AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1999.
Registration No. 333-69737
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------
TEL-SAVE.COM, INC.
FORMERLY, TEL-SAVE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 23-28277736
(State or other jurisdiction of incorporation or organization) (I.R.S. Employee Identification Number)
</TABLE>
6805 ROUTE 202
NEW HOPE, PENNSYLVANIA. 18938
(215) 862-1500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ALOYSIUS T. LAWN, IV
GENERAL COUNSEL AND SECRETARY
TEL-SAVE.COM, INC.
6805 ROUTE 202 NEW HOPE, PA 18938
(215) 862-1500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (as defined below), other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION
DATED FEBRUARY 11, 1999
PROSPECTUS
TEL-SAVE.COM, INC.
FORMERLY TEL-SAVE HOLDINGS, INC.
3,523,285 SHARES OF COMMON STOCK
Our Board of Directors declared a dividend of Rights to purchase our common
stock to holders of record as of December 31, 1998. Through this Prospectus, we
are offering the shares of common stock that Rightsholders may purchase upon
exercising the Rights. These Rights cannot be transferred.
Offering Price: $17.00
Our common stock is quoted on the Nasdaq National Market and traded under
the symbol "TALK."
Our principal executive offices are located at 6805 Route 202, New Hope,
Pennsylvania 18938, and our telephone number is (215) 862-1500.
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH AN INVESTMENT IN OUR COMMON
STOCK.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
February __,1999
This information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. The prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
================================================================================
TABLE OF CONTENTS
PAGE
----
Risk Factors...................................................................3
Use Of Proceeds................................................................9
Determination of Offering Price................................................9
Plan Of Distribution...........................................................9
Description of Rights..........................................................9
Certain Federal Income Tax Considerations.....................................14
Legal Matters.................................................................19
Experts.......................................................................19
Where You Can Find More Information...........................................19
---------------
================================================================================
THIS PROSPECTUS CONTAINS AND INCORPORATES BY REFERENCE CERTAIN FORWARD
LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 WITH RESPECT TO OUR BUSINESS, FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, INCLUDING, WITHOUT LIMITATION, STATEMENTS UNDER THE CAPTIONS
"BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" IN OUR ANNUAL AND QUARTERLY REPORTS. THESE FORWARD
LOOKING STATEMENTS REFLECT OUR PLANS, EXPECTATIONS AND BELIEFS AND, ACCORDINGLY,
ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN THAT
ANY OF SUCH FORWARD LOOKING STATEMENTS WILL BE REALIZED. FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD
LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FACTORS DISCUSSED IN THE SECTION
OF THIS PROSPECTUS ENTITLED "RISK FACTORS."
-2-
<PAGE>
RISK FACTORS
You should consider carefully the following risk factors before making an
investment in us and in reading any forward-looking statements, including, but
not limited to, beliefs, estimates, projections, expectations or anticipations
that we discuss or make.
DEPENDENCY ON AOL AGREEMENT AND ELECTRONIC COMMERCE
At the beginning of 1997, we launched a major initiative for marketing and
selling our telecommunication services online. At that time, we entered into an
innovative telecommunications and marketing agreement with America Online, Inc.
("AOL"). With the continued focus of our business on the sale and support of our
telecommunications services online and through e-commerce channels, we believe
that our business is currently dependent to a material extent upon our
agreements and relationship with AOL.
In January 1999, we completed substantial amendments to our agreement and
relationship with AOL, including an extension of the term of our AOL marketing
period and a restructuring of our marketing fee payments to AOL. From and after
June 2000, AOL has the right to market on a non-exclusive basis the
telecommunications services previously marketed on an exclusive basis in
exchange for the elimination of the fixed quarterly payments that would
otherwise continue to be payable by us. We cannot currently predict what impact
the elimination of our exclusivity period would have on our AOL business or
whether the minimum exclusivity period is of sufficient length to give us an
enduring competitive advantage in maintaining our AOL customer base. We believe
that the success or failure of our telecommunications agreement with AOL and
similar online initiatives will have a material effect on our business,
financial condition and results of operations. There can be no assurance that
our arrangement with AOL will be profitable for Tel-Save.com, Inc. (the
"Company") on a quarter to quarter basis or that our current experience with our
AOL Long Distance business is a fair indication of future results under the AOL
Agreement or generally in our e-commerce business.
Although we have expended substantial sums on marketing our AOL service
offerings, and under the new agreement will continue to expend substantial sums
related to marketing, there can be no assurance that these expenditures will
prove adequate to attract substantial additional customers to our service, or
that any such subscribers will remain our customers for a period of time
sufficient to recoup the costs of such marketing expenditures. See
"--Maintenance of End User Base."
The success of our online telecommunications sales and marketing business
depends in part on our ability quickly to establish telephone service following
an AOL subscriber's order. The provisioning of new customers has been adversely
affected by "PIC freezes" established by local telephone companies. These "PIC
freezes", though perhaps designed to avoid unauthorized transfers of telephone
service, have the effect, we believe, of interfering with a customer's choice to
switch service to a better priced product, such as our AOL Long Distance
service, by requiring the customer to contact his or her local phone company
directly to change long distance carriers. This requirement deprives new
customers of the ability to take full advantage of our online provisioning
service, where a customer can sign-up and authorize a change to AOL Long
-3-
<PAGE>
Distance entirely online through our innovative online customer care and billing
systems. The Federal Communications Commission is currently engaged in
rule-making proceedings that could modify the rules governing the offering,
implementation and lifting of PIC freezes. There can be no assurance, however,
that any such rules that are finally adopted will effectively limit the harmful
effects of PIC freezes that impede authorized transfers of service.
The success of our online initiatives depends on our ability to develop and
maintain complex systems to support our online subscription and billing
services. We have developed and will seek to continue to develop and to improve
our systems for customer care and billing services, including online sign-up,
call detail and billing reports and credit card payment in connection with the
AOL Agreement and other online initiatives. We will be required to find, employ
and retain skilled programmers, to develop and maintain these complex systems.
Unanticipated delays or difficulties in developing these systems or in hiring
personnel could materially adversely affect our online business, including our
AOL telecommunications business.
DEPENDENCE ON AT&T
We have recently entered into long term agreements with AT&T, which, among
other things, significantly lower the overall costs of the services we acquire
from AT&T. There can be no assurances, however, that we would be able to
negotiate further amendments in the future to our agreements with AT&T should it
become necessary to maintain the profitability of our business. Circumstances
also may arise that could give rise to the termination of any of our agreements
with AT&T or otherwise result in the loss of our ability to obtain services from
AT&T. Any termination of our contracts with AT&T, the loss or reduction of
telecommunication services from AT&T, or the inability to negotiate cost
reductions with AT&T to meet competitive prices, could have a material adverse
effect on our financial condition and results of operations.
RECENT RAPID GROWTH
Since the inception of our business in 1989, as a reseller of AT&T
telecommunications services, we have grown dramatically in terms of revenues and
number of employees and have expanded rapidly the nature and scope of our
business. Although we have experienced significant growth in a relatively short
period of time and regularly consider growth opportunities through acquisitions,
joint ventures and partnerships as well as other business expansion
opportunities, there can be no assurance that the growth we have experienced
will continue or we will be able to achieve the growth contemplated by our
business strategy.
Continued growth of our current business will continue to place significant
demands on our management (many of whom, including the new President, Chief
Executive Officer, and Chairman of the Board of Director, have recently joined
the Company), operational, financial and other resources and will require us to
enhance further our operations, management, financial and information systems
and controls and to expand, train and manage our employee base in certain areas
including customer service support and financial, marketing and administrative
resources. Success in this regard depends, among other things, on our ability to
fund or finance significant investments of resources and to manage, attract and
retain qualified personnel,
-4-
<PAGE>
competition for whom is intense. Our strategy also has resulted in significantly
increased financial management requirements.
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. Changes in the regulation of the telecommunications
industry may affect our competitive position, as may consolidation and alliances
across geographic regions and across industry segments. Competition in the long
distance business is based upon pricing, customer service, billing services and
perceived quality. We compete against numerous long distance carriers that offer
essentially the same services as we do. Several of our competitors are
substantially larger and have greater financial, technical and marketing
resources than we do.
Although we believe that we have the human and technical resources to
pursue our strategy and compete effectively in this competitive environment, our
success will depend upon our continued ability to provide high quality, high
value services at prices generally competitive with, or lower than, those
charged by our competitors. While OBN makes us more price competitive,
reductions in long distance prices charged by competitors still may have a
material adverse impact on our profitability. We also from time to time may
consider providing telecommunications services we have not previously provided,
which new services, if offered, would face the same competitive pressures that
affect our existing services.
MAINTENANCE OF END USER BASE
End users are not obligated to purchase any minimum usage amount and can
discontinue service, without penalty, at any time. There can be no assurance
that end users will continue to buy their long distance telephone service
through us or through "partitions," independent carriers and marketing companies
that purchase services from us. If a significant portion of our end users were
to decide to purchase long distance service from other long distance service
providers, there can be no assurance that we would be able to replace them.
A high level of customer attrition is inherent in the long distance
industry, and our financial results are affected by such attrition. Attrition is
attributable to a variety of factors, including the initiatives of existing and
new competitors as they engage in, among other things, national advertising
campaigns, telemarketing programs and cash payments and other forms of
incentives, as well as our termination of customers for non-payment.
-5-
<PAGE>
DIRECT MARKETING RISKS
Both federal and state officials are tightening and increasing enforcement
of the rules governing the direct marketing, including the telemarketing of
telecommunications services and the requirements imposed on carriers seeking to
acquire 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. The Company has
discontinued its internal telemarketing operations, which may reduce our
exposure to customer complaints and federal, state or local enforcement actions
with respect to such direct telemarketing practices. However, certain government
officials have made inquiries with respect to the marketing of our services and
there remains a risk that we could be held accountable under applicable federal
and state laws for the direct marketing activities of third parties carried out
for our benefit. There also is the risk of enforcement actions by virtue of our
prior telemarketing and other marketing efforts, our ongoing support of our
customer/partitions and telemarketing and other marketing done in connection
with our online marketing agreements.
RELIANCE ON INDEPENDENT CARRIER AND MARKETING COMPANIES; LACK OF CONTROL OVER
MARKETING ACTIVITIES
Historically, we have marketed a significant portion of our services
through partitions, which generally have entered into non-exclusive agreements
with us. Most partitions to date have made no minimum use or revenue commitments
to us under these agreements. If we were to lose access to services on the AT&T
network or billing services or experience difficulties with OBN, our agreements
with partitions could be adversely affected.
Provisions in our agreements with the partitions mandate that they comply
with state and federal statutes and regulations, including those regulating
telemarketing. See "--Government Regulation" and "--Direct Telemarketing Risks."
Because our partitions are independent carriers and marketing companies,
however, we are unable to control their activities. We are also unable to
predict the extent of their compliance with applicable regulations or the effect
of increased regulatory review. Increased regulatory review could also affect
possible future acquisitions of new business from new partitions or other
resellers.
GOVERNMENT REGULATION
The Federal Communications Commission (the "FCC") and various state public
service and public utility commissions regulate us as a non-dominant provider of
long distance services. There can be no assurance that the FCC, state regulators
or other government entities will not take action having an adverse effect on
our business, financial condition or results of operations. FCC or state
regulatory or enforcement action also could affect the partitions adversely. We
also are subject to applicable regulatory standards for marketing activities,
and the increased FCC and state attention to certain marketing practices could
be significant to us. See "--Direct Marketing Risks."
-6-
<PAGE>
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. We believe that our future success will depend on our ability to
anticipate such changes and to offer on a timely basis services that meet or
compete with these evolving standards. There can be no assurance that we will
have sufficient resources to make necessary investments or to introduce new
services that would satisfy an expanded range of partition and end user needs.
RISKS RELATED TO OBN
In 1997, we deployed our own nationwide telecommunications network, One
Better Net, or OBN. At December 31, 1998, we provided services over OBN to
approximately 80% of the lines using our services. Operation as a switch-based
provider subjects us to risk of significant interruption in the provision of
services on OBN in the event of damage to our facilities (switching equipment or
connections to transmission facilities) such as fire or natural disaster could
cause. To the extent that we, rather than AT&T or another carrier, are
principally responsible for providing end users with telecommunications
services, interruption or failure to provide such services may subject us to
claims from end users who suffer damages as a result of such interruption or
failure. Thus, interruptions or other difficulties in operating OBN could have a
material adverse effect on our financial condition and results of operations.
ABSENCE OF DIVIDENDS
We have not paid cash dividends since inception and do not anticipate
paying any cash dividends in the foreseeable future.
ANTI-TAKEOVER CONSIDERATIONS
We have an authorized class of 5,000,000 shares of preferred stock that may
be issued by our board of directors on such terms and with such rights,
preferences and designations as our board may determine. Issuance of such
preferred stock, depending upon its rights, preferences and designations, may
have the effect of delaying, deterring or preventing a change in control. A
change of control also may be delayed or prevented by provisions of the Delaware
General Corporation Law and our bylaws, as well as our charter, which divides
our board of directors into three classes, each of which is elected for three
year terms. Such anti-takeover effects may deter a third party from acquiring us
or engaging in a similar transaction affecting control in which our shareholders
might receive a premium for their shares over the then-current market value.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of our common stock could adversely
affect the market price of our common stock. Although the Company believes that
as of January 11, 1999, each of Mr. Borislow and Mr. Paul Rosenberg beneficially
owned less than 10% of the outstanding common stock of the Company, a decision
by either of Mr. Borislow or Mr. Rosenberg to sell his shares could adversely
affect the market price of the common stock. Each
-7-
<PAGE>
of Mr. Borislow and Mr. Rosenberg has a registration rights agreement with the
Company covering the shares of common stock owned by him.
As of January 11, our employees and directors had outstanding options to
purchase 10,230,810 shares of common stock. In addition, as of such date, there
were warrants outstanding to purchase up to 2,721,984 shares of common stock and
4,596,698 shares reserved for issuance upon the conversion of our outstanding
4-1/2% Convertible Subordinated Notes due 2002 and our 5% Convertible
Subordinated Notes due 2004. Holders of warrants also have registration rights
under certain conditions.
Sales of substantial amounts of our common stock in the public market, or
the perception that such sales could occur, may adversely affect the market
price of our common stock.
YEAR 2000 RISKS
The "Year 2000" issue refers to the potential harm from computer programs
that identify dates by the last two digits of the year rather than using the
full four digits. As such, dates after January 1, 2000 could be misidentified
and such programs could fail.
If such a failure occurs to our internal computer-based systems or if the
computer-based systems, on which our business depends, that are operated by
others were to malfunction, we could be unable to continue to provide
telecommunications services, to sign up new customers or to bill existing
customers for services. Such failures, if they occur, would have a material
adverse effect on our business and financial condition. However, because of the
complexity of the issues and the number of parties involved whose actions could
affect us and the fact that many of the issues are outside our control, it is
difficult for us to predict the nature or likelihood of such effects.
We are dependent upon computer systems operated by third parties, such as
local exchange carriers, AT&T, AOL and other vendors. Other parties whose
ability to deal with Year 2000 issues could affect us include our partitions and
the credit card companies through which most of our and AOL's customers are
billed. We are generally not in a position to require either that these other
companies give assurances to the Company as to their continued provision of
services or that such companies take the necessary actions to assure that they
will be ready for the Year 2000. Accordingly, while none of these other
companies on which we depend have told us that they do not expect to be ready
for Year 2000 issues, we do not believe we can project the likelihood of such
parties' abilities to provide uninterrupted services to us. Given the nature of
our relationships with most of these significant suppliers, it may be
impracticable for us to replace should they be unable to continue to provide
these services. The failure of any of these companies to provide uninterrupted
service to us likely would have a material adverse effect on our business and
results of operations and financial condition.
-8-
<PAGE>
USE OF PROCEEDS
Under the terms of the severance agreement we entered into with Mr.
Borislow, our founder and former Chairman of the Board and Chief Executive
Officer, at Mr. Borislow's option, we may be required to use a portion of the
net proceeds, if any, from the exercise of the Rights to repurchase our
securities held by Mr. Borislow. If he does not make this election, we will use
the net proceeds, if any, realized from the exercise of the Rights for working
capital and for general corporate purposes, at the discretion of management.
DETERMINATION OF OFFERING PRICE
The Offering Price of the shares offered upon exercise of the Rights is
$17.00 per share. The exercise price per Right was determined by the Company and
bears no relationship to the market price of the Company's Common Stock, the
prevailing market conditions, operating results of the Company in recent
periods, the book value of the Company, or other recognized criteria of value.
PLAN OF DISTRIBUTION
The Rights entitle the holders to acquire up to approximately 3,523,285
shares of Common Stock on a fully diluted basis and assuming all Rights are
exercised upon payment of the applicable exercise price. The Company issued the
Rights as a dividend to all of its stockholders of record on December 31, 1998.
Rights also attached to shares of Common Stock underlying all stock options and
warrants outstanding on December 31, 1998.
The Company is offering the shares of Common Stock underlying the Rights.
No underwriter or placement agent has been engaged to assist the Company in this
regard and no commissions or similar compensation will be paid to any person.
The shares of Common Stock to be issued upon exercise of the Rights are
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act.
DESCRIPTION OF RIGHTS
GENERAL
The shares of Common Stock offered hereby are issuable upon the exercise of
the Rights. Stockholders of record on December 31, 1998 (the "Record Date") will
be entitled to receive a dividend of one right for every twenty (20) shares of
Common Stock held (the "Stock Rightsholders"). The Rights will be distributed on
the date of this Prospectus. Each Right will entitle the holder thereof to
purchase one share of Common Stock at an exercise price of $17.00 (the "Exercise
Price"). The Rights are exercisable for a one-year period beginning upon the
date of this Prospectus.
-9-
<PAGE>
Holders of stock options and holders of outstanding warrants to purchase
Common Stock as of December 31, 1998 also will be entitled to receive Rights
based on the number of shares of Common Stock underlying the stock options or
warrants held on the record date. One Right will attach to every twenty (20)
shares of Common Stock underlying stock options and warrants held of record on
December 31, 1998. The number of Rights relating to the amount of Common Stock
purchased upon exercise of stock options or warrants will be issued to the stock
option holders or warrant holders (the "Option/Warrant Rightsholders" and
together with the Stock Rightsholders, the "Rightsholders") upon exercise of the
stock options or warrants.
No fractional Rights or cash in lieu thereof will be issued or paid.
Instead, the number of Rights issued to a Rightsholder will be rounded up to the
nearest whole number. A depository, bank, trust company or securities broker or
dealer holding shares of Common Stock on the Record Date for more than one
beneficial owner may, upon delivery to the Rights Agent of the Certification and
Request for Additional Rights form available from the Rights Agent, exchange its
Rights Certificate to obtain a Rights Certificate for the number of Rights to
which all such beneficial owners in the aggregate would have been entitled had
each been a holder on the Record Date. No other Rights Certificate may be so
divided as to increase the number of Rights to which the original recipient was
entitled. The Company reserves the right to refuse to issue any Rights
Certificate if such issuance would be inconsistent with the principle that each
beneficial owner's holdings will be rounded up to the nearest whole number of
Rights. The Rights Agent must receive the Certification and Request for
Additional Rights no later than 5:00 p.m., New York time, on the 30th day
following each date of distribution of the Rights, after which time no new
Rights Certificates will be issued.
Because the number of Rights issued to each Rightsholder will be rounded up
to the nearest whole number, beneficial owners of Common Stock who are also the
record holders of their shares will receive more Rights under certain
circumstances than beneficial owners of Common Stock who are not the record
holders of their shares and who do not obtain (or cause the record holder of
their shares of Common Stock to obtain) a separate Rights Certificate with
respect to the shares beneficially owned by them, including shares held in an
investment advisory or similar account. To the extent that record holders or
beneficial owners of Common Stock who obtain a separate Rights Certificate
receive more Rights, they will be able to subscribe for more shares. Beneficial
owners of Common Stock who are not record holders should contact the nominee
Rightsholder to obtain a separate Rights Certificate. See " -- Exercise of
Rights."
NON-TRANSFERABLE
The Rights are not transferable and bear a legend to that effect.
EXPIRATION
In the event the Rights are not exercised within the applicable one-year
period, all unexercised Rights will expire and be void and of no further force
or effect. A Rights exercise period may be extended by the Company at the sole
discretion of the Board of the Directors upon thirty (30) days' notice to the
Rightsholders. The Rights will expire, become void and be of no
-10-
<PAGE>
further force or effect upon conclusion of the applicable exercise period, or
any extension thereof.
REDEMPTION
The Rights are redeemable upon 30 days notice, at the option of the
Company, at a redemption price of $0.01 per Right, if the last sale price for
the Company's Common Stock exceeds $20.40 for 20 consecutive trading days or
upon a "Change of Control" (defined below). The exercise price, number and kind
of shares to be received upon exercise of the Rights are subject to adjustment,
in the sole discretion of the Board of Directors, on the occurrence of certain
events, such as stock splits, stock dividends or recapitalization of the
Company. In the event of liquidation, dissolution or winding up of the Company,
the Rightsholders will not be entitled to participate in the distribution of the
assets of the Company. Additionally, Rightsholders have no voting, pre-emptive,
liquidation or other rights of stockholders, and no dividends will be declared
on the Rights or the shares underlying the Rights.
A "Change in Control" means any event where: (i) any "person" or "group"
(as such terms are used in Section 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) of shares representing more than 50% of the combined voting power
of the then-outstanding securities entitled to vote generally in elections of
directors of the Company ("Voting Stock"), (ii) the Company consolidates with or
merges into any other corporation, or any other person merges into the Company,
and, in the case of any such transaction, the outstanding Common Stock of the
Company is reclassified into or exchanged for any other property or security,
unless the stockholders of the Company immediately before such transaction own,
directly or indirectly immediately following such transaction, at least a
majority of the combined voting power of the outstanding voting securities of
the corporation resulting from such transaction in substantially the same
proportion as their ownership of the Voting Stock immediately before such
transaction, (iii) the Company conveys, transfers or leases all or substantially
all of its assets to any person (other than to one or more wholly-owned
subsidiaries of the Company) or (iv) any time the Continuing Directors do not
constitute a majority of the Board of Directors of the Company (or, if
applicable, a successor corporation to the Company). "Continuing Directors"
means as of any date of determination, any member of the Board of Directors of
the Company who (i) was a member of such Board of Directors on the date of this
Agreement or (ii) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing Directors who were
members of such board at the time of such nomination or election.
EXERCISE OF RIGHTS
The Rights may be exercised only to the extent that beneficial ownership of
some or all of the shares to which the Rights relate have been continuously held
from the Record Date or Option/Warrant Exercise Date, as applicable, through the
date of exercise of the Rights. Any transfers of beneficial ownership of shares
between the Record Date, or Option/Warrant Exercise Date, as applicable, will
correspondingly reduce the number of Rights, and any fractions thereof, that may
be exercised. To illustrate:
-11-
<PAGE>
o A Rightsholder who beneficially owns 100 shares on the Record Date will
receive five (5) Rights (based on the 1:20 ratio of Rights to shares held).
o If, between the Record Date and date of exercise of the Rights, the
Rightsholder transfers beneficial ownership of 20 out of the 100 shares,
then the Rightsholder may only exercise four of the Rights.
o If, between the Record Date and date of exercise of the Rights, the
Rightsholder instead transfers beneficial ownership of 10 out of the 100
shares, then the Rightsholder still may only exercise four of the Rights.
Though the transfer of the 10 shares correspond to only one half of a
right, the entire fifth right becomes unexercisable because, in the case of
transferred shares, fractional Rights are rounded down to the nearest whole
Right.
A Rightsholder who is both the record holder and beneficial owner of the
shares of Common Stock to which the Rights relate must certify as to the number
of shares beneficially owned on the Record Date or Option/Warrant Exercise Date,
as applicable. Such Rightsholder must also certify as to the number of such
shares that, as of the date of exercise, continue to be beneficially owned,
having not been transferred since the Record Date or Option/Warrant Exercise
Date, as applicable.
A Rightsholder who holds shares of Common Stock for the account of others,
such as a broker, a trustee or a depository for securities must certify as to
the number of shares beneficially owned on the Record Date or Option/Warrant
Exercise Date, as applicable, by each beneficial owner for which such
Rightsholder holds shares. Such Rightsholder must also certify as to the
corresponding number of such shares that, as of the date of exercise, continue
to be the beneficially owned, having not been transferred since the Record Date
or Option/Warrant Exercise Date, as applicable.
The Company intends to monitor beneficial ownership by Rightholders who
elect to exercise all or a portion of their Rights.
Rights may be exercised by delivering to the Rights Agent, on or prior to
5:00 p.m., New York time, on the Expiration Date, the properly completed and
executed Rights Certificate evidencing such Rights with any required signatures
guarantees, together with payment in full of the Exercise Price for each Right
exercised. Such payment in full must be by: (i) check drawn upon a U.S. bank or
postal, telegraphic or express money order payable to First City Transfer
Company as Rights Agent; or (ii) wire transfer of funds to the account
maintained by the Rights Agent for such purpose at PNC Bank (New Jersey), ABA
#031207607, Account No. 8003710813. Payment of the Exercise Price will be deemed
to have been received by the Rights Agent only upon (a) clearance of any
uncertified check, (b) receipt by the Rights Agent of any certified check drawn
upon a United States bank or of any postal, telegraphic or express money order,
or (c) receipt of good funds in the Rights Agent's account designated above.
IF PAYING BY UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID
THEREBY MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, HOLDERS WHO
WISH TO PAY THE EXERCISE
-12-
<PAGE>
PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT
SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS
RECEIVED AND CLEARS BY SUCH DATE AND ARE URGED TO CONSIDER PAYMENT BY MEANS OF
CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
If a Rightsholder wishes to exercise Rights, but time will not permit such
Rightsholder to cause the Rights Certificate or Rights Certificates evidencing
such Rights to reach the Rights Agent on or prior to the Expiration Date, such
Rights may nevertheless be exercised if all of the following conditions (the
"Guaranteed Delivery Procedures") are met: (i) such Rightsholder has caused
payment in full of the Exercise Price for each share of Common Stock being
subscribed for to be received (in the manner set forth above) by the Rights
Agent on or prior to the Expiration Date; (ii) the Rights Agent receives, on or
prior to the Expiration Date, a guaranteed notice (a "Notice of Guaranteed
Delivery"), substantially in the form distributed with the Rights Certificates,
from a member firm of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc., or from a commercial bank
or trust company having an office or correspondent in the United States (each,
an "Eligible Institution"), stating the name of the exercising Rightsholder, the
number of Rights represented by the Rights Certificate(s) held by such
exercising Rightsholder, the number of shares of Common Stock being purchased
and guaranteeing the delivery to the Rights Agent of any Rights Certificate(s)
evidencing such Rights within three NASDAQ trading days following the date of
the Notice of Guaranteed Delivery; and (iii) the properly completed Rights
Certificate(s), with any required signatures guaranteed, is received by the
Rights Agent within three NASDAQ trading days following the date of the Notice
of Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may
be delivered to the Rights Agent in the same manner as Rights Certificates at
the addresses set forth above, or may be transmitted to the Rights Agent by
facsimile transmission (telecopy no.) (732) 906-9269. Additional copies of the
form of Notice of Guaranteed Delivery are available upon request from the Rights
Agent, whose address and telephone numbers are set forth on the Rights
Certificates.
A Rightsholder who holds shares of Common Stock for the account of others,
such as a broker, a trustee or a depository for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owner's intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the record holder of such
Rights should complete the Rights Certificate and submit it to the Rights Agent
with the proper payment. In addition, the beneficial owner of Common Stock or
Rights held through such a holder of record should contact the Rightsholder and
request the Rightsholder to effect transactions in accordance with the
beneficial owner's instructions.
Unless a Rights Certificate (i) provides that the shares of Common Stock to
be issued pursuant to the exercise of Rights represented thereby are to be
delivered to the Rightsholder or (ii) is submitted for the account of an
Eligible Institution, signatures on such Rights Certificate must be guaranteed
by an Eligible Institution.
If either the number of shares being subscribed for is not specified on the
Rights Certificate, or the amount delivered is not enough to pay the Exercise
Price for all shares stated to be purchased, the number of shares purchased will
be assumed to be the maximum amount
-13-
<PAGE>
that could be purchased upon payment of such amount, after allowance for the
Exercise Price of any specified shares.
DO NOT SEND RIGHTS CERTIFICATES TO THE COMPANY.
THE METHOD OF DELIVERY OF RIGHTS CERTIFICATES AND PAYMENT OF THE EXERCISE
PRICE TO THE RIGHTS AGENT WILL BE AT THE ELECTION AND RISK OF THE RIGHTSHOLDER,
BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND PAYMENTS BE
SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND
THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO THE RIGHTS
AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK TIME, ON THE
EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE
BUSINESS DAYS TO CLEAR, RIGHTSHOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR
PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER
OF FUNDS.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determinations
will be final and binding. The Company, in its sole discretion, may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Rights will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Company
determines in its sole discretion. NEITHER THE COMPANY NOR THE RIGHTS AGENT WILL
BE UNDER ANY DUTY TO GIVE NOTIFICATION OF ANY DEFECT OR IRREGULARITY IN
CONNECTION WITH THE SUBMISSION OF RIGHTS CERTIFICATES OR INCUR ANY LIABILITY FOR
FAILURE TO GIVE SUCH NOTIFICATION.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus or the
Notice of Guaranteed Delivery should be directed to the Rights Agent whose
address and telephone numbers are set forth on the Rights Certificates.
NO REVOCATION
ONCE A RIGHTSHOLDER HAS EXERCISED RIGHTS, SUCH EXERCISE MAY NOT BE REVOKED.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a general discussion of certain U.S. federal income tax
considerations applicable upon the issuance, exercise, redemption and lapse of
Rights issued to the Stock Rightsholders, Option Rightsholders, and Warrant
Rightsholders pursuant to the Rights Offering. This summary is based upon
current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), regulations of the Treasury Department, administrative rulings and
pronouncements of the Internal Revenue Service (the "Service"), and judicial
decisions currently in effect, all of which are subject to change, possibly with
retroactive effect. This discussion does not deal with all aspects of federal
income taxation that may be relevant to particular Stock Rightsholders, Option
Rightsholders, and Warrant Rightsholders in light of their personal
-14-
<PAGE>
investment circumstances (for example, to persons holding Common Stock as part
of a conversion transaction or as part of a hedge or hedging transaction, or as
a position in a straddle for tax purposes), nor does it discuss federal income
tax considerations applicable to certain Stock Rightsholders, Option
Rightsholders, and Warrant Rightsholders subject to special treatment under the
federal income tax laws (for example, insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, taxpayers subject to
the alternative minimum tax, or non-United States persons).
This discussion only addresses the Stock Rightsholders, Option
Rightsholders, and Warrant Rightsholders who will both hold their respective
interests in the Company as capital assets and will hold any Common Stock
received upon exercise of the Rights as capital assets (persons who may not be
holding their interests in the Company as capital assets might include, for
example, securities dealers or traders who do not hold their interests primarily
for investment or who treat their interests as inventory for federal income tax
purposes). In addition, this discussion does not consider the effect of any
foreign, state, local, gift or estate or other tax laws that may be applicable
to a particular investor. No ruling has been or will be sought from the Service
concerning the tax issues addressed herein, and such issues may be subject to
substantial uncertainty resulting from the lack of definitive, applicable
judicial or administrative authority and interpretations. THEREFORE, ALL STOCK
RIGHTSHOLDERS, OPTION RIGHTSHOLDERS, AND WARRANT RIGHTSHOLDERS ARE URGED TO
CONSULT WITH THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEM
OF THE RIGHTS OFFERING, INCLUDING THE EFFECTS OF FEDERAL, STATE, LOCAL, FOREIGN,
AND OTHER TAX LAWS.
TAX CONSEQUENCES TO STOCK RIGHTSHOLDERS
Issuance Of Rights. Existing law is not clear as to whether the
distribution of Rights to the Stock Rightsholders would be characterized as a
distribution under Section 305(a) of the Code or, alternatively, as a
distribution under Sections 301 and 305(b) of the Code. The Company believes
that it is likely that the Rights Offering to Stock Rightsholders will be
properly characterized as a Section 305(a) distribution. Assuming that the
Rights Offering to Stock Rightsholders is properly characterized as a Section
305(a) distribution, the distribution of Rights to Stock Rightsholders would be
nontaxable without regard to the Company's earnings and profits. If the
distribution of Rights to the Stock Rightsholders were treated as a Section 301
distribution, and provided the Company has current or accumulated earnings and
profits, the fair market value of the Rights distributed would be treated as
dividends (taxable as ordinary income) to the extent of such earnings and
profits. To the extent that the amount of the distribution exceeded the earnings
and profits of the Company, it would be treated first as a tax-free return of
capital to the extent of the holder's tax basis in the underlying Common Stock,
and thereafter as capital gain.
Basis And Holding Period. If the Rights Offering to Stock Rightsholders is
properly characterized as a nontaxable Section 305(a) distribution and either
(i) the fair market value of the Rights on the date of distribution is equal to
15% or more of the fair market value on the date of issuance of the Common Stock
with respect to which they are received or (ii) the Stock Rightsholder elects,
in his or her federal income tax return of the taxable year in which the Rights
are received, to allocate part of the tax basis of the Common Stock to the
Rights, then
-15-
<PAGE>
upon exercise or redemption of the Rights, the Stock Rightsholder's tax basis in
the Common Stock will be allocated between the Common Stock and the Rights in
proportion to the fair market values of each on the date of the issuance of the
Rights. Otherwise, as a nontaxable Section 305(a) distribution, the tax basis of
Rights received by a Stock Rightsholder as a distribution with respect to the
Stock Rightsholder's Common Stock will be zero.
If, however, the distribution of Rights to the Stock Rightsholders were
treated as a taxable Section 301 distribution, each Stock Rightsholder would
have a tax basis in the Rights that such holder received equal to the fair
market value of the Rights on the date of their distribution and the holder's
tax basis in his or her Common Stock would be reduced by the nontaxable portion
of the distribution, if any (as discussed above).
If the Rights Offering to the Stock Rightsholders is treated as a
nontaxable Section 305(a) distribution, the holding period of a Stock
Rightsholder with respect to Rights received as a distribution on the holder's
Common Stock will include the Stock Rightsholder's holding period for the Common
Stock with respect to which the Rights were issued. If, however, the Rights
Offering to the Stock Rightsholders were treated as a taxable Section 301
distribution, the Stock Rightsholders would have a holding period that begins on
the day following the date of distribution of the Rights.
Redemption of Rights. If the Company redeems Rights held by a Stock
Rightsholder, the Stock Rightsholder will recognize capital gain or loss equal
to the difference between the redemption price and the Stock Rightsholder's
basis, if any, in those Rights.
Lapse Of Rights. If the Rights Offering to the Stock Rightsholders is
treated as a nontaxable Section 305(a) distribution, a Stock Rightsholder who
allows Rights received by him or her to lapse without exercising them will not
recognize any gain or loss, and, as the Rights were neither exercised nor
redeemed, no adjustment will be made to the tax basis of the Common Stock, if
any, owned by the Stock Rightsholder. If, however, the Rights Offering to the
Stock Rightsholders were treated as a taxable Section 301 distribution, a Stock
Rightsholder who allowed the Rights to lapse would have a capital loss in an
amount equal to his or her tax basis in the Rights (as discussed above), and no
adjustment would be made to the tax basis of the Common Stock, if any, owned by
the Stock Rightsholders.
Exercise Of Rights. A Stock Rightsholder will not recognize any gain or
loss upon the exercise of Rights. The tax basis of the Common Stock acquired
through exercise of Rights will be equal to the sum of the Exercise Price
therefor and the holder's tax basis in the Rights, if any. The holding period
for the Common Stock acquired through exercise of the Rights will begin on the
day following the date the Rights are considered exercised.
TAX CONSEQUENCES TO OPTION RIGHTSHOLDERS
Issuance of Rights. The Company believes that Rights issued to Option
Rightsholders should be treated as issued in connection with the performance of
services for federal income tax purposes and, thus, that the federal income tax
treatment resulting from the issuance of Rights to such holders should be
governed by Section 83 of the Code. Accordingly, no gain or loss should
-16-
<PAGE>
be recognized by such holders in connection with the issuance of the Rights
provided that when issued the Rights do not have a readily ascertainable fair
market value within the meaning of Treasury Regulations Section 1.83-7(b). The
Company believes that Rights issued to Option Rightsholders should not be
treated as having a readily ascertainable fair market value because the Rights
are non-transferable and, thus, will not be actively traded on an established
market and the fair market value of the rights otherwise cannot be measured with
reasonable accuracy.
Redemption of Rights. If the Company redeems Rights held by an Option
Rightsholder, the Option Rightsholder should recognize ordinary income equal to
the redemption price of those Rights.
Lapse of Rights. Option Rightsholders who allow Rights issued to them to
lapse will not recognize any gain or loss, and no adjustment will be made to the
basis, if any, of any other ownership interest in the Company owned by the
Option Rightsholders.
Exercise of Rights. If an Option Rightsholder exercises Rights received
with respect to Common Stock, the holder will recognize taxable income at the
time the Rights are exercised in an amount equal to the excess, if any, of the
fair market value of the Common Stock at that time over the Exercise Price. That
income would be taxed at ordinary income rates and any gain or loss recognized
on the subsequent disposition of the Common Stock so acquired would be treated
as a capital gain or loss.
The tax basis of the Common Stock acquired by an Option Rightsholder
through the exercise of Rights will be equal to the fair market value of the
Common Stock on the date of exercise and the holding period for that Common
Stock generally will begin on the day following exercise.
TAX CONSEQUENCES TO WARRANT RIGHTSHOLDERS
Warrants Subject to Section 83. In the case of Warrants issued to Warrant
Rightsholders in connection with the performance of services within the meaning
of Section 83 of the Code, the federal income tax consequences arising upon the
issuance of Rights to those Warrant Rightsholders and upon the redemption, lapse
or exercise of those Rights should be the same as for Rights issued to Option
Rightsholders. See " - Tax Consequences to Option Rightsholders" above. The
following discussion of the federal income tax consequences arising upon the
issuance of Rights to Warrant Rightsholders and upon the redemption, lapse or
exercise of those Rights applies only to Warrant Rightsholders who did not
receive their Warrants in connection with the performance of services within the
meaning of Section 83 of the Code.
Issuance of Rights. No applicable authority addresses the federal income
tax consequences arising upon the issuance of Rights to Warrant Rightsholders.
Because Rights will not be exercisable by Warrant Rightsholders prior to
exercise of their warrants, substantial uncertainty exists regarding when the
Rights will be treated as distributed to Warrant Rightsholders for federal
income tax purposes. If the Rights are treated as distributed upon exercise of a
warrant, the Company believes the receipt of Rights at that time likely will not
constitute a taxable distribution. If, however, the Rights are treated as
distributed to a Warrant
-17-
<PAGE>
Rightsholder before exercise of the warrant, the Company believes the issuance
of the Rights to Warrant Rightsholders likely will constitute a taxable
distribution. Given the lack of applicable authority regarding these
consequences, Warrant Rightsholders should consult and rely upon their own tax
advisors as to the specific tax consequences to them relating to the issuance of
Rights.
Basis and Holding Period. If the Rights Offering is characterized as a
nontaxable Section 305(a) distribution made upon exercise of a warrant and
either (i) the fair market value of the Rights on the date of distribution is
equal to 15% or more of the fair market value on the date of issuance of the
Common Stock with respect to which they are received or (ii) the Warrant
Rightsholder elects, in his or her federal income tax return of the taxable year
in which the Rights are received, to allocate part of the tax basis of the
Common Stock to the Rights, then upon exercise or redemption of the Rights, the
Warrant Rightsholder's tax basis in the Common Stock will be allocated between
the Common Stock and the Rights in proportion to the fair market values of each
on the date of the issuance of the Rights. Otherwise, the tax basis of Rights
received by a Warrant Rightsholder as a nontaxable distribution will be zero.
If, however, the distribution of Rights to the Warrant Rightsholders were
treated as a taxable distribution, a Warrant Rightsholder would have a tax basis
in the Rights that such Warrant Rightsholder received equal to the fair market
value of the Rights on the date of distribution of the Rights.
If the Rights Offering to the Warrant Rightsholders is treated as a
nontaxable distribution, the holding period of a holder with respect to Rights
received as a distribution on the holder's Common Stock will include the
holder's holding period for the Common Stock with respect to which the Rights
were issued. If, however, the Rights Offering to the Warrant Rightsholders were
treated as a taxable distribution, the Warrant Rightsholders would have a
holding period that begins on the day following the date of distribution of the
Rights.
Redemption of Rights. If the Company redeems Rights held by a Warrant
Rightsholder, the Warrant Rightsholder will recognize capital gain or loss equal
to the difference between the redemption price and the Warrant Rightsholder's
basis, if any, in those Rights.
Lapse of Rights. If the Rights Offering to the Warrant Rightsholders is
treated as a nontaxable distribution, a Warrant Rightsholder who allows Rights
received by him or her to lapse without exercising them will not recognize any
gain or loss and, as the Rights were neither exercised nor redeemed, no
adjustment will be made to the tax basis of any interest in the Company owned by
the Warrant Rightsholder. If, however, the Rights Offering to the Warrant
Rightsholders were treated as a taxable distribution, a Warrant Rightsholder who
allowed the Rights to lapse would have a capital loss in an amount equal to his
or her tax basis in the Rights (as discussed above), and no adjustment would be
made to the tax basis of any interest in the Company owned by the Warrant
Rightsholder.
Exercise of Rights. A Warrant Rightsholder will not recognize any gain or
loss upon the exercise of Rights. The tax basis of the Common Stock acquired
through exercise of Rights will be equal to the sum of the Exercise Price paid
and the holder's tax basis in the Rights, if any. The
-18-
<PAGE>
holding period for the Common Stock acquired through exercise of the Rights will
begin on the day following the date the Rights are considered exercised.
LEGAL MATTERS
Aloysius T. Lawn, IV, our General Counsel and Secretary, has rendered an
opinion to the effect that the shares of common stock offered by this prospectus
are duly authorized, legally issued, fully paid and non-assessable. Mr. Lawn
owns 153,650 shares of common stock, holds vested options to purchase 50,000
shares of common stock at a price of $5.75 per share and holds rights to
purchase 10,183 shares of common stock.
EXPERTS
The consolidated financial statements and schedule of the Company and its
subsidiaries incorporated by reference in this prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their reports incorporated in this prospectus by
reference, and are incorporated in this prospectus in reliance upon such reports
given upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
at the SEC's web site at http://www.sec.gov.
The SEC allows us to incorporate by reference the information that we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings (File
No. 0-26728) we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934:
a. our annual report on Form 10-K for the year ended December 31,
1997 and the amendments to our annual report filed with the
SEC on April 17, 1998 and April 30, 1998;
b. our quarterly reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;
c. our current reports on Form 8-K, dated March 10, 1998, August
27, 1998, September 18, 1998, October 29, 1998 and January 20,
1999; and
d. the description of our capital stock contained in our
registration statement on Form 8-A, dated September 8, 1995.
-19-
<PAGE>
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Aloysius T. Lawn, IV
General Counsel and Secretary
Tel-Save.com, Inc.
6805 Route 202
New Hope, PA 18938
(215) 862-1500
This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide information other than that
provided in this prospectus. We have authorized no one to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of this document.
-20-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC registration fee...................... $ 16,652
Legal fees and expenses................... 20,000
Accounting fees and expenses.............. 5,000
Transfer agent fees....................... 4,000
Printing fees............................. 5,000
----------
Total $ 50,652
ITEM 15. 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 Company's Bylaws also provide for indemnification to the fullest extent
permitted by the Delaware General Corporation Law. Reference is made to the
Company's Bylaws.
As permitted by the Delaware General Corporation Law, the Company's Bylaws
eliminate the personal liability of its directors to the Company and its
stockholders, in certain circumstances, for monetary damages arising from a
breach of the director's duty of care. Additionally, the Company 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. These agreements do not
provide indemnification for, among other things, conduct which is adjudged to be
fraud, deliberate dishonesty or willful misconduct.
The Company 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 16. EXHIBITS.
EXHIBIT NO. DESCRIPTION
----------- -----------
5.1 Opinion of Aloysius T. Lawn, IV
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Aloysius T. Lawn, IV (included
as part of Exhibit 5.1)
24.1 Power of Attorney*
99.1 Form of Rights Certificate*
99.2 Form of Notice of Guaranteed Delivery*
<PAGE>
99.3 Form of Certification and Request for
Additional Rights*
99.4 Form of Rights Agent Agreement*
- ----------
* Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represents a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement; provided, however,
that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3,
and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by
the registrar pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from the registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the 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.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
II-2
<PAGE>
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Township of Solebury, Commonwealth of Pennsylvania, on
this 11th day of February, 1999.
TEL-SAVE.COM, INC.
By:
/s/ Gabriel A. Battista
------------------------------
Gabriel A. Battista
Chairman of the Board of
Directors, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated below:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Gabriel A. Battista Chairman of the Board of February 11, 1999
- ------------------------------- Directors, Chief Executive
Gabriel A. Battista Officer and President (Principal
Executive Officer)
/s/ Gary W. McCulla* Director February 11, 1999
- -------------------------------
Gary W. McCulla
/s/ Emanuel J. DeMaio* Director February 11, 1999
- -------------------------------
Emanuel J. DeMaio
/s/ George P. Farley* Chief Financial Officer February 11, 1999
- ------------------------------- and Director
George P. Farley Principal Financial Officer)
/s/ Kevin R. Kelly* Controller (Principal February 11, 1999
- ------------------------------- Accounting Officer)
Kevin R. Kelly
/s/ Harold First* Director February 11, 1999
- -------------------------------
Harold First
II-4
<PAGE>
/s/ Ronald R. Thoma* Director February 11, 1999
- -------------------------------
Ronald R. Thoma
*By: /s/ Aloysius T. Lawn, IV Power of Attorney February 11, 1999
--------------------------
Attorney in Fact
</TABLE>
II-5
EXHIBIT 5.1
February 11, 1999
Board of Directors
Tel-Save.com, Inc.
6805 Route 202
New Hope, Pennsylvania 18938
Re: Dividend Distribution of Rights to Purchase Tel-Save.com, Inc. Common
Stock And Issuance of Shares Upon Exercise of the Rights
Gentlemen:
I have acted as general counsel to Tel-Save.com, Inc. (the "Company") in
connection with the Company's filing pursuant to the Securities Act of 1933, as
amended, of a registration statement on Form S-3 (the "Registration Statement")
relating to the distribution by dividend of non-transferable rights (the
"Rights") to purchase shares of the Company's common stock, par value $.01 per
share (the "Shares") and the issuance of the Shares upon exercise of the Rights.
You have requested my opinion as to certain matters with respect to the Rights
and Shares.
I have examined such corporate records of the Company, including its
Amended and Restated Certificate of Incorporation, its Bylaws, and resolutions
of the Company's board of directors (the "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 Rights have
been duly authorized by the Board of Directors and are legally issued, fully
paid and nonassessable, ]and the Shares have been duly authorized by the Board
of Directors and, upon exercise of the Rights in accordance with their terms,
will be legally issued, fully paid and nonassessable.
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
EXHIBIT 23.1
Consent of BDO Seidman, LLP
Tel-Save.com, Inc.
New Hope, Pennsylvania
We hereby consent to the incorporation by reference in this Prospectus
constituting a part of this Amendment No. 1 to the Registration Statement on
Form S-3 (file number 333-69737) of our reports dated February 5, 1998, relating
to the consolidated financial statements and schedule of Tel-Save.com, Inc. (the
"Company") (formerly Tel-Save Holdings, Inc. and Subsidiaries) appearing in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
New York, New York
February 10, 1999
