NEWS RELEASE
Contacts:
Thomas Gunning David Hurwitz
Chief Financial Officer President and Chief Executive Officer
Covista Communications, Inc. Capsule Communications, Inc.
Tel: (973) 812-1100 Tel: (215) 244-3433
Fax: (973) 237-6414 Fax: (215) 244-3443
Email: tgunning@covistacom.com Email: dhurwitz@capsulecom.com
For Immediate Release
COVISTA COMMUNICATIONS, INC. AND
CAPSULE COMMUNICATIONS, INC.
ANNOUNCE AGREEMENT TO MERGE
Combined Company Positioned to Provide More Complete Systems Solution
for Telecommunications Market
Little Falls, New Jersey and Bensalem, Pennsylvania, July 18, 2001 Covista
Communications, Inc. (NASDAQ: CVST) and Capsule Communications, Inc. (OTC
Bulletin Board: CAPS.OB) today announced the execution of a definitive merger
agreement.
Under the terms of the agreement approved by the boards of directors of both
companies, Capsule would become a wholly-owned subsidiary of Covista. The
shareholders of Capsule other than its controlling shareholder would receive
0.1116 shares of Covista common stock for each share of Capsule common stock,
subject to adjustment as provided in the agreement; and Henry G. Luken, III,
the controlling shareholder of Capsule, would receive 0.0838 shares of Covista
common stock for each share of Capsule common stock. Based upon the closing
price of $5.99 for Covista's common stock on July 17, 2001, the transaction
would have an estimated value, on a fully diluted basis, of approximately
$12,576,000. Upon the closing of the transaction, the former Capsule
shareholders would hold approximately 15.5% of the combined company. The
transaction, anticipated to close in the fourth quarter of 2001, is subject to
approval by the shareholders of both companies and other customary closing
conditions, including obtaining necessary regulatory approvals. Henry Luken,
the beneficial owner of approximately 69.7% of Capsule's outstanding common
stock, has expressed his intention to vote all of his shares in favor of the
merger. Mr. Luken also is Chairman and a principal shareholder of Covista,
owning approximately 30.4% of its outstanding shares.
Covista reported revenues of approximately $133,230,000 for its fiscal year
ended January 31, 2001. Capsule's revenues totaled approximately $37,368,000
for its fiscal year ended December 31, 2000. The combined company is expected
to have over 230 employees upon completion of the merger. It is anticipated
that Capsule will continue to offer communications and Internet-related
services under the Capsule name.
BENEFITS OF THE MERGER
"We believe this transaction will produce significant benefits for both
customers and shareholders," said John Leach, Covista's President and CEO.
"The combination of Covista and Capsule will result in a company having
greater economies of scale than either Capsule or Covista could achieve
operating separately in the telecom business. The merger should further
broaden an already diverse customer base and allow the combined sales force to
expand market share through existing relationships with customers that
purchase different but complementary services." "Together," Mr. Leach added,
"Covista and Capsule are committed to becoming a significant provider of
integrated telecommunications and data services that should offer meaningful
cost, size and logistics benefits to the shareholders and customers of the
combined companies. Focusing their efforts as a combined entity in this
lucrative and large market segment should enhance the opportunities for
success."
"The services which Capsule and Covista provide complement one another," said
David Hurwitz, President and CEO of Capsule. "Covista has established itself
in the medium-size enterprise market, whereas Capsule's strength has been in
the small- to medium-size enterprise market. In addition, the trend in the
telecommunications industry towards larger service providers offering bundled
products, including local and long-distance telecommunications, Internet
access and data services, should enable the combined company to operate with
increased competitiveness and pricing flexibility." Mr. Hurwitz further
noted, "The combined company also should be able to offer international
terminations at more favorable rates for the current domestic business and
carrier customers of both Covista and Capsule."
"For the past several months we have been telling our shareholders, customers
and the business community about our plans to expand both the product
offerings and the geographical base of Covista's business," Mr. Leach
commented. "Signing this agreement today is another step toward achieving our
main goals of revenue growth and profitability. The synergies Capsule presents
make this deal strategically important as we branch out into new markets." Mr.
Hurwitz added, "We are very excited about combining forces with Covista, a
company which has clearly demonstrated the technical and financial leadership
that will be keys to success in the future."
Following the close of the transaction, Henry Luken will retain his position
as Chairman of the Board of the combined companies and John Leach will
continue to serve as President and CEO. Additionally, David Hurwitz,
Capsule's President and CEO, will continue in the role of President of the
Capsule subsidiary of Covista.
ABOUT COVISTA
Covista is a facilities-based long distance telecommunications, Internet and
data services provider with a substantial customer base in both the commercial
and wholesale market segments. Covista's products and services include a broad
range of voice, data and Internet solutions, including long distance and toll-
free services, calling card, data, Internet access, VPN, directory assistance
and teleconferencing services. The wholesale division provides domestic and
international termination services to carriers worldwide at competitive rates.
Covista currently owns and operates two switches, one in New York City and one
in Newark, New Jersey, and previously has announced plans to expand to
additional switch sites in Los Angeles, Chicago, Dallas and Chattanooga, as
well as to open a 200-seat call center in Chattanooga. In early July Covista
announced that it had acquired nation-wide network facilities comprising
2,822,400,000 DS-O channel miles of telecommunications capacity. In addition,
Covista currently owns and operates two carrier-grade routers, a remote access
server and an e-mail server located in New York City and Northern New Jersey
for its Internet service offerings. Covista processes approximately 95% of all
its call volume through its own facilities. Covista also operates a Network
Operations Center in northern New Jersey to monitor and control its New Jersey
network and to coordinate its various services. Covista previously was known
as Total-Tel USA Communications, Inc. For information on becoming a Covista
customer, please call (888) 426-8478 or visit Covista's website at
www.covista.com.
ABOUT CAPSULE
Capsule is a switch-based inter-exchange carrier providing local and long-
distance telephone communications services primarily to small- and medium-size
business customers as well as residential customers. Capsule provides inbound
long-distance services and local resale services as well as other
telecommunications services including calling cards, cellular, paging,
Internet service, dedicated access, data services, and carrier termination
services. Capsule uses its own switches and facilities to originate, transport
and terminate calls for customers generally located in the Mid-Atlantic region
and in California. For calls originating or terminating outside its own
network, Capsule utilizes services provided by other long-distance companies.
Capsule Communications is the successor corporation to US Wats, Inc. For more
information, please visit Capsule's website at www.capsulecom.com.
COMMENTS ON FORWARD-LOOKING STATEMENTS
This press release contains historical and forward-looking statements which
are made pursuant to the Safe Harbor provisions of the Private Securities
Litigation Act of 1995, which may not be indicative of future results.
Investors are cautioned that forward-looking statements such as statements of
the Company's plans, objectives, expectations and intentions involve risks and
uncertainties. The cautionary statements made in this release should be read
as being applicable to all related statements wherever they appear. Statements
containing terms such as "believes," "expects," "plans," "projects,"
"intends," "estimates," "anticipates," or similar terms, are considered to
contain uncertainty and are forward-looking statements. The actual results
could differ materially from those discussed. Factors that could contribute to
such differences include the following: changes in market conditions and
increased competition from other telecommunications and Internet service
providers; government regulations; the volatile and competitive environment
for Internet telephony; advances in competitive products or technologies that
could reduce demand for services; availability of transmission facilities;
management of rapid growth; customer concentration and attrition; the ability
to successfully integrate the combined company; the ability to successfully
develop and bring new services to market; and other risks discussed in the SEC
filings of the respective companies, including Form 10-K and Form 10-Q, which
can be accessed at the SEC Web site at www.sec.gov.
A reader of this release should understand that it is not possible to predict
or identify all such risk factors. Consequently, the reader should not
consider this list to be a complete statement of all potential risks or
uncertainties. Neither Covista nor Capsule assumes the obligation to update
any forward-looking statement, except as is required by applicable law.
ADDITIONAL INFORMATION
Covista plans to file a Registration Statement on SEC Form S-4 in connection
with the merger, and each of Covista and Capsule expects to mail a Joint Proxy
Statement/Prospectus to its respective stockholders containing information
about the merger. Investors and security holders are urged to read the
Registration Statement and the Joint Proxy Statement/Prospectus carefully when
such documents are available. The Registration Statement and the Joint Proxy
Statement/Prospectus will contain important information about Covista,
Capsule, the merger and related matters. Investors and security holders will
be able to obtain free copies of these documents through the website
maintained by the U.S. Securities and Exchange Commission at www.sec.gov.
Copies of the joint proxy statement/prospectus and the SEC filings that will
be incorporated by reference therein also can be obtained, without charge, by
directing a request to Covista Communications, Inc., 150 Clove Road, Little
Falls, NJ 07424, Attention: Thomas P. Gunning (973-812-1100), or to Capsule
Communications, Inc., Two Greenwood Square, 3331 Street Road, Suite 275,
Bensalem, PA 19020, Attention: David B. Hurwitz (215-244-3433).
Capsule, its directors, executive officers and certain members of management
and employees may be soliciting proxies from Capsule's shareholders in favor
of the adoption of the merger agreement. A description of any interests that
Capsule's directors and executive officers have in the merger will be
available in the Joint Proxy Statement/Prospectus.
Covista, its directors, executive officers and certain members of management
and employees may be soliciting proxies from Covista's shareholders in favor
of the issuance of Covista shares in connection with the merger. A
description of any interests that Covista's directors and executive officers
have in the merger will be available in the Joint Proxy Statement/Prospectus.
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