-Save
shall have received an opinion from Arnold & Porter to the effect that the
Merger will constitute a reorganization for federal income tax purposes within
the meaning of Section 368(a) of the Code; (v) Tel-Save shall have received a
written agreement substantially in the form attached as Exhibit A to the Merger
Agreement from each of the affiliates of STF for purposes of qualifying the
Merger for pooling of interests accounting treatment under Accounting Principles
Board Opinion No. 16 and related interpretations; and (vii) there shall not have
occurred at any time after December 31, 1996 any material adverse change in the
general affairs, management, business, operations, assets, condition (financial
or otherwise), or prospects of STF and its subsidiaries, taken as a whole. See
"THE MERGER -- Accounting Treatment" and "-- Material U.S. Federal Income Tax
Consequences."
In addition, the obligations of STF to effect the Merger are subject to the
satisfaction of the following conditions: (i) the representations and warranties
of Tel-Save in the Merger Agreement shall be true and correct as of the date of
the Merger Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though made on
and as of the Closing Date, except for breaches that, individually or in the
aggregate, have not had a material adverse effect upon either Tel-Save or the
consummation of the transactions contemplated by the Merger Agreement; (ii)
Tel-Save shall have performed in all material respects all obligations required
to be performed by it under the Merger Agreement at or prior to the Closing
Date; and (iii) STF shall have received an opinion from Cahill Gordon & Reindel
to the effect that the Merger will constitute a reorganization for federal
income tax purposes within the meaning of Section 368(a) of the Code. The Merger
Agreement also provides that a further condition to STF's obligations is that
Tel-Save shall have obtained a standby underwriting commitment to enable it to
make an offer to purchase the STF Notes pursuant to the indenture governing such
notes. However, since the execution of the Merger Agreement, Tel-Save had
acquired all of the $163.7 million aggregate face amount outstanding of the STF
Notes. See "MERGER RELATED TRANSACTIONS -- Tel-Save Purchase of STF Notes" and
"THE MERGER -- Accounting Treatment" and "-- Material U.S. Federal Income Tax
Consequences."
60
<PAGE>
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of Tel-Save and STF:
(a) by mutual written consent of Tel-Save and STF;
(b) by either Tel-Save or STF
(i) if the Merger shall not have been consummated by December 15,
1997, unless the Merger has not occurred by such time solely by reason of
the failure by the Commission to give timely approval to the Joint Proxy
Statement/Prospectus or the Registration Statement or by reason of any
governmental consent or approval having not been obtained, in which case
by January 15, 1997 if requested by Tel-Save and consented to by STF
(such consent not to be unreasonably withheld);
(ii) if the approval of the stockholders of Tel-Save shall not have
been obtained at the Tel-Save Meeting;
(iii) if the approval of the stockholders of STF shall not have been
obtained at the STF Meeting; or
(iv) if any injunction or legal restraint shall be in effect
preventing the consummation of the Merger shall have become final and
nonappealable;
(c) by STF, if Tel-Save shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in the Merger Agreement;
(d) by STF if the Closing Date Market Price is less than $10.00;
(e) by STF if the Registration Statement is not declared effective by
November 20, 1997, provided that Tel-Save may request STF to consent to the
extension of such date to December 20, 1997 (such consent not to be
unreasonably withheld);
(f) by Tel-Save, if STF shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements (other than Section 8.6 of the Merger Agreement -- see "-- No
Solicitation" above) contained in the Merger Agreement;
(g) by STF if the average closing price for shares of Tel-Save Common
Stock as reported on the Nasdaq National Market for any period of 20
consecutive trading days after July 16, 1997 is less than $10.00 per share;
(h) by Tel-Save, if Section 8.6 of the Merger Agreement shall be breached
by STF or any of its officers, directors or employees or any investment
banker, financial advisor, attorney, accountant or other representative of
STF, in any material respect and STF shall have failed promptly to terminate
the activity giving rise to such breach and use best efforts to cure such
breach upon notice thereof from Tel-Save, or STF shall breach Section 8.6 by
failing to promptly notify Tel-Save as required thereunder;
(i) by Tel-Save if (i) the STF Board or any committee thereof shall have
withdrawn or modified in a manner adverse to Tel-Save its approval or
recommendation of the Merger or the Merger Agreement, or failed to reconfirm
its recommendation within fifteen business days after a written request to do
so, or approved or recommended any STF Takeover Proposal or (ii) the STF
Board or any committee thereof shall have resolved to take any of the
foregoing actions; or
(j) by STF if it elects to terminate the Merger Agreement in accordance
with Section 8.6(b) of the Merger Agreement; provided that it has complied
with all provisions thereof, including the notice provisions therein, and
that it complies with applicable requirements relating to the payment
(including the timing of any payment) of the $15,000,000 Termination Fee
described below. Pursuant to Section 8.6(b) of the Merger Agreement, in the
event that prior to the STF Meeting the STF
61
<PAGE>
Board determines in good faith, after consultation with outside counsel, that
it is necessary to do so in order to comply with its fiduciary duties to
STF's stockholders under applicable law, the STF Board may (x) withdraw or
modify its approval or recommendation of the Merger and the Merger Agreement
or (y) approve or recommend an STF Superior Proposal (as defined in the
Merger Agreement) or terminate the Merger Agreement (and concurrently with or
after such termination, if it so chooses, cause STF to enter into any letter
of intent, agreement in principle, acquisition or other similar agreement
with respect to any STF Superior Proposal).
In the event of any termination of the Merger Agreement by either Tel-Save
or STF, as provided above, the Merger Agreement will become void and there will
be no liability or obligation (with limited exceptions) on the part of Tel-Save,
STF, Merger Sub or their respective officers, directors, stockholders or
affiliates, except as provided below with respect to expense reimbursements and
termination fees.
Except as set forth below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby shall be paid by the party incurring such
expenses.
STF shall pay Tel-Save a termination fee (the "Termination Fee") of
$15,000,000, which includes reimbursement for Tel-Save expenses, in the event of
the termination of the Merger Agreement by Tel-Save or STF under the
circumstances described in paragraph (j) above. In addition, under the STF
Agreement, Tel-Save would have the Option to purchase up to 3,000,000 shares of
STF Common Stock from STF. See "MERGER RELATED TRANSACTIONS - STF Agreement."
AMENDMENT AND WAIVER
The Merger Agreement may be amended at any time prior to the Effective Time
by Tel-Save and STF, but after approval by the stockholders of Tel-Save or STF
of the Merger, no amendment shall be made that by law requires further approval
by such stockholders, without such further approval. Tel-Save and STF may extend
the time for performance of the obligations or other acts of the other parties
to the Merger Agreement, may waive inaccuracies in the representations or
warranties contained in the Merger Agreement and may waive compliance with any
agreements or conditions contained in the Merger Agreement.
AMENDMENT OF TEL-SAVE'S CHARTER
The consummation of the Merger is subject to approval by the Tel-Save
stockholders of an increase in the number of authorized shares of Tel-Save
Common Stock by such number as is required to satisfy the issuances of Tel-Save
Common Stock pursuant to the Merger Agreement, including upon conversion or
exercise of the Tel-Save Series A Preferred, the Tel-Save Warrants and the STF
Options to be assumed by Tel-Save pursuant to the terms of the Merger Agreement.
At the Tel-Save Meeting, Tel-Save stockholders will also be asked to
consider and vote upon the Charter Amendment to increase the number of shares of
capital stock that Tel-Save has the authority to issue from 105,000,000 to
305,000,000 and the number of shares of Tel-Save Common Stock which Tel-Save has
authority to issue from 100,000,000 to 300,000,000. See "TEL-SAVE PROPOSAL 2:
AMENDMENT OF TEL-SAVE'S CHARTER."
The approval of the Charter Amendment is not a condition to the approval of
the Merger Proposal and consummation of the Merger. If the Charter Amendment is
not approved but the Merger Proposal is, the number of authorized shares of
Tel-Save Common Stock will be increased by such number as is required to satisfy
the issuances of Tel-Save Common Stock pursuant to the Merger Agreement,
including upon conversion or exercise of the Tel-Save Series A Preferred, the
Tel-Save Warrants and the STF Options to be approved by Tel-Save pursuant to the
terms of the Merger Agreement.
The approval of the Merger Proposal and the Consummation of the Merger are
not conditions to the filing of the Charter Amendment. See "TEL-SAVE PROPOSAL 2:
AMENDMENT OF TEL-SAVE'S CHARTER."
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MERGER RELATED TRANSACTIONS
STF AGREEMENT
In connection with the Merger Agreement and as a condition to Tel-Save's
entry into the Merger Agreement and the transactions contemplated thereby,
Tel-Save and STF entered into the STF Agreement, pursuant to which Tel-Save
would have the Option, if the Merger Agreement were to be terminated by STF
under certain circumstances (a "Purchase Event," as defined below), to acquire
up to 3,000,000 shares of STF Common Stock from STF for $11.25 per share, equal
to approximately 10.8% of the outstanding STF Common Stock (assuming conversion
or exercise of the outstanding STF preferred stock, options and warrants and
after giving effect to the exercise of the Option) as of August 13, 1997.
Under the STF Agreement, the Option is exercisable by Tel-Save, in whole or
in part, at any time and from time to time, upon the occurrence of a Purchase
Event, provided that Tel-Save provides notice of such exercise in accordance
with the STF Agreement. A "Purchase Event" is defined in the STF Agreement to
mean any event, pursuant to Section 10.2(b) of the Merger Agreement, which
would, by the terms of such section, require STF to pay the Termination Fee.
Specifically, the Termination Fee would be required to be paid under Section
10.2(b) of the Merger Agreement in the event STF terminates the Merger Agreement
in accordance with Section 8.6(b) of the Merger Agreement, which permits the STF
Board to terminate the Merger Agreement if it determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to STF stockholders under applicable law, and
concurrently with or after such termination, causes STF to enter into any letter
of intent, agreement in principle, acquisition agreement or other similar
agreement with respect to any STF Superior Proposal. An STF Superior Proposal
means any bona fide proposal made by a third party to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, more than
50% of the combined voting power of the shares of STF Common Stock and STF
Preferred Stock then outstanding or all or substantially all the assets of STF
and otherwise on terms that the STF Board determines in its good faith judgment
to be more favorable to the STF stockholders than the Merger. See "THE MERGER
AGREEMENT -- Termination, Termination Fees and Expenses."
In the event of any change in STF Common Stock by reason of stock
dividends, split-ups, recapitalizations, combinations, exchanges of shares or
the like, the type and number of shares subject to the Option, and the purchase
price per share, shall be adjusted appropriately. In addition, the STF Agreement
grants certain registration rights to Tel-Save with respect to the shares
represented by the Option.
The STF Agreement expires on the earliest of (a) consummation of the
Merger, (b) January 31, 1998 and (c) termination of the Merger Agreement other
than pursuant to a Purchase Event.
VOTING AGREEMENTS
As a condition to Tel-Save and STF entering into the Merger Agreement,
Tel-Save and STF required that three of the four STF Stockholders (who owned in
the aggregate approximately 50% of the then outstanding shares of the STF Common
Stock) and the Tel-Save Stockholder (as such terms are defined below) enter into
the STF Voting Agreements. Subsequently, Tel-Save and the fourth STF Stockholder
also entered into a STF Voting Agreement. Pursuant to the STF Voting Agreements,
the STF Stockholders and Tel-Save Stockholder have agreed, among other things,
that they will vote their STF and Tel-Save Common Stock, respectively, (i) in
favor of the Merger, (b) in favor of the Merger Agreement, and (c) against any
amendment of STF's or Tel-Save's charter or bylaws or other proposal or
transaction involving STF or Tel-Save or any of its subsidiaries, as the case
may be, which amendment or other proposal or transaction would in any manner
interfere with, or result in a breach of any agreement with respect to, the
Merger, Merger Agreement or any of the transactions contemplated by the Merger
Agreement. One of the STF Stockholders, RHI, has also agreed that, if requested
by Tel-Save, it would convert such number of its shares of STF Series I
Preferred to STF Common Stock as would result in the STF Stockholders owning in
the aggregate at least 50% of the shares of STF Common Stock outstanding on the
STF Record Date.
63
<PAGE>
Pursuant to the STF Voting Agreements, in the event of any change in the
STF or Tel-Save Common Stock by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like, the STF
Stockholders' STF Common Stock or the Tel-Save Stockholder's Tel-Save Common
Stock, as the case may be, which is subject to the voting requirements of the
Voting Agreements, shall also include in kind stock dividends or other
distributions of any shares into which or for which any or all of such STF
Common Stock or Tel-Save Common Stock, respectively, may be changed or
exchanged.
The STF Voting Agreements shall terminate upon the first to occur of (a)
the consummation of the Merger, (b) January 15, 1998, or (c) the date of
termination of the Merger Agreement by any of the parties thereto.
The STF Stockholders are Anthony D. Autorino, the Chairman and Chief
Executive Officer of STF, RHI, J.J. Cramer & Co. and Mentor Partners, L.P. See
"INFORMATION ABOUT STF -- Security Ownership of Certain Beneficial Owners and
Management." The Tel-Save Stockholder is Daniel Borislow, Chairman and Chief
Executive Officer of Tel-Save. See "INFORMATION ABOUT TEL-SAVE -- Security
Ownership of Certain Beneficial Owners and Management."
TEL-SAVE PURCHASE OF STF NOTES
Subsequent to the execution of the Merger Agreement, Tel-Save, in separate,
privately negotiated transactions, had acquired all of the $163.7 million
aggregate face amount outstanding of the STF Notes. Such acquisition was
financed primarily through a 364-day, $150 million credit facility arranged by
an affiliate of Salomon Brothers. On September 9, 1997, Tel-Save completed the
private placement of $300 million aggregate principal amount of its 4 1/2%
Convertible Subordinated Notes due 2002 and used a portion of the net proceeds
of the offering to prepay all amounts outstanding under the credit facility.
Following that prepayment, the credit facility was terminated.
64
<PAGE>
INFORMATION ABOUT TEL-SAVE
BUSINESS
Tel-Save, whose principal operating subsidiary was incorporated in
Pennsylvania in 1989, is a provider of long distance telecommunications services
primarily to small and medium-sized businesses located throughout the United
States. Tel-Save's long distance service offerings include outbound service,
inbound toll-free 800 service and dedicated private line services for data.
Until 1997, Tel-Save operated solely as a switchless, non-facilities-based
reseller of AT&T long distance services, purchasing large usage volumes from
AT&T pursuant to contract tariffs.
In early 1997, Tel-Save deployed its own nationwide telecommunications
network, One Better Net, or OBN, consisting of five Tel-Save-owned, AT&T (now
Lucent) manufactured 5ESS-2000 switches connected with AT&T digital transmission
facilities. Of the over 500,000 current users of Tel-Save's services, OBN
currently provides services to approximately 150,000 end users and most of
Tel-Save's new outbound end users are now being provisioned to OBN.
In February 1997, as part of its efforts to expand its business into the
residential market, Tel-Save entered into the AOL Agreement with AOL, under
which Tel-Save will provide long-distance telecommunications services to be
marketed by AOL under a distinctive brand name to be used exclusively for
Tel-Save's services. The services will include provision for online sign-up,
call detail and reports and credit card payment. AOL subscribers who sign up for
the telecommunications services will be customers of Tel-Save, as the carrier
providing such services. The Tel-Save services under this AOL Agreement were
launched on the AOL online network on October 9, 1997. The AOL Agreement has an
initial term of three years and can be extended by AOL on an annual basis
thereafter.
Historically, Tel-Save has marketed its services primarily through
independent carriers and marketing companies ("partitions"). While Tel-Save
explored the use of direct telemarketing in 1997, it has determined to continue
to market its services primarily through partitions and such opportunities as
the AOL arrangement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to Tel-Save with
respect to beneficial ownership of Tel-Save Common Stock as of October 8, 1997
(except as otherwise noted) by (i) each Tel-Save stockholder who is known by
Tel-Save to own beneficially more than five percent of the outstanding Tel-Save
Common Stock, (ii) each of Tel-Save's directors, (iii) each of the executive
officers named below and (iv) all current directors and executive officers of
Tel-Save as a group. Except as otherwise indicated below, Tel-Save believes that
the beneficial owners of the Tel-Save Common Stock listed below have sole
investment and voting power with respect to such shares. The mailing address of
each of Tel-Save's directors and executive officers is c/o Tel-Save Holdings,
Inc., 6805 Route 202, New Hope, Pennsylvania 18938.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY PERCENT OF SHARES
OR IDENTITY OF GROUP OWNED(1) BENEFICIALLY OWNED
- --------------------------------------------------- --------------------------- -------------------
<S> <C> <C>
Daniel Borislow ................................... 24,901,540(2)(3)(7)(9) 38.0%
Putnam Investments, Inc.(4) ....................... 8,045,342 12.3%
One Post Office Square
Boston, Massachusetts 02109
Paul Rosenberg .................................... 7,440,000(2) 11.3%
4068 Boc Aire Boulevard
Boca Raton, Florida 33487
Massachusetts Financial Services Company(5) ....... 6,983,500 10.6%
500 Boylston Street
Boston, Massachusetts 02116
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY PERCENT OF SHARES
OR IDENTITY OF GROUP OWNED(1) BENEFICIALLY OWNED
- ----------------------------------------------- ----------------- -------------------
<S> <C> <C>
FMR Corp.(6) .................................. 8,218,342 12.5%
82 Devonshire Street
Boston, Massachusetts 02109
Gary W. McCulla ............................... 383,100(7) *
Emanuel J. DeMaio ............................. 398,178(7) *
Edward B. Meyercord, III ...................... --(8) *
George Farley ................................. 1,200,000(9) 1.8%
Harold First .................................. 56,070(7) *
Ronald R. Thoma ............................... 70,000(7) *
All directors and executive officers as a group 26,625,248 40.6%
(10 persons)(7)
</TABLE>
* Less than 1%.
- ----------
(1) The securities "beneficially owned" by a person are determined in accordance
with the definition of "beneficial ownership" set forth in the regulations
of the Commission and, accordingly, may include securities owned by or for,
among others, the spouse, children or certain other relatives of such
person. The same shares may be beneficially owned by more than one person.
Beneficial ownership may be disclaimed as to certain of the securities. The
number of shares of Tel-Save Common Stock reported herein have been adjusted
to reflect a two-for-one stock split effective as of January 31, 1997.
(2) Includes 7,440,000 shares of Tel-Save Common Stock owned of record by Mr.
Rosenberg for which Mr. Borislow has the right to vote pursuant to a voting
trust agreement and 1,012,540 shares of Tel-Save Common Stock owned by
current or former partitions of Tel-Save for which Mr. Borislow has the
right to vote pursuant to voting trust agreements.
(3) Includes 300,000 shares of Tel-Save Common Stock that may be acquired upon
the exercise of stock options.
(4) Based on information provided to Tel-Save, Putnam Investments, Inc.,
together with certain affiliates, reported beneficial ownership of 8,045,342
shares as of March 11, 1997.
(5) Massachusetts Financial Services Company ("MFS"), an investment adviser,
filed an amendment to a Schedule 13G with the Commission on April 17, 1997
(The "MFS 13G"), in which it reported beneficial ownership of 6,983,500
shares, 6,223,400 of which are also beneficially owned by MFS Series Trust
II-MFS Emerging Growth Fund, an investment company, and 760,100 of which are
also owned by certain non-reporting entities as well as MFS. The foregoing
information is derived from the MFS 13G.
(6) FMR Corp. and Fidelity International Limited (collectively, "Fidelity")
filed Amendments No. 3 to Schedules 13D with the Commission on September 11,
1997 (the "Fidelity 13Ds") in which they and certain affiliates reported
beneficial ownership of a total of 8,218,342 shares, which included 731,142
shares that could be acquired upon conversion of certain Tel-Save
convertible notes beneficially owned by Fidelity. The foregoing information
is derived from the Fidelity 13Ds.
(7) Includes shares of Tel-Save Common Stock that may be acquired upon the
exercise of stock options within 60 days of October 8, 1997 in the following
amounts: Mr. Borislow, 300,000 shares (see note 2); Mr. McCulla, 383,100
shares; Mr. DeMaio, 398,178 shares; Mr. First, 40,000 shares; Mr. Thoma,
40,000 shares; and all directors and officers as a group, 1,463,308 shares.
See also note (8) below.
(8) Does not include any of the 800,000 shares that could be acquired upon
exercise of an option granted to Mr. Meyercord in 1996, which is subject to
approval by Tel-Save's stockholders at the Tel-Save Meeting. See "TEL-SAVE
PROPOSAL 5: GRANT OF STOCK OPTIONS." If the option is approved, Mr.
Meyercord would be deemed to have beneficial ownership of the 266,666 shares
that could be acquired thereunder within six months of October 8, 1997.
(9) Includes 1,200,000 shares held by the Daniel Borislow Charitable Foundation,
of which Messrs. Borislow and Farley and Mrs. Michelle Borislow, spouse of
Mr. Daniel Borislow, are directors.
66
<PAGE>
EXECUTIVE OFFICERS
The executive officers of Tel-Save are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- ----- -------------------------------------------
<S> <C> <C>
Daniel Borislow ............... 36 Chairman of the Board, Chief Executive
Officer and Director
Gary W. McCulla ............... 38 President and Director of Sales and Mar-
keting and Director
Emanuel J. DeMaio ............ 38 Chief Operations Officer and Director
George Farley .................. 59 Chief Financial Officer, Treasurer and Di-
rector
Edward B. Meyercord, III ...... 32 Executive Vice President, Marketing and
Corporate Development
Mary Kennon .................. 38 Director of Customer Care and Human Re-
lations
Aloysius T. Lawn, IV ......... 38 General Counsel and Secretary
Kevin R. Kelly ............... 32 Controller
</TABLE>
Daniel Borislow. Mr. Borislow founded Tel-Save and has served as a director
and as Chief Executive Officer of Tel-Save since its inception in 1989. Prior to
founding Tel-Save, Mr. Borislow formed and managed a cable construction company.
Gary W. McCulla. Mr. McCulla joined Tel-Save in March 1994 and currently
serves as President and Director of Sales and Marketing. In 1991, Mr. McCulla
founded GNC and was its President. Until March 1994, GNC was a privately-held
independent marketing company and one of Tel-Save's partitions. At that time,
Tel-Save acquired certain assets of GNC.
Emanuel J. DeMaio. Mr. DeMaio joined Tel-Save in February 1992 and
currently serves as Chief Operations Officer. Prior to joining Tel-Save, from
1981 through 1992, Mr. DeMaio held various technical and managerial positions
with AT&T.
George Farley. Mr. Farley became Chief Financial Officer and Treasurer of
Tel-Save effective October 29, 1997. Mr. Farley is formerly Group Vice President
of Finance/Chief Financial Officer of Twin County Grocers, Inc. ("Twin County"),
a food distribution company. Prior to joining Twin County in September 1995, Mr.
Farley was a partner of BDO Seidman, LLP, where he had served as a partner since
1974.
Edward B. Meyercord, III. Mr. Meyercord joined Tel-Save in September 1996
and currently serves as Executive Vice President, Marketing and Corporate
Development. From 1993 until joining Tel-Save, Mr. Meyercord worked in the
corporate finance department of Salomon Brothers, where he held various
positions, the most recent of which was Vice President. Prior to joining Salomon
Brothers, Mr. Meyercord worked in the corporate finance department at
PaineWebber Incorporated.
Mary Kennon. Ms. Kennon joined Tel-Save in October 1994 and currently
serves as Director of Customer Care and Human Resources. Prior to joining
Tel-Save, from 1984 through 1994, Ms. Kennon held various managerial positions
with AT&T.
Aloysius T. Lawn, IV. Mr. Lawn joined Tel-Save in January 1996 and
currently serves as General Counsel and Secretary of Tel-Save. Prior to joining
Tel-Save, from 1985 through 1995, Mr. Lawn was an attorney in private practice.
Kevin R. Kelly. Mr. Kelly joined Tel-Save in April 1994 and currently
serves as Controller. From 1987 to 1994, Mr. Kelly held various managerial
positions with a major public accounting firm. Mr. Kelly is a certified public
accountant.
67
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information as to the compensation paid by
Tel-Save to its Chief Executive Officer for services rendered and the four other
most highly compensated executive officers (the "Named Executives") of Tel-Save
for the fiscal years ended December 31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION COMPENSATION
- --------------------------------------- ---------------------------------------- -------------
SECURITIES
UNDERLYING
OPTIONS/SARS
YEAR SALARY(1) BONUS(1) (#)(2)
------ ----------- ----------------- -------------
<S> <C> <C> <C> <C>
Daniel Borislow, Chairman and 1996 $325,000 $ 500,000 --
Chief Executive Officer 1995 $300,000 $ 5,769 --
1994 $275,000 -- --
Gary W. McCulla, President 1996 $300,000 $ 350,000 900,000
and Director of Sales and Marketing 1995 $240,000 $ 304,615 199,200
1994 $150,000 $ 450,000(3) 783,900
Emanuel J. DeMaio, Chief 1996 $165,000 $ 150,000 270,000
Operations Officer 1995 $130,000 $ 152,500 199,200
1994 $120,000 $ 25,000 --
Edward B. Meyercord, III(4) 1996 $ 52,000 $ 400,000 800,000
Executive Vice President -- Marketing
and Corporate Development
Joseph A. Schenk Chief Financial
Officer(5) 1996 $180,000 $ 18,000 600,000
</TABLE>
- ----------
(1) The costs of certain benefits are not included because they did not exceed,
in the case of each Named Executive, the lesser of $50,000 or 10% of the
total annual salary and bonus reported in the above table.
(2) As adjusted to reflect a two-for-one stock split effective as of January 31,
1997.
(3) In March 1994, GNC, a partition wholly owned by Mr. McCulla, sold certain
assets to Tel-Save for $300,000 and, in connection therewith, Mr. McCulla
agreed to become an employee of Tel-Save and was paid $450,000.
(4) Mr. Meyercord was hired by Tel-Save effective as of September 5, 1996. In
connection therewith, Mr. Meyercord was paid $400,000 and was granted an
option to purchase 800,000 shares of Tel-Save Common Stock, subject to
stockholder approval. See "TEL-SAVE PROPOSAL 5: GRANT OF STOCK OPTIONS."
(5) Mr. Schenk resigned as a director and an officer of Tel-Save effective
September 10, 1997.
68
<PAGE>
STOCK OPTION GRANTS
The following table sets forth further information regarding grants of
options to purchase Tel-Save Common Stock made by Tel-Save during the fiscal
year ended December 31, 1996 to the Named Executives.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES
OF STOCK PRICE
APPRECIATION FOR
OPTION
INDIVIDUAL GRANTS TERM(3)
--------------------------------------------------------- --------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES IN PRICE PER EXPIRATION
NAME GRANTED(1)(2) 1996 SHARE(2) DATE 5% ($) 10% ($)
- ----------------------------------- --------------- ----------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gary W. McCulla .................. 450,000 $ 4.58 7/12/98 268,000 558,000
450,000 13.5% $ 4.58 7/12/99 385,000 819,000
Emanuel J. DeMaio ................. 135,000 $ 4.58 7/12/98 80,000 167,000
135,000 4.1% $ 4.58 7/12/99 115,000 246,000
Edward B. Meyercord, III(4) ....... 266,666 $11.13 9/5/99 468,000 982,000
266,666 $11.13 9/5/00 640,000 1,377,000
266,666 12.0% $11.13 9/5/01 820,000 1,812,000
Joseph A. Schenk .................. 600,000 9.0% $ 4.25 7/16/97 194,000 395,000
</TABLE>
- ----------
(1) Options generally are not vested until 12 months after the date of original
grant and expire from six months to two years from the date of vesting.
(2) The number of shares of Tel-Save Common Stock, underlying options and the
exercise price of the options has been adjusted to reflect a two-for-one
stock split in the form of a stock dividend effective as of January 31,
1997.
(3) Disclosures of the 5% and 10% assumed annual compound rates of stock
appreciation are mandated by the rules of the Commission and do not
represent Tel-Save's estimate or projection of future common stock prices.
The actual value realized may be greater or less than the potential
realizable value set forth in the table.
(4) Such options have been granted subject to stockholder approval. See
"TEL-SAVE PROPOSAL 5: GRANT OF STOCK OPTIONS."
The following table sets forth information concerning the 1996 year-end
value of unexercised in-the-money options held by each of the Named Executives.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
----------------------- ----------------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------- ---------------- ------------------ ----------------------- ----------------------
<S> <C> <C> <C> <C>
Daniel Borislow ............... -- -- 300,000 / -- 4,254,000 / --
Gary W. McCulla ............... 600,000 $5,709,000 383,100 / 900,000 4,534,113 / 8,928,000
Emanuel J. DeMaio ............ 330,000 $3,230,700 497,100 / 270,000 6,200,286 / 2,678,400
Edward B. Meyercord, III ...... -- -- -- / 800,000 -- / 2,696,000
Joseph A. Schenk ............... -- -- -- / 600,000 -- / 6,150,000
</TABLE>
- ----------
(1) Based on a year-end fair market value of the underlying securities equal to
$14.50 as adjusted to reflect a two-for-one stock split in the form of a
stock dividend effective as of January 31, 1997.
69
<PAGE>
EMPLOYMENT CONTRACTS
Daniel Borislow is a party to an employment agreement with Tel-Save that
expires in September 2000. Under the terms of the agreement, Mr. Borislow is
entitled to an annual base salary of $300,000, customary benefits and a cost of
living adjustment based upon the Consumer Price Index as published by the
Department of Labor. In March 1996, the non-employee director members of the
Compensation Committee approved an increase in Mr. Borislow's annual base salary
to $325,000.
Gary W. McCulla is a party to a three-year employment agreement with
Tel-Save that expires on April 1, 1999. Under the contract, Mr. McCulla is
entitled to a minimum annual base salary of $300,000 for each year.
Emanuel J. DeMaio is a party to a three-year employment agreement with
Tel-Save that expires April 1, 1999. Under the contract, Mr. DeMaio is entitled
to a minimum annual base salary of $165,000 for the first year, $175,000 for the
second year and $185,000 for the third year.
Edward B. Meyercord, III entered into a five-year employment agreement with
Tel-Save effective as of September 5, 1996. Under the contract, Mr. Meyercord is
entitled to a minimum annual base salary of $210,000 for each year.
The above-described agreements require each of the executives to maintain
the confidentiality of Tel-Save information and assign inventions to Tel-Save.
In addition, each of such executive officers has agreed that such person will
not compete with Tel-Save by engaging in any capacity in any business that is
competitive with the business of Tel-Save during the term of his respective
agreement and thereafter for specified periods.
REPORT ON EXECUTIVE COMPENSATION
The Tel-Save Board has a compensation committee ("Compensation Committee")
to approve salaries and certain incentive compensation arrangements for
management and key employees of Tel-Save. Mr. Borislow does not participate in
decisions relating to his compensation.
The principal elements of Tel-Save's compensation structure are described
below:
ANNUAL SALARY
Minimum annual base salaries for executive officers of Tel-Save, including
Mr. Borislow, have been established pursuant to employment contracts negotiated
with each of the executive officers of Tel-Save. Tel-Save believes that such
employment contracts help to attract and retain qualified individuals. In
addition, the employment agreements require Tel-Save's executive officers to
maintain the confidentiality of Tel-Save information and to assign inventions to
Tel-Save and prevent such persons from competing with Tel-Save in any capacity
in any business that is competitive with the business of Tel-Save during the
term of the respective agreement and thereafter for specified periods of time.
Minimum annual base salaries for executive officers of Tel-Save generally
are established by individual employment contracts. Increases above such minimum
base salaries will be granted in the discretion of the Compensation Committee
based on its subjective assessment of individual performance.
ANNUAL BONUS PLAN
In March 1996, the Compensation Committee established Tel-Save's bonus
program. Under the bonus program, Tel-Save pays cash bonuses based on the
incremental increase in gross revenues over the gross revenues from the
preceding fiscal year, excluding incremental increases in gross revenues
attributable to acquisitions by Tel-Save (the "Incremental Amount"). From the
available Incremental Amount, Mr. Borislow has the sole discretion to award cash
bonuses to executives equal to an aggregate of 1.5% of such Incremental Amount.
Mr. Borislow is entitled to receive a cash bonus equal to .5% of the Incremental
Amount. With respect to incremental revenue associated with acquisitions made by
70
<PAGE>
Tel-Save ("Acquisition Incremental Amount"), the non-employee directors may
award additional cash bonuses to Mr. Borislow and other executives. These
additional cash bonuses are limited to .5% of Acquisition Incremental Amount to
Mr. Borislow and 1.5% of Acquisition Incremental Amount to other executives.
On December 20, 1996, the Compensation Committee met and awarded the
bonuses set forth in the Summary Compensation Table in accordance with the terms
of the bonus program described above.
LONG TERM INCENTIVE COMPENSATION
In general, Tel-Save has granted stock options to key executives as an
inducement to such executives, entering into employment contracts with Tel-Save.
Tel-Save believes that stock options are an effective tool for linking
directly the financial interests of executive officers and key employees with
those of Tel-Save's stockholders and for recruiting and retaining high quality
management personnel. Stock options are intended to focus the efforts of
executive officers and key employees on performance that will increase the value
of Tel-Save for all of its stockholders. Future option grants will be made in
the discretion of the Compensation Committee or in connection with the
negotiation of individual employment arrangements.
THE COMPENSATION COMMITTEE
Daniel Borislow
Harold First
Ronald R. Thoma
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Daniel Borislow, the Chief Executive Officer of Tel-Save, serves on the
Compensation Committee. Mr. Borislow's compensation is determined by the
non-employee director members of the Compensation Committee, subject to the
terms of Mr. Borislow's employment agreement. See "-- Employment Contracts."
In connection with a reorganization of a predecessor corporation to
Tel-Save, Mr. Borislow was granted the right to request certain loans from
Tel-Save of up to $5 million, bearing interest at 8.75% and secured by shares of
Mr. Borislow's Tel-Save Common Stock. During the first quarter of 1996, the
entire amount of such loans was outstanding. In April 1996, Mr. Borislow
discharged such indebtedness, plus accrued interest, and relinquished any rights
to additional loans.
71
<PAGE>
PERFORMANCE GRAPH
The following graph sets forth a comparison of the percentage change in the
cumulative total stockholder return on the Tel-Save Common Stock compared to the
cumulative total return of the S&P 400 Index and the S&P Long Distance Index for
the period from September 21, 1995, the date on which trading in the Tel-Save
Common Stock commenced, through December 31, 1996. The comparison assumes that
$100 was invested on September 21, 1995 in Tel-Save Common Stock and each of the
indices and assumes reinvestment of dividends. The stock price performance shown
on the graph below is not necessarily indicative of future performance.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
SEPTEMBER 21, 1995 DECEMBER 29, 1995 DECEMBER 31, 1996
-------------------- ------------------- ------------------
<S> <C> <C> <C>
Tel-Save Holdings, Inc. ...... $100 $ 87 $272
S&P 400 Index ............... 100 105 126
S&P Long Distance Index ...... 100 102 100
</TABLE>
INFORMATION ABOUT STF
BUSINESS
STF is the largest provider of shared telecommunications services in the
United States. STF also sells, installs and maintains telecommunications systems
for businesses and government agencies. As of July 1, 1997, STF provided shared
telecommunications services across the United States servicing approximately
9,000 customers in 463 buildings with over 110,000 lines. As of July 1, 1997,
STF also provided maintenance and other services through its telecommunications
systems business to approximately 6,000 customers with over 400,000 lines
nationwide. STF currently provides shared telecommunications services and
telecommunications systems in over 36 metropolitan markets.
STF provides shared telecommunications services to commercial tenants in
office buildings in which STF typically has installed a dedicated private branch
exchange (PBX) switch under exclusive agreement with the building owner, thereby
permitting STF's customers to obtain all their telephone and telecommunications
needs from a single source and a single point of contact. Under multi-year
contracts that usually extend through the term of the tenants' leases, STF
offers its customers access to services
72
<PAGE>
provided by regulated communications companies, such as local, discounted long
distance, international and "800" telephone services. STF also provides
telephone switching equipment and telephones, as well as voice mail, telephone
calling cards, local area network wiring, voice and data cable installation.
Other services provided by STF include audio conferencing, automatic call
distribution services and message center capability.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to STF with
respect to beneficial ownership of STF Common Stock as of October 8, 1997 by (i)
each STF stockholder who is known by STF to own beneficially more than five
percent of the outstanding STF Common Stock, (ii) each of STF's directors, (iii)
each of the executive officers named below and (iv) all current directors and
executive officers of STF as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY PERCENT OF SHARES
OR IDENTITY OF GROUP(A) OWNED(B) BENEFICIALLY OWNED
- ----------------------------------------------- -------------- -------------------
<S> <C> <C>
Anthony D. Autorino (c)
Chairman, Chief Executive Officer
and Director ................................. 1,186,618 6.79%
Mel D. Borer (d)
President, Chief Operating Officer
and Director ................................. 51,094 *
Thomas H. Decker (e)
Director ..................................... 24,750 *
William A. DiBella (f)
Director ..................................... 48,413 *
Vincent DiVincenzo (g)
Director, Senior Vice President
-- Administration and Finance,
Treasurer and Chief Financial Officer ........ 78,891 *
Lawrence J. Dressel (h)
Senior Vice President and General Manager .... 15,467 *
Natalia Hercot (i)
Director ..................................... 5,000 *
Ajit G. Hutheesing (j)
Director ..................................... 319,957 1.83%
Jo McKenzie (k)
Director ..................................... 19,575 *
Donald E. Miller (l)
Director ..................................... 6,000 *
Jeffrey J. Steiner (m)
Vice Chairman and Director ................... 4,165,148 22.10%
All Directors and Executive Officers as a Group
(n) (13 persons) ............................. 6,088,836 30.80%
The Fairchild Corporation and RHI Holdings,
Inc. (o)
300 West Service Road
P.O. Box 10803
Chantilly, VA 20153 .......................... 10,146,568 48.11%
J.J. Cramer & Co.
100 Wall Street
New York, NY 10005 ........................... 955,000 5.56%
Mentor Partners, L.P.
500 Park Avenue
New York, NY 10022 ........................... 1,074,500 6.26%
</TABLE>
73
<PAGE>
- ----------
(a) The mailing address of each of STF's directors and executive officers is c/o
Shared Technologies Fairchild Inc., 100 Great Meadow Road, Wethersfield,
Connecticut 06109.
(b) Except as otherwise specifically noted, the number of shares stated as being
owned beneficially includes shares believed to be held beneficially by
spouses and minor children. The inclusion herein of any shares deemed
beneficially owned does not constitute an admission of beneficial ownership
of those shares. Each shareholder possesses sole voting and investment power
with respect to the shares listed opposite such stockholder's name, except
as otherwise indicated.
(c) Includes 280,000 shares currently issuable upon exercise of options. Also
includes 92,797 shares owned of record by the estate of Mr. Autorino's late
spouse, as to which Mr. Autorino disclaims beneficial ownership. Also
includes 7,203 shares owned by Mr. Autorino through STF's Savings and
Retirement Plan. Also includes 11,500 shares of STF Series D Preferred,
which are convertible into 11,500 shares of STF Common Stock. Also includes
200,000 shares owned by the Autorino Family Limited Partnership, of which
Mr. Autorino is the general partner. Also includes 17,500 shares of STF
Series D Preferred owned of record by the estate of Mr. Autorino's late
spouse, as to which Mr. Autorino disclaims beneficial ownership.
(d) Includes 50,000 shares currently issuable upon exercise of options by Mr.
Borer. Also includes 1,094 shares owned by Mr. Borer through STF's Savings
and Retirement Plan.
(e) Includes 18,750 shares currently issuable upon exercise of options by Mr.
Decker.
(f) Includes 19,663 shares currently issuable upon exercise of options by Mr.
DiBella. Also includes 28,750 shares owned of record by Mr. DiBella's
spouse, as to which shares Mr. DiBella disclaims beneficial ownership.
(g) Includes 75,000 shares currently issuable upon exercise of options by Mr.
DiVincenzo. Also includes 3,439 shares owned by Mr. DiVincenzo through STF's
Savings and Retirement Plan.
(h) Includes 15,000 shares currently issuable upon exercise of options by Mr.
Dressel. Also includes 467 shares owned by Mr. Dressel through STF's Savings
and Retirement Plan.
(i) Includes 5,000 shares currently issuable upon exercise of options by Ms.
Hercot.
(j) Includes 15,000 shares currently issuable upon exercise of options by Mr.
Hutheesing. Also includes a STF Common Stock Purchase Warrant which is
convertible into 298,957 shares of STF Common Stock, which is owned of
record by International Capital Partners, Inc., of which Mr. Hutheesing is
the Chairman, Chief Executive Officer and a stockholder.
(k) Includes 19,575 shares currently issuable upon exercise of options by Mrs.
McKenzie.
(l) Includes 5,000 shares currently issuable upon exercise of options by Mr.
Miller.
(m) Includes 116,667 shares currently issuable upon exercise of options. Also
includes deemed beneficial ownership of 39.9% of those shares held by RHI
and beneficially owned by TFC. RHI is a wholly-owned subsidiary of TFC. See
note (o) below. Mr. Steiner beneficially owns 39.9% of TFC and may therefore
be deemed the beneficial owner of 39.9% of the shares of STF Common Stock
beneficially owned by TFC. Through his ownership of the majority of voting
shares of TFC, however, Mr. Steiner may be deemed to beneficially own all
shares of STF Common Stock beneficially owned by TFC.
(n) Includes a total of 710,906 shares which officers and directors of STF the
right to acquire under outstanding stock options. Also includes 29,000
shares of STF Series D Preferred currently convertible into 29,000 shares of
STF Common Stock, as set forth in footnote (c) above. Also includes 298,957
shares of STF Common Stock issuable upon conversion of a STF Common Stock
Purchase Warrant, as set forth in footnote (j) above. Also includes 17,825
shares owned by officers and directors through the STF Savings and
Retirement Plan as of June 30, 1997.
(o) Includes 6,225,000 shares of STF Common Stock and 250,000 shares of STF
Series I Preferred, which are convertible into 3,921,569 shares of STF
Common Stock, all of which is beneficially owned by TFC through its
wholly-owned subsidiary, RHI. TFC's and RHI's ownership interest in STF,
based solely on its ownership of outstanding shares of STF Common Stock
(6,225,000 shares) and without giving effect to the conversion of the STF
Series I Preferred (convertible, upon the Merger, into 4,191,517 shares of
STF Common Stock), is 36.27%.
74
<PAGE>
The following table shows the value of stock options held by certain
executive officers and directors of STF assuming the Closing Date Market Price
is between $10.00 and $20.00.
VALUE OF OPTIONS UPON CLOSING
OF THE MERGER (ASSUMES VALUE OF STF COMMON STOCK OF $11.25 PER SHARE)
<TABLE>
<CAPTION>
NAME NUMBER OF OPTIONS VALUE
- -------------------------------------------------------------------- ------------------- ------------
<S> <C> <C>
Anthony D. Autorino ................................................ 755,000 $5,006,875
Mel D. Borer ...................................................... 150,000 1,031,250
Thomas H. Decker ................................................... 18,750 129,563
William A. DiBella ................................................ 19,663 131,258
Vincent DiVincenzo ................................................ 145,000 1,017,293
Lawrence J. Dressel ................................................ 45,000 309,375
Natalia Hercot ................................................... 5,000 33,750
Ajit G. Hutheesing ................................................ 15,000 103,125
Jo McKenzie ...................................................... 19,575 130,444
Donald E. Miller ................................................... 5,000 32,500
Jeffrey J. Steiner ................................................ 350,000 2,406,250
========== ============
All Directors and Executive Officers as a group (13 persons) ...... 1,658,405 11,254,186
</TABLE>
75
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Condensed Financial Statements
give effect to the Merger using the "pooling of interests" method of accounting,
after giving effect to the pro forma adjustments described in the accompanying
notes.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS -- POOLING
COMBINATION
The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to
the Merger as if it had occurred on June 30, 1997, combining the balance sheets
of Tel-Save with that of STF. The Unaudited Pro Forma Combined Condensed
Statements of Operations give effect to the Merger as if it occurred at the
beginning of the earliest period presented, combining the results of Tel-Save
and STF for each year in the three-year period ended December 31, 1996 and the
six months ended June 30, 1997.
As a result of the Merger, the Unaudited Pro Forma Combined Condensed
Financial Statements also give effect to the following transactions for the
periods indicated:
o The redemption of STF Special Preferred for $21.5 million as stipulated in
the Merger Agreement pursuant to the certificate-designated liquidation
preference of $21.5 million. The Unaudited Pro Forma Combined Condensed
Balance Sheet gives effect to the redemption as if it had occurred on June
30, 1997.
o The conversion of STF Series I Preferred into Tel-Save Common Stock based
on the current liquidation value of $26.302 million, to
certificate-designated conversion price of $6.375 and the Exchange Ratio
(as defined in the Merger Agreement). The Unaudited Pro Forma Combined
Condensed Balance Sheet gives effect to the conversion as if it had
occurred on June 30, 1997.
o The merged companies will incur certain acquisition and transition related
costs in connection with consummating the transaction and integrating the
operations of Tel-Save and STF. The acquisition and transition related
costs consist principally of professional and registration fees,
employment contract termination costs and other costs associated with the
integration of the two businesses resulting from the Merger. While the
exact timing, nature and amount of these acquisition and transition
related costs are subject to change, Tel-Save anticipates that a one-time
pretax charge of approximately $19.0 million for incremental
acquisition-related costs will be recorded in the quarter in which the
Merger is consummated. The estimate is comprised of the following amounts:
<TABLE>
<CAPTION>
TOTAL
(IN THOUSANDS)
---------------
<S> <C>
Employment contract termination costs ......... $10,000
Professional fees ............................. 7,000
Registration and other regulatory costs ....... 1,000
Other ......................................... 1,000
--------
$19,000
========
</TABLE>
The incremental acquisition-related costs have been reflected as an
increase in accounts payable and accrued expenses - trade and other in the
Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30, 1997.
These costs have not been reflected in the Unaudited Pro Forma Combined
Condensed Statement of Operations for any period presented.
In addition to the one-time pretax charge of approximately $19.0 million
for direct incremental acquisition-related costs and the special charges
shown as adjustments in the Unaudited Pro Forma Combined Condensed
Financial Statements. Tel-Save also expects to record additional special
costs associated with realizing some of the benefits of the Merger,
including enhancing the Combined Company's direct sales force, and with
systems modifications and other integration related charges after the
Merger. Such pretax charges are currently not estimatable, but could be in
the range of $50.0 million to $70.0 million. The ultimate amount of such
costs and the periods in which they will be charged to expense will vary
depending on a number of factors, including the timing and extent of the
integration of the businesses.
76
<PAGE>
The unaudited pro forma combined condensed financial statements do not
reflect these special costs associated with realizing some of the benefits
of the Merger and with systems modifications and other integration related
charges described above to be incurred during the remainder of 1997 and
thereafter, or any of the anticipated recurring expense savings.
These Unaudited Pro Forma Combined Condensed Financial Statements have been
prepared from, and should be read in conjunction with, the historical
consolidated financial statements and notes thereto of Tel-Save and STF, which
were previously filed with the Commission.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS -- SUPPLEMENTAL
In addition, the Unaudited Pro Forma Combined Condensed Financial
Statements give effect to the following transactions for the periods indicated:
o Tel-Save's decision to discontinue its internal telemarketing operations,
which were primarily conducted through American Business Alliance ("ABA").
ABA was acquired by Tel-Save on December 13, 1996 and was accounted for as
a purchase. Accordingly, Tel-Save's historical financial statements
reflect the results of operations of ABA solely for the periods on or
after December 14, 1996. However, the Unaudited Pro Forma Financial
Statements, giving effect to such acquisition, have not been reflected due
to Tel-Save's decision on October 3, 1997 to discontinue its internal
telemarketing operations, which were primarily conducted through ABA. The
Supplemental Unaudited Pro Forma Combined Condensed Statements of
Operations give effect to the discontinuance of Tel-Save's internal
telemarketing operations for the six months ended June 30, 1997 and the
year ended December 31, 1996 (which includes the period from January 1
through December 13, 1996 with ABA functioning as a partition of Tel-Save
and from December 14 through December 31, 1996 with ABA being owned by
Tel-Save).
As a result of the discontinuance of its internal telemarketing
operations, Tel-Save will incur certain costs, which consist principally
of the write-off of goodwill, professional fees, employment contract
termination costs, severance pay and other associated costs. While the
exact timing, nature and amount of these costs have not been determined,
Tel-Save anticipates that a one-time pre-tax charge of approximately $25.2
million will be recorded in the fourth quarter of fiscal 1997. The
estimate is comprised of the following amounts:
<TABLE>
<CAPTION>
TOTAL
(IN THOUSANDS)
---------------
<S> <C>
Write-off of goodwill ....................... $22,915
Employment contract termination costs ....... 2,000
Professional and other fees ................. 285
--------
$25,200
========
</TABLE>
The estimated costs of discontinuance have been reflected as an increase in
accounts payable and accrued expenses-trade and other and a decrease in
intangibles-net in the Supplemental Unaudited Pro Forma Combined Condensed
Balance Sheet as of June 30, 1997. These costs have not been reflected in
the Unaudited Pro Forma Combined Condensed Statement of Operations for any
period presented.
o The acquisition of Fairchild Industries, Inc. ("FII") by STF after giving
effect to the pro forma adjustments described in the Supplemental
Unaudited Pro Forma Combined Financial Statements for STF and FII. The
acquisition of FII was consummated on March 13, 1996 and was accounted for
as a purchase. Accordingly, STF's historical financial statements reflect
the results of operations of FII on or after March 14, 1996. The
Supplemental Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1996 reflects these
acquisitions as if they had occurred at the beginning of that year.
o The redemption of STF Special Preferred for $21.5 million as stipulated in
the Merger Agreement pursuant to the certificate-designated liquidation
preference of $21.5 million. The Supple-
77
<PAGE>
mental Unaudited Pro Forma Combined Condensed Statements of Operations
give effect to the decrease in interest income and elimination of
dividends associated with such redemption as if it had occurred on the
date such stock was issued, March 13, 1996.
o The acquisition of the outstanding STF Notes by Tel-Save subsequent to the
signing of the Merger Agreement. In connection with the acquisition of
FII, STF issued $163.637 million in STF Notes. The STF Notes bear an
annual interest rate of 12.25%, with the principal fully due on March 1,
2006. Interest does not begin accruing until March 1, 1999 and the
discount on the STF Notes is being amortized using the effective interest
method over the three-year period ending March 1, 1999. Tel-Save acquired
all of the outstanding STF Notes at a premium of 1% over the face value.
The Supplemental Unaudited Pro Forma Combined Condensed Balance Sheet
reflects (i) the elimination of such STF Notes and the write-off of the
associated unamortized deferred financing costs and discount for STF and
the elimination of the related investment, (ii) the charge related to the
excess of acquisition cost over the carrying amount of the STF Notes
("premium") and (iii) the net proceeds from the issuance by Tel-Save, in a
private placement not registered under the Securities Act of 1933, of
approximately $300 million in convertible subordinated notes ("TS Notes")
at an interest rate of 4.5%, to finance the acquisition of the STF Notes
and the repayment of approximately $89 million in outstanding STF credit
facility term loans ("Credit Facility Term Loans") (prior to the issuance
of the TS Notes, the acquisition of the STF Notes was financed by short
term margin and bridge loans). The remaining proceeds will be used for
general corporate purposes. The non-recurring fees associated with short
term margin and bridge loans of $1.0 million will be charged to expense by
Tel-Save during the quarter ended September 30, 1997 and the write-off of
the unamortized deferred financing costs of $7.891 million and the premium
of $30.998 million, net of the related $13.612 million tax benefit, that
will be charged to expense upon consummation of the Merger has not been
reflected in the Supplemental Unaudited Pro Forma Combined Condensed
Statement of Operations. The Supplemental Unaudited Pro Forma Combined
Condensed Statement of Operations reflects (i) the differential between
the interest on the Credit Facility Term Loans and the amortization of the
STF Note discount and the interest on the TS Notes that will ultimately be
used to finance the acquisition of the STF Notes and the repayment of the
Credit Facility Term Loans and (ii) the differential between the
amortization of STF's deferred financing costs and the deferred debt issue
costs for the TS Notes.
The Unaudited Pro Forma Combined Condensed Financial Statements giving
effect to the pooling combination and supplemental information are presented for
illustrative purposes only and are not necessarily indicative of the operating
results or financial position that would have occurred had the Merger, the
discontinuance of Tel-Save's internal telemarketing operations, the acquisition
of FII, the acquisition of the STF Notes and the repayment of STF's Credit
Facility Term Loans been consummated at the dates indicated, nor is it
necessarily indicative of future operating results or the financial position,
respectively, of the merged companies.
78
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
TEL-SAVE STF
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and investments .... $ 43,146 $ 1,783
Accounts receivable, net .................. 39,788 33,356
Advances to partitions and note receiv-
ables .................................... 27,639 --
Inventories ............................... -- 4,063
Prepaid AOL marketing costs-current ....... 60,086 --
Prepaid expenses and other current as-
sets ..................................... 9,849 2,660
-------- ---------
Total current assets .................... 180,508 41,862
Property and equipment, net ................ 45,194 68,830
Investments in affiliates .................. -- 651
Intangibles, net ........................... 23,479 258,779
Prepaid AOL marketing costs ................ 35,212 --
Other assets ............................... 5,880 326
-------- ---------
Total Assets ............................ $290,273 $ 370,448
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses:
Trade and other .......................... $ 29,005 $ 33,498
Partitions ............................... 5,081 --
Sales and excise taxes payable ........... 1,808 --
Other ................................... 1,220 --
Current portion of long-term debt and
capital lease obligations ................ -- 15,374
------- --------
Total current liabilities ............... 37,114 48,872
Long-term debt and capital lease
obligations, less current portion ..... -- 239,988
Redeemable put warrant .................... -- 816
Convertible preferred stock ............... -- 25,000
Special preferred stock ................... -- 14,757
-------- ---------
Total liabilities ....................... 37,114 329,433
-------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock ........................... -- 8
Common stock .............................. 647 63
Additional paid-in capital ............... 233,465 76,379
Retained earnings (deficit) ............... 23,607 (35,435)
Treasury stock ........................... (4,560) --
-------- ---------
Total stockholders' equity .............. 253,159 41,015
-------- ---------
Total liabilities and stockholders'
equity ................................ $290,273 $ 370,448
======== =========
<CAPTION>
PRO FORMA
COMBINED
PRO FORMA TO REFLECT
COMBINED EQUITY
TO REFLECT RELATED
EQUITY RELATED EQUITY RELATED OTHER AND OTHER
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
-------------------------- ---------------- --------------------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and investments .... $ -- $ 44,929 $ (21,500)(2f) $ 23,429
Accounts receivable, net .................. -- 73,144 -- 73,144
Advances to partitions and note receiv-
ables .................................... -- 27,639 -- 27,639
Inventories ............................... -- 4,063 -- 4,063
Prepaid AOL marketing costs-current ....... -- 60,086 -- 60,086
Prepaid expenses and other current as-
sets ..................................... -- 12,509 3,400 (2g) 15,909
-------------- ---------- ------------- ---------
Total current assets .................... -- 222,370 (18,100) 204,270
Property and equipment, net ................ -- 114,024 -- 114,024
Investments in affiliates .................. -- 651 -- 651
Intangibles, net ........................... -- 282,258 282,258
Prepaid AOL marketing costs ................ -- 35,212 -- 35,212
Other assets ............................... -- 6,206 -- 6,206
-------------- ---------- ------------- ---------
Total Assets ............................ $ -- $ 660,721 $ (18,100) $ 642,621
============== ========== ============= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses:
Trade and other .......................... $ (843)(2e) $ 61,660 $ 19,000 (2g) $ 80,660
Partitions ............................... -- 5,081 -- 5,081
Sales and excise taxes payable ........... -- 1,808 -- 1,808
Other .................................... -- 1,220 -- 1,220
Current portion of long-term debt and
capital lease obligations ................ -- 15,374 -- 15,374
-------------- ---------- ------------- ---------
Total current liabilities ............... (843) 85,143 19,000 104,143
Long-term debt and capital lease
obligations, less current portion ..... -- 239,988 -- 239,988
Redeemable put warrant .................... -- 816 -- 816
Convertible preferred stock ............... (25,000)(2e) -- -- --
Special preferred stock .................. -- 14,757 (14,757)(2f) --
-------------- ---------- ------------- ---------
Total liabilities ....................... (25,843) 340,704 4,243 344,947
-------------- ---------- ------------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock ........................... (4)(2b) 1 -- 1
(3)(2c)(2d)
Common stock .............................. 23 (2a) 762 -- 762
3 (2c)
22 (2e)
4 (2b)
Additional paid-in capital ................ (23)(2a) 335,642 -- 335,642
25,821 (2e)
Retained earnings (deficit) ............... -- (11,828) (6,743)(2f) (34,171)
(15,600)(2g)
Treasury stock ............................ -- (4,560) -- (4,560)
-------------- ---------- ------------- ---------
Total stockholders' equity .............. 25,843 320,017 (22,343) 297,674
-------------- ---------- ------------- ---------
Total liabilities and stockholders'
equity ................................ $ -- $ 660,721 $ (18,100) $ 642,621
============== ========== ============= =========
</TABLE>
79
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO
FORMA
HISTORICAL HISTORICAL COMBINED
TEL-SAVE STF HISTORICAL
------------ ------------ -----------
<S> <C> <C> <C>
Sales ...................................... $146,192 $ 95,618 $241,810
Cost of sales .............................. 146,081 46,630 192,711
-------- --------- --------
Gross profit ............................... 111 48,988 49,099
Selling, general and administrative ....... 7,953 34,334 42,287
-------- --------- --------
Operating income (loss) .................... (7,842) 14,654 6,812
Other income (expenses):
Equity in loss of affiliate ............... -- (186) (186)
Net interest expense ...................... -- (14,480) (14,480)
Investment and other income, net .......... 7,128 -- 7,128
-------- --------- --------
Loss before provision (benefit) for in-
come taxes (714) (12) (726)
Provision (benefit) for income taxes ....... (279) 208 (71)
-------- --------- --------
Net loss ................................... $ (435) $ (220) $ (655)
======== ========= ========
Preferred stock dividends .................. -- 2,299 2,299
-------- --------- --------
Net loss applicable to common stock ........ $ (435) $ (2,519) $ (2,954)
======== ========= ========
Net loss per share -- primary(1),(3) ....... $ (0.01) $ (0.16) $ (0.04)
======== ========= ========
Weighted average common and com-
mon equivalent shares outstanding
-- primary(1),(3) ......................... 66,367 15,788 74,957
======== ========= ========
Net loss per share -- fully dilut-
ed(1),(3) ................................. $ (0.01) $ (0.16) $ (0.04)
======== ========= ========
Weighted average common and com-
mon equivalent shares outstanding
-- fully diluted(1),(3) ................... 66,479 15,788 75,069
======== ========= ========
</TABLE>
80
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL COMBINED
TEL-SAVE STF HISTORICAL
------------ ------------ -----------
<S> <C> <C> <C>
Sales ...................................... $232,424 $ 157,241 $389,665
Cost of sales .............................. 200,597 82,572 283,169
-------- --------- --------
Gross profit ............................... 31,827 74,669 106,496
Selling, general and administrative ........ 10,039 55,329 65,368
-------- --------- --------
Operating income ........................... 21,788 19,340 41,128
Other income (expenses):
Equity in loss of affiliate ............... -- (3,927) (3,927)
Interest expense .......................... -- (22,888) (22,888)
Investment and other income, net .......... 10,585 -- 10,585
-------- --------- --------
Income (loss) before provision for in-
come taxes and extraordinary item ......... 32,373 (7,475) 24,898
Provision for income taxes ................. 12,205 783 12,988
-------- --------- --------
Income (loss) before extraordinary
item ...................................... $ 20,168 $ (8,258) $ 11,910
======== ========= ========
Preferred stock dividends .................. -- 2,366 2,366
-------- --------- --------
Income (loss) before extraordinary
item applicable to common stock-
holders .................................. $ 20,168 $ (10,624) $ 9,544
======== ========= ========
Income (loss) before extraordinary
item per share-primary (1),(3) ............ $ 0.35 $ (0.77) $ 0.15
======== ========= ========
Weighted average common and com-
mon equivalent shares outstanding -
primary (1),(3) ........................... 57,002 13,787 64,504
======== ========= ========
Income (loss) before extraordinary
item per share-fully diluted (1),(3) ...... $ 0.35 $ (0.77) $ 0.15
======== ========= ========
Weighted average common and com-
mon equivalent shares outstanding -
fully diluted (1),(3) ..................... 58,027 13,787 65,529
======== ========= ========
</TABLE>
81
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL COMBINED
TEL-SAVE STF HISTORICAL
------------ ------------ -----------
<S> <C> <C> <C>
Sales ..................................... $180,102 $ 47,086 $227,188
Cost of sales ............................. 156,121 28,872 184,993
-------- -------- --------
Gross profit .............................. 23,981 18,214 42,195
Selling, general and administrative ....... 6,280 16,188 22,468
-------- -------- --------
Operating income .......................... 17,701 2,026 19,727
Other income (expenses):
Equity in loss of affiliate .............. -- (1,752) (1,752)
Gain on sale of subsidiary stock ......... -- 1,375 1,375
Interest expense ......................... -- (677) (677)
Investment and other income, net ......... 331 -- 331
-------- -------- --------
Income before provision for income
taxes .................................... 18,032 972 19,004
Provision for income taxes ................ 7,213 45 7,258
-------- -------- --------
Net income ................................ $ 10,819 $ 927 $ 11,746
======== ======== ========
Preferred stock dividends ................. -- 398 398
-------- -------- --------
Net income applicable to common
stockholders ............................. $ 10,819 $ 529 $ 11,348
======== ======== ========
Net income per share - primary (1),(3) .... $ 0.32 $ 0.06 $ 0.30
======== ======== ========
Weighted average common and com-
mon equivalent shares outstanding -
primary (1),(3) .......................... 33,605 8,482 38,220
======== ======== ========
Net income per share - fully diluted
(1),(3) .................................. $ 0.32 $ 0.06 $ 0.30
======== ======== ========
Weighted average common and com-
mon equivalent shares outstanding -
fully diluted (1),(3) .................... 33,605 8,482 38,220
======== ======== ========
</TABLE>
82
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL COMBINED
TEL-SAVE STF HISTORICAL
------------ ------------ -----------
<S> <C> <C> <C>
Sales ...................................... $ 82,835 $ 45,367 $ 128,202
Cost of sales .............................. 70,104 26,172 96,276
-------- -------- --------
Gross profit ............................... 12,731 19,195 31,926
Selling, general and administrative ........ 3,442 16,909 20,351
-------- -------- --------
Operating income ........................... 9,289 2,286 11,575
Other income (expenses):
Minority interest in net income of
subsidiaries ............................ -- (128) (128)
Interest expense .......................... -- (359) (359)
Investment and other income, net .......... 66 -- 66
-------- -------- --------
Income before provision for income
taxes ..................................... 9,355 1,799 11,154
Provision (benefit) for income taxes ....... 3,742 (487) 3,255
-------- -------- --------
Net income ................................. $ 5,613 $ 2,286 $ 7,899
======== ======== ========
Preferred stock dividends .................. -- 478 478
-------- -------- --------
Net income applicable to common
stockholders .............................. $ 5,613 $ 1,808 $ 7,421
========= ======== =========
Net income per share - primary (1),(3) ..... $ 0.18 $ 0.27 $ 0.22
========= ======== =========
Weighted average common and com-
mon equivalent shares outstanding -
primary (1),(3) ........................... 30,663 6,792 34,359
========= ======== =========
Net income per share - fully diluted
(1),(3) ................................... $ 0.18 $ 0.27 $ 0.22
========= ======== =========
Weighted average common and com-
mon equivalent shares outstanding -
fully diluted (1),(3) ..................... 30,663 6,792 34,359
========= ======== =========
</TABLE>
83
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(1) EXCHANGE RATIO
The Unaudited Pro Forma Combined Condensed Financial Statements contemplate
that under the Merger Agreement, each outstanding share of STF Common Stock will
be converted into 0.5441 shares of Tel-Save Common Stock, based on the Exchange
Ratio (as defined in the Merger Agreement). See Note (3) below. This Exchange
Ratio was used in computing share and per share amounts in the accompanying
unaudited pro forma combined condensed financial statements.
(2) PRO FORMA ADJUSTMENTS
Equity Related Adjustments:
(a) To reflect the issuance of shares based on the 0.5441 Exchange Ratio,
calculated as follows:
<TABLE>
<S> <C>
15,715 shares of Common Stock x Exchange Ratio .................. 8,551
8,551 shares @ $0.01 per value ................................. $ 86
Adjustment to reflect the conversion of acquired STF Common Stock
less issuance of Tel-Save Common Stock ........................ $ 23
</TABLE>
(b) To reflect the conversion of shares of the STF Series C Preferred
Stock on a two-for-one basis into STF Common Stock (which were converted on
July 25, 1997, August 1, 1997 and August 7, 1997).
(c) To reflect the conversion of shares of the STF Series D Preferred
Stock on a one-for-one basis into STF Common Stock (which were converted on
July 23, 1997, July 30, 1997, September 17, 1997 and September 18, 1997).
(d) To reflect the conversion of the remaining 57,950 shares of STF
Series D Preferred on a one-for-one basis into Tel-Save Series A Preferred.
(e) To reflect the conversion of STF Series I Preferred into Tel-Save
Common Stock, calculated using the Exchange Ratio:
<TABLE>
<S> <C>
Liquidation preference ($25,000 plus 4% accretion of
$1,302)/$6.375 ............................................. 4,126
4,126 shares x Exchange Ratio .............................. 2,245
2,245 shares @ $0.01 par value .............................. $ 22
Additional paid-in capital ($25,843 less $22 par value) ...... $25,821
</TABLE>
Other Adjustments:
(f) To reflect the redemption at liquidation preference value of STF
Special Preferred for $21.5 million.
(g) To reflect certain acquisition-related costs and expenses, net of
$3,400 in income taxes, as described in the introduction to the "Unaudited
Pro Forma Combined Condensed Financial Statements."
84
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(3) The Unaudited Pro Forma Combined Condensed Financial Statements contemplate
that the Closing Date Market Price (as defined in the Merger Agreement) will
be equal to $21.5042 per share, assuming a Merger closing date of October 1,
1997. To the extent the Closing Date Market Price varies from $21.5042 per
share, the weighted average common and common equivalent shares outstanding,
and thus net income (loss) and income before extraordinary item per share,
will vary as well. The following table represents net income (loss) and
income before extraordinary item per share applicable to common stockholders
if the Closing Date Market Price was $10.00, $21.5042 and $30.00 per share.
<TABLE>
<CAPTION>
CLOSING DATE MARKET PRICE
------------------------------------
$10.0000 $21.5042 $30.0000
----------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Exchange Ratio ...................................................... 1.1250 0.5441 0.4750
======== ======== =========
SIX MONTHS ENDED JUNE 30, 1997:
Net loss applicable to common stock ............................... $ (2,954) $ (2,954) $ (2,954)
======== ======== =========
Net loss per share -- primary ..................................... $ (0.04) $ (0.04) $ (0.04)
======== ======== =========
Weighted average common and common equivalent shares outstand-
ing -- primary ................................................... 84,129 74,957 73,866
======== ======== =========
Net loss per share -- fully diluted ............................... $ (0.04) $ (0.04) $ (0.04)
======== ======== =========
Weighted average common and common equivalent shares outstand-
ing -- fully diluted ............................................. 84,241 75,069 73,978
======== ======== =========
YEAR ENDED DECEMBER 31, 1996:
Income before extraordinary item applicable to common stock ....... $ 9,544 $ 9,544 $ 9,544
======== ======== =========
Income before extraordinary item per share -- primary ............. $ 0.13 $ 0.15 $ 0.15
======== ======== =========
Weighted average common and common equivalent shares outstand-
ing -- primary ................................................... 72,512 64,504 63,551
======== ======== =========
Income before extraordinary item per share -- fully diluted ....... $ 0.13 $ 0.15 $ 0.15
======== ======== =========
Weighted average common and common equivalent shares outstand-
ing -- fully diluted ............................................. 73,537 65,529 64,576
======== ======== =========
YEAR ENDED DECEMBER 31, 1995:
Net income applicable to common stock ............................. $ 11,348 $ 11,348 $ 11,348
======== ======== =========
Net income per share -- primary ................................... $ 0.26 $ 0.30 $ 0.30
======== ======== =========
Weighted average common and common equivalent shares outstand-
ing -- primary ................................................... 43,147 38,220 37,634
======== ======== =========
Net income per share -- fully diluted ............................. $ 0.26 $ 0.30 $ 0.30
======== ======== =========
Weighted average common and common equivalent shares outstand-
ing -- fully diluted ............................................. 43,147 38,220 37,634
======== ======== =========
YEAR ENDED DECEMBER 31, 1994:
Income before extraordinary item applicable to common stock ....... $ 7,421 $ 7,421 $ 7,421
======== ======== =========
Income before extraordinary item per share - primary .............. $ 0.19 $ 0.22 0.22
======== ======== =========
Weighted average common and common equivalent shares outstand-
ing -- primary ................................................... 38,304 34,359 33,889
======== ======== =========
Income before extraordinary item per share - fully diluted ........ $ 0.19 $ 0.22 $ 0.22
======== ======== =========
Weighted average common and common equivalent shares outstand-
ing -- fully diluted ............................................. 38,304 34,359 33,889
======== ======== =========
</TABLE>
85
<PAGE>
SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED DISCONTINUANCE
TO REFLECT OF TEL-SAVE'S
EQUITY RELATED ACQUISITION OF STF INTERNAL PRO FORMA
AND OTHER NOTES AND ISSUANCE OF TELEMARKETING COMBINED
PRO FORMA TS NOTES PRO FORMA OPERATIONS PRO TEL-SAVE
ADJUSTMENTS ADJUSTMENTS FORMA ADJUSTMENTS AND STF
---------------- ----------------------- ------------------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and investments ......... $ 23,429 $ 165,273 (1a) $ -- $ 59,213
(165,273)(1a)
291,500 (1a)
(254,716)(1a)
(1,000)(1a)
Accounts receivable, net ....................... 73,144 -- -- 73,144
Advances to partitions and note receivables .... 27,639 -- -- 27,639
Inventories .................................... 4,063 -- -- 4,063
Prepaid AOL marketing costs-current ............ 60,086 -- -- 60,086
Prepaid expenses and other current assets ...... 15,909 13,612 (1a) 9,828 (1b) 39,349
--------- ----------------- ------------- ---------
Total current assets ......................... 204,270 49,396 9,828 263,494
Property and equipment, net ..................... 114,024 -- -- 114,024
Investments in affiliates ....................... 651 -- -- 651
Intangibles, net ................................ 282,258 (7,891)(1a) (22,915)(1b) 252,452
Prepaid AOL marketing costs ..................... 35,212 -- -- 35,212
Other assets .................................... 6,206 1,000 (1a) -- 14,706
7,500 (1a)
--------------
Total Assets ................................. $ 642,621 $ 50,005 $ (13,087) $679,539
========= ============== ============= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses:
Trade and other ............................... $ 80,660 $ -- $ 2,285 (1b) $ 82,945
Partitions .................................... 5,081 -- -- 5,081
Sales and excise taxes payable ................ 1,808 -- -- 1,808
Other ......................................... 1,220 -- -- 1,220
Current portion of long-term debt and capital
lease obligations ............................. 15,374 (14,974)(1a) -- 400
--------- -------------- ------------- ---------
Total current liabilities .................... 104,143 (14,974) 2,285 91,454
Long-term debt and capital lease obligations,
less current portion ....................... 239,988 (134,275)(1a) -- 331,244
165,273 (1a)
(165,273)(1a)
(74,469)(1a)
300,000 (1a)
Redeemable put warrant ....................... 816 -- -- 816
Convertible preferred stock .................. -- -- -- --
Special preferred stock ...................... -- -- -- --
--------- -------------- ------------- ---------
Total liabilities ............................ 344,947 76,282 2,285 423,514
--------- -------------- ------------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock ................................ 1 -- -- 1
Common stock ................................... 762 -- -- 762
Additional paid-in capital ..................... 335,642 -- -- 335,642
Retained earnings (deficit) .................... (34,171) (26,277)(1a) (15,372)(1b) (75,820)
Treasury stock ................................. (4,560) -- -- (4,560)
--------- -------------- ------------- ---------
Total stockholders' equity ................... 297,674 (26,277) (15,372) 256,025
--------- -------------- ------------- ---------
Total liabilities and stockholders' equity ... $ 642,621 $ 50,005 $ (13,087) $679,539
========= ============== ============= =========
</TABLE>
86
<PAGE>
SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO MERGER
FORMA RELATED
COMBINED PRO FORMA
HISTORICAL ADJUSTMENTS
------------ --------------------
<S> <C> <C>
Sales ........................................ $ 241,810 $ --
Cost of sales ................................ 192,711 --
--------- -------------
Gross profit ................................. 49,099 --
Selling, general and administrative .......... 42,287 --
--------- -------------
Operating income (loss) ...................... 6,812 --
Other income (expenses):
Equity in loss of affiliate ................. (186) --
Net interest expense ........................ (14,480)
Investment and other income, net ............ 7,128 (538)(1d)
--------- -------------
Income (loss) before provision (benefit) for
income taxes ................................ (726) (538)
Provision (benefit) for income taxes ......... (71) (183) (1g)
--------- -------------
Net income (loss) ............................ $ (655) $ (355)
========= =============
Preferred stock dividends .................... 2,299 (2,299)(1e)
--------- -------------
Net income (loss) applicable to common stock $ (2,954) $ 1,944
========= =============
Net income (loss) per share -- primary(2) .... $ (0.04)
=========
Weighted average common and common
equivalent shares outstanding --
primary(2) .................................. 74,957
=========
Net income (loss) per share -- fully
diluted(2) .................................. $ (0.04)
=========
Weighted average common and common
equivalent shares outstanding -- fully
diluted(2) .................................. 75,069
=========
<CAPTION>
ACQUISITION
OF STF DISCONTINUANCE
NOTES AND OF TEL-SAVE'S PRO
ISSUANCE OF INTERNAL FORMA
TS NOTES TELEMARKETING COMBINED
PRO FORMA OPERATIONS PRO TEL-SAVE
ADJUSTMENTS FORMA ADJUSTMENTS AND STF
------------------ ------------------- ------------
<S> <C> <C> <C>
Sales ........................................ $ -- $ (33,540) $208,270
Cost of sales ................................ -- (38,007) 154,704
------------ --------- --------
Gross profit ................................. -- 4,467 53,566
Selling, general and administrative .......... -- 42,287
--------- --------
Operating income (loss) ...................... -- 4,467 11,279
Other income (expenses):
Equity in loss of affiliate ................. -- -- (186)
Net interest expense ........................ 7,020 (1c) -- (7,460)
Investment and other income, net ............ 920 (1f) (2,704) 4,806
------------ --------- --------
Income (loss) before provision (benefit) for
income taxes ................................ 7,940 1,763 8,439
Provision (benefit) for income taxes ......... 2,700 (1g) 688 3,134
------------ --------- --------
Net income (loss) ............................ $ 5,240 $ 1,075 $ 5,305
============ ========= ========
Preferred stock dividends .................... -- -- --
------------ --------- --------
Net income (loss) applicable to common stock . $ 5,240 $ 1,075 $ 5,305
============ ========= ========
Net income (loss) per share -- primary(2) .... $ 0.07
========
Weighted average common and common
equivalent shares outstanding --
primary(2) .................................. 74,957
========
Net income (loss) per share -- fully
diluted(2) .................................. $ 0.07
========
Weighted average common and common
equivalent shares outstanding -- fully
diluted(2) .................................. 75,069
========
</TABLE>
87
<PAGE>
SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITION
OF STF NOTES PRO
MERGER AND ISSUANCE FORMA
PRO FORMA RELATED OF TS NOTES COMBINED
PRO FORMA COMBINED PRO FORMA PRO FORMA TEL-SAVE
TEL-SAVE STF & FII ADJUSTMENTS ADJUSTMENTS AND STF
----------- ----------- ----------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Sales ......................................... $224,994 $184,524 $ -- $ -- $ 409,518
Cost of sales ................................. 194,942 94,287 -- -- 289,229
--------- -------- ----------- ---------- --------
Gross profit .................................. 30,052 90,237 -- -- 120,289
Selling, general and administrative ........... 10,039 66,868 -- -- 76,907
--------- -------- ----------- ---------- --------
Operating income .............................. 20,013 23,369 -- -- 43,382
Other income (expenses):
Equity in loss of affiliate .................. -- (3,927) -- -- (3,927)
Interest expense ............................. -- (28,108) 9,990 (1c) (18,118)
Investment and other income, net ............. 10,585 -- (851)(1d) 1,839 (1f) 11,573
--------- -------- ----------- ---------- --------
Income (loss) before provision for income
taxes and extraordinary item ................. 30,598 (8,666) (851) 11,829 32,910
Provision for income taxes .................... 11,536 773 (289)(1g) 4,022 (1g) 16,042
--------- -------- ----------- ---------- --------
Income (loss) before extraordinary item ....... $ 19,062 $ (9,439) $ (562) $ 7,807 $ 16,868
========= ======== =========== ========== ========
Preferred stock dividends ..................... -- 3,241 (3,241)(1e) -- --
--------- -------- ----------- ---------- --------
Income (loss) before extraordinary item ap-
plicable to common stockholders .............. $ 19,062 $(12,680) $ 2,679 $ 7,807 $ 16,868
========= ======== =========== ========== ========
Income (loss) before extraordinary item per
share -- primary(2) .......................... $ 0.33 $ (0.85) $ 0.26
========= ======== =========
Weighted average common and common
equivalent shares outstanding -- primary
(2) .......................................... 57,002 14,967 65,146
========= ======== =========
Income (loss) before extraordinary item per
share -- fully diluted(2) .................... $ 0.33 $ (0.85) $ 0.25
========= ======== =========
Weighted average common and common
equivalent shares outstanding -- fully dilut-
ed(2) ........................................ 58,027 14,967 66,171
========= ======== =========
</TABLE>
88
<PAGE>
NOTES TO SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(1) PRO FORMA ADJUSTMENTS
Balance Sheet Adjustments:
(a) To reflect Tel-Save's acquisition of the STF Notes, the repayment of
STF's Credit Facility Term Loans by Tel-Save and funds for general corporate
purposes from the issuance of the TS Notes, the elimination of the investment
in STF Notes and the related intercompany payables, fees associated with
short term margin and bridge loans used by Tel-Save to finance the
acquisition of the STF Notes prior to the issuance of the TS Notes, the
write-off of deferred debt issue costs and premium over the carrying value
and the tax benefit related to such interest, fees and write-offs.
<TABLE>
<S> <C>
Issuance of TS Notes .......................................... $ 300,000
Underwriter's discount on issuance of TS Notes ................ (7,500)
Debt issue costs .............................................. (1,000)
---------
Net proceeds .................................................. $ 291,500
=========
Application of net proceeds:
Repayment of debt used to acquire STF Notes ................... $ 165,273
Repayment of STF Credit Facility Term Loans ................... 89,443
General corporate purposes .................................... 36,784
---------
Total ......................................................... $ 291,500
=========
Tel-Save cost of acquisition of STF Notes ..................... $ 165,273
Carrying value of STF Notes on STF's books .................... 134,275
---------
Premium paid over carrying value .............................. 30,998
Fees on short-term margin and bridge loans .................... 1,000
Write-off of deferred financing costs ......................... 7,891
---------
Total non-recurring charges ................................... 39,889
Less: Tax benefit related to non-recurring charges ............ 13,612
---------
Net change .................................................... $ 26,277
=========
</TABLE>
(b) To reflect certain discontinuance related costs and expenses, net of
$9,828 in income taxes, as described in the introduction to the "Unaudited
Pro Forma Combined Condensed Financial Statements."
Operating Results Adjustments:
(c) To reflect the differential between (i) the interest expense and the
amortization of the STF Notes discount and deferred STF financing costs
recorded as interest expense in connection with the STF Notes and Credit
Facility Term Loans and (ii) the interest expense and the amortization of
deferred debt issue costs on the TS Notes.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
12/31/96 6/30/97
------------ -----------
<S> <C> <C>
Interest, amortization of discount and deferred
financing costs recorded by STF on STF Notes
and Credit Facility Term Loans ............... $21,786 $14,470
Interest and amortization of underwriters' dis-
count and debt issue costs on TS Notes 11,796 7,450
------- -------
$ 9,990 $ 7,020
======= =======
</TABLE>
89
<PAGE>
(d) To reflect reduction in interest income at 5% on the cash used for
the redemption of the STF Special Preferred.
(e) To reflect the elimination of STF Special Preferred dividends.
(f) To reflect the increase in interest income on the unapplied proceeds
from the issuance of the Notes.
(g) To reflect the tax effect on the decrease in net interest expense and
the increase in interest income.
(2) The Supplemental Pro Forma Combined Condensed Financial Statements
contemplate that under the Merger Agreement, each outstanding share of STF
Common Stock will be converted into 0.5441 shares of Tel-Save Common Stock,
based on the Exchange Ratio (as defined in the Merger Agreement). The
Supplemental Unaudited Pro Forma Combined Condensed Financial Statements
also contemplate that the Closing Date Market Price (as defined in the
Merger Agreement) will be equal to $21.5042 per share, assuming a Merger
closing date of October 1, 1997. To the extent the Closing Date Market Price
varies from $21.5042 per share, the weighted average common and common
equivalent shares outstanding, and thus net income and income before
extraordinary item per share, will vary as well. The following table
represents net income and income before extraordinary item per share
applicable to common stockholders if the Closing Date Market Price was
$10.00, $21.5042 and $30.00 per share.
<TABLE>
<CAPTION>
CLOSING DATE MARKET PRICE
----------------------------------
$10.0000 $21.5042 $30.0000
----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Exchange Ratio ...................................................... 1.1250 0.5441 0.4750
========= ========= =========
SIX MONTHS ENDED JUNE 30, 1997:
Net income applicable to common stock ............................. $ 5,305 $ 5,305 $ 5,305
========= ========= =========
Net income per share -- primary ................................... $ 0.06 $ 0.07 $ 0.07
========= ========= =========
Weighted average common and common equivalent shares outstand-
ing -- primary 84,129 74,957 73,866
========= ========= =========
Net income per share -- fully diluted ........................... $ 0.06 $ 0.07 $ 0.07
========= ========= =========
Weighted average common and common equivalent shares outstand-
ing -- fully diluted 84,241 75,069 73,978
========= ========= =========
YEAR ENDED DECEMBER 31, 1996:
Income before extraordinary item applicable to common stock ...... $ 16,868 $ 16,868 $ 16,868
========= ========= =========
Income before extraordinary item per share -- primary ............ $ 0.23 $ 0.26 $ 0.26
========= ========= =========
Weighted average common and common equivalent shares outstand-
ing -- primary 73,840 65,146 64,111
========= ========= =========
Income before extraordinary item per share -- fully diluted ...... $ 0.23 $ 0.25 $ 0.26
========= ========= =========
Weighted average common and common equivalent shares outstand-
ing -- fully diluted 74,865 66,171 65,136
========= ========= =========
</TABLE>
90
<PAGE>
PRO FORMA TEL-SAVE
SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DISCONTINUANCE
OF TEL-SAVE'S
INTERNAL
TELEMARKETING
HISTORICAL OPERATIONS PRO PRO FORMA
TEL-SAVE FORMA ADJUSTMENTS TEL-SAVE
------------ ------------------- ----------
<S> <C> <C> <C>
Sales ....................................... $232,424 $ (7,430) $224,994
Cost of sales ............................... 200,597 (5,655) 194,942
-------- -------- --------
Gross profit (loss) ......................... 31,827 (1,775) 30,052
Selling, general and administrative ......... 10,039 -- 10,039
-------- -------- --------
Operating income (loss) ..................... 21,788 (1,775) 20,013
Investment and other income, net ............ 10,585 -- 10,585
-------- -------- --------
Income (loss) before provision for income
taxes and ................................. 32,373 (1,775) 30,598
Provision for income taxes .................. 12,205 (669) 11,536
-------- -------- --------
Net income .................................. $ 20,168 $ (1,106) $ 19,062
======== ======== ========
Net income extraordinary per share -- pri-
mary ....................................... $ 0.35 $ 0.33
======== ========
Weighted average common and common
equivalent shares outstanding -- primary ... 57,002 57,002
======== ========
Net income per share -- fully diluted ....... $ 0.35 $ 0.33
======== ========
Weighted average common and common
equivalent shares outstanding -- fully
diluted .................................... 58,027 58,027
======== ========
</TABLE>
91
<PAGE>
STF & FII
SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITION OF
FII FOR THE
PERIOD OF
JANUARY 1, 1996- PRO FORMA
MARCH 13, 1996 PRO FORMA COMBINED
HISTORICAL PRO FORMA ADJUSTMENTS STF AND
STF ADJUSTMENTS FII FII
------------ ------------------ ---------------- --------------
<S> <C> <C> <C> <C>
Sales ..................................... $ 157,241 $ 27,283 $ -- $ 184,524
Cost of sales ............................. 82,572 11,917 (202)(1) 94,287
--------- -------- ---------- ----------
Gross profit .............................. 74,669 15,366 202 90,237
Selling, general and administrative ....... 55,329 10,737 1,414 (2) 66,868
(612)(1)
----------
Operating income .......................... 19,340 4,629 (600) 23,369
Other income (expenses):
Equity in loss of affiliate ............ (3,927) -- -- (3,927)
Interest expense ........................ (22,888) (4,373) (622)(5) (28,108)
(247)(3)
22 (4)
----------
Income (loss) before provision for in-
come taxes and extraordinary item . (7,475) 256 (1,447) (8,666)
Provision for income taxes ............... 783 -- (10)(6) 773
--------- -------- ---------- ----------
Income (loss) before extraordinary
item .................................... $ (8,258) $ 256 $ (1,437) $ (9,439)
========= ======== ========== ==========
Preferred stock dividends ............... 2,366 963 (88)(7) 3,241
--------- -------- ---------- ----------
Loss before extraordinary item appli-
cable to common stockholders $ (10,624) $ (707) $ (1,349) $ (12,680)
========= ======== ========== ==========
Loss before extraordinary item per
share-primary ........................... $ (0.77) $ (0.85)
========= ==========
Weighted average common and com-
mon equivalent shares outstanding-
primary ................................. 13,787 1,180 14,967
========= ========== ==========
Loss before extraordinary item per
share-fully diluted ..................... $ (0.77) $ (0.85)
========= ==========
Weighted average common and com-
mon equivalent shares outstanding-
fully diluted ........................... 13,787 1,180 14,967
========= ========== ==========
</TABLE>
- ----------
(1) To reflect the estimated effect of certain cost savings and increases
associated with the consolidation of the operations of STF and FII:
<TABLE>
<S> <C>
Net S, G & A savings....... $612
Network Savings ......... 202
-----
$814
=====
</TABLE>
(2) To reflect the amortization ($1,581) of the goodwill resulting from the
purchase of FII offset by the elimination of goodwill previously recorded on
FII"s books ($167).
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<PAGE>
(3) To reflect the amortization of capitalized financing fees of $9,646
associated with the assumption of $240,000 in new debt. Additional interest
expense was recorded based on an amortization period of 10 years for $5,120
of the fees and 7 years for the remaining $4,526. The allocation of fees was
based on the actual costs incurred for the respective amounts of zero coupon
bonds and bank debt issued.
(4) To reflect the reclassification of the amortization of certain deferred
costs resulting from the retiring of STF's existing credit facility.
(5) A pro forma adjustment has been made to reflect the reduction in interest
expense relating to the net change in outstanding debt as described in (3)
above as if it had occurred on January 1, 1996.
<TABLE>
<S> <C>
$115 million in zero coupon bonds 12 1/4% .. $ 2,935
$125 million in bank debt 8.6% interest .... 2,240
Retirement of 12 1/4% notes ................ (3,190)
Retirement of FII indebtedness ............. (1,275)
Retirement of STF indebtedness ............. (88)
--------
$ 622
========
</TABLE>
A 1/2% change in the estimated interest rates for the $125 million in bank debt
would result in a change in the interest expense of $156 on an annual basis.
(6) To reduce state income taxes to an estimated minimum required amount.
(7) To reflect the issuance of new preferred stock and the retirement of FII
preferred stock.
<TABLE>
<S> <C>
Preferred stock dividends added:
STF cumulative preferred stock dividends ....... $ (625)
STF special preferred stock dividends .......... (250)
Preferred stock dividends eliminated:
FII preferred stock dividends .................. 963
------
$ 88
======
</TABLE>
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<PAGE>
DESCRIPTION OF TEL-SAVE CAPITAL STOCK
Tel-Save's authorized capital stock consists of 100,000,000 shares of
Tel-Save Common Stock and 5,000,000 shares of undesignated Preferred Stock, $.01
par value per share. As of October 8, 1997, 65,610,949 shares of Tel-Save Common
Stock were issued and outstanding, 427,566 shares were issued and held in
treasury, 8,388,108 shares were reserved for issuance upon exercise of
outstanding stock options, 12,997,000 shares were reserved for issuance upon
exercise of outstanding warrants to purchase shares of Tel-Save Common Stock and
12,185,833 shares were reserved for issuance upon conversion of outstanding
convertible notes of Tel-Save. There were no shares of Preferred Stock
designated or issued. For further information about Tel-Save's authorized
capital stock, reference is made to Tel-Save's reports incorporated herein by
reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
COMMON STOCK
If the Charter Amendment is approved (whether or not the Merger is approved
and consummated), upon the filing of the Certificate of Amendment of the
Tel-Save Charter with the Secretary of State of the State of Delaware, the
authorized Tel-Save Common Stock will increase from 100,000,000 to 300,000,000,
and the authorized capital stock of Tel-Save will increase from 105,000,000 to
305,000,000.
In connection with the Merger, up to 28,515,233 shares of Tel-Save Common
Stock may be issued to holders of STF Common Stock and holders of STF Series I
Preferred. If the Merger, but not the Charter Amendment, is approved, upon the
filing of the Certificate of Merger of Merger Sub with the Secretary of State of
the State of Delaware, the authorized Tel-Save Common Stock will increase from
100,000,000 by such number of shares as is required to satisfy the issuances of
Tel-Save Common Stock pursuant to the Merger Agreement. See "THE MERGER
AGREEMENT -- Conversion of Shares."
PREFERRED STOCK
If the Merger and the Charter Amendment is approved, upon the filing of the
certificate of designation with the Secretary of State of the State of Delaware
relating thereto, the Tel-Save Series A Preferred will be created.
In connection with the Merger, Tel-Save Series A Preferred will be issued
to holders of STF Series D Preferred.
TEL-SAVE SERIES A PREFERRED STOCK
Dividends. The holders of the Tel-Save Series A Preferred will be entitled
to receive dividends in cash at the annual rate of $0.2375 per share (subject to
appropriate adjustment) payable in equal quarterly payments in arrears on the
last day of each calendar quarter in each year. Such dividend will be payable in
preference and priority to any payment of any cash dividend on the Tel-Save
Common Stock or any other capital stock of Tel-Save, except the Tel-Save Series
A Preferred, and no dividend can be declared, paid or set aside for payment on
any other capital stock of Tel-Save junior to the Tel-Save Series A Preferred
unless all cumulative dividends on the Tel-Save Series A Preferred have been
declared and paid. The dividend will be cumulative and accrue, without interest,
from the date of issue of the Tel-Save Series A Preferred.
Liquidation Preference. Upon the liquidation, dissolution or winding up of
Tel-Save, the Tel-Save Series A Preferred will be entitled to be paid a
liquidation preference of $4.75 per share, before any payment is made to the
holders of junior securities.
Voting Rights. The Tel-Save Series A Preferred will not be entitled to
vote, except on issues that amend, alter or repeal the preferences, special
rights or other powers of the Tel-Save Series A Preferred, for which the
affirmative vote of a majority of the then outstanding Tel-Save Series A
Preferred voting as a class is required.
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<PAGE>
Conversion. Each share of Tel-Save Series A Preferred will be convertible,
at the option of the holder, at any time, into such number of shares of Tel-Save
Common Stock as equals the Exchange Ratio (subject to appropriate adjustments
for stock splits, stock dividends, combinations or other similar
recapitalizations affecting the Tel-Save Series A Preferred). The conversion
rate will be subject to adjustment upon the occurrence of customary adjustment
events including, but not limited to, stock dividends, stock subdivisions and
reclassification, mergers or combinations.
Optional Redemption. Tel-Save may, at the option of its board of directors,
redeem the Tel-Save Series A Preferred, in whole or in part by paying $7.00 per
share (subject to appropriate adjustments for stock splits, stock dividends,
combinations or other similar recapitalizations affecting the Tel-Save Series A
Preferred) in cash for each share of Tel-Save Series A Preferred redeemed. There
is no restriction on the redemption of the Tel-Save Series A Preferred while
there is any arrearage in the payment of accrued dividends on the Tel-Save
Series A Preferred.
Ranking. With respect to dividend rights and rights on liquidation, winding
up and dissolution, the Tel-Save Series A Preferred ranks senior and prior to
the Tel-Save Common Stock.
TRANSFER AGENT
The transfer agent for the Tel-Save Common Stock is, and the transfer agent
for the Tel-Save Preferred will be, First City Transfer Company.
COMPARISON OF STOCKHOLDER RIGHTS
Tel-Save and STF are both organized under the laws of the State of
Delaware. Any differences, therefore, between the rights of Tel-Save
stockholders and the rights of STF stockholders arise solely from differences
between each corporation's certificate of incorporation and bylaws.
The following summary sets forth certain material differences between the
rights of Tel-Save stockholders and the rights of STF stockholders and is
qualified in its entirety by reference to the Tel-Save Charter, the Tel-Save
Bylaws and STF's Restated Certificate of Incorporation (the "STF Charter") and
Bylaws (the "STF Bylaws").
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Tel-Save currently consists of 100,000,000
shares of Tel-Save Common Stock and 5,000,000 shares of undesignated Preferred
Stock, $0.01 par value per share (the "Tel-Save Preferred Stock"). As of October
8, 1997, 65,610,949 shares of Tel-Save Common Stock were issued and outstanding.
There were no shares of Tel-Save Preferred Stock designated or issued. The
authorized capital stock of STF consists of 50,000,000 shares of STF Common
Stock and 25,000,000 shares of Preferred Stock, $0.01 par value per share (the
"STF Preferred Stock"). As of October 8, 1997, 17,167,905 shares of STF Common
Stock were issued and outstanding, and 507,950 shares of STF Preferred Stock
were issued and outstanding. Of the STF Preferred Stock, the Company has
authorized (a) 250,000 shares of STF Series I Preferred; (b) 200,000 shares of
STF Special Preferred; (c) 5,000,000 shares of STF Series D Preferred; and (d)
1,000,000 shares of STF Series D Preferred.
If the Merger is consummated, all of the shares of STF Preferred will cease
to exist. Shares of Tel-Save Common Stock will be issued in exchange for the
shares of STF Series I Preferred outstanding at the Effective Time, and Tel-Save
Warrants will be issued for the Assumed Warrants outstanding at the Effective
Time. Shares of Tel-Save Series A Preferred with substantially identical terms
will be issued in exchange for the shares of STF Series D Preferred outstanding
at the Effective Time. See "DESCRIPTION OF TEL-SAVE CAPITAL STOCK -- Preferred
Stock."
VOTING RIGHTS
The holders of Tel-Save Common Stock have one vote per share with respect
to all matters submitted to a vote of the Tel-Save stockholders. Likewise, the
holders of STF Common Stock have one vote per share with respect to all matters
submitted to a vote of the STF stockholders.
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<PAGE>
PREEMPTIVE RIGHTS; CUMULATIVE VOTING
Neither the Tel-Save Charter nor the STF Charter grants any preemptive
rights to security holders. Moreover, neither the Tel-Save Charter nor the STF
Charter provides for cumulative voting.
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
Neither the Tel-Save Charter nor the Tel-Save Bylaws states whether
stockholder action may be taken without a meeting. Therefore, under the DGCL,
any action that may be taken at a meeting of Tel-Save stockholders may be taken
without a meeting if a written consent setting forth the action to be taken is
signed by the holders of not less than the minimum number of votes that would be
necessary to take such action at a meeting of stockholders. The STF Bylaws
states that no stockholder action may be taken without a meeting.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the Tel-Save Bylaws, a special meeting of the stockholders may be
called by the Tel-Save Board, the Chairman of the Tel-Save Board or by Tel-Save
stockholders representing at least fifty percent (50%) of the vote entitled to
be cast at such meeting. Under the STF Bylaws, a special meeting of the
stockholders may be called by the Chairman of the Board or by the Chairman of
the Board upon the written request of stockholders representing at least ten
percent (10%) of the vote entitled to be cast at such meeting.
QUORUM AND VOTING REQUIREMENTS FOR STOCKHOLDER MEETINGS
The Tel-Save Bylaws contain no quorum or voting requirements for
stockholder meetings. Therefore, under the DGCL, a majority of the issued and
outstanding stock of Tel-Save entitled to vote at a meeting shall constitute a
quorum for the transaction of business at such meeting. Under the DGCL, when a
quorum is present, the affirmative vote of a majority of shares entitled to vote
at the meeting on the subject matter is required to take action, in all matters
other than the election of directors, who shall be elected by a plurality of
shares entitled to vote at the meeting on the election of directors.
The STF Bylaws provide that, except as otherwise provided by law, at least
one-third of the issued and outstanding stock of STF entitled to vote at a
meeting shall constitute a quorum for the transaction of business at such
meeting. The STF Bylaws provide that when a quorum is present, the affirmative
vote of a majority of the shares entitled to vote at the meeting on the subject
matter is required to take action, in all matters other than the election of
directors, who shall be elected by a plurality of shares entitled to vote at the
meeting on the election of directors.
STOCKHOLDER PROPOSALS
The Tel-Save Bylaws contain no advance notice requirements relating to
stockholder proposals for business to be conducted at a stockholders' meeting,
except that stockholder nominations for directors must be submitted to the
Tel-Save Board not less than 14 nor more than 50 days prior to any such meeting
called for the election of directors. The STF Bylaws provide that any business
that expressly requires the vote of STF stockholders must be stated in the
notice of the stockholders' meeting at which the business is proposed to be
conducted.
BOARD OF DIRECTORS
The Tel-Save Board is currently divided into three classes and consists of
six directors who serve for three-year terms. The number of directors on the
Tel-Save Board is subject to change by action of the Tel-Save Board but cannot
be less than one (1) nor more than fifteen (15). The STF Board is also divided
into three classes and consists of ten (10) directors who also serve for
three-year terms. The number of directors on the STF Board is subject to change
by action of the STF Board but cannot be less than three (3) one nor more than
eleven (11).
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<PAGE>
VACANCIES AND NEWLY CREATED DIRECTORSHIPS
The Tel-Save Bylaws do not contain any provisions relating to vacancies or
newly-created directorships. Therefore, under the DGCL, any vacancy or
newly-created directorship may be filled by the affirmative vote of a majority
of the remaining directors then in office, although less than a quorum, or by
the sole remaining director.
Under the STF Bylaws, any vacancy or newly-created directorship in the STF
Board shall be filled by the affirmative vote of a majority of the remaining
directors and subsequently approved by a majority of the STF stockholders at
their next annual meeting.
LIMITATION ON DIRECTOR'S LIABILITY
The Tel-Save Charter provides that a director shall not be liable for
monetary damages for breach of a fiduciary duty to the fullest extent permitted
by the DGCL. The STF Charter provides that a director has no liability for
breach of a fiduciary duty, except for liability as provided by the DGCL (i) for
any breach of the duty of loyalty, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, which concerns unlawful dividend payments and
unlawful stock purchases and redemptions, or (iv) for any transaction from which
the director derived an improper personal benefit.
REMOVAL OF DIRECTORS
Neither the Tel-Save Charter nor the Tel-Save Bylaws contains a provisions
relating to the removal of directors. Neither the STF Charter nor the STF Bylaws
contains a provisions relating to the removal of directors. Therefore, under the
DGCL, a director of a corporation with a classified board of directors may be
removed only for cause.
INDEMNIFICATION
The Tel-Save Bylaws provide that Tel-Save shall to the fullest extent
permitted by law indemnify its directors and executive officers who were or are
a party or are threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, and Tel-Save maintains policies of
directors' and officers' liability insurance for this purpose. The STF Charter
and the STF Bylaws are silent with respect to indemnification, but under the
DGCL, a corporation has the power to indemnify its directors and executive
officers, and STF maintains policies of directors' and officers' liability
insurance for this purpose.
AMENDMENTS TO CHARTER AND BYLAWS
Neither the Tel-Save Charter nor the STF Charter specifies the approvals
necessary to amend the Tel-Save Charter and the STF Charter, respectively.
Therefore, under the DGCL, any amendment to the Tel-Save Charter or the STF
Charter must be approved by a majority of the outstanding shares of Tel-Save
Common Stock or STF Common Stock, respectively. Any alteration, amendment or
repeal of the Tel-Save Bylaws or the STF Bylaws must be approved by the
affirmative vote of a majority of the Tel-Save or STF stockholders, as the case
may be, or the Tel-Save or STF Board, as the case may be, or by unanimous
written consent of the Tel-Save or STF Board, as the case may be.
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<PAGE>
TEL-SAVE PROPOSAL 2: AMENDMENT OF TEL-SAVE'S CHARTER
At the Tel-Save Meeting, Tel-Save stockholders will be asked to consider
and vote upon the Charter Amendment to increase the number of shares of capital
stock that Tel-Save has the authority to issue from 105,000,000 to 305,000,000
and the number of shares of Tel-Save Common Stock which Tel-Save has authority
to issue from 100,000,000 to 300,000,000. The Charter Amendment will make no
change in the authorized number of shares of Tel-Save Preferred Stock.
As of October 8, 1997, 65,610,949 shares of Tel-Save Common Stock were
issued and outstanding, 427,566 shares were issued and held in treasury,
8,388,108 shares were reserved for issuance upon exercise of outstanding stock
options, 12,997,000 shares were reserved for issuance upon exercise of
outstanding warrants to purchase shares of Tel-Save Common Stock and 12,185,833
shares were reserved for issuance upon conversion of outstanding convertible
notes of Tel-Save, leaving 818,110 shares of Tel-Save Common Stock as of such
date available for issuance or reservation for issuance. The Tel-Save Board
believes the approval of the Charter Amendment is in the best interests of
Tel-Save and its stockholders and recommends a vote FOR the amendment. The
approval of the Charter Amendment will require the affirmative vote of the
holders of a majority of the shares of Tel-Save Common Stock outstanding on the
record date.
Tel-Save may use authorized and unissued shares of Tel-Save Common Stock
for various other corporate purposes, including, but not limited to, possible
future financing and acquisition transactions, possible recapitalizations
through stock splits or stock dividends, issuances of additional stock options
or awards, and other corporate purposes. Authorized and unissued shares of
Tel-Save Common Stock may be issued for the foregoing purposes by the Tel-Save
Board without further stockholder action unless the issuance is in connection
with a transactions for which stockholder approval is otherwise required under
the Tel-Save Charter, applicable law, regulation or agreement. The issuance of
the additional shares of Tel-Save Common Stock proposed for authorization may
have the effect of diluting existing stockholder earnings per share, book value
per share and voting power. In addition, issuance of the shares of Tel-Save
Common Stock proposed for authorization may be used to make a change in control
of Tel-Save more difficult or costly by diluting stock ownership of persons
seeking to obtain control of Tel-Save or permitting the Tel-Save Board to issue
shares to purchasers favorable to the Tel-Save Board in opposing an effort to
obtain control of Tel-Save. See "RISK FACTORS -- Control by Existing
Stockholders; Anti-Takeover Considerations" and "-- Future Tel-Save
Transactions."
If approved by Tel-Save's stockholders, the Charter Amendment would cause
the first paragraph of the Article numbered "Fourth" of the Tel-Save's Charter
to read as follows:
The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 305,000,000,
consisting of 5,000,000 shares of Preferred Stock, par value
$0.01 per share, as more fully described in Section A below (the
"Preferred Stock") and 300,000,000 shares of Common Stock, par
value $0.01 per share, as more fully described in Section B
below (the "Common Stock").
The approval of the Merger Proposal and the consummation of the Merger are
not conditions to the filing of the Charter Amendment. Furthermore, such
approval and consummation would not, if the Charter Amendment is approved,
increase the number of shares of Tel-Save Common Stock authorized beyond
300,000,000.
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<PAGE>
TEL-SAVE PROPOSAL 3: ELECTION OF DIRECTORS
GENERAL
The Tel-Save Charter provides that the Tel-Save Board shall consist of not
less than one nor more than 15 persons, the exact number to be fixed and
determined from time to time by resolution of the Tel-Save Board. The Tel-Save
Board has acted to fix the number of directors at eight (8), except that, if the
Merger Proposal is not approved and the STF Designees are not elected as
directors of Tel-Save, the number of directors has been fixed at six (6).
Pursuant to the terms of the Tel-Save Charter, the Tel-Save Board is divided
into three classes, as nearly equal in number as reasonably possible, with terms
currently expiring at the annual meeting of stockholders in 1997 ("Class II"),
the annual meeting of stockholders in 1998 ("Class I") and the annual meeting of
stockholders in 1999 ("Class III"), respectively.
At the Tel-Save Meeting, George Farley, Gary W. McCulla and Harold First
are to be elected for terms expiring in 2000, 1999 and 1998, respectively,
provided that, if the Merger Proposal is not approved and the STF Designees are
not elected as directors, Messrs. Farley and McCulla will be considered Class II
nominees for terms expiring in 2000, and Mr. First will be considered a Class
III nominee for a term expiring in 1999. Other than the STF Designees, the
nominees are currently directors of Tel-Save. Mr. Joseph Schenk, who had been a
Class III director, resigned as a director and an officer of Tel-Save as of
September 10, 1997.
For information concerning the nominees for election, including the STF
Designees, see "-- Biographical Information." Each director will serve until his
successor has been elected and qualified. The proxies solicited hereby, unless
directed to the contrary therein, will be voted for the nominees. Each of the
nominees has consented to being named in this Joint Proxy Statement/Prospectus
and to serve if elected. The Tel-Save Board has no reason to believe that any
nominee for election as a director will not be a candidate or will be unable to
serve, but if either occurs it is intended that the shares represented by
proxies will be voted for such substituted nominee or nominees as the Tel-Save
Board, in its discretion, may designate.
NOMINEES AND DIRECTORS
CLASS II: NOMINEES WHOSE TERMS WILL EXPIRE IN 2000
George Farley
Anthony D. Autorino (1)
Jeffrey J. Steiner (1)
CLASS I: DIRECTORS WHOSE TERMS WILL EXPIRE IN 1998
Daniel Borislow
Harold First (2)
Ronald R. Thoma
CLASS III: DIRECTORS WHOSE TERMS WILL EXPIRE IN 1999
Emanuel J. DeMaio
Gary W. McCulla (2)
- ------------
1. To be elected by approval of the Merger Agreement and consummation of the
Merger. See note (2) below.
2. If the Merger Proposal is not approved and the STF Designees are not elected
as directors, Mr. First, described as a Class I nominee, will instead be a Class
III nominee and Mr. McCulla, described as a Class III nominee, will instead be
Class II nominee.
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<PAGE>
BIOGRAPHICAL INFORMATION
The following sets forth certain biographical information, present
occupation and business experience for the past five years for each of the
nominees for election as directors, including the STF Designees, and the
continuing Class I and Class III directors.
Anthony D. Autorino, age 59. Mr. Autorino is the Chairman of the Board,
Chief Executive Officer, and a Director of STF. Mr. Autorino has been Chairman
and Chief Executive Officer of STF since January 1986. From January 1985 to
January 1986, he was Chairman and Chief Executive Officer of ShareTech, a joint
venture between United Technologies Corporation and AT&T. He was President of
United Technologies Building System Company from 1981 to 1984 and was its
Chairman and Chief Executive Officer from 1984 to 1985. Mr. Autorino joined the
Hamilton Standard Division of United Technologies in 1960, holding the positions
of Vice President, Executive Vice President and President of the Division. Mr.
Autorino was Chairman of the firearms manufacturer Colt's Manufacturing Company,
Inc. and of its parent company, CF Holding Corp. from March 1990 to March 1992.
He also served as Acting Chief Executive Officer from September 1991 to December
1991. Mr. Autorino is also a director of FiberVision Corporation. Mr. Autorino
serves on the Board of Directors of the Connecticut Children's Medical Center.
Daniel Borislow, age 36. Mr. Borislow founded Tel-Save and has served as a
director and as Chief Executive Officer of Tel-Save since its inception in 1989.
Prior to founding Tel-Save, Mr. Borislow formed and managed a cable construction
company.
Emanuel J. DeMaio, age 38. Mr. DeMaio joined Tel-Save in February 1992 and
currently serves as Chief Operations Officer. Prior to joining Tel-Save, from
1981 through 1992, Mr. DeMaio held various technical and managerial positions
with AT&T.
George Farley, age 59. Mr. Farley became Chief Financial Officer and
Treasurer of Tel-Save effective October 29, 1997. Mr. Farley is formerly Group
Vice President of Finance/Chief Financial Officer of Twin County, a food
distribution company. Prior to joining Twin County in September 1995, Mr. Farley
was a partner of BDO Seidman, LLP, where he had served as a partner since 1974.
Harold First, age 61. Mr. First is a certified public accountant and is
currently a Financial Consultant. Mr. First served as Chief Financial Officer of
Icahn Holdings Corporation and related entities from December 1990 through
December 1992. Mr. First currently serves as a director of Cadus Pharmaceutical
Corporation, Marvel Entertainment Group, Inc., Panaco, Inc. and Toy Biz Inc. Mr.
First has served as a director of Tel-Save since 1995.
Gary W. McCulla, age 38. Mr. McCulla joined Tel-Save in March 1994 and
currently serves as President and Director of Sales and Marketing. In 1991, Mr.
McCulla founded GNC and was its President. Until March 1994, GNC was a
privately-held independent marketing company and one of Tel-Save's partitions.
At that time, Tel-Save acquired certain assets of GNC.
Jeffrey J. Steiner, age 60. Mr. Steiner has been Vice Chairman of the Board
and a Director of STF since March 1996. He has been Chairman of the Board and
Chief Executive Officer of TFC since December 1985, and President of TFC since
July 1, 1991. Mr. Steiner also served as President of TFC from November 1988
until January 1990. He has served as Chairman of the Board, Chief Executive
Officer and President of Banner Aerospace since September 1993. He served as
Vice Chairman of the Board of Rexnord Corporation from July 1992 to December
1993. He served as Chairman, President and Chief Executive Officer of FII from
July 1991 until March 1996 and of RHI since 1988. Mr. Steiner is and for the
past five years has been President of Cedco Holdings Ltd. He serves as a
director of The Franklin Corporation, The Copley Fund, TFC and Banner Aerospace,
Inc.
Ronald R. Thoma, age 61. Mr. Thoma currently serves as Executive Vice
President of Crown Cork and Seal Company, Inc., where he has been employed since
1955. Mr. Thoma has served as a director of Tel-Save since 1995.
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COMPENSATION OF DIRECTORS
Tel-Save pays non-employee directors an annual retainer of $20,000. In
March, 1996, Tel-Save's employee directors approved the grant to each
non-employee director of an option to purchase 40,000 shares of Tel-Save Common
Stock. The Tel-Save Board may, from time to time in the future, grant options to
non-employee directors. Non-employee directors also are reimbursed for
reasonable expenses incurred in connection with attendance at Tel-Save Board
meetings or meetings of committees thereof.
BOARD MEETINGS AND COMMITTEES
The Tel-Save Board met or acted by unanimous written consent thirteen times
in 1996. Each of the directors attended 75% or more of the aggregate of (1) the
total number of Tel-Save Board meetings (held during the period for which he has
been a director), and (2) the total number of meetings held by all committees of
the Tel-Save Board on which he served (during the periods that he served).
BOARD COMMITTEES
The Tel-Save Board has established the following three committees, the
function and current members of which are noted below.
Executive Committee. The Executive Committee consists of Daniel Borislow
(Chairman), Gary W. McCulla and Ronald R. Thoma. The Executive Committee has the
authority to exercise all powers of the Board, except for actions that must be
taken by the full Tel-Save Board under the DGCL. The Executive Committee met one
time during 1996.
Audit Committee. The Audit Committee consists of Daniel Borislow
(Chairman), Harold First and Ronald R. Thoma. The Audit Committee makes
recommendations concerning the engagement of independent public accountants,
reviews the plans and results of the audit engagement with the independent
public accountants, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants and reviews the adequacy of Tel-Save's internal accounting controls.
The Audit Committee met or acted by unanimous consent two times during 1996.
Compensation Committee. During 1996, the Compensation Committee consisted
of Daniel Borislow (Chairman), Harold First and Ronald R. Thoma. The
Compensation Committee is responsible for determining compensation for
Tel-Save's executive officers and currently administers the 1995 Employee Stock
Option Plan. The Compensation Committee met two times during 1996.
Although the Tel-Save Board has not established a nominating or similar
committee, the Tel-Save Board will consider stockholder nominations for
directors submitted in accordance with the procedure set forth in Section 402 of
the Tel-Save Bylaws. The procedure provides that a notice relating to the
nomination of directors must be timely given in writing by the notifying
stockholder to the Chairman of the Tel-Save Board prior to the meeting. To be
timely, notice relating to the nomination of directors must be delivered not
less than 14 days nor more than 50 days prior to any such meeting of
stockholders called for the election of directors. Notice to Tel-Save from a
stockholder who proposes to nominate a person at a meeting for election as a
director must be accompanied by each proposed nominee's written consent and
contain, to the extent known to the notifying stockholder, the name, address and
principal occupation of each proposed nominee. Such notice must also contain, to
the extent known to the notifying stockholder, the total number of shares of
capital stock of Tel-Save that will be voted for each of the proposed nominees,
the name and address of the notifying stockholder and the number of shares of
capital stock of Tel-Save owned by each notifying stockholder. Stockholder
nominations not made in accordance with such procedure may be disregarded by the
Chairman, who may instruct that all votes cast for each such nominee be
disregarded.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, Tel-Save's directors and certain
officers and persons who are the beneficial owners of more than 10 percent of
the Tel-Save Common Stock are required to report their ownership of Tel-Save
Common Stock, options and certain related securities and any changes in that
ownership to the Commission. Specific due dates for these reports have been
established, and Tel-Save is required to report in this Joint Proxy
Statement/Prospectus any failure to file by such dates in 1996. Although
Tel-Save believes that all of the required filings have been made, Tel-Save
failed to inform Messrs. First and Thoma that the grant of certain stock options
could not be reported on a deferred basis. As a result, the reports relating to
the grant of those options was filed one month late. In making this statement,
Tel-Save has relied on copies of the reporting forms received by it.
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TEL-SAVE PROPOSAL 4: RATIFICATION OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Tel-Save Board, upon the recommendation of the Audit Committee, has
appointed the firm of BDO Seidman, LLP as independent certified public
accountants of Tel-Save for the 1997 fiscal year. This internationally known
firm has served as Tel-Save's independent certified public accountants since
1995 and has no direct or indirect financial interest in Tel-Save.
Although not legally required to do so, the Tel-Save Board is submitting
the selection of BDO Seidman, LLP for ratification by the stockholders at the
Tel-Save Meeting. If a majority of the shares of Tel-Save Common Stock
represented in person or by proxy at the meeting is not voted for ratification
(which is not expected), the Tel-Save Board will reconsider its appointment of
BDO Seidman, LLP as independent certified public accountants for the 1997 fiscal
year.
Representatives of BDO Seidman, LLP are expected to be present at the
Tel-Save Annual Meeting and will have the opportunity to make a statement if
they desire to do so and will also be available to respond to appropriate
questions from stockholders.
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TEL-SAVE PROPOSAL 5: GRANT OF STOCK OPTIONS
In connection with entering into the employment agreement with Mr.
Meyercord described herein, the non-employee members of the Compensation
Committee agreed to grant as of September 5, 1996 an option to purchase 800,000
shares of Tel-Save Common Stock at a purchase price equal to $11.125, the then
market price of a share of Tel-Save Common Stock (in each case, as adjusted for
the two-for-one stock split). The grant of the option was conditioned on the
receipt of Tel-Save Board's ratification, which was obtained, and the
affirmative vote of a majority of the outstanding shares of Tel-Save Common
Stock. Assuming stockholder approval is obtained, the option will become
exercisable in installments as follows: (i) 266,666 shares on the first
anniversary of the date of grant; (ii) 266,666 shares on the second anniversary
of the date of grant; and (iii) 266,668 shares on the third anniversary of the
date of grant. The option expires as to each installment two years after the
date the installment becomes exercisable. The option becomes fully exercisable
in the event of a change in control (as defined in the agreement relating to the
option), unless Mr. Meyercord waives such vesting.
Tel-Save is seeking stockholder approval of Mr. Meyercord's options in
order to qualify such options for an exemption for "performance-based
compensation" under Section 162(m) of the Code. Under Section 162(m) of the
Code, no deduction is allowed for annual compensation in excess of $1 million
paid by a publicly-traded corporation to its chief executive officer and the
four other most highly-compensated officers. Under this Code provision, however,
there is no limitation on the deductibility of "performance-based compensation."
Approval of the option grant will result in compensation expense equal to
the difference between the exercise price and the market value of the Tel-Save
Common Stock on the date of such approval to be amortized over the vesting
period. Based on the closing price of Tel-Save Common Stock on October 24, 1997,
such charge would have been approximately $11,300,000 if such approval had been
received on such date.
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LEGAL MATTERS
The validity of the shares of Tel-Save Common Stock to be issued in
connection with the Merger will be passed upon for Tel-Save by Aloysius T. Lawn,
IV, Esq., General Counsel of Tel-Save. As of the date of this Joint Proxy
Statement/Prospectus, Mr. Lawn beneficially owns shares of Tel-Save Common Stock
and options to purchase additional shares of Tel-Save Common Stock, which in the
aggregate constitute less than .5% of the Tel-Save Common Stock outstanding.
Certain tax matters will be passed upon by Arnold & Porter on behalf of
Tel-Save. Certain tax matters will be passed upon by Cahill Gordon & Reindel (a
partnership including a professional corporation) on behalf of STF.
EXPERTS
The consolidated financial statements and schedule of Tel-Save and
subsidiaries incorporated by reference in this Joint Proxy Statement/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.
Representatives of BDO Seidman, LLP are expected to be present at the
Tel-Save Annual Meeting and will have the opportunity to make a statement if
they desire to do so and will also be available to respond to appropriate
questions from stockholders.
The consolidated financial statements of STF and subsidiaries at December
31, 1996 and for the year ended December 31, 1996 incorporated by reference in
this Joint Proxy Statement/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 STF 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 Joint Proxy Statement/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.
Representatives of Arthur Andersen LLP and Rothstein, Kass & Company, P.C.
are expected to be present at the STF Special Meeting and will have the
opportunity to make a statement if they desire to do so and will also be
available to respond to appropriate questions from stockholders.
FUTURE STOCKHOLDER PROPOSALS
The 1998 Annual Meeting of Stockholders of Tel-Save is expected to be held
on or about May 20, 1998. Subject to the foregoing, in accordance with rules
promulgated by the Commission, any Tel-Save stockholder who wishes to submit a
proposal for inclusion in the proxy materials to be distributed by Tel-Save in
connection with its 1998 Annual Meeting of Stockholders must do so no later than
January 20, 1998 (which is 120 days prior to the anticipated mailing date of
proxy materials for such meeting). Notices should be sent to the Corporate
Secretary, Tel-Save Holdings, Inc., 6805 Route 202, New Hope, Pennsylvania
18938. Any Tel-Save stockholder desiring to submit a proposal should consult the
applicable rules of the Commission.
OTHER BUSINESS
Tel-Save does not presently know of any matters that will be presented for
action at the Tel-Save Meeting other than those set forth herein. If other
matters properly come before the meeting, proxies submitted on the enclosed form
will be voted by the persons named in the enclosed form of proxy in accordance
with their best judgment.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
Dated as of July 16, 1997
Among
TEL-SAVE HOLDINGS, INC.,
TSHCo, INC.
and
SHARED TECHNOLOGIES FAIRCHILD, INC.
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TABLE OF CONTENTS
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PAGE
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AGREEMENT AND PLAN OF MERGER.................................................... 5
ARTICLE I
MERGER.......................................................................... 5
1.1. The Merger................................................................ 5
1.2. Filing.................................................................... 5
1.3. Effective Time of the Merger.............................................. 5
ARTICLE II
CERTIFICATE OF INCORPORATION; BY-LAWS; ETC...................................... 5
2.1. Certificate of Incorporation and By-Laws of Surviving Corporation......... 5
2.2. Directors of Surviving Corporation........................................ 5
2.3. Board of Directors of Acquiror............................................ 6
2.4. Shareholders Agreement.................................................... 6
ARTICLE III
MERGER CONSIDERATION; CONVERSION OR
CANCELLATION OF SHARES IN THE MERGER............................................ 6
3.1. Share Consideration; Conversion or Cancellation of Shares in the Merger... 6
3.2. Payment for Shares in the Merger.......................................... 8
3.3. Fractional Shares......................................................... 9
3.4. Transfer of Shares After the Effective Time............................... 9
ARTICLE IV
CERTAIN EFFECTS OF THE MERGER ................................................. 10
4.1. Effect of the Merger...................................................... 10
4.2. Further Assurances........................................................ 10
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................................. 10
5.1. Organization and Qualification............................................ 10
5.2. Capital Stock of Subsidiaries............................................. 10
5.3. Capitalization............................................................ 11
5.4. Authority Relative to This Agreement...................................... 11
5.5. No Violations, etc........................................................ 11
5.6. Commission Filings; Financial Statements.................................. 12
5.7. Absence of Changes or Events.............................................. 12
5.8. Joint Proxy Statement..................................................... 12
5.9. Litigation................................................................ 12
5.10. Title to and Condition of Properties..................................... 13
5.11. Contracts and Commitments................................................ 13
5.12. Labor Matters............................................................ 13
5.13. Compliance with Law...................................................... 13
5.14. Board Recommendation..................................................... 13
5.15. Patents and Trademarks................................................... 13
5.16. Taxes.................................................................... 13
5.17. Employee Benefit Plans; ERISA............................................ 14
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5.18. Environmental Matters.................................................... 16
5.19. Disclosure............................................................... 16
5.20. Absence of Undisclosed Liabilities....................................... 16
5.21. Finders or Brokers....................................................... 17
5.22. State Antitakeover Statutes.............................................. 17
5.23. Opinion of Financial Advisor............................................. 17
5.24. Insurance................................................................ 17
5.25. Employment and Labor Contracts........................................... 17
5.26. Pending Transactions..................................................... 17
5.27. Indemnification Agreements............................................... 17
5.28. Indemnified Liabilities.................................................. 17
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB....................... 18
6.1. Organization and Qualification............................................ 18
6.2. Capital Stock of Subsidiaries............................................. 18
6.3. Capitalization............................................................ 18
6.4. Authority Relative to This Agreement...................................... 18
6.5. No Violations, etc........................................................ 18
6.6. Commission Filings; Financial Statements.................................. 19
6.7. Absence of Changes or Events.............................................. 19
6.8. Joint Proxy Statement..................................................... 19
6.9. Board Recommendation...................................................... 20
6.10. Disclosure............................................................... 20
6.11. Finders or Brokers....................................................... 20
6.12. Opinion of Financial Advisor............................................. 20
ARTICLE VII
CONDUCT OF BUSINESS OF ACQUIROR AND THE COMPANY PENDING THE MERGER.............. 20
7.1. Conduct of Business of the Company Pending the Merger..................... 20
7.2. Conduct of Business of Acquiror Pending the Merger........................ 21
7.3. Permitted Conduct of the Company.......................................... 22
ARTICLE VIII
COVENANTS AND AGREEMENTS........................................................ 22
8.1. Preparation of the Form S-4 and the Joint Proxy Statement;
Stockholders Meetings................................... ............... 22
8.2. Letters of the Company's Accountants...................................... 23
8.3. Letters of Acquiror's Accountants......................................... 23
8.4. Additional Agreements; Cooperation........................................ 23
8.5. Publicity................................................................. 23
8.6. No Solicitation........................................................... 23
8.7. Access to Information..................................................... 25
8.8. Notification of Certain Matters........................................... 25
8.9. Resignation of Directors.................................................. 25
8.10. Indemnification.......................................................... 25
8.11. Fees and Expenses........................................................ 26
8.12. Affiliates............................................................... 26
8.13. NASDAQ Listing........................................................... 26
8.14. Stockholder Litigation................................................... 26
8.15. Tax Treatment............................................................ 26
8.16. Pooling of Interests..................................................... 26
8.17. Fairness Opinion......................................................... 26
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ARTICLE IX
CONDITIONS TO CLOSING........................................................... 26
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9.1. Conditions to Each Party's Obligation to Effect the Merger................ 26
9.2. Conditions to Obligations of Acquiror..................................... 27
9.3. Conditions to Obligations of the Company.................................. 27
ARTICLE X
TERMINATION..................................................................... 28
10.1. Termination.............................................................. 28
10.2. Effect of Termination.................................................... 29
ARTICLE XI
MISCELLANEOUS................................................................... 29
11.1. Nonsurvival of Representations and Warranties............................ 29
11.2. Closing and Waiver....................................................... 29
11.3. Notices.................................................................. 29
11.4. Counterparts............................................................. 30
11.5. Interpretation........................................................... 30
11.6. Certain Definitions...................................................... 31
11.7. Amendment................................................................ 31
11.8. No Third Party Beneficiaries............................................. 31
11.9. Governing Law............................................................ 31
11.10. Entire Agreement........................................................ 31
11.11. Validity................................................................ 31
EXHIBIT A
Form of Company Affiliate Letter................................................ 33
ANNEX I
TO EXHIBIT A.................................................................... 34
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 16, 1997, by and among
TEL-SAVE HOLDINGS, INC., a Delaware corporation ("Acquiror"), TSHCo, INC., a
Delaware corporation ("Merger Sub"), and a wholly owned subsidiary of Acquiror,
and SHARED TECHNOLOGIES FAIRCHILD, INC., a Delaware corporation (the "Company"
and, together with Merger Sub, the "Constituent Corporations").
W I T N E S S E T H :
WHEREAS, the Boards of Directors of Acquiror and the Company have
approved the merger of the Company with and into Merger Sub, with Merger Sub
being the survivor (the "Merger"), upon the terms and subject to the conditions
set forth herein and in accordance with the laws of the State of Delaware;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a tax free reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes it is intended that the Merger shall
be accounted for as a pooling-of-interests.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto, intending to be
legally bound, agree as follows:
ARTICLE I
MERGER
1.1. The Merger. At the Effective Time (as hereinafter defined), the
Company shall be merged with and into Merger Sub as provided herein. Thereupon,
the corporate existence of Merger Sub, with all its purposes, powers and
objects, shall continue unaffected and unimpaired by the Merger, and the
corporate identity and existence, with all the purposes, powers and objects, of
the Company shall be merged with and into Merger Sub and Merger Sub as the
corporation surviving the Merger (hereinafter sometimes called the "Surviving
Corporation") shall continue its corporate existence under the laws of the State
of Delaware.
1.2. Filing. As soon as practicable after the fulfillment or waiver of
the conditions set forth in Sections 9.1, 9.2 and 9.3 or on such later date as
may be mutually agreed to between Acquiror and the Company, the parties hereto
will cause to be filed with the office of the Secretary of State of the State of
Delaware, a certificate of merger (the "Certificate of Merger"), in such form as
required by, and executed in accordance with, the relevant provisions of the
Delaware General Corporation Law ("DGCL").
1.3. Effective Time of the Merger. The Merger shall be effective at the
time of the filing of the Certificate of Merger with the office of the Secretary
of State of the State of Delaware, or at such later time specified in such
Certificate of Merger, which time is herein sometimes referred to as the
"Effective Time" and the date thereof is herein sometimes referred to as the
"Effective Date."
ARTICLE II
CERTIFICATE OF INCORPORATION; BY-LAWS; ETC.
2.1. Certificate of Incorporation and By-Laws of Surviving Corporation.
The Certificate of Incorporation and By-Laws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation and By-Laws of the Surviving Corporation until thereafter amended
as provided by law.
2.2. Directors of Surviving Corporation. The directors of Merger Sub
immediately prior to the Effective Time shall continue as the directors of the
Surviving Corporation, in each case until their successors are elected and
qualified or until their earlier death, resignation or removal.
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2.3. Board of Directors of Acquiror. At or prior to the Effective Time,
Jeffrey J. Steiner, as designee of The Fairchild Corporation ("TFC"), and
Anthony D. Autorino shall be elected to the Board of Directors of Acquiror, each
to serve for a term of three years or until the earlier death, resignation or
removal of such person, provided, however, that if Mr. Steiner is unable to be a
director for the full 3-year term due to his death or incapacitation, then the
Board of Directors of the Company shall fill such vacancy by electing to the
Board of Directors such member of Mr. Steiner's immediate family as is
designated by TFC; provided that such family member is reasonably acceptable to
Acquiror and provided further that it is expressly agreed to and accepted that
Eric Steiner and Natalia Steiner Hercot are acceptable designees.
2.4. Shareholders Agreement. At the Effective Time, the Shareholders
Agreement dated as of March 13, 1996 by and among RHI Holdings, Inc. ("RHI"),
Mr. Autorino and the Company shall be terminated and such agreement shall be of
no further force or effect from and after the Effective Time. To the extent
necessary, each such party shall waive its respective rights under the
Shareholders Agreement in favor of the transactions contemplated by this
Agreement.
ARTICLE III
MERGER CONSIDERATION; CONVERSION OR
CANCELLATION OF SHARES IN THE MERGER
3.1. Share Consideration; Conversion or Cancellation of Shares in the
Merger. Subject to the provisions of this Article III, at the Effective Time, by
virtue of the Merger and without any action on the part of the holders thereof,
the shares of the Constituent Corporations shall be converted as follows:
(a) Each share of common stock, par value $.004 per share, of
the Company (the "Company Common Stock") issued and outstanding immediately
prior to the Effective Time (other than shares owned by the Company or Acquiror)
shall be converted into the right to receive the number of duly authorized,
validly issued, fully paid and nonassessable shares of common stock, par value
$.01 per share (the "Acquiror Common Stock"), of Acquiror (the "Merger
Consideration"), calculated by dividing (x) $11.25 plus the product of (i) .3
and (ii) the amount by which the Closing Date Market Price exceeds $20 by (y)
the Closing Date Market Price (as hereinafter defined), rounded to four decimal
places (such fraction being referred to herein as the "Exchange Ratio");
provided, however, that the Exchange Ratio shall in no event be greater than
1.125. If, prior to the Effective Time, Acquiror should split or combine the
Acquiror Common Stock, or pay a stock dividend or other stock distribution in
shares of Acquiror Common Stock, or otherwise change the Acquiror Common Stock
into any other securities, or make any other dividend or distribution on the
Acquiror Common Stock (other than normal quarterly dividends as the same may be
adjusted from time to time in the ordinary course), then the Exchange Ratio will
be appropriately adjusted to reflect such split, combination, dividend or other
distribution or change. For purposes of this Agreement, "Closing Date Market
Price" means, with respect to one share of Acquiror Common Stock, the average
closing price for such share as reported on the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ") for the 15 most
recent trading days ending on the third business day prior to the Closing Date.
(b) All shares of Company Common Stock to be converted into
shares of Acquiror Common Stock pursuant to this Section 3.1 shall cease to be
outstanding, shall be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall thereafter cease to
have any rights with respect to such shares, except the right to receive for
each of such shares, upon the surrender of such certificate in accordance with
Section 3.2, the Merger Consideration and cash in lieu of fractional shares of
Acquiror Common Stock as contemplated by Section 3.3.
(c) Each share of common stock, par value $1.00 per share, of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
remain outstanding and shall represent one share of common stock of the
Surviving Corporation.
(d) Each share of Series C Preferred Stock, par value $.01 per
share, of the Company (the "Series C Stock") and each share of Series D
Preferred Stock, par value $.01 per share, of the Company (the "Series D Stock"
and together with the Series C Stock, the "Series Preferred Stock") issued and
outstanding immediately prior to the Effective Time (other than shares owned by
Acquiror or the Company and except for shares held by persons who demand
appraisal in compliance with all provisions of the DGCL concerning the right of
such holders to dissent from the Merger and demand appraisal of their shares
("Dissenting Holders") but only if holders of such shares are then entitled to
so dissent and demand appraisal rights pursuant to the DGCL) shall, at the
Effective Time, be converted into the right to receive shares of a series of
preferred stock of Acquiror (the "Acquiror Preferred Stock") having terms
substantially identical to the terms of the Series Preferred Stock, provided,
however, that the Acquiror Preferred Stock shall be convertible into the number
of shares of Acquiror Common Stock equal to the product of the Exchange Ratio
and the
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respective number of shares of Company Common Stock into which such shares of
Series Preferred Stock were convertible immediately prior to the Effective Time.
(e) If holders of shares of Series Preferred Stock are
entitled to dissent from the Merger and demand appraisal of their shares under
the DGCL, any issued and outstanding shares of Series Preferred Stock held by a
Dissenting Holder shall not be converted as described in Section 3.1(d) but
shall from and after the Effective Time represent only the right to receive such
consideration as may be determined to be due to such Dissenting Holder pursuant
to Section 262 of the DGCL; provided, however, that each share of Series
Preferred Stock outstanding immediately prior to the Effective Time and held by
a Dissenting Holder who shall, after the Effective Time, withdraw his or her
demand for appraisal or lose his or her right of appraisal in either case
pursuant to the DGCL, shall be deemed to be converted, as of the Effective Time,
pursuant to Section 3.1(d) hereof.
(f) Each share of Series I 6% Cumulative Convertible Preferred
Stock, par value $100.00 per share, of the Company (the "Convertible Preferred
Stock") issued and out standing immediately prior to the Effective Time (other
than shares owned by Acquiror or the Company) shall, at the Effective Time, be
converted into the right to receive the Merger Consideration that would be
deliverable in respect of the shares of the Company Common Stock issuable upon
conversion of the Convertible Preferred Stock in accordance with the certificate
of designation of the Convertible Preferred Stock, which shares of Acquiror
Common Stock into which such Convertible Preferred Stock is converted shall be
subject to the Pledge Agreement, dated March 13, 1996 (the "Pledge Agreement").
(g) Each share of Series J Redeemable Special Preferred Stock,
par value $.01 per share, of the Company (the "Special Preferred Stock") issued
and outstanding immediately prior to the Effective Time (other than shares owned
by Acquiror or the Company) shall, at the Effective Time, be converted into the
right to receive an amount in cash from Acquiror (the "Special Preferred
Consideration"), the amount of which shall be determined in accordance with
Section 5 of the certificate of designation of the Special Preferred Stock,
which amount shall be pledged collateral under and subject to the Pledge
Agreement, and RHI shall deliver to the pledge agent under the Pledge Agreement
shares of Acquiror Common Stock (valued at the Closing Date Market Price) equal
to the Special Preferred Consideration and in substitution therefor (it being
agreed that such shares are at least equal to the fair market value of the
Special Preferred Consideration for purposes of the terms of the Pledge
Agreement).
(h) All shares of Company Common Stock, Series C Stock, Series
D Stock, Convertible Preferred Stock and Special Preferred Stock which are owned
by Acquiror or the Company in each case shall be canceled and shall cease to
exist, and no consideration shall be delivered in exchange therefor.
(i) Each option to purchase shares of Company Common Stock
(each an "Option") issued by the Company pursuant to the Company's 1996 Equity
Incentive Plan or its 1994 Director Option Plan (collectively, the "Stock Option
Plans"), outstanding and unexercised as of the Effective Date whether or not
vested or exercisable, shall be assumed by Acquiror, and each such Option shall
constitute an option to acquire, on the same terms and conditions as were
applicable under such assumed Option (giving effect to any accelerated vesting
pursuant to an applicable agreement), the number of shares of Acquiror Common
Stock equal to the product of the Exchange Ratio and the number of shares of
Company Common Stock subject to such Option, at a price per share equal to the
aggregate exercise price for the shares of Company Common Stock subject to such
Option divided by the number of full shares of Acquiror Common Stock deemed, as
provided above, to be purchasable pursuant to such Option; provided, however,
that (i) subject to the provisions of clause (ii) below, the number of shares of
Acquiror Common Stock that may be purchased upon exercise of such Option shall
not include any fractional shares and, upon the last such exercise of such
Option, a cash payment shall be made for any fractional share based upon the per
share average of the highest and lowest sale price of shares of Acquiror Common
Stock as reported on NASDAQ on the date of such exercise and (ii) in the case of
any Option to which Section 421 of the Code applies by reason of its
qualification under Section 422 or Section 423 of the Code ("qualified stock
options"), the option price, the number of shares purchasable pursuant to such
Option and the terms and conditions of exercise of such Option shall be
determined in order to comply with Section 424 of the Code. At the Effective
Time, Acquiror shall deliver to holders of Options appropriate option agreements
representing the right to acquire shares of Acquiror Common Stock on the terms
and conditions set forth above, upon surrender of the outstanding Options, or
Acquiror shall comply with the terms of the Stock Option Plans as they apply to
the Options assumed as set forth above.
Pursuant to the Shared Technologies Inc. 1987 Stock Option Plan (the
"1987 Option Plan") all options (the "1987 Options") outstanding under the 1987
Option Plan shall terminate at the Effective Time and each holder of a 1987
Option shall have the right immediately prior to the Effective Time to exercise
his or her 1987 Options in whole or in part, notwithstanding that such 1987
Options are not otherwise exercisable.
The Stock Option Plans and the 1987 Option Plan shall terminate as of
the Effective Time, and the provisions in any other benefit plan of the Company
providing for the issuance, transfer or grant of any capital stock of the
Company or any interest in
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respect of any capital stock of the Company shall be terminated as of the
Effective Time, and the Company shall ensure that following the Effective Time
no holder of an Option or a 1987 Option, and no participant in any Stock Option
Plan, the 1987 Option Plan or other benefit plan, shall have any right
thereunder to acquire any capital stock of the Company or the Surviving
Corporation.
(j) Each Warrant to purchase shares of Company Common Stock
issued by the Company and outstanding and unexercised as of the Effective Time
(each a "Warrant"), whether or not exercisable shall be assumed by Acquiror, and
shall constitute a right to acquire on the same terms and conditions as were
applicable under such assumed Warrants, the number of shares of Acquiror Common
Stock equal to the product of the Exchange Ratio and the number of shares of
Company Common Stock subject to such Warrant at a price per share equal to the
aggregate exercise price for the shares of Company Common Stock for which such
Warrant is exercisable divided by the number of full shares of Acquiror Common
Stock deemed to be purchasable pursuant to such Warrant; provided, however, that
the number of shares of Acquiror Common Stock that may be purchased upon
exercise of such Warrant shall not include any fractional shares and, upon the
last such exercise of such Warrant, a cash payment shall be made for any
fractional share based upon the per share average of the highest and lowest sale
price of shares of Acquiror Common Stock as reported on NASDAQ on the date of
such exercise. At the Effective Time, Acquiror shall deliver to holders of
Warrants appropriate warrants representing the right to acquire shares of
Acquiror Common Stock on the same terms and conditions as contained in the
outstanding Warrants (subject to any adjustments required by the preceding
sentence), upon surrender of the outstanding Warrants.
(k) Acquiror shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of its Common Stock for
delivery upon exercise of the Options and the Warrants assumed in accordance
with this Section 3.1. Acquiror shall file a registration statement on Form S-8
(or any successor form) or another appropriate form, effective as of the
Effective Time, with respect to Acquiror Common Stock subject to such Options
and shall use all reasonable efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectuses contained therein) for so long as such Options remain
outstanding. With respect to those individuals who subsequent to the Merger will
be subject to the reporting requirements under Section 16(a) of the Exchange
Act, Acquiror shall administer the Options of such persons pursuant to this
Section 3.1(d) in a manner that complies with Rule 16b-3 promulgated under the
Exchange Act to the extent the applicable Stock Option Plan complied with such
rule prior to the Merger.
3.2. Payment for Shares in the Merger. The manner of making payment for
shares in the Merger shall be as follows:
(a) At the Effective Time, Acquiror shall make available to an
exchange agent selected by Acquiror and reasonably acceptable to the Company
(the "Exchange Agent"), for the benefit of those persons who immediately prior
to the Effective Time were the holders of Company Common Stock, Series C Stock,
Series D Stock, or Convertible Preferred Stock, a sufficient number of
certificates representing Acquiror Common Stock required to effect the delivery
of the aggregate Merger Consideration required to be issued pursuant to Section
3.1 (the certificates representing Acquiror Common Stock comprising such
aggregate Merger Consideration being hereinafter referred to as the "Exchange
Fund"). The Exchange Agent shall, pursuant to irrevocable instructions from the
Acquiror, deliver the Acquiror Common Stock contemplated to be issued pursuant
to Section 3.1 and effect the sales provided for in Section 3.3 out of the
Exchange Fund. The Exchange Fund shall not be used for any other purpose.
(b) Promptly after the Effective Time, the Exchange Agent
shall mail to each holder of record (other than Acquiror and the Company) of a
certificate or certificates (which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock, Series C Stock, Series D
Stock or Convertible Preferred Stock (the "Certificates")) (i) a form of letter
of transmittal (which shall specify that delivery shall be effected, and the
risk of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Exchange Agent) and (ii) instructions for use in
effecting the surrender of the Certificates for payment therefor. Upon surrender
of Certificates for cancellation to the Exchange Agent, together with such
letter of transmittal duly executed and any other required documents, the holder
of such Certificates shall be entitled to receive for each of the shares of
Company Common Stock, Series C Stock, Series D Stock and Convertible Preferred
Stock formerly represented by such Certificates the Merger Consideration and the
Certificates so surrendered shall forthwith be canceled; provided that for
holders of shares of Convertible Preferred Stock, the Merger Consideration shall
be delivered directly to the pledge agent under the Pledge Agreement, and
provided further that, of the Merger Consideration deliverable to RHI in respect
of shares of Company Common Stock held by RHI, a certificate for such number of
shares of Acquiror Common Stock as equals the result of the Special Preferred
Consideration divided by the Closing Date Market Price shall be delivered to RHI
by delivery thereof directly to the pledge agent under the Pledge Agreement in
substitution for the Special Preferred Consideration then held by such pledge
agent, and, upon receipt by the pledge agent of such certificate to be held
thereafter as pledged collateral under the Pledge Agreement, such Special
Preferred Consideration will be released by such pledge agent to RHI. Until so
surrendered, Certificates shall represent solely the right to receive the Merger
Consideration or the Special Preferred Consideration, as the case may be, and
any cash in lieu of fractional Acquiror Common Stock as contemplated by Section
3.3 with respect to each of the shares formerly represented thereby. No
dividends or other distributions that are declared after the Effective Time on
Acquiror Common Stock and payable to the holders of record thereof after the
Effective Time will be paid to persons entitled by reason of the Merger to
receive Acquiror Common Stock
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until such persons surrender their Certificates. Upon such surrender, there
shall be paid to the Person in whose name the shares of the Acquiror Common
Stock are issued any dividends or other distributions on such Acquiror Common
Stock that shall have a record date after the Effective Time and prior to such
surrender and a payment date after such surrender and such payment shall be made
on such payment date. In no event shall the persons entitled to receive such
dividends or other distributions be entitled to receive interest on such
dividends or other distributions, except to the extent so paid to all
stockholders of Acquiror. If any cash or any certificate representing Acquiror
Common Stock is to be paid to or issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the Certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and that the Person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of certificates for such Acquiror
Common Stock in a name other than that of the registered holder of the
Certificate surrendered, or shall establish tothe satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable to a
holder of shares of Company Common Stock, Series C Stock, Series D Stock or
Convertible Preferred Stock for any Acquiror Common Stock or dividends thereon
or, in accordance with Section 3.3, proceeds of the sale of fractional
interests, delivered to a public official pursuant to applicable escheat law.
The Exchange Agent shall not be entitled to vote or exercise any rights of
ownership with respect to Acquiror Common Stock held by it from time to time
hereunder, except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such Acquiror Common Stock for
the account of the persons entitled thereto.
(c) Certificates surrendered for exchange by any person
constituting an affiliate of the Company for purposes of Rule 145 under the
Securities Act shall not be exchanged for certificates representing Acquiror
Common Stock until Acquiror has received a written agreement from such person as
provided in Section 8.12.
(d) Any portion of the Exchange Fund and the Fractional
Securities Fund (as hereinafter defined) which remains unclaimed by the former
stockholders of the Company for one year after the Effective Time shall be
delivered by the Exchange Agent to Acquiror, upon demand of Acquiror, and any
former stockholders of the Company shall thereafter look only to Acquiror for
payment of their claim for the Merger Consideration in respect of Company Common
Stock or for any cash in lieu of fractional shares of Acquiror Common Stock.
(e) At the Effective Time, Acquiror shall deliver to RHI, as
the holder of the Special Preferred Stock, by wire transfer to the pledge agent
under the Pledge Agreement, as pledged collateral thereunder, the Special
Preferred Consideration upon surrender of the certificates evidencing the
Special Preferred Stock.
3.3. Fractional Shares. No fraction of Acquiror Common Stock shall be
issued in the Merger. In lieu of any such fractional securities, each holder of
Company Common Stock, Series C Stock, Series D Stock or Convertible Preferred
Stock who would otherwise have been entitled to a fraction of Acquiror Common
Stock upon surrender of Certificates for exchange pursuant to this Article III
will be paid an amount in cash (without interest) equal to such holder's
proportionate interest in the net proceeds from the sale or sales in the open
market by the Exchange Agent on behalf of all such holders, of the aggregate
shares of fractional Acquiror Common Stock issued pursuant to this Article III.
As soon as practicable following the Effective Time, the Exchange Agent shall
determine the excess of (i) the number of full shares of Acquiror Common Stock
delivered to the Exchange Agent by Acquiror over (ii) the aggregate number of
full shares of Acquiror Common Stock to be distributed (such excess being herein
called the "Excess Shares"), and the Exchange Agent, as agent for the former
holders of shares, shall sell the Excess Shares at the prevailing prices on the
NASDAQ. The sale of the Excess Shares by the Exchange Agent shall be executed on
the NASDAQ through one or more member firms of the NASDAQ and shall be executed
in round lots to the extent practicable. Acquiror shall pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including the expenses
and compensation of the Exchange Agent, incurred in connection with such sale of
Excess Shares. Until the net proceeds of such sale have been distributed to the
former stockholders of the Company, the Exchange Agent will hold such proceeds
in trust for such former stockholders (the "Fractional Securities Fund"). As
soon as practicable after the determination of the amount of cash to be paid to
former stockholders of the Company in lieu of any fractional interest, the
Exchange Agent shall make available in accordance with this Agreement such
amounts to such former stockholders.
3.4. Transfer of Shares After the Effective Time. No transfers of
Company Common Stock, Series C Stock, Series D Stock, Convertible Preferred
Stock, or Special Preferred Stock shall be made on the stock transfer books of
the Company after the close of business on the day prior to the date of the
Effective Time. If, after the Effective Time, certificates are presented to the
Surviving Corporation, they shall be cancelled and exchanged as provided in this
Article II.
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ARTICLE IV
CERTAIN EFFECTS OF THE MERGER
4.1. Effect of the Merger. On and after the Effective Time and pursuant
to the DGCL, the Surviving Corporation shall possess all the rights, privileges,
immunities, powers, and purposes of each of Merger Sub and the Company; all the
property, real and personal, including subscriptions to shares, causes of action
and every other asset (including books and records) of Merger Sub and the
Company, shall vest in the Surviving Corporation without further act or deed;
and the Surviving Corporation shall assume and be liable for all the
liabilities, obligations and penalties of Merger Sub and the Company. No
liability or obligation due or to become due and no claim or demand for any
cause existing against either Merger Sub or the Company, or any stockholder,
officer or director thereof, shall be released or impaired by the Merger, and no
action or proceeding, whether civil or criminal, then pending by or against
Merger Sub or the Company, or any stockholder, officer or director thereof,
shall abate or be discontinued by the Merger, but may be enforced, prosecuted,
settled or compromised as if the Merger had not occurred, and the Surviving
Corporation may be substituted in any such action or proceeding in place of
Merger Sub or the Company.
4.2. Further Assurances. If at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
either of Merger Sub or the Company, the officers of such corporation are fully
authorized in the name of their corporation or otherwise to take, and shall
take, all such further action.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Acquiror and Merger Sub as
follows:
5.1. Organization and Qualification. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of the Company and its
subsidiaries is duly qualified as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned or leased or the nature of its activities makes such qualification
necessary, except for failures to be so qualified or in good standing which
would not, individually or in the aggregate, have a material adverse effect on
the general affairs, management, business, operations, condition (financial or
otherwise) or prospects of the Company and its subsidiaries taken as a whole (a
"Company Material Adverse Effect"). Section 5.1 of the Disclosure Statement sets
forth, with respect to the Company and each of its subsidiaries, the
jurisdiction in which they are qualified or otherwise licensed as a foreign
corporation to do business. Neither the Company nor any of its subsidiaries is
in violation of any of the provisions of its Certificate of Incorporation (or
other applicable charter document) or By-Laws. The Company has delivered to
Acquiror accurate and complete copies of the Certificate of Incorporation (or
other applicable charter document) and By-Laws, as currently in effect, of each
of the Company and its subsidiaries.
5.2. Capital Stock of Subsidiaries. The only direct or indirect
subsidiaries of the Company are those listed in Section 5.2 of the Disclosure
Statement previously delivered by the Company to Acquiror (the "Disclosure
Statement"). The Company is directly or indirectly the record (except for
directors' qualifying shares) and beneficial owner (including all qualifying
shares owned by directors of such subsidiaries as reflected in Section 5.2 of
the Disclosure Statement) of all of the outstanding shares of capital stock of
each of its subsidiaries, there are no proxies with respect to such shares, and
no equity securities of any of such subsidiaries are or may be required to be
issued by reason of any options, warrants, scrip, rights to subscribe for, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of any capital stock of any such
subsidiary, and there are no contracts, commitments, understandings or
arrangements by which any such subsidiary is bound to issue additional shares of
its capital stock or securities convertible into or exchangeable for such
shares. Other than as set forth in Section 5.2 of the Disclosure Statement, all
of such shares so owned by the Company are validly issued, fully paid and
nonassessable and are owned by it free and clear of any claim, lien or
encumbrance of any kind with respect thereto. Except as disclosed in Section 5.2
of the Disclosure Statement, the Company does not directly or indirectly own any
interest in any corporation, partnership, joint venture or other business
association or entity.
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<PAGE>
5.3. Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Company Common Stock, par value $.004 per
share, and 25,000,000 shares of preferred stock, $.01 par value per share, of
which 5,000,000 shares have been designated Series C Stock, 1,000,000 shares
have been designated Series D Stock, 250,000 shares have been designated Series
I Convertible Preferred Stock and 200,000 shares have been designated Series J
Special Preferred Stock. As of the date hereof, 15,904,146 shares of Company
Common Stock were issued and outstanding and 1,318,950 shares of preferred stock
were issued and outstanding. All of such issued and outstanding shares are
validly issued, fully paid and nonassessable and free of preemptive rights. As
of the date hereof (x) 2,255,920 shares of Company Common Stock were reserved
for issuance upon exercise of outstanding options and 4,619,319 shares of
Company Common Stock were reserved for issuance upon exercise of outstanding
convertible preferred securities and (y) 2,653,381 shares of Company Common
Stock were reserved for issuance upon exercise of the Warrants, all of which
warrants, options and Stock Option Plans are listed and described in Section 5.3
of the Disclosure Statement. Other than the Stock Option Plans and the Warrants,
the Company has no other plan which provides for the grant of options or
warrants to purchase shares of capital stock, stock appreciation or similar
rights or stock awards. Except as set forth above, there are not now, and at the
Effective Time, except for shares of Company Common Stock issued after the date
hereof upon the conversion of convertible securities and the exercise of
Warrants and Options outstanding on the date hereof or pursuant to the Company's
401(k) Plan, there will not be, any shares of capital stock of the Company
issued or outstanding or any subscriptions, options, warrants, calls, claims,
rights (including without limitation any stock appreciation or similar rights),
convertible securities or other agreements or commitments of any character
obligating the Company to issue, transfer or sell any of its securities. The
Company has paid all dividends payable through June 30, 1997 in respect of each
of the Series C Preferred Stock, the Series D Preferred Stock and the
Convertible Preferred Stock.
5.4. Authority Relative to This Agreement. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware. The Company has full corporate power and authority to execute and
deliver each of this Agreement and the STFI Agreement and to consummate the
Merger and other transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the STFI Agreement and the consummation of the
Merger and other transactions contemplated hereby and thereby have been duly and
validly authorized by the Board of Directors of the Company and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement and the STFI Agreement or to consummate the Merger or other
transactions contemplated hereby or thereby (other than, with respect to the
Merger, the approval of the Company's stockholders pursuant to Section 251(c) of
the DGCL). Each of this Agreement or the STFI Agreement has been duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Acquiror and Merger Sub and
thereof by Acquiror, constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the enforcement
of creditors' rights generally or by general equitable or fiduciary principles.
5.5. No Violations, etc.
(a) Assuming that all filings, permits, authorizations,
consents and approvals or waivers thereof have been duly made or obtained as
contemplated by Section 5.5(b) hereof, except as listed in Section 5.5 of the
Disclosure Statement, neither the execution and delivery of this Agreement or
the STFI Agreement by the Company nor the consummation of the Merger or other
transactions contemplated hereby or thereby nor compliance by the Company with
any of the provisions hereof will (i) violate, conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or suspension of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any of its subsidiaries under, any of the
terms, conditions or provisions of (x) their respective charters or by-laws, (y)
except as set forth in Section 5.5 of the Disclosure Statement, any note, bond,
mortgage, indenture or deed of trust, or (z) any license, lease, agreement or
other instrument or obligation to which the Company or any such subsidiary is a
party or to which they or any of their respective properties or assets may be
subject, or (ii) subject to compliance with the statutes and regulations
referred to in the next paragraph, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
of its subsidiaries or any of their respective properties or assets, except, in
the case of clauses (i), (z) and (ii) above, for such violations, conflicts,
breaches, defaults, terminations, suspensions, accelerations, rights of
termination or acceleration or creations of liens, security interests, charges
or encumbrances which would not, individually or in the aggregate, either have a
Company Material Adverse Effect or materially impair the Company's ability to
consummate the Merger or other transactions contemplated hereby.
(b) No filing or registration with, notification to and no
permit, authorization, consent or approval of any governmental entity
(including, without limitation, any federal, state or local regulatory authority
or agency) is required by the Company in connection with the execution and
delivery of this Agreement or the STFI Agreement or the consummation by the
Company of the Merger or other transactions contemplated hereby or thereby,
except (i) in connection with the applicable
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requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (ii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, (iii) the approval of the Company's
stockholders pursuant to the DGCL, (iv) filings with applicable state public
utility commissions identified in Section 5.5 of the Disclosure Statement, (v)
filings with the SEC and (vi) such other filings, registrations, notifications,
permits, authorizations, consents or approvals the failure of which to be
obtained, made or given would not, individually or in the aggregate, either have
a Company Material Adverse Effect or materially impair the Company's ability to
consummate the Merger or other transactions contemplated hereby or thereby.
(c) The Company and its subsidiaries are not in violation of
or default under, except as set forth in Section 5.5 of the Disclosure
Statement, (x) any note, bond, mortgage, indenture or deed of trust, or (y) any
license, lease, agreement or other instrument or obligation to which the Company
or any such subsidiary is a party or to which they or any of their respective
properties or assets may be subject, except, in the case of clauses (x) and (y)
above, for such violations or defaults which would not, individually or in the
aggregate, either have a Company Material Adverse Effect or materially impair
the Company's ability to consummate the Merger or other transactions
contemplated hereby. It is understood that the Company has certain covenants in
its bank facilities which the Company from time to time may violate and that
such violations shall not be deemed a breach so long as the Company promptly
seeks, and in a reasonable period of time obtains, waivers of such violations
from the lenders under such facilities (unless such lenders have accelerated the
indebtedness under such facilities).
5.6. Commission Filings; Financial Statements. The Company has filed
all forms, reports, schedules, statements and other documents required to be
filed by it since December 31, 1994 (as supplemented and amended since the time
of filing collectively, the "SEC Reports") with the Securities and Exchange
Commission (the "SEC"), each of which complied when filed in all material
respects with all applicable requirements of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Securities
Act") and the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "Exchange Act"). The audited
consolidated financial statements and unaudited consolidated interim financial
statements of the Company and its subsidiaries included or incorporated by
reference in such SEC Reports have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and present fairly,
in all material respects, the financial position and results of operations and
cash flows of the Company and its subsidiaries on a consolidated basis at the
respective dates and for the respective periods indicated (and in the case of
all such financial statements that are interim financial statements, contain all
adjustments so to present fairly). None of the SEC Reports contained at the time
filed any untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
5.7. Absence of Changes or Events. Except as set forth in Section 5.7
of the Disclosure Statement and in the Company's Form 10-K for the fiscal year
ended December 31, 1996, as filed with the SEC, since December 31, 1996, the
Company and its subsidiaries have not incurred any material liability, except in
the ordinary course of their businesses consistent with their past practices,
and there has not been any change, or any event involving a prospective change,
in the business, financial condition or results of operations of the Company or
any of its subsidiaries which has had, or is reasonably likely to have, a
Company Material Adverse Effect and the Company and its subsidiaries have
conducted their respective businesses in the ordinary course consistent with
their past practices.
5.8. Joint Proxy Statement. None of the information supplied or to be
supplied by or on behalf of the Company for inclusion or incorporation by
reference in the registration statement to be filed with the SEC by Acquiror in
connection with the issuance of shares of Acquiror Common Stock in the Merger
(the "Form S-4") will, at the time the Form S-4 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the information supplied or to be supplied by or on
behalf of the Company for inclusion or incorporation by reference in the joint
proxy statement, in definitive form, relating to the Company Stockholder Meeting
(as hereinafter defined) and the Acquiror Stockholder Meeting (as hereinafter
defined), or in the related proxy and notice of meeting, or soliciting material
used in connection therewith (referred to herein collectively as the "Joint
Proxy Statement") will, at the dates mailed to stockholders and at the times of
the Company Stockholder Meeting and the Acquiror Stockholder Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Form S-4 and the Joint Proxy Statement (except for information
relating solely to Acquiror and Merger Sub) will comply as to form in all
material respects with the provisions of the Securities Act and the Exchange Act
and the rules and regulations promulgated thereunder.
5.9. Litigation. Except as set forth in Section 5.9 of the Disclosure
Statement, there is no (i) claim, action, suit or proceeding pending or, to the
best knowledge of the Company or any of its subsidiaries, threatened against or
relating to the Company or any of its subsidiaries before any court or
governmental or regulatory authority or body or arbitration tribunal, or (ii)
outstanding
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judgment, order, writ, injunction or decree, or application, request or motion
therefor, of any court, governmental agency or arbitration tribunal in a
proceeding to which the Company, any subsidiary of the Company or any of their
respective assets was or is a party except, in the case of clauses (i) and (ii)
above, such as would not, individually or in the aggregate, either have a
Company Material Adverse Effect or materially impair the Company's ability to
consummate the Merger.
5.10. Title to and Condition of Properties. Except as set forth in
Section 5.10 of the Disclosure Statement, the Company and its subsidiaries have
good title to all of the real property and own outright all of the personal
property (except for leased property or assets) which is reflected on the
Company's and its subsidiaries' December 31, 1996 audited consolidated balance
sheet contained in the Company's Form 10-K for the fiscal year ended December
31, 1996 filed with the SEC (the "Balance Sheet") except for property since sold
or otherwise disposed of in the ordinary course of business and consistent with
past practice.
5.11. Contracts and Commitments. Other than as disclosed in Section
5.11 of the Disclosure Statement, no existing material contract or material
commitment of the Company or any of its subsidiaries, or as to which any thereof
is a party or their respective assets are bound, contains an agreement with
respect to any change of control that would be triggered by the Merger. Other
than as set forth in Section 5.11 of the Disclosure Statement, neither this
Agreement, the Merger nor the other transactions contemplated hereby will result
in any outstanding loans or borrowings by the Company or any subsidiary of the
Company becoming due, going into default or giving the lenders or other holders
of debt instruments the right to require the Company or any of its subsidiaries
to repay all or a portion of such loans or borrowings; provided that it is
expressly understood and agreed that the Company is not making any
representations or warranties with respect to the effect of the financial
condition or results of operation of Acquiror and Merger Sub.
5.12. Labor Matters. Each of the Company and its subsidiaries is in
compliance in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and neither the Company nor any of its subsidiaries is engaged
in any unfair labor practice. There is no labor strike, slowdown or stoppage
pending (or, to the best knowledge of the Company, any labor strike or stoppage
threatened) against or affecting the Company or any of its subsidiaries. No
petition for certification has been filed and is pending before the National
Labor Relations Board with respect to any employees of the Company or any of its
subsidiaries who are not currently organized.
5.13. Compliance with Law. Except for matters set forth in the
Disclosure Statement, neither the Company nor any of its subsidiaries has
violated or failed to comply with any statute, law, ordinance, regulation, rule
or order of any foreign, federal, state or local government or any other
governmental department or agency, or any judgment, decree or order of any
court, applicable to its business or operations, except where any such violation
or failure to comply would not, individually or in the aggregate, have a Company
Material Adverse Effect; the conduct of the business of the Company and its
subsidiaries is in conformity with all foreign, federal, state and local energy,
public utility and health requirements, and all other foreign, federal, state
and local governmental and regulatory requirements, except where such
nonconformities would not, individually or in the aggregate, have a Company
Material Adverse Effect. The Company and its subsidiaries have all permits,
licenses and franchises from governmental agencies required to conduct their
businesses as now being conducted, except for such permits, licenses and
franchises the absence of which would not, individually or in the aggregate,
have a Company Material Adverse Effect.
5.14. Board Recommendation. The Board of Directors of the Company has,
by a majority vote at a meeting of such Board duly held on July 16, 1997,
approved and adopted this Agreement, the Merger and the other transactions
contemplated hereby, determined that the Merger is fair to the stockholders of
the Company and recommended that the stockholders of the Company approve and
adopt this Agreement, the Merger and the other transactions contemplated hereby.
5.15. Patents and Trademarks. The Company and its subsidiaries own or
have the right to use all patents, patent applications, trademarks, trademark
applications, trade names, inventions, processes, know-how and trade secrets
necessary to the conduct of their respective businesses, except for those which
the failure to own or have the right to use would not, individually or in the
aggregate, have a Company Material Adverse Effect ("Proprietary Rights").
5.16. Taxes. "Tax" or "Taxes" shall mean all federal, state, local and
foreign taxes, duties, levies, charges and assessments of any nature, including
social security payments and deductibles relating to wages, salaries and
benefits and payments to subcontractors (to the extent required under applicable
Tax law), and also including all interest, penalties and additions imposed with
respect to such amounts. Except as set forth in Section 5.16 of the Disclosure
Statement: (i) the Company and its subsidiaries have prepared and timely filed
or will timely file with the appropriate governmental agencies all franchise,
income and all other material Tax returns and reports required to be filed for
any period ending on or before the Effective Time, taking into account any
extension of time to file granted to or obtained on behalf of the Company and/or
its subsidiaries; (ii) all material Taxes of the Company and its subsidiaries in
respect of the pre-Merger period have been paid in full to the proper
authorities, other than such Taxes as are being contested in good faith by
appropriate proceedings and/or are adequately reserved for in accordance with
generally accepted
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accounting principles; (iii) all deficiencies resulting from Tax examinations of
federal, state and foreign income, sales and franchise and all other material
Tax returns filed by the Company and its subsidiaries have either been paid or
are being contested in good faith by appropriate proceedings; (iv) to the best
knowledge of the Company, no deficiency has been asserted or assessed against
the Company or any of its subsidiaries, and no examination of the Company or any
of its subsidiaries is pending or threatened for any material amount of Tax by
any taxing authority; (v) no extension of the period for assessment or
collection of any material Tax is currently in effect and no extension of time
within which to file any material Tax return has been requested, which Tax
return has not since been filed; (vi) no material Tax liens have been filed with
respect to any Taxes; (vii) the Company and each of its subsidiaries will not
make any voluntary adjustment by reason of a change in their accounting methods
for any pre-Merger period that would affect the taxable income or deductions of
the Company or any of its subsidiaries for any period ending after the Effective
Date; (viii) the Company and its subsidiaries have made timely payments of the
Taxes required to be deducted and withheld from the wages paid to their
employees; and (ix) the Company and its subsidiaries are not parties to any tax
sharing or tax matters agreement other than the tax sharing agreement dated
March 13, 1996 by and among TFC, RHI and the Company.
5.17. Employee Benefit Plans; ERISA. Except as set forth in Section
5.17 of the Disclosure Statement:
(a) There are no "employee pension benefit plans" as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), maintained or contributed to by the Company or any of its
subsidiaries, or with respect to which the Company or any of its subsidiaries
contributes or is obligated to make payments thereunder or otherwise may have
any liability ("Pension Benefits Plans").
(b) The Company has furnished Acquiror with a true and
complete schedule of all "welfare benefit plans" (as defined in Section 3(1) of
ERISA), maintained or contributed to by the Company or any of its subsidiaries
or with respect to which the Company or any of its subsidiaries otherwise may
have any liability ("Welfare Plans"), all multiemployer plans as defined in
Section 3(37) of ERISA covering employees employed in the United States to which
the Company or any of its subsidiaries is required to make contributions or
otherwise may have any liability, all stock bonus, stock option, restricted
stock, stock appreciation right, stock purchase, bonus, incentive, deferred
compensation, severance and vacation or other employee benefit plans, programs
or arrangements that are not Pension Benefit Plans or Welfare Plans maintained
or contributed to by the Company or a subsidiary or with respect to which the
Company or any subsidiary otherwise may have any liability ("Other Plans").
(c) The Company and each of its subsidiaries, and each of the
Pension Benefit Plans, Welfare Plans and Other Plans (collectively, the
"Plans"), are in compliance with the applicable provisions of ERISA, the Code
and other applicable laws except where the failure to comply would not,
individually or in the aggregate, have a Company Material Adverse Effect.
(d) All contributions to, and payments from, the Plans which
are required to have been made in accordance with the Plans and, when
applicable, Section 302 of ERISA or Section 412 of the Code have been timely
made except where the failure to make such contributions or payments on a timely
basis would not, individually or in the aggregate, have a Company Material
Adverse Effect. All contributions required to have been made in accordance with
Section 302 of ERISA or Section 412 of the Code to any employee pension benefit
plan (as defined in Section 3(2) of ERISA) maintained by the Company or any
ERISA Affiliate have been timely made except where the failure to make such
contributions on a timely basis would not individually or in the aggregate have
a Company Material Adverse Effect. For purposes of this Agreement, "ERISA
Affiliate" shall mean any person (as defined in Section 3(9) of ERISA) that is a
member of any group of persons described in Section 414(b), (c), (m) or (o) of
the Code of which the Company or a subsidiary of the Company is a member.
(e) The Pension Benefit Plans intended to qualify under
Section 401 of the Code are so qualified and have been determined by the
Internal Revenue Service ("IRS") to be so qualified and nothing has occurred
with respect to the operation of such Pension Benefit Plans which would cause
the loss of such qualification or exemption or the imposition of any material
liability, penalty or tax under ERISA or the Code. Such plans have been or will
be, on a timely basis, (i) amended to comply with changes to the Code made by
the Tax Reform Act of 1986, the Unemployment Compensation Amendments of 1992,
the Omnibus Budget Reconciliation Act of 1993, and other applicable legislative,
regulatory or administrative requirements; and (ii) submitted to the Internal
Revenue Service for a determination of their tax qualification, as so amended;
and no such amendment will adversely affect the qualification of such plans.
(f) Each Welfare Plan that is intended to qualify for
exclusion of benefits thereunder from the income of participants or for any
other tax-favored treatment under any provisions of the Code (including, without
limitation, Sections 79, 105, 106, 125 or 129 of the Code) is and has been
maintained in compliance in all material respects with all pertinent provisions
of the Code and Treasury Regulations thereunder.
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(g) Except as disclosed in the Company's Form 10-K for the
fiscal year ended December 31, 1996, there are (i) no investigations, audits or
examinations pending, or to the best knowledge of the Company, threatened by any
governmental entity involving any of the Plans, (ii) no termination proceedings
involving the Plans and (iii) no pending or, to the best of the Company's
knowledge, threatened claims (other than routine claims for benefits), suits or
proceedings against any Plan, against the assets of any of the trusts under any
Plan or against any fiduciary of any Plan with respect to the operation of such
plan or asserting any rights or claims to benefits under any Plan or against the
assets of any trust under such plan, which would, in the case of clause (i),
(ii) or (iii) of this paragraph (g), give rise to any liability which would,
individually or in the aggregate, have a Company Material Adverse Effect, nor,
to the best of the Company's knowledge, are there any facts which would give
rise to any liability which would, individually or in the aggregate, have a
Company Material Adverse Effect in the event of any such investigation, audit,
examination, claim, suit or proceeding.
(h) None of the Company, any of its subsidiaries or any
employee of the foregoing, nor any trustee, administrator, other fiduciary or
any other "party in interest" or "disqualified person" with respect to the
Pension Benefit Plans or Welfare Plans, has engaged in a "prohibited
transaction" (within the meaning of Section 4975 of the Code or Section 406 of
ERISA) which presents a material risk of resulting in a tax or penalty on the
Company or any of its subsidiaries under Section 4975 of the Code or Section
502(i) of ERISA which would, individually or in the aggregate, have a Company
Material Adverse Effect.
(i) Neither the Pension Benefit Plans subject to Title IV of
ERISA nor any trust created thereunder has been terminated nor have there been
any "reportable events" (as defined in Section 4043 of ERISA and the regulations
thereunder) with respect to either thereof which would, individually or in the
aggregate, have a Company Material Adverse Effect nor has there been any event
with respect to any Pension Benefit Plan requiring disclosure under Section
4063(a) of ERISA or any event with respect to any Pension Benefit Plan requiring
disclosure under Section 4041(c)(3)(C) of ERISA which would, individually or in
the aggregate, have a Company Material Adverse Effect.
(j) Neither the Company nor any ERISA Affiliate of the Company
has incurred any currently outstanding liability to the Pension Benefit Guaranty
Corporation (the "PBGC") or to a trustee appointed under Section 4042(b) or (c)
of ERISA other than for the payment of premiums, all of which have been paid
when due. No Pension Benefit Plan has applied for, or received, a waiver of the
minimum funding standards imposed by Section 412 of the Code. The information
supplied to the actuary by the Company or any of its subsidiaries for use in
preparing the most recent actuarial report for Pension Benefit Plans is complete
and accurate in all material respects.
(k) Neither the Company, any of its subsidiaries nor any of
their ERISA Affiliates has any liability (including any contingent liability
under Section 4204 of ERISA) with respect to any multiemployer plan, within the
meaning of Section 3(37) of ERISA (a "Multiemployer Plan"), covering employees
employed in the United States.
(l) With respect to each of the Plans, true, correct and
complete copies of the following documents have been made available to Acquiror:
(i) the current plans and related trust documents, including amendments thereto,
(ii) any current summary plan descriptions, (iii) the most recent Forms 5500 (if
any) filed with respect to each such Plan, (iv) the three recent financial
statements and actuarial reports, if applicable, (v) the most recent IRS
determination letter, if applicable; (vi) if any application for an IRS
determination letter is pending, copies of all such applications for
determination including attachments, exhibits and schedules thereto, (vii) all
material agreements (including settlement agreements or other similar agreements
relating to any Plan); and (viii) all material correspondence between the
Company and any of its subsidiaries and the IRS, PBGC, Department of Labor or
any other governmental entity relating to any of the Plans.
(m) Neither the Company, any of its subsidiaries, any
organization to which the Company is a successor or parent corporation, within
the meaning of Section 4069(b) of ERISA, nor any of their ERISA Affiliates has
engaged in any transaction described in Section 4069(a) of ERISA, the liability
for which would, individually or in the aggregate, have a Company Material
Adverse Effect.
(n) Except as disclosed in Section 5.17 of the Disclosure
Statement, none of the Welfare Plans maintained by the Company or any of its
subsidiaries are retiree life or retiree health insurance plans which provide
for continuing benefits or coverage for any participant or any beneficiary of a
participant following termination of employment, except as may be required under
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), or except where the full expense of such coverage or benefits is paid
by the participant or the participant's beneficiary. The Company and each of its
subsidiaries which maintain a "group health plan" within the meaning of Section
5000(b)(1) of the Code have complied with the notice and continuation
requirements of Section 4980B of the Code, COBRA, Part 6 of Subtitle B of Title
I of ERISA and the regulations thereunder except where the failure to comply
would not, individually or in the aggregate, have a Company Material Adverse
Effect.
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(o) No liability under any Plan has been funded nor has any
such obligation been satisfied with the purchase of a contract from an insurance
company as to which the Company or any of its subsidiaries has received notice
that such insurance company is in rehabilitation.
(p) The consummation of the transactions contemplated by this
Agreement will not either alone or in connection with an employee's termination
of employment or other event result in an increase in the amount of compensation
or benefits or accelerate the vesting or timing of payment of any benefits or
compensation payable to or in respect of any employee of the Company or any of
its subsidiaries.
5.18. Environmental Matters. Except as set forth in Section 5.18 of the
Disclosure Statement and except for such matters as would not, individually or
in the aggregate, have a Company Material Adverse Effect:
(a) The Company and its subsidiaries have obtained all
Environmental Permits and all licenses and other authorizations and have made
all registrations and given all notifications that are required under any
applicable Environmental Law.
(b) Except as set forth in Section 5.18 of the Disclosure
Statement, there is no Environmental Claim pending against the Company and its
subsidiaries under an Environmental Law.
(c) Except as set forth in Section 5.18 of the Disclosure
Statement, the Company and its subsidiaries are in compliance with all terms and
conditions of their Environmental Permits, and are in compliance with all
applicable Environmental Laws.
(d) Except as set forth in Section 5.18 of the Disclosure
Statement, the Company and its subsidiaries did not generate, treat, store,
transport, discharge, dispose of or release any Hazardous Materials on or from
any property now or previously owned, leased or used by the Company and its
subsidiaries.
(e) For purposes of Section 5.18(a):
(i) "Environment" shall mean any surface water,
ground water, or drinking water supply, land surface or subsurface strata, or
ambient air and includes, without limitation, any indoor location;
(ii) "Environmental Claim" means any written notice
or written claim by any person alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs,
governmental costs, or harm, injuries or damages to any person, property or
natural resources, and any fines or penalties) arising out of, based upon,
resulting from or relating to (1) the emission, discharge, disposal or other
release or threatened release in or into the Environment of any Hazardous
Materials or (2) circumstances forming the basis of any violation, or alleged
violation, of any applicable Environmental Law;
(iii) "Environmental Laws" means any federal, state,
and local laws, codes, and regulations as now or previously in effect relating
to pollution, the protection of human health, the protection of the Environment
or the emission, discharge, disposal or other release or threatened release of
Hazardous Materials in or into the Environment;
(iv) "Environmental Permit" shall mean a permit,
identification number, license or other written authorization required under any
applicable Environmental Law; and
(v) "Hazardous Materials" shall mean all pollutants,
contaminants, or chemical, hazardous or toxic materials, substances,
constituents or wastes, including, without limitation, asbestos or
asbestos-containing materials, polychlorinated biphenyls and petroleum, oil, or
petroleum or oil derivatives or constituents, including, without limitation,
crude oil or any fraction thereof.
5.19. Disclosure. All of the facts and circumstances not required to be
disclosed as exceptions under or to any of the foregoing representations and
warranties made by the Company, in this Article V by reason of any minimum
disclosure requirement in any such representation and warranty would not, in the
aggregate, have a Company Material Adverse Effect.
5.20. Absence of Undisclosed Liabilities. Except as set forth in
Section 5.20 of the Disclosure Statement, neither the Company nor any of its
subsidiaries has any liabilities or obligations of any nature, whether absolute,
accrued, unmatured, contingent or otherwise, or any unsatisfied judgments or any
leases of personalty or realty or unusual or extraordinary commitments, except
the liabilities recorded on the Company's consolidated balance sheet at December
31, 1996 included in the financial statements referred
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in Section 5.6 and the notes thereto, and except for liabilities or obligations
incurred in the ordinary course of business and consistent with past practice
since December 31, 1996 that would not individually or in the aggregate have a
Company Material Adverse Effect.
5.21. Finders or Brokers. Except as set forth in Section 5.21 of the
Disclosure Statement, none of the Company, the subsidiaries of the Company, the
Board of Directors or any member of the Board of Directors has employed any
investment banker, broker, finder or intermediary in connection with the
transactions contemplated hereby who might be entitled to a fee or any
commission in connection with the Merger, and Section 5.21 of the Disclosure
Statement sets forth the maximum consideration (present and future) agreed to be
paid to each such party.
5.22. State Antitakeover Statutes. The Company has granted all
approvals and taken all other steps necessary to exempt the Merger and the other
transactions contemplated hereby from the requirements and provisions of Section
203 of the DGCL and any other applicable state antitakeover statute or
regulation such that none of the provisions of such Section 203 or any other
"business combination," "moratorium," "control share" or other state
antitakeover statute or regulation (x) prohibits or restricts the Company's
ability to perform its obligations under this Agreement or its ability to
consummate the Merger and the other transactions contemplated hereby, (y) would
have the effect of invalidating or voiding this Agreement any provision hereof,
or (z) would subject Acquiror to any material impediment or condition in
connection with the exercise of any of its rights under this Agreement.
5.23. Opinion of Financial Advisor. The Company has received the
opinion of Deutsche Morgan Grenfell Inc. dated the date of this Agreement, to
the effect that, as of such date, the Exchange Ratio is fair from a financial
point of view to the holders of shares of Company Common Stock and to holders of
shares of any series of Preferred Stock of the Company.
5.24. Insurance. Section 5.24 of the Disclosure Statement lists all
insurance policies in force on the date hereof covering the businesses,
properties and assets of the Company and its subsidiaries, and all such policies
are currently in effect.
5.25. Employment and Labor Contracts. Neither the Company nor any of
its subsidiaries is a party to any employment contract or other similar contract
or any other contract for the provision of management or consulting services to
the Company or any of its subsidiaries with any past or present officer,
director, employee or, to the best of the Company's knowledge, any entity
affiliated with any past or present officer, director or employee other than
those set forth in Section 5.25 of the Disclosure Statement and other than the
agreements executed by employees generally, the forms of which have been
delivered to Acquiror.
5.26. Pending Transactions. Section 5.26 of the Disclosure Statement
lists the status of the Pending Transactions.
5.27. Indemnification Agreements. Each of the RHI Indemnification
Agreement, the FHC Indemnification Agreement and the Pledge Agreement is a valid
and binding agreement of the Company and, to the knowledge of the Company, each
of such agreements is enforceable against RHI and TFC, FHC, and RHI,
respectively, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally or by general equitable
or fiduciary principles. Each of the RHI Indemnification Agreement, the FHC
Indemnification Agreement and the Pledge Agreement shall inure to the benefit of
the Surviving Corporation and shall be enforceable by the Surviving Corporation
except to the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting the
enforcement of creditors' rights generally or by general equitable or fiduciary
principles. As of the date hereof, the Company has no knowledge of any
liabilities or claims for which the Company is indemnified under the RHI
Indemnification Agreement and FHI Indemnification Agreement (other than the (i)
contingent liabilities related to a dispute with the United States Government
under government contract accounts rules concerning potential liability arising
out of the use of and accounting for approximately $50.0 million in excess
pension funds relating to certain government contracts in the discontinued
aerospace business of FII; (ii) all non-telecommunications environmental
liabilities of FII; and (iii) approximately $50.0 million (at June 30, 1995 of
costs associated with post-retirement healthcare benefits of FII) as such items
are described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996) that would (were the indemnification under the RHI
Indemnification Agreement and FHI Indemnification Agreement not available),
individually or in the aggregate, have a Company Material Adverse Effect.
5.28. Indemnified Liabilities. Notwithstanding all of the
representations and warranties contained in this Article V (except for Section
5.27), it is hereby agreed that the Company need not disclose as exceptions to
any of the foregoing representations and warranties any losses, liabilities and
damages or actions or claims for which the Company is indemnified under each of
the FHI Indemnification Agreement and the RHI Indemnification Agreement.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Each of Acquiror and Merger Sub jointly and severally represents and
warrants to the Company that:
6.1. Organization and Qualification. Each of Acquiror, Merger Sub and
Acquiror's subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. Each of
Acquiror, Merger Sub and Acquiror's subsidiaries is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or leased or the nature of its activities
makes such qualification necessary, except for failures to be so qualified or in
good standing which would not, individually or in the aggregate, have a material
adverse effect on the general affairs, management, business, operations,
condition (financial or otherwise) or prospects of Acquiror and its subsidiaries
taken as a whole (an "Acquiror Material Adverse Effect"). Except as set forth in
Section 6.1 of the Disclosure Statement, neither Acquiror, Merger Sub nor any of
Acquiror's subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation (or other applicable charter document) or By-Laws.
Acquiror has delivered to the Company accurate and complete copies of the
Certificate of Incorporation (or other applicable charter document) and By-Laws,
as currently in effect, of each of Acquiror and its subsidiaries.
6.2. Capital Stock of Subsidiaries. The only direct or indirect
subsidiaries of Acquiror as of the date hereof are those listed in Section 6.2
of the Disclosure Statement previously delivered by Acquiror to the Company. As
of the date hereof, Acquiror is directly or indirectly the record (except for
directors' qualifying shares) and beneficial owner (including all qualifying
shares owned by directors of such subsidiaries as reflected in Section 6.2 of
the Disclosure Statement) of all of the outstanding shares of capital stock of
each of its subsidiaries. All of the capital stock of Merger Sub will at all
times be owned directly by Acquiror, free and clear of any liens, claims or
encumbrances.
6.3. Capitalization. The authorized capital stock of Acquiror consists
of 100,000,000 shares of Acquiror Common Stock, par value $.01 per share, and
5,000,000 shares of Preferred Stock, par value $.01 per share. As of July 15,
1997, 64,353,823 shares of Common Stock are issued and outstanding and no shares
of preferred stock are issued and outstanding. All of such issued and
outstanding shares are validly issued, fully paid and nonassessable and free of
preemptive rights. Except as set forth above and except as disclosed in Section
6.3 of the Disclosure Schedule, there are not as of the date hereof any shares
of capital stock of Acquiror issued or outstanding or any subscriptions,
options, warrants, calls, claims, rights (including without limitation any stock
appreciation or similar rights), convertible securities or other agreements or
commitments of any character obligating Acquiror to issue, transfer or sell any
of its securities.
6.4. Authority Relative to This Agreement. Each of Acquiror and Merger
Sub has full corporate power and authority to execute and deliver this Agreement
and to consummate the Merger and other transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the Merger and
other transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Acquiror and Merger Sub and no other corporate
proceedings on the part of Acquiror and Merger Sub are necessary to authorize
this Agreement or to consummate the Merger or other transactions contemplated
hereby (other than the approval of Acquiror's stockholders with respect to the
issuance of the Acquiror Common Stock in connection with the Merger as required
by the rules of the National Association of Securities Dealers, Inc. and the
amendment of Acquiror's certificate of incorporation to increase the number of
authorized Shares of Acquiror Common Stock). This Agreement has been duly and
validly executed and delivered by Acquiror and, assuming the due authorization,
execution and delivery hereof by the Company, constitutes a valid and binding
agreement of Acquiror, enforceable against Acquiror in accordance with its
terms, except to the extent that its enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting the
enforcement of creditors' rights generally or by general equitable or fiduciary
principles.
6.5. No Violations, etc.
(a) Assuming that all filings, permits, authorizations,
consents and approvals or waivers thereof have been duly made or obtained as
contemplated by Section 6.5(b) hereof, neither the execution and delivery of
this Agreement by Acquiror and Merger Sub nor the consummation of the Merger or
other transactions contemplated hereby nor compliance by Acquiror and Merger Sub
with any of the provisions hereof will (i) violate, conflict with, or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or suspension of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of Acquiror and Merger Sub or any of
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Acquiror's subsidiaries under, any of the terms, conditions or provisions of (x)
their respective charters or by-laws, (y) except as set forth in Section 6.5 of
the Disclosure Statement, any note, bond, mortgage, indenture or deed of trust,
or (z) any license, lease, agreement or other instrument or obligation, to which
Acquiror, Merger Sub or any such subsidiary is a party or to which they or any
of their respective properties or assets may be subject, or (ii) subject to
compliance with the statutes and regulations referred to in the next paragraph,
violate any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to Acquiror, Merger Sub or any of Acquiror's subsidiaries
or any of their respective properties or assets, except, in the case of clauses
(i), (z) and (ii) above, for such violations, conflicts, breaches, defaults,
terminations, suspensions, accelerations, rights of termination or acceleration
or creations of liens, security interests, charges or encumbrances which would
not, individually or in the aggregate, either have an Acquiror Material Adverse
Effect or materially impair Merger Sub's ability to consummate the Merger or
other transactions contemplated hereby.
(b) No filing or registration with, notification to and no
permit, authorization, consent or approval of any governmental entity is
required by Acquiror, Merger Sub or any of Acquiror's subsidiaries in connection
with the execution and delivery of this Agreement or the consummation by
Acquiror of the Merger or other transactions contemplated hereby, except (i) in
connection with the applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (ii) the filing of the
Certificate of Merger and the certificate of amendment of Acquiror's certificate
of incorporation with the Secretary of State of the State of Delaware, (iii)
filings with the Federal Communications Commission or any applicable state
public utility commissions or applicable state or local regulatory agency or
authority, (iv) filings with NASDAQ, (v) filings with the SEC and state
securities administrators, (vi) the approval of Acquiror's stockholders as
required by NASDAQ rules, and (vii) such other filings, registrations,
notifications, permits, authorizations, consents or approvals the failure of
which to be obtained, made or given would not, individually or in the aggregate,
either have an Acquiror Material Adverse Effect or materially impair Merger
Sub's ability to consummate the Merger or other transactions contemplated
hereby.
(c) As of the date hereof except as set forth in Sections 6.5
of the Disclosure Statement (x) Acquiror, Merger Sub and Acquiror's subsidiaries
are not in violation of or default under any note, bond, mortgage, indenture or
deed of trust, or (y) any license, lease, agreement or other instrument or
obligation to which Acquiror or any such subsidiary is a party or to which they
or any of their respective properties or assets may be subject, except, in the
case of clauses (x) and (y) above, for such violations or defaults which would
not, individually or in the aggregate, either have an Acquiror Material Adverse
Effect or materially impair Merger Sub's ability to consummate the Merger or
other transactions contemplated hereby.
6.6. Commission Filings; Financial Statements. Except as set forth in
Section 6.6 of the Disclosure Schedule: (a) Acquiror has filed all required
forms, reports, schedules, statements and other documents required to be filed
by it since December 31, 1994 to the date hereof (as supplemented and amended
since the time of filing, collectively, the "Acquiror SEC Reports") with the
SEC, all of which complied when filed in all material respects with all
applicable requirements of the Securities Act and the Exchange Act; (b) the
audited consolidated financial statements and unaudited consolidated interim
financial statements of Acquiror and its subsidiaries included or incorporated
by reference in such Acquiror SEC Reports were prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto) and
present fairly, in all material respects, the financial position and results of
operations and cash flows of the Acquiror and its subsidiaries on a consolidated
basis at the respective dates and for the respective periods indicated (and in
the case of all such financial statements that are interim financial statements,
contain all adjustments so to present fairly); and (c) none of the Acquiror SEC
Reports contained at the time filed any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
6.7. Absence of Changes or Events. Except as set forth in Acquiror's
Form 10-K for the fiscal year ended December 31, 1996, as filed with the SEC, or
except as set forth in Section 6.6 of the Disclosure Schedule, since December
31, 1996 to the date hereof, Acquiror and its subsidiaries have not incurred any
material liability, except in the ordinary course of their businesses consistent
with their past practices, and there has not been any change, or any event
involving a prospective change, in the business, financial condition or results
of operations of Acquiror or any of its subsidiaries which has had, or is
reasonably likely to have, an Acquiror Material Adverse Effect and Acquiror and
its subsidiaries have conducted their respective business in the ordinary course
consistent with their past practices.
6.8. Joint Proxy Statement. None of the information supplied or to be
supplied by or on behalf of Acquiror and Merger Sub for inclusion or
incorporation by reference in the Form S-4 will, at the time the Form S-4
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the information supplied or to be
supplied by or on behalf of Acquiror and Merger Sub for inclusion or
incorporation by reference in the Joint Proxy Statement will, at the dates
mailed to stockholders and at the times of the Company Stockholder Meeting and
the Acquiror Stockholder Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary
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in order to make the statements therein, in light of the circumstances under
which they are made, not misleading. The Form S-4 and the Joint Proxy Statement
(except for information relating solely to the Company) will comply as to form
in all material respects with the provisions of the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder.
6.9. Board Recommendation. The Board of Directors of Acquiror has, by a
majority vote at a meeting of such Board duly held on July 15, 1997, approved
and adopted this Agreement, the Merger and the other transactions contemplated
hereby (including, without limitation, the issuance of Acquiror Common Stock as
a result of the Merger), and recommended that the holders of shares of Acquiror
Common Stock approve and adopt this Agreement, the Merger, the issuance of
Acquiror Common Stock as a result of the Merger as required by NASDAQ and the
other transactions contemplated hereby.
6.10. Disclosure. All of the facts and circumstances not required to be
disclosed as exceptions under or to any of the foregoing representations and
warranties made by Acquiror by reason of any minimum disclosure requirement in
any such representation and warranty would not, in the aggregate, have an
Acquiror Material Adverse Effect.
6.11. Finders or Brokers. Except as set forth in Section 6.11 of the
Disclosure Statement, none of Acquiror, the subsidiaries of Acquiror, the Board
of Directors of Acquiror or any member of the Board of Directors of Acquiror has
employed any investment banker, broker, finder or intermediary in connection
with the transactions contemplated hereby who might be entitled to a fee or any
commission in connection with of the Merger, and Section 6.12 of the Disclosure
Statement sets forth the maximum consideration (present and future) agreed to be
paid to each such party.
6.12. Opinion of Financial Advisor. Acquiror has received the opinion
(the "Fairness Opinion") of Salomon Brothers Inc dated the date of this
Agreement, to the effect that as of such date, the Exchange Ratio is fair from a
financial point of view to Acquiror.
ARTICLE VII
CONDUCT OF BUSINESS OF ACQUIROR AND THE COMPANY PENDING THE MERGER
7.1. Conduct of Business of the Company Pending the Merger. Except as
contemplated by this Agreement or as expressly agreed to in writing by Acquiror,
during the period from the date of this Agreement to the Effective Time, each of
the Company and its subsidiaries will conduct their respective operations
according to its ordinary course of business consistent with past practice, and
will use all commercially reasonable efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain satisfactory relationships with suppliers, distributors, customers
and others having business relationships with it and will take no action which
would materially adversely affect the ability of the parties to consummate the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Effective Time, the Company will not nor will it permit any of its
subsidiaries to, without the prior written consent of Acquiror, which consent
shall not be unreasonably withheld:
(a) amend its certificate of incorporation or by-laws;
(b) authorize for issuance, issue, sell, deliver, grant any
options for, or otherwise agree or commit to issue, sell or deliver any shares
of any class of its capital stock or any securities convertible into shares of
any class of its capital stock, except (i) pursuant to and in accordance with
the terms of currently outstanding convertible securities, warrants and options,
and (ii) shares granted to employees as matching contributions pursuant to the
Company's 401(k) Plan in an aggregate amount not to exceed 40,000 shares;
(c) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend (other than a dividend of stock of
Shared Technologies Cellular, Inc. owned by the Company) or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock or purchase, redeem or otherwise acquire any shares of its own
capital stock or of any of its subsidiaries, except as otherwise expressly
provided in this Agreement;
(d) (i) create, incur, assume, maintain or permit to exist any
debt for borrowed money other than under existing lines of credit in the
ordinary course of business consistent with past practice; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person except for
(a) its wholly owned subsidiaries, and (b) STF Canada, Inc. in the ordinary
course of business and consistent with past practices; or (iii) make
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any loans, advances or capital contributions to, or investments in, any other
person except for STF Canada, Inc. in an aggregate amount not to exceed
$1,000,000;
(e) (i) increase in any manner the compensation of (x) any
employee except in the ordinary course of business consistent with past practice
or (y) any of its directors or officers; (ii) pay or agree to pay any pension,
retirement allowance or other employee benefit not required, or enter into or
agree to enter into any agreement or arrangement with such director or officer
or employee, whether past or present, relating to any such pension, retirement
allowance or other employee benefit, except as required under currently existing
agreements, plans or arrangements; (iii) grant any severance or termination pay
to, or enter into any employment or severance agreement with, (x) any employee
except in the ordinary course of business consistent with past practice or (y)
any of its directors or officers except for honorarium payments to outside
directors of the Company in an amount not to exceed $300,000 in the aggregate;
or (iv) except as may be required to comply with applicable law, become
obligated (other than pursuant to any new or renewed collective bargaining
agreement) under any new pension plan, welfare plan, multiemployer plan,
employee benefit plan, benefit arrangement, or similar plan or arrangement,
which was not in existence on the date hereof, including any bonus, incentive,
deferred compensation, stock purchase, stock option, stock appreciation right,
group insurance, severance pay, retirement or other benefit plan, agreement or
arrangement, or employment or consulting agreement with or for the benefit of
any person, or amend any of such plans or any of such agreements in existence on
the date hereof; provided, however, that this clause (iv) shall not prohibit the
Company from renewing any such plan, agreement or arrangement already in
existence on terms no more favorable to the parties to such plan, agreement or
arrangement;
(f) except as otherwise expressly contemplated by this
Agreement, enter into any other agreements, commitments or contracts, except
agreements, commitments or contracts for the purchase, sale or lease of goods or
services involving payments or receipts by the Company or its subsidiaries in
excess of $50,000, other than (i) customer agreements, (ii) leases for rental
space in an amount not to exceed $250,000 for any lease or (iii) developer
agreements in an amount not to exceed $250,000 for any agreement; provided,
however, that the Company will not enter into agreements with any local exchange
carriers, competitive local exchange carriers or incumbent local exchange
companies which require a financial commitment by the Company or any of its
subsidiaries or which limit the ability of the Company or any of its
subsidiaries to conduct their respective business;
(g) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into any agreement in principle or an
agreement with respect to, any plan of liquidation or dissolution, any
acquisition of a material amount of assets or securities, any sale, transfer,
lease, license, pledge, mortgage, or other disposition or encumbrance of a
material amount of assets or securities or any material change in its
capitalization, or any entry into a material contract or any amendment or
modification of any material contract or any release or relinquishment of any
material contract rights;
(h) authorize or commit to make capital expenditures in excess
of $200,000 for any one order in the Company's service business (other than
purchases by the Company's systems business in the ordinary course of business
consistent with past practice);
(i) make any change in the accounting methods or accounting
practices followed by the Company;
(j) settle any action, suit, claim, investigation or
proceeding (legal, administrative or arbitrative) in excess of $50,000 without
the consent of the Acquiror; provided, however, that the Company may settle the
matter set forth in item 2 of Section 5.9 of the Disclosure Statement as
previously discussed with Acquiror;
(k) make any election under the Code which would have a
Company Material Adverse Effect;
(l) amend, change or alter in any respect any of the RHI
Indemnification Agreement, the FHC Indemnification Agreement or the Pledge
Agreement (except as specifically contemplated by this Agreement);
(m) take or cause to be taken, whether before or after the
Effective Time, any action that would disqualify the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code; or
(n) agree to do any of the foregoing.
7.2. Conduct of Business of Acquiror Pending the Merger. Except as
contemplated by this Agreement or as expressly agreed to in writing by the
Company, during the period from the date of this Agreement to the Effective
Time, each of Acquiror and its subsidiaries will use all commercially reasonable
efforts to keep substantially intact its business, properties and business
relationships and will take no action which would materially adversely affect
the ability of the parties to consummate the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in this
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Agreement, prior to the Effective Time, Acquiror will not nor will it permit any
of its subsidiaries to, without the prior written consent of the Company, which
consent shall not be unreasonably withheld:
(a) amend its certificate of incorporation or by-laws except
as set forth in this Agreement;
(b) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock or purchase, redeem or otherwise acquire any shares of its own capital
stock or of any of its subsidiaries, except as otherwise expressly provided in
this Agreement;
(c) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into any agreement in principle or an
agreement with respect to, any plan of liquidation or dissolution;
(d) take or cause to be taken, whether before or after the
Effective Time, any action that would disqualify the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code; or
(e) agree to do any of the foregoing.
7.3. Permitted Conduct of the Company. Notwithstanding anything
contained in Section 7.1, this Agreement shall not restrict the Company's
ability to (i) consummate the Pending Transactions or take any action in
furtherance thereof or (ii) sell, assign or transfer its interest in Shared
Technologies Cellular, Inc.
ARTICLE VIII
COVENANTS AND AGREEMENTS
8.1. Preparation of the Form S-4 and the Joint Proxy Statement;
Stockholders Meetings.
(a) As soon as practicable following the date of this
Agreement, the Company and Acquiror shall prepare and file with the SEC the
Joint Proxy Statement and Acquiror thereafter shall prepare and file with the
SEC the Form S-4, in which the Joint Proxy Statement will be included as a
prospectus. Each of the Company and Acquiror shall use their respective best
efforts to have the Form S-4 declared effective under the Securities Act as
promptly as practicable after such filing. The Company will use all best efforts
to cause the Joint Proxy Statement to be mailed to the Company's stockholders,
and Acquiror will use all best efforts to cause the Joint Proxy Statement to be
mailed to Acquiror's stockholders in each case as promptly as practicable after
the Form S-4 is declared effective under the Securities Act. Acquiror shall also
take any action required to be taken under any applicable state securities laws
in connection with the issuance of Acquiror Common Stock in the Merger. No
filing of, or amendment or supplement to, the Form S-4 or the Joint Proxy
Statement will be made by Acquiror without providing the Company the opportunity
to review and comment thereon. Acquiror will advise the Company, promptly after
it receives notice thereof, of the time when the Form S-4 has become effective
or any supplement or amendment has been filed, the issuance of any stop order,
the suspension of the qualification of the Acquiror Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Joint Proxy Statement or the Form S-4 or
comments thereon and responses thereto or requests by the SEC for additional
information. If at any time prior to the Effective Time any information relating
to the Company or Acquiror, or any of their respective affiliates, officers or
directors, should be discovered by the Company or Acquiror which should be set
forth in an amendment or supplement to any of the Form S-4 or the Joint Proxy
Statement, so that any of such documents would not include any misstatement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, the party which discovers such information shall promptly notify
the other parties hereto and an appropriate amendment or supplement describing
such information shall be promptly filed with the SEC and, to the extent
required by law, disseminated to the stockholders of the Company and Acquiror.
(b) The Company shall, as soon as practicable following the
date of this Agreement, duly call, give notice of, convene and hold a meeting of
its stockholders (the "Company Stockholder Meeting") for the purpose of
obtaining the approval (the "Company Stockholder Approval") of a majority of the
stockholders of the Company of this Agreement and shall, through its Board of
Directors, recommend to its stockholders the approval and adoption of this
Agreement, the Merger and the other transactions contemplated hereby, and shall
use all commercially reasonable efforts to solicit from its stockholders proxies
in favor of approval and adoption of this Agreement; provided, however, that
such recommendation is subject to any action required by the fiduciary duties of
the Board of Directors.
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(c) Acquiror shall, as soon as practicable following the date
of this Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Acquiror Stockholder Meeting") for the purpose of obtaining
the approval (the "Acquiror Stockholder Approval") of a majority of the
stockholders of Acquiror of an increase in the authorized common stock of
Acquiror, the issuance of the Acquiror Common Stock in connection with the
Merger (the "Issuance") and shall, through its Board of Directors, recommend to
its stockholders the approval and adoption of this Agreement, the Merger, the
Issuance and the other transactions contemplated hereby, and shall use all
commercially reasonable efforts to solicit from its stockholders proxies in
favor of approval and adoption of this Agreement.
(d) Acquiror and the Company will use best efforts to hold the
Company Stockholder Meeting and the Acquiror Stockholder Meeting on the same
date and as soon as practicable after the date hereof.
8.2. Letters of the Company's Accountants.
(a) The Company shall use its best efforts to cause to be
delivered to Acquiror two letters from the Company's independent accountants,
one dated the date of effectiveness of Form S-4 and one dated the Closing Date,
each addressed to Acquiror, in form and substance reasonably satisfactory to
Acquiror and customary in scope and substance for comfort letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
(b) The Company shall use its best efforts to cause to be
delivered to Acquiror a letter from the Company's independent accountants
addressed to the Company and Acquiror, dated as of the Closing Date, stating
that the Merger will qualify as a pooling of interests transaction under Opinion
16 of the Accounting Principles Board and applicable SEC rules and regulations.
8.3. Letters of Acquiror's Accountants.
(a) Acquiror shall use its best efforts to cause to be
delivered to the Company two letters from Acquiror's independent accountants,
one dated the date of effectiveness of Form S-4 and one dated the Closing Date,
each addressed to the Company, in form and substance reasonably satisfactory to
the Company and customary in scope and substance for comfort letters delivered
by independent public accountants in connection with registration statements
similar to the Form S-4.
(b) Acquiror shall use its best efforts to cause to be
delivered to the Company a letter from Acquiror's independent accountants,
addressed to the Company and Acquiror, dated as of the Closing Date, stating
that the Merger will qualify as a pooling of interests transaction under Opinion
16 of the Accounting Principles Board and applicable SEC rules and regulations.
8.4. Additional Agreements; Cooperation.
(a) Subject to the terms and conditions herein provided, each
of the parties hereto agrees to use its best efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, and to cooperate with each other in
connection with the foregoing, including using its best efforts (i) to obtain
all necessary waivers, consents and approvals from other parties to loan
agreements, material leases and other material contracts that are specified on
Schedule 8.4 to the Disclosure Statement, (ii) to obtain all necessary consents,
approvals and authorizations as are required to be obtained under any federal,
state or foreign law or regulations, (iii) to defend all lawsuits or other legal
proceedings challenging this Agreement or the consummation of the transactions
contemplated hereby, (iv) to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby, (v) to effect all necessary registrations and
filings, including, but not limited to, filings under the HSR Act and
submissions of information requested by governmental authorities, (vi) provide
all necessary information for the Joint Proxy Statement and the Form S-4 and
(vii) to fulfill all conditions to this Agreement.
(b) Each of the parties hereto agrees to furnish to the other
party hereto such necessary information and reasonable assistance as such other
party may request in connection with its preparation of necessary filings or
submissions to any regulatory or governmental agency or authority, including,
without limitation, any filing necessary under the provisions of the HSR Act or
any other applicable Federal or state statute. At any time upon the written
request of Acquiror, the Company shall advise Acquiror of the number of shares
of Company Common Stock outstanding on such date.
8.5. Publicity. The Company, Acquiror and Merger Sub agree to consult
with each other in issuing any press release and with respect to the general
content of other public statements with respect to the transactions contemplated
hereby, and shall not issue any such press release prior to such consultation,
except as may be required by law.
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8.6. No Solicitation.
(a) The Company shall not, nor shall it permit any of its
subsidiaries to, nor shall it authorize or permit any of its officers, directors
or employees or any investment banker, financial advisor, attorney, accountant
or other representative retained by it or any of its subsidiaries to, directly
or indirectly, (i) solicit any Company Takeover Proposal (as hereinafter
defined) or (ii) participate in any discussions or negotiations regarding any
Company Takeover Proposal; provided, however, that if, at any time prior to
Company Stockholders Meeting, the Board of Directors of the Company determines
in good faith, after consultation with outside counsel, that it is necessary to
do so in order to comply with its fiduciary duties to the Company's stockholders
under applicable law, the Company may, in response to a Company Takeover
Proposal that was not solicited, and subject to compliance with Section 8.6(c),
(x) furnish information with respect to the Company to any person pursuant to a
customary confidentiality agreement (as determined by the Company after
consultation with its outside counsel) and (y) participate in negotiations
regarding such Company Takeover Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
sentence by any director or executive officer of the Company or any of its
subsidiaries, whether or not such person is purporting to act on behalf of the
Company or any of its subsidiaries or otherwise, shall be deemed to be a breach
of this Section 8.6(a) by the Company. For purposes of this Agreement, "Company
Takeover Proposal" means any inquiry, proposal or offer from any person relating
to any direct or indirect acquisition or purchase of 20% or more of the assets
of the Company or its subsidiaries or 20% or more of any class of equity
securities of the Company or any of its subsidiaries, any tender offer or
exchange offer that if consummated would result in any person beneficially
owning 20% or more of any class of equity securities of the Company or any of
its subsidiaries, any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its subsidiaries, other than the transactions contemplated by
this Agreement, or any other transaction the consummation of which would
reasonably be expected to impede, interfere with, prevent or materially delay
the Merger or which would reasonably be expected to dilute materially the
benefits to Acquiror of the transactions contemplated by this Agreement.
(b) Except as set forth in this Section 8.6, neither the Board
of Directors of the Company nor any committee thereof shall (i) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to
Acquiror, the approval or recommendation by such Board of Directors or such
committee of the Merger or this Agreement, (ii) approve or recommend, or propose
publicly to approve or recommend, any Company Takeover Proposal or (iii) cause
the Company to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, a "Company Acquisition
Agreement") related to any Company Takeover Proposal. Notwithstanding the
foregoing, in the event that prior to the Company Stockholders Meeting the Board
of Directors of the Company determines in good faith, after consultation with
outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to the Company's stockholders under applicable law, the Board
of Directors of the Company may (subject to this and the following sentences)
(x) withdraw or modify its approval or recommendation of the Merger and this
Agreement or (y) approve or recommend a Company Superior Proposal (as defined
below) or terminate this Agreement (and concurrently with or after such
termination, if it so chooses, cause the Company to enter into any Company
Acquisition Agreement with respect to any Company Superior Proposal), but in
each of the cases set forth in this clause (y), no action shall be taken by the
Company pursuant to clause (y) until a time that is after the fifth business day
following Acquiror's receipt of written notice advising Acquiror that the Board
of Directors of the Company has received a Company Superior Proposal, specifying
the material terms and conditions of such Company Superior Proposal and
identifying the person making such Company Superior Proposal, to the extent such
identification of the person making such proposal does not breach the fiduciary
duties of the Board of Directors as advised by outside legal counsel. For
purposes of this Agreement, a "Company Superior Proposal" means any bona fide
proposal made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the
combined voting power of the shares of Company Common Stock and Company
Preferred Stock then outstanding or all or substantially all the assets of the
Company and otherwise on terms that the Board of Directors of the Company
determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation) to be more favorable to the
Company's stockholders than the Merger.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 8.6, the Company shall immediately advise
Acquiror orally and in writing of any request for information or of any Company
Takeover Proposal, the material terms and conditions of such request or Company
Takeover Proposal, and to the extent such disclosure is not a breach of the
fiduciary duties of the Board of Directors as advised by outside legal counsel,
the identity of the person making such request or Company Takeover Proposal.
(d) Nothing contained in this Section 8.6 shall prohibit the
Company from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act, or from making any
disclosure to the Company's stockholders if, in the good faith judgment of the
Board of Directors of the Company, after consultation with outside counsel,
failure so to disclose would be inconsistent with its fiduciary duties to the
Company's stockholders under applicable law; provided, however, neither the
Company nor its Board of Directors nor any committee thereof shall, except as
permitted by Section
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8.6(b), withdraw or modify, or propose publicly to withdraw or modify, its
position with respect to this Agreement or the Merger or approve or recommend,
or propose publicly to approve or recommend, a Company Takeover Proposal.
8.7. Access to Information.
(a) From the date of this Agreement until the Effective Time,
each of the Company and Acquiror will give the other party and its authorized
representatives (including counsel, environmental and other consultants,
accountants and auditors) full access during normal business hours to all
facilities, personnel and operations and to all books and records of it and its
subsidiaries, will permit the other party to make such inspections as it may
reasonably require and will cause its officers and those of its subsidiaries to
furnish the other party with such financial and operating data and other
information with respect to its business and properties as such party may from
time to time reasonably request.
(b) Each of the parties hereto will hold and will cause its
consultants and advisors to hold in strict confidence on the terms and
conditions set forth in the Confidentiality Agreement dated July 11, 1997
between Acquiror and the Company (the "Confidentiality Agreement") all documents
and information furnished to the other in connection with the transactions
contemplated by this Agreement as if each of the parties hereto and such
consultant or advisor was a party thereto, and this provision shall survive any
termination of this Agreement.
8.8. Notification of Certain Matters. The Company or Acquiror, as the
case may be, shall promptly notify the other of (i) its obtaining of actual
knowledge as to the matters set forth in clauses (x) and (y) below, or (ii) the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be likely to cause (x) any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Effective Time, or (y) any material failure of the
Company or Acquiror, as the case may be, or of any officer, director, employee
or agent thereof, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it under this Agreement; provided, however,
that no such notification shall affect the representations or warranties of the
parties or the conditions to the obligations of the parties hereunder.
8.9. Resignation of Directors. At or prior to the Effective Time, the
Company shall take all commercially reasonable efforts to deliver to Acquiror
the resignations of such directors of its Subsidiaries as Acquiror shall
specify, effective at the Effective Time.
8.10. Indemnification.
(a) As of the date of this Agreement and for a period of six
years following the Effective Time of the Merger, the Surviving Corporation will
indemnify and hold harmless any persons who were directors or officers of the
Company or a subsidiary of the Company prior to the Effective Time of the Merger
(the "Indemnified Persons") to the fullest extent such person could have been
indemnified under the DGCL or under the Certificate of Incorporation or By-Laws
of the Company or the certificate of incorporation or by-laws of any subsidiary
of the Company in effect immediately prior to the Effective Time of the Merger,
with respect to any act or failure to act by any such Indemnified Person prior
to the Effective Time of the Merger.
(b) Any determination required to be made with respect to
whether an Indemnified Person's conduct complies with the standards set forth
under the DGCL or other applicable corporate law shall be made by independent
counsel selected by the Indemnified Persons and reasonably acceptable to the
Surviving Corporation. The Surviving Corporation shall pay such counsel's fees
and expenses (it being agreed that neither the Indemnified Persons, Acquiror nor
the Surviving Corporation shall challenge any such determination by such
independent counsel).
(c) The provisions of this Section 8.10 are for the benefit of
the Indemnified Persons, any of whom shall have all rights at law and in equity
to enforce the rights hereunder.
(d) In the event that the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person, the
Surviving Corporation or such successor or assign is not the continuing or
surviving corporation or entity of such consolidation or merger, or (ii)
transfers all or substantially all of its properties and assets to any person,
then, and in each case, proper provision shall be made so that such person or
the continuing or surviving corporation assumes the obligations set forth in
this Section 8.10.
(e) Acquiror shall cause the Surviving Corporation to maintain
in effect for not less than five years from the Effective Time the current
polices of directors' and officers' liability insurance maintained by the
Company and its subsidiaries (provided that Acquiror may substitute therefor
policies of at least the same coverage containing terms and conditions which are
no less advantageous to the Indemnified Parties in all material respects so long
as no lapse in coverage occurs as a result of such
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substitution) with respect to all matters, including the transactions
contemplated hereby, occurring prior to, and including the Effective Time,
provided that, in the event that any Claim is asserted or made within such five
year period, such insurance shall be continued in respect of any such Claim
until final disposition of any and all such Claims, provided, further, that
Acquiror shall not be obligated to make annual premium payments for such
insurance to the extent such premiums exceed 200% of the premiums paid as of the
date hereof by the Company for such insurance.
8.11. Fees and Expenses. Whether or not the Merger is consummated, the
Company and Acquiror shall bear their respective expenses incurred in connection
with the Merger, including, without limitation, the preparation, execution and
performance of this Agreement and the transactions contemplated hereby, and all
fees and expenses of investment bankers, finders, brokers, agents,
representatives, counsel and accountants, except that each of Acquiror and the
Company shall bear and pay one-half of the costs and expenses incurred in
connection with (1) the filing, printing and mailing of the Form S-4 and the
Joint Proxy Statement (including SEC filing fees) and (2) the filings of the
premerger notification and report forms under the HSR Act (including filing
fees).
8.12. Affiliates. As soon as practicable after the date hereof, the
Company shall deliver to Acquiror a letter identifying all persons who are, at
the time this Agreement is submitted for adoption by the stockholders of the
Company, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act or for purposes of qualifying the Merger for pooling of interests
accounting treatment under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations. The Company shall use its reasonable
efforts to cause each such person to deliver to Acquiror as of the Closing Date,
a written agreement substantially in the form attached as Exhibit A hereto.
Acquiror shall use its reasonable efforts to cause all persons who are
"affiliates" of Acquiror for purposes of qualifying the Merger for pooling of
interests accounting treatment under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations to comply with the fourth
paragraph of Exhibit A hereto.
8.13. NASDAQ Listing. Acquiror shall use its reasonable best efforts to
cause the Acquiror Common Stock to be issued in connection with the Merger to be
approved for listing on NASDAQ, subject to official notice of issuance, as
promptly as practicable after the date hereof, and in any event prior to the
Closing Date.
8.14. Stockholder Litigation. Each of the Company and Acquiror shall
give the other the reasonable opportunity to participate in the defense of any
stockholder litigation against or in the name of the Company or Acquiror, as
applicable, and/or their respective directors relating to the transactions
contemplated by this Agreement.
8.15. Tax Treatment. Each of Acquiror and the Company shall use its
respective best efforts (including, without limitation, providing information
and providing for itself and obtaining from its affiliates reasonable and
necessary representations and covenants in connection with the tax opinions
required by Article IX) and Acquiror shall cause the Surviving Corporation to
use its best efforts to cause the Merger to qualify as a reorganization under
the provisions of Section 368(a) of the Code and shall treat the Merger as a tax
free reorganization on its tax returns.
8.16. Pooling of Interests. Each of the Company and Acquiror shall use
its respective best efforts to cause the transactions contemplated by this
Agreement to be accounted for as a pooling of interests under Opinion 16 of the
Accounting Principles Board and applicable SEC rules and regulations, and such
accounting treatment to be accepted by each of the Company's and Acquiror's
independent certified public accountants, respectively, and each of the Company
and Acquiror agrees that it shall voluntarily take no action (including, without
limitation, any action by the Company with respect to Shared Technologies
Cellular, Inc.) that would cause such accounting treatment not to be obtained.
8.17. Fairness Opinion. Each of the Acquiror and the Company shall use
their respective best efforts to cause to be delivered to each of their
respective stockholders a fairness opinion dated the date of the Joint Proxy
Statement.
ARTICLE IX
CONDITIONS TO CLOSING
9.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approvals. Each of the Company Stockholder
Approval and the Acquiror Stockholder Approval shall have been obtained.
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(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired.
(c) No Injunctions or Restraints. No judgment, order, decree,
statute, law, ordinance, rule or regulation entered, enacted, promulgated,
enforced or issued by any court or other governmental entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect preventing the consummation of the Merger.
(d) Governmental Action. No action or proceeding shall be
instituted by any governmental authority seeking to prevent consummation of the
Merger or seeking material damages in connection with the transactions
contemplated hereby which continues to be outstanding.
(e) Form S-4. The Form S-4 shall have become effective under
the Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order and no stop order or similar restraining order shall be
threatened or entered by the SEC or any state securities administration
preventing the Merger.
(f) NASDAQ Listing. The shares of Acquiror Common Stock
issuable to the Company's stockholders as contemplated by this Agreement shall
have been approved for listing on NASDAQ, subject to official notice of
issuance.
(g) Pooling Letters. The Company and Acquiror shall have
received a letter from the Acquiror's independent accountants, dated as of the
Closing Date, addressed to the Company and Acquiror, stating in substance that
the Merger will qualify as a pooling of interests transaction under Opinion 16
of the Accounting Principles Board and applicable SEC rules and regulations.
(h) Bank Credit Facility. The lenders under the existing
credit facility of the Company shall have delivered their written consent to the
Merger and the transactions contemplated hereby or a new credit facility shall
have been entered into and the existing facility terminated.
9.2. Conditions to Obligations of Acquiror. The obligation of Acquiror
to effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth herein shall be true and correct both when
made and at and as of the Closing Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case as of
such date), except where the failure of such representations and warranties to
be so true and correct (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein) does not have, and
is not likely to have, individually or in the aggregate, a Company Material
Adverse Effect.
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(c) No Material Adverse Change. At any time after December 31,
1996, there shall not have occurred any material adverse change in the general
affairs, management, business, operations, assets, condition (financial or
otherwise) or prospects of the Company and its subsidiaries, taken as a whole.
(d) Affiliate Letters. Acquiror shall have received a written
agreement substantially in the form attached as Exhibit A hereto from each of
the persons specified pursuant to Section 8.12.
(e) Governmental Consents. All necessary consents and
approvals of any federal, state or local governmental authority or any other
third party required for the consummation of the transactions contemplated by
this Agreement shall have been obtained except for such consents and approvals
the failure to obtain which individually or in the aggregate would not have a
material adverse effect on the Surviving Corporation.
(f) Tax Opinion. Acquiror shall have received an opinion of
Arnold & Porter, in form and substance reasonably satisfactory to it, to the
effect that the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code. In rendering such opinion, such counsel may receive
and rely on representations of fact contained in certificates provided by
Acquiror and the Company.
9.3. Conditions to Obligations of the Company. The obligation of the
Company to effect the Merger is further subject to satisfaction or waiver of the
following conditions:
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(a) Representations and Warranties. The representations and
warranties of Acquiror and Merger Sub set forth herein shall be true and correct
both when made and at and as of the Closing Date, as if made at and as of such
time (except to the extent expressly made as of an earlier date, in which case
as of such date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to any limitation as
to "materiality" or "material adverse effect" set forth therein) does not have,
and is not likely to have, individually or in the aggregate, an Acquiror
Material Adverse Effect.
(b) Performance of Obligations of Acquiror and Merger Sub.
Acquiror and Merger Sub shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or prior to
the Closing Date.
(c) Senior Subordinated Notes. Acquiror shall have obtained a
standby underwriting commitment to enable it to make an offer to purchase the 12
1/4% Senior Subordinated Notes due 2006 of Shared Technologies Fairchild
Communications Corp. pursuant to the indenture governing such notes.
(d) Tax Opinion. The Company shall have received an opinion of
Cahill Gordon & Reindel, in form and substance reasonably satisfactory to it, to
the effect that the Merger will qualify as a reorganization within the meaning
of Section 368(a) of the Code. In rendering such opinion, such counsel may
receive and rely on representations of fact contained in certificates provided
by Acquiror and the Company.
ARTICLE X
TERMINATION
10.1. Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after and approval of this Agreement by
either the Company's stockholders or the Acquiror's stockholders:
(a) by mutual written consent of the Company and
Acquiror;
(b) by either the Company or Acquiror;
(i) if the Merger shall not have been consummated by
December 15, 1997 unless the Merger has not occurred by such time solely by
reason of the failure by the SEC to give timely approval to the Joint Proxy
Statement or the Form S-4 or by reason of the conditions set forth in Section
9.1(b) or 9.2(e) having not yet been satisfied, in which case January 15, 1997
if consented to by the Company (such consent not to be unreasonably withheld);
provided, however, that the right to terminate this Agreement pursuant to this
Section 10.1(b)(i) shall not be available to any party whose failure to perform
any of its obligations under this Agreement results in the failure of the Merger
to be consummated by such time;
(ii) if the Acquiror Stockholder Approval shall not
have been obtained at an Acquiror Stockholder
Meeting duly convened therefor or at any adjournment or postponement thereof;
(iii) if the Company Stockholder Approval shall not
have been obtained at a Company Stockholder Meeting duly convened therefor or at
any adjournment or postponement thereof; or
(iv) if any Restraint having any of the effects set
forth in Section 9.1(c) shall be in effect and shall have become final and
nonappealable;
(c) by the Company, if Acquiror shall have breached or failed
to perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement;
(d) by the Company if the Closing Date Market Price is less
than $10.00;
(e) by the Company if the Form S-4 is not declared effective
by November 20, 1997 (it being understood that the Acquiror may request the
Company to consent to the extension of such date to December 20, 1997 (such
consent not to be unreasonably withheld));
(f) by Acquiror, if the Company shall have breached or failed
to perform in any material respect any of its representations, warranties,
covenants or other agreements (other than Section 8.6) contained in this
Agreement;
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(g) by the Company if the average closing price for shares of
Acquiror Common Stock as reported on the NASDAQ for any period of 20 consecutive
trading days after the date hereof is less than $10 per share;
(h) by Acquiror, if Section 8.6 shall be breached by the
Company or any of its officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative of the Company,
in any material respect and the Company shall have failed promptly to terminate
the activity giving rise to such breach and use best efforts to cure such breach
upon notice thereof from Acquiror, or the Company shall breach Section 8.6 by
failing to promptly notify Acquiror as required thereunder;
(i) by Acquiror if (i) the Board of Directors of the Company
or any committee thereof shall have withdrawn or modified in a manner adverse to
Acquiror its approval or recommendation of the Merger or this Agreement, or
failed to reconfirm its recommendation within fifteen business days after a
written request to do so, or approved or recommended any Company Takeover
Proposal or (ii) the Board of Directors of the Company or any committee thereof
shall have resolved to take any of the foregoing actions; or
(j) by the Company if it elects to terminate this Agreement in
accordance with Section 8.6(b); provided that it has complied with all
provisions thereof, including the notice provisions therein, and that it
complies with applicable requirements relating to the payment (including the
timing of any payment) of the termination fee required by Section 10.2(b).
10.2. Effect of Termination.
(a) The termination of this Agreement shall become effective
upon delivery to the other party of written notice thereof. In the event of the
termination of this Agreement pursuant to the foregoing provisions of this
Article X, this Agreement shall become void and have no effect, with no
liability on the part of any party (except as provided in paragraph (b) below)
or its stockholders or directors or officers in respect thereof except for
agreements which survive the termination of this Agreement and except for
liability that Acquiror or the Company might have arising from a breach of this
Agreement.
(b) In the event of a termination of this Agreement by the
Company pursuant to Section 10.1(j), then the Company shall within two business
days of such termination pay Acquiror by wire transfer of immediately available
funds to an account specified by Acquiror a termination fee of $15.0 million,
which includes reimbursement for expenses.
ARTICLE XI
MISCELLANEOUS
11.1. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 11.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
11.2. Closing and Waiver.
(a) Unless this Agreement shall have been terminated in
accordance with the provisions of Section 10.1 hereof, a closing (the "Closing"
and the date and time thereof being the "Closing Date") will be held as soon as
practicable after the conditions set forth in Sections 9.1, 9.2 and 9.3 shall
have been satisfied or waived. The Closing will be held at the offices of Cahill
Gordon & Reindel, 80 Pine Street, New York, New York or at such other places as
the parties may agree. Simultaneously therewith, the Certificate of Merger will
be filed.
(b) At any time prior to the Effective Date, any party hereto
may (i) extend the time for the performance of any of the obligations or other
acts of any other party hereto, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements of any other party or with any conditions to its own obligations
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
duly authorized by and signed on behalf of such party.
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11.3. Notices.
(a) Any notice or communication to any party hereto shall be
duly given if in writing and delivered in person or mailed by first class mail
(registered or certified, return receipt requested), facsimile or overnight air
courier guaranteeing next day delivery, to such other party's address.
If to Acquiror or Merger Sub:
6805 Route 202
New Hope, Pennsylvania 18938
Facsimile No.: (215) 862-1083
Attention: Chief Executive Officer
with a copy to:
Arnold & Porter
399 Park Avenue
New York, New York 10022
Facsimile No.: (212) 713-1399
Attention: Jonathan C. Stapleton
and
Aloysius T. Lawn, IV, Esq.
General Counsel
Tel-Sav Holdings, Inc.
6805 Route 202
New Hope, Pennsylvania 18938
Facsimile No.: (215) 862-1083
If to the Company:
100 Great Meadow Road, Suite 104
Wethersfield, CT 06109
Facsimile No.: (860) 258-2455
Attention: Kenneth M. Dorros, Esq.
with a copy to:
James J. Clark, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Facsimile No.: (212) 269-5420
and
Donald E. Miller, Esq.
The Fairchild Corporation
300 West Service Road
P.O. Box 10803
Chantilly, Virginia 22021-0803
Facsimile No.: (703) 478-5775
(b) All notices and communications will be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, if mailed; when sent, if sent
by facsimile; and the next business day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery.
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<PAGE>
11.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.5. Interpretation. The headings of articles and sections herein are
for convenience of reference, do not constitute a part of this Agreement, and
shall not be deemed to limit or affect any of the provisions hereof. As used in
this Agreement, "person" means any individual, corporation, limited or general
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof; "subsidiary" of any person means (i) a corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by such
person or by one or more other subsidiaries of such person or by such person and
one or more subsidiaries thereof or (ii) any other person (other than a
corporation) in which such person, or one or more other subsidiaries of such
person or such person and one or more other subsidiaries thereof, directly or
indirectly, have at least a majority ownership and voting power relating to the
policies, management and affairs thereof; and "voting stock" of any person means
capital stock of such person which ordinarily has voting power for the election
of directors (or persons performing similar functions) of such person, whether
at all times or only so long as no senior class of securities has such voting
power by reason of any contingency. Notwithstanding anything contained herein,
in no event will Shared Technologies Cellular, Inc. be considered a subsidiary
of the Company for any purpose.
11.6. Certain Definitions.
"FII" means Fairchild Industries, Inc., the non-surviving
constituent corporation in the merger of March 13, 1996 with Shared
Technologies, Inc.
"FHC Indemnification Agreement" means the Indemnification
Agreement, between Fairchild Holding Corp. and the Company dated March 13, 1996.
"RHI Indemnification Agreement" means the Indemnification
Agreement dated March 13, 1996 by and among TFC, RHI and the Company.
"Pending Transactions" means the pending transactions
regarding ICS Communications, Inc. and GE Capital-Rescom, L.L.P.
"Pledge Agreement" means the Pledge Agreement dated as of
March 13, 1996 by RHI in favor of Gadsby & Hannah as pledge agent.
"STFI Agreement" means the Agreement dated the date hereof
between the Company and Acquiror.
11.7. Amendment. This Agreement may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the Merger by each of the stockholders of the Company and Acquiror;
provided, however, that after any such approval, there shall not be made any
amendment that by law requires further approval by such stockholders without the
further approval of such stockholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties.
11.8. No Third Party Beneficiaries. Except for the provisions of
Section 8.10 (which is intended to be for the benefit of the persons referred to
therein, and may be enforced by such persons) nothing in this Agreement shall
confer any rights upon any person or entity which is not a party or permitted
assignee of a party to this Agreement.
11.9. Governing Law. Except as the laws of the State of Delaware are by
their terms applicable, this Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to principles
of conflicts of laws.
11.10. Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
11.11. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
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IN WITNESS WHEREOF, the parties hereto have caused this Merger
Agreement to be executed by their duly authorized officers all as of the day and
year first above written.
TEL SAVE HOLDINGS, INC.
By: /s/ Edward B. Meyercord, III
-------------------------------------
Name: Edward B. Meyercord, III
-------------------------------------
Title: Executive Vice President, Marketing
-------------------------------------
and Corporate Development
-------------------------------------
TSHCo, INC.
By: /s/ Edward B. Meyercord, III
-------------------------------------
Name: Edward B. Meyercord, III
-------------------------------------
Title: Executive Vice President, Marketing
-------------------------------------
and Corporate Development
-------------------------------------
SHARED TECHNOLOGIES FAIRCHILD, INC.
By: /s/ Anthony D. Autorino
--------------------------------------
Name: Anthony D. Autorino
--------------------------------------
Title:Chairman of the Board, Chief Executive
--------------------------------------
Officer and Director
--------------------------------------
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EXHIBIT A
Form of Company Affiliate Letter
[ADDRESS]
Ladies and Gentlemen:
The undersigned, a holder of shares of common stock, par value $.004
per share ("Company Common Stock"), of Shared Technologies Fairchild Inc., a
Delaware corporation (the "Company"), is entitled to receive in connection with
the merger (the "Merger") between the Company and a direct wholly owned
subsidiary of Tel-Save Holdings, Inc. ("Acquiror") shares of common stock, par
value $.01 per share, ("Acquiror Common Stock") of Acquiror. The undersigned
acknowledges that the undersigned may be deemed an "affiliate" of the Company
within the meaning of Rule 145 ("Rule 145") promulgated under the Securities Act
of 1933, as amended (the "Act"), although nothing contained herein should be
construed as an admission of such fact.
If in fact the undersigned is an affiliate under the Act, the
undersigned's ability to sell, assign or transfer the Shares received by the
undersigned pursuant to the Merger may be restricted unless such transaction is
registered under the Act or an exemption from such registration is available.
The undersigned understands that such exemptions are limited and the undersigned
has obtained advice of counsel as to the nature and conditions of such
exemptions, including information with respect to the applicability to the sale
of such securities of Rules 144 and 145(d) promulgated under the Act.
The undersigned hereby represents to and covenants with Acquiror that
the undersigned will not sell, assign or transfer any of the Acquiror Common
Stock received by the undersigned pursuant to the Merger except (i) pursuant to
an effective registration statement under the Act, (ii) in conformity with the
limitations specified by Rules 144 and Rule 145(d) or (iii) in a transaction
that, in the opinion of counsel reasonably satisfactory to Acquiror or as
described in a "no-action" or interpretive letter from the Staff of the
Securities and Exchange Commission (the "SEC"), is not required to be registered
under the Act.
It is understood that the undersigned has no present intention to sell
the Acquiror Common Stock acquired by the undersigned pursuant to the Merger.
The undersigned agrees that the undersigned will not sell, transfer or otherwise
dispose of any Company Common Stock for 30 days prior to the effective date of
the Merger or any Acquiror Common Stock received by the undersigned in the
Merger until after such time as results covering at least 30 days of combined
operations of the Company and Acquiror have been published by Acquiror, in the
form of a quarterly earnings report, a report to the SEC on Form 10-K, 10-Q or
8-K, or any other public filing or announcement which includes such combined
results of operations.
In the event of a sale or other disposition by the undersigned of
Acquiror Common Stock pursuant to Rule 145(d)(1), the undersigned will supply
Acquiror with evidence of compliance with such Rule, in the form of a letter in
the form of Annex I hereto. The undersigned understands that Acquiror may
instruct its transfer agent to withhold the transfer of any Acquiror Common
Stock disposed of by the undersigned, but that upon receipt of such evidence of
compliance the transfer agent shall effectuate the transfer of the Shares sold
as indicated in the letter.
The undersigned acknowledges and agrees that appropriate legends will
be placed on certificates representing the Acquiror Common Stock received by the
undersigned pursuant to the Merger or held by a transferee thereof, which
legends will be removed by delivery of substitute certificates upon receipt of
an opinion in form and substance reasonably satisfactory to Acquiror from
independent counsel reasonably satisfactory to Acquiror to the effect that such
legends are no longer required for the purposes of the Act or the fourth
paragraph of this letter.
The undersigned acknowledges that (i) the undersigned has carefully
read this letter and understands the requirements hereof and the limitations
imposed upon the distribution, sale, transfer or other disposition of the
Acquiror Common Stock and (ii) the receipt by Acquiror of this letter is an
inducement and a condition to Acquiror's obligations to consummate the Merger.
Very truly yours,
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ANNEX I
TO EXHIBIT A
[Date]
[Name]
On _____________ the undersigned sold _____________ shares of common
stock, par value $.01 per share, of Tel-Save Holdings, Inc. ("Acquiror"). The
shares were received by the undersigned in connection with the merger of Shared
Technologies Fairchild Inc. with and into a direct wholly owned subsidiary of
Acquiror.
Based upon the most recent report or statement filed by Acquiror with
the Securities and Exchange Commission, the shares sold by the undersigned were
within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
The undersigned hereby represents that the shares were sold in
"brokers' transactions" within the meaning of Section 4(4) of the Act or in
transactions directly with a "market maker" as that term is defined in Section
3(a)(38) of the Securities Exchange Act of 1934, as amended. The undersigned
further represents that the undersigned has not solicited or arranged for the
solicitation of orders to buy the shares, and that the undersigned has not made
any payment in connection with the offer or sale of the shares to any person
other than to the broker who executed the order in respect of such sale.
Very truly yours,
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ANNEX B
October 30, 1997
Board of Directors
Tel-Save Holdings, Inc.
6805 Route 202
New Hope, Pennsylvania 18938
Members of the Board:
On July 16, 1997, we delivered an opinion to you that, as of such date,
the consideration to be paid by Tel-Save Holdings, Inc., a Delaware corporation
("Parent"), in connection with the proposed merger (the "Merger") of Shared
Technologies Fairchild Inc., a Delaware corporation (the "Company"), with and
into TSHCo, Inc., a Delaware corporation ("Sub") and a wholly owned subsidiary
of Parent, pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
dated as of July 16, 1997, among Parent, Sub and the Company, was fair to Parent
from a financial point of view. You have now asked us to confirm our earlier
opinion as of the date hereof. Upon the effectiveness of the Merger, each share
of common stock, par value $0.004 per share ("Company Common Stock"), of the
Company issued and outstanding immediately prior to the effectiveness of the
Merger (other than shares owned by the Company or Parent) will be converted into
the right to receive a number of shares of common stock, par value $0.01 per
share ("Parent Common Stock"), of Parent calculated by dividing (x) $11.25 plus
the product of (i) 0.3 and (ii) the amount by which the Closing Date Market
Price (as defined in the Merger Agreement) exceeds $20 by (y) the Closing Date
Market Price rounded to four decimal places (the "Exchange Ratio", and, the
Exchange Ratio multiplied by each share of Company Common Stock to be converted
in the Merger, the "Merger Consideration"); provided, however, pursuant to the
Merger Agreement, the Exchange Ratio will in no event be greater than 1.125. We
understand that the Merger is intended to qualify as a tax-free reorganization
for federal income tax purposes and to be accounted for as a
pooling-of-interests in accordance with generally accepted accounting principles
as described in Accounting Principles Board Opinion Number 16.
In connection with rendering our opinion, we have reviewed the
principal financial terms of the Merger Agreement. We have also reviewed certain
publicly available information concerning Parent and the Company and certain
other financial information concerning Parent and the Company, including
operating and financial forecasts, that were provided to us by Parent and the
Company, respectively. We have discussed the past and current business
operations, financial condition and prospects of Parent and the Company with
certain officers and employees of Parent and the Company, respectively. We have
also considered such other information, financial studies, analyses,
investigations and financial, economic, market and trading criteria that we
deemed relevant.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of the information
reviewed by us for the purpose of this opinion and we have not assumed any
responsibility for independent verification of such information. With respect to
the operating and financial forecasts of Parent and the Company, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective management of Parent or the
Company, and we express no opinion with respect to such forecasts or the
assumptions on which they are based. We have not assumed any responsibility for
any independent evaluation or appraisal of any of the assets (including
properties and facilities) or liabilities of Parent or the Company.
Our opinion is necessarily based upon conditions as they exist and can
be evaluated on the date hereof. Our opinion as expressed below does not imply
any conclusion as to the likely trading range for Parent Common Stock following
the consummation of the Merger, which may vary depending upon, among other
factors, changes in interest rates, market conditions, general economic
conditions and other factors that generally influence the price of securities.
Our opinion does not address Parent's underlying business decision to effect the
Merger. Our opinion is directly only to the fairness to Parent, from a financial
point of view, of the Merger Consideration to be paid by Parent and does not
constitute a recommendation concerning how holders of Parent Common Stock should
vote with respect to the Merger.
B-1
<PAGE>
Tel-Save Holdings, Inc.
October 30, 1997
Page 2
We have acted as financial advisor to the Board of Directors of Parent
in connection with the Merger and will receive a fee for our services, a portion
of which is payable upon initial delivery of this fairness opinion and the
remainder of which is payable upon consummation of the Merger. In addition, with
your consent, we have acted as financial advisor to the Board of Directors of
the Company in connection with the Merger and will receive a fee for such
services. In the ordinary course of business, we may actively trade the
securities of Parent and the Company for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. In addition, we have previously rendered certain investment
banking and financial advisory services to Parent and the Company.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Merger Consideration to be paid by Parent is fair to Parent
from a financial point of view.
Very truly yours,
SALOMON BROTHERS INC
B-2
<PAGE>
ANNEX C
MERGERS & ACQUISITIONS
Direct Line: (212) 469-8577
Direct Fax: (212) 469-7723
STRICTLY PRIVATE & CONFIDENTIAL
October 30, 1997
Shared Technologies Fairchild, Inc.
100 Great Meadow Road
Wethersfield, CT 06109
Members of the Board of Directors:
We understand that Shared Technologies Fairchild, Inc. ("Shared Technologies" or
the "Company"), Tel-Save Holdings, Inc. ("Tel-Save") and a new wholly-owned
subsidiary of Tel- Save ("Sub") have entered into an Agreement and Plan of
Merger, dated as of July 16, 1997 (the "Merger Agreement"), pursuant to which
Shared Technologies will be merged with and into Sub, with Sub being the
surviving corporation and a wholly-owned subsidiary of Tel-Save thereafter ("the
Merger"). Pursuant to the Merger Agreement, among other things, each share of
common stock, par value $.004 per share (the "Company Common Stock"), of Shared
Technologies will be converted into the right to receive the number of common
shares, par value $.01 per share (the "Acquiror Common Stock"), of Tel-Save (the
"Merger Consideration"), having a value (calculated in the manner and at the
time specified in the Merger Agreement) equal to the sum of (i) $11.25 and (ii)
the product of (x) 0.3 and (y) the amount by which the market price of Acquiror
Common Stock exceeds $20.00.
The terms and conditions of the Merger and the conversion of the Company Common
Stock in connection therewith are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Merger Consideration to be paid
to the holders of the Company Common Stock pursuant to the Merger Agreement is
fair from a financial point of view to such holders. You have not requested, and
we do not express herein, any opinion regarding the consideration to be received
pursuant to the Merger Agreement by any holder of any other class of the
Company's capital stock, including the Company's Series C Preferred Stock, par
value $0.1 per share, Series D Preferred Stock, par value $.01 per share, Series
I 6% Cumulative Preferred Stock, par value $100.00 per share, and Series J
Redeemable Special Preferred Stock, par value $.01 per share.
For purposes of the opinion set forth herein, we have:
1. Analyzed certain publicly available financial statements and other
information of Shared Technologies and Tel-Save;
2. Reviewed and analyzed certain financial projections of Shared Technologies
for 1997 provided by the Company;
C-1
<PAGE>
3. Prepared and analyzed certain financial projections of Shared Technologies
and Tel-Save which were based on separate discussions with senior management
of Shared Technologies and Tel-Save (together, the "Projections"). The
financial projections prepared for Shared Technologies and Tel-Save were
reviewed by senior management of Shared Technologies and Tel-Save who
confirmed that such projections are a reasonable basis for forecasting
future financial results of Shared Technologies and Tel-Save, respectively;
4. Discussed with senior management of Shared Technologies and Tel-Save the
current operations, financial condition and the prospects of each company;
5. Compared the historical financial performance and market trading values of
Shared Technologies and Tel-Save with that of certain other generally
comparable publicly traded companies and their securities;
6. Reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;
7. Based on the Projections, performed a discounted cash flow analysis of
Shared Technologies and Tel- Save, including the estimated financial cost
savings arising from a business combination, and analyzed the pro forma
financial effects to Shared Technologies of the Merger;
8. Discussed with senior management of Shared Technologies other acquisition
proposals and related discussions the Company held with other parties;
9. Reviewed the financial terms of the Merger Agreement; and
10. Performed such other financial analyses and examinations and considered such
other factors as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the Projections supplied by or confirmed by the Company
and Tel-Save, we have further assumed that such Projections represent the best
currently available estimates and judgment of the respective managements of the
Company and Tel- Save as to the expected future financial performance of the
Company or Tel-Save, as applicable. We have not made any independent
verification of information supplied by or confirmed by Shared Technologies or
Tel-Save to us and have not undertaken any independent valuation or appraisal of
the assets or liabilities of Shared Technologies or Tel-Save, nor have we been
furnished with such appraisals. Our opinion is necessarily based on economic,
market, financial and other conditions as in effect on, and the information made
available to us as of, the date hereof.
Deutsche Morgan Grenfell Inc. has from time to time provided investment banking
and financial advisory services to Tel-Save and has received fees from the
rendering of such services.
In connection with the preparation of this opinion, we have not been authorized
by the Company or its Board of Directors to solicit, nor have we solicited,
third-party indications of interest for the acquisition of all or part of the
Company.
It is understood that this letter is for the confidential information of the
Board of Directors of Shared Technologies and may not be used for any other
purpose without our prior written consent, except that this opinion may be
included it its entirety in any filing made by Shared Technologies with the SEC
with respect to the transactions contemplated by the Merger Agreement.
C-2
<PAGE>
Based on our analysis of the foregoing and such other factors as we deem
relevant, including our assessment of current economic, market, financial and
other conditions, we are of the opinion that, as of the date hereof, the Merger
Consideration to be received by the holders of shares of the Company Common
Stock pursuant to the Merger Agreement is fair from a financial point of view to
such holders.
Very truly yours,
Deutsche Morgan Grenfell Inc.
By /s/ Louis B. Cooper
-------------------------------
Louis B. Cooper
Director
By /s/ Philip R. Noblet
-------------------------------
Philip R. Noblet
Vive President
C-3
<PAGE>
ANNEX D
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
Copyright (C) 1975-1996 by The State of
Delaware. All rights reserved.
Current through End of 1996 Reg. Sess.
Section 262 Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to a ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss.ss. 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares
of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to ss.ss. 251, 252, 254, 257, 258, 263 and 264
of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock
or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a. and b. of this paragraph; or
D-1
<PAGE>
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss. 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available for
any or all of the shares of the constituent corporations, and shall include in
such notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to take
such action must do so by a separate written demand as herein provided. Within
10 days after the effective date of such merger or consolidation, the surviving
or resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in favor of
or consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
ss. 228 or ss. 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given,
D-2
<PAGE>
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by he
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates
D-3
<PAGE>
representing such stock. The Court's decree may be enforced as other decrees in
the Court of Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting shareholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-4
<PAGE>
TEL-SAVE HOLDINGS, INC.
6805 ROUTE 202
NEW HOPE, PENNSYLVANIA 18938
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS ON
DECEMBER 1, 1997
The undersigned holder of shares of Common Stock of Tel-Save Holdings, Inc.
hereby appoints Daniel Borislow, Gary W. McCulla and Aloysius T. Lawn, IV, and
each of them, with full power of substitution, as proxies to vote all shares
owned by the undersigned at the Annual Meeting of Stockholders to be held at The
Inn at Lambertville Station, 11 Bridge Street, Lambertville, New Jersey 08530 on
Monday, December 1, 1997 at 9:00 a.m., local time, and any adjournment or
postponement thereof. A majority of said proxies, or any substitute or
substitutes, who shall be present and act at the meeting (or if only one shall
be present and act, then that one) shall have all the powers of said proxies
hereunder.
Please mark, date and sign the proxy and return it promptly in the accompanying
business reply envelope, which requires no postage if mailed in the United
States. If you plan to attend the meeting, please so indicate in the space
provided on the reverse side.
The shares represented by this Proxy, if signed and returned, will be voted as
specified on the reverse side. If no specification is made, your shares will be
voted FOR approval and authorization of the transactions contemplated by the
Agreement and Plan of Merger, dated as of July 16, 1997, among Tel-Save
Holdings, Inc., TSHCo, Inc. and Shared Technologies Fairchild Inc. (the "Merger
Agreement"), FOR approval and adoption of an amendment to the Amended and
Restated Certificate of Incorporation, as amended (the "Charter Amendment"), FOR
approval of the election of the three director nominees (George Farley, Gary W.
McCulla and Harold First), FOR approval of the ratification of the designation
of BDO Seidman, LLP as the independent accountants (the "Auditor Ratification")
and FOR approval of certain stock options granted to an executive officer in
connection with such officer's employment (the "Option Proposal").
IMPORTANT: PLEASE MARK AND SIGN ON THE REVERSE SIDE.
The Board of Directors recommends a vote FOR approval and authorization of the
transactions contemplated by the Merger Agreement, FOR approval and adoption of
the Charter Amendment, FOR approval of the election of three directors, FOR
approval of the Auditor Ratification and FOR approval of the Option Proposal.
(SEE REVERSE SIDE)
<PAGE>
Please mark
your vote as
in this |X|
example
The Board of Directors recommends a vote FOR Items 1, 2, 3, 4 and 5.
1. To approve and authorize transactions
contemplated by the Merger Agreement. FOR AGAINST ABSTAIN
| | | | | |
2. To approve and adopt the Charter | | | | | |
Amendment.
3. To approve the election of the three | | | | | |
director nominees listed below (except
as marked to the contrary below).
The nominees of the Board of Directors
are: George Farley, Gary W. McCulla
and Harold First. (Authority to vote
for any nominee may be withheld by
striking a line through the nominee's
name above).
4. To approve the Auditor Ratification. | | | | | |
5. To approve the Option Proposal. | | | | | |
6. In their discretion upon such other
matters as may properly be brought
before the meeting.
MARK HERE IF YOU PLAN TO ATTEND THE MEETING | |
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders to be held on Monday, December 1, 1997 and the related Joint Proxy
Statement/Prospectus.
Please sign exactly as name(s) appear hereon. Joint owners should each sign.
Executors, administrators, trustees, etc., should give full title as such. If
signer is a corporation, please sign the full corporate name by duly authorized
officer. PLEASE SIGN, DATE AND MAIL THIS PROXY PROMPTLY whether or not you
expect to attend the meeting. You may nevertheless vote in person if you do
attend.
Signature(s) Date
--------------------------------- ----------------------
Date
--------------------------------- ----------------------
<PAGE>
SHARED TECHNOLOGIES FAIRCHILD INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Anthony D.
Autorino and Vincent Divincenzo, or either of them, as proxies, each with the
POWER to appoint his substitute, and hereby authorizes them to represent and to
vote, as designated below, all shares of Common Stock of Shared Technologies
Fairchild Inc. held of record by the undersigned on October 8, 1997 at the
Annual Meeting of Stockholders to be held on Monday, December 1, 1997, or any
adjournment or adjournments thereof.
This proxy when properly executed will be voted in the manner directed by
the undersigned stockholder. If no direction is made, this proxy will be voted
"FOR" proposal 1. Please sign exactly as name appears on the reverse side. When
shares are held by joint tenants, both should sign. When as attorney, executor,
administrator, trustee or guardian, please give full title of such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by general partner or
other authorized person.
1. To approve the Merger Agreement and the transactions contemplated thereby.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
(PROXY IS CONTINUED AND IS TO BE SIGNED AND DATED ON THE OTHER SIDE)
<PAGE>
- --------------------------------------------------------------------------------
Dated: , 1997
------------------------------
------------------------------
(Signatures)
------------------------------
------------------------------
New Address
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY AND USE THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law provides, in substance, that Delaware
corporations shall have the power, under specified circumstances, to indemnify
their directors, officers, employees and agents in connection with actions or
suits by or in the right of the corporation, by reason of the fact that they
were or are such directors, officers, employees and agents, against expenses
(including attorneys' fees) and, in the case of actions, suits or proceedings
brought by third parties, against judgment, fines and amounts paid in settlement
actually and reasonably incurred in any such action, suit or proceeding.
The Registrant's Bylaws also provide for indemnification to the fullest
extent permitted by the Delaware General Corporation Law. Reference is made to
the Registrant's Bylaws.
As permitted by the Delaware General Corporation Law, the Registrant's
Bylaws eliminate the personal liability of its directors to the Registrant and
its stockholders, in certain circumstances, for monetary damages arising from a
breach of the director's duty of care. Additionally, the Registrant has entered
into indemnification agreements with some of its directors and officers. These
agreements provide for indemnification to the fullest extent permitted by law
and, in certain respects, may provide greater protection than that specifically
provided for by the Delaware General Corporation Law. The agreements do not
provide indemnification for, among other things, conduct which is adjudged to be
fraud, deliberate dishonesty or willful misconduct.
The Registrant has purchased an insurance policy that purports to insure
the officers and directors against certain liabilities incurred by them in the
discharge of their functions as officers and directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ---------- ---------------------------------------------------------------------
2.1 Agreement and Plan of Merger, dated as of July 16, 1997, among the
Registrant, TSHCo. Inc. and Shared Technologies Fairchild Inc.
("STF"), without disclosure schedules (included as Annex A to the
Joint Proxy Statement/Prospectus forming a part of this Registration
Statement). The Registrant agrees to furnish supplementally a copy of
any omitted schedule to the Commission upon request.
3.1* Form of Certificate of Amendment of Amended and Restated Certificate
of Incorporation of the Registrant as proposed to be amended.
3.2* Form of Certificate of Designation of Amended and Restated
Certificate of Incorporation of the Registrant as proposed to be
amended.
4.1* Amended and Restated Certificate of Incorporation of the Registrant,
as amended.
4.2* Form of Certificate of Amendment of Amended and Restated Certificate
of Incorporation of the Registrant as proposed to be amended (filed
as Exhibit 3.1 hereto).
4.3* Form of Certificate of Designation of Amended and Restated
Certificate of Incorporation of the Registrant as proposed to be
amended (filed as Exhibit 3.2 hereto).
4.4 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to
the Registrant's registration statement on Form S-1 (File No.
33-94940)).
4.5* Form of Warrant to purchase Common Stock of STF, together with form
of Assumption of the Registrant.
5.1* Opinion of Aloysius T. Lawn, IV, Esq. as to the legality of the
securities being registered pursuant to this Registration Statement.
12.1* Earnings Ratio Calculation.
23.1* Consent of BDO Seidman, LLP.
II-1
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------
23.2* Consent of Arthur Andersen LLP.
23.3* Consent of Rothstein, Kass & Company, P.C.
23.4* Consent of Aloysius T. Lawn, IV, Esq. (included in the opinion filed
as Exhibit 5.1 hereto).
23.5* Consent of Salomon Brothers Inc.
23.6* Consent of Deutsche Morgan Grenfell Inc.
24.1* Powers of Attorney of the directors and certain officers of the
Registrant (included in the signature page to this Registration
Statement at page II-4).
99.1* Consent of Anthony D. Autorino.
99.2* Consent of Jeffrey J. Steiner.
- ----------
* Previously Filed.
(b) Financial Statement Schedules
Financial Statement Schedules have been omitted because they are not
applicable or not required or because the information is included elsewhere in
the financial statements or the notes thereto.
(c) The information provided pursuant to Item 4(b) of this Registration
Statement on Form S-4 is furnished as part of the Joint Proxy
Statement/Prospectus forming a part hereof.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act 1934) that is incorporated
by reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(2) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other items of the applicable form;
(3) That every prospectus: (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; and
(4) That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to any existing provision or arrangement
whereby the Registrant may indemnify a director, officer or controlling
person of the Registrant against liabilities arising under the Securities
Act, or otherwise, the Registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for
II-2
<PAGE>
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form S-4 under the Securities Act, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of this
Registration Statement through the date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of New
Hope, State of Pennsylvania, on October 30, 1997.
Date: TEL-SAVE HOLDINGS, INC.
October 30, 1997 By: /s/ Daniel Borislow
---------------------------------
Daniel Borislow
Chairman of the Board of
Directors, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- ------------------------------------------- -----------------
<S> <C> <C>
/s/ Daniel Borislow Chairman of the Board October 30, 1997
------------------------- of Directors, Chief Executive Officer and
Daniel Borislow of Directors, Chief Executive Officer and
* Director (Principal Executive Officer) October 30, 1997
------------------------- President, Director of Sales and
Gary W. McCulla Marketing and Director
* Chief Operations Officer and Director October 30, 1997
-------------------------
Emanuel J. DeMaio
* Controller (Principal Accounting Officer) October 30, 1997
-------------------------
Kevin R. Kelly
* Chief Financial Officer, Treasurer and October 30, 1997
------------------------- Director (Principal Financial Officer)
George P. Farley
* Director October 30, 1997
-------------------------
Harold First
* Director October 30, 1997
-------------------------
Ronald R. Thoma
</TABLE>
* The undersigned by signing his name hereto does hereby execute this
Amendment No. 1 to this Registration Statement pursuant to powers of
attorney previously filed as an exhibit to the Registration Statement.
* By:/s/ Aloysius T. Lawn, IV
-------------------------
Aloysius T. Lawn, IV
Attorney-in-fact
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------
2.1 Agreement and Plan of Merger, dated as of July 16, 1997, among the
Registrant, TSHCo. Inc. and Shared Technologies Fairchild Inc.
("STF"), without disclosure schedules (included as Annex A to the
Joint Proxy Statement/Prospectus forming a part of this
Registration Statement). The Registrant agrees to furnish
supplementally a copy of any omitted schedule to the Commission
upon request.
3.1* Form of Certificate of Amendment of Amended and Restated
Certificate of Incorporation of the Registrant as proposed to be
amended.
3.2* Form of Certificate of Designation of Amended and Restated
Certificate of Incorporation of the Registrant as proposed to be
amended.
4.1* Amended and Restated Certificate of Incorporation of the
Registrant, as amended.
4.2* Form of Certificate of Amendment of Amended and Restated
Certificate of Incorporation of the Registrant as proposed to be
amended (filed as Exhibit 3.1 hereto).
4.3* Form of Certificate of Designation of Amended and Restated
Certificate of Incorporation of the Registrant as proposed to be
amended (filed as Exhibit 3.2 hereto).
4.4 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2
to the Registrant's registration statement on Form S-1 (File No.
33-94940)).
4.5* Form of Warrant to purchase Common Stock of STF, together with the
form of Assumption of the Registrant.
5.1* Opinion of Aloysius T. Lawn, IV, Esq. as to the legality of the
securities being registered pursuant to this Registration
Statement.
12.1* Earnings Ratio Calculation.
23.1* Consent of BDO Seidman, LLP.
23.2* Consent of Arthur Andersen LLP.
23.3* Consent of Rothstein, Kass & Company, P.C.
23.4* Consent of Aloysius T. Lawn, IV, Esq. (included in the opinion
filed as Exhibit 5.1 hereto).
23.5* Consent of Salomon Brothers Inc.
23.6* Consent of Deutsche Morgan Grenfell Inc.
24.1* Powers of Attorney of the directors and certain officers of the
Registrant (included in the signature page to this Registration
Statement at page II-4).
99.1* Consent of Anthony D. Autorino.
99.2* Consent of Jeffrey J. Steiner.
- ----------
* Previously filed.
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TEL-SAVE HOLDINGS, INC.
TEL-SAVE HOLDINGS, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
FIRST: The Board of Directors of the Corporation adopted a
resolution, at a meeting duly held, setting forth a proposed amendment to the
Amended and Restated Certificate of Incorporation of the Corporation, declaring
such amendment's advisability and directing that such amendment be considered by
the stockholders. The resolution setting forth the proposed amendment is as
follows:
FURTHER RESOLVED, that the amendment to the Amended and Restated
Certificate of Incorporation of the Company as set forth below be, and it hereby
is, declared advisable, and that such amendment be, and it hereby is,
authorized, approved and adopted, subject to the approval of the stockholders of
the Company in accordance with Section 242 of the General Corporation Law of the
State of Delaware:
The first paragraph of Article Fourth of the Amended and Restated
Certificate of Incorporation of the Company shall be amended to
read in its entirety as follows:
FOURTH: The total number of shares of all classes of stock
that the Corporation shall have authority to issue is 300,000,000,
consisting of 5,000,000 shares of Preferred Stock, par value $0.01
per share, as more fully described in Section A. below (the
"Preferred Stock"), and 295,000,000 shares of Common Stock, par
value $0.01 per share, as more fully described in Section B. below.
SECOND: The requisite number of stockholders of the Corporation
have duly approved and adopted the foregoing amendment.
THIRD: The amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed and attested to by its duly authorized officers this
______ day of ___________________, 1997.
ATTEST: TEL-SAVE HOLDINGS, INC.
- --------------------- -----------------------
Name: Name:
Title: Title:
CERTIFICATE OF DESIGNATION
OF
SERIES A PREFERRED STOCK
1. Designation; Rank. The series of Preferred Stock designated and known as
"Series A Preferred Stock" shall consist of 57,950 shares, par value $.01 per
share. Shares of the Series A Preferred Stock, with respect to dividend rights
and rights on liquidation, winding up and dissolution, rank senior and prior to
the Common Stock, par value $.01 per share (the "Common Stock"), of Tel-Save
Holdings, Inc. (the "Corporation").
2. Dividends.
(a) The holders of the Series A Preferred Stock shall be entitled
to receive, when declared by the Board of Directors of the Corporation out of
any funds legally available therefor, dividends in cash at the annual rate of
$0.2375 per share (subject to appropriate adjustment for stock splits, stock
dividends, combinations or other similar recapitalizations affecting such
shares), and no more, in equal quarterly payments in arrears on March 31, June
30, September 30 and December 31 in each year (each such date is referred to as
a "Dividend Payment Date") commencing on December 31, 1997, payable in
preference and priority to any payment of any cash dividend on the Common Stock.
Such dividends shall be paid to the holders of record at the close of business
on the date specified by the Board of Directors of the Corporation at the time
such dividend is declared. If the Dividend Payment Date is not a business day,
the Dividend Payment Date shall be the next succeeding business day.
(b) Each of such quarterly dividends shall be fully cumulative and
shall accrue, whether or not earned or declared, without interest, from the date
of issue of the Series A Preferred Stock.
(c) No dividends shall be declared or paid or set apart for payment
on the Common Stock, or on the Preferred Stock of any series ranking, as to
dividends, junior to the Series A Preferred Stock, for any period unless full
cumulative dividends have been or contemporaneously are declared and paid (or
declared and a sum sufficient for the payment thereof set apart
<PAGE>
for such payment) on the Series A Preferred Stock for all dividend payment
periods ending on or prior to the date of payment of such full cumulative
dividends. (The Common Stock and any such series of Preferred Stock are referred
to hereinafter as "Junior Securities.") Unless full cumulative dividends on the
Series A Preferred Stock have been paid, no other distribution shall be made
upon or in respect of the Junior Securities.
(d) In the event that the Corporation shall have cumulative,
accrued and unpaid dividends outstanding immediately prior to, and in the event
of a conversion of any shares of Series A Preferred Stock as provided in Section
5 hereof, the Corporation shall, at its option, pay in cash to such holder the
full amount of any such dividends or allow such dividends to be converted into
Common Stock and the conversion price for such purpose shall be the then fair
market value of the Common Stock as determined by the Board of Directors of the
Corporation.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series A Preferred Stock
(collectively referred to as "Senior Preferred Stock"), but before any payment
shall be made to the holders of any Junior Securities by reason of their
ownership thereof, an amount equal to $4.75 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares). If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series A Preferred Stock the full amount to
which they shall be entitled, the holders of Series A Preferred Stock shall
share ratably in any distribution of the remaining
- 2 -
<PAGE>
assets and funds of the Corporation in proportion to the respective amounts
which would otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(b) After the payment of all preferential amounts required to be
paid to the holders of Senior Preferred Stock and Series A Preferred Stock upon
the dissolution, liquidation or winding up of the Corporation, the holders of
shares of Junior Securities then outstanding shall be entitled to receive the
remaining assets and funds of the Corporation available for distribution to its
stockholders.
(c) Written notice of such liquidation, dissolution or winding up,
stating a payment date and the place where said payments shall be made, shall be
given by mail, postage prepaid, or by telecopier to non-U.S. residents, not less
than 20 days prior to the payment date stated therein, to the holders of record
of the Series A Preferred Stock, such notice to be addressed to each such holder
at its address as shown by the records of the Corporation.
(d) Whenever the distribution provided for in this Section 3 shall
be payable in property other than cash, the value of such distribution shall be
the fair market value of such property as determined in good faith by the Board
of Directors of the Corporation.
(e) For the purposes of this Section 3, neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation nor the consolidation or merger of the Corporation with one or more
other corporations shall be deemed to be a liquidation, dissolution or winding
up, voluntary or involuntary, unless such voluntary sale, conveyance, exchange
or transfer shall be in connection with a plan of liquidation, dissolution or
winding up of the business of the Corporation.
4. Voting.
(a) Except as may be otherwise provided in these terms of the
Series A Preferred Stock or by law,
- 3 -
<PAGE>
the Series A Preferred Stock shall not be entitled to vote.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely the Series A Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization or
issuance of any series of Preferred Stock with preference or priority over the
Series A Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series A Preferred Stock, and the
authorization or issuance of any series of Preferred Stock on a parity with the
Series A Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed not to affect adversely the Series A Preferred Stock. The number
of authorized shares of Series A Preferred Stock may be increased or decreased
(but not below the number of shares then outstanding) by the affirmative vote of
the holders of a majority of the then outstanding shares of the Common Stock,
Series A Preferred Stock and all other classes or series of stock of the
Corporation entitled to vote thereon, voting as single class.
5. Optional Conversion. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall
be convertible, at the option of the holder thereof, at any time, into such
number of fully paid and nonassessable shares of Common Stock as equals the
Exchange Ratio (as defined below) (subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares). "Exchange Ratio" means the quotient
(rounded to four decimal places) of (a) $11.25 plus the product of (x) .3 times
- 4 -
<PAGE>
(y) the amount, if any, by which the average closing price per share of Common
Stock on The Nasdaq Stock Market's National Market for the fifteen consecutive
trading days ending on the trading day three trading days immediately preceding
the date of the Effective Time (as defined below) (the "Closing Date Market
Price") exceeds $20, divided by (b) the Closing Date Market Price; provided,
however that the Exchange Ratio shall not exceed 1.125. "Effective Time" means
the effective time of the merger contemplated by the Agreement and Plan of
Merger, dated as of July 16, 1997, among the Corporation, TSHCo, Inc., a wholly
owned subsidiary of the Corporation, and Shared Technologies Fairchild Inc.
In the event of a notice of redemption of any shares of Series A
Preferred Stock pursuant to Section 6 hereof, the Conversion Rights of the
shares designated for redemption shall terminate at the close of business on the
fifth full day preceding the date fixed for redemption, unless the redemption
price is not paid when due, in which case the Conversion Rights for such shares
shall continue until such price is paid in full. In the event of a liquidation
of the Corporation, the Conversion Rights shall terminate at the close of
business on the first full day preceding the date fixed for the payment of any
amounts distributable on liquidation to the holders of Series A Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock to
convert shares of Series A Preferred Stock into shares of Common
Stock, such holder shall surrender the certificate or certificates
for such shares of Series A Preferred Stock at the office of the
transfer agent for the Series A Preferred Stock (or at the
principal office of the Corporation if the Corporation serves as
its own transfer agent),
- 5 -
<PAGE>
together with written notice that such holder elects to convert all
or any number of the shares of the Series A Preferred Stock
represented by such certificate or certificates for shares of
Common Stock to be issued, provided, however, that the holder shall
pay any transfer taxes arising from the issuance of the Common
Stock to any person or entity other than the holder.
If required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument
or instruments of transfer, in a form satisfactory to the
Corporation, duly executed by the registered holder or his or its
attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent)
shall be the conversion date (the "Conversion Date"). The
Corporation shall, as soon as practicable after the Conversion
Date, issue and deliver at such office to such holder of Series A
Preferred Stock, or to his or its nominees, a certificate or
certificates for the number of shares of Common Stock to which such
holder shall be entitled, together with cash in lieu of any
fraction of a share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock shall be outstanding, reserve and keep available
out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Series A Preferred Stock, such
number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock.
(iii) All shares of Series A Preferred Stock which shall
have been surrendered for conversion as herein provided shall no
longer be deemed to be outstanding and all rights with respect to
such shares, including the rights, if any, to receive notices and
to vote, shall immediately cease and terminate on the
- 6 -
<PAGE>
Conversion Date, except only the right of the holders thereof to
receive shares of Common Stock in exchange therefor and payment of
any accrued and unpaid dividends thereon. Any shares of Series A
Preferred Stock so converted shall be retired and canceled and
shall not be reissued, and the Corporation may from time to time
take such appropriate action as may be necessary to reduce the
authorized Series A Preferred Stock accordingly.
(d) Adjustment for Reclassification, Exchange, or Substitution. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above in Section 5(a) hereof, or a reorganization, merger,
consolidation, or sale of assets provided for below in Section 5(e) hereof),
then and in each event the holder of each such share of Series A Preferred Stock
shall have the right thereafter to convert such share of Series A Preferred
Stock into the kind and amount of shares of stock and other securities
receivable upon such reorganization, reclassification, or other change by a
holder of the number of shares of Common Stock into which such shares of Series
A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
(e) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is treated as a
liquidation pursuant to Subsection 3(a)), each share of Series A Preferred Stock
shall thereafter be convertible into the kind and amount of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of such Series A Preferred
Stock would have been entitled upon such consolidation, merger or sale; and, in
such case, appropriate adjustment (as determined in good faith by the Board of
- 7 -
<PAGE>
Directors) shall be made in the application of the provisions in this Section 5
with respect to the rights and interest thereafter of the holders of the Series
A Preferred Stock, to the end that the provisions set forth in this Section 5
shall thereafter be applicable, as nearly as reasonably may be, in relation to
any shares of stock or other property thereafter deliverable upon the conversion
of the Series A Preferred Stock.
(f) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(g) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock
distribution thereon), or of any consolidation or merger of the
Corporation into or with another corporation, or of the sale of all
or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
- 8 -
<PAGE>
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, and shall cause to
be mailed to the holders of the Series A Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the record date specified in (A) below or twenty days before the
date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be taken, the
date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, subdivision or combination
are to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger,
sale, dissolution or winding up.
6. Optional Redemption.
(a) At any time and from time to time, the Corporation may, at the
option of its Board of Directors, redeem the Series A Preferred Stock, in whole
or in part, by paying $7.00 per share (subject to appropriate adjustment for
stock splits, stock dividends, combinations or other similar recapitalizations
affecting such shares) in cash for each share of Series A Preferred Stock then
redeemed (hereinafter referred to as the "Redemption Price").
(b) In the event of any redemption of only a part of the then
outstanding Series A Preferred Stock, the Corporation shall effect such
redemption pro rata among the holders thereof based on the number of shares of
Series A Preferred Stock held of record by such holders on the date of the
Redemption Notice (as defined below).
- 9 -
<PAGE>
(c) At least 30 days prior to the date fixed for any redemption of
Series A Preferred Stock (hereinafter referred to as the "Redemption Date"),
written notice shall be mailed, by first class mail, postage prepaid, to each
holder of record of Series A Preferred Stock to be redeemed, at his, her or its
address last shown on the records of the transfer agent of the Series A
Preferred Stock (or the records of the Corporation, if it serves as its own
transfer agent), notifying such holder of the election of the Corporation to
redeem such shares specifying the Redemption Date and the date on which such
holder's Conversion Rights (pursuant to Section 5 hereof) as to such shares
terminate and calling upon such holder to surrender to the Corporation, in the
manner and at the place designated, his, her or its certificate or certificates
representing the shares to be redeemed (such notice is hereinafter referred to
as the "Redemption Notice"). On or prior to the Redemption Date, each holder of
Series A Preferred Stock to be redeemed shall surrender his, her or its
certificate or certificates representing such shares to the Corporation, in the
manner and at the place designated in the Redemption Notice, and thereupon the
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be cancelled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares. From and after the Redemption
Date, unless there shall have been a default in payment of the Redemption Price,
all rights of the holders of the Series A Preferred Stock designated for
redemption in the Redemption Notice as holder of Series A Preferred Stock of the
Corporation (except the right to receive the Redemption Price without interest
upon surrender of their certificate or certificates) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever.
(d) Subject to the provisions hereof, the Board of Directors of the
Corporation shall have authority to prescribe the manner in which Series A
Preferred Stock shall be redeemed from time to time. Any shares of Series A
Preferred Stock so redeemed shall permanently
- 10 -
<PAGE>
be retired, shall no longer be deemed outstanding and shall not under any
circumstances be reissued, and the Corporation may from time to time take such
appropriate action as may be necessary to reduce the authorized Series A
Preferred Stock accordingly. Nothing herein contained shall prevent or restrict
the purchase by the Corporation, from time to time either at public or private
sale, of the whole or any part of the Series A Preferred Stock at such price or
prices as the Corporation may determine, subject to the provisions of applicable
law.
- 11 -
Amended and Restated
Certificate of Incorporation of Tel-Save Holdings, Inc.
Before Payment of Capital
Daniel Borislow, the sole incorporator of Tel-Save Holdings, Inc.
("Incorporator"), a corporation incorporated on June 13, 1995 under the General
Corporation Law of the State of Delaware, does hereby certify that the
corporation has not received any payment for any of its stock or elected initial
directors and that he is adopting this Amended and Restated Certificate of
Incorporation pursuant to Sections 241 and 245 of the General Corporation Law of
the State of Delaware. The Amended and Restated Certificate of Incorporation of
Tel- Save Holdings, Inc. shall read in full as follows:
FIRST: The name of the corporation is Tel-Save Holdings, Inc. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is No. 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of the Corporation's registered agent at such address is
The Corporation Trust Company.
THIRD: The purposes for which the Corporation was formed are to engage
in any lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 35,000,000 shares, consisting of
5,000,000 shares of Preferred Stock, par value $.01 per share, as more fully
described in Section A. below (the "Preferred Stock"), and 30,000,000 shares of
Common Stock, par value $.01 per share, as more fully described in Section B.
below (the "Common Stock").
<PAGE>
A. Preferred Stock. The shares of Preferred Stock may be divided
and issued from time to time in one or more series as may be designated by the
Board of Directors of the Corporation, each such series to be distinctly titled
and to consist of the number of shares designated by the Board of Directors. All
shares of any one series of Preferred Stock so designated by the Board of
Directors shall be alike in every particular, except that shares of any one
series issued at different times may differ as to the dates from which dividends
thereon (if any) shall accrue or be cumulative (or both). The designations,
preferences and relative, participating, optional or other special rights (if
any), and the qualifications, limitations or restrictions thereof (if any), of
any series of Preferred Stock may differ from those of any and all other series
at any time outstanding. The Board of Directors of the Corporation is hereby
expressly vested with authority to fix by resolution the powers, designations,
preferences and relative, participating, optional or other special rights (if
any), and the qualifications, limitations or restrictions and (if any), of the
Preferred Stock and each series thereof which may be designated by the Board of
Directors, including, but without limiting the generality of the foregoing, the
following:
(1) The voting rights and powers (if any) of the Preferred Stock
and each series thereof;
(2) The rates and times at which, and the terms and conditions on
which, dividends (if any) on the Preferred Stock, and each series thereof, will
be paid and any dividend preferences or rights of cumulation;
(3) The rights (if any) of holders of the Preferred Stock, and
each series thereof, to convert the same into, or exchange the same for, shares
of other classes (or series of classes) of capital stock o the Corporation and
the terms and conditions for such conversion or exchange, including provisions
for adjustment of conversion or exchange prices or rates in such events as the
Board of Directors shall determine;
- 2 -
<PAGE>
(4) The redemption rights (if any) of the Corporation and of the
holders of the Preferred Stock, and each series thereof, and the times at which,
and the terms and conditions on which, the Preferred Stock, and each series
thereof, may be redeemed; and
(5) The rights and preferences (if any) of the holders of the
Preferred Stock, and each series thereof, upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
B. Common Stock. All shares of Common Stock shall be identical and
shall entitle the holders thereof to the same rights and privileges.
(1) Dividends. When and as dividends are declared upon the Common
Stock, whether payable in cash, in property or in shares of stock of the
Corporation, the holders of Common Stock shall be entitled to share equally,
share for share, in such dividends.
(2) Voting Rights. Each holder of Common Stock shall be entitled
to one vote per share.
(3) Liquidation. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after payment
shall have been made to holders of the Preferred Stock of the full amounts to
which they shall be entitled as stated and expressed herein or as may be stated
and expressed pursuant hereto, the holders of Common Stock shall be entitled, to
the exclusion of the holders of the Preferred Stock, to share ratably according
to the number of shares of the Common Stock held by them in all remaining assets
of the Corporation available for distribution to its stockholders.
C. Other Provisions. No holder of any of the shares of any class or
series of stock or options, warrants or other rights to purchase shares of any
class of stock or of other securities of the Corporation shall have any
preemptive right to purchase or subscribe for any unissued stock of any class or
series or any additional shares of any class or series to be issued by reason of
any increase of the authorized capital stock of the Corporation of any
- 3 -
<PAGE>
class or series, or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the Corporation of any
class or series, or carrying any right to purchase stock of any class or series,
but any such unissued stock, additional authorized shares of any class or series
of stock or securities convertible into or exchangeable for stock, or carrying
any right to purchase stock, may be issued and disposed of pursuant to
resolution of the Board of Directors to such persons, firms, corporations or
associations, whether any such persons, firms, corporations or associations are
holders or others, and upon such terms as may be deemed advisable by the Board
of Directors in the exercise of its sole discretion.
FIFTH: The Board of Directors shall consist of not less than one (1)
nor more than fifteen (15) persons, the exact number to be fixed and determined
from time to time by resolution of the Board of Directors or, prior to the
election of an initial Board of Directors, by the Incorporator.
SIXTH: Prior to the first closing date for the initial public offering
of the common stock of the Corporation, the directors shall be elected for such
term as is specified by the Incorporator (prior to the issuance of shares) who
elected such directors or by the shareholders which elected such directors, as
the case may be. On and after the first closing date for the initial public
offering of the common stock of the Corporation, the directors shall be divided
into three (3) classes, as nearly equal in number as possible, known as Class 1,
Class 2, and Class 3. The initial directors of Class 1 shall serve until the
third (3rd) annual meeting of shareholders. At the third (3rd) annual meeting of
the shareholders, the directors of Class 1 shall be elected for a term of three
(3) years and, after expiration of such term, shall thereafter be elected every
three (3) years for three (3) year terms. The initial directors of Class 2 shall
serve until the second (2nd) annual meeting of shareholders. At the second (2nd)
annual meeting of the shareholder, the directors of Class 2 shall be elected for
a term
- 4 -
<PAGE>
of three (3) years and, after the expiration of such term, shall thereafter be
elected every three (3) years for three (3) year terms. The initial directors of
Class 3 shall serve until the first (1st) annual meeting of shareholders. At the
first (1st) annual meeting of shareholders, the directors of Class 3 shall be
elected for a term of three (3) years and, after the expiration of such term,
shall thereafter be elected every three (3) years for three (3) year terms. Each
director shall serve until his successor shall have been elected and shall
qualify, even though his term of office as herein provided has otherwise
expired, except in the event of his earlier death, resignation, removal or
disqualification. This Article Sixth, or any portion thereof, may be changed by
a by-law amendment which is adopted by all of the then members of Board of
Directors.
SEVENTH: In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the Board of Directors of the Corporation
is expressly authorized and empowered to make, alter or repeal the By-laws of
the Corporation, subject to the power of the stockholders of the Corporation to
alter or repeal any By-law made by the Board of Directors.
EIGHTH: The Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provisions contained in this
Certificate of Incorporation; and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article.
NINTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, a director of
this Corporation shall not be
- 5 -
<PAGE>
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
TENTH: The name and mailing address of the Incorporator is:
Mr. Daniel Borislow
Tel-Save
22 Village Square
New Hope, PA 18938
- 6 -
<PAGE>
IN WITNESS WHEREOF, Daniel Borislow, the sole Incorporator of Tel-Save
Holdings, Inc. has caused this Certificate of Amendment to be signed by him this
23rd day of June, 1995.
/s/ Daniel Borislow
----------------------------------
DANIEL BORISLOW, Sole Incorporator
- 7 -
<PAGE>
Amendment to Amended and Restated
Certificate of Incorporation of Tel-Save Holdings, Inc.
Before Payment of Capital
Daniel Borislow, the sole incorporator of Tel-Save Holdings, Inc.
("Incorporator"), a corporation incorporated on June 13, 1995 under the General
Corporation Law of the State of Delaware, does hereby certify that the
corporation has not received any payment for any of its stock or elected initial
directors and that he is adopting this Amended Certificate of Incorporation
pursuant to Sections 241 of the General Corporation Law of the State of
Delaware. An Amended and Restated Certificate of Incorporation Before Payment of
Capital was previously filed on June 27, 1995. The Amended and Restated
Certificate of Incorporation is hereby further amended by changing the first
paragraph thereof to read in full as follows:
"FIRST: The name of the corporation is The Phone Company (the
"Corporation")." In all other respects, the Amended and Restated Certificate of
Incorporation shall remain unchanged.
IN WITNESS WHEREOF, Daniel Borislow, the sole Incorporator of Tel-Save
Holdings, Inc., has caused this Certificate of Amendment to be signed by him
this 10th day of July, 1995.
/s/ Daniel Borislow
----------------------------------
DANIEL BORISLOW, Sole Incorporator
<PAGE>
Amendment No. 2 to Amended and Restated
Certificate of Incorporation of The Phone Company
(Previously known as Tel-Save Holdings, Inc.)
Before Payment of Capital
Daniel Borislow, the sole incorporator of The Phone Company (previously
known as Tel-Save Holdings, Inc.) ("Incorporator"), a corporation incorporated
on June 13, 1995 under the General Corporation Law of the State of Delaware,
does hereby certify that the corporation has not received any payment for any of
its stock or elected initial directors and that he is adopting this Amended
Certificate of Incorporation pursuant to Sections 241 of the General Corporation
Law of the State of Delaware. An Amended and Restated Certificate of
Incorporation Before Payment of Capital was previously filed on June 27, 1995
and was amended on July 10, 1995. The Amended and Restated Certificate of
Incorporation is hereby further amended by changing the first paragraph thereof
to read in full as follows:
"FIRST: The name of the corporation is Tel-Save Holdings, Inc. (the
"Corporation")."
In all other respects, the Amended and Restated Certificate of
Incorporation shall remain unchanged.
IN WITNESS WHEREOF, Daniel Borislow, the sole Incorporator of The Phone
Company (previously known as Tel-Save Holdings, Inc.), has caused this
Certificate of Amendment to be signed by him this 14th day of July, 1995.
/s/ Daniel Borislow
----------------------------------
DANIEL BORISLOW, Sole Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TEL-SAVE HOLDINGS, INC.
Tel-Save Holdings, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: The Corporation's Board of Directors adopted a resolution,
at a meeting duly held, setting forth a proposed amendment to the Corporation's
Amended and Restated Certificate of Incorporation, declaring the amendment's
advisability, and directing that the amendment be considered by the
stockholders. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that this Board of Directors declares advisable and
hereby adopts an amendment to the Corporation's Amended and Restated
Certificate of Incorporation as set forth below, subject to the
approval of the stockholders of the Corporation in accordance with
Section 242 of the Delaware General Corporation Law:
The first paragraph of Article Fourth of the Corporation's
Amended and Restated Certificate of Incorporation shall be
amended to read in its entirety as follows:
The total number of shares of all classes of
stock that the Corporation shall have authority to
issue is 105,000,000, consisting of 5,000,000 shares
of Preferred Stock, par value $0.01 per share, as
more fully described in Section A. below (the
"Preferred Stock"), and 100,000,000 shares of Common
Stock, par value $0.01 per share, as more fully
described in Section B. below.
SECOND: The required number of stockholders of the Corporation
have duly approved and adopted the foregoing amendment.
THIRD: The amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed and attested to by its duly authorized officers this 15th
day of April, 1996.
<PAGE>
ATTEST: TEL-SAVE HOLDINGS, INC.
/s/ Aloysius T. Lawn, IV By: /s/ Kevin R. Kelly
- ------------------------ -------------------
Aloysius T. Lawn, IV Kevin R. Kelly
Secretary Controller
ASSUMPTION
TEL-SAVE HOLDINGS, INC., a Delaware corporation (the "Company"),
HEREBY assumes the obligations of Shared Technologies Fairchild Inc., a Delaware
corporation ("STF"), under the attached Common Stock [Purchase] Warrant (the
"Warrant") issued to __________ (the "Warrantholder") on _________, 19__ by
Shared Technologies Inc., a Delaware corporation, which, as the surviving
corporation after its merger with Fairchild Industries, Inc., a Delaware
corporation, was renamed Shared Technologies Fairchild, Inc.
The Company HEREBY FURTHER agrees that the Warrant shall hereafter
constitute the right to acquire the number of shares of common stock, par value
$.01 per share (the "Common Stock"), of the Company equal to the product of [the
Exchange Ratio] (as defined below) and _____, the number of shares of common
stock, par value $.004 per share (the "STF Common Stock"), of STF formerly
subject to the Warrant (subject to appropriate adjustment in the event of any
stock dividend, stock split, combination or other similar recapitalization
affecting such shares).
The Company HEREBY FURTHER agrees that the Warrant shall hereafter
constitute the right to acquire such number of shares of Common Stock at a price
per share equal to the aggregate exercise price for such shares of STF Common
Stock for which the Warrant was formerly exercisable (the product of $_____ and
_____, or $_____) divided by the number of full shares of Common Stock deemed to
be purchasable pursuant to the Warrant; provided, however, that the number of
shares of Common Stock that may be purchased upon exercise of the Warrant shall
not include any fractional shares and, upon the last such exercise of the
Warrant, a cash payment shall be made for any fractional shares based upon the
per share average of the highest and lowest sale price of Common Stock on the
Nasdaq National Market on the date of such exercise.
TEL-SAVE HOLDINGS, INC.
Date: , 1997 By:
--------------------------
Name:
Title:
<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
-----------------------------------------------------------
Warrant No. ___ No. of Shares: ______
(subject to adjustment)
Date of Issuance: ___________, 199_
SHARED TECHNOLOGIES INC.
Common Stock [Purchase] Warrant1
--------------------------------
(Void after ____________, ____)
Shared Technologies Inc. (the "Company"), for value received,
hereby certifies that ______________________, or his registered assigns (the
"Registered Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time or from time to time on or after the date
hereof and on or before __________, ____ (the "Exercise Period") at not later
than 5:00 p.m. (Boston, Massachusetts time), _______ shares of Common stock,
$0.004 par value per share, of the Company ("Common Stock") (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such Common Stock)[, at
a purchase price per share of $_____. The number of shares purchasable upon
exercise of this Warrant, and the purchase price per share, each as adjusted
from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the "Warrant Stock" and the "Purchase Price," respectively].
1. Exercise.
(a) This Warrant may be exercised by the holder hereof, in whole
or in part, by the surrender of this Warrant (with the [purchase form/form of
subscription] attached hereto as Exhibit 1 duly executed) at the principal
office of the Company [and by the payment to the Company, by check or wire
transfer, of an amount equal to the then applicable Purchase Price multiplied by
the number of shares then being purchased]. The Company agrees that the shares
so purchased shall be deemed to be issued to the holder hereof as the record
owner of such shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such shares as
aforesaid. In the event of any exercise of this Warrant, certificates for the
shares of stock so purchased shall be delivered to the holder hereof within
fifteen (15) days thereafter and, unless this Warrant has been fully exercised
or expired, a new Warrant representing the portion of the shares, if any, with
- ------------------------
1 Some Warrants only permit cashless exercise.
<PAGE>
respect to which this Warrant shall not then have been exercised, shall also be
issued to the holder hereof within such fifteen (15) day period.
(b) Conversion.2 The Holder may convert this Warrant (the
"Conversion Right"), in whole or in part, into the number of shares of Common
Stock of the Company calculated pursuant to the following formula by
surrendering this Warrant at the principal office of the Company together with a
demand for conversion ("Conversion Demand") specifying the number of shares of
Common Stock of the Company, the right to purchase which the Holder desires to
convert:
Y(A-B)
------
X = A
where: X = the number of shares of Common
Stock to be issued to the
holder;
Y = the number of shares of Common
Stock subject to this Warrant
for which the Conversion Right
is being exercised;
A = the fair market value of one
share of Common Stock; and
B = the Purchase Price.
As used herein, the fair market value of a share of Common Stock
shall mean with respect to each share of Common Stock the closing price per
share of the Company's Common Stock on the principal national securities
exchange on which the Common Stock is then listed or admitted to trading or, if
not then listed or admitted to trading on any such exchange, on the NASDAQ
National Market System, or if not then listed or traded on any such exchange or
system, the bid price per share on the NASDAQ Small-Cap Market, averaged over
the thirty (30) trading days consisting of the day as of which the current fair
market value of Common Stock is being determined (which day shall be the date
two (2) days prior to which the Conversion Demand is, as applicable, delivered
by hand, telecopied, placed in the mails or delivered to a private courier) and
the twenty-nine (29) consecutive business days prior to such day. If at any time
such quotations are not available, the current fair market value of a share of
Common Stock shall be the highest price per share which the Company could obtain
from a willing buyer (not a current employee or director) for shares of Common
Stock sold by the Company, from authorized but unissued shares, as determined
- ------------------------
2 Warrants which do not provide for cashless exercise do not include this
provision. Warrants which only provide for cashless exercise also use the
formula in this provision, albeit with different variables, to determine the
number of shares of Common Stock that the Holder may obtain. Those warrants use
"Base Number of Shares" and "Base Index" in place of "Warrant Stock" and
"Purchase Price," respectively.
-2-
<PAGE>
in good faith by the Board of Directors of the Company, unless (i) the Company
shall become subject to a merger, acquisition or other consolidation pursuant to
which the Company is not the surviving party, in which case the current fair
market value of a share of Common Stock shall be deemed to be the value received
by the holders of the Company's Common Stock for each share of Common Stock
pursuant to the Company's acquisition; or (ii) the Holder shall exercise its
Conversion Right to purchase such shares within fifteen (15) days prior to the
closing date of the initial underwritten public offering of the Company's Common
Stock pursuant to a registration statement filed under the Act, in which case,
the fair market value of a share of Common Stock shall be the price per share at
which all registered shares are sold to the public in such offering. The Company
agrees that the shares so converted shall be deemed to be issued to the holder
hereof as the record owner of such shares as of the close of business or the
date on which this Warrant shall have been surrendered as aforesaid. In the
event of any conversion of this Warrant, certificates for the shares of stock so
converted shall be delivered to the holder hereof within fifteen (15) days
thereafter and, unless this Warrant has been fully converted or expired, a new
warrant representing the portion of the shares, if any, with respect to which
this Warrant shall not then have been converted, shall also be issued to the
holder hereof within such fifteen (15) day period. Exercise of the foregoing
Conversion Rights shall be deemed an exercise of this Warrant for all purposes
hereunder. Any adjustments in the Purchase Price or number or type of securities
or other property which the Holder is entitled to receive upon exercise of this
Warrant shall also apply mutatis mutandis to the Conversion Rights provided for
herein.
2. Anti-Dilution Provisions.3
(a) Adjustment for Recapitalization. If outstanding shares
of the Company's Common Stock shall be subdivided into a greater number of
shares or a dividend in Common Stock shall be paid in respect of Common Stock,
the Purchase Price in effect immediately prior to such subdivision or at the
record date of such dividend shall simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend be
proportionately reduced. If outstanding shares of Common Stock shall be combined
into a smaller number of shares, the Purchase Price in effect immediately prior
to such combination shall, simultaneously with the effectiveness of such
combination, be proportionately increased. When any adjustment is required to be
made in the Purchase Price, the number of shares of Warrant Stock purchasable
upon the exercise of this Warrant shall be changed to the number determined by
dividing (i) an amount equal to the number of shares issuable upon the exercise
of this Warrant immediately prior to such adjustment, multiplied by the Purchase
Price in effect immediately prior to such adjustment, by (ii) the Purchase Price
in effect immediately after such adjustment.
(b) Adjustment for Reorganization, Consolidation, Merger, Etc.
If there shall occur any capital reorganization or reclassification of the
Company Common Stock (other than a change in par value or a subdivision or
combination as provided for in
- ------------------------
3 Warrants which only provide for cashless exercise contain a similar
provision adjusting the Base Index under certain circumstances.
-3-
<PAGE>
Subsection 2(a) above), or any consolidation or merger of the Company with or
into another corporation, or a transfer of all or substantially all of the
assets of the Company, then, as part of any such reorganization,
reclassification, consolidation, merger or sale, as the case may be, lawful
provision shall be made so that the Registered Holder of this Warrant shall have
the right thereafter to receive upon the exercise hereof the kind and amount of
shares of stock or other securities or property which such Registered Holder
would have been entitled to receive if, immediately prior to any such
reorganization, reclassification, consolidation, merger or sale as the case may
be, such Registered Holder had held the number of shares of Common Stock which
were then purchasable upon the exercise of this Warrant. In any such case,
appropriate adjustment (as reasonably determined by the Board of Directors of
the Company) shall be made in the application of the provisions set forth herein
with respect to the rights and interests thereafter of the Registered Holder of
this Warrant such that the provisions set forth in this Section 2 (including
provisions with respect to adjustment of the Purchase Price) shall thereafter be
applicable, as nearly as is reasonably practicable, in relation to any shares of
stock or other securities or property thereafter deliverable upon the exercise
of this Warrant.
(c) Adjustments for Sale of Shares of Common Stock Below Purchase
Price.4
(i) Special Definitions. For purposes of this Subsection
2(c), the following definitions shall apply:
(A) "Option" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire Common
Stock or Convertible Securities (collectively, "Rights"), excluding
(1) up to 536,239 Rights granted to employees or consultants of the
Company pursuant to an option plan adopted by the Board of
Directors (subject to appropriate adjustment for any stock
dividend, stock split, combination or other similar
recapitalization affecting such shares) and (2) Rights granted by
the Company on or prior to the Original Issue Date.
(B) "Original Issue Date" shall mean _________,
199_.
(C) "Convertible Securities" shall mean any
evidences of indebtedness, shares or other securities directly or
indirectly convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued (or, pursuant to Subsection
2 (c) (iii) below, deemed to be issued) by the Company after the
Original Issue Date, other than shares of Common Stock issued or
issuable:
- ------------------------
4Some Warrants do not contain this provision.
-4-
<PAGE>
(1) by reason of a dividend, stock split,
split-up or other distribution on shares of Common Stock issued
(or pursuant to Subsection 2(c)(iii) below deemed to be issued)
by the Company after the Original Issue Date; or
(2) pursuant to or upon the exercise of Rights
excluded from the definition of "Option" in Subsection 2
(c)(i)(A).
(E) "Warrant Holders" shall mean the holder of
this Warrant and the holders of all other Warrants, from time to
time, issued in connection with _____________________ Agreement
(the "__________ Agreement") dated the date hereof by and among the
Company, ______________________________________, and executed and
delivered simultaneously with this Warrant, for so long as such
holders shall hold the Warrants issued pursuant to the ___________
Agreement.
(ii) No Adjustment of Purchase Price. No
adjustment in the number of shares of Common Stock into which the
Warrant is exercisable shall be made by adjustment in the
applicable Purchase Price thereof; (a) unless the consideration per
share (determined pursuant to Subsection 2(c)(v)) for an Additional
Share of Common Stock issued or deemed to be issued by the Company
is less than the applicable Purchase Price in effect on the date
of, and immediately prior to, the issue of such Additiona1 Shares
of Common Stock, or (b) if prior to such issuance, the Company
receives written notice from the holders of at least a majority of
the then Warrant Holders agreeing that no such adjustment shall be
made as the result of the issuance of Additional Shares of Common
Stock.
(iii) Issue of Securities Deemed Issue of
Additional Shares of Common Stock.
(A) If the Company at any time or from time to
time after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the
maximum number of shares of Common Stock (as set forth in the
instrument relating thereto without regard to any provision
contained therein for a subsequent adjustment of such number)
usable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion of
exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of
the close of business onsuch record date, provided that Additional
Shares of Common
-5
<PAGE>
Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Subsection 2(c)(v)
hereof) of such Additional Shares of Common Stock would be less
than the applicable Purchase Price in effect on the date of and
immediately prior to such issue, or such record date, as the case
may be.
(B) No further adjustment in the Purchase Price
shall be made upon the subsequent issue of Convertible Securities
or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities.
(C) If such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any
increase in the consideration payable to the company, or decrease
in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Purchase Price
computed upon the original issue thereof (or upon the occurrence of
a record date with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities.
(D) No readjustment pursuant to clause (C) above
shall have the effect of increasing the Purchase Price to an amount
which exceeds the lower of (1) the Purchase Price on the original
adjustment date, or (2) the Purchase Price that resulted from any
other issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date.
(E) Upon the expiration or termination of any
unexercised Option, the Purchase Price shall not be readjusted, but
the Additional Shares of Common Stock deemed issued as the result
of the original issue of such Option shall not be deemed issued for
the purposes of any subsequent adjustment of the Purchase Price.
(F) In the event of any change in the number of
shares of Common Stock issuable upon the exercise, conversion or
exchange of any Option or Convertible Security, including, but not
limited to, a change resulting from the anti-dilution provisions
thereof, the Purchase Price then in effect shall forthwith be
readjusted to such Purchase Price as would have been obtained had
the adjustment which was made upon the issuance of such Option or
Convertible Security not exercised or converted prior to such
change been made upon the basis of such change, but no further
adjustment shall be made for the actual issuance of Common Stock
upon the exercise or conversion of any such option or Convertible
Security.
(iv) Adjustment of Purchase Price Upon Issuance of
Additional Shares of Common Stock. In the event the Company shall
at any time after
-6-
<PAGE>
the Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to Subsection 2 (c)(iii), but excluding shares issued upon
a stock split or combination or as a dividend or distribution as
provided in Subsection 2(a)), without consideration or for a
consideration per share less than the applicable Purchase Price in
effect on the date of and immediately prior to such issue, then,
and in such event, such Purchase Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Purchase Price by a fraction,
(A) the numerator of which shall be (1) the number of shares of
Common Stock outstanding immediately prior to such issue plus (2)
the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at such
Purchase Price; and (B) the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common
Stock so issued; provided that, for the purpose of this Subsection
2 (c) (iv), all shares of Common Stock issuable upon exercise of
the Warrants outstanding immediately prior to such issue shall be
deemed to be outstanding, and immediately after any Additional
Shares of Common Stock are deemed issued pursuant to Subsection
2(c)(iii) (other than shares excluded from the definition of
"Additional Shares of Common Stock"), such Additional Shares of
Common Stock shall be deemed to be outstanding.
Notwithstanding the foregoing, the applicable Purchase
Price shall not be so reduced at such time if the amount of such
reduction would be an amount less than $.01, but any such amount
shall be carried forward and reduction with respect thereto made at
the time of and together with any subsequent reduction which,
together with such amount and any other amount or amounts so
carried forward, shall aggregate $.01 or more.
(v) Determination of Consideration. For purposes of this
Subsection 2(c), the consideration received by the Company for the
issue of any Additional Shares of Common Stock shall be computed as
follows:
(A) Cash and Property. Such consideration shall:
(1) insofar as it consists of cash, be
computed at the aggregate of cash received by the
Company, excluding amounts or payable for accrued
interest or accrued dividends;
(2) insofar as it consists of property other
than cash, be computed at the fair market value thereof
at the time of such issue, as determined in good faith
by the Board of Directors; and
-7-
<PAGE>
(3) in the event Additional Shares of Common
Stock are issued together with other shares or
securities or other assets of the Company for
consideration which covers both, be the proportion of
such consideration so received, computed as provided in
clauses (1) and (2) above, as determined in good faith
by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Company for Additional
Shares of Common Stock deemed to have been issued pursuant to
Subsection 2(c) (iii) relating to Options and Convertible
Securities shall be determined by dividing (x) the total amount, if
any, received or receivable by the Company as consideration for the
issue of such Options or Convertible Securities, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such
consideration) payable to the Company upon the exercise of such
Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Common Stock, the
exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by (y) the
maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(d) Certificate as to Adjustments.5 When any adjustment is required
to be made in the Purchase Price, the Company at its expense shall promptly
compute such adjustment in accordance with the terms of the Warrant and prepare
a certificate executed by two executive officers of the Company setting forth
such adjustment and showing in detail the facts upon which such adjustment is
based. The Company shall forthwith mail to each Registered Holder a copy of such
certificate. Such certificate shall also set forth the kind and amount of stock
or other securities or property into which this Warrant shall be exercisable
following the occurrence of any of the events specified in this Section 2.
3. Fractional Shares.6 The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares. In lieu of delivering
such fractional interest, the Company shall pay an amount to the Holder equal to
the fair market value of such fractional interest as of the date of exercise.
- ------------------------
5Some Warrants do not contain this provision.
6Some Warrants do not contain this provision.
-8-
<PAGE>
4. Limitation on Sales, etc.7 Each holder of this Warrant
acknowledges that this Warrant and the Warrant Stock have not been registered
under the Securities Act of 1933, as amended (the "Act"), and agrees not to
sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this
Warrant or any Warrant Stock issued upon its exercise in the absence of (a) an
effective registration statement under the Act as to this Warrant or such
Warrant Stock and registration or qualification of this Warrant or such Warrant
Stock under any applicable Blue Sky or state securities law then in effect, or
(b) an opinion of counsel, satisfactory to the Company, that such registration
and qualification are not required. Each certificate or other instrument for
Warrant Stock issued upon the exercise of this Warrant shall bear a legend
substantially to the foregoing effect.
Notwithstanding the foregoing, the Registered Holder may require
the Company to issue a certificate representing the Warrant Stock without a
legend in substitution for a legended certificate representing the Warrant Stock
if either (i) such Warrant Stock has been registered for resale under the Act or
(ii) the Registered Holder has received an opinion of counsel reasonably
satisfactory to the Company that such registration is not required with respect
to such Warrant Stock.
5. No Impairment. The Company will not, by amendment of its charter
or through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
6. Liquidating Dividends.8 If the Company pays a dividend or makes
a distribution on the Common Stock payable otherwise than in cash out of
earnings or earned surplus (determined in accordance with generally accepted
accounting principles) except for a stock dividend payable in shares of Common
Stock (a "Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Stock purchased upon such exercise, the Liquidating Dividend which would
have been paid to such Registered Holder if he had been the owner of record of
such shares of Warrant Stock immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distributions are to be determined.
7. Notices of Record Date, etc.9 In case:
- ------------------------
7 Warrants which only provide for cashless exercise include provisions
granting "Registration Rights" to those Warrant Holders.
8 Some Warrants do not contain this provision.
9 Some Warrants do not contain this provision.
-9-
<PAGE>
(a) the Company shall choose a date on which a record is to be
taken of the holders of its Common Stock (or other stock or securities at the
time deliverable upon the exercise of this Warrant) for the purpose of entitling
or enabling them to receive any dividend or other distribution, or to receive
any right to subscribe for or purchase any shares of stock of any class or any
other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company, then, and in each such case, the Company will mail or
cause to be mailed to the Registered Holder of this Warrant a notice specifying,
as the case may be, (i) the date on which a record is to be taken for the
purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or (ii) the effective date on
which such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or such other
stock or securities at the time deliverable upon the exercise of this warrant)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up. Such notice shall be mailed at least ____ days prior
to the record date or effective date for the event specified in such notice.
8. Reservation of Stock. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the exercise of this
Warrant, such shares of Warrant Stock and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant. All
such shares shall be duly authorized and, when issued upon such exercise, shall
be validly issued, fully paid and nonassessable, free and clear of all liens,
security interests, charges and other encumbrances or restrictions on sale and
free and clear of all preemptive rights.
9. Exchange of Warrants. Upon the surrender by the Registered
Holder of any Warrant or Warrants, properly endorsed, to the Company at the
principa1 office of the Company, the Company will, subject to the provisions of
Section 4 hereof, issue and deliver to or upon the order of such Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of such
Registered Holder or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and (in the case of loss, theft or destruction) upon
delivery of an indemnity agreement (with
-10-
<PAGE>
surety if reasonably required) in an amount reasonably satisfactory to the
Company, or (in the case of mutilation) upon surrender and cancellation of this
Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor.
11. Transfers, etc.
(a) The Company will maintain a register (the "Warrent Register")
containing the names and addresses of the Registered Holders of this Warrant.
Any Registered Holder may change its or his address as shown on the Warrant
Register by written notice to the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, upon surrender
of this Warrant with a properly executed assignment (in the form of Exhibit 2
hereto) at the principal office of the Company. 10
(c) Until any transfer of this Warrant is made in the Warrant
Register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
12. Mailing of Notices, etc.11 All notices and other
communications from the Company to the Registered Holder of this Warrant shall
be mailed by first-class certified or registered mail postage prepaid, to the
address furnished to the Company in writing by the last Registered Holder of
this Warrant who shall have furnished an address to the Company in writing. All
notices and other communications from the Registered Holder of this Warrant or
in connection herewith to the Company shall be mailed by first-class certified
or registered mail, postage prepaid, to the Company at its principal office set
forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below, it shall give prompt
written notice to the Registered Holder of this Warrant and thereafter all
references in this Warrant to the location of its principal office at the
particular time shall be as so specified in such notice.
13. No Rights as Stockholder. Until the exercise of this Warrant,
the Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. Change or Waiver. Any term of this Warrant may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of the change or waiver is sought.
- ------------------------
10 Some Warrants further limit transfer to no more than ten transferees in
the aggregate.
11 Some Warrants also include personal delivery, telegraph, facsimile
transmission and telex as appropriate means of providing notices to Holders.
-11-
<PAGE>
15. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
16. Governing Law. This Warrant will be governed by and construed
in accordance with the laws of the State of Delaware 12 [without regard to
conflict-of-laws principles which would require the application of the laws of
another jurisdiction].13
- ----------
12 Some Warrants provide that the laws of the Commonwealth of Massachusetts
apply.
13 Some Warrants do not include the bracketed portion in this provision.
-12-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and issued by its officers thereunto duly authorized as of this __th
day of _________, 199_.
[Corporate Seal] SHARED TECHNOLOGIES INC.
By:
---------------------
Vincent DiVincenzo
Senior Vice President
100 Great Meadow Road
Suite 104
Wethersfield, CT 06109
ATTEST:
---------------------------
Kenneth M. Dorros, Secretary
-13-
October 28, 1997
Board of Directors
Tel-Save Holdings, Inc.
6805 Route 202
New Hope, Pennsylvania 18938
Gentlemen:
I am general counsel to Tel-Save Holdings, Inc., a Delaware
corporation (the "Company"), in connection with the Company's filing pursuant to
the Securities Act of 1933, as amended (the "Securities Act"), of the
Registration Statement on Form S-4 (the "Registration Statement"), relating to
the shares of common stock, par value $.01 per share (the "Common Stock"), of
the Company, the shares of Series A Preferred Stock, par value $.01 per share
(the "Series A Preferred"), of the Company and the Warrants to purchase Common
Stock (the "Warrants") of the Company to be issued in connection with the merger
of Shared Technologies Fairchild Inc., a Delaware corporation ("STF"), with and
into TSHCo, Inc., a Delaware corporation and wholly owned subsidiary of the
Company ("Merger Sub"), pursuant to the Agreement and Plan of Merger, dated as
of July 16, 1997 (the "Merger Agreement"), among the Company, Merger Sub and
STF.
I have examined such corporate records of the Company, including
its Amended and Restated Certificate of Incorporation, as amended, its form of
Certificate of Amendment of Amended and Restated Certificate of Incorporation
(the "Amendment"), its form of Certificate of Designation of Amended and
Restated Certificate of Incorporation (the "Certificate of Designation"), its
Bylaws and resolutions of its Board of Directors, as well as such other
documents as I deemed necessary for rendering the opinion hereinafter expressed.
On the basis of the foregoing, I am of the opinion that the Common
Stock, the Series A Preferred and the Warrants have been duly authorized by the
Board
<PAGE>
Tel-Save Holdings, Inc.
October 28, 1997
Page 2
of Directors of the Company, and that, when issued in accordance with the
provisions of the Merger Agreement, following approval by the stockholders of
the Company of the Amendment and the due filing of the Amendment and the
Certificate of Designation in the Office of the Secretary of State of the State
of Delaware, the Common Stock (including the Common Stock issuable upon
conversion of the Series A Preferred in accordance with its terms) and the
Series A Preferred will be legally issued, fully paid and nonassessable and the
Warrants will constitute legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms except to the
extent that such enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium, receivership or other similar laws affecting or
relating to the enforcement of creditors' rights generally or by equitable
principles (regardless of whether enforcement is sought in a proceeding in
equity or at law). The enforceability of the provisions of the Warrants with
respect to the issuance of Common Stock is also subject to their being, at the
time such provisions are sought to be enforced, sufficiently authorized but
unissued shares of Common Stock.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name therein.
Sincerely yours,
/s/ Aloysius T. Lawn, IV
Aloysius T. Lawn, IV
General Counsel and
Secretary
<TABLE>
<CAPTION>
SELECTED RATIOS
HISTORICAL SUPPLEMENTAL
----------------------------------------- ------------------------------------------
PRO FORMA COMBINED: Six Six
Months Months
Ended Ended
Year Ended December 31, June 30, Year Ended December 31, June 30,
----------------------------------------- ------------------------------------------
1994 1995 1996 1997 1994 1995 1996 1997
----------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense 414 856 23,026 15,342 414 856 18,256 8,322
Rental expense 623 750 2,066 1,145 623 750 2,066 1,145
----------------------------------------- ------------------------------------------
Total Fixed Charges 1,037 1,606 25,092 16,487 1,037 1,606 20,321 9,467
========================================= ==========================================
Preferred Stock Dividends 478 398 2,366 2,299 478 398 2,366 2,299
----------------------------------------- ------------------------------------------
Total Combined Fixed Charges and
Preferred Stock Dividends 1,515 2,004 27,458 18,786 1,515 2,004 22,687 11,766
========================================= ==========================================
Earnings:
Income before provision
for income taxes 11,154 19,004 24,888 (726) 11,154 19,004 32,910 8,439
Equity in loss of affiliate - 1,752 3,327 186 - 1,752 3,927 186
Minority Interest in net loss of
subsidiaries 128 - - - 128 - - -
Fixed Charges per above 1,037 1,606 25,092 16,487 1,037 1,606 20,321 9,467
---------------------------------------- ------------------------------------------
Earnings before Fixed Charges 12,319 22,362 53,917 15,947 12,319 22,362 57,159 18,092
---------------------------------------- ------------------------------------------
Ratio of Earnings to Fixed Charges (2) 11.9x 13.9x 2.1x 1.0x 11.9x 13.9x 2.8x 1.9x
======================================== ==========================================
Ratio of Earnigs to Combine Fixed
Charges and Preferred Stock
Dividends (2) 8.1x 11.2x 2.0x 0.8x 8.1x 11.2x 2.5x 1.5x
======================================== ==========================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Historical
---------------------------------------------------------------
Six Months
Ended
Year Ended December 31, June 30,
---------------------------------------------------------------
1992 1993 1994 1995 1996 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TEL-SAVE:
Fixed Charges:
Interest expense (1) 2 2 55 179 138 862
Rental expense 1 4 10 24 55 9
--------------------------------------------------------------
Total Fixed Charges 3 6 65 203 193 871
==============================================================
Preferred Stock Dividends - - - - - -
--------------------------------------------------------------
Total Combined Fixed Charges and
Preferred Stock Dividends 3 6 65 203 193 871
==============================================================
Earnings:
Income before provision
for income taxes 1,421 3,272 9,355 18,032 32,373 (714)
Equity in loss of affiliate - - - - - -
Minority interest in net loss of
subsidiaries - - - - - -
Fixed Charges per above 3 6 65 203 193 871
---------------------------------------------------------------
Earnings before Fixed Charges 1,424 3,278 9,420 18,235 32,566 157
---------------------------------------------------------------
Ratio of Earnings to Fixed Charges(2) 517.0x 530.5x 144.1x 89.8x 168.9x 0.2x
===============================================================
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends (2) 517.0x 530.5x 144.1x 89.8x 168.9x 0.2x
===============================================================
STF:
Fixed Charges:
Interest expense 290 438 359 677 22,888 14,480
Rental expense 553 561 612 726 2,011 1,136
--------------------------------------------------------------
Total Fixed Charges 843 999 971 1,403 24,899 15,616
==============================================================
Preferred Stock Dividends 335 345 478 398 2,366 2,299
--------------------------------------------------------------
Total Combinerd Fixed Charges and
Preferred Stock Dividends 1,178 1,344 1,449 1,801 27,265 17,915
==============================================================
Earnings:
Income (loss) before provision
for income taxes (1,032) 290 1,799 972 (8,666) (12)
Equity in loss of affiliate - - - 1,752 3,927 186
Minority interest in net loss of
subsidiaries 37 82 128 - - -
Fixed Charges per above 843 999 971 1,403 24,899 15,616
--------------------------------------------------------------
Earnings before Fixed Charges (152) 1,371 2,898 4,127 20,160 15,790
--------------------------------------------------------------
Ratio of Earnings to Fixed Charges(2) (0.2)x 1.4x 3.0x 2.9x 0.8x 1.0x
==============================================================
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends (2) (0.1)x 1.0x 2.0x 2.3x 0.7x 0.9x
===============================================================
</TABLE>
- ----------
(1) Classified as Investment and other income, net in the Statements of
Operations for all periods presented.
(2) Calculation of ratios may differ slightly from amounts shown due to
rounding.
EXHIBIT 23.1
CONSENT OF BDO SEIDMAN, LLP
TEL-SAVE HOLDINGS, INC.
New Hope, Pennsylvania
We hereby consent to the incorporation by reference in this Joint Proxy
Statement/Prospectus constituting a part of this Registration Statement of our
reports dated January 29, 1997 relating to the consolidated financial statements
and schedule of Tel-Save Holdings, Inc. and Subsidiaries (the "Company")
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
We also consent to the reference to us under the caption "Experts" in the Joint
Proxy Statement/ Prospectus.
/s/ BDO Seidman, LLP
-----------------------
BDO Seidman, LLP
New York, New York
October 24, 1997
EXHIBIT 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this joint proxy statement/prospectus of our report dated March 7,
1997 incorporated by reference in the Shared Technologies Fairchild, Inc. Form
10-K for the year ended December 31, 1996 and to all references to our Firm
included in this joint proxy statement/prospectus.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Washington,D.C.
October 24, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Joint Proxy
Statement/Prospectus constituting a part of this registration statement of our
report, which contains an explanatory paragraph relating to the changing of the
method of accounting for Shared Technologies Fairchild Inc.'s investment in one
of its subsidaries, dated March 1, 1996 on our audits of the consolidated
financial statements and financial statement schedule of Shared Technologies
Fairchild Inc. as of December 31, 1995 and for the years ended December 31, 1995
and 1994. We also consent to the reference to our firm under the caption
"Experts".
/s/ Rothstein, Kass & Company, P.C.
Rothstein, Kass & Company, P.C.
Roseland, New Jersey
October 27, 1997
We hereby consent to the use of our name and to the description of our opinion
letter, dated July 16, 1997, under the captions "SUMMARY--Opinions of Financial
Advisors", "THE MERGER--Opinion of Tel-Save Financial Advisor" and "THE
MERGER--Background of the Merger; Material Contacts Between the Parties" in, and
to the inclusion of such opinion letter as Annex B to, the Joint Proxy
Statement/Prospectus of Tel-Save Holdings, Inc. and Shared Technologies
Fairchild Inc., which Joint Proxy Statement/Prospectus is part of the
Registration Statement on Form S-4 of Tel-Save Holdings, Inc. By giving such
consent we do not thereby admit that we are experts with respect to any part of
such Registration Statement within the meaning of the term "expert" as used in,
or that we come within the category of persons whose consent is required under,
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
SALOMON BROTHERS INC
By:/s/ Salomon Brothers, Inc.
-------------------------
New York, New York
October 24, 1997
We hereby consent to the use of our name and to the description of our
opinion letter, dated July 16, 1997 under the captions "SUMMARY -- Opinions of
Financial Advisors", "THE MERGER -- Opinion of of STF Financial Advisor" and "
THE MERGER -- Background of the Merger; Material Contacts Between the Parties"
in, and to the inclusion of such opinion letter as Annex C to, the Joint Proxy
Statement/Prospectus of Tel-Save Holdings, Inc. and Shared Technologies
Fairchild Inc., which Joint Proxy Statement/Prosectus is part of the
Registration Statement on Form S-4 of Tel-Save Holdings, Inc. By giving such
consent we do not thereby admit that we are experts with respect to any part of
such Registration Statement within the meaning of the term "expert" as used in,
or that we come within the category of persons whose consent is required under
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
DEUTSCHE MORGAN GRENFELL INC.
By: /s/ Louis B. Cooper /s/ Laurence Braham
------------------- -------------------
Louis B. Cooper Laurence Braham
New York, New York
October 27, 1997
CONSENT OF PROSPECTIVE DIRECTOR
I hereby consent to (i) being named as a nominee as a director
of Tel-Save Holdings, Inc. ("Tel-Save") in the Joint Proxy Statement/Prospectus
of Tel-Save and Shared Technologies Fairchild Inc.; and (ii) this Consent being
filed as an exhibit to the Form S-4.
Very truly yours,
/s/ Anthony D. Autorino
-----------------------
Anthony D. Autorino
CONSENT OF PROSPECTIVE DIRECTOR
I hereby consent to (i) being named as a nominee as a director of
Tel-Save Holdings, Inc. ("Tel-Save") in the Joint Proxy Statement/Prospectus of
Tel-Save and Shared Technologies Fairchild, Inc;, and (ii) this Consent being
filed as an exhibit to the Form S-4.
Very truly yours,
/s/ Jeffrey J. Steiner
----------------------
Jeffrey J. Steiner
