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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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WORLD ACCESS, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 3669 58-2398004
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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945 EAST PACES FERRY ROAD
SUITE 2200
ATLANTA, GEORGIA 30326
(404) 231-2025
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
MARK A. GERGEL
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
WORLD ACCESS, INC.
945 EAST PACES FERRY ROAD
SUITE 2200
ATLANTA, GEORGIA 30326
(404) 231-2025
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES OF COMMUNICATIONS TO:
LEONARD A. SILVERSTEIN, ESQ.
LONG ALDRIDGE & NORMAN LLP
5300 ONE PEACHTREE CENTER
303 PEACHTREE STREET
ATLANTA, GEORGIA 30308-3201
(404) 527-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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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 number of the earlier effective registration statement for the same
offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH AMOUNT MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED (1) PER UNIT (1) OFFERING PRICE (2) FEE (3)
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13.25% Senior Notes due 2008......... $300,000,000 100% $297,000,000 $82,566
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Common Stock, par value $.01 per
share.............................. $15,000,000 100% N/A (3)
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(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number
of shares of common stock being registered and the proposed maximum offering
price per share of common stock are not included in this table.
(2) The proposed maximum aggregate offering price for the 13.25% Senior Notes
due 2008 and common stock has been estimated solely for the purpose of
calculating the registration fee in accordance with Rule 457(f)(2) of the
Securities Act of 1933.
(3) The registration fee has been calculated pursuant to Rule 457(f) under the
Securities Act of 1933 and is based on the book value of the FaciliCom notes
to be received by the registrant in the exchange offer less the amount of
cash to be paid by the registrant in the exchange offer.
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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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE 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. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1999
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PROSPECTUS AND CONSENT SOLICITATION
, 1999
WORLD ACCESS, INC.
$300,000,000 AGGREGATE PRINCIPAL AMOUNT OF 13.25% SENIOR NOTES DUE 2008
$15,000,000 OF WORLD ACCESS COMMON STOCK
EXCHANGE OFFER AND CONSENT SOLICITATION
OUTSTANDING 10 1/2% SERIES B SENIOR NOTES DUE 2008 OF FACILICOM INTERNATIONAL,
INC.
EXCHANGED FOR
13.25% SENIOR NOTES DUE 2008 AND COMMON STOCK OF WORLD ACCESS AND CASH
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TERMS OF THE EXCHANGE OFFER
- - The exchange offer will expire at 5:00 p.m., New York City time, on ,
1999, unless we extend it.
- - If all the conditions to this exchange offer are satisfied, we will exchange
all FaciliCom notes that are validly tendered and not withdrawn.
- - For each $1,000 principal amount of FaciliCom notes tendered and accepted for
exchange, you will receive (1) $1,000 principal amount of our 13.25% Senior
Notes due 2008, (2) such number of shares of our common stock having an
aggregate market value of $50 and (3) a payment of $10 in cash.
- - The exchange notes that we will issue to you in exchange for your FaciliCom
notes are new securities with no established trading market and will not be
listed on any securities exchange or market.
- - Our common stock is traded on the Nasdaq National Market under the symbol
"WAXS."
- - The exchange offer is subject to various conditions described in this
document.
TERMS OF THE CONSENT SOLICITATION
- - The consent solicitation will expire at 5:00 p.m., New York City time, on
, 1999, unless we extend it.
- - If you tender your FaciliCom notes, you will automatically consent to
amendments to the indenture governing the FaciliCom notes.
These amendments include the elimination of:
- - your right to require us to repurchase your FaciliCom notes at a price of 101%
of their principal amount upon completion of our pending merger with
FaciliCom; and
- - other restrictions on our operations following the merger with FaciliCom.
These amendments will continue to apply after the merger to any FaciliCom
notes not exchanged.
- - We will make no separate payment, other than the exchange consideration in
exchange for your FaciliCom notes, for consents delivered in the consent
solicitation.
TAXABILITY OF EXCHANGE
- - The exchange of FaciliCom notes for exchange notes, common stock and cash
should be taxable only to the extent of the cash payment.
- - The IRS, however, could take the position that the receipt of our common stock
and the cash payment may be taxable to holders.
SEE "RISK FACTORS," BEGINNING ON PAGE 17, FOR A DESCRIPTION OF FACTORS THAT
YOU SHOULD CONSIDER IN EVALUATING THE EXCHANGE OFFER AND CONSENT SOLICITATION.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus and consent solicitation is truthful or complete. Any representation
to the contrary is a criminal offense.
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The co-dealer managers for the exchange offer and consent solicitation are:
DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS
The date of this prospectus and consent solicitation is , 1999.
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TABLE OF CONTENTS
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PAGE
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Summary.................................. 1
Risk Factors............................. 17
Forward-Looking Statements............... 28
Use of Proceeds.......................... 29
Capitalization........................... 30
The Exchange Offer....................... 31
Description of the Exchange Notes........ 42
Comparison of the Exchange Notes and the
FaciliCom Notes........................ 81
The Proposed Amendments.................. 92
Federal Income Tax Considerations........ 107
World Access............................. 110
The Merger............................... 111
Related Agreements....................... 122
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PAGE
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Related Transactions..................... 124
Principal Stockholders................... 125
Unaudited Pro Forma Combined Financial
Statements............................. 127
FaciliCom's Management's Discussion and
Analysis of Financial Condition and
Results of Operations.................. 134
Business of FaciliCom.................... 143
Legal Matters............................ 160
Experts.................................. 160
Where You Can Find More Information...... 161
Incorporation of Certain Documents by
Reference.............................. 161
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This prospectus incorporates by reference documents relating to World
Access which are not presented in or delivered with this prospectus. These
documents (without exhibits, unless such exhibits are specifically incorporated
by reference) are available without charge to any holder or beneficial owner of
FaciliCom notes upon request. Requests for World Access documents should be
directed to World Access, Inc., 945 E. Paces Ferry Road, Suite 2200, Atlanta,
Georgia 30326 (Telephone (404) 231-2025), Attention: Chief Financial Officer. In
order to ensure timely delivery of the documents prior to the expiration of the
exchange offer and consent solicitation, any request should be made prior to
, 1999.
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SUMMARY
We are offering to exchange the new World Access notes, World Access common
stock and a payment in cash described in this prospectus for FaciliCom's
outstanding 10 1/2% Series B Senior Notes due 2008 and are soliciting consents
with respect to FaciliCom's notes on the terms and conditions described in this
prospectus. The following is a brief summary of the information included in this
prospectus and may not contain all of the information that is important to you.
You should carefully read and review this entire document and the other
documents to which it refers to fully understand the terms of the new World
Access notes, exchange offer and consent solicitation. Throughout this
prospectus, we refer to the new World Access notes, or "exchange notes," the
World Access common stock, or "exchange shares," and the cash payment that you
are entitled to receive in exchange for your FaciliCom notes collectively as the
"exchange consideration." Our reference to the FaciliCom notes means the
FaciliCom notes as governed by the FaciliCom first supplemental indenture until
the execution of the FaciliCom second supplemental indenture, after which the
FaciliCom notes means the FaciliCom notes as governed by the FaciliCom second
supplemental indenture.
WORLD ACCESS
We provide international long distance voice and data services and
proprietary network equipment to the global telecommunications markets. Our
World Access Telecommunications Group provides wholesale international long
distance services through a combination of our own international routing
relationships and resale arrangements with other international long distance
service providers. Our World Access Equipment Group develops, manufacturers and
markets network products that switch and transport voice, data and internet
traffic.
Our principal executive offices are located at 945 E. Paces Ferry Road,
Suite 2200, Atlanta, Georgia 30326, and our telephone number at that location is
(404) 231-2025.
FACILICOM
FaciliCom is a multinational telecommunications carrier. It provides
international long distance services to other carriers worldwide and offers
international and domestic long distance voice, internet access, data and other
value-added services to business and residential customers in select European
markets. FaciliCom provides these services over its carrier-grade international
network, which consists of 17 gateway switches and 18 additional points of
presence in the U.S. and in 13 European countries, as well as a satellite earth
station. The FaciliCom network is connected primarily by fiber optic cable
capacity that FaciliCom owns or leases. In addition to these facilities,
FaciliCom has 12 interconnection agreements, ten of which are with the dominant
national carriers in its markets, and 21 operating agreements, 16 of which are
with the dominant national carriers in its markets.
The principal executive offices of FaciliCom are located at 1401 New York
Avenue, N.W., 9th Floor, Washington, D.C. 20005, and its telephone number at
this location is (202) 496-1100.
THE MERGER
On August 17, 1999, we announced that we entered into a merger agreement
with FaciliCom, providing that FaciliCom will merge with and into World Access.
Upon consummation of the merger, the separate existence of FaciliCom will cease
and World Access will continue as the surviving corporation. Pursuant to the
terms of the merger agreement, the shareholders of FaciliCom will receive
approximately $436.0 million in consideration, primarily in the form of new
Series C Convertible Preferred Stock to be issued by us. The Series C
Convertible preferred stock bears no dividend and is convertible into shares of
World Access common stock at a conversion rate of $20.38 per common share,
subject to potential adjustment under certain circumstances. If the closing
trading price of World Access common stock exceeds $20.38 per share for 60
consecutive trading days, the Series C preferred stock will automatically
convert into World Access common stock.
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Under the terms of the merger agreement, the consummation of the merger is
conditioned upon the adoption of the amendments to the FaciliCom indenture under
which FaciliCom issued the FaciliCom notes. We refer to these amendments
throughout this prospectus as the "proposed amendments." In addition, the
closing of the merger is subject to the approval of World Access stockholders at
a special meeting of stockholders to be held on , 1999, expiration of
the waiting periods under applicable antitrust and anticompetition laws in
Sweden, Germany and Finland, and approval of the transfer to World Access of
FaciliCom's telecommunications licenses by the Federal Communications Commission
and other applicable regulatory authorities. WorldCom Network Services, Inc.,
The 1818 Fund III, L.P. and John D. Phillips, which represent in the aggregate
approximately 24.0% of the current voting power of World Access common stock,
have entered into a voting agreement committing to vote in favor of the merger.
Armstrong International Telecommunications, Inc., Epic Interests, Inc. and BFV
Associates, Inc., which are the majority stockholders of FaciliCom, have already
approved the merger. The merger is expected to close in the fourth quarter of
1999 and will be accounted for as a purchase transaction. For a more detailed
discussion of the merger and related transactions, see "The Merger."
We are conducting the exchange offer and consent solicitation in connection
with the merger. If the proposed amendments are approved in the consent
solicitation, we expect that FaciliCom and the trustee under the indenture for
the FaciliCom notes will execute a second supplemental indenture containing the
proposed amendments that will be effective immediately prior to the closing of
the merger. The continued effectiveness of the second supplemental indenture is
subject to the closing of the merger and consummation of the exchange offer. We
anticipate that the closing of the exchange offer will occur at the closing of
the merger.
THE EXCHANGE OFFER
On October 12, 1999, we entered into an agreement with FaciliCom and the
holders of a majority in interest of the FaciliCom notes in which we agreed,
under certain circumstances, to make an exchange offer for the outstanding
FaciliCom notes for the exchange consideration and those holders agreed to
tender their FaciliCom notes in exchange for the exchange consideration. You are
entitled to exchange in the exchange offer your FaciliCom notes for the exchange
consideration which consists of the following for each $1,000 principal amount
of FaciliCom notes:
(1) $1,000 principal amount of exchange notes, which have terms and
conditions substantially identical in all material respects to the
terms of the outstanding FaciliCom notes except:
- we, and not FaciliCom, are responsible for payment of all amounts due
on the exchange notes;
- the interest rate we will pay on the exchange notes is 13.25% per
annum;
- we will be obligated to make an offer to purchase the exchange notes
with the cash proceeds from some asset sales;
- the amounts we must pay to redeem the exchange notes prior to 2006 are
greater than the equivalent payments under the FaciliCom notes; and
- the covenants in the indenture governing the terms of the exchange
notes allow us more flexibility to incur indebtedness, make some
restricted payments, enter into some transactions with our affiliates,
permit restrictions on the payment of dividends, conduct our
telecommunications equipment business and undertake some asset sales
than was allowed under the FaciliCom indenture;
(2) exchange shares, which are shares of our common stock, par value $.01
per share, having an aggregate market value of $50; and
(3) a cash payment of $10.
For a more detailed description of the exchange consideration, see "The
Exchange Offer."
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IN ORDER TO TENDER YOUR FACILICOM NOTES, YOU WILL BE REQUIRED, AS A
CONDITION TO A VALID TENDER, TO GIVE YOUR CONSENT TO THE PROPOSED AMENDMENTS TO
THE FACILICOM INDENTURE. BY PROPERLY TENDERING YOUR FACILICOM NOTES, YOU WILL
ALSO BE CONSENTING TO THE PROPOSED AMENDMENTS TO THE FACILICOM INDENTURE.
FURTHERMORE, IN ORDER TO GIVE YOUR CONSENT TO THE PROPOSED AMENDMENTS, YOU MUST
VALIDLY TENDER, AND NOT VALIDLY WITHDRAW, YOUR FACILICOM NOTES. IF YOU WITHDRAW
YOUR TENDER OF FACILICOM NOTES, YOUR CONSENT TO THE AMENDMENTS WILL ALSO BE
DEEMED WITHDRAWN. IF THE PROPOSED AMENDMENTS BECOME EFFECTIVE, EACH NON-
EXCHANGING HOLDER OF FACILICOM NOTES WILL BE BOUND BY THE PROPOSED AMENDMENTS TO
THE FACILICOM INDENTURE EVEN THOUGH THE HOLDER DID NOT CONSENT. SEE "-- THE
CONSENT SOLICITATION" AND "-- THE PROPOSED AMENDMENTS" BELOW FOR A DESCRIPTION
OF THE PROPOSED AMENDMENTS TO THE FACILICOM INDENTURE.
Interest on the Exchange
Notes......................... The exchange notes will bear interest at the
rate of 13.25% per annum, payable semiannually
in arrears on January 15 and July 15 of each
year, commencing January 15, 2000 or, if the
exchange date does not occur prior to January
1, 2000 on July 15, 2000, to the person in
whose name the exchange note is registered at
the close of business on the preceding January
1 or July 1, as the case may be. Interest will
begin to accrue at the rate of 13.25%
commencing on the exchange date. Interest will
be computed on the basis of a 360-day year of
twelve 30-day months.
Interest on the FaciliCom
Notes Accepted for Exchange... Accrued and unpaid interest on the FaciliCom
notes validly tendered and accepted for
exchange by World Access will be paid to the
person in whose name such notes are tendered or
such other person as indicated on the letter of
transmittal for tendered FaciliCom notes.
Interest on the FaciliCom notes tendered in the
exchange offer will cease to accrue interest on
the day prior to the exchange date. Payment
will be made on January 15, 2000 or, if the
exchange date has not occurred prior to January
1, 2000, on July 15, 2000.
Expiration Date; Withdrawal of
Tender........................ The exchange offer will expire at 5:00 p.m.,
New York City time, on , 1999, or
such later date and time to which we extend it.
A tender of FaciliCom notes pursuant to the
exchange offer may be withdrawn at any time
prior to the expiration date. Withdrawal of
tendered FaciliCom notes will be deemed to be a
revocation of the consent to the proposed
amendments to the FaciliCom indenture. Any
FaciliCom notes not accepted for exchange for
any reason will be returned without expense to
the tendering holder promptly after the
expiration or termination of the exchange
offer.
Certain Conditions to the
Exchange Offer................ The exchange offer is subject to certain
conditions, which we may waive, including:
- consummation of the merger of FaciliCom and
World Access;
- tender by the holders of at least a majority
of the aggregate principal amount of the
FaciliCom notes in the exchange offer; and
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- consent by the holders of at least a majority
of the aggregate principal amount of the
FaciliCom notes to the proposed amendments to
the FaciliCom indenture.
Pursuant to the terms of our agreement dated
October 12, 1999 with FaciliCom and the holders
of a majority interest of the FaciliCom notes,
such holders agreed to tender their FaciliCom
notes in the exchange offer and to consent to
the proposed amendments, subject to various
conditions, including the consummation of our
merger with FaciliCom.
Please read the section captioned "The Exchange
Offer -- Certain Conditions to the Exchange
Offer" of this prospectus for more information
regarding the conditions to the exchange offer.
Procedures for Tendering
FaciliCom Notes............... If you wish to accept the exchange offer, you
must complete, sign and date the accompanying
letter of transmittal, or a photocopy or
facsimile of the letter of transmittal,
according to the instructions contained in this
prospectus and the letter of transmittal. You
must also mail or otherwise deliver the letter
of transmittal, or a photocopy or facsimile of
the letter of transmittal, together with the
FaciliCom notes and any other required
documents to the exchange agent at the address
on the cover page of the letter of transmittal.
If you hold FaciliCom notes through The
Depository Trust Company, which we refer to in
this prospectus as DTC, and wish to participate
in the exchange offer, you must comply with the
Automated Tender Offer Program procedures of
DTC, by which you will agree to be bound by the
letter of transmittal. By signing or agreeing
to be bound by the letter of transmittal, you
will represent to us that, among other things:
- any exchange notes that you receive will be
acquired in the ordinary course of your
business;
- you have no arrangement or understanding with
any person or entity to participate in the
distribution of the exchange notes;
- if you are a broker-dealer that will receive
exchange notes for your own account in
exchange for FaciliCom notes that were
acquired as a result of market-making
activities, that you will deliver a
prospectus, as required by law, in connection
with any resale of such exchange notes; and
- you are not our "affiliate," as defined in
Rule 405 of the Securities Act or, if you are
our affiliate, you will comply with any
applicable registration and prospectus
delivery requirements of the Securities Act.
In addition, by signing or agreeing to be bound
by the letter of transmittal, you will be
consenting to the proposed amendments to the
FaciliCom indenture.
Special Procedures for
Beneficial Owners............. If you are a beneficial owner of FaciliCom
notes which are not registered in your name,
and you wish to tender the FaciliCom
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notes in the exchange offer, you should contact
the registered holder promptly and instruct the
registered holder to tender on your behalf. If
you wish to tender on your own behalf, you
must, prior to completing and executing the
letter of transmittal and delivering your
FaciliCom notes, either make appropriate
arrangements to register ownership of the
FaciliCom notes in your name or obtain a
properly completed bond power from the
registered holder.
Guaranteed Delivery
Procedures.................... If you wish to tender your FaciliCom notes and
your FaciliCom notes are not immediately
available or you cannot deliver your FaciliCom
notes, the letter of transmittal or any other
documents required by the letter of transmittal
or comply with the applicable procedures under
DTC's Automated Tender Offer Program prior to
the expiration date, you must tender your
FaciliCom notes according to the guaranteed
delivery procedures set forth in this
prospectus under "The Exchange
Offer -- Guaranteed Delivery Procedures."
Accounting Treatment of the
Exchange Offer................ The exchange notes will be recorded by World
Access based on the fair value of the exchange
notes. Any difference (discount or premium)
between the fair value and par value of the
exchange notes will be amortized over the life
of the exchange notes as an adjustment to
interest expense.
No Dissenters' Rights......... You will not have any right to dissent and
receive an appraisal of your FaciliCom notes in
connection with the exchange offer or consent
solicitation.
Federal Income Tax
Considerations................ We believe that the exchange of FaciliCom notes
for exchange notes, common stock and cash in
the exchange offer will not result in your
recognizing gain or loss for federal income tax
purposes except to the extent of the cash
payment. The IRS, however, may take the
position that tendering holders recognize
taxable income upon the receipt of both the
exchange shares and cash payment. We have not
requested a ruling from the IRS with respect to
the federal income tax consequences of the
exchange offer and consent solicitation. It is
not a condition to the exchange offer or
consent solicitation that we or FaciliCom
receive such a ruling or an opinion of tax
counsel concerning such tax consequences. See
"Tax Considerations -- Federal Income Tax
Considerations."
Use of Proceeds............... We will not receive any cash proceeds from the
issuance of the exchange notes and exchange
shares pursuant to the exchange offer.
Exchange Agent................ First Union National Bank is the exchange agent
for the exchange offer. The address and
telephone number of the exchange agent are set
forth in the section captioned "The Exchange
Offer -- Exchange Agent" of this prospectus.
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Dealer Managers............... Donaldson, Lufkin & Jenrette and Lehman
Brothers are the co-dealer managers for the
exchange offer.
EFFECT OF THE EXCHANGE OFFER AND CONSENT SOLICITATION ON HOLDERS OF FACILICOM
NOTES WHO DO NOT TENDER
If you do not tender your FaciliCom notes in the exchange offer, you will
continue to be entitled to all the rights and subject to the terms applicable to
the FaciliCom notes under the FaciliCom indenture. However, if the exchange
offer and consent solicitation are consummated, the terms of the FaciliCom
indenture will be materially changed pursuant to the proposed amendments and you
will no longer have the right to require us to repurchase your FaciliCom notes
at a purchase price of 101% of the principal amount upon completion of our
pending merger with FaciliCom or to approve the merger. For a description of the
proposed amendments, see "The Proposed Amendments."
If you do not tender your FaciliCom notes in the exchange offer, you will
not be entitled to receive the exchange consideration, which includes exchange
notes with an interest rate of 13.25% per annum as compared to the 10 1/2% per
annum for the FaciliCom notes and more favorable offer to purchase and
redemption provisions as compared to the FaciliCom notes.
Our proposed merger with FaciliCom would violate several covenants
applicable to the FaciliCom notes allowing the holders of 25.0% of the aggregate
principal amount of the FaciliCom notes or the trustee under the FaciliCom
indenture to declare principal and accrued and unpaid interest on the FaciliCom
notes immediately due and payable. However, holders who tender their FaciliCom
notes in the exchange offer will effectively waive this right by consenting to
the proposed amendments to the FaciliCom indenture that delete the covenants
which would be breached. Upon effectiveness of the consent solicitation, the
proposed amendments will apply to all FaciliCom notes that are not tendered in
the exchange offer.
THE CONSENT SOLICITATION
As part of the exchange offer, we are also soliciting consents from the
holders of the FaciliCom notes to some amendments to the FaciliCom indenture
under which FaciliCom issued the FaciliCom notes. The proposed amendments
materially reduce the obligations of FaciliCom (and us as the surviving
corporation after the merger) under the FaciliCom indenture by, among other
things:
(1) removing restrictions on FaciliCom's ability to:
- consolidate and/or merge;
- incur additional debt;
- make payments to affiliates;
- make dividend payments;
- sell capital stock of its subsidiaries;
- enter into transactions with shareholders;
- create liens on its property;
- sell assets;
- transfer its existing business; and
- enter into sale-leaseback transactions; and
(2) eliminating FaciliCom's obligations to:
- maintain an office or agency;
- hold money for payment of the FaciliCom notes in trust;
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- pay taxes;
- maintain its properties;
- maintain insurance coverage; and
- provide the holders of FaciliCom notes with financial statements.
If the consents of the holders of a majority of the aggregate principal
amount of the FaciliCom notes are received, the FaciliCom indenture will be
amended in accordance with the proposed amendments described more fully under
"The Proposed Amendments." If the proposed amendments become effective, each
holder of FaciliCom notes that does not exchange its FaciliCom notes for the
exchange notes will be bound by the applicable proposed amendments even though
this holder did not consent to the proposed amendments.
WE WILL MAKE NO SEPARATE PAYMENT, OTHER THAN THE EXCHANGE CONSIDERATION IN
EXCHANGE FOR THE FACILICOM NOTES, FOR CONSENTS DELIVERED IN THE CONSENT
SOLICITATION WHICH IS PART OF THE EXCHANGE OFFER.
If you withdraw your tender of FaciliCom notes, your consent to the
proposed amendments will also be deemed withdrawn. You may not withdraw your
consent without withdrawing your tender of FaciliCom notes.
DESCRIPTION OF EXCHANGE NOTES
The exchange offer applies to $300,000,000 aggregate principal amount of
FaciliCom notes. The exchange notes will be entitled to the benefits of an
indenture to be entered into between World Access and First Union National Bank.
See "Description of the Exchange Notes."
Issue......................... $300,000,000 aggregate principal amount of
13.25% Senior Notes due 2008.
Maturity Date................. January 15, 2008
Interest Payment Dates........ January 15 and July 15, commencing on January
15, 2000, or July 15, 2000 if the exchange date
does not occur prior to January 1, 2000.
Security...................... On the exchange date, a pro rata portion of the
securities pledged in connection with the
issuance of the FaciliCom notes will be
deposited in a pledge account created for the
benefit of the holders of the exchange notes.
The exchange notes will be secured by a first
priority security interest in the pledged
securities deposited in the pledge account. See
"Description of the Exchange Notes --
Security."
Ranking....................... The indebtedness evidenced by the exchange
notes will be our unsecured (except as
described) obligations. The exchange notes will
rank senior in right of payment to any of our
existing and future obligations expressly
subordinated in right of payment to the
exchange notes and will be pari passu in right
of payment with all of our other existing and
future unsecured and unsubordinated
obligations, including trade payables. The
exchange notes will be subordinated to all of
our existing and future secured indebtedness,
including indebtedness under our credit
facility, to the extent of the value of the
assets securing the indebtedness. After giving
effect to the merger of World Access and
FaciliCom, we will have approximately $464.0
million of indebtedness, excluding trade
payables, of which $462.1 million will rank
senior to and $1.9 million will rank pari
7
<PAGE> 11
passu with the exchange notes, respectively.
Because we are a holding company and we conduct
business through our subsidiaries, all existing
and future indebtedness and other liabilities
and commitments of our subsidiaries, including
trade payables, will be effectively senior to
the exchange notes. Our subsidiaries will not
be guarantors of the exchange notes. The
indenture under which we will issue the
exchange notes limits, but does not prohibit,
the incurrence of certain additional
indebtedness by us and our restricted
subsidiaries and does not limit the amount of
indebtedness incurred to finance the cost of
telecommunications assets.
After giving effect to our merger with
FaciliCom, our consolidated subsidiaries will
have aggregate liabilities of approximately
$743.3 million, which includes $464.0 million
of indebtedness.
Market for the Exchange Notes;
Listing....................... There is no public market for the exchange
notes, and we do not intend to apply for
listing of the exchange notes on any national
securities exchange or for quotation through
Nasdaq. Accordingly, there can be no assurance
as to the development or liquidity of any
market for the exchange notes.
Optional Redemption........... The exchange notes are not redeemable at our
option prior to January 15, 2003. At any time
on or after that date, the exchange notes will
be redeemable, in whole or in part, at our
option, at the redemption prices set forth in
this prospectus plus accrued and unpaid
interest thereon to the date of redemption.
Notwithstanding the foregoing, prior to January
15, 2001, we may redeem from time to time up to
35.0% of the originally issued aggregate
principal amount of exchange notes at a
redemption price equal to 110.5% of the
aggregate principal amount thereof, plus
accrued and unpaid interest thereon to the date
of redemption with the net cash proceeds of one
or more public equity offerings; provided, that
at least 65.0% of the originally issued
aggregate principal amount of the exchange
notes remains outstanding immediately after
such redemption; and provided further that
notice of the redemption shall be given within
60 days after the closing of any such public
equity offering. See "Description of the
Exchange Notes -- Optional Redemption."
Change of Control............. In the event of a change of control of the
surviving corporation subsequent to the merger
of World Access and FaciliCom, each holder of
exchange notes will have the right to require
us to purchase all or any part of such holder's
exchange notes at a purchase price in cash
equal to 101.0% of the aggregate principal
amount thereof, plus accrued and unpaid
interest to the date of purchase. See
"Description of the Exchange
Notes -- Repurchase of Exchange Notes Upon a
Change of Control." We cannot assure you that
we will be able to fund these repurchase
obligations in the event of a change of
control.
Covenants..................... The indenture under which we will issue the
exchange notes contains covenants that, among
other things, limit our ability and
8
<PAGE> 12
the ability of our restricted subsidiaries to
incur additional indebtedness, pay dividends or
make other distributions, repurchase capital
stock or subordinated indebtedness or make some
other types of restricted payments, create some
types of liens, enter into some types of
transactions with stockholders and affiliates,
sell assets, issue or sell capital stock of
certain of our subsidiaries or enter into some
types of mergers and consolidations. See
"Description of the Exchange
Notes -- Covenants."
MARKETS AND MARKET PRICES
Our common stock is traded on Nasdaq under the symbol "WAXS." The following
table shows the high and low sales prices for the World Access common stock as
reported by Nasdaq for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C> <C> <C>
CALENDAR YEAR 1997
First Quarter............................................. $ 9 1/4 $ 7 1/2
Second Quarter............................................ 23 7 5/8
Third Quarter............................................. 34 1/8 20
Fourth Quarter............................................ 33 3/4 17
CALENDAR YEAR 1998
First Quarter............................................. 33 1/2 21 5/8
Second Quarter............................................ 40 25 3/8
Third Quarter............................................. 30 15/16 18 3/4
Fourth Quarter............................................ 24 3/4 12
CALENDAR YEAR 1999
First Quarter............................................. 22 3/4 6 3/8
Second Quarter............................................ 14 1/8 7 7/8
Third Quarter............................................. 16 3/16 10 5/16
Fourth Quarter (through October 20, 1999)................. 13 13/16 10 13/16
</TABLE>
On August 16, 1999, the last full trading day prior to the public
announcement of the execution of the merger agreement with FaciliCom, and
October 20, 1999, the last reported sale prices on Nasdaq of World Access common
stock were $13 11/16 and $11 15/16, respectively.
We have not paid or declared any cash dividends on our common stock since
our inception and anticipate that our future earnings will be retained to
finance the continuing development of our business. The payment of any future
dividends will be at the discretion of our board of directors and will depend
upon future earnings, the success of business activities, regulatory and capital
requirements, our financial condition, general business conditions and other
factors. We currently are restricted from paying dividends on our common stock
under our revolving credit facility, and, after the merger, we will also be
restricted from paying dividends under the terms of the exchange notes.
The holders of our 4.25% Cumulative Senior Perpetual Convertible Preferred
Stock, Series A, and our 4.25% Cumulative Junior Convertible Preferred Stock,
Series B, which have preference to the holders of shares of World Access common
stock, are entitled to receive, when, as and if declared by our board of
directors, cash dividends at an annual rate on the respective liquidation
preferences equal to 4.25%. Dividends payable on the Series A preferred stock
and Series B preferred stock are cumulative and accrue, whether or not declared,
on a daily basis from the respective dates of issuance. The current aggregate
annual dividend payments required to be made by World Access on the Series A
preferred stock and Series B preferred stock are approximately $3.1 million. The
Series C preferred stock to be issued in our merger with FaciliCom will rank, as
to dividends, on parity with our common stock and junior to our Series A
preferred stock and Series B preferred stock.
RISK FACTORS
For a discussion of factors that should be considered in evaluating the
exchange offer and consent solicitation, see "Risk Factors," beginning on page
17.
9
<PAGE> 13
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
WORLD ACCESS SELECTED HISTORICAL FINANCIAL INFORMATION
The selected financial data presented below for the five years ended
December 31, 1998 have been derived from the audited consolidated financial
statements of World Access. The financial data for the six month periods ended
June 30, 1998 and 1999 have been derived from unaudited consolidated financial
statements of World Access, which, in the opinion of World Access' management,
include all the significant normal and recurring adjustments necessary for fair
presentation of the financial position and results of operations for such
unaudited periods.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF CONTINUING OPERATIONS DATA(1):
Equipment sales............................... $ 6,014 $12,612 $17,131 $ 48,614 $ 138,990 $ 56,684 $122,360
Carrier service revenues...................... -- -- -- -- 13,143 1,263 198,891
------- ------- ------- -------- --------- -------- --------
Total sales........................... 6,014 12,612 17,131 48,614 152,133 57,947 321,251
Gross profit.................................. 135 1,802 3,055 21,087 56,031 27,477 64,929
In-process research and development........... -- -- -- -- 100,300 35,400 --
Goodwill impairment........................... -- -- -- -- 6,200 -- --
Restructuring and other charges............... -- -- -- -- 17,240 590 --
Income (loss) from continuing operations...... (2,079) (389) (1,041) 8,350 (114,645) (27,690) 8,393
Income (loss) from continuing operations per
share(2).................................... $ (0.45) $ (0.04) $ (0.07) $ 0.45 $ (5.19) $ (1.39) $ 0.22
Weighted average shares outstanding(2)........ 4,631 9,083 14,530 18,708 22,073 19,960 38,446
OTHER FINANCIAL DATA:
EBITDA from continuing operations(3).......... $(1,261) $ 288 $ (632) $ 13,709 $(106,950) $(19,489) $ 34,903
Cash flows from operating activities.......... (1,247) (6,189) 1,995 (1,602) (13,038) 2,952 4,288
Cash flows from investing activities.......... (240) (2,687) (1,793) (18,240) (66,527) (69,774) (4,102)
Cash flows from financing activities.......... 1,616 10,010 20,391 115,427 16,676 6,410 43,634
Capital expenditures.......................... 240 280 1,176 3,591 12,216 5,859 4,163
Ratio of earnings to fixed charges(4)......... -- -- -- 9.1 -- -- 4.1
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
------------------------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
------ ------- ------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(5):
Cash and equivalents................................ $ 753 $ 1,887 $22,480 $118,065 $ 55,176 $ 57,653 $ 98,996
Working capital..................................... 2,267 10,222 37,961 153,750 125,586 112,465 180,061
Total assets........................................ 8,943 28,515 60,736 225,283 613,812 268,518 693,146
Long-term debt...................................... 4,328 3,750 -- 115,264 137,864 115,529 140,728
Total liabilities................................... 7,783 14,181 8,362 133,528 253,229 169,944 267,354
Stockholders' equity................................ 1,160 14,334 52,374 91,755 360,583 98,574 425,792
</TABLE>
(Footnotes
on following page)
10
<PAGE> 14
- ------------------------------
(1) Includes the results of operations for the following businesses from their
respective dates of acquisition: AIT, Inc. -- May 1995; Cellular
Infrastructure Supply, Inc. -- January 1997; Galaxy Personal Communications
Services, Inc. -- July 1997; Advanced TechCom, Inc. -- January 1998; NACT
Telecommunications, Inc. -- February 1998; Telco Systems, Inc. -- November
1998; and Cherry Communications Incorporated (d/b/a Resurgens Communications
Group) and Cherry Communications U.K. Limited -- December 1998. We refer to
Cherry Communications Incorporated, or Cherry U.S., and Cherry
Communications U.K. Limited, or Cherry U.K., collectively in this prospectus
as Resurgens.
(2) Net income (loss) per share and weighted average shares outstanding are
presented on a diluted basis. The calculations exclude 8,307,000; 995,000;
401,000 and 896,000 shares of World Access Common Stock for 1998, 1997, 1996
and 1995, respectively, that are held in escrow accounts. See Notes A and B
to the World Access Consolidated Financial Statements which are incorporated
by reference and "Related Transactions."
(3) EBITDA from continuing operations consists of earnings (losses) before
interest expense, income taxes, depreciation and amortization. EBITDA should
not be considered as a substitute for operating earnings, net income (loss),
cash flow or other combined statement of operations or cash flow data
computed in accordance with generally accepted accounting principles or as a
measure of World Access' results of operations or liquidity. EBITDA is
widely used as a measure of a company's operating performance and its
ability to service its indebtedness because it assists in comparing
performance on a consistent basis across companies, which can vary
significantly. EBITDA from continuing operations before special charges
excludes charges for in-process research and development, goodwill
impairment, provision for doubtful accounts, restructuring and other charges
and inventory write-downs. The following table reconciles income (loss) from
continuing operations to EBITDA from continuing operations and EBITDA from
continuing operations before special charges:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
------- ------ ------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations...................... $(2,079) $ (389) $(1,041) $ 8,350 $(114,645) $(27,690) $ 8,393
Interest expense (income),
net........................... 511 308 (230) (1,426) 3,413 988 3,098
Income taxes (benefit).......... -- -- (114) 4,792 (1,387) 5,906 9,357
Income tax related to minority
interests..................... -- -- -- -- (1,663) (1,021) --
Depreciation and amortization... 307 369 753 1,993 7,332 2,328 14,055
------- ------ ------- ------- --------- -------- -------
EBITDA from continuing
operations.................... (1,261) 288 (632) 13,709 (106,950) (19,489) 34,903
Special charges:
In-process research and
development................... -- -- -- -- 100,300 35,400 --
Write-down of inventories....... -- -- -- -- 9,292 465 --
Goodwill impairment............. -- -- -- -- 6,200 -- --
Provision for doubtful
accounts...................... -- -- -- -- 10,674 -- --
Restructuring and other
charges....................... 80 980 -- -- 17,240 590 --
------- ------ ------- ------- --------- -------- -------
EBITDA from continuing
operations before special
charges....................... $(1,181) $1,268 $ (632) $13,709 $ 36,756 $ 16,966 $34,903
======= ====== ======= ======= ========= ======== =======
</TABLE>
(4) Computed by dividing earnings by total fixed charges. Earnings consist of
pretax income from continuing operations before fixed charges. Fixed charges
consist of interest on debt, including amortization of debt issuance costs,
and a portion of rent expense estimated by management to be the interest
component of the rentals. Earnings were not sufficient to cover fixed
charges for the years ended December 31, 1994, 1995, 1996 and 1998 and for
the six months ended June 30, 1998, in the amount of $2.1 million, $389,000,
$1.2 million, $117.7 million and $21.3 million, respectively. Excluding
special charges for the year ended December 31, 1998 and the six months
ended June 30, 1998 of $143.7 million and $36.5 million, respectively, our
ratio of earnings to fixed charges would have been approximately 4.3 and
5.3, respectively.
(5) In October 1997, World Access sold $115.0 million of convertible
subordinated notes. See Note I to the World Access Consolidated Financial
Statements which are incorporated by reference.
11
<PAGE> 15
FACILICOM SELECTED HISTORICAL FINANCIAL INFORMATION
The selected financial data presented below for the period from January 1,
1995 to June 30, 1995 ("Predecessor"), the period from FaciliCom's inception on
May 5, 1995 to September 30, 1995 and for the fiscal years ended September 30,
1996, 1997 and 1998 have been derived from the audited consolidated financial
statements of FaciliCom. The selected financial data for FaciliCom for the nine
month periods ended June 30, 1998 and 1999 have been derived from the unaudited
consolidated financial statements of FaciliCom which, in the opinion of
FaciliCom's management, include all significant normal and recurring adjustments
necessary for fair presentation of the financial position and results of
operations for such unaudited periods.
<TABLE>
<CAPTION>
PERIOD
PERIOD FROM FROM
JANUARY 1, MAY 5,
1995 TO 1995 NINE MONTHS ENDED
JUNE 30, TO YEAR ENDED SEPTEMBER 30, JUNE 30,
1995 SEPTEMBER 30, ----------------------------- --------------------
(PREDECESSOR)(1) 1995 1996 1997 1998 1998 1999
---------------- ------------- ------- -------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
U.S. originated........... $ -- $ -- $ 7,838 $ 53,821 $116,383 $ 80,755 $121,591
European originated....... 367 547 4,053 16,366 67,863 36,391 158,104
------- ------- ------- -------- -------- --------- --------
Total revenues... 367 547 11,891 70,187 184,246 117,146 279,695
Cost of revenues.......... 938 1,022 12,742 65,718 178,952 114,473 257,253
------- ------- ------- -------- -------- --------- --------
Gross profit (deficit).... (571) (475) (851) 4,469 5,294 2,673 22,442
------- ------- ------- -------- -------- --------- --------
Operating loss............ (1,305) (1,560) (9,576) (11,360) (43,886) (30,181) (35,171)
Net Loss.................. (1,341) (1,725) (9,662) (14,031) (46,595) (32,515) (51,879)
OTHER FINANCIAL DATA:
EBITDA(2)................. $(1,108) $(1,418) $(8,433) $ (9,042) $(35,070) $ (24,867) $(18,276)
Cash flows from operating
activities.............. 563 (1,624) (5,413) (8,361) (36,115) (26,304) (30,290)
Cash flows from investing
activities.............. (545) (1,055) (1,074) (1,664) (184,692) (185,462) (18,232)
Cash flows from financing
activities.............. -- 2,788 8,572 7,914 285,154 290,622 (742)
Capital expenditures...... 1,213 1,105 8,404 12,282 101,910 72,460 94,771
Ratio of earnings to fixed
charges(3).............. -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT JUNE 30, 1999
---------------------------------------- --------------------
1995 1996 1997 1998 1998 1999
------ ------- ------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents.................... $ 109 $ 2,198 $ 1,016 $ 68,129 $ 80,433 $ 18,696
Marketable securities -- unrestricted... -- -- -- 38,698 56,864 --
Marketable
securities -- restricted(4)........... -- -- -- 74,518 87,131 61,280
Net property and equipment.............. 2,661 10,144 20,244 115,748 84,338 185,768
Total assets............................ 5,664 21,008 44,017 378,884 375,701 384,765
Total long-term obligations............. 1,906 9,194 20,973 308,137 305,429 304,166
Total capital accounts.................. 1,109 (1,715) (9,421) (38,575) (22,170) (106,137)
</TABLE>
- ------------------------------
(1) Data for periods prior to January 1, 1995 have not been presented because
amounts were insignificant and not meaningful. Cumulative revenue and net
losses from inception through December 31, 1994 were $35,758 and $287,564,
respectively, and both total assets and liabilities at December 31, 1994
were $2.6 million.
(2) EBITDA consists of earnings (losses) before interest expense, income taxes,
depreciation, amortization and foreign exchange (loss) gain. EBITDA should
not be considered as a substitute for operating earnings, net income, cash
flow or other combined statement of income or cash flow data computed in
accordance with generally accepted accounting principles or as a measure of
our results of operations or liquidity. EBITDA is widely used as a measure
of a company's operating performance and its ability to service its
indebtedness because it assists in comparing performance on a consistent
basis across companies, which can vary significantly. The following table
reconciles net loss to EBITDA:
12
<PAGE> 16
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM MAY 5, 1995 NINE MONTHS ENDED
JANUARY 1, 1995 TO YEAR ENDED SEPTEMBER 30, JUNE 30,
TO JUNE 30, 1995 SEPTEMBER 30, ----------------------------- -------------------
(PREDECESSOR) 1995 1996 1997 1998 1998 1999
---------------- ------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net loss.................... $(1,341) $(1,725) $(9,662) $(14,031) $(46,595) $(32,515) $(51,879)
Foreign exchange (loss)
gain...................... (8) 85 (226) 1,335 391 655 1,346
Interest expense (income),
net....................... 44 80 312 1,336 14,460 8,945 22,044
Gain on settlement
agreement................. -- -- -- -- (791) (791) --
Income tax benefit.......... -- -- -- -- (11,351) (6,475) (6,682)
Depreciation and
amortization.............. 197 142 1,143 2,318 8,816 5,314 16,895
------- ------- ------- -------- -------- -------- --------
EBITDA...................... $(1,108) $(1,418) $(8,433) $ (9,042) $(35,070) $(24,867) $(18,276)
======= ======= ======= ======== ======== ======== ========
</TABLE>
- ------------------------------
(3) The ratio of earnings to fixed charges is computed by dividing pretax income
from operations before fixed charges by fixed charges. Fixed charges consist
of interest charges and that portion of rental expense FaciliCom believes to
be representative of interest. For the period January 1, 1995 through June
30, 1995 (Predecessor), the periods ended September 30, 1995, 1996, 1997 and
1998 and the nine months ended June 30, 1998 and 1999, earnings were
insufficient to cover fixed charges by $1.3 million, $1.7 million, $9.7
million, $14.0 million, $57.9 million, $39.0 million and $58.6 million,
respectively.
(4) Comprises amounts deposited in 1998 which are required to be used to fund
interest payments on the FaciliCom notes.
13
<PAGE> 17
UNAUDITED SELECTED PRO FORMA FINANCIAL INFORMATION
The unaudited selected pro forma balance sheet data of World Access as of
June 30, 1999 set forth below give effect to the FaciliCom merger and certain
related transactions as if consummated on such date. The unaudited selected pro
forma statement of operations data of World Access for the year ended December
31, 1998 and the six months ended June 30, 1999 set forth below give effect to
the FaciliCom merger as well as certain transactions that World Access has
completed in 1998 and 1999, as if consummated at the beginning of 1998. The
selected pro forma information set forth below is qualified in its entirety by,
and should be read in conjunction with, the Unaudited Pro Forma Condensed
Combined Financial Statements included herein and the historical financial
information of World Access, FaciliCom, Telco Systems, Inc. and Resurgens, which
in the case of FaciliCom, are included in this document and, in the case of
World Access, Telco Systems, Inc. and Resurgens, are incorporated in this
prospectus by reference.
The selected pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the financial position or
operating results that would have occurred if the transactions given retroactive
effect therein had been consummated as of the dates indicated, nor is it
necessarily indicative of future financial conditions or operating results. See
"Unaudited Pro Forma Combined Financial Statements".
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA:
Carrier service revenues.................................... $ 321,193 $ 367,808
Equipment sales............................................. 235,357 122,360
--------- ---------
Total sales............................................... 556,550 490,168
Cost of carrier services.................................... 333,147 342,352
Cost of equipment sold...................................... 137,858 68,690
Write-down of inventories................................... 9,292 --
Amortization of acquired technology......................... 4,346 2,400
--------- ---------
Total cost of sales....................................... 484,643 413,442
--------- ---------
Gross profit.............................................. 71,907 76,726
Engineering and development................................. 22,107 8,773
Selling, general and administrative......................... 125,227 60,638
Amortization of goodwill.................................... 44,026 20,473
In-process research and development......................... 65,585 --
Goodwill impairment......................................... 6,200 --
Provision for doubtful accounts............................. 18,835 4,270
Restructuring and other charges............................. 17,240 --
--------- ---------
Operating loss from continuing operations................. (227,313) (17,428)
Foreign exchange loss....................................... (391) (1,290)
Interest and other income................................... 13,739 4,268
Interest and other expense.................................. (58,091) (26,051)
--------- ---------
Loss from continuing operations before income taxes and
minority interests...................................... (272,056) (40,501)
Income taxes (benefit)...................................... (21,408) 1,781
--------- ---------
Loss from continuing operations before minority
interests............................................... (250,648) (42,282)
Minority interest in earnings of subsidiary................. 2,497 --
--------- ---------
Loss from continuing operations........................... (253,145) (42,282)
Preferred stock dividends................................... -- (413)
--------- ---------
Loss from continuing operations available to common
stockholders............................................ $(253,145) $ (42,695)
========= =========
Loss from continuing operations per common share(1):
Basic..................................................... $ (5.52) $ (0.85)
Diluted................................................... $ (5.52) $ (0.85)
Weighted average shares outstanding(1):
Basic..................................................... 45,897 50,102
Diluted................................................... 45,897 50,102
</TABLE>
- ---------------
(1) Represents basic and diluted earnings per share including shares of World
Access common stock issued in connection with the FaciliCom merger and
certain other transactions that World Access has completed as if consummated
on January 1, 1998, calculated in accordance with Statement of
14
<PAGE> 18
Financial Accounting Standards ("SFAS") No. 128. Due to the pro forma loss
from continuing operations for the year ended December 31, 1998 and the six
months ended June 30, 1999, potential common stock shares related to stock
options, stock warrants, convertible notes and convertible preferred stock
have been excluded from the weighted average shares outstanding as the
inclusion of these potential common stock shares would be anti-dilutive.
<TABLE>
<CAPTION>
AT
JUNE 30, 1999
-------------
<S> <C>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET DATA:
Current Assets
Cash and equivalents...................................... $ 123,442
Accounts receivable....................................... 195,884
Marketable securities -- restricted....................... 31,755
Inventories............................................... 45,216
Other current assets...................................... 60,996
----------
Total Current Assets.............................. 457,293
Property and equipment...................................... 248,093
Goodwill and other intangibles.............................. 874,204
Marketable securities -- restricted......................... 29,525
Other assets................................................ 25,348
----------
Total Assets...................................... $1,634,463
==========
Current Liabilities
Short-term debt............................................. $ 34,122
Accounts payable............................................ 184,816
Other accrued liabilities................................... 84,220
----------
Total Current Liabilities......................... 303,158
Long-term debt.............................................. 429,894
Noncurrent liabilities...................................... 10,204
----------
Total Liabilities................................. 743,256
----------
Stockholders' Equity
Common and preferred stock................................ 517
Capital in excess of par value............................ 1,009,828
Accumulated deficit....................................... (119,138)
----------
Total Stockholders' Equity........................ 891,207
----------
Total Liabilities and Stockholders' Equity........ $1,634,463
==========
</TABLE>
15
<PAGE> 19
COMPARATIVE PER SHARE DATA
(UNAUDITED)
Set forth below are historical income (loss) per share from continuing
operations and book value per common share data of World Access and FaciliCom
and the income (loss) per share from continuing operations and book value per
common share data of World Access on a pro forma basis to give effect to the
FaciliCom merger and certain related transactions and to the acquisition of
Telco Systems, Inc. and the acquisition of Cherry Communications Incorporated
and Cherry Communications U.K. Limited (the "Resurgens Acquisition") completed
in the fourth quarter of 1998. No common stock dividends were paid by World
Access during the periods presented below. The pro forma information assumes the
issuances of 5,308,000 shares of World Access common stock to be issued in
connection with the private placement of $75.0 million of World Access common
stock, 1,062,000 shares of World Access common stock to be issued to the holders
of the FaciliCom notes, and the release of 7,500,000 shares of World Access
common stock held in escrow in connection with the Resurgens Acquisition which
will be released upon consummation of our merger with FaciliCom. It does not
assume the conversion of the Series C preferred stock (conversion price of
$20.38 per share) due to its anti-dilutive effect. We issued 7,042,000 and
3,687,500 shares of World Access common stock as part of the consummation of the
Telco acquisition and the Resurgens Acquisition, respectively. Equivalent pro
forma information for FaciliCom is not meaningful and therefore not presented
because the FaciliCom merger consideration will be in the form of cash and/or
World Access common stock and Series C preferred stock. The pro forma per share
data is not necessarily indicative of actual results had the FaciliCom merger
occurred on such dates or of future expected results.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 JUNE 30, 1999
------------------ -------------
<S> <C> <C>
WORLD ACCESS -- HISTORICAL
Income (loss) per share from continuing operations
Basic..................................................... $ (5.19) $ 0.22
Diluted................................................... (5.19) 0.22
Book value per common share(1).............................. 10.06 9.85
WORLD ACCESS -- PRO FORMA
Income (loss) per share from continuing operations(2)
Basic..................................................... $ (5.52) $ (0.85)
Diluted................................................... (5.52) (0.85)
Book value per common share(3).............................. 10.41 11.13
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, 1998 JUNE 30, 1998
------------------ -------------
<S> <C> <C>
FACILICOM -- HISTORICAL
Net loss per share(4)
Basic..................................................... $(206.41) $(229.55)
Diluted................................................... (206.41) (229.55)
Book value per share(1)..................................... (170.88) (467.72)
</TABLE>
- ------------------------------
(1) Calculated by dividing historical stockholders' equity by the number of
outstanding common shares. Historical stockholders' equity for World Access
at June 30, 1999 does not include the issuance of preferred stock. The
outstanding common shares do not include shares issuable upon exercise of
stock options, stock warrants, conversion of outstanding convertible
securities, or outstanding shares which have been placed in escrow in
connection with previous acquisitions.
(2) Pro forma income (loss) per share from continuing operations is presented on
a basic and diluted basis computed as pro forma income (loss) from
continuing operations divided by the weighted average number of shares
outstanding, assuming shares issued in each of the transactions were
outstanding since the beginning of each period presented. The outstanding
common shares do not include shares issuable upon exercise of stock options,
stock warrants, or conversion of outstanding convertible securities.
(3) Calculated by dividing pro forma stockholders' equity by the number of
outstanding shares of World Access common stock expected to be outstanding
as of the consummation of the FaciliCom merger, and does not include shares
issuable upon the exercise of stock options, stock warrants, the conversion
of outstanding convertible securities, or outstanding shares which have been
placed in escrow in connection with previous acquisitions. Pro forma
stockholders' equity at June 30, 1999 does not include the issuance of
preferred stock.
(4) The calculation of net loss per share assumes FaciliCom's reorganization
occurred on October 1, 1997. See FaciliCom's Consolidated Financial
Statements included elsewhere in this prospectus.
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RISK FACTORS
You should consider carefully the following factors, in addition to the
other information contained in this prospectus.
RISK FACTORS RELATED TO THE EXCHANGE OFFER AND CONSENT SOLICITATION
AS A HOLDING COMPANY, WE MAY BE UNABLE TO MAKE PAYMENTS ON THE EXCHANGE NOTES IF
OUR SUBSIDIARIES ARE UNABLE TO DISTRIBUTE MONEY TO US
We are a holding company with few direct operations and few assets of
significance other than the stock of our subsidiaries. As a holding company, we
will be dependent on the cash flows of our subsidiaries to meet our obligations,
including the payment of principal and interest on the exchange notes. Our
subsidiaries are separate legal entities that will have no obligation to pay any
amounts due under the exchange notes. Generally, creditors of a subsidiary will
have a superior claim to the assets and earnings of such subsidiary than the
claims of creditors of the parent company, except to the extent the claims of
the parent's creditors are guaranteed by the subsidiary. Our subsidiaries have
not guaranteed the payment of the exchange notes. The exchange notes therefore
will be effectively subordinated to the claims of the creditors of our
subsidiaries, including trade creditors and holders of indebtedness of our
subsidiaries.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE EXCHANGE NOTES WILL BE JUNIOR TO OUR
CREDIT FACILITY AND OUR EXISTING AND FUTURE SECURED INDEBTEDNESS
The exchange notes are unsecured and therefore, will be subordinated to all
of our existing and future secured indebtedness, including indebtedness under
our credit facility, to the extent of the value of the assets securing the
indebtedness. As of October 20, 1999, we had no amounts outstanding indebtedness
under our credit facility. Consequently, in the event of bankruptcy,
liquidation, dissolution, reorganization or a similar proceeding, our assets
will be available to satisfy obligations of secured debt before any payment may
be made on the exchange notes. Accordingly, there might be a limited amount of
assets or no assets available to satisfy your claims as a holder of the exchange
notes.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO PURCHASE THE
EXCHANGE NOTES UPON A CHANGE OF CONTROL AS REQUIRED BY OUR INDENTURE GOVERNING
THE EXCHANGE NOTES
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding exchange notes.
However, it is possible that we will not have sufficient funds at the time of
the change of control to repurchase the notes or the restrictions in our credit
facility will not allow such repurchases.
BECAUSE OF THE LACK OF A PUBLIC MARKET FOR THE NOTES, YOU MAY BE UNABLE TO
RESELL YOUR EXCHANGE NOTES
Although the exchange notes will be eligible for trading in the PORTAL
market, they will not be listed on any securities exchange or automated
quotations system. We cannot assure you that an active trading market for the
exchange notes will develop.
In addition, the liquidity of the trading market in the exchange notes, and
the market price quoted for the exchange notes, may be adversely affected by the
changes in the overall market for high yield securities and by changes in our
financial performance or prospects or in the prospects for companies in our
industry generally. As a result, you may be unable to resell your exchange
notes.
IF YOU DO NOT EXCHANGE YOUR FACILICOM NOTES, THE MARKET PRICE OF THOSE NOTES MAY
DECLINE.
If you do not exchange your FaciliCom notes in the exchange offer, you will
continue to hold your FaciliCom notes and be subject to the terms of the
FaciliCom indenture under which the FaciliCom notes were issued. However, if the
conditions to the exchange offer are met and the exchange is consummated, the
FaciliCom indenture will be amended and supplemented by a second supplemental
indenture implementing the proposed amendments. The second supplemental
indenture will substantially reduce the
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covenants with which World Access, as successor to FaciliCom after the merger,
would otherwise have to comply under the FaciliCom indenture, as more fully
described under "The Proposed Amendments." The elimination of those covenants
would, among other things, permit us to take actions that could increase our
credit risk and thereby adversely affect the market price of FaciliCom notes. We
do not currently intend, nor are we required, to purchase any FaciliCom notes
not exchanged in the exchange offer.
In addition, the tender of FaciliCom notes in the exchange offer will
reduce the principal amount of FaciliCom notes outstanding, which may have an
adverse effect upon, and increase the volatility of, the market price of the
FaciliCom notes remaining outstanding after the merger due to a reduction in
liquidity.
YOU MAY BE SUBJECT TO FEDERAL INCOME TAXATION AS A RESULT OF TENDERING YOUR
FACILICOM NOTES
We believe that FaciliCom noteholders will recognize gain on the exchange
offer only to the extent of the cash payment. However, if either (1) the
FaciliCom notes or the exchange notes are determined by the IRS not to be
"securities" for purposes of the Internal Revenue Code of 1986, as amended, or
(2) the exchange does not qualify as an "exchange" for purposes of the Code, and
if you tender your FaciliCom notes, you would recognize gain or loss under the
Code equal to the difference between the fair market value of the exchange
consideration you receive from us and your tax basis in the FaciliCom notes you
tendered (as more fully described in "Federal Income Tax Considerations").
In addition, even if your receipt of exchange notes is not a taxable event
for you, the IRS may take the position that your receipt of the exchange shares
may be, and the cash payment is a taxable event for you. Under these
circumstances, your receipt of the exchange shares and the cash payment may not
be eligible to be taxed as capital gain, which typically is subject to taxation
at reduced rates, and may instead be taxed as ordinary income, which may be
subject to taxation at higher rates. The tax treatment of your receipt of the
exchange shares and the cash payment is more fully described in "Federal Income
Tax Considerations."
RISK FACTORS RELATED TO THE FACILICOM MERGER
WE MAY NOT BE ABLE TO MEET OUR OBLIGATIONS ON OUTSTANDING INDEBTEDNESS BECAUSE
OF OUR INCREASED FINANCIAL LEVERAGE, AND WE WILL BE SUBJECT TO SIGNIFICANT
OPERATING AND FINANCIAL RESTRICTIONS
Immediately subsequent to the consummation of the merger, we will have a
higher degree of financial leverage than we had prior to the merger. At June 30,
1999, we had $140.7 million of long-term debt and a total debt to equity ratio
of 62.8%, and FaciliCom had $304.2 million of long-term debt and negative
stockholders' equity. Based on our pro forma balance sheet at June 30, 1999, as
a result of the consummation of the merger, we would have long-term debt of
$429.9 million and a total debt to equity ratio of 83.4%.
The indenture governing the exchange notes and FaciliCom's revolving credit
facility will limit our ability to incur additional indebtedness and contain
other significant operating and financial restrictions, such as limits on our
ability to create liens, sell assets, engage in mergers or consolidations, make
investments and pay dividends. In addition, our $75.0 million revolving line of
credit contains provisions that will also limit our operations. For example, we
will need to obtain the lender's consent and sometimes prepay a portion of the
outstanding debt under this credit facility before we can issue securities,
enter into acquisitions for cash or securities, dispose of assets or incur
additional debt. Under this credit facility, we must also maintain certain
operating ratios and achieve specified financial thresholds.
We cannot assure you that we will be able to meet the obligations on our
outstanding indebtedness. Giving effect to the FaciliCom merger and related
transactions and the exchange in full of the FaciliCom notes for the exchange
notes, we anticipate that our 1999 pro forma debt service payments will be
approximately $61.0 million. If we are unable to generate sufficient cash flow
or to otherwise obtain funds necessary to meet our obligations, or if we do not
comply with the various covenants under our indebtedness, we will be in default
under the terms of that debt. If we default, the holders of our
18
<PAGE> 22
indebtedness can accelerate the maturity of the indebtedness that is owed to
them, which could cause defaults under our other indebtedness.
WE WILL NEED INCREASED CASH FLOW TO FUND CAPITAL EXPENDITURES
If our available cash flow substantially decreases as a result of lower
telecommunications prices or otherwise, we may have limited ability to continue
to make capital expenditures for the acquisition and development of our
international telecommunications network. Historically, we and FaciliCom have
financed these expenditures primarily with cash flow from operations and
proceeds from debt and equity financings, asset sales and sales of partial
interests in foreign concessions. If our cash flow from operations is not
sufficient to satisfy our capital expenditure requirements, we may not be able
to obtain additional debt or equity financing or other sources of capital to
meet these requirements. If we are not able to fund our capital expenditures, we
may be forced to reduce or forfeit our interests in some of our properties.
OUR INABILITY TO ACHIEVE ANTICIPATED BENEFITS FROM INTEGRATION OF OPERATIONS
COULD RESULT IN SUBSTANTIAL COSTS AND MAY DAMAGE OUR RELATIONSHIPS WITH OUR KEY
CUSTOMERS AND EMPLOYEES
The merger is expected to create a more competitive company. However, we
cannot assure you that we will be able to integrate our operations without
encountering difficulties or experiencing the loss of key employees or that we
will realize the cost savings and synergies expected from integration. The
merger requires the integration in a timely manner of two companies that
previously operated independently. The workforce will have to be combined and
offices consolidated. Some employees may be required to relocate as part of this
process. Our ability to consolidate our purchasing and obtain more favorable
prices from suppliers may be limited by changes in the purchasing power or
practices of our competitors and other market dynamics. In addition, the
consolidation of our operations will require substantial attention from
management. The diversion of management's attention and any difficulties we
encounter in the transition and integration process could have a material
adverse effect on our revenues, levels of expenses and operating results and
damage our relationship with key customers and employees.
WE MAY NOT BE ABLE TO ACHIEVE PROFITABILITY
We believe that efficiencies will be achieved by combining our operations
following the merger. After the merger, we anticipate that our cost of
transmission will decrease as we will be able to transmit a portion of our long
distance traffic on FaciliCom's existing transmission networks. In addition,
following consummation of the merger, we plan to integrate the existing World
Access and FaciliCom networks, which should result in a reduction in our cost of
providing telecommunication services. We also expect to reduce our operator
service expenses, eliminate duplicative network switching centers and reduce our
selling, general and administrative expenses. Notwithstanding these anticipated
benefits, we cannot assure you that the anticipated changes in our operations
will result in the profitability of our operations in the future.
WE WILL INCUR SIGNIFICANT MERGER-RELATED CHARGES
We estimate that, as a result of the merger, we will incur significant
consolidation and integration expenses. In addition, we expect that we will
incur merger-related expenses of approximately $12.5 million, consisting of
investment banking, legal and accounting fees and financial printing and other
related charges, including fees and expenses associated with the exchange of
notes described in this prospectus. The foregoing amounts are preliminary and
the actual amounts may be higher or lower. Moreover, we may incur additional
unanticipated expenses in connection with the integration of our and FaciliCom's
businesses.
VOTING INTERESTS OF OUR STOCKHOLDERS WILL BE SUBSTANTIALLY DILUTED
Following the consummation of the FaciliCom merger, including the issuance
of $75.0 million of World Access common stock to fund the $56.0 million cash
portion of the merger consideration, the
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<PAGE> 23
issuance of Series C Preferred Stock, the release of escrowed shares and the
grant of World Access stock options to purchase approximately 620,000 shares of
World Access common stock, the current World Access stockholders will own shares
representing approximately 70.1% of our total voting power and will own 61.9% of
our total outstanding shares on a fully diluted basis. The consummation of the
merger and related transactions will result in a substantial dilution of the
voting and equity interests of current World Access stockholders.
HOLDERS OF SERIES C PREFERRED STOCK MAY BE ABLE TO MATERIALLY INFLUENCE THE
OUTCOME OF STOCKHOLDER VOTES
Following the consummation of the merger, including the issuance of $75.0
million of World Access common stock to fund the $56.0 million cash portion of
the merger consideration and the release of escrowed shares, the holders of the
Series C preferred stock will collectively own shares representing approximately
24.8% of the voting power of World Access voting stock. In addition, the holders
of the Series C preferred stock, voting as a separate series, will be entitled
to elect up to four members of our board of directors, subject to maintaining
specified levels of stock ownership, and will have approval rights, voting as a
separate series, with respect to certain reorganizations, consolidations or
mergers. This concentration of voting power may enable such holders to
materially influence the outcome of matters submitted to a vote of these
stockholders and may have the effect of delaying, deferring or preventing a
change of control pursuant to a transaction which might otherwise be beneficial
to our stockholders.
RISK FACTORS RELATED TO OUR BUSINESS AND OPERATIONS
FUTURE ACQUISITIONS MAY SIGNIFICANTLY DECREASE OUR STOCKHOLDERS' PERCENTAGE
OWNERSHIP, REDUCE OUR PROFITABILITY AND HINDER OUR ABILITY TO RAISE CAPITAL
We may issue securities in future acquisitions that could significantly
reduce our stockholders' equity ownership and reduce our earnings on a per share
basis. We also may incur additional debt and amortization expense related to
goodwill and other intangible assets acquired in future acquisitions. This
additional debt and amortization expense may reduce significantly our
profitability and hinder our ability to raise capital in the future.
IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED MANAGEMENT AND TECHNICAL
PERSONNEL, WE MAY NOT BE ABLE TO SUCCESSFULLY OPERATE OUR BUSINESS
We will be highly dependent on the services of several key executive
officers and technical employees, particularly John D. Phillips, our Chairman of
the Board, President and Chief Executive Officer, and Walter J. Burmeister,
FaciliCom's President and Chief Executive Officer. In addition, we will need to
hire additional skilled personnel to support the continued growth of our
business. Neither we nor FaciliCom maintains "key person" insurance, and none of
FaciliCom's current executive officers are bound by an employment agreement. The
market for skilled personnel, especially those with the technical abilities we
and FaciliCom require, is currently very competitive, and we will have to
compete with much larger companies with significantly greater resources to
attract and retain these persons. If we are unable to retain the services of Mr.
Phillips, Mr. Burmeister and other key management and technical personnel, or to
attract qualified personnel in the future, we may not be able to successfully
operate our business.
OUR SUBSTANTIAL INDEBTEDNESS COULD SEVERELY RESTRICT OUR OPERATIONAL FLEXIBILITY
Our substantial indebtedness could have important consequences to you. For
example, it could:
- increase our vulnerability to general adverse economic conditions;
- limit our ability to pursue our acquisition business strategy;
- limit our ability to obtain necessary financing or bonding, and to fund
future working capital, capital expenditures and other general corporate
requirements;
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<PAGE> 24
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures and other general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the telecommunications industry;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit, along with the financial and other restrictive covenants related
to our indebtedness, our ability to borrow additional funds.
OUR SIGNIFICANT RELIANCE ON INTERNATIONAL SALES COULD RESULT IN LOST REVENUE AND
INCREASED COSTS BECAUSE OF INTERNATIONAL REGULATORY CHANGES, POLITICAL AND
ECONOMIC INSTABILITY AND DIFFICULTY IN COLLECTION EFFORTS
On a pro forma basis giving effect to the FaciliCom merger and certain
other transactions, international sales would have represented approximately
22.4% of our total revenues for the six months ended June 30, 1999 and 15.9% of
our total revenues in the year ended December 31, 1998. We intend to increase
our international sales, which are subject to inherent risks, including:
- unexpected changes in legal or regulatory requirements, tariffs, exchange
rates, or other barriers;
- difficulties in staffing and managing international operations;
- longer payment cycles;
- unstable political and economic environments;
- greater difficulty in accounts receivable collection;
- potentially adverse tax consequences; and
- dependence on foreign partners.
WE MAY NOT BE ABLE TO LEASE TRANSMISSION FACILITIES AT HISTORICAL RATES
Our future profitability will be based in part on our ability to transmit
long distance telephone calls over transmission facilities, also referred to in
the industry as network facilities, leased from others on a cost-effective
basis. As a result of the merger, we will be able to utilize both our network
facilities and FaciliCom's network facilities. However, a substantial portion of
transmission capacity used by World Access and FaciliCom is obtained on a
variable, per minute and short-term basis, subjecting us to the possibility of
unanticipated price increases and service cancellations. Since we will not
generally have long-term arrangements for the purchase or resale of
international long distance services, and since rates fluctuate significantly
over short periods of time, our gross margins are subject to significant
fluctuations over short periods of time. Our gross margins also may be
negatively impacted in the longer term by competitive pricing pressures.
TERMINATION OF OUR CARRIER SERVICE AGREEMENT WITH WORLDCOM NETWORK SERVICES
COULD MATERIALLY ADVERSELY AFFECT OUR REVENUES
We anticipate that the carrier service agreement with WorldCom Network
Services pursuant to which WorldCom Network Services purchases international
long distance services on a wholesale basis will continue in effect for us after
the merger. WorldCom Network Services presently provides a significant portion
of our service revenues. Termination of the carrier service agreement, or any
reduction in services provided thereunder, could materially decrease our
revenues. WorldCom Network Services is obligated to purchase from us at least
$25.0 million a month of such services, provided the services are of acceptable
quality and the rates quoted are at least equal to the rates WorldCom Network
Services is obtaining from other third party providers. The carrier service
agreement is for a one-year term but automatically renews each month, subject to
a one-year termination notice. On a pro forma basis after giving effect to the
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merger and certain other transactions, revenues attributable to the carrier
service agreement for the first six months of 1999 would have comprised
approximately 28.2% of our total revenues for this period.
TECHNICAL DIFFICULTIES WITH OR FAILURES IN OUR NETWORK COULD RESULT IN
DISSATISFIED CUSTOMERS AND LOSS OF REVENUE
Technical difficulties with or failures in our telecommunications network
could result in dissatisfied customers and lost revenue. For example, a failure
in a portion of our network could prevent us from delivering telephone calls
initiated by our customers. Additionally, technical difficulties with the
network could cause the loss of call detail record information, which is the
basis for our ability to process and substantiate customer billings. Components
of World Access' telecommunications group's network have failed in the past,
which have had a material adverse effect on the telecommunications group's
operating results. We cannot assure you that similar or other failures will not
occur in the future.
REGULATION OF CUSTOMERS MAY MATERIALLY ADVERSELY AFFECT OUR REVENUES BY
DECREASING THE VOLUME OF TRAFFIC WE RECEIVE FROM MAJOR CUSTOMERS
Our customers will also be subject to actions taken by domestic or foreign
regulatory authorities that may affect the ability of customers to deliver
traffic to us. Regulatory sanctions have been imposed on some of our and
FaciliCom's customers in the past. Future regulatory actions could materially
adversely affect the volume of traffic received from a major customer, which
could materially decrease our revenues.
EXISTING AND FUTURE GOVERNMENTAL REGULATION IN THE U.S. AND IN THE OTHER
COUNTRIES IN WHICH WE OPERATE OR IN WHICH WE MAY OPERATE COULD INCREASE OUR
COSTS OR RESTRICT OUR OPERATIONS IN A MANNER THAT COULD REDUCE OUR PROFITABILITY
National and local laws and regulations governing telecommunications
services differ significantly among the countries in which we currently operate
and in which we may operate. In the United States, our business is subject to
the Communications Act of 1934 and the rules issued under the Communications Act
by the Federal Communications Commission, including regulations which limit the
conditions under which a carrier may connect international private lines to the
telephone network and which limit the arrangements U.S. international carriers
may enter into with foreign carriers for exchanging telecommunications traffic.
To the extent we provide intrastate services, our business is also subject to
the applicable laws and regulations of the individual states. We are also
subject to the laws and regulations of the various foreign countries in which we
operate. The interpretation and enforcement of these laws and regulations varies
and could limit our ability to provide communications services in some of the
markets in which we operate, or make it more costly for us to conduct our
operations. In addition, future regulatory, judicial and legislative changes may
have a material adverse effect on us. While each of World Access and FaciliCom
believes it is in substantial compliance with all applicable U.S. and foreign
laws and regulations, U.S. or foreign regulators or third parties, including our
competitors, may allege that we have failed to comply with applicable laws and
regulations. If we fail to comply with national, local or foreign regulations,
whether existing or future, we could become subject to fines, penalties, the
forfeiture of our authorizations, the termination of our arrangements with
foreign carriers, or other adverse actions. These penalties could substantially
increase our costs or prevent us from providing our services.
Governments of many countries exercise substantial influence over various
aspects of the telecommunications market. In some cases, the government owns or
controls companies that are or may become our competitors or companies, such as
national telephone companies, upon which we and our foreign partners may depend
for required interconnections to local telephone networks and other services.
Accordingly, government actions in the future could have a material adverse
effect on our operations. In highly regulated countries in which we are not
dealing directly with the dominant local exchange carrier, the dominant carrier
may have the ability to route service to us or our foreign partner and, if this
occurs, we may have limited or no recourse. In countries where competition is
not yet fully established and we are dealing with an alternative operator,
foreign laws may prohibit or impede new operators from offering services in
these markets.
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We currently plan to expand our foreign operations as these markets
increasingly permit competition. The nature, extent and timing of our foreign
operations, however, will be determined, in part, by the actions taken by
foreign governments to permit competition and the response of incumbent carriers
to these efforts. The regulatory authorities in these countries may not provide
us with practical opportunities to compete in the near future, or at all, and we
may not be able to take advantage of any such liberalization in a timely manner.
RECENT FCC ACTIONS MAY ADVERSELY AFFECT US BY INCREASING COMPETITION, WHICH MAY
INCREASE PRICING PRESSURES AND DECREASE DEMAND FOR OUR SERVICES
Recent FCC rulemaking orders and other actions have lowered the entry
barriers for new carriers and resale international carriers by streamlining the
processing of new applications and by eliminating the international settlements
policy for arrangements with foreign carriers that lack market power and on
other selected routes. In addition, the FCC's rules implementing the World Trade
Organization Basic Telecommunications Agreement presume that competition will be
advanced by the U.S. entry of carriers and resale carriers from World Trade
Organization member countries, thus further increasing the number of potential
competitors in the U.S. market and the number of carriers which may also offer
end-to-end services.
In addition, the Telecommunications Act of 1996 permits the FCC to forbear
enforcement of the tariff provisions in that act, which apply to all interstate
and international carriers, and the U.S. Court of Appeals for the District of
Columbia Circuit is currently reviewing an FCC order directing all domestic
interstate carriers to de-tariff their offerings. The FCC's order, which is
stayed pending the court's review, only applies to our domestic services.
However, subject to the court's decision, the FCC may also forbear from
enforcing its current tariff rules for U.S. international carriers, or order
these carriers to de-tariff their services. In that event, we would have greater
flexibility in pricing our international service offerings and to compete,
although any such FCC action likely would grant other non-dominant international
carriers equivalent freedom. The FCC also routinely reviews the contribution
rate for various levels of regulatory fees, including the rate for fees levied
to support universal service, which fees may be increased in the future for
various reasons, including the need to support the universal service programs
mandated by The Telecommunications Act of 1996, the total costs for which are
still under review by the FCC. We expect that competition will continue to
intensify as a result of the new competitive opportunities created by the
Telecommunications Act of 1996 and the implementation of the World Trade
Organization agreement. Such increased competition may increase pricing
pressures, reduce our margins and decrease demand for our services.
Our World Access Telecommunications Group also competes with MCI WorldCom,
Pacific Gateway Exchange, Inc. and other foreign and U.S.-based long distance
providers, including the regional Bells, which presently have FCC authority to
resell and route international telecommunications services originating outside
of their respective in-region states. Many of the long distance providers and
telecommunications equipment manufacturers with whom we and FaciliCom compete
have significantly more extensive engineering, manufacturing, marketing,
financial and technical resources than World Access and FaciliCom. We are
uncertain whether we can continue to compete successfully with our competitors.
FCC INTERVENTION REGARDING THE SETTLEMENT RATES CHARGED BY FOREIGN CARRIERS MAY
DISRUPT OUR TRANSMISSION ARRANGEMENTS TO CERTAIN COUNTRIES
The FCC recently has sought to reduce the foreign routing costs of U.S.
international carriers by prescribing maximum or benchmark settlement rates
which foreign carriers may charge U.S. carriers for routing telecommunications
traffic. The FCC's benchmarks order was recently upheld by the U.S. Court of
Appeals for the District of Columbia Circuit. The FCC's action may reduce our
settlement costs, although the costs of other U.S. international carriers also
may be reduced in a similar fashion. The FCC has not stated how it will enforce
the new settlement benchmarks if U.S. carriers are unsuccessful in negotiating
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settlement rates at or below the prescribed benchmarks. Any future FCC
intervention could disrupt our transmission arrangements to certain countries or
require us to modify our existing arrangements.
DELAYS AND INCONSISTENCIES IN IMPLEMENTATION OF THE WORLD TRADE ORGANIZATION
AGREEMENT AND OTHER COMPETITIVE DIRECTIVES MAY ADVERSELY AFFECT OUR BUSINESS IN
SOME FOREIGN COUNTRIES
Under the World Trade Organization agreement, the U.S. and 68 other
countries agreed to open their telecommunications markets to competition and
foreign ownership effective February 5, 1998. These World Trade Organization
member countries, which have increased to 72, represent approximately 90% of
worldwide telecommunications traffic. Although the World Trade Organization
agreement has been implemented, to some degree, by most of the 72 signatory
countries, some signatory countries have not yet fully implemented their World
Trade Organization commitments. Our ability to expand our operations
internationally will be limited if any signatory country to the World Trade
Organization agreement fails to implement its obligations on a timely basis.
These factors and other obstacles which could develop in connection with the
deregulation of telecommunications services could have a material adverse effect
on our operations by slowing down our rate of expansion.
The national governments of the European Union member states in which we
currently operate, and in which we may operate in the future, were required to
pass legislation to liberalize the telecommunications markets within their
countries to implement European Commission directives. Most of the member states
have now implemented the required legislation. In certain cases this has been
done on an inconsistent, and sometimes unclear, basis. In addition, the
legislation and/or its implementation have, in certain circumstances, imposed
significant obstacles on the ability of carriers to proceed with the licensing
process. These barriers include requirements that carriers:
- post significant bonds or make significant capital commitments to build
infrastructure;
- complete extensive application documentation; and
- pay substantial license fees.
Implementation has also been slow in certain member states as a result of
their failure to dedicate the resources necessary to have a functioning
regulatory body in place. These factors and other obstacles which could develop
in connection with deregulation of telecommunications services could have a
material adverse effect on our operations by slowing down the rate of our
expansion.
AS WE EXPAND OUR FOCUS ON RETAIL CUSTOMERS AND EMERGING CARRIERS, OUR LEVEL OF
UNCOLLECTIBLE DEBT MAY INCREASE
As a wholesale provider of international long distance services, we will
depend upon traffic from other long distance providers, and upon the collection
of receivables from these customers. If we experience difficulties in the
collection of our accounts receivable from our major customers, our cash flow
may be substantially reduced. In addition, we may expend considerable resources
to collect receivables from customers who fail to make timely payments.
In the experience of World Access and FaciliCom, a higher percentage of the
revenues generated by retail customers and from emerging carriers is
uncollectible. Therefore, if the percentage of our revenues derived from retail
operations and from sales to emerging carriers increases, our level of
uncollectible debt is likely to increase.
WE MAY SUSTAIN MATERIAL LIABILITY AS A RESULT OF STOCKHOLDER SUITS AGAINST US
Following our announcement in January 1999 regarding earnings expectations
for the quarter and year ended December 31, 1998 and the subsequent decline in
the price of World Access common stock, a number of stockholders filed class
action complaints against us. The plaintiffs alleged violations of the federal
securities laws and have requested an unspecified amount of damages in their
complaints. We may have to pay substantial damages if the plaintiffs are
successful in their actions.
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WE MAY LOSE MARKET SHARE AND FACE PRICING PRESSURES IF WE ARE NOT ABLE TO
COMPETE SUCCESSFULLY WITH OTHER TELECOMMUNICATIONS FIRMS
The segments of the telecommunications industry in which we operate are
intensely competitive. We believe that competition will continue to increase,
placing downward pressure on prices, thus adversely affecting our gross margins.
Many of the long distance providers and telecommunications equipment
manufacturers with whom we compete have significantly more extensive
engineering, manufacturing, marketing, financial and technical resources than
we. We are uncertain whether we can continue to compete successfully with our
competitors.
Additionally, the telecommunications industry is in a period of rapid
technological evolution, marked by the introduction of competitive product and
service offerings, such as the utilization of the Internet for international
voice and data communications. Technological developments by our competitors may
challenge our competitive position or increase the amount of expenditures that
will be required for us to respond to a rapidly changing technological
environment.
WE MAY BE UNABLE TO PROTECT AND MAINTAIN THE COMPETITIVE ADVANTAGE OF OUR
INTELLECTUAL PROPERTY RIGHTS
We rely on contractual rights, trade secrets, trademarks and copyrights to
establish and protect our proprietary rights in our products. In the future, we
may be required to bring or defend against litigation to enforce any patents
issued or assigned to us, to protect trademarks, trade secrets and other
intellectual property rights we own, to defend against claimed infringement of
the rights of others and to determine the scope and validity of the proprietary
rights of others. Regardless of the ultimate outcome, any litigation could be
costly and could divert management's attention from the operations of our
business. Adverse determinations in litigation could result in the loss of our
proprietary rights, subject us to significant liabilities, require us to seek
licenses from third parties or prevent us from manufacturing or selling our
products, any of which could have a material adverse effect on our business,
financial condition and results of operations.
Although we presently hold several patents for certain of our existing
products and have several patent applications pending, not all of our products
are covered by patents. We have not conducted a formal patent search relating
generally to the technology used in our products. In addition, since a patent
application in the United States is not publicly disclosed until the patent is
issued and foreign patent applications generally are not publicly disclosed for
at least a portion of the time that they are pending, applications may have been
filed which, if issued as patents, would relate to our products.
Software comprises a substantial portion of the technology in our products.
The scope of protection accorded to patents covering software-related inventions
is evolving and is subject to a degree of uncertainty that may increase our risk
of litigation and costs if we discover the existence of third party patents
related to our software products or if such patent rights are asserted against
us in the future.
WE MAY FACE LIABILITY UNDER THE FOREIGN CORRUPT PRACTICES ACT
Our international operations are subject to the Foreign Corrupt Practices
Act, which generally prohibits U.S. companies and their intermediaries from
bribing foreign officials for the purpose of obtaining or keeping business. We
may face liability under the Foreign Corrupt Practices Act as a result of past
or future actions taken without our knowledge by agents, strategic partners and
other intermediaries.
THE LOSS OF, OR A MATERIAL REDUCTION IN ORDERS BY, ONE OR MORE OF OUR EQUIPMENT
GROUP'S KEY CUSTOMERS COULD MATERIALLY DECREASE OUR REVENUES
A small number of customers historically has accounted for a significant
percentage of our equipment group's total sales. For the six months ended June
30, 1999, one customer accounted for 10.1% of our equipment group's total sales
and our top ten customers accounted for 51.8% of total sales. For the year ended
December 31, 1998, no customer individually accounted for more than 10.0% of our
equipment group's total sales and our top ten customers accounted for 30.1% of
our equipment group's total sales.
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Our customers typically are not obligated contractually to purchase any quantity
of products or services in any particular period. The loss of, or a material
reduction in orders by, one or more key customers could materially decrease our
revenues.
RAPID TECHNOLOGICAL DEVELOPMENT AND NEW PRODUCTS INTRODUCED BY OUR COMPETITORS
COULD MAKE OUR PRODUCTS OBSOLETE
Our failure to introduce new products and services and to respond to
industry changes on a timely and cost effective basis could make our products
obsolete and could impair our ability to meet the demands of our customers. The
introduction and marketing of new or enhanced products and services require us
to manage the transition from existing products in order to minimize disruption
in customer purchasing patterns. There can be no assurance that we will
successfully manage the transition to new or enhanced products or services.
Further, there can be no assurance that products, services or technologies
developed by others will not render our products, services or technologies
obsolete.
From time to time, we or our competitors may announce new products,
services, capabilities or technologies that have the potential to replace or
shorten the life cycle of our existing product and service offerings. There can
be no assurance that announcements of product enhancements or new product or
service offerings will not cause customers to defer purchasing our existing
products or cause resellers to return products. Any such deferrals,
cancellations or returns could materially decrease our revenues.
OUR NEW PRODUCTS MAY CONTAIN UNDETECTED ERRORS RESULTING IN THE LOSS OR DELAY OF
MARKET ACCEPTANCE OF OUR PRODUCTS
Products as complex as ours may contain undetected errors or failures when
first introduced or as new versions are released. Such errors have occurred in
our products in the past. The occurrence of these errors could result in the
following:
- the loss or delay in market acceptance of our products;
- the diversion of development resources;
- damage to our reputation; or
- increased service or warranty costs.
OUR RELIANCE ON THIRD PARTY SUPPLIERS FOR CERTAIN PRODUCTS AND KEY COMPONENTS
COULD HINDER OUR ABILITY TO SATISFY CUSTOMER DEMANDS OR OUR GROWTH OBJECTIVES
Failure to obtain products and key components from third party suppliers on
a timely and cost effective basis could have a material adverse effect on our
business, financial condition and results of operations. We purchase
substantially all of our components and other parts from suppliers on a purchase
order basis and do not maintain long-term supply arrangements. We obtain several
components, primarily custom hybrid integrated circuits, from a single source.
Accordingly, there can be no assurance that we will be able to continue to
obtain sufficient quantities of products or key components as required or that
these products or key components, if obtained, will be available to us on
commercially favorable terms.
DELAYS AND COSTS INCURRED IN ACHIEVING COMPLIANCE WITH GOVERNMENT REGULATIONS
AND EVOLVING INDUSTRY STANDARDS COULD ADVERSELY AFFECT OUR REVENUES
Any products' failure to comply with the various existing and evolving
regulations and industry standards or the delays and costs incurred in achieving
compliance with these regulations and standards could materially decrease our
revenues, increase our costs and reduce our profitability. Our products must
meet a significant number of voice and data communications regulations and
standards, some of which are evolving as new technologies are deployed. In the
United States, these products and services must comply with various regulations
promulgated by the FCC, as well as with standards established by Bell
Communications Research. Internationally, our products and services must comply
with standards
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established by telecommunications authorities in various countries, as well as
with recommendations of the International Telecommunications Union.
WE MAY LOSE REVENUE OR INCUR ADDITIONAL COSTS BECAUSE OF A FAILURE TO ADEQUATELY
ADDRESS THE YEAR 2000 ISSUE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000.
We are in the final phase of completing our Year 2000 Readiness Plan which
is the remediation phase. Until we have completed our verification testing of
our remediation efforts, we cannot be certain that our efforts to address Year
2000 issues are appropriate, adequate or complete. In addition, we may be
adversely affected by Year 2000 problems experienced by suppliers or customers.
Although we are conducting an external review of third parties with whom we do
business, we are limited in our ability to determine the ability of these
parties to address Year 2000 issues.
As a result, we may suffer various consequences, including:
- a significant number of operational inconveniences and inefficiencies for
us, our customers and our suppliers that may divert our time and
attention and financial and human resources from our ordinary business
activities;
- serious system failures (or serious system failures by companies on which
we rely) that may require significant efforts by us, our customers and
our suppliers to prevent or alleviate material business disruptions; and
- a significant loss of revenues or a significant amount of unanticipated
expenses.
RISK FACTORS RELATED TO OUR COMMON STOCK
THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE AND COULD CONTINUE TO FLUCTUATE
SUBSTANTIALLY
Our common stock is traded on Nasdaq. The market price of our common stock
has been volatile and could fluctuate substantially based on a variety of
factors, including the following:
- announcements of new products or technological innovations by us or
others;
- variations in our results of operations;
- the gain or loss of significant customers;
- the timing of acquisitions of businesses or technology licenses;
- legislative or regulatory changes;
- general trends in the industry;
- market conditions; and
- analysts' estimates and other events in our industry.
SIGNIFICANT VARIANCE IN OUR QUARTERLY OPERATING RESULTS MAY CONTINUE TO
ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK
In future quarters, our results of operations may fail to meet the
expectations of market analysts and investors, which may adversely affect the
price of our common stock. Our quarterly operating results have varied
significantly in the past and are expected to do so in the future.
In response to competitive pressures or new product and service
introductions, we may take certain pricing or marketing actions that could
materially adversely affect our quarterly operating results. We base
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our expense levels, in part, on our expectations of future sales. If future
sales levels are below expectations, then we may be unable to adjust spending
sufficiently in a timely manner to compensate for the unexpected sales
shortfall.
Accordingly, we believe that you should not rely upon period-to-period
comparisons of our operating results as an indication of our future performance.
In addition, the operating results of any quarterly period are not indicative of
results that you should expect for a full fiscal year. Historically, we have
generated a disproportionate amount of our operating revenues toward the end of
each quarter, making precise prediction of revenues and earnings particularly
difficult and resulting in risk of variance of actual results from those
forecast at any time.
SALE OF SHARES BY FACILICOM STOCKHOLDERS COULD ADVERSELY AFFECT THE TRADING
PRICE OF OUR COMMON STOCK
The Series C preferred stock is freely convertible into our common stock at
any time and the holders of our common stock issuable upon conversion of the
Series C preferred stock are not contractually prohibited from selling all or
any portion of that stock at any time. In addition, the FaciliCom stockholders
have demand and piggyback registration rights which would permit a public resale
of that stock. If we are unable to pay all or any portion of the $56.0 million
of the merger consideration in cash, we will be required to issue to the
stockholders and certain optionholders of FaciliCom at the closing of the merger
and thereafter the number of shares of our common stock that will result upon
resale in net proceeds of $56.0 million. The FaciliCom stockholders may resell a
substantial portion of their stockholdings after the consummation of the merger
resulting in an adverse effect on the trading price of our common stock.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW COULD MAKE IT LESS
LIKELY THAT OUR STOCKHOLDERS RECEIVE A PREMIUM FOR THEIR SHARES IN AN
UNSOLICITED TAKEOVER ATTEMPT
Certain provisions of our restated certificate of incorporation, our
restated bylaws and the Delaware General Corporation Law could, together or
separately, discourage potential acquisition proposals or delay or prevent a
change in control. Currently, those provisions include a classified board of
directors, a prohibition on written consents in lieu of meetings of the
stockholders and the authorization to issue up to 10,000,000 shares of preferred
stock and up to 150,000,000 shares of common stock. Our board of directors has
the power to issue any or all of these additional shares without stockholder
approval, subject to the rules of Nasdaq that require stockholder approval of
the issuance of common stock or securities convertible into common stock equal
to or in excess of 20.0% of the number of shares of common stock or the voting
power outstanding before the issuance. The preferred shares can be issued with
such rights, preferences and limitations as may be determined by the board. The
rights of the holders of common stock will be subject to, and may be adversely
affected by, the commitments or contracts to issue any additional shares of
common stock or any shares of preferred stock. Authorized and unissued preferred
stock and common stock could delay, discourage, hinder or preclude our
unsolicited acquisition, could make it less likely that the stockholders receive
a premium for their shares as a result of any such attempt and could adversely
affect the market price of, and the voting and other rights of, the holders of
outstanding shares of common stock.
FORWARD-LOOKING STATEMENTS
This prospectus contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Forward-looking statements are
statements other than historical information or statements of current condition.
Some forward looking statements may be identified by use of such terms as
"believes," "anticipates," "intends," or "expects." These forward-looking
statements relate to our plans, objectives and expectations for future
operations. In light of the risks and uncertainties inherent in all such
projected operational matters, the inclusion of forward-looking statements in
this prospectus should not be regarded as a representation by us
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or any other person that our objectives or plans will be achieved or that any of
our operating expectations will be realized.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes or the exchange shares in exchange for the outstanding FaciliCom notes. We
are making this exchange offer solely in connection with our merger with
FaciliCom.
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<PAGE> 33
CAPITALIZATION
The following table sets forth our consolidated capitalization as of June
30, 1999 on an actual basis, and as adjusted to give effect to our merger with
FaciliCom and the issuance of the exchange notes in the exchange offer. You
should read this table in conjunction with our and FaciliCom's "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
our and FaciliCom's consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 98,996 $ 123,442
======== ==========
Long-term debt (including current portion):
Revolving credit facility borrowings...................... $ 5,900 $ 15,900
13.25% Senior Notes due 2008.............................. -- 285,000
4.5% Convertible Subordinated Notes due 2002.............. 115,000 115,000
Capital lease obligations................................. 30,713 46,207
Other..................................................... 1,400 1,909
-------- ----------
Total long-term debt, including current portion... 153,013 464,016
Stockholders' equity........................................ 425,792 891,207
-------- ----------
Total capitalization.............................. $578,805 $1,355,223
======== ==========
</TABLE>
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the merger of FaciliCom with and into World Access, we
have entered into an agreement with FaciliCom and the holders of a majority in
interest of the FaciliCom notes in which we agreed, among other things, to use
our reasonable best efforts to file a registration statement relating to an
offer to exchange the FaciliCom notes for the exchange consideration, which
includes the exchange notes, the exchange shares and a cash payment, as more
fully described below under "-- Terms of the Exchange Offer."
We have also agreed to:
- distribute a copy of this prospectus to each of the holders of FaciliCom
notes;
- keep the exchange offer open for at least 20 business days after the date
on which notice of the exchange offer is first mailed to holders of the
FaciliCom notes; and
- after the expiration of the exchange offer, accept for exchange all
FaciliCom notes tendered and not validly withdrawn.
In exchange, under the terms of this agreement, each holder of the
FaciliCom notes party to the agreement has agreed to (subject to certain
conditions):
- exchange all of their FaciliCom notes for the exchange consideration in
the exchange offer; and
- consent to the proposed amendments to the FaciliCom indenture.
In addition, we have agreed, upon the completion of the merger and the
exchange and consent solicitation, to:
- transfer on a pro rata basis funds held in the collateral account
established and maintained for the benefit of the holders of the
FaciliCom notes to a collateral account for the benefit of the holders of
the exchange notes; and
- make interest payments on the FaciliCom notes and the exchange notes from
those collateral accounts until they are exhausted.
The FaciliCom notes were issued on January 28, 1998 pursuant to an
indenture between FaciliCom and The State Street Bank and Trust Company, dated
as of January 28, 1998, as amended and supplemented by the first supplemental
indenture. This indenture, as supplemented, is referred to in this prospectus as
the FaciliCom indenture.
IN ORDER TO TENDER YOUR FACILICOM NOTES, YOU WILL BE REQUIRED, AS A
CONDITION TO A VALID TENDER, TO GIVE YOUR CONSENT TO THE PROPOSED AMENDMENTS TO
THE FACILICOM INDENTURE. BY PROPERLY TENDERING YOUR FACILICOM NOTES, YOU WILL
ALSO BE CONSENTING TO THE PROPOSED AMENDMENTS TO THE FACILICOM INDENTURE.
FURTHERMORE, IN ORDER TO GIVE YOUR CONSENT TO THE PROPOSED AMENDMENTS, YOU MUST
VALIDLY TENDER, AND NOT VALIDLY WITHDRAW, YOUR FACILICOM NOTES. IF YOU WITHDRAW
YOUR TENDER OF FACILICOM NOTES, YOUR CONSENT TO THE AMENDMENTS WILL ALSO BE
DEEMED WITHDRAWN. IF THE PROPOSED AMENDMENTS BECOME EFFECTIVE, EACH NON-
EXCHANGING HOLDER OF FACILICOM NOTES WILL BE BOUND BY THE PROPOSED AMENDMENTS TO
THE FACILICOM INDENTURE EVEN THOUGH THE HOLDER DID NOT CONSENT. SEE "-- THE
CONSENT SOLICITATION" BELOW AND "THE PROPOSED AMENDMENTS" FOR A DESCRIPTION OF
THE PROPOSED AMENDMENTS TO THE FACILICOM INDENTURE.
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TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any FaciliCom
notes properly tendered and not withdrawn prior to the expiration date. We are
offering to exchange $1,000 original principal amount of exchange notes for
$1,000 original principal amount of FaciliCom notes. Unless otherwise agreed to
by us, FaciliCom notes may be tendered only in integral multiples of $1,000. The
exchange notes will have terms substantially identical to the FaciliCom notes
except that:
- we, and not FaciliCom, are responsible for payment of all amounts due on
the exchange notes;
- the interest rate we will pay on the exchange notes is 13.25% per annum;
- we will be obligated to make an offer to purchase the exchange notes with
the cash proceeds from some asset sales;
- the amounts we must pay to redeem the exchange notes prior to 2006 are
greater than the equivalent amounts under the FaciliCom notes; and
- the covenants in the indenture governing the terms of the exchange notes
allow us more flexibility to incur indebtedness, make some restricted
payments, enter into some transactions with our affiliates, permit
restrictions on the payment of dividends, conduct our telecommunications
equipment business and undertake some asset sales than was allowed under
the FaciliCom indenture.
The exchange notes will be issued under and entitled to the benefits of an
indenture, to be entered into between us and First Union National Bank, as
trustee. For a description of the indenture, see "Description of the Exchange
Notes."
In addition to exchange notes, in exchange for FaciliCom notes tendered and
accepted for exchange in the exchange offer, we will also issue the exchange
shares and the cash payment. The exchange shares will consist of our common
stock, par value $.01 per share, having an aggregate market value of $50 per
$1,000 original principal amount of FaciliCom notes. The number of exchange
shares that each holder of FaciliCom notes will receive will be determined as
follows:
- the aggregate principal amount of each holder's tendered and accepted
FaciliCom notes will be multiplied by 0.05; and
- the product of such multiplication will be divided by the market price of
the exchange shares.
The market price of the exchange shares will be the average closing price of the
exchange shares on Nasdaq over the five consecutive trading days up to and
including the trading day prior to the last full trading day before the closing
of the merger between World Access and FaciliCom. The cash payment will be made
in the amount of $10 per $1,000 original principal amount of FaciliCom notes.
The exchange notes will bear interest at the rate of 13.25% per annum
commencing on the exchange date, payable semiannually in arrears on January 15
and July 15 of each year, commencing January 15, 2000 (or July 15, 2000, if the
exchange date is subsequent to January 1, 2000), to the person in whose name the
exchange note is registered at the close of business on the preceding January 1
or July 1, as the case may be. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
Accrued and unpaid interest on the FaciliCom notes tendered and accepted on
the exchange date will be paid to the person in whose name such notes are
registered. Interest on the FaciliCom notes tendered in the exchange offer will
cease to accrue interest on the day prior to the exchange date. Payment will be
made on January 15, 2000, or July 15, 2000 if the exchange date has not occurred
prior to January 1, 2000.
As of the date of this prospectus, $300 million aggregate original
principal amount of the FaciliCom notes are outstanding. This prospectus and the
letter of transmittal are being sent to all registered holders
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<PAGE> 36
of FaciliCom notes. There will be no fixed record date for determining
registered holders of FaciliCom notes entitled to participate in the exchange
offer.
We intend to conduct the exchange offer in accordance with the provisions
of the agreement among World Access, FaciliCom and the holders of a majority in
interest of the FaciliCom notes, the applicable requirements of the Securities
Act, Exchange Act and the rules and regulations of the SEC. FaciliCom notes that
are not tendered in the exchange offer will remain outstanding and continue to
accrue interest and will be entitled to the rights and benefits such holders
have under the FaciliCom indenture, as amended and supplemented. However, if the
conditions to the exchange offer are met and the exchange is consummated, the
FaciliCom indenture will be further amended and supplemented by a second
supplemental indenture which will materially reduce the obligations of FaciliCom
(and us as the surviving corporation after the merger) under the FaciliCom
indenture. See "-- The Consent Solicitation" below and, for a description of the
proposed amendments to the FaciliCom indenture, see "The Proposed Amendments."
We will be deemed to have accepted for exchange properly tendered FaciliCom
notes when we have given oral or written notice of the acceptance to the
exchange agent. The exchange agent will act as agent for the tendering holders
for the purposes of receiving the exchange notes from us and delivering the
exchange consideration to such holders. Subject to the terms of the agreement
among World Access, FaciliCom and the holders of a majority in interest of the
FaciliCom notes, we expressly reserve the right to amend or terminate the
exchange offer, and not to accept for exchange any FaciliCom notes not
previously accepted for exchange, upon the occurrence of any of the conditions
specified below under the caption "-- Certain Conditions to the Exchange Offer."
Holders who tender FaciliCom notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
FaciliCom notes. We will pay all charges and expenses, other than some
applicable taxes described below, in connection with the exchange offer. You
should read the section labeled "-- Fees and Expenses" below for more details
regarding fees and expenses incurred in the exchange offer.
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THE CONSENT SOLICITATION
As part of the exchange offer, we are also soliciting consents from the
holders of the FaciliCom notes to certain amendments to the FaciliCom indenture
under which the FaciliCom notes were issued. The proposed amendments materially
reduce the obligations of FaciliCom (and us as the surviving corporation after
the merger) under the FaciliCom indenture by, among other things:
(1) removing restrictions on FaciliCom's ability to:
- consolidate and/or merge;
- incur additional debt;
- make payments to affiliates;
- make dividend payments;
- sell capital stock of its subsidiaries;
- enter into transactions with shareholders;
- create liens on its property;
- sell assets;
- transfer its existing business; and
- enter into sale-leaseback transactions; and
(2) eliminating FaciliCom's obligations to:
- maintain an office or agency;
- hold money for payment of the FaciliCom notes in trust;
- pay taxes;
- maintain its properties;
- maintain insurance coverage; and
- provide the holders of FaciliCom notes with financial statements.
If the consents of the holders of a majority of the aggregate original
principal amount of the FaciliCom notes are received, the FaciliCom indenture
will be amended in accordance with the proposed amendments described more fully
under "The Proposed Amendments."
FaciliCom and the trustee under the FaciliCom indenture will execute a
second supplemental indenture after certification to the FaciliCom trustee that
the required consents have been received and the satisfaction or waiver of the
other conditions to the execution of the second supplemental indenture. We will
give oral or written notice to the exchange agent of our acceptance and shall be
deemed to have accepted for exchange validly tendered FaciliCom notes only after
such oral or written notice of acceptance has been given to the exchange agent
and the second supplemental indenture has been executed. If the proposed
amendments become effective, each non-exchanging holder of FaciliCom notes will
be bound by the applicable proposed amendments even though the holder did not
consent to the proposed amendments.
WE WILL MAKE NO SEPARATE PAYMENT, OTHER THAN THE EXCHANGE CONSIDERATION IN
EXCHANGE FOR THE FACILICOM NOTES, FOR CONSENTS DELIVERED IN THE CONSENT
SOLICITATION WHICH IS PART OF THE EXCHANGE OFFER.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATIONS
The exchange offer will expire at 5:00 p.m., New York City time, on
, 1999, unless, in our sole discretion, we extend it.
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<PAGE> 38
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
FaciliCom notes of the extension no later than 9:00 a.m., New York City time, on
the first business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting for exchange any FaciliCom notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept FaciliCom notes not previously accepted if any of the
conditions set forth below under "-- Certain Conditions to the Exchange
Offer" have not been satisfied, by giving oral or written notice of such
delay, extension or termination to the exchange agent; or
- subject to the terms of the agreement among World Access, FaciliCom and
the holders of a majority in interest of the FaciliCom notes, to amend
the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of FaciliCom notes. If we amend the exchange offer in a
manner that we determine to constitute a material change, we will promptly
disclose the amendment in a manner reasonably calculated to inform the holders
of FaciliCom notes of the amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we shall have no obligation to publish, advertise or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
The exchange offer is conditioned upon:
- the consummation of the merger of World Access and FaciliCom;
- the tender by the holders of at least a majority of the aggregate
principal amount of FaciliCom notes in the exchange offer and the
acceptance by World Access of such tenders; and
- the consent by the holders of at least a majority of the aggregate
principal amount of FaciliCom notes to the proposed amendments to the
FaciliCom indenture.
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any exchange notes for, any FaciliCom notes,
and we may terminate the exchange offer as provided in this prospectus before
accepting any FaciliCom notes for exchange if:
- the trustee under the FaciliCom indenture has objected to, or taken any
action that could adversely affect, the consummation of the exchange
offer or the consent solicitation or our ability to effect the proposed
amendments to the FaciliCom indenture;
- the trustee under the FaciliCom indenture has taken any action that
challenges the validity or effectiveness of the procedures we used in the
exchange offer or consent solicitation;
- the exchange offer, or the making of any exchange by a holder of
FaciliCom notes, in our reasonable judgment, would violate applicable law
or any applicable interpretation of the staff of the SEC; or
- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency, or any statute, rule,
regulation, judgment, order, stay, decree or injunction has been
promulgated, enacted or entered, with respect to the exchange offer that,
in our judgment, could reasonably be expected to impair our ability to
proceed with the exchange offer.
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In addition, we will not be obligated to accept for exchange the FaciliCom
notes of any holder that has not made to us the representations described under
"-- Procedures for Tendering."
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any FaciliCom notes by giving oral or written notice of the
extension to their holders. During any extensions, all FaciliCom notes
previously tendered will remain subject to the exchange offer, and we may accept
them for exchange. We will return any FaciliCom notes that we do not accept for
exchange for any reason without expense to their tendering holders as promptly
as practicable after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any FaciliCom notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the FaciliCom notes
as promptly as practicable. In the case of any extension, the notice will be
issued no later than 9:00 a.m., New York City time, on the first business day
after the previously scheduled expiration date.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion. If we fail at any time
to exercise any of the foregoing rights, this failure will not constitute a
waiver of such right. Each such right will be deemed an ongoing right that we
may assert at any time or at various times.
In addition, we will not accept for exchange any FaciliCom notes tendered,
and will not issue exchange notes in exchange for any such FaciliCom notes, if
at such time any stop order has been threatened or is in effect with respect to
the registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of FaciliCom notes may tender FaciliCom notes in the exchange
offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
such letter of transmittal or facsimile to the exchange agent prior to
the expiration date; or
- comply with DTC's Automated Tender Offer Program procedures described
below.
In addition, either:
- the exchange agent must receive FaciliCom notes along with the letter of
transmittal;
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of the FaciliCom notes into the
exchange agent's account at DTC according to the procedure for book-entry
transfer described below or a properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "-- Exchange Agent" prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between that holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal, including, but not limited to, the agreement by such
holders to deliver good and marketable title to the tendered FaciliCom notes
free and clear of all liens, charges, claims, encumbrances, interests and
restrictions of any kind.
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The method of delivery of FaciliCom notes, the letter of transmittal and
all other required documents to the exchange agent is at the holder's election
and risk. Rather than mail these items, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. Holders should not send the letter of transmittal or FaciliCom notes to
us. Holders may request their respective brokers, dealers, commercial banks,
trust companies or other nominees to effect the above transactions for them.
Any beneficial owner whose FaciliCom notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owner's behalf. If such beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the letter of transmittal
and delivering its FaciliCom notes, either:
- make appropriate arrangements to register ownership of the FaciliCom
notes in such owner's name; or
- obtain a properly completed bond power from the registered holder of
FaciliCom notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act, unless the FaciliCom notes tendered pursuant
thereto are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
- for the account of an eligible guarantor institution.
If the letter of transmittal is signed by a person other than the
registered holder of any FaciliCom notes listed on the FaciliCom notes, the
FaciliCom notes must be endorsed or accompanied by a properly completed bond
power. The bond power must be signed by the registered holder as the registered
holder's name appears on the FaciliCom notes and an eligible guarantor
institution must guarantee the signature on the bond power.
If the letter of transmittal or any FaciliCom notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing. Unless waived by us,
they should also submit evidence satisfactory to us of their authority to
deliver the letter of transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
Program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the FaciliCom notes to the exchange
agent in accordance with its procedures for transfer. DTC will then send an
agent's message to the exchange agent. The term "agent's message" means a
message transmitted by DTC, received by the exchange agent and forming part of
the book-entry confirmation, to the effect that:
- DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering FaciliCom notes that are
the subject of the book-entry confirmation;
- the participant has received and agrees to be bound by the terms of the
letter of transmittal (or, in the case of an agent's message relating to
guaranteed delivery, that the participant has received and agrees to be
bound by the applicable notice of guaranteed delivery); and
- the agreement may be enforced against the participant.
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We will determine in our sole discretion all questions of the validity,
form, eligibility (including time of receipt) and acceptance of tendered
FaciliCom notes and the withdrawal of tendered FaciliCom notes. Our
determination will be final and binding. We reserve the absolute right to reject
any FaciliCom notes not properly tendered or any FaciliCom notes our acceptance
of which would, in the opinion of our counsel, be unlawful. We also reserve the
right to waive any defects, irregularities or conditions of tender as to
particular FaciliCom notes. Our interpretation of the terms and conditions of
the exchange offer (including the instructions in the letter of transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of FaciliCom notes must be cured
within a specified time as we shall determine. Although we intend to notify
holders of defects or irregularities with respect to tenders of FaciliCom notes,
neither we, the exchange agent nor any other person will incur any liability for
failure to give this notification. Tenders of FaciliCom notes will not be deemed
made until the defects or irregularities have been cured or waived. Any
FaciliCom notes received by the exchange agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived will
be returned to the exchange agent without cost to the tendering holder, unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
In all cases, we will issue the exchange consideration in exchange for
FaciliCom notes that we have accepted for exchange under the exchange offer only
after the exchange agent timely receives:
- FaciliCom notes or a timely book-entry confirmation of such FaciliCom
notes into the exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
By signing the letter of transmittal, each tendering holder of FaciliCom
notes will represent to us that, among other things:
- any exchange notes that the holder receives will be acquired in the
ordinary course of its business;
- the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the exchange notes; and
- the holder is not our "affiliate," as defined in Rule 405 of the
Securities Act or, if the holder is our affiliate, it will comply with
any applicable registration and prospectus delivery requirements of the
Securities Act.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the FaciliCom notes at DTC for purposes of the exchange offer promptly after
the date of this prospectus; and any financial institution participating in
DTC's system may make book-entry delivery of FaciliCom notes by causing DTC to
transfer the FaciliCom notes into the exchange agent's account at DTC in
accordance with DTC's procedures for transfer. Holders of FaciliCom notes who
are unable to deliver confirmation of the book-entry tender of their FaciliCom
notes into the exchange agent's account at DTC or all other documents required
by the letter of transmittal to the exchange agent on or prior to the expiration
date must tender their FaciliCom notes according to the guaranteed delivery
procedures described below.
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<PAGE> 42
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their FaciliCom notes but whose FaciliCom notes
are not immediately available or who cannot deliver their FaciliCom notes, the
letter of transmittal or any other required documents to the exchange agent or
comply with the applicable procedures under DTC's Automated Tender Offer Program
prior to the expiration date may tender if:
- the tender is made through an eligible guarantor institution;
- prior to the expiration date, the exchange agent receives from an
eligible guarantor institution either a properly completed and duly
executed notice of guaranteed delivery (by facsimile transmission, mail
or hand delivery) or a properly transmitted agent's message and notice of
guaranteed delivery:
- setting forth the name and address of the holder, the registered
number(s) of the FaciliCom notes and the principal amount of the
FaciliCom notes tendered;
- stating that the tender is being made thereby; and
- guaranteeing that, within three (3) Nasdaq trading days after the
expiration date, the letter of transmittal (or facsimile thereof)
together with the FaciliCom notes or a book-entry confirmation, and any
other documents required by the letter of transmittal will be deposited
by the eligible guarantor institution with the exchange agent; and
- the exchange agent receives such properly completed and executed letter
of transmittal (or facsimile thereof), as well as all tendered FaciliCom
notes in proper form for transfer or a book-entry confirmation, and all
other documents required by the letter of transmittal, within three (3)
Nasdaq trading days after the expiration date.
UPON WRITTEN REQUEST TO THE EXCHANGE AGENT, A NOTICE OF GUARANTEED DELIVERY
WILL BE SENT TO HOLDERS WHO WISH TO TENDER THEIR FACILICOM NOTES ACCORDING TO
THE GUARANTEED DELIVERY PROCEDURES SET FORTH ABOVE.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of FaciliCom notes
may withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice (which may be by
telegram, telex, facsimile transmission or letter) of withdrawal at one
of the addresses set forth below under "-- Exchange Agent"; or
- holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
Any such notice of withdrawal must:
- specify the name of the person who tendered the FaciliCom notes to be
withdrawn;
- identify with specificity the FaciliCom notes to be withdrawn (including
the principal amount of the FaciliCom notes); and
- where certificates for FaciliCom notes have been transmitted, specify the
name in which the FaciliCom notes were registered, if different from that
of the withdrawing holder.
If certificates for FaciliCom notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
guarantor institution unless the holder is an eligible guarantor
institution.
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If FaciliCom notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn
FaciliCom notes and otherwise comply with the procedures of this facility. We
will determine all questions as to the validity, form and eligibility (including
time of receipt) of the notices, and our determination shall be final and
binding on all parties. We will deem any FaciliCom notes so withdrawn not to
have been validly tendered for exchange for purposes of the exchange offer. Any
FaciliCom notes that have been tendered for exchange but that are not exchanged
for any reason will be returned to their holder without cost to the holder (or,
in the case of FaciliCom notes tendered by book-entry transfer into the exchange
agent's account at DTC according to the procedures described above, the
FaciliCom notes will be credited to an account maintained with DTC for FaciliCom
notes) as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn FaciliCom notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering" above at any time on or prior to the expiration date.
If you withdraw your tender of FaciliCom notes, your consent to the
proposed amendments under the second supplemental indenture will also be deemed
to be withdrawn. You may not withdraw your consent without withdrawing your
tender of FaciliCom notes.
EXCHANGE AGENT
First Union National Bank has been appointed as exchange agent for the
exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for the notice of guaranteed delivery to the exchange
agent addressed as follows:
First Union National Bank
1525 West W.T. Harris Boulevard
363 NC-1153
Charlotte, North Carolina 28262
By Facsimile Transmission (for eligible guarantor institutions only):
(704) 590-7628
For Confirmation and/or Information Call:
(704) 590-7408
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
CO-DEALER MANAGERS
We have engaged Donaldson, Lufkin & Jenrette Securities Corporation and
Lehman Brothers Inc. to act as co-dealer managers in connection with the
exchange offer and consent solicitation. We have also engaged Donaldson, Lufkin
& Jenrette to provide certain financial advisory services to us in connection
with the merger with FaciliCom. Any holder of FaciliCom notes who has questions
concerning the terms of the exchange offer or consent solicitation may contact
the dealer managers at the addresses and telephone numbers set forth on the back
cover page of this prospectus.
We have agreed to pay the dealer managers reasonable and customary
compensation for their services in connection with the exchange offer and
consent solicitation and to reimburse them for their reasonable out-of-pocket
expenses, including reasonable fees and expenses of legal counsel, and we have
agreed to indemnify the dealer managers against some liabilities, including some
liabilities under the federal securities laws. Donaldson, Lufkin & Jenrette has
provided in the past, and currently is providing, other investment banking and
financial advisory services to us.
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FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
telegraph, facsimile, telephone or in person by our officers and regular
employees and those of our affiliates.
Except as described herein, we will not make any payments to broker-dealers
or others soliciting acceptances of the exchange offer. We will, however, pay
the exchange agent and the dealer managers reasonable and customary fees for
their services and reimburse them for their related reasonable out-of-pocket
expenses.
We will pay other cash expenses to be incurred in connection with the
exchange offer, including:
- SEC registration fees;
- fees and expenses of the trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
ACCOUNTING TREATMENT OF THE EXCHANGE OFFER
The exchange notes will be recorded by World Access based on the fair value
of the exchange notes. Any difference (discount or premium) between the fair
value and par value of the exchange notes will be amortized over the life of the
exchange notes as an adjustment to interest expense.
NO DISSENTERS' RIGHTS
You will not have any right to dissent and receive an appraisal of your
FaciliCom notes in connection with the exchange offer or consent solicitation.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
FaciliCom notes under the exchange offer. The tendering holder, however, will be
required to pay any transfer taxes, whether imposed on the registered holder or
any other person, if:
- certificates representing FaciliCom notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
FaciliCom notes tendered;
- tendered FaciliCom notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
FaciliCom notes under the exchange offer, then the tendering holder will
be required to pay any transfer taxes, whether imposed on the registered
holder or any other persons. If satisfactory evidence of payment of these
taxes is not submitted with the letter of transmittal, the amount of the
transfer taxes will be billed to that tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your FaciliCom notes for the exchange consideration
in the exchange offer, you will continue to hold your FaciliCom notes and will
be entitled to the benefits of the FaciliCom indenture under which the FaciliCom
notes were issued, as amended and supplemented by the first supplemental
indenture. However, if the conditions to the exchange offer are met and the
exchange is consummated, the FaciliCom indenture will be further amended and
supplemented by a second supplemental indenture that will materially reduce the
covenants to which FaciliCom is subject under the indenture and you will no
longer have the right to require us to repurchase your FaciliCom notes at a
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<PAGE> 45
purchase price of 101% of the principal amount upon completion of our pending
merger with FaciliCom or to approve the merger. For a description of the
proposed amendments to the FaciliCom indenture, see "The Proposed Amendments."
If you do not tender your FaciliCom notes in the exchange offer, you will
not be entitled to receive the exchange consideration which includes exchange
notes with an interest rate of 13.25% per annum as compared to the 10 1/2% per
annum for the FaciliCom notes and more favorable offer to purchase and
redemption provisions as compared to the FaciliCom notes.
Our proposed merger with FaciliCom would violate several covenants
applicable to the FaciliCom notes allowing the holders of 25.0% of the aggregate
principal amount of the FaciliCom notes or the trustee under the FaciliCom
indenture to declare principal and accrued and unpaid interest on the FaciliCom
notes immediately due and payable. However, holders who tender their FaciliCom
notes in the exchange offer will effectively waive this right by consenting to
the proposed amendments to the FaciliCom indenture that delete the covenants
which would be breached. Upon effectiveness of the consent solicitation, the
proposed amendments will apply to all FaciliCom notes that are not tendered in
the exchange offer.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered FaciliCom notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any FaciliCom notes that are
not tendered in the exchange offer.
Following the exchange offer, FaciliCom notes accepted by us for exchange
will be cancelled.
DESCRIPTION OF THE EXCHANGE NOTES
The exchange notes will be issued pursuant to an indenture to be entered
into between us, as issuer, and First Union National Bank, as Trustee. The
indenture will be subject to and governed by the Trust Indenture Act of 1939.
The following summary of the material provisions of the exchange notes, the
indenture and the Pledge Agreement does not purport to be complete and is
subject to, and is qualified by reference to, all the provisions of the exchange
notes, the indenture and the Pledge Agreement, including the definitions of
terms in those agreements and those terms made a part of the exchange notes and
the indenture by the Trust Indenture Act. Whenever particular sections or
defined terms of the indenture not otherwise defined in this prospectus are
referred to, these sections or defined terms are incorporated in this prospectus
by reference. Copies of the indenture and the Pledge Agreement have been filed
with the SEC as exhibits to the registration statement of which this prospectus
is a part. The definitions of certain terms used in the following summary are
set forth below under "-- Certain Definitions."
GENERAL
The exchange notes are senior obligations of World Access, limited to
$300,000,000 aggregate original principal amount, and will mature on January 15,
2008. The exchange notes bear interest commencing on the exchange date at the
rate of 13.25% per annum, payable semiannually in arrears on January 15 and July
15 of each year, commencing January 15, 2000, or July 15, 2000 if the exchange
date is subsequent to January 1, 2000, to the person in whose name the exchange
note is registered at the close of business on the preceding January 1 or July
1, as the case may be. Interest will be computed on the basis of a 360-day year
of twelve 30-day months.
Principal of, premium, if any, and interest on the exchange notes will be
payable, and the exchange notes may be exchanged or transferred, at the office
or agency of World Access, which initially will be the
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corporate trust operations office of the Trustee at 1525 West W.T. Harris
Boulevard, 363 NC-1153, Charlotte, North Carolina 28262, or, at the option of
World Access payment of interest may be made by check mailed to the address of
the holders as such address appears in the register; provided that all payments
with respect to global exchange notes the holders of which have given wire
transfer instructions to World Access will be required to be made by wire
transfer of immediately available funds to the accounts specified by the holders
of those notes. (Section 301)
The exchange notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount and any integral
multiple thereof. See "-- Book-Entry, Delivery and Form." No service charge will
be made for any registration of transfer or exchange of exchange notes, but
World Access may require payment of a sum sufficient to cover any transfer tax
or other similar governmental charge payable in connection therewith. (Section
302)
OPTIONAL REDEMPTION
Except as otherwise provided, the exchange notes will not be redeemable at
the option of World Access prior to January 15, 2003. At any time on or after
that date, the exchange notes may be redeemed at World Access' option, in whole
or in part, at any time or from time to time, on or after January 15, 2003 and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice
mailed by first class mail to each holder's last address as it appears in the
register, at the following redemption prices (expressed in percentages of
principal amount thereof), plus accrued and unpaid interest thereon to the
redemption date (subject to the right of holders of record on the relevant
regular record date to receive interest due on an interest payment date that is
on or prior to the redemption date), if redeemed during the 12-month period
commencing on January 15, of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
<S> <C> <C>
2003........................................................ 106.625%
2004........................................................ 104.417%
2005........................................................ 102.208%
2006 (and thereafter)....................................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to January 15, 2001, World Access may
on any one or more occasions redeem up to 35.0% of the originally issued
aggregate principal amount of exchange notes at a redemption price of 110.5% of
the aggregate principal amount thereof, plus accrued and unpaid interest thereon
to the Redemption Date, with the Net Cash Proceeds of one or more Public Equity
Offerings; provided, that at least 65.0% of the originally issued principal
amount of the exchange notes remains outstanding immediately after the
occurrence of such redemption; and provided further that notice of such
redemptions shall be given within 60 days of the closing of any such Public
Equity Offering. (Section 1101)
In the case of any partial redemption, selection of the exchange notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the exchange notes
are listed or, if the exchange notes are not listed on a national securities
exchange, on a pro rata basis, by lot or by such other method as the Trustee in
its sole discretion shall deem to be fair and appropriate; provided that the
principal amount of an exchange note shall not be reduced below $1,000. If any
exchange note is to be redeemed in part only, the notice of redemption relating
to such exchange note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original note.
SECURITY
On the exchange date, the pro rata portion of the total amount of FaciliCom
Pledged Securities based on the percentage of the aggregate principal amount of
the FaciliCom Notes exchanged for exchange notes shall pursuant to the FaciliCom
Pledge Agreement be released from the FaciliCom Pledge Account to
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<PAGE> 47
FaciliCom. Upon the consummation of the merger, such pledged securities will
automatically be transferred to World Access and deposited by World Access in
the Pledge Account to be held pursuant to the Pledge Agreement. The Pledged
Securities will be pledged by World Access to the Trustee for the benefit of the
holders of the exchange notes pursuant to the Pledge Agreement and will be held
by the Trustee in the Pledge Account pending disposition pursuant to the Pledge
Agreement. Pursuant to the Pledge Agreement, immediately prior to any scheduled
interest payment on the exchange notes, World Access may either deposit with the
Trustee from funds otherwise available to World Access cash sufficient to pay
the interest scheduled to be paid on such date, World Access may direct the
Trustee to release from the Pledge Account proceeds sufficient to pay interest
then due or World Access may elect to use any combination of deposited funds and
Pledge Account proceeds to pay interest then due. In the event that World Access
deposits additional funds with the Trustee, World Access may thereafter direct
the Trustee to release to World Access proceeds or Pledged Securities from the
Pledge Account in like amount. A failure by World Access to pay scheduled
interest on the exchange notes in a timely manner through any three interest
payment date on or prior to January 15, 2001 will constitute an immediate Event
of Default under the indenture, with no grace or cure period.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by World Access, to provide an
amount sufficient to provide for payment in full of any scheduled interest
payments all on or prior to January 15, 2001 on the exchange notes assuming an
interest rate of 10 1/2% per annum instead of 13.25% per annum less the amount
of any scheduled interest previously paid on the exchange notes, the Trustee
will be permitted to release to World Access, at World Access' request, any such
excess amount.
The exchange notes are secured by a first priority security interest in the
Pledged Securities and in the Pledge Account and, accordingly, the Pledged
Securities and the Pledge Account will also secure repayment of the principal
amount of the exchange notes to the extent of such security.
Under the Pledge Agreement, assuming that World Access makes the scheduled
interest payments on or prior to January 15, 2001 on the exchange notes in a
timely manner, any remaining Pledged Securities will be released from the Pledge
Account and the exchange notes will be unsecured.
RANKING
The exchange notes will be unsecured (except as described above)
obligations of World Access and will rank senior in right of payment to any
existing and future obligations of World Access expressly subordinated in right
of payment to the exchange notes and pari passu in right of payment with all
other existing and future unsecured and unsubordinated obligations of World
Access, including trade payables. After giving effect to the Merger, World
Access will have approximately $464.0 million of Indebtedness (of which $462.1
will rank senior to and $1.9 million will rank pari passu with the exchange
notes, respectively). Because World Access is a holding company that conducts
its business through its Subsidiaries, all existing and future Indebtedness and
other liabilities and commitments of World Access's Subsidiaries, including
trade payables, will be effectively senior to the exchange notes. The indenture
limits, but does not prohibit, the incurrence of certain additional Indebtedness
by World Access and its Restricted Subsidiaries and does not limit the amount of
Indebtedness Incurred to finance the cost of Telecommunications Assets. World
Access anticipates that it and its Subsidiaries will Incur substantial
additional Indebtedness in the future. After giving effect to the Merger, World
Access' consolidated Subsidiaries will have aggregate liabilities of
approximately $743.3 million, which will include $464.0 million of Indebtedness.
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COVENANTS
LIMITATION ON INDEBTEDNESS
(a) World Access will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that World
Access may Incur Indebtedness if immediately thereafter the ratio of:
(1) the aggregate principal amount (or accreted value, as the case may
be) of Indebtedness of World Access and its Restricted Subsidiaries on a
consolidated basis outstanding as of the Transaction Date to
(2) the Pro Forma Consolidated Cash Flow for the preceding two full
fiscal quarters multiplied by two, determined on a pro forma basis as if
any such Indebtedness had been Incurred and the proceeds thereof had been
applied at the beginning of such two fiscal quarters,
would be greater than zero and less than 5.0 to 1;
(b) The foregoing limitations of paragraph (a) of this covenant will not
apply to any of the following Indebtedness ("Permitted Indebtedness"),
each of which shall be given independent effect:
(1) Indebtedness of World Access evidenced by the exchange notes or
the FaciliCom Notes;
(2) Indebtedness of World Access or any Restricted Subsidiary
outstanding on the Exchange Date;
(3) Indebtedness of World Access or any Restricted Subsidiary under
one or more Credit Facilities, in an aggregate principal amount at any one
time outstanding not to exceed the greater of
(x) $135.0 million and
(y) 80.0% of Eligible Accounts Receivable at any one time
outstanding, subject to any permanent reductions required by any other terms of
the indenture;
(4) Indebtedness of World Access or any Restricted Subsidiary Incurred
to finance the cost (including the cost of design, development,
construction, acquisition, installation or integration) of
Telecommunications Assets;
(5) Indebtedness of a Restricted Subsidiary owed to and held by World
Access or another Restricted Subsidiary, except that
(A) any transfer of such Indebtedness by World Access or a
Restricted Subsidiary (other than to World Access or another Restricted
Subsidiary) and
(B) the sale, transfer or other disposition by World Access or any
Restricted Subsidiary of Capital Stock of a Restricted Subsidiary which
is owed Indebtedness of another Restricted Subsidiary
shall, in each case, be an incurrence of Indebtedness by such Restricted
Subsidiary, subject to the other provisions of the indenture;
(6) Indebtedness of World Access owed to and held by a Restricted
Subsidiary which is unsecured and subordinated in right to the payment and
performance to the obligations of World Access under the indenture and the
exchange notes, except that the limitations of paragraph (a) above shall
apply to such Indebtedness at such time as
(A) any transfer of such Indebtedness by a Restricted Subsidiary
(other than to another Restricted Subsidiary) and
(B) the sale, transfer or other disposition by World Access or any
Restricted Subsidiary of Capital Stock of a Restricted Subsidiary which
is owed such Indebtedness of World Access subject to other provisions of
the indenture;
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(7) Indebtedness of World Access or a Restricted Subsidiary issued in
exchange for, or the net proceeds of which are used to refinance (whether
by amendment, renewal, extension or refunding), then outstanding
Indebtedness of World Access or a Restricted Subsidiary, other than
Indebtedness Incurred under clauses (3), (5), (6), (8), (9), (11) and (12)
of this paragraph, and any refinancings thereof in an amount not to exceed
the amount so refinanced or refunded (plus premiums, accrued interest, and
reasonable fees and expenses); provided that such new Indebtedness shall
only be permitted under this clause (7) if:
(A) in case the exchange notes are refinanced in part or the
Indebtedness to be refinanced is pari passu with the exchange notes,
such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made pari passu with, or subordinate in right
of payment to, the remaining exchange notes,
(B) in case the Indebtedness to be refinanced is subordinated in
right of payment to the exchange notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which
such new Indebtedness is issued or remains outstanding, is expressly
made subordinate in right of payment to the exchange notes at least to
the extent that the Indebtedness to be refinanced is subordinated to the
exchange notes and
(C) such new Indebtedness, determined as of the date of Incurrence
of such new Indebtedness, does not mature prior to the Stated Maturity
of the Indebtedness to be refinanced or refunded, and the Average Life
of such new Indebtedness is at least equal to the remaining Average Life
of the Indebtedness to be refinanced or refunded;
and provided further that in no event may Indebtedness of World Access be
refinanced by means of any Indebtedness of any Restricted Subsidiary
pursuant to this clause (7);
(8) Indebtedness of:
(x) World Access not to exceed, at any one time outstanding, 2.00
times the Net Cash Proceeds from the issuance and sale, other than to a
Subsidiary, of Common Stock (other than Redeemable Stock) of World
Access (less the amount of such proceeds used to make Restricted
Payments as provided in clause (c) or (d) of the second paragraph of the
"Limitation on Restricted Payments" covenant) and
(y) World Access or Acquired Indebtedness of a Restricted
Subsidiary not to exceed, at one time outstanding, the Fair Market Value
of any Telecommunications Assets acquired by World Access in exchange
for Common Stock of World Access issued after the Exchange Date;
provided, however, that in determining the Fair Market Value of any such
Telecommunications Assets so acquired, if the estimated Fair Market
Value of such Telecommunications Assets exceeds:
(A) $2.0 million (as estimated in good faith by the Board of
Directors), then the Fair Market Value of such Telecommunications
Assets will be determined by a majority of the Board of Directors of
World Access, which determination will be evidenced by a resolution
thereof, and
(B) $10.0 million (as estimated in good faith by the Board of
Directors), then World Access will deliver the Trustee a written
appraisal as to the Fair Market Value of such Telecommunications
Assets prepared by a nationally recognized investment banking or
public accounting firm (or, if no such investment banking or public
accounting firm is qualified to prepare such an appraisal, by a
nationally recognized appraisal firm);
and provided further that such Indebtedness does not mature prior to the
Stated Maturity of the exchange notes and the Average Life of such
Indebtedness is longer than that of the exchange notes;
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(9) Indebtedness of World Access or any Restricted Subsidiary:
(A) in respect of performance, surety or appeal bonds or letters of
credit supporting trade payables, in each case provided in the ordinary
course of business,
(B) under Currency Agreements and Interest Rate Agreements covering
Indebtedness of World Access; provided that such agreements do not
increase the Indebtedness of the obligor outstanding at any time other
than as a result of fluctuations in foreign currency exchange rates or
interest rates or by reason of fees, indemnities and compensation
payable thereunder, and
(C) arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, including without
limitations, the Company's indemnification obligations pursuant to that
certain Indemnification Agreement dated August 19, 1999, by and between
the Company and Clay C. Long, Esq., trustee of the World Access
Charitable Trust or from Guarantees or letters of credit, surety bonds
or performance bonds securing any obligations of World Access or any of
its Restricted Subsidiaries pursuant to such agreements, in any case
Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary of World Access (other than Guarantees of
Indebtedness Incurred by any person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing
such acquisition), in a principal amount not to exceed the gross
proceeds actually received by World Access or any Restricted Subsidiary
in connection with such disposition;
(10) Indebtedness of World Access, to the extent that the net proceeds
thereof are promptly:
(A) used to repurchase exchange notes tendered in a Change of
Control Offer or
(B) deposited to defease all of the exchange notes as described
below under "Defeasance and Covenant Defeasance of Indenture";
(11) Indebtedness of a Restricted Subsidiary represented by a
Guarantee of the exchange notes permitted by and made in accordance with
the "Limitation on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries" covenant;
(12) Indebtedness of World Access and its Subsidiaries existing upon
the consummation of the Merger; and
(13) Indebtedness of World Access or any Restricted Subsidiary in
addition to that permitted to be incurred pursuant to clauses (1) through
(11) above in an aggregate principal amount not in excess of $10.0 million
(or, to the extent not denominated in United States dollars, the United
States Dollar Equivalent thereof) at any one time outstanding; and
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included; provided,
however, that the foregoing shall not in any way be deemed to limit the
provisions of " -- Limitation on Issuances of Guarantees of Indebtedness by
Restricted Subsidiaries." For purposes of determining compliance with this
"Limitation on Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described in
the above clauses, World Access, in its sole discretion may, at the time of such
Incurrence:
(1) classify such item of Indebtedness under and comply with either of
paragraph (a) or (b) of this covenant (or any of such definitions), as
applicable,
(2) classify and divide such item of Indebtedness into more than one
of such paragraphs (or definitions), as applicable, and
(3) elect to comply with such paragraphs (or definitions), as
applicable in any order. (Section 1011)
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LIMITATION ON RESTRICTED PAYMENTS
World Access will not, and will not permit any Restricted Subsidiary to,
directly or indirectly:
(1) (A) declare or pay any dividend or make any distribution in
respect of World Access' Capital Stock to the holders thereof (other than
dividends or distributions payable solely in shares of Capital Stock (other
than Redeemable Stock) of World Access or in options, warrants or other
rights to acquire such shares of Capital Stock) or
(B) declare or pay any dividend or make any distribution in respect
of the Capital Stock of any Restricted Subsidiary to any Person other
than dividends and distributions including a distribution payable solely
in shares of Capital Stock (other than Redeemable Stock) payable to
World Access or any Restricted Subsidiary or to all holders of Capital
Stock of such Restricted Subsidiary on a pro rata basis;
(2) purchase, redeem, retire or otherwise acquire for value any shares
of Capital Stock of World Access (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Person or any
shares of Capital Stock of any Restricted Subsidiary (including options,
warrants and other rights to acquire such shares of Capital Stock) held by
any Affiliate of World Access (other than a wholly owned Restricted
Subsidiary) or any holder (or any Affiliate thereof) of 5.0% or more of
World Access' Capital Stock;
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of Indebtedness of World Access that is subordinated
in right of payment to the exchange notes; or
(4) make any Investment, other than a Permitted Investment, in any
Person
(such payments or any other actions described in clauses (1) through (4) being
collectively "Restricted Payments") if, at the time of, and after giving effect
to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing;
(B) World Access could not Incur at least $1.00 of Indebtedness under
paragraph (a) of the "Limitation on Indebtedness" covenant; and
(C) the aggregate amount of all Restricted Payments declared or made
from and after the Exchange Date would exceed the sum of:
(1) Cumulative Consolidated Cash Flow minus 200% of Cumulative
Consolidated Fixed Charges;
(2) 100% of the aggregate Net Cash Proceeds from the issue or sale to
a Person, which is not a Subsidiary of World Access, of Capital
Stock of World Access (other than Redeemable Stock) or of debt
securities of World Access which have been converted into or
exchanged for such Capital Stock (except to the extent such Net
Cash Proceeds are used to Incur new Indebtedness outstanding
pursuant to clause (8) of paragraph (b) of the "Limitation on
Indebtedness" covenant); and
(3) to the extent any Permitted Investment that was made after the
Exchange Date is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (x) the cash return of capital with
respect to such Permitted Investment (less the cost of
disposition, if any) and (y) the initial amount of such Permitted
Investment.
The foregoing provision shall not be violated by reason of:
(a) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph;
(b) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the exchange notes including a premium, if
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any, and accrued and unpaid interest with the net proceeds of, or in
exchange for, Indebtedness Incurred under clause (8) of paragraph (b) of
the "Limitation on Indebtedness" covenant;
(c) the repurchase, redemption or other acquisition of Capital Stock
of World Access in exchange for, or out of the Net Cash Proceeds of a
substantially concurrent:
(A) capital contribution to World Access or
(B) offering of shares of Capital Stock (other than Redeemable
Stock) of World Access
(except to the extent such proceeds are used to incur new Indebtedness
outstanding pursuant to clause (8) of paragraph (b) of the "Limitation on
Indebtedness" covenant);
(d) the acquisition of Indebtedness of World Access which is
subordinated in right of payment to the exchange notes in exchange for, or
out of the proceeds of, a substantially concurrent:
(A) capital contribution to World Access or
(B) offering of shares of the Capital Stock of World Access (other
than Redeemable Stock)
(except to the extent such proceeds are used to incur new Indebtedness
outstanding pursuant to clause (8) of paragraph (b) of the "Limitation on
Indebtedness" covenant);
(e) payments or distributions to dissenting stockholders in accordance
with applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the
indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of World Access; and
(f) the declaration or payment of any dividend or distribution in
respect of, and in accordance with the terms of, World Access':
(A) 50,000 outstanding shares of 4.25% Cumulative Senior Perpetual
Convertible Preferred Stock, Series A, par value $0.01 per share (the
"Senior Preferred Stock"), and, in the event that The 1818 Fund III,
L.P. ("The 1818 Fund") exercises its option to purchase up to 20,000
additional shares of Senior Preferred Stock, then such additional shares
as well and
(B) 23,174 outstanding shares of 4.25% Cumulative Junior
Convertible Preferred Stock, Series B, par value $0.01 per share (the
"Junior Preferred Stock");
(g) the conversion of the Senior Preferred Stock, the Junior Preferred
Stock or World Access' Convertible Preferred Stock, Series C, par value
$0.01 per share, into Capital Stock of World Access in accordance with the
terms of such preferred stock;
(h) the exercise of employee or non-employee options to purchase the
Capital Stock of the Company; and
(i) other Restricted Payments not to exceed $2.0 million;
provided that, except in the case of clause (a), no Default or Event of Default
shall have occurred and be continuing or occur as a consequence of the actions
or payments set forth therein.
Each Restricted Payment permitted pursuant to the immediately preceding
paragraph (other than the Restricted Payment referred to in clause (b) thereof)
and the Net Cash Proceeds from any capital contributions to World Access or
issuance of Capital Stock referred to in clauses (c) and (d) of the immediately
preceding paragraph, shall be included in calculating whether the conditions of
clause (C) of the first paragraph of this "Limitation on Restricted Payments"
covenant have been met with respect to any subsequent Restricted Payments. In
the event the proceeds of an issuance of Capital Stock of World Access are used
for the redemption, repurchase or other acquisition of the exchange notes, then
the Net Cash Proceeds of such issuance shall be included in clause (C) of the
first paragraph of this "Limitation
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on Restricted Payments" covenant only to the extent such proceeds are not used
for such redemption, repurchase or other acquisition of the exchange notes.
(Section 1012)
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
So long as any of the exchange notes are outstanding, World Access will
not, and will not permit any Restricted Subsidiary to, create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or restriction
of any kind on the ability of any Restricted Subsidiary to do any of the
following:
(a) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by
World Access or any other Restricted Subsidiary,
(b) pay any Indebtedness owed to World Access or any other Restricted
Subsidiary,
(c) make loans or advances to World Access or any other Restricted
Subsidiary, or
(d) transfer any of its property or assets (including the Capital
Stock of any Restricted Subsidiary) to World Access or any other Restricted
Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
(1) existing on the Exchange Date in the indenture or any other
agreements or instruments in effect on the Exchange Date, and any
extensions, refinancings, renewals or replacements of such agreements;
provided that the encumbrances and restrictions in any such extensions,
refinancings, renewals or replacements are no less favorable in any
material respect to the holders than those encumbrances or restrictions
that are then in effect and that are being extended, refinanced, renewed or
replaced;
(2) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if the encumbrance or
restriction applies only in the event of a default with respect to a
financial covenant contained in such Indebtedness or agreement and such
encumbrance or restriction is not materially more disadvantageous to the
holders of the exchange notes than is customary in comparable financings
(as determined by World Access) and World Access determines that any such
encumbrance or restriction will not materially affect World Access' ability
to make principal or interest payments on the exchange notes;
(3) existing under or by reason of applicable law;
(4) existing with respect to any Person or the property or assets of
such Person acquired by World Access or any Restricted Subsidiary, existing
at the time of such acquisition and not incurred in contemplation thereof,
which encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property or
assets of such Person so acquired;
(5) in the case of clause (4) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant:
(A) that restrict in a customary manner the subletting, assignment
or transfer of any property or asset that is, or is subject to, a lease,
purchase mortgage obligation, license, conveyance or contract or similar
property or asset,
(B) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of
World Access or any Restricted Subsidiary not otherwise prohibited by
the indenture, or
(C) arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of property or assets of World Access
or any Restricted Subsidiary in any manner material to World Access or
any Restricted Subsidiary; or
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(6) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary.
Nothing contained in this "Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant shall prevent World Access or any
Restricted Subsidiary from:
(A) creating, incurring, assuming or suffering to exist any Liens
otherwise permitted in the "Limitation on Liens" covenant or
(B) restricting the sale or other disposition of property or assets
of World Access or any of its Restricted Subsidiaries that secure
Indebtedness of World Access or any of its Restricted Subsidiaries.
(Section 1013)
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
World Access will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue, transfer, distribute, convey, sell, lease or
otherwise dispose of any shares of Capital Stock (including options, warrants or
other rights to purchase shares of such Capital Stock) of such or any other
Restricted Subsidiary (other than to World Access or a wholly owned Restricted
Subsidiary or in respect of any director's qualifying shares or sales of shares
of Capital Stock to foreign nationals mandated by applicable law or pursuant to
the exercise of employee or non-employee options to purchase the Capital Stock
of the Company) to any Person unless:
(A) the Net Cash Proceeds from such issuance, transfer, conveyance, sale,
lease or other disposition are applied in accordance with the provisions of the
"Limitation on Asset Sales" covenant;
(B) immediately after giving effect to such issuance, transfer, conveyance,
sale, lease or other disposition, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary; and
(C) any Investment in such Person remaining after giving effect to such
issuance, transfer, conveyance, sale, lease or other disposition would have been
permitted to be made under the "Limitation on Restricted Payments" covenant if
made on the date of such issuance, transfer, conveyance, sale, lease or other
disposition (valued as provided in the definition of "Investment"). (Section
1014)
LIMITATION ON TRANSACTIONS WITH STOCKHOLDERS AND AFFILIATES
World Access will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder) of 5.0% or more of any class of Capital Stock of World Access or any
Restricted Subsidiary or with any Affiliate of World Access or any Restricted
Subsidiary, unless the following conditions have been met:
(a) such transaction or series of transactions is on terms no less
favorable to World Access or such Restricted Subsidiary than those that
could be obtained in a comparable arm's-length transaction with a Person
that is not such a holder or an Affiliate;
(b) if such transaction or series of transactions involves aggregate
consideration in excess of $2.0 million, then such transaction or series of
transactions is approved by a majority of the Board of Directors of World
Access and is evidenced by a resolution therein; and
(c) if such transaction or series of transactions involves aggregate
consideration in excess of $10.0 million, then World Access or such
Restricted Subsidiary will deliver to the Trustee a written opinion as to
the fairness to World Access or such Restricted Subsidiary of such
transaction from a financial point of view from a nationally recognized
investment banking firm (or, if an investment banking firm is generally not
qualified to give such an opinion, by a nationally recognized appraisal
firm or accounting firm).
The foregoing limitation does not limit, and will not apply to:
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(1) any transaction between World Access and any of its Restricted
Subsidiaries or between Restricted Subsidiaries;
(2) the payment of reasonable and customary regular fees to directors
of World Access who are not employees of World Access;
(3) any Restricted Payments not prohibited by the "Limitation on
Restricted Payments" covenant;
(4) loans and advances to officers or employees of World Access and
its Subsidiaries not exceeding at any one time outstanding $1.5 million in
the aggregate, made in the ordinary course of business;
(5) arrangements with Telecommunications Management Group, Inc.,
Armstrong Holdings, Inc. and/or its subsidiaries existing on the date of
the Original Indenture and listed on a schedule attached thereto as such
arrangement may be extended or renewed; provided that the terms of any
arrangement altered by any such extension or renewal may not be altered in
a manner adverse to World Access or the holders of the exchange notes;
(6) the issuance of up to 20,000 additional shares of Senior Preferred
Stock to The 1818 Fund pursuant to an option agreement existing on the date
of this indenture;
(7) the sale to and purchase by World Access from MCI WorldCom, Inc.
and its Affiliates of telecommunications services and equipment in the
ordinary course of business; and
(8) the issuance and sale by World Access of Common Stock whether
pursuant to the conversion of the Senior Preferred Stock, the Junior
Preferred Stock or the Company's Convertible Preferred Stock, Series C, par
value $0.01 per share into Capital Stock of the Company, the exercise of
any employee or non-employee options to purchase the Capital Stock of the
Company; and (ix) the Company's and any of its Restricted Subsidiaries
arrangements with the World Access Charitable Trust listed on Schedule B
attached thereto as such arrangements exist on the Exchange Date and as
such arrangements may be amended; provided that the terms of any such
amendments are not materially adverse to the Company, any Restricted
Subsidiary or the Holders of the Notes. (Section 1015)
LIMITATION ON LIENS
Under the terms of the indenture, World Access will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create, incur,
assume or suffer to exist any Lien (other than Permitted Liens) on any of its
assets or properties of any character (including, without limitation, licenses
and trademarks), or any shares of Capital Stock or Indebtedness of any
Restricted Subsidiary, whether owned at the date of the indenture or thereafter
acquired, or any income, profits or proceeds therefrom, or assign or otherwise
convey any right to receive income thereof, without making effective provision
for all of the exchange notes and all other amounts ranking pari passu with the
exchange notes to be directly secured equally and ratably with the obligation or
liability secured by such Lien, or, if such obligation or liability is
subordinated to the exchange notes and other amounts ranking pari passu with the
exchange notes, without making provision for the exchange notes and such other
amounts to be directly secured prior to the obligation or liability secured by
such Lien. (Section 1016)
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
World Access will not, and will not permit any of its Restricted
Subsidiaries to, enter into any Sale-Leaseback Transaction with respect to any
property of World Access or any of its Restricted Subsidiaries.
Notwithstanding the foregoing, World Access may enter into Sale-Leaseback
Transactions; provided, however, that (a) the Attributable Value of such
Sale-Leaseback Transaction shall be deemed to be Indebtedness of World Access
and (b) after giving pro forma effect to any such Sale-Leaseback Transaction and
the foregoing clause (a), other than any Sale-Leaseback Transactions involving
NACT's
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facility in Provo, Utah, World Access would be able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "-- Limitation on Indebtedness." (Section 1021)
LIMITATION ON ASSET SALES
World Access will not, and will not permit any Restricted Subsidiary to,
make any Asset Sale, unless:
(a) World Access or the Restricted Subsidiary, as the case may be,
receives consideration at the time of such sale or other disposition at
least equal to the Fair Market Value of the assets sold or disposed of as
determined by the good faith judgment of the Board of Directors evidenced
by a Board Resolution and
(b) at least 80.0% of the consideration received for such sale or
other disposition consists of cash or cash equivalents or the assumption of
unsubordinated Indebtedness; provided that any securities, notes or other
obligations issued by an Investment Grade Company with a Total Equity
Market Capitalization in excess of $25 billion determined at the time any
commitment to effect any such Asset Sale is entered into that are received
by World Access or the Restricted Subsidiary, as the case may be, that are
converted within 180 days thereof into cash or cash equivalents shall be
deemed to be cash or cash equivalents; provided further that the amount of
cash or cash equivalents realized upon the sale of any such securities,
notes or other obligations must be included within the amount of Net Cash
Proceeds for purposes of clause (1)(B) of the next paragraph.
World Access shall, or shall cause the relevant Restricted Subsidiary to,
within 270 days after the date of receipt of the Net Cash Proceeds from an Asset
Sale:
(1) (A) apply an amount equal to such Net Cash Proceeds to permanently
repay unsubordinated Indebtedness of World Access or Indebtedness of any
Restricted Subsidiary, in each case owing to a Person other than the
Company or any of its Restricted Subsidiaries or
(B) if the Net Cash Proceeds from such Asset Sale exceed $15.0
million, apply an amount equal to such Net Cash Proceeds to make an
offer to purchase (an "Offer to Purchase") from the holders of the
exchange notes on a pro rata basis an aggregate principal amount of
exchange notes equal to such Net Cash Proceeds, at a purchase price
equal to 100% of the principal amount of the exchange notes, plus, in
each case, accrued and unpaid interest to the date of purchase and less
the product of:
(a) the Market Value per share of the Common Stock of World
Access and
(b) the number of shares (including any portion of a share) of
such Common Stock determined by dividing $50 by the Market Price of
the Common Stock for each $1,000 in principal amount of exchange
notes accepted for purchase by World Access (the "Offer to Purchase
Payment"),
provided that the Company shall not be obligated to make any Offer to
Purchase after it has made one or more Offers to Purchase, which Offer
or Offers to Purchase, in the aggregate, were for an aggregate principal
amount of exchange notes equal to the aggregate principal amount of
exchange notes issued on the Exchange Date (regardless of the actual
aggregate principal amount of exchange notes actually tendered in such
Offer or Offers to Purchase), or
(C) if World Access has made sufficient Offers to Purchase such
that it has satisfied its obligation as described in the final proviso
to clause (B), invest an equal amount, or the amount not so applied
pursuant to clause (A), in property or assets of a nature or type or
that are used in a business (or in a company having property and assets
of a nature or type, or engaged in a business) similar or related to the
nature or type of the property and assets of, or the business of, World
Access and its Restricted Subsidiaries existing on the date of such
investment (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution)
and
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(2) apply (no later than the end of the 270-day period referred to
above) such excess Net Cash Proceeds (to the extent not applied pursuant to
clause (1)) as provided in the following paragraphs of this "Limitation on
Asset Sales" covenant. The amount of such Net Cash Proceeds required to be
applied (or to be committed to be applied) during such 270-day period
referred to above in the preceding sentence and not applied as so required
by the end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as
defined below) totals at least $10.0 million, World Access must, not later
than the 30th Business Day thereafter, make an offer (an "Excess Proceeds
Offer") to purchase from the holders on a pro rata basis an aggregate
principal amount of exchange notes equal to the Excess Proceeds on such
date, at a purchase price equal to 100% of the principal amount of the
exchange notes, plus, in each case, accrued and unpaid interest to the date
of purchase less the product of:
(a) the Market Value per share of the Common Stock of World Access
and
(b) the number of shares (including any portion of a share) of such
Common Stock determined by dividing $50 by the Market Price of the
Common Stock for each $1,000 in principal amount of exchange notes
accepted for purchase by World Access ("Excess Proceeds Payment").
World Access shall commence an Offer to Purchase or an Excess Proceeds
Offer by mailing a notice to the Trustee and each holder stating:
(1) that the Offer to Purchase or Excess Proceeds Offer, as
applicable, is being made pursuant to this "Limitation on Asset Sales"
covenant and that all exchange notes validly tendered will be accepted for
payment on a pro rata basis;
(2) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date
such notice is mailed) (the "Offer Payment Date");
(3) that any exchange note not tendered will continue to accrue
interest pursuant to its terms;
(4) that, unless World Access defaults in the payment of the Offer to
Purchase Payment or the Excess Proceeds Payment, as applicable, any
exchange note accepted for payment pursuant to the Offer to Purchase or
Excess Proceeds Offer, as applicable, shall cease to accrue interest on and
after the applicable Offer Payment Date;
(5) that holders electing to have an exchange note purchased pursuant
to the Offer to Purchase or the Excess Proceeds Offer, as applicable, will
be required to surrender the exchange note, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the
exchange note completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the Business Day immediately
preceding the applicable Offer Payment Date;
(6) that holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the applicable Offer Payment Date, a
telegram, facsimile transmission or letter setting forth the name of such
holder, the principal amount of exchange notes delivered for purchase and a
statement that such holder is withdrawing his election to have such
exchange notes purchased; and
(7) that holders whose exchange notes are being purchased only in part
will be issued new exchange notes equal in principal amount to the
unpurchased portion of the exchange notes surrendered; provided that each
exchange note purchased and each new exchange note issued shall be in a
principal amount of $1,000 or integral multiples thereof.
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On the applicable Offer Payment Date, World Access shall:
(1) accept for payment on a pro rata basis exchange notes or portions
thereof tendered pursuant to the Offer to Purchase or the Excess Proceeds
Offer, as applicable;
(2) deposit with the Paying Agent money sufficient to pay the purchase
price of all exchange notes or portions thereof so accepted; and
(3) deliver, or cause to be delivered, to the Trustee all exchange
notes or portions thereof so accepted together with an Officers'
Certificate specifying the exchange notes or portions thereof accepted for
payment by World Access.
The Paying Agent shall promptly mail to the holders of exchange notes so
accepted payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail to such holders a new note equal in principal
amount to any unpurchased portion of the exchange note surrendered; provided
that each exchange note purchased and each new exchange note issued shall be in
a principal amount of $1,000 or integral multiples thereof. With respect to any
Excess Proceeds Offer, to the extent that the aggregate principal amount of
exchange notes tendered is less than the Excess Proceeds, World Access may use
any remaining Excess Proceeds for general corporate purposes. World Access will
publicly announce the results of the Excess Proceeds Offer as soon as
practicable after the Offer Payment Date. For purposes of this "Limitation on
Asset Sales" covenant, the Trustee shall act as the Paying Agent.
World Access will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that the Company undertakes an Offer to
Purchase or Excess Proceeds Offer under this "Limitation on Asset Sales"
covenant. (Section 1017)
LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY RESTRICTED
SUBSIDIARIES
World Access will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee, assume or in any other manner become liable with
respect to any Indebtedness of World Access, other than Indebtedness under
Credit Facilities incurred under clause (3) of paragraph (b) in the "Limitation
on Indebtedness" covenant, unless:
(a) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the indenture providing for a Guarantee of the
exchange notes on terms substantially similar to the guarantee of such
Indebtedness, except that if such Indebtedness is by its express terms
subordinated in right of payment to the exchange notes, any such
assumption, Guarantee or other liability of such Restricted Subsidiary with
respect to such Indebtedness shall be subordinated in right of payment to
such Restricted Subsidiary's assumption, Guarantee or other liability with
respect to the exchange notes substantially to the same extent as such
Indebtedness is subordinated to the exchange notes and
(b) such Restricted Subsidiary waives, and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against World
Access or any other Restricted Subsidiary as a result of any payment by
such Restricted Subsidiary under its Guarantee.
Notwithstanding the foregoing, any Guarantee by a Restricted Subsidiary may
provide by its terms that it will be automatically and unconditionally released
and discharged upon:
(1) any sale, exchange or transfer, to any Person not an Affiliate of
World Access, of all of World Access' and each Restricted Subsidiary's
Capital Stock in, or all or substantially all of the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited
by the indenture) or
(2) the release or discharge of the guarantee which resulted in the
creation of such Guarantee, except a discharge or release by or as a result
of payment under such Guarantee. (Section 1018)
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BUSINESS OF WORLD ACCESS; RESTRICTION ON TRANSFERS OF EXISTING BUSINESS
World Access will not, and will not permit any Restricted Subsidiary to, be
principally engaged in any business or activity other than a Permitted Business.
In addition, World Access and any Restricted Subsidiary will not be permitted
to, directly or indirectly, transfer to any Unrestricted Subsidiary
(1) any of the licenses, material agreements or instruments, permits
or authorizations used in the Permitted Business of World Access and any
Restricted Subsidiary on the Exchange Date or
(2) any material portion of the "property and equipment" (as such term
is used in World Access' consolidated financial statements) of World Access
or any Restricted Subsidiary used in the licensed service areas of World
Access and any Restricted Subsidiary as they exist on the Exchange Date.
(Section 1019)
LIMITATION ON INVESTMENTS IN UNRESTRICTED SUBSIDIARIES
World Access will not make, and will not permit any of its Restricted
Subsidiaries to make, any Investments in Unrestricted Subsidiaries if, at the
time thereof, the aggregate amount of such Investments together with any other
Restricted Payments made after the Exchange Date would exceed the amount of
Restricted Payments then permitted to be made pursuant to the "Limitation on
Restricted Payments" covenant. Any Investments in Unrestricted Subsidiaries
permitted to be made pursuant to this covenant
(1) will be treated as the making of a Restricted Payment in
calculating the amount of Restricted Payments made by World Access or a
Subsidiary and
(2) may be made in cash or property (if made in property, the Fair
Market Value thereof as determined by the Board of Directors of World
Access (whose determination shall be conclusive and evidenced by a Board
Resolution) shall be deemed to be the amount of such Investment for the
purpose of clause (1)). (Section 1020)
PROVISION OF FINANCIAL STATEMENTS AND REPORTS
World Access will file on a timely basis with the Commission, to the extent
such filings are accepted by the Commission and whether or not World Access has
a class of securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that World Access would be required to
file if it were subject to Section 13 or 15 of the Exchange Act. All such annual
reports shall include the geographic segment financial information required to
be disclosed by World Access under Item 101(d) of Regulation S-K under the
Securities Act. World Access will also be required
(a) to file with the Trustee, and provide to each holder, without cost
to such holder, copies of such reports and documents within 15 days after
the date on which World Access files such reports and documents with the
Commission or the date on which World Access would be required to file such
reports and documents if World Access were so required and
(b) if filing such reports and documents with the Commission is not
accepted by the Commission or is prohibited under the Exchange Act, to
supply at World Access' cost copies of such reports and documents to any
prospective holder promptly upon request. (Section 1009)
REPURCHASE OF EXCHANGE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder shall have the
right to require World Access to repurchase all or any part of its exchange
notes at a purchase price in cash pursuant to the offer described below (the
"Change of Control Offer") equal to 101.0% of the principal amount thereof, plus
accrued and unpaid interest to the date of purchase (subject to the right of
holders of record to receive interest on the relevant Interest Payment Date)
(the "Change of Control Payment").
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Within 30 days of the Change of Control, World Access will mail a notice to
the Trustee and each holder in the manner provided in the indenture stating,
among other things:
(1) that a Change of Control has occurred, that the Change of Control
Offer is being made pursuant to this "Repurchase of Exchange Notes upon a
Change of Control" covenant and that all validly tendered will be accepted
for payment;
(2) the circumstances and relevant facts regarding such Change of
Control (including but not limited to information with respect to pro forma
historical income, cash flow and capitalization after giving effect to such
Change of Control);
(3) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date
such notice is mailed) (the "Change of Control Payment Date");
(4) that any exchange note not tendered will continue to accrue
interest pursuant to its terms;
(5) that, unless World Access defaults in the payment of the Change of
Control Payment, any exchange note accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest on and after the
Change of Control Payment Date;
(6) that holders electing to have any note or portion thereof
purchased pursuant to the Change of Control Offer will be required to
surrender such exchange note, together with the form entitled "Option of
the Holder to Elect Purchase" on the reverse side of such exchange note
completed, to the Paying Agent at the address specified in the notice prior
to the close of business on the Business Day immediately preceding the
Change of Control Payment Date;
(7) that holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Change of Control Payment Date, a
telegram, facsimile transmission or letter setting forth the name of such
holder, the principal amount of exchange notes delivered for purchase and a
statement that such holder is withdrawing his election to have such
exchange notes purchased; and
(8) that holders whose exchange notes are being purchased only in part
will be issued new exchange notes equal in principal amount to the
unpurchased portion of the exchange notes surrendered; provided that each
note purchased and each new note issued shall be in a principal amount of
$1,000 or integral multiples thereof.
On the Change of Control Payment Date, World Access shall:
(a) accept for payment exchange notes or portions thereof tendered
pursuant to the Change of Control Offer;
(b) deposit with the Paying Agent money sufficient to pay the purchase
price of all exchange notes or portions thereof so accepted; and
(c) deliver, or cause to be delivered, to the Trustee, all exchange
notes or portions thereof so accepted together with an Officer's
Certificate specifying the exchange notes or portions thereof accepted for
payment by World Access.
The Paying Agent shall promptly mail, to the holders of exchange notes so
accepted, payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such holders a new exchange note equal
in principal amount to any unpurchased portion of the exchange notes
surrendered; provided that each exchange note purchased and each new exchange
note issued shall be in a principal amount of $1,000 or integral multiples
thereof. World Access will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date. For purposes of this "Repurchase of Exchange Notes upon a Change of
Control" covenant, the Trustee shall act as Paying Agent.
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World Access shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes a Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by World Access and purchases all
exchange notes validly tendered and not withdrawn under such Change of Control
Offer.
World Access will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs and
World Access is required to repurchase the exchange notes under this "Repurchase
of Exchange Notes upon a Change of Control" covenant. (Section 1010)
If World Access is unable to repay all of its Indebtedness that would
prohibit repurchase of the exchange notes or is unable to obtain the consents of
the holders of Indebtedness, if any, of World Access outstanding at the time of
a Change of Control whose consent would be so required to permit the repurchase
of exchange notes, then World Access will have breached such covenant. This
breach will constitute an Event of Default under the indenture if it continues
for a period of 30 consecutive days after written notice is given to World
Access by the Trustee or the holders of at least 25.0% in aggregate principal
amount of the exchange notes outstanding. In addition, the failure by World
Access to repurchase exchange notes at the conclusion of the Change of Control
Offer will constitute an Event of Default without any waiting period or notice
requirements.
There can be no assurances that World Access will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of exchange notes) required by the foregoing covenant (as
well as may be contained in other securities or Indebtedness of World Access
which might be outstanding at the time). The above covenant requiring World
Access to repurchase the exchange notes will, unless the consents referred to
above are obtained, require World Access to repay all Indebtedness then
outstanding which by its terms would prohibit such note repurchase, either prior
to or concurrently with such note repurchase.
CONSOLIDATION, MERGER AND SALE OF ASSETS
World Access will not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into World Access and World Access will not permit any
of its Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in the sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of World
Access or World Access and its Restricted Subsidiaries, taken as a whole, to any
other Person or Persons, unless:
(1) (A) either World Access will be the continuing Person, (B) the
Person (if other than World Access) formed by such consolidation or into
which World Access is merged or that acquired or leased such property and
assets of World Access will be a corporation organized and validly existing
under the laws of the United States of America or any jurisdiction thereof
and shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, all of the obligations of World Access with
respect to the exchange notes and under the indenture, or (C) in the case
of any such transaction or series of transactions entered into by any
Restricted Subsidiary, the Person into which the Restricted Subsidiary is
merged is another Restricted Subsidiary;
(2) immediately after giving effect to such transaction on a pro forma
basis, no Default or Event of Default shall have occurred and be
continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis, World Access, or any Person becoming the successor obligor of the
exchange notes, shall have a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of World Access immediately prior to such
transaction;
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(4) immediately after giving effect to such transaction on a pro forma
basis, World Access, or any Person becoming the successor obligor of the
exchange notes, as the case may be, could Incur at least $1.00 of
Indebtedness under paragraph (a) of the "Limitation on Indebtedness"
covenant; and
(5) World Access delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
clauses (3) and (4)) and an Opinion of Counsel, in each case stating that
such consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided for
herein relating to such transaction have been complied with;
provided, however, that clauses (3) and (4) above do not apply if, in the good
faith determination of the Board of Directors of World Access, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of World Access; and
provided further that any such transaction shall not have as one of its purposes
the evasion of the foregoing limitations. (Section 801)
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
indenture:
(a) default in the payment of interest on any exchange note when due
and payable as to any Interest Payment Date falling on or prior to January
15, 2001; or
(b) default in the payment of interest on any exchange note when due
and payable as to any Interest Payment Date following after January 15,
2001, and any such failure continued for a period of 30 days; or
(c) default in the payment of principal of (or premium, if any, on)
any exchange note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise; or
(d) default in the payment of principal or interest on any exchange
note required to be purchased pursuant to an Offer to Purchase or an Excess
Proceeds Offer as described under "Limitation on Asset Sales" or pursuant
to a Change of Control Offer as described under "Repurchase of Exchange
Notes upon a Change of Control"; or
(e) failure to perform or comply with the provisions described under
"Consolidation, Merger and Sale of Assets"; or
(f) default in the performance of or breach of any other covenant or
agreement of World Access in the indenture or under the exchange notes
(other than a default in the performance, or breach, of a covenant or
agreement which is specifically dealt with elsewhere in the "Events of
Default" section) and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the holders of
25.0% or more in aggregate principal amount of the exchange notes then
outstanding; or
(g) there occurs with respect to any issue or issues of Indebtedness
of World Access or any Restricted Subsidiary having an outstanding
principal amount of $5.0 million or more in the aggregate for all such
issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created:
(x) an event of default that has caused the holder thereof to
declare such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled by expiration of any
applicable grace period and/or
(y) the failure to make a principal payment at the final (but not
any interim) fixed maturity date thereon and such defaulted payment
shall not have been made, waived or extended by the expiration of any
applicable grace period; or
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(h) any final judgment or order (not covered by insurance) for the
payment of money in excess of $5.0 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against World Access or any Restricted Subsidiary and shall not be
paid or discharged, and there shall be any period of 30 consecutive days
following entry of the final judgment or order that causes the aggregate
amount for all such final judgments or orders outstanding and not paid or
discharged against all such Persons to exceed $5.0 million during which a
stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(i) a court having jurisdiction in the premises enters a decree or
order for
(A) relief in respect of World Access or any of its Significant
Subsidiaries in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect,
(B) appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of World Access or any of its
Significant Subsidiaries or for all or substantially all of the property
and assets of World Access or any of its Significant Subsidiaries or
(C) the winding up or liquidation of the affairs of World Access or
any of its Significant Subsidiaries and, in each case, such decree or
order shall remain unstayed and in effect for a period of 30 consecutive
days; or
(j) World Access or any of its Significant Subsidiaries
(A) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents
to the entry of an order for relief in an involuntary case under any
such law,
(B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of World Access or any of its Significant Subsidiaries
or for all or substantially all of the property and assets of World
Access or any of its Significant Subsidiaries or
(C) effects any general assignment for the benefit of creditors; or
(k) World Access asserts in writing that the Pledge Agreement ceases
to be in full force and effect before payment in full of the obligations
thereunder. (Section 501)
If an Event of Default (other than an Event of Default specified in clause
(i) or (j) above) occurs and is continuing under the indenture, the Trustee or
the holders of at least 25.0% in aggregate principal amount of the exchange
notes then outstanding, by written notice to World Access (and to the Trustee if
such notice is given by the holders), may, and the Trustee at the request of
such holders shall, declare the principal of, premium, if any, accrued and
unpaid interest on the exchange notes to be immediately due and payable. Upon a
declaration of acceleration, such principal of, premium, if any, and accrued
interest shall become immediately due and payable. In the event of a declaration
of acceleration because an Event of Default set forth in clause (g) above has
occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the default triggering such Event of
Default pursuant to clause (g) shall be remedied or cured by World Access and/or
the relevant Significant Subsidiaries or waived by the holders of the relevant
Indebtedness within 60 days after the declaration of acceleration with respect
thereto. If an Event of Default specified in clause (i) or (j) above occurs, the
principal of, premium, if any, and accrued interest on the exchange notes then
outstanding shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holder. The
holders of at least a majority in aggregate principal amount of the outstanding
exchange notes,
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by written notice to World Access and to the Trustee, may waive all past
defaults and rescind and annul a declaration of acceleration and its
consequences if
(1) all existing Events of Default, other than the nonpayment of the
principal of, premium, if any, accrued and unpaid interest on the exchange
notes that have become due solely by such declaration of acceleration, have
been cured or waived (subject to certain limitations) and
(2) the rescission, in the opinion of counsel, would not conflict with
any judgment or decree of a court of competent jurisdiction.
For information as to the waiver of defaults, see "-- Modification and Waiver."
(Section 502)
The holders of at least a majority in aggregate principal amount of the
outstanding exchange notes may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of holders of exchange notes not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from holders of exchange
notes. No holder may pursue any remedy with respect to the indenture or the
exchange notes unless:
(1) the holder gives the Trustee written notice of a continuing Event
of Default;
(2) the holders of at least 25.0% in aggregate principal amount of
outstanding exchange notes make a written request to the Trustee to pursue
the remedy;
(3) such holder or holders offer the Trustee indemnity satisfactory to
the Trustee against any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the holders of a majority in aggregate
principal amount of the outstanding exchange notes do not give the Trustee
a direction that is inconsistent with the request.
However, such limitations do not apply to the right of any holder of an exchange
note to receive payment of the principal of, premium, if any, or interest on,
such note or to bring suit for the enforcement of any such payment, on or after
the due date expressed in the exchange notes, which right shall not be impaired
or affected without the consent of the holder. (Sections 507, 508 and 512)
The indenture will require certain officers of World Access to certify, on
or before a date not more than 120 days after the end of each fiscal year, that
a review has been conducted of the activities of World Access and World Access'
performance under the indenture and that World Access has fulfilled all
obligations thereunder or, if there has been a default in the fulfillment of any
such obligation, specifying each such default and the nature and status thereof.
World Access will also be obligated to notify the Trustee of any default or
defaults in the performance of any covenants or agreements under the indenture.
For these purposes, such compliance shall be determined without regard to any
grace period or notice requirement under the indenture. (Section 1008)
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DEFEASANCE AND COVENANT DEFEASANCE OF INDENTURE
World Access may, at its option and at any time, elect to have the
obligations of World Access under the exchange notes discharged with respect to
the outstanding exchange notes ("defeasance"). Such defeasance means that World
Access will be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding exchange notes and to have satisfied all its
other obligations under such exchange notes and the indenture insofar as such
exchange notes are concerned except for:
(1) the rights of holders of outstanding exchange notes to receive
payments (solely from monies deposited in trust) in respect of the
principal of, premium, if any, and interest on such exchange notes when
such payments are due,
(2) World Access' obligations to issue temporary exchange notes,
register the transfer or exchange of any exchange notes, replace mutilated,
destroyed, lost or stolen exchange notes, maintain an office or agency for
payments in respect of the exchange notes and segregate and hold such
payments in trust,
(3) the rights, powers, trusts, duties and immunities of the Trustee
and
(4) the defeasance provisions of the indenture.
Alternatively, World Access may, at its option and at any time, elect to have
the obligations of World Access released with respect to certain covenants and
other provisions set forth in the indenture, and any omission to comply with
such obligations will not constitute a Default or an Event of Default with
respect to the exchange notes ("covenant defeasance"). (Sections 1301, 1302 and
1303)
In order to exercise either defeasance or covenant defeasance:
(a) World Access must irrevocably deposit or cause to be deposited
with the Trustee, as trust funds in trust, specifically pledged as security
for, and dedicated solely to, the benefit of the holders of the exchange
notes, cash in United States dollars, U.S. Government Obligations (as
defined in the indenture), or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge (i) the principal of,
premium, if any, and interest on the outstanding exchange notes on the
Stated Maturity (or upon redemption, if applicable) of such principal,
premium, if any, or installment of interest and (ii) any mandatory sinking
fund payments or similar payments applicable to the outstanding exchange
notes on the day on which such payments are due and payable;
(b) no Default or Event of Default with respect to the exchange notes
will have occurred and be continuing on the date of such deposit or,
insofar as an event of bankruptcy under clause (i) or (j) of "Events of
Default" above is concerned, at any time during the period ending on the
123rd day after the date of such deposit;
(c) such defeasance or covenant defeasance will not result in a breach
or violation of, or constitute a default under any material agreement or
instrument (other than the indenture) to which World Access is a party or
by which it is bound;
(d) in the case of defeasance, World Access shall have delivered to
the Trustee an Opinion of Counsel stating that World Access has received
from, or there has been published by, the Internal Revenue Service a
ruling, or since January 15, 1998, there has been a change in applicable
federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that, the holders of the outstanding
exchange notes will not recognize income, gain or loss for federal income
tax purposes as a result of such defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance had not occurred;
(e) in the case of covenant defeasance, World Access shall have
delivered to the Trustee an Opinion of Counsel to the effect that the
holders of the exchange notes outstanding will not recognize income, gain
or loss for federal income tax purposes as a result of such covenant
defeasance and will
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be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such covenant
defeasance had not occurred; and
(f) World Access shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance or the covenant
defeasance, as the case may be, have been complied with. (Section 1304)
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
exchange notes, as expressly provided for in the indenture) as to all
outstanding exchange notes when:
(1) either:
(A) all the exchange notes theretofore authenticated and delivered
(except lost, stolen or destroyed exchange notes which have been
replaced or repaid and exchange notes for whose payment money has
theretofore been deposited in trust or segregated and held by World
Access and thereafter repaid to World Access or discharged from such
trust) have been delivered to the Trustee for cancellation or
(B) all exchange notes not theretofore delivered to the Trustee for
cancellation (except lost, stolen or destroyed exchange notes which have
been replaced or paid) (i) have become due and payable (ii) will become
due and payable at their Stated Maturity within 1 year or (iii) are to
be called for redemption within 1 year under arrangements satisfactory
to the Trustee, and in the case of (i), (ii) or (iii), World Access has
irrevocably deposited or caused to be deposited with the Trustee funds
in an amount sufficient to pay and discharge the entire Indebtedness on
the exchange notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on the
exchange notes to the date of deposit together with irrevocable
instructions from World Access directing the Trustee to apply such funds
to the payment thereof at maturity or redemption, as the case may be;
(2) World Access had paid all other sums payable under the indenture
by World Access; and
(3) World Access has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel stating that all conditions precedent under the
indenture relating to the satisfaction and discharge of the indenture have
been complied with.
MODIFICATION, WAIVER AND AMENDMENT
Modifications and amendments of the indenture may be made by World Access
and the Trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding exchange notes; provided, however,
that no such modification or amendment may, without the consent of each holder
affected thereby:
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any exchange note,
(2) reduce the principal amount of, or premium, if any, or interest on
any exchange note or extend the time for payment of interest on, or alter
the redemption provisions of, any exchange note,
(3) change the place or currency of payment of principal of, or
premium, if any, or interest on any exchange note,
(4) impair the right of any holder of the exchange notes to receive
payment of, principal of and interest on such holder's exchange notes on or
after the due dates therefor or to institute suit for the enforcement of
any payment on or after the Stated Maturity (or, in the case of a
redemption, on or after the Redemption Date) of any exchange note,
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(5) reduce the above-stated percentage of outstanding exchange notes
the consent of whose holders is necessary to modify, amend, waive,
supplement or consent to take any action under the indenture or the
exchange notes,
(6) waive a default in the payment of principal of, premium, if any,
or accrued and unpaid interest on the exchange notes,
(7) reduce or change the rate or time for payment of interest on the
exchange notes,
(8) modify any provisions of any Guarantees in a manner adverse to the
holders of the exchange notes or
(9) reduce the percentage or aggregate principal amount of outstanding
exchange notes the consent of whose holders is necessary for waiver of
compliance with certain provisions of the indenture or for waiver of
certain defaults.
Compliance with certain provisions of the indenture may be waived with the
consent of the holders of not less than a majority in aggregate principal amount
of the outstanding exchange notes.
GOVERNING LAW AND SUBMISSION TO JURISDICTION
The exchange notes and the indenture are governed and construed in
accordance with the laws of the State of New York. World Access submits to the
jurisdiction of the U.S. federal and New York state courts located in the
Borough of Manhattan, City and State of New York for purposes of all legal
actions and proceedings instituted in connection with the exchange notes and the
indenture.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of World Access, to obtain payment of claims in
certain cases or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if the Trustee acquires any conflicting
interest, it must eliminate such conflict as soon as practicable, but in any
event within 90 days.
The holders of a majority in aggregate principal amount of the outstanding
exchange notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the indenture
at the request of any holder of exchange notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the indenture. Reference is made to the
indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Acquired Indebtedness" is defined to mean Indebtedness of a Person
existing at the time such Person becomes a Restricted Subsidiary or assumed in
connection with an Asset Acquisition by World Access or a Restricted Subsidiary
and not incurred in connection with, or in anticipation of, such Person becoming
a Restricted Subsidiary or such Asset Acquisition; provided that Indebtedness of
such Person which is redeemed, defeased, retired or otherwise repaid at the time
of or immediately upon the consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such Asset Acquisition shall not be
considered as Indebtedness.
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"Affiliate" is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" is defined to mean:
(1) an investment by World Access or any of its Restricted
Subsidiaries in any other Person pursuant to which such Person shall become
a Restricted Subsidiary of World Access or shall be merged into or
consolidated with World Access or any of its Restricted Subsidiaries or
(2) an acquisition by World Access or any of its Restricted
Subsidiaries of the property and assets of any Person (other than World
Access or any of its Restricted Subsidiaries) that constitute substantially
all of a division or line of business of such Person.
"Asset Disposition" is defined to mean the sale or other disposition by
World Access or any of its Restricted Subsidiaries (other than to World Access
or another Restricted Subsidiary of World Access) of:
(1) all or substantially all of the Capital Stock of any Restricted
Subsidiary of World Access or
(2) all or substantially all of the assets that constitute a division
or line of business of World Access or any of its Restricted Subsidiaries.
"Asset Sale" is defined to mean any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback transactions) in
one transaction or a series of related transactions by World Access or any of
its Restricted Subsidiaries to any Person (other than World Access or any of its
Restricted Subsidiaries) of:
(1) all or any of the Capital Stock of any Restricted Subsidiary
(other than in respect of any director's qualifying shares or investments
by foreign nationals mandated by applicable law),
(2) all or substantially all of the property and assets of an
operating unit or business of World Access or any of its Restricted
Subsidiaries or
(3) any other property and assets of World Access or any of its
Restricted Subsidiaries outside the ordinary course of business of World
Access or such Restricted Subsidiary
and, in each case, that is not governed by the provisions of the indenture
applicable to mergers, consolidations and sales of assets of World Access and
which, in the case of any of clause (1), (2) or (3) above, whether in one
transaction or a series of related transactions,
(a) have a Fair Market Value in excess of $1.0 million or
(b) are for net proceeds in excess of $1.0 million;
provided that sales or other dispositions of inventory, receivables and other
current assets in the ordinary course of business shall not be included within
the meaning of "Asset Sale."
"Attributable Value" is defined to mean, as to any particular lease under
which any Person is at the time liable other than a Capitalized Lease
Obligation, and at any date as of which the amount thereof is to be determined,
the total net amount of rent required to be paid by such Person under such lease
during the remaining term thereof (whether or not such lease is terminable at
the option of the lessee prior to the end of such term), including any period
for which such lease has been, or may, at the option of the lessor, be extended,
discounted from the last date of such term to the date of determination at a
rate per annum equal to the discount rate which would be applicable to a
Capitalized Lease Obligation with like term in accordance with GAAP. The net
amount of rent required to be paid under any lease for any such period shall be
the aggregate amount of rent payable by the lessee with respect to such period
after excluding
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amounts required to be paid on account of insurance, taxes, assessments,
utility, operating and labor costs and similar charges. "Attributable Value"
means, as to a Capitalized Lease Obligation under which any Person is at the
time liable and at any date as of which the amount thereof is to be determined,
the capitalized amount thereof that would appear on the face of a balance sheet
of such Person in accordance with GAAP.
"Average Life" is defined to mean, with respect to any Indebtedness, as at
any date of determination, the quotient obtained by dividing
(1) the sum of the products of
(a) the number of years from such date to the date or dates of each
successive scheduled principal payment (including, without limitation,
any sinking fund requirements) of such Indebtedness and
(b) the amount of each such principal payment by
(2) the sum of all such principal payments.
"Board of Directors" is defined to mean the board of directors of World
Access or its equivalent, including managers of a limited liability company,
general partners of a partnership or trustees of a business trust, or any duly
authorized committee thereof.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated, whether voting or non-voting) in equity of such Person, whether now
outstanding or issued after the date of the indenture, including, without
limitation, all Common Stock and Preferred Stock.
"Capitalized Lease Obligation" is defined to mean any obligation under a
lease of (or other agreement conveying the right to use) any property (whether
real, personal or mixed) that is required to be classified and accounted for as
a capital lease obligation under GAAP, and, for the purpose of the indenture,
the amount of such obligation at any date shall be the capitalized amount
thereof at such date, determined in accordance with GAAP.
"Change of Control" is defined to mean such time as
(1) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of more than 50.0% of the
total voting power of the then outstanding Voting Stock of World Access on
a fully diluted basis;
(2) individuals who at the beginning of any period of two consecutive
calendar years constituted the Board of Directors (together with any
directors who are members of the Board of Directors on the date hereof and
any new directors whose election by the Board of Directors or whose
nomination for election by World Access's stockholders was approved by a
vote of at least two-thirds of the members of the Board of Directors then
still in office who either were members of the Board of Directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
the members of such board of directors then in office;
(3) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of World Access and
its Subsidiaries taken as a whole to any such "person" or "group" (other
than to World Access or a Restricted Subsidiary);
(4) the merger or consolidation of World Access with or into another
corporation or the merger of another corporation with or into World Access
in one or a series of related transactions with the effect that immediately
after such transaction any such "person" or "group" of persons or entities
shall have become the beneficial owner of securities of the surviving
corporation of such merger or
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consolidation representing a majority of the total voting power of the then
outstanding Voting Stock of the surviving corporation; or
(5) the adoption of a plan relating to the liquidation or dissolution
of World Access.
"Common Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated, whether voting or non-voting) of such Person's common stock, whether
now outstanding or issued after the date of the indenture, including, without
limitation, all series and classes of such common stock.
"Consolidated Cash Flow" is defined to mean, for any period, the sum of the
amounts for such period of
(1) Consolidated Net Income,
(2) Consolidated Interest Expense,
(3) income taxes, to the extent such amount was deducted in
calculating Consolidated Net Income (other than income taxes (either
positive or negative) attributable to extraordinary and non-recurring gains
or losses or sales of assets),
(4) depreciation expense, to the extent such amount was deducted in
calculating Consolidated Net Income,
(5) amortization expense, to the extent such amount was deducted in
calculating Consolidated Net Income, and
(6) all other non-cash items reducing Consolidated Net Income
(excluding any non-cash charge to the extent that it represents an accrual
of or reserve for cash charges in any future period), less all non-cash
items increasing Consolidated Net Income, all as determined on a
consolidated basis for World Access and its Restricted Subsidiaries in
conformity with GAAP.
"Consolidated Fixed Charges" is defined to mean, for any period,
Consolidated Interest Expense plus dividends declared and payable on Preferred
Stock.
"Consolidated Interest Expense" is defined to mean, for any period, the
aggregate amount of interest in respect of Indebtedness (including capitalized
interest, amortization of original issue discount on any Indebtedness and the
interest portion of any deferred payment obligation, calculated in accordance
with the effective interest method of accounting; all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Agreements;
and interest on Indebtedness that is Guaranteed or secured by World Access or
any of its Restricted Subsidiaries) and all but the principal component of
rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled
to be paid or to be accrued by World Access and its Restricted Subsidiaries
during such period.
"Consolidated Net Income" means, with respect to any Person, for any
period, the consolidated net income (or loss) of such Person and its Restricted
Subsidiaries for such period as determined in accordance with GAAP, adjusted, to
the extent included in calculating such net income, by excluding, without
duplication:
(1) all extraordinary gains or losses,
(2) net income (or loss) of any Person combined in such Person or one
of its Restricted Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination,
(3) gains or losses (on an after-tax basis) in respect of any Asset
Sales by such Person or one of its Restricted Subsidiaries,
(4) the net income of any Restricted Subsidiary of such Person to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is not at
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the time permitted, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulations applicable to that Restricted Subsidiary
or its stockholders,
(5) any gain or loss realized as a result of the cumulative effect of
a change in accounting principles,
(6) any amount paid or accrued as dividends on Preferred Stock of
World Access or Preferred Stock of any Restricted Subsidiary owned by
Persons other than World Access and any of its Restricted Subsidiaries and
(7) the net income (or loss) of any Person (other than net income (or
loss) attributable to a Restricted Subsidiary) in which any Person (other
than World Access or any of its Restricted Subsidiaries) has a joint
interest, except to the extent of the amount of dividends or other
distributions actually paid to World Access or any of its Restricted
Subsidiaries by such other Person during such period.
"Consolidated Net Worth" is defined to mean, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of World Access and its Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation), less any amounts attributable to Redeemable Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of treasury
stock and the principal amount of any promissory exchange notes receivable from
the sale of the Capital Stock of World Access or any of its Subsidiaries, each
item to be determined in conformity with GAAP (excluding the effects of foreign
currency exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52).
"Credit Facilities" is defined to mean one or more debt facilities or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing (including through
the sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Cumulative Consolidated Cash Flow" is defined to mean, for the period
beginning on the Exchange Date through and including the end of the last fiscal
quarter (taken as one accounting period) preceding the date of any proposed
Restricted Payment, Consolidated Cash Flow of World Access and its Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP.
"Cumulative Consolidated Fixed Charges" are defined to mean the
Consolidated Fixed Charges of World Access and its Restricted Subsidiaries for
the period beginning on the Exchange Date through and including the end of the
last fiscal quarter (taken as one accounting period) preceding the date of any
proposed Restricted Payment, determined on a consolidated basis in accordance
with GAAP.
"Cumulative Consolidated Interest Expense" is defined to mean, for the
period beginning on the Exchange Date through and including the end of the last
fiscal quarter (taken as one accounting period) preceding the date of any
proposed Restricted Payment, Consolidated Interest Expense of World Access and
its Restricted Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP.
"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement and any other arrangement and agreement designed to
provide protection against fluctuations in currency (or currency unit) values.
"Default" is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Eligible Accounts Receivable" is defined to mean the accounts receivable
(net of any reserves and allowances for doubtful accounts in accordance with
GAAP) of any Person that are not more than 60 days
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past their due date and that were entered into in the ordinary course of
business on normal payment terms as shown on the most recent consolidated
balance sheet of such Person filed with the Commission, all in accordance with
GAAP.
"Eligible Institution" is defined to mean a commercial banking institution
that has combined capital and surplus of not less than $500.0 million or its
equivalent in foreign currency, and has outstanding debt with a rating of "A-3"
or higher according to Moody's Investors Service, Inc., or "A-" or higher
according to Standard & Poor's Ratings Services (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)) at the time as of which any
investment or rollover therein is made.
"Event of Default" has the meaning set forth under "Events of Default"
herein.
"Exchange Date" means the date of the consummation of the registered
exchange offer under which holders of the FaciliCom Notes tendered such notes in
exchange for the exchange notes.
"FaciliCom Notes" means the 10 1/2% Series B Senior Notes due 2008 issued
by FaciliCom pursuant to the Original Indenture.
"FaciliCom Pledge Account" means an account established with the FaciliCom
Trustee in its name as trustee under the Original Indenture pursuant to the
terms of the FaciliCom Pledge Agreement.
"FaciliCom Pledge Agreement" means the Collateral Pledge and Security
Agreement, dated as of January 28, 1998, from FaciliCom to the FaciliCom Trustee
governing the FaciliCom Pledge Account and the disbursements of funds therefrom.
"FaciliCom Pledged Securities" means the securities purchased by FaciliCom
with the portion of the net proceeds from the original offering of the FaciliCom
Notes consisting of U.S. Government Obligations and which were deposited in the
FaciliCom Pledge Account pursuant to the FaciliCom Pledge Agreement.
"FaciliCom Trustee" means State Street Bank and Trust Company, as trustee
under the Original Indenture.
"Fair Market Value" is defined to mean, with respect to any asset or
property, the sale value that would be obtained in an arm's length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer under no compulsion to buy.
"GAAP" is defined to mean generally accepted accounting principles in the
United States as in effect from time to time, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession of the United States.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to take-
or-pay, or to maintain financial statement conditions or otherwise) or
(2) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness or other obligation of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in
part); provided that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"Incur" or "Incurrence" is defined to mean, with respect to any
Indebtedness, to incur, create, issue, assume, Guarantee or otherwise become
liable for or with respect to, or become responsible for, the
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payment of, contingently or otherwise, such Indebtedness, including an
Incurrence of Indebtedness by reason of the acquisition of more than 50.0% of
the Capital Stock of any Person; provided that neither the accrual of interest
nor the accretion of original issue discount shall be considered an Incurrence
of Indebtedness.
"Indebtedness" is defined to mean, with respect to any Person at any date
of determination (without duplication):
(1) all indebtedness of such Person for borrowed money,
(2) all obligations of such Person evidenced by bonds, debentures,
exchange notes or other similar instruments,
(3) all obligations of such Person in respect of letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto),
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services,
except Trade Payables,
(5) all obligations of such Person as lessee under Capitalized Lease
Obligations and the Attributable Value under any Sale-Leaseback Transaction
of such Person,
(6) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of
(A) the Fair Market Value of such asset at such date of
determination or
(B) the amount of such Indebtedness,
(7) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person,
(8) the maximum fixed redemption or repurchase price of Redeemable
Stock of such Person at the time of determination and
(9) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided:
(x) that the amount outstanding at any time of any Indebtedness issued
with original issue discount is the face amount of such Indebtedness less
the remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP and
(y) that Indebtedness shall not include any liability for federal,
state, local or other taxes.
"Interest Rate Agreement" is defined to mean interest rate swap agreements,
interest rate cap agreements, interest rate insurance, and other arrangements
and agreements designed to provide protection against fluctuations in interest
rates.
"Investment" in any Person is defined to mean any direct or indirect
advance, loan or other extension of credit (including, without limitation, by
way of Guarantee or similar arrangement; but excluding advances to customers in
the ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable on the balance sheet of World Access or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the account
or use of others), or any purchase or acquisition of Capital Stock, bonds,
notes,
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debentures or other similar instruments issued by, such Person. For purposes of
the definition of "Unrestricted Subsidiary," the "Limitation on Restricted
Payments" covenant and the "Limitation on Issuance and Sale of Capital Stock of
Restricted Subsidiaries" covenant described above,
(1) "Investment" shall include:
(a) the Fair Market Value of the assets (net of liabilities) of any
Restricted Subsidiary of World Access at the time that such Restricted
Subsidiary of World Access is designated an Unrestricted Subsidiary and
shall exclude the Fair Market Value of the assets (net of liabilities)
of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary of World Access and
(b) the Fair Market Value, in the case of a sale of Capital Stock
in accordance with the "Limitation on the Issuance and Sale of Capital
Stock of Restricted Subsidiaries" covenant such that a Person no longer
constitutes a Restricted Subsidiary, of the remaining assets (net of
liabilities) of such Person after such sale,
and shall exclude the Fair Market Value of the assets (net of liabilities)
of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary of World Access and
(2) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its Fair Market Value at the time of such transfer, in
each case as determined by the Board of Directors in good faith.
"Investment Grade Company" means a Person whose debt securities are rated
BBB- or higher by Standard & Poor's Ratings Service. Inc. or Baa3 or higher by
Moody's Investor Service, Inc. (or an equivalent rating by another nationally
recognized rating agency).
"Junior Preferred Stock" has the meaning set forth under "-- Limitation on
Restricted Payments."
"Lien" is defined to mean any mortgage, charge, pledge, security interest,
encumbrance, lien (statutory or other), hypothecation, assignment for security,
claim, or preference or priority or other encumbrance upon or with respect to
any property of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any agreement to
give any security interest).
"Market Price" means, on any given day, the average closing price of the
shares of World Access's Common Stock on the principal trading market of such
Common Stock over the five consecutive trading days up to and including the day
of such valuation.
"Market Value" means the average of the closing price of the applicable
security on such security's principal trading market over the five consecutive
trading days up to and including the trading day prior to the last full trading
day before the initiation of any Offer to Purchase described in clause (1)(B) of
the second paragraph under "-- Limitation on Asset Sales" or the time any
commitment to effect an Asset Sale is entered into as described under
"-- Limitation on Asset Sales."
"Marketable Securities" is defined to mean:
(1) U.S. Government Obligations which have a remaining weighted
average life to maturity of not more than one year from the date of
Investment therein;
(2) any time deposit account, money market deposit and certificate of
deposit maturing not more than 180 days after the date of acquisition
issued by, or time deposit of, an Eligible Institution;
(3) certificates of deposit, Eurodollar time deposits and bankers'
acceptances with maturity of 90 days or less and overnight bank deposits of
any financial institution that is organized under the laws of the United
States of America or any state hereof, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $300.0
million (or, to the extent non-United States dollar-denominated, the United
States Dollar Equivalent of such amount) and has
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outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act);
(4) commercial paper maturing not more than 180 days after the date of
acquisition issued by a corporation (other than an Affiliate of World
Access) with a rating, at the time as of which any investment therein is
made, of "P-1" or higher according to Moody's Investors Service, Inc., or
"A-1" or higher according to Standard & Poor's Ratings Services (or such
similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the
Securities Act));
(5) auction rate preferred securities whose rates are reset based on
market levels for a par security not more than 90 days after the date of
acquisition with a rating, at the time as of which any investment therein
is made, of "A-3" or higher according to Moody's Investors Service, Inc.,
or "A-" or higher according to Standard & Poor's Ratings Services (or such
similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the
Securities Act)) and issued by a corporation that is not an Affiliate of
World Access;
(6) any banker's acceptance or money market deposit accounts issued or
offered by an Eligible Institution;
(7) repurchase obligations with a term of not more than seven days for
U.S. Government Obligations entered into with an Eligible Institution; and
(8) any fund investing exclusively in investments of the types
described in clauses (1) through (7) above.
"Merger" means the merger of FaciliCom with and into World Access pursuant
to the Agreement and Plan of Merger dated August 17, 1999 between World Access
and FaciliCom.
"Net Cash Proceeds" is defined to mean
(a) with respect to any Asset Sale, the proceeds of such Asset Sale in
the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal,
but not interest, component thereof) when received in the form of cash or
cash equivalents (except to the extent such obligations are financed or
sold with recourse to World Access or any Restricted Subsidiary of World
Access) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of:
(1) brokerage commissions and other fees and expenses (including
fees and expenses of counsel and investment bankers) related to such
Asset Sale,
(2) provisions for all taxes payable as a result of such Asset Sale
without regard to the consolidated results of operations of World Access
and its Restricted Subsidiaries, taken as a whole (after taking into
account any available offsetting tax credits or deductions and any tax
sharing arrangements),
(3) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either:
(A) is secured by a Lien on the property or assets sold or
(B) is required to be paid as a result of such sale and
(4) appropriate amounts to be provided by World Access or any
Restricted Subsidiary of World Access as a reserve against any
liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP, and
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(b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the
extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent
such obligations are financed or sold with recourse to World Access or any
Restricted Subsidiary of World Access) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of
attorneys' fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultant and other fees
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Original Indenture" means the Indenture, dated as of January 28, 1998,
among FaciliCom and the FaciliCom Trustee, as supplemented by the First
Supplemental Indenture thereto, pursuant to which FaciliCom issued the FaciliCom
Notes.
"Original Issue Date" means January 28, 1998, the date FaciliCom issued the
FaciliCom Notes.
"Permitted Business" is defined to mean any business involving voice, data
and other telecommunications services or equipment.
"Permitted Investment" is defined to mean:
(1) an Investment in a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary or be
merged or consolidated with or into or transfer or convey all or
substantially all its assets to, World Access or a Restricted Subsidiary;
(2) any Investment in Marketable Securities or Pledged Securities;
(3) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP;
(4) loans or advances to officers and employees made in the ordinary
course of business that do not in the aggregate exceed $1.0 million at any
time outstanding;
(5) stock, obligations or securities received in satisfaction of
judgments;
(6) Investments in any Person received as consideration for Asset
Sales to the extent permitted under the "Limitation on Asset Sales"
covenant;
(7) Investments in any Person at any one time outstanding (measured on
the date each such Investment was made without giving effect to subsequent
changes in value) in an aggregate amount not to exceed the greater of:
(A) $15.0 million or
(B) 5.0% of World Access's total consolidated assets;
(8) Investments in deposits with respect to leases or utilities
provided to third parties in the ordinary course of business;
(9) Investments in Currency Agreements and Interest Rate Agreements on
commercially reasonable terms entered into by World Access or any of its
Restricted Subsidiaries in the ordinary course of business in connection
with the operation of the business of World Access or its Restricted
Subsidiaries; provided that such agreements do not increase the
Indebtedness of the obligor outstanding at any time other than as a result
of fluctuations in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable thereunder;
(10) repurchases or redemptions by World Access of Capital Stock from
officers and other employees of World Access or any of its Subsidiaries or
their authorized representatives upon the death, disability or termination
of employment of such individuals, in an aggregate amount not exceeding
$1.0 million in any calendar year and $3.0 million from the date of the
indenture; and
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(11) Investments in evidences of Indebtedness, securities or other
property received from another Person by World Access or any of its
Restricted Subsidiaries in connection with any bankruptcy proceeding or by
reason of a composition or readjustment of debt or a reorganization of such
Person or as a result of foreclosure, perfection or enforcement of any Lien
in exchange for evidences of Indebtedness, securities or other property of
such person held by World Access or any of its Subsidiaries, or for other
liabilities or obligations of such Person to World Access or any of its
Subsidiaries that were created, in accordance with the terms of the
indenture.
"Permitted Liens" is defined to mean:
(1) Liens for taxes, assessments, governmental charges or claims that
are being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made;
(2) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other similar Liens arising
in the ordinary course of business and with respect to amounts not yet
delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
(3) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(4) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment
of borrowed money);
(5) easements, rights-of-way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of World
Access or any of its Restricted Subsidiaries;
(6) Liens (including extensions and renewals thereof) upon real or
personal property purchased or leased after the Original Issue Date;
provided that
(a) such Lien is created solely for the purpose of securing
Indebtedness Incurred in compliance with the "Limitation on
Indebtedness" covenant
(x) to finance the cost (including the cost of design,
development, construction, acquisition, installation or integration)
of the item of property or assets subject thereto and such Lien is
created prior to, at the time of or within six months after the later
of the acquisition, the completion of construction or the
commencement of full operation of such property or
(y) to refinance any Indebtedness previously so secured,
(b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost and
(c) any such Lien shall not extend to or cover any property or
assets other than such item of property or assets and any improvements
on such item;
(7) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of World Access and its
Restricted Subsidiaries, taken as a whole;
(8) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of World Access or its
Restricted Subsidiaries relating to such property or assets;
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(9) any interest or title of a lessor in the property subject to any
Capitalized Lease Obligation or operating lease;
(10) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(11) Liens on property of, or on shares of stock or Indebtedness of,
any corporation existing at the time such corporation becomes, or becomes a
part of, any Restricted Subsidiary; provided that such Liens do not extend
to or cover any property or assets of World Access or any Restricted
Subsidiary other than the property or assets acquired and were not created
in contemplation of such transaction;
(12) Liens in favor of World Access or any Restricted Subsidiary;
(13) Liens arising from the rendering of a final judgment or order
against World Access or any Restricted Subsidiary of World Access that does
not give rise to an Event of Default;
(14) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof;
(15) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(16) Liens encumbering customary initial deposits and margin deposits
and other Liens that are either within the general parameters customary in
the industry or incurred in the ordinary course of business, in each case,
securing Indebtedness under Interest Rate Agreements and Currency
Agreements;
(17) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
World Access or any of its Restricted Subsidiaries in the ordinary course
of business in accordance with the past practices of World Access and its
Restricted Subsidiaries prior to the Exchange Date;
(18) Liens existing on the Original Issue Date or securing the
exchange notes or the FaciliCom notes or any Guarantee of the exchange
notes or the FaciliCom Notes;
(19) Liens granted after the Exchange Date on any assets or Capital
Stock of World Access or its Restricted Subsidiaries created in favor of
the holders;
(20) Liens securing Indebtedness which is incurred to refinance
secured Indebtedness which is permitted to be Incurred under clause (8) of
paragraph (b) of the "Limitation on Indebtedness" covenant; provided that
such Liens do not extend to or cover any property or assets of World Access
or any Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; and
(21) Liens securing Indebtedness under Credit Facilities incurred in
compliance with clause (3), or securing Indebtedness to finance the cost of
Telecommunications Assets under clause (4) of paragraph (b) of the
"Limitation on Indebtedness" covenant.
"Person" is defined to mean any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Pledge Account" is defined to mean an account established with the Trustee
pursuant to the terms of the Pledge Agreement for the deposit of the Pledged
Securities.
"Pledge Agreement" is defined to mean the Collateral Pledge and Security
Agreement, dated as of the date of the indenture, from World Access to the
Trustee, governing the Pledge Account and the disbursement of funds therefrom.
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"Pledged Securities" is defined to mean the FaciliCom Pledged Securities or
portion thereof which are to be released from the FaciliCom Pledge Account to
FaciliCom, and deposited in, the Pledge Account pursuant to the FaciliCom Pledge
Agreement.
"Preferred Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations, rights or other equivalents (however
designated, whether voting or non-voting) of such person's preferred or
preference stock, whether now outstanding or issued after the date of the
indenture, including, without limitation, all series and classes of such
preferred or preference stock.
"Pro Forma Consolidated Cash Flow" is defined to mean, for any period, the
Consolidated Cash Flow of World Access for such period calculated on a pro forma
basis to give effect to any Asset Disposition or Asset Acquisition not in the
ordinary course of business (including acquisitions of other Persons by merger,
consolidation or purchase of Capital Stock) during such period as if such Asset
Disposition or Asset Acquisition had taken place on the first day of such
period.
"Public Equity Offering" is defined to mean an underwritten primary public
offering of Common Stock of World Access pursuant to an effective registration
statement under the Securities Act.
"Redeemable Stock" is defined to mean any class or series of Capital Stock
of any Person that by its terms (or by the terms of any security into which it
is exchangeable) or otherwise is:
(1) required to be redeemed on or prior to the date that is 123 days
after the date of the Stated Maturity of the exchange notes,
(2) redeemable at the option of the holder of such class or series of
Capital Stock at any time on or prior to the date that is 123 days after
the date of the Stated Maturity of the exchange notes or
(3) convertible into or exchangeable for Capital Stock referred to in
clause (1) or (2) above or Indebtedness having a scheduled maturity on or
prior to the date that is 123 days after the date of the Stated Maturity of
the exchange notes;
provided that any Capital Stock that would not constitute Redeemable Stock but
for provisions thereof giving holders thereof the right to require such Person
to repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" occurring on or prior to the date that is 123 days
after the date of the Stated Maturity of the exchange notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Exchange Notes upon a Change of Control" covenants described
above and such Capital Stock specifically provides that such Person will not
repurchase or redeem any such stock pursuant to such provisions on or prior to
the date that is 123 days after the date of World Access's repurchase of such
exchange notes as are required to be repurchased pursuant to the "Limitation on
Asset Sales" and "Repurchase of Exchange Notes upon a Change of Control"
covenants described above.
"Restricted Subsidiary" is defined to mean any Subsidiary of World Access
other than an Unrestricted Subsidiary.
"Sale-Leaseback Transaction" of any person is defined to mean an
arrangement with any lender or investor or to which such lender or investor is a
party providing for the leasing by such person of any property or asset of such
person which has been or is being sold or transferred by such person after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangements may be terminated by the lessee
without payment of a penalty.
"Significant Subsidiary" is defined to mean a Restricted Subsidiary that is
a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under
the Securities Act and the Exchange Act.
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"Stated Maturity" is defined to mean,
(1) with respect to any debt security, the date specified in such debt
security as the fixed date on which the final installment of principal of
such debt security is due and payable and
(2) with respect to any scheduled installment of principal of or
interest on any debt security, the date specified in such debt security as
the fixed date on which such installment is due and payable.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association or other business entity including, without limitation,
partnerships and limited liability companies, of which more than 50.0% of the
outstanding Voting Stock is owned, directly or indirectly, by such Person and
one or more other Subsidiaries of such person.
"Telecommunications Assets" is defined to mean, with respect to any Person,
equipment used in the telecommunications business or ownership rights with
respect to IRUs, MAOUs or minimum investment units (or similar ownership
interests) in fiber optic cable and international or domestic telecommunications
switches or other transmission facilities (or Common Stock of a Person that
becomes a Restricted Subsidiary, the assets of which consist primarily of any
such Telecommunications Assets), in each case purchased or acquired through
Indebtedness, provided that such Indebtedness does not exceed the Fair Market
Value of such assets, by World Access or a Restricted Subsidiary after the
Original Issue Date.
"Total Equity Market Capitalization" of any Person means, as of any date of
determination, the product of:
(1) the aggregate number of outstanding shares of Common Stock of such
Person on such date on a fully-diluted basis and
(2) the average closing price of such Common Stock over the five
consecutive trading days immediately preceding such date.
If no closing price exists with respect to shares of any such class, the value
of such shares shall be determined by the Board of Directors in good faith and
evidenced by a resolution of the Board of Directors filed with the Trustee.
"Trade Payables" is defined to mean any accounts payable or any other
indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by World Access or any of its Restricted Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods and
services.
"Transaction Date" is defined to mean, with respect to the Incurrence of
any Indebtedness by World Access or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"United States Dollar Equivalent" is defined to mean, with respect to any
monetary amount in a currency other than the United States dollar, at any time
for the determination thereof, the amount of United States dollars obtained by
converting such foreign currency involved in such computation into United States
dollars at the spot rate for the purchase of United States dollars with the
applicable foreign currency as quoted by Reuters at approximately 11:00 a.m.
(New York City time) on the date not more than two business days prior to such
determination. For purposes of determining whether any Indebtedness can be
incurred (including Permitted Indebtedness), any Investment can be made and any
transaction described in the "Limitation on Transactions with Stockholders and
Affiliates" covenant can be undertaken (a "Tested Transaction"), the United
States Dollar Equivalent of such Indebtedness, Investment or transaction
described in the "Limitation on Transactions with Stockholders and Affiliates"
covenant will be determined on the date incurred, made or undertaken and no
subsequent change in the United States Dollar Equivalent shall cause such Tested
Transaction to have been incurred, made or undertaken in violation of the
indenture.
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"Unrestricted Subsidiary" is defined to mean
(1) any Subsidiary of World Access that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Restricted Subsidiary of World Access
(including any newly acquired or newly formed Subsidiary of World Access) to be
an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, World Access or any Restricted
Subsidiary; provided that
(A) the Subsidiary to be so designated has total assets of $1,000 or
less or
(B) if such Subsidiary has assets greater than $1,000, that such
designation would be permitted under the "Limitation on Restricted
Payments" covenant described above, and such Subsidiary is not liable,
directly or indirectly, with respect to any Indebtedness other than
Unrestricted Subsidiary Indebtedness.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary of World Access; provided that immediately after giving
effect to such designation:
(x) World Access could Incur $1.00 of additional Indebtedness under
the first paragraph of the "Limitation on Indebtedness" covenant described
above and
(y) no Default or Event of Default shall have occurred and be
continuing.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Unrestricted Subsidiary Indebtedness" is defined to mean any Indebtedness
of any Unrestricted Subsidiary:
(1) as to which neither World Access nor any Restricted Subsidiary is
directly or indirectly liable (by virtue of World Access or any such
Restricted Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect to, such Indebtedness) and
(2) which, upon the occurrence of a default with respect thereto, does
not result in, or permit any holder of any Indebtedness of World Access or
any Restricted Subsidiary to declare, a default of such Indebtedness of
World Access or any Restricted Subsidiary or cause the payment thereof to
be accelerated or payable prior to its Stated Maturity.
"U.S. Government Obligations" is defined to mean securities that are:
(x) direct obligations of the United States for the timely payment of
which its full faith and credit is pledged or
(y) obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States the timely payment of
which is unconditionally guaranteed as a full faith and credit obligation
by the United States,
which, in either case, are not callable or redeemable at the option of the
issuer thereof, and shall also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act), as custodian with respect to
any such U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian for the
account of the holder of such depository receipt, provided that (except as
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation evidenced
by such depository receipt.
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"Voting Stock" is defined to mean with respect to any person, Capital Stock
of any class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
person.
"World Access Charitable Trust" means that certain World Access Charitable
Trust dated August 19, 1999, by and between World Access Investment Corp., a
Delaware corporation and Clay C. Long, Esq., as trustee, in favor of World
Access Foundation, Inc., a Georgia nonprofit corporation.
BOOK-ENTRY, DELIVERY AND FORM
The exchange notes will initially be represented by one or more permanent
global exchange notes in definitive, fully registered book-entry form, without
interest coupons. The global exchange notes will be deposited on the Exchange
Date of the closing of the exchange offer with, or on behalf of, DTC and
registered in the name of DTC or a nominee of DTC. As described below under
"-- Certificated Exchange Notes," owners of beneficial interests in a global
exchange note may receive physical delivery of certificated exchange notes only
in the limited circumstances described therein.
The Global Exchange Notes. World Access expects that pursuant to
procedures established by DTC (1) upon deposit of the global exchange notes, DTC
or its custodian will credit, on its internal system, the corresponding
principal amount of global exchange notes to the respective accounts of persons
who have accounts with such depositary and (2) ownership of the global exchange
notes will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of the
notes, DTC or such nominee will be considered the sole owner or holder of the
global exchange notes represented by the applicable global exchange notes for
all purposes under the indenture. No beneficial owner of an interest in the
global exchange notes will be able to transfer such interest except in
accordance with DTC's applicable procedures in addition to those provided for
under the indenture with respect to the exchange notes.
Payments of the principal of, premium (if any) and interest on, the global
exchange notes will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of World Access, the Trustee or any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the global
exchange notes or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interest.
World Access expects that DTC or its nominee, upon receipt of any payment
of the principal of, premium (if any) and interest on, the global exchange
notes, will credit participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of such global
exchange note, as shown on the records of DTC or its nominee. World Access also
expects that payments by participants to owners of beneficial interests in any
such global exchange notes held through such participants will be governed by
standing instructions and customary practice, as is now the case with securities
held for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. The
laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Accordingly, the
ability to transfer interests in the exchange notes represented by a global
exchange note to such persons may be limited.
DTC has advised World Access that DTC will take any action permitted to be
taken by a holder of exchange notes (including the presentation of exchange
notes for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the applicable global
exchange note is credited and only in respect of the aggregate principal amount
of exchange notes as to which such participant or participants has or have given
such direction. However, if there is an Event of Default under
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the indenture, DTC will exchange the applicable global exchange note for
certificated notes, which it will distribute to its participants.
DTC has advised World Access as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. "Participants" include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global exchange notes among participants of DTC,
it is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither World Access nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Exchange Notes. If (1) World Access notifies the Trustee in
writing that the DTC is no longer willing or able to act as a depository and
World Access does not appoint a qualified successor within 90 days or (2) World
Access, at its option, notifies the Trustee in writing that it elects to cause
the issuance of exchange notes in definitive form under the indenture, then,
upon surrender by the relevant registered owner of its global exchange note,
certificated exchange notes in such form will be issued to each person that such
registered owner and DTC identify as the beneficial owner of the related
exchange notes. In addition, subject to certain conditions, any person having a
beneficial interest in the global exchange note may, upon request to the
Trustee, exchange such beneficial interest for exchange notes in the form of
certificated exchange notes. Upon any such issuance, the Trustee is required to
register such certificated exchange notes in the name of, and cause the same to
be delivered to, such person or persons (or the nominee of any thereof) in fully
registered form.
Neither World Access nor the Trustee shall be liable for any delay by the
related registered owner or DTC in identifying the beneficial owners of the
related exchange notes and each such person may conclusively rely on, and shall
be protected in relying on, instructions from such registered owner or of DTC
for all purposes (including with respect to the registration and delivery, and
the principal amount of the exchange notes to be issued).
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COMPARISON OF THE EXCHANGE NOTES AND THE FACILICOM NOTES
The following comparison of the exchange notes and the FaciliCom notes
summarizes the material differences between the exchange notes and the FaciliCom
notes and is not a complete description of all differences. See "Description of
the Exchange Notes" for a more complete discussion of the terms of the exchange
notes and the indenture. References in the following discussion to "World
Access" include the surviving company in the merger of World Access and
FaciliCom unless the context otherwise requires. Capitalized terms used in this
discussion have the meanings given to them in the indenture.
In connection with the exchange offer, World Access will enter into an
indenture with First Union National Bank, as trustee, pursuant to which the
exchange notes will be issued. The holders of the exchange notes will be
entitled to the benefits of the indenture, which will be substantially similar
to the FaciliCom indenture, under which the FaciliCom notes were issued.
Changes to the terms of the exchange notes as compared with the FaciliCom
notes include that the obligor under the exchange notes will be World Access,
Inc. and interest on the exchange notes will be payable at a rate of 13.25% per
annum.
In addition, as a result of the consummation of the merger of World Access
and FaciliCom, World Access would violate the "Limitation on Indebtedness,"
"Limitation on Restricted Payments," "Limitation on Transactions with
Stockholders and Affiliates," "Business of the Company; Restriction on Transfers
of Existing Business" and "Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenants contained in the FaciliCom
indenture. The differences discussed in paragraphs 1(b), 2, 3, 5 and 7 below
modify the covenants to the extent required to effect the proposed merger. In
addition, World Access believes that, after the merger, it would be in the best
interests of the combined enterprise if the resulting entity could have
additional flexibility under the "Limitation on Indebtedness" and "Limitation on
Asset Sales" covenants as described in paragraphs 1(a), 4(a) and 6 below. World
Access is also proposing to increase some of the redemption prices for the
exchange notes when redeemed at the option of World Access and to undertake an
offer to repurchase the exchange notes following some Asset Sales as described
in paragraph 4(b) below. Forms of these covenants as they are proposed to be
amended are included under "-- Text of Changes to the Indenture" below.
1. (a) The first change to the "Limitation on Indebtedness" covenant
modifies the exception for indebtedness incurred under one or more credit
facilities to the greater of:
(x) the sum of FaciliCom's existing credit facility ($35.0 million)
and World Access' existing credit facility ($100.00 million) and
(y) 80% of eligible accounts receivable.
The FaciliCom indenture permitted the incurrence of the greater of
(A) $35.0 million and
(B) 80% of eligible accounts receivable.
(b) The second change to the "Limitation on Indebtedness" covenant is the
inclusion of Indebtedness of World Access existing at the time of the merger
among the types of Indebtedness permitted to exist under the covenant.
2. The "Limitation on Restricted Payments" covenant would restrict the
payment of some dividends and distributions by World Access, subject to some
limited exceptions. World Access recently issued 50,000 shares of its Series A
preferred stock to The 1818 Fund for a purchase price of $50.0 million. In
addition, World Access recently acquired the assets of Comm/Net Holding
Corporation and its subsidiaries for a purchase price of approximately $27.0
million, consisting primarily of 23,174 shares of World Access' Series B
preferred stock. In addition, The 1818 Fund has an option to purchase up to
20,000 additional shares of Series A preferred stock for a purchase price of
$1,000 per share prior to June 30, 2000. Each share of preferred stock pays
dividends equal to 4.25% of the liquidation preference per annum. The dividend
payments payable on the outstanding shares of the Series A preferred stock and
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the Series B preferred stock, which are expected to total approximately $3.1
million per annum (approximately $4.0 million if The 1818 Fund exercises its
option), would not be permitted under the "Limitation on Restricted Payments"
covenant in the FaciliCom indenture. The change to this covenant allows World
Access to continue to make its dividend payments on these securities after the
merger. The "Limitation on Restricted Payments" covenant is also proposed to be
modified to permit the conversion of the Series A preferred stock, the Series B
preferred stock and Series C preferred stock to be issued in the merger into
World Access common stock in accordance with the terms of such preferred stock.
3. The "Limitation on Transactions with Stockholders and Affiliates"
covenant in the FaciliCom indenture would prohibit World Access from, among
other things, engaging in any transaction with a holder of 5% or more of any
class of capital stock of World Access (referred to in this description as a "5%
stockholder") or with an Affiliate of World Access unless certain conditions are
met. The 1818 Fund, after giving effect to the merger and related transactions,
will be a holder of approximately -% of the outstanding common stock of World
Access on a fully diluted basis (-% if the option described above is exercised)
and therefore a 5% stockholder. As a result, after completion of the merger, the
sale of the 20,000 shares of World Access' Series A preferred stock subject to
the option held by The 1818 Fund could violate the "Limitation on Transactions
with Stockholders and Affiliates" covenant.
In addition, World Access currently sells to and purchases from MCI
WorldCom, Inc. and its Affiliates telecommunications services and equipment in
the ordinary course of business. MCI WorldCom, as a result of the merger and
related transactions, will own approximately -% of World Access' outstanding
common stock on a fully diluted basis and will therefore be a 5% stockholder.
Under the changes to the "Limitation on Transactions with Stockholders and
Affiliates" covenant, the transactions described above will be exempted from the
prohibitions contained in this covenant. The "Limitation on Transactions with
Stockholders and Affiliates" covenant is also proposed to be modified to exempt
the issuance and sale by World Access of its common stock to its affiliates and
5% stockholders.
4. (a) Under the "Limitation on Asset Sales" covenant in the FaciliCom
indenture, World Access or any Restricted Subsidiary could only conduct Asset
Sales if, among other things, 80% of the consideration received was cash or cash
equivalents or the assumption of unsubordinated Indebtedness. In order to
provide additional flexibility for World Access to negotiate a sale of some of
its assets to large, well-capitalized telecommunications equipment
manufacturers, which could prefer to issue equity or other securities as
consideration, the changes to the "Limitation on Asset Sales" covenant would
include within consideration constituting cash or cash equivalents, securities,
notes or other obligations as long as those securities, notes or other
obligations are issued by an investment grade company with a total equity market
capitalization in excess of $25 billion and are converted within 180 days into
cash or cash equivalents.
(b) As part of the modifications to the "Limitation on Asset Sales"
covenant, World Access also proposes to include an obligation for it to make an
Offer to Purchase the exchange notes following an Asset Sale if it does not
apply the net cash proceeds from such sale to repay Indebtedness. This
obligation would only apply if the net cash proceeds from any individual sale
exceed $15 million and would expire once World Access has made, in the
aggregate, one or more Offers to Purchase for an aggregate principal amount of
exchange notes equal to the aggregate principal amount of exchange notes issued
on the exchange date. Any Offer to Purchase would be made at a purchase price of
100% of the principal amount of the exchange notes plus accrued and unpaid
interest less, for each $1,000 principal amount, the market value of the number
of shares of World Access common stock issued on the exchange date for each
$1,000 principal amount of FaciliCom notes exchanged. The purchase price for any
Excess Proceeds Offer following an Asset Sale would also be reduced by an amount
corresponding to the market value of the common stock.
5. The "Permitted Business" covenant in the FaciliCom indenture would
provide that World Access could engage only in a Permitted Business, which is
limited to telecommunications services. In addition to providing
telecommunications services, World Access develops, manufactures and markets a
variety of telecommunications products. As a result of the merger, World Access
would be in violation of the "Permitted Business" covenant as it appears in the
FaciliCom indenture. The definition of Permitted
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Business for the exchange notes, therefore, has been modified to include any
business involving telecommunications equipment as well as services.
6. The definition of "Telecommunications Assets" applicable to the exchange
notes has been modified to permit the acquisition of such assets by World Access
by means of Indebtedness. Under subsection (b)(iv) of the "Limitation on
Indebtedness" covenant in the indenture, World Access is permitted to incur
Indebtedness in order to, among other things, acquire Telecommunications Assets.
In the FaciliCom indenture, however, the definition of Telecommunications Assets
is limited to such assets purchased or acquired through Capital Lease
Obligations by FaciliCom or a Restricted Subsidiary. The indenture for the
exchange notes permits World Access greater flexibility by broadening the means
by which World Access can make such acquisitions to include Indebtedness, so
long as the amount of such Indebtedness does not exceed the Fair Market Value of
the assets so acquired.
7. The "Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries" covenant has been modified for the exchange notes to
exempt restrictions of World Access existing on the exchange date so that World
Access will not be in default under the indenture.
8. As noted above, some of the redemption prices for the exchange notes
when redeemed at the option of World Access have been increased as compared to
the FaciliCom notes.
TEXT OF CHANGES TO THE INDENTURE
Set forth below are the material provisions, covenants and definitions that
have been changed from the FaciliCom indenture. TEXT BEING ADDED IS IN BOLD AND
TEXT BEING DELETED IS IN BRACKETS. Additional technical and conforming changes
have also been made.
SECTION 1011. Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that the Company may
Incur Indebtedness if immediately thereafter the ratio of (i) the aggregate
principal amount (or accreted value, as the case may be) of Indebtedness of the
Company and its Restricted Subsidiaries on a consolidated basis outstanding as
of the Transaction Date to (ii) the Pro Forma Consolidated Cash Flow for the
preceding two full fiscal quarters multiplied by two, determined on a pro forma
basis as if any such Indebtedness had been Incurred and the proceeds thereof had
been applied at the beginning of such two fiscal quarters, would be greater than
zero and less than 5 to 1.
(b) The foregoing limitations of paragraph (a) of this covenant will not
apply to any of the following Indebtedness ("Permitted Indebtedness"), each of
which shall be given independent effect:
(i) Indebtedness of the Company evidenced by the Notes OR THE
FACILICOM NOTES;
(ii) Indebtedness of FaciliCom or any of its Restricted Subsidiaries
outstanding on the [Issue] EXCHANGE Date;
(iii) Indebtedness of the Company or any Restricted Subsidiary under
one or more Credit Facilities, in an aggregate principal amount at any one
time outstanding not to exceed the greater of (x) [$35] 135.0 million and
(y) 80% of Eligible Accounts Receivable at any one time outstanding,
subject to any permanent reductions required by any other terms of this
Indenture;
(iv) Indebtedness of the Company or any Restricted Subsidiary Incurred
to finance the cost (including the cost of design, development,
construction, acquisition, installation or integration) of
Telecommunications Assets;
(v) Indebtedness of a Restricted Subsidiary owed to and held by the
Company or another Restricted Subsidiary, except that (A) any transfer of
such Indebtedness by the Company or a Restricted Subsidiary (other than to
the Company or another Restricted Subsidiary) or (B) the sale, transfer or
other disposition by the Company or any Restricted Subsidiary of Capital of
a Restricted Subsidiary which is owed Indebtedness of another Restricted
Subsidiary shall, in each case, be an
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Incurrence of Indebtedness by such Restricted Subsidiary, subject to the
other provisions of this Indenture;
(vi) Indebtedness of the Company owed to and held by a Restricted
Subsidiary which is unsecured and subordinated in right to the payment and
performance to the obligations of the Company under this Indenture and the
Notes, except that the limitations of paragraph (a) of this Section 1011
shall apply to such Indebtedness at such time as (A) any transfer of such
Indebtedness by a Restricted Subsidiary (other than to another Restricted
Subsidiary) and (B) the sale, transfer or other disposition by the Company
or any Restricted Subsidiary of Capital Stock of a Restricted Subsidiary
which is owed such Indebtedness, subject to other provisions of this
Indenture;
(vii) Indebtedness of the Company or a Restricted Subsidiary issued in
exchange for, or the net proceeds of which are used to refinance (whether
by amendment, renewal, extension or refunding), then outstanding
Indebtedness of the Company or a Restricted Subsidiary, other than
Indebtedness Incurred under clauses (iii), (v), (vi), (viii), (ix), (xi)
and (xii) of this paragraph, and any refinancing thereof in an amount not
to exceed the amount so refinanced or refunded (plus premiums, accrued
interest, and reasonable fees and expenses); provided that such new
Indebtedness shall only be permitted under this clause (vii) if (A) in case
the Notes are refinanced in part or the Indebtedness to be refinanced is
pari passu with the Notes, such new Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such new
Indebtedness is issued, or remains outstanding, is expressly made pari
passu with, or subordinate in right of payment to, the remaining Notes, (B)
in case the Indebtedness to be refinanced is subordinated in right of
payment to the Notes, such new Indebtedness, by its terms or by the terms
of any agreement or instrument pursuant to which such new Indebtedness is
issued or remains outstanding is expressly made subordinate in right of
payment to the Notes at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes and (C) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does not
mature prior to the Stated Maturity of the Indebtedness to be refinanced or
refunded, and the Average Life of such new Indebtedness is at least equal
to the remaining Average Life of the Indebtedness to be refinanced or
refunded; and provided further that in no event may Indebtedness of the
Company be refinanced by means of any Indebtedness of any Restricted
Subsidiary pursuant to this clause (vii);
(viii) Indebtedness of (x) the Company not to exceed, at any one time
outstanding, 2.00 times the Net Cash Proceeds from the issuance and sale,
other than to a Subsidiary, of Common Stock (other than Redeemable Stock)
of the Company (less the amount of such proceeds used to make Restricted
Payments as provided in clause (iii) or (iv) of the second paragraph of
Section 1012) and (y) the Company or Acquired Indebtedness of a Restricted
Subsidiary not to exceed, at one time outstanding, the Fair Market Value of
any Telecommunications Assets acquired by the Company in exchange for
Common Stock of the Company issued after the [Issue] EXCHANGE Date;
provided, however, that in determining the Fair Market Value of any such
Telecommunications Assets so acquired, if the estimated Fair Market Value
of such Telecommunications Assets exceeds (A) $2.0 million (as estimated in
good faith by the Board Of Directors), then the Fair Market Value of such
Telecommunications Assets will be determined by a majority of the Board of
Directors of the Company, which determination will be evidenced by a
resolution thereof, and (B) $10.0 million (as estimated in good faith by
the Board of Directors), then the Company shall deliver the Trustee a
written appraisal as to the Fair Market Value of such Telecommunications
Assets prepared by a nationally recognized investment banking or public
accounting firm (or, if no nationally recognized investment banking or
public accounting firm is qualified to prepare such an appraisal, by a
nationally recognized appraisal firm); and provided further that such
Indebtedness does not mature prior to the Stated Maturity of the Notes and
the Average Life of such Indebtedness is longer than that of the Notes;
(ix) Indebtedness of the Company or any Restricted Subsidiary (A) in
respect of performance, surety or appeal bonds or letters of credit
supporting trade payables, in each case provided in the ordinary course of
business, (B) under Currency Agreements and Interest Rate Agreements
covering
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Indebtedness of the Company; provided that such agreements do not increase
the Indebtedness of the obligor outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or interest rates
or by reason of fees, indemnities and compensation payable thereunder, and
(C) arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of the
Company or any of its Restricted Subsidiaries pursuant to such agreements,
in any case Incurred in connection with the disposition of any business,
assets or Restricted Subsidiary of the Company (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business assets or Restricted Subsidiary for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds
actually received by the Company or any Restricted Subsidiary in connection
with such disposition;
(x) Indebtedness of the Company, to the extent that the net proceeds
thereof are promptly (A) used to repurchase Notes tendered in a Change of
Control Offer or (B) deposited to defease all of the Notes pursuant to
Article Thirteen;
(xi) Indebtedness of a Restricted Subsidiary represented by a
Guarantee of the Notes permitted by and made in accordance with Section
1018; [and]
(XII) INDEBTEDNESS OF THE COMPANY AND ITS SUBSIDIARIES EXISTING UPON
THE CONSUMMATION OF THE MERGER; AND
(xiii) Indebtedness of the Company or any Restricted Subsidiary in
addition to that permitted to be incurred pursuant to clauses (i) through
(xii) above in an aggregate principal amount not in excess of $10 million
(or, to the extent not denominated in United States dollars, the United
States Dollar Equivalent thereof) at any one time outstanding.
(c) For purposes of determining any particular amount of Indebtedness under
this Section 1011, Guarantees, Liens or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included; provided, however, that the foregoing
shall not in any way be deemed to limit the provisions of Section 1018. For
purposes of determining compliance with this Section 1011, in the event that an
item of Indebtedness meets the criteria of more than one of the types of
Indebtedness described in the above clauses, the Company, in its sole discretion
may, at the time of such Incurrence, (i) classify such item of Indebtedness
under and comply with either of paragraph (a) or (b) of this covenant (or any of
such definitions), as applicable, (ii) classify and divide such item of
Indebtedness into more than one of such paragraphs (or definitions), as
applicable, and (iii) elect to comply with such paragraphs (or definitions), as
applicable in any order.
SECTION 1012. Limitation on Restricted Payments.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, (i) (A) declare or pay any dividend or make any
distribution in respect of the Company's Capital Stock to the Holders thereof
(other than dividends or distributions payable solely in shares of Capital Stock
(other than Redeemable Stock) of the Company or in options, warrants or other
rights to acquire such shares of Capital Stock) or (B) declare or pay any
dividend or make any distribution in respect of the Capital Stock of any
Restricted Subsidiary to any Person other than dividends and distributions
payable to the Company or any Restricted Subsidiary or to all holders of Capital
Stock of such Restricted Subsidiary on a pro rata basis; (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of the Company
(including options, variants or other rights to acquire such shares of Capital
Stock) held by any Person or any shares of Capital Stock of any Restricted
Subsidiary (including options, warrants and other rights to acquire such shares
of Capital Stock) held by any Affiliate of the Company (other than a wholly
owned Restricted Subsidiary) or any holder (or any Affiliate thereof) of 5% or
more of the Company's Capital Stock; (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or other acquisition or retirement for value, of Indebtedness of the Company
that is subordinated in right of payment to the Notes; or (iv) make any
Investment, other than a Permitted Investment, in any Person (such payments or
any other actions described in clauses
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(i) through (iv) being collectively "Restricted Payments") if, at the time of,
and after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing;
(B) the Company could not Incur at least $1.00 of Indebtedness under
paragraph (a) of Section 1011; and
(C) the aggregate amount of all Restricted Payments declared or made
from and after the [Closing] EXCHANGE Date would exceed the sum of:
(1) Cumulative Consolidated Cash flow minus 200% of Cumulative
Consolidated Fixed Charges;
(2) 100% of the aggregate Net Cash Proceeds from the issue or sale
to a Person, which is not a Subsidiary of the Company, of Capital Stock
of the Company (other than Redeemable Stock) or of debt securities of
the Company which have been converted into or exchanged for such Capital
Stock (except to the extent such Net Cash Proceeds are used to Incur new
Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of
Section 1011); and
(3) to the extent any Permitted Investment that was made after the
[Closing] EXCHANGE Date is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (i) the cash return of capital with
respect to such Permitted Investment (less the cost of disposition, if
any) and (ii) the initial amount of such Permitted Investment.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the Notes
including a premium, if any, and accrued and unpaid interest [and Liquidated
Damages, if any,] with the net proceeds of, or in exchange for, Indebtedness
Incurred under clause (viii) of paragraph (b) of Section 1011; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company in
exchange for, or out of the Net Cash Proceeds of a substantially concurrent (A)
capital contribution to the Company or (B) offering of, shares of Capital Stock
(other than Redeemable Stock) of the Company (except to the extent such proceeds
are used to incur new Indebtedness outstanding pursuant to clause (viii) of
paragraph (b) of Section 1011); (iv) the Acquisition of Indebtedness of the
Company which is subordinated in right of payment to the Notes in exchange for,
or out of the proceeds of, a substantially concurrent (A) capital contribution
to the Company or (B) offering of, shares of the Capital Stock of the Company
(other than Redeemable Stock) (except to the extent such proceeds are used to
incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of
Section 1011); (v) payments or distributions to dissenting stockholders in
accordance with applicable law, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with Article Eight;
(VI) THE DECLARATION OR PAYMENT OF ANY DIVIDEND OR DISTRIBUTION IN RESPECT OF,
AND IN ACCORDANCE WITH THE TERMS OF, THE COMPANY'S (A) 50,000 OUTSTANDING SHARES
OF 4.25% CUMULATIVE SENIOR PERPETUAL CONVERTIBLE PREFERRED STOCK, SERIES A, PAR
VALUE $0.01 PER SHARE (THE "SENIOR PREFERRED STOCK"), AND, IN THE EVENT THAT THE
1818 FUND III, L.P. ("THE 1818 FUND") EXERCISES ITS OPTION TO PURCHASE UP TO
20,000 ADDITIONAL SHARES OF SENIOR PREFERRED STOCK, THEN SUCH ADDITIONAL SHARES
AS WELL AND (B) 23,174 OUTSTANDING SHARES OF 4.25% CUMULATIVE JUNIOR CONVERTIBLE
PREFERRED STOCK, SERIES B, PAR VALUE $0.01 PER SHARE (THE "JUNIOR PREFERRED
STOCK"); (VII) THE CONVERSION OF THE SENIOR PREFERRED STOCK, THE JUNIOR
PREFERRED STOCK OR THE COMPANY'S CONVERTIBLE PREFERRED STOCK, SERIES C, PAR
VALUE $0.01 PER SHARE, INTO CAPITAL STOCK OF THE COMPANY IN ACCORDANCE WITH THE
TERMS OF SUCH PREFERRED STOCK and [(vi)] (VIII) other Restricted Payments not to
exceed $2 million; provided that, except in the case of clause (i), no Default
or Event of Default shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the immediately preceding
paragraph (other than the Restricted Payment referred to in clause (ii) thereof)
and the Net Cash Proceeds from any capital
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contributions to the Company or issuance of Capital Stock referred to in clauses
(iii) and (iv) of the immediately preceding paragraph, shall be included in
calculating whether the conditions of clause (C) of the first paragraph of this
Section 1012 have been met with respect to any subsequent Restricted Payments.
In the event the proceeds of an issuance of Capital Stock of the Company are
used for the redemption, repurchase or other acquisition of the Notes, then the
Net Cash Proceeds of such issuance shall be included in clause (C) of the first
paragraph of this Section 1012 only to the extent such proceeds are not used for
such redemption, repurchase or other acquisition of the Notes.
SECTION 1013. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.
So long as any of the Notes are Outstanding, the Company shall not, and
shall not permit any Restricted Subsidiary to, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any Restricted Subsidiary to do any one of the
following:
(i) pay dividends or make any other distribution permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by
the Company or any other Restricted Subsidiary;
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary;
(iii) make loans or advances to the Company or any other Restricted
Subsidiary; or
(iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
(i) existing on the [Closing] EXCHANGE Date in this Indenture or any
other agreements or instruments in effect on the [Closing]
EXCHANGE Date, and any extensions, refinancings, renewals or
replacements of such agreements; provided that the encumbrances
and restrictions in any such extensions, refinancings, renewals or
replacements are no less favorable in any material respect to the
Holders than those encumbrances or restrictions that are then in
effect and that are being extended, refinanced, renewed or
replaced;
(ii) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if the encumbrance
or restriction applies only in the event of a default with
respect to a financial covenant contained in such Indebtedness or
agreement and such encumbrance or restriction is not materially
more disadvantageous to the Holders than is customary in
comparable financing (as determined by the Company) and the
Company determines that any such encumbrance or restriction will
not materially affect the Company's ability to make principal or
interest payments on the Notes;
(iii) existing under or by reason of applicable law;
(iv) existing with respect to any Person or the property or assets of
such Person acquired by the Company or any Restricted Subsidiary,
existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not
applicable to any Person or the property or assets of any Person
other than such Person or the property or assets of such Person
so acquired;
(v) in the case of clause (iv) of the first paragraph of this Section
1013, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is, or is
subject to, a lease, purchase mortgage obligation, license,
conveyance or contract or similar property or asset, (B) existing
by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the
Company or any restricted Subsidiary not otherwise prohibited by
this Indenture or (C) arising or agreed to in the ordinary course
of business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of
property or assets of the Company or any
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Restricted Subsidiary in any manner material to the Company or any
Restricted Subsidiary; or
(vi) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of,
or property and asserts of, such Restricted Subsidiary. Nothing
contained in this Section 1013 shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in Section 1016
or (2) restricting the sale or other disposition of property or
assets of the Company or any of its Restricted Subsidiaries that
secure Indebtedness of the Company or any of its Restricted
Subsidiaries.
SECTION 1015. Limitation on Transactions with Stockholders and Affiliates.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Company or any
Restricted Subsidiary or with any Affiliate of the Company or any Restricted
Subsidiary, unless the following conditions have been met:
(i) such transaction or series of transactions is on terms no less
favorable to the Company or such Restricted Subsidiary than those that
could be obtained in a comparable arm's length transaction with a person
that is not such a holder or an Affiliate;
(ii) if such transaction or series of transactions involves aggregate
consideration in excess of $2.0 million, then such transaction or series of
transactions is approved by a majority of the Board of Directors of the
Company and is evidenced by a resolution therein; and
(iii) if such transaction or series of transactions involves aggregate
consideration in exceeds of $10.0 million, then the Company or such
Restricted Subsidiary shall deliver to the Trustee a written opinion as to
the fairness to the Company or such Restricted Subsidiary of such
transaction from a financial point of view from a nationally recognized
investment banking firm (or, if an investment banking firm is generally not
qualified to give such an opinion, by a nationally recognized appraisal
firm or accounting firm).
The foregoing limitation does not limit, and will not apply to (i) any
transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries; (ii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company;
(iii) any Restricted Payments not prohibited by Section 1012; (iv) loans and
advances to officers or employees of the Company and its Subsidiaries not
exceeding at any one time outstanding $1.5 million in the aggregate, made in the
ordinary course of business; [and] (v) arrangements with TMG, Armstrong and/or
its subsidiaries existing on the date of [this] THE ORIGINAL Indenture and
listed on Schedule A attached thereto as such arrangements may be extended or
renewed; provided that the terms of any arrangement altered by any such
extension or renewal may not be altered in a manner adverse to the Company or
the Holders of the Notes; (VI) THE ISSUANCE OF UP TO 20,000 ADDITIONAL SHARES OF
SENIOR PREFERRED STOCK TO THE 1818 FUND PURSUANT TO AN OPTION AGREEMENT EXISTING
ON THE DATE OF THIS INDENTURE; (VII) THE SALE TO AND PURCHASE BY THE COMPANY
FROM MCI WORLDCOM, INC. AND ITS AFFILIATES OF TELECOMMUNICATIONS SERVICES AND
EQUIPMENT IN THE ORDINARY COURSE OF BUSINESS; AND (VIII) THE ISSUANCE AND SALE
BY THE COMPANY OF COMMON STOCK.
SECTION 1017. Limitation on Asset Sales.
The Company shall not, and shall not permit any Restricted Subsidiary to,
make any Asset Sale unless (i) the Company or the Restricted Subsidiary, as the
case may be, receives consideration at the time of such sale or other
disposition at least equal to the fair market value of the assets sold or
disposed of as determined by the good faith judgment of the Board of Directors
evidenced by a Board Resolution and (ii) at least 80% of the consideration
received for such sale or other disposition consists of cash or
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cash equivalents or the assumption of unsubordinated Indebtedness; PROVIDED THAT
ANY SECURITIES, NOTES OR OTHER OBLIGATIONS ISSUED BY AN INVESTMENT GRADE COMPANY
WITH A TOTAL EQUITY MARKET CAPITALIZATION IN EXCESS OF $25 BILLION DETERMINED AT
THE TIME ANY COMMITMENT TO EFFECT ANY SUCH ASSET SALE IS ENTERED INTO WHICH ARE
RECEIVED BY THE COMPANY OR THE RESTRICTED SUBSIDIARY, AS THE CASE MAY BE, AND
CONVERTED WITHIN 180 DAYS THEREOF INTO CASH OR CASH EQUIVALENTS SHALL BE DEEMED
TO BE CASH OR CASH EQUIVALENTS; PROVIDED FURTHER THAT THE AMOUNT OF CASH OR CASH
EQUIVALENTS REALIZED UPON THE SALE OF ANY SUCH SECURITIES, NOTES OR OTHER
OBLIGATIONS MUST BE INCLUDED WITHIN THE AMOUNT OF NET CASH PROCEEDS FOR PURPOSES
OF CLAUSE (I)(B) OF THE NEXT PARAGRAPH.
The Company shall, or shall cause the relevant Restricted Subsidiary to,
within 270 days after the date of receipt of the Net Cash Proceeds from an Asset
Sale, (i)(A) apply an amount equal to such Net Cash Proceeds to permanently
repay unsubordinated Indebtedness of the Company or Indebtedness of any
Restricted Subsidiary, in each case owing to a Person other than the Company or
any of its Restricted Subsidiaries or (B) IF THE NET CASH PROCEEDS FROM SUCH
ASSET SALE EXCEED $15 MILLION, APPLY AN AMOUNT EQUAL TO SUCH NET CASH PROCEEDS
TO MAKE AN OFFER TO PURCHASE (AN "OFFER TO PURCHASE") FROM THE HOLDERS ON A PRO
RATA BASIS AN AGGREGATE PRINCIPAL AMOUNT OF NOTES EQUAL TO SUCH NET CASH
PROCEEDS, AT A PURCHASE PRICE EQUAL TO 100% OF THE PRINCIPAL AMOUNT OF THE
NOTES, PLUS, IN EACH CASE, ACCRUED AND UNPAID INTEREST TO THE DATE OF PURCHASE
AND LESS THE PRODUCT OF (A) THE MARKET VALUE PER SHARE OF THE COMMON STOCK OF
THE COMPANY AND (B) THE NUMBER OF SHARES (INCLUDING ANY PORTION OF A SHARE) OF
SUCH COMMON STOCK DETERMINED BY DIVIDING $50 BY THE MARKET PRICE OF THE COMMON
STOCK FOR EACH $1,000 IN PRINCIPAL AMOUNT OF NOTES ACCEPTED FOR PURCHASE BY THE
COMPANY (THE "OFFER TO PURCHASE PAYMENT"), PROVIDED THAT THE COMPANY SHALL NOT
BE OBLIGATED TO MAKE ANY OFFER TO PURCHASE AFTER IT HAS MADE ONE OR MORE OFFERS
TO PURCHASE, WHICH OFFER OR OFFERS TO PURCHASE, IN THE AGGREGATE, WERE FOR AN
AGGREGATE PRINCIPAL AMOUNT OF NOTES EQUAL TO THE AGGREGATE PRINCIPAL AMOUNT OF
NOTES ISSUED ON THE EXCHANGE DATE (REGARDLESS OF THE ACTUAL AGGREGATE PRINCIPAL
AMOUNT OF NOTES ACTUALLY TENDERED IN SUCH OFFER OR OFFERS TO PURCHASE), OR (C)
IF THE COMPANY HAS MADE SUFFICIENT OFFERS TO PURCHASE SUCH THAT IT HAS SATISFIED
ITS OBLIGATION AS DESCRIBED IN THE FINAL PROVISO TO CLAUSE (B), invest an equal
amount, or the amount not so applied pursuant to clause (A), in property or
assets of a nature or type or that are used in a business (or in a company
having property and assets of a nature or type, or engaged in a business)
similar or related to the nature or type of the property and assets of, or the
business of, the Company and its Restricted Subsidiaries existing on the date of
such investment (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) and (ii)
apply (no later than the end of the 270-day period referred to above) such
excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as
provided in the following paragraphs of this Section 1017. The amount of such
Net Cash Proceeds required to be applied (or to be committed to be applied)
during such 270-day period referred to above in the preceding sentence and not
applied as so required by the end of such period shall constitute "Excess
Proceeds".
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $10.0 million, the Company must, not later than the 30th
Business Day thereafter, make an offer (an "Excess Proceeds Offer") to purchase
from the Holders on a pro rata basis an aggregate principal amount of Notes
equal to the Excess Proceeds on such date, at a purchase price equal to 100% of
the principal amount of the Notes, plus, in each case, accrued and unpaid
interest [and Liquidated Damages, if any], to the date of purchase LESS THE
PRODUCT OF (A) THE MARKET VALUE PER SHARE OF THE COMMON STOCK OF THE COMPANY AND
(B) THE NUMBER OF SHARES (INCLUDING ANY PORTION OF A SHARE) OF SUCH COMMON STOCK
DETERMINED BY DIVIDING $50 BY THE MARKET PRICE OF THE COMMON STOCK FOR EACH
$1,000 IN PRINCIPAL AMOUNT OF NOTES ACCEPTED FOR PURCHASE BY THE COMPANY (the
"Excess Proceeds Payment").
The Company shall commence an OFFER TO PURCHASE OR AN Excess Proceeds Offer
by mailing a notice to the Trustee and each Holder stating: (i) that the OFFER
TO PURCHASE OR Excess Proceeds Offer, AS APPLICABLE, is being made pursuant to
this Section 1017 and that all Notes validly tendered will be accepted for
payment on a pro rata basis; (ii) the purchase price and the date of purchase
(which shall be a Business Day no earlier than 30 days nor later than 60 days
from the date such notice is mailed) (the
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"[Excess Proceeds] OFFER Payment Date"); (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the OFFER TO PURCHASE PAYMENT OR THE Excess Proceeds
Payment, AS APPLICABLE, any Note accepted for payment pursuant to the OFFER TO
PURCHASE OR THE Excess Proceeds Offer, AS APPLICABLE, shall cease to accrue
interest on and after the APPLICABLE OFFER [Excess Proceeds] Payment Date; (v)
that Holders electing to have a Note purchased pursuant to the OFFER TO PURCHASE
OR THE Excess Proceeds Offer, AS APPLICABLE, will be required to surrender the
Note together with the form entitled "Option of the Holder to Elect Purchase" on
the reverse side of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business Day
immediately preceding the APPLICABLE OFFER [Excess Payment] Payment Date; (vi)
that Holders shall be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the APPLICABLE OFFER [Excess Proceeds] Payment Date, a
telegram, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Notes delivered for purchase and a statement
that such Holder is withdrawing his election to have such Notes purchased; and
(vii) that Holders whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered, provided that each Note purchased and each new Note issued shall be
in a principal amount of $1,000 or integral multiples thereof.
On the APPLICABLE OFFER [Excess Proceeds] Payment Date, the Company shall
(i) accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to the OFFER TO PURCHASE OR THE Excess Proceeds Offer, AS APPLICABLE;
(ii) deposit with the Paying Agent money sufficient to pay the purchase price of
all Notes or portions thereof so accepted; and (iii) deliver, or cause to be
delivered, to the Trustee all Notes or portions thereof so accepted together
with an Officer's Certificate specifying the Notes or portions thereof accepted
for payment by the Company. The Paying Agent shall promptly mail to the Holders
of Notes so accepted payment in an amount equal to the purchase price, and the
Trustee shall upon Company Order promptly authenticate and mail to such Holders
a new Note equal in principal amount to any unpurchased portion of the Note
surrendered; provided that each Note purchased and each new Note issued shall be
in a principal amount of $1,000 or integral multiples thereof. WITH RESPECT TO
ANY EXCESS PROCEEDS OFFER, TO [To] the extent that the aggregate principal
amount of Notes tendered is less than the Excess Proceeds, the Company may use
any remaining Excess Proceeds for general corporate purposes. The Company shall
publicly announce the results of the Excess Proceeds Offer as soon as
practicable after the [Excess Proceeds] Offer Payment Date. For purposes of this
Section 1017, the Trustee shall act as the Paying Agent.
The Company shall comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that [such Excess Proceeds are received
by] the Company UNDERTAKES AN OFFER TO PURCHASE OR EXCESS PROCEEDS OFFER under
this Section 1017. [and the Company is required to repurchase Notes as described
above.]
SECTION 101. Definitions.
"EXCHANGE DATE" MEANS THE DATE OF ISSUANCE OF THE NOTES UPON THE
CONSUMMATION OF THE REGISTERED EXCHANGE OFFER PURSUANT TO WHICH HOLDERS OF THE
FACILICOM NOTES TENDERED SUCH NOTES IN EXCHANGE FOR THE NOTES ISSUED BY THE
COMPANY PURSUANT TO THIS INDENTURE.
"FACILICOM" MEANS FACILICOM INTERNATIONAL, INC., A DELAWARE CORPORATION.
"FACILICOM NOTES" MEANS THE 10 1/2% SERIES B SENIOR NOTES DUE 2008 ISSUED
BY FACILICOM PURSUANT TO THE ORIGINAL INDENTURE.
"FACILICOM TRUSTEE" MEANS THE STATE STREET BANK AND TRUST COMPANY, AS
TRUSTEE UNDER THE ORIGINAL INDENTURE.
"INVESTMENT GRADE COMPANY" MEANS A PERSON WHOSE DEBT SECURITIES ARE RATED
BBB- OR HIGHER BY STANDARD & POOR'S RATINGS SERVICE. INC. OR BAA3 OR HIGHER BY
MOODY'S INVESTOR SERVICE, INC. (OR AN EQUIVALENT RATING BY ANOTHER NATIONALLY
RECOGNIZED RATING AGENCY).
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"MARKET PRICE" MEANS, ON ANY GIVEN DAY, THE AVERAGE CLOSING PRICE OF THE
SHARES OF THE COMPANY'S COMMON STOCK ON THE PRINCIPAL TRADING MARKET OF SUCH
COMMON STOCK OVER THE FIVE CONSECUTIVE TRADING DAYS UP TO AND INCLUDING THE DAY
OF SUCH VALUATION.
"MARKET VALUE" MEANS THE AVERAGE OF THE CLOSING PRICE OF THE APPLICABLE
SECURITY ON SUCH SECURITY'S PRINCIPAL TRADING MARKET OVER THE FIVE CONSECUTIVE
TRADING DAYS UP TO AND INCLUDING THE TRADING DAY PRIOR TO THE LAST FULL TRADING
DAY BEFORE THE INITIATION OF ANY OFFER TO PURCHASE DESCRIBED IN CLAUSE (I) (B)
OR THE TIME ANY COMMITMENT TO EFFECT AN ASSET SALE IS ENTERED INTO AS DESCRIBED
IN THE PRECEDING PARAGRAPH.
"MERGER" MEANS THE MERGER OF FACILICOM WITH AND INTO THE COMPANY PURSUANT
TO THE AGREEMENT AND PLAN OF MERGER DATED AUGUST 17, 1999 BETWEEN THE COMPANY
AND FACILICOM.
"ORIGINAL INDENTURE" MEANS THE INDENTURE, DATED AS OF JANUARY 28, 1998,
AMONG FACILICOM AND THE FACILICOM TRUSTEE, AS SUPPLEMENTED BY THE FIRST
SUPPLEMENTAL INDENTURE THERETO, PURSUANT TO WHICH FACILICOM ISSUED THE FACILICOM
NOTES.
"ORIGINAL ISSUE DATE" MEANS JANUARY 28, 1998, THE DATE FACILICOM ISSUED THE
FACILICOM NOTES.
"Permitted Business" means any business involving voice, data and other
telecommunications services OR EQUIPMENT.
"Telecommunications Assets" means, with respect to any person, equipment
used in the telecommunications business or ownership rights with respect to
IRUs, MAOUs or minimum investment units (or similar ownership interests) in
fiber optic cable and international or domestic telecommunications switches or
other transmission facilities (or Common Stock of a Person that becomes a
Restricted Subsidiary, the [Assets] ASSETS of which consist primarily of any
such Telecommunications Assets), in each case purchased or acquired through [a
Capitalized Lease Obligation] INDEBTEDNESS, PROVIDED THAT SUCH INDEBTEDNESS DOES
NOT EXCEED THE FAIR MARKET VALUE OF SUCH ASSETS, by the Company or a Restricted
Subsidiary after the ORIGINAL ISSUE [Closing] Date.
"TOTAL EQUITY MARKET CAPITALIZATION" OF ANY PERSON MEANS, AS OF ANY DATE OF
DETERMINATION, THE PRODUCT OF (I) THE AGGREGATE NUMBER OF OUTSTANDING SHARES OF
COMMON STOCK OF SUCH PERSON ON SUCH DATE ON A FULLY-DILUTED BASIS AND (II) THE
AVERAGE CLOSING PRICE OF SUCH COMMON STOCK OVER THE FIVE CONSECUTIVE TRADING
DAYS IMMEDIATELY PRECEDING SUCH DATE. IF NO CLOSING PRICE EXISTS WITH RESPECT TO
SHARES OF ANY SUCH CLASS, THE VALUE OF SUCH SHARES SHALL BE DETERMINED BY THE
BOARD OF DIRECTORS IN GOOD FAITH AND EVIDENCED BY A RESOLUTION OF THE BOARD OF
DIRECTORS FILED WITH THE TRUSTEE.
FORM OF REVERSE OF NOTE
The Notes are subject to redemption upon not less than 30 nor more than 60
days' prior notice, in whole or in part, at any time or from time to time on or
after January 15, 2003, at the election of the Company, at Redemption Prices
(expressed in percentages of principal amount thereof), plus accrued and unpaid
interest [and Liquidated Damages, if any,] thereon to the Redemption Date
(subject to the right of Holders of record on the relevant Record Date to
receive interest due on an Interest Payment Date that is on or prior to the
Redemption Date), if redeemed during the 12-month period commencing on January
15, of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
<S> <C>
2003........................................................ [105.25%] 106.625%
2004........................................................ [103.50] 104.417%
2005........................................................ [101.75] 102.208%
2006 (and thereafter)....................................... 100.00%
</TABLE>
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THE PROPOSED AMENDMENTS
GENERAL
On October 12, 1999, we entered into an agreement to exchange and consent
with FaciliCom and the holders of a majority in interest of the FaciliCom notes
in which we and FaciliCom agreed, among other things, to use our reasonable best
efforts to prepare, and have declared effective by the SEC, a registration
statement under which the exchange notes and exchange shares would be registered
in connection with the exchange offer. In turn, a majority in interest of the
holders of the FaciliCom notes agreed to tender their FaciliCom notes in the
exchange offer and consent to the proposed amendments to the terms of the
FaciliCom indenture described below. Under its terms, the FaciliCom indenture
can be amended by a supplemental indenture if FaciliCom and the holders of a
majority in interest of the outstanding FaciliCom notes consent to such
amendments.
Adoption of the proposed amendments to the FaciliCom indenture is required
to consummate the merger with FaciliCom. Accordingly, under the terms of the
merger agreement, the consummation of the merger is conditioned upon the
adoption of the proposed amendments. Because the holders of a majority in
interest of the outstanding FaciliCom notes have agreed, in the agreement to
exchange and consent, to consent to the proposed amendments described below,
immediately prior to the merger, FaciliCom will enter into the second
supplemental indenture which, among other things, will omit the provisions
permitting the holders of FaciliCom notes to require us, as the surviving
corporation in the merger with FaciliCom, to repurchase the FaciliCom notes as a
result of the merger.
IF YOU TENDER YOUR FACILICOM NOTES IN THE EXCHANGE OFFER, YOU ARE ALSO
CONSENTING TO THE PROPOSED AMENDMENTS TO THE FACILICOM INDENTURE DESCRIBED
BELOW. IF THE HOLDERS OF A MAJORITY IN PRINCIPAL AMOUNT OF THE OUTSTANDING
FACILICOM NOTES CONSENT TO THE PROPOSED AMENDMENTS, THE FACILICOM INDENTURE WILL
BE AMENDED BY A SECOND SUPPLEMENTAL INDENTURE INCLUDING THE PROPOSED AMENDMENTS.
THE TERMS OF THE AMENDED FACILICOM INDENTURE WILL APPLY TO ALL OF THE FACILICOM
NOTES.
The second supplemental indenture will amend the FaciliCom indenture by
deleting in their entirety the covenants set forth below from the FaciliCom
indenture, the effect of which will be to:
(1) remove restrictions on FaciliCom's ability to:
- consolidate and/or merge;
- incur additional debt;
- make payments to affiliates;
- make dividend payments;
- sell capital stock of its subsidiaries;
- enter into transactions with shareholders;
- create liens on its property;
- sell assets;
- transfer its existing business; and
- enter into sale-leaseback transactions; and
(2) relieve FaciliCom's obligations to:
- maintain an office or agency;
- hold money for payment of the FaciliCom notes in trust;
- pay taxes;
- maintain its properties;
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- maintain insurance coverage; and
- provide the holders of FaciliCom notes with financial statements.
THE SECOND SUPPLEMENTAL INDENTURE
The second supplemental indenture will delete from the FaciliCom indenture
the following covenants in their entirety:
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with, or merge with or into, or
sell, convey, transfer, lease or otherwise dispose of all or substantially
all of its property and assets (as an entirety or substantially as an
entirety in one transaction or a series of related transactions) to, any
Person or permit any Person to merge with or into the Company and the
Company shall not permit any of its Restricted Subsidiaries to enter into
any such transaction or series of transactions if such transaction or
series of transactions, in the aggregate, would result in the sale,
assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company or the
Company and its Restricted Subsidiaries, taken as a whole, to any other
Person or Persons, unless:
(1) either (A) the Company shall be the continuing Person or (B)
the Person (if other than the Company) formed by such consolidation or
into which the Company is merged or that acquired or leased such
property and assets of the Company (i) shall be a corporation organized
and validly existing under the laws of the United States of America or
any jurisdiction thereof and (ii) shall expressly assume, by an
indenture supplemental hereto, duly executed and delivered to the
Trustee, all of the obligations of the Company with respect to all the
Notes and under this Indenture;
(2) immediately after giving effect to such transaction on a pro
forma basis, no Default or Event of Default shall have occurred and be
continuing;
(3) immediately after giving effect to such transaction on a pro
forma basis, the Company, or any Person becoming the successor obligor
of the Notes, shall have a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of the Company immediately prior to such
transaction;
(4) immediately after giving effect to such transaction on a pro
forma basis, the Company, or any Person becoming the successor obligor
of the Notes, as the case may be, could Incur at least $1.00 of
Indebtedness under paragraph (a) of Section 1011; and
(5) the Company delivers to the Trustee an Officer's Certificate
(attaching the arithmetic computations to demonstrate compliance with
clauses (3) and (4) above) and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture
complies with this Article and that all conditions precedent herein
provided for relating to such transaction have been complied with;
provided, however, that clauses (3) and (4) above shall not apply if, in
the good faith determination of the Board of Directors of the Company,
whose determination shall be evidenced by a Board Resolution, the principal
purpose of such transaction is to change the state of incorporation of the
Company; and provided further that any such transaction shall not have as
one of its purposes the evasion of the foregoing limitations.
SECTION 1002. Maintenance of Office or Agency.
The Company shall maintain in The City of New York, an office or
agency where Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of
the Notes and this Indenture may be served. The office of the Trustee
located at 61 Broadway, New York, New York 10006 shall be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such
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purposes. In addition, the Company shall maintain an office or agency where
the Notes may be presented or surrendered for payment (which shall be the
Corporate Trust Office of the Trustee, unless the Company shall designate
and maintain some other office or agency for one or more such purposes).
The Company shall give prompt written notice to the Trustee of any change
in the location of any such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate
Trust Office of the Trustee, and the Company hereby appoints the Trustee as
its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any
or all such purposes and may from time to time rescind any such
designation; provided, however, that no such designation or rescission
shall in any manner relieve the Company of its obligation to maintain an
office or agency in The City of New York for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and any change in the location of any such other office or
agency.
SECTION 1003. Money for Note Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it
shall, on or before each due date of the principal of (or premium or
Liquidated Damages, if any) or interest on any of the Notes, segregate and
hold in trust for the benefit of the Persons entitled thereto a sum
sufficient to pay the principal of (or premium or Liquidated Damages, if
any) or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and shall promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it shall, on or before each due date of the principal of (or premium
or Liquidated Damages, if any) or interest on any Notes, deposit with a
Paying Agent a sum sufficient to pay the principal (and premium and
Liquidated Damages, if any) or interest so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the
Company shall promptly notify the Trustee of such action or any failure so
to act.
The Company shall cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section
1003, that such Paying Agent shall:
(1) hold all sums held by it for the payment of the principal of
(and premium and Liquidated Damages, if any) or interest on Notes in
trust for the benefit of the Persons entitled thereto until such sums
shall be paid to such Persons or otherwise disposed of as herein
provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal
(and premium and Liquidated Damages, if any) or interest on the Notes;
and
(3) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all
sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay,
or by Company Order direct any Paying Agent to pay, to the Trustee all sums
held in trust by the Company or such Paying Agent, such sums to be held by
the Trustee upon the same terms as those upon which such sums were held by
the Company or such Paying Agent; and, upon such payment by any Paying
Agent to the Trustee, such Paying Agent shall be released from all further
liability with respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (or premium or
Liquidated Damages, if any) or interest on any Note and remaining unclaimed
for two years after such principal, premium, interest or Liquidated
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Damages has become due and payable shall be paid to the Company on Company
Request, or (if then held by the Company) shall be discharged from such
trust; and the Holder shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all
liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company
cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that
such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining shall be repaid to the
Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Subsidiary; provided, however, that the Company shall not
be required to preserve any such right or franchise if the Board of
Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its
Subsidiaries as a whole and that the loss thereof is not disadvantageous in
any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary
or upon the income, profits or property of the Company or any Subsidiary
and (b) all lawful claims for labor, materials and supplies, which, if
unpaid, might by law become a lien (other than a Permitted Lien) upon the
property of the Company or any Subsidiary; provided, however, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 1006. Maintenance of Properties.
The Company shall cause all properties owned by the Company or any
Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and
shall cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company
may be necessary so that the business carried on in connection therewith
may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct
of its business or the business of any Subsidiary and not disadvantageous
in any material respect to the Holders.
SECTION 1007. Insurance.
The Company shall at all times keep all of its and its Subsidiaries
properties which are of an insurable nature insured with insurers, believed by
the Company to be responsible, against loss or damage to the extent that
property of similar character is usually so insured by corporations similarly
situated and owning like properties.
SECTION 1008. Statement by Officers as to Default.
(a) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year, an Officer's Certificate from the principal
executive officer, principal financial officer or principal accounting
officer to the effect that a review has been conducted of the activities of
the Company and
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the Company's performance under this Indenture, and that the Company has
fulfilled its obligations thereunder or, if there has been a default in the
fulfillment of any such obligation, specifying each such default and the
nature and status thereof. For purposes of this Section 1008(a), such
compliance shall be determined without regard to any period of grace or
requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the Holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $1,000,000) shall deliver
to the Trustee by registered or certified mail or by telegram, telex or
facsimile transmission an Officer's Certificate specifying such event,
notice or other action within five Business Days of its occurrence.
(c) When any Registration Default (as defined in the Registration
Rights Agreement) occurs, the Company shall immediately deliver to the
Trustee by registered or certified mail or by telegram, telex or facsimile
transmission an Officer's Certificate specifying the nature of such
Registration Default. In addition, the Company shall deliver to the Trustee
on each Interest Payment Date during the continuance of a Registration
Default and on the Interest Payment Date following the cure of a
Registration Default, an Officer's Certificate specifying the amount of
Liquidated Damages which have occurred and which are then owing under the
Registration Rights Agreement.
SECTION 1009. Provision of Financial Statements and Reports.
(a) After the Company has completed the Exchange Offer, the Company
shall file on a timely basis with the Commission, to the extent such
filings are accepted by the Commission and whether or not the Company has a
class of securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that the Company would be required to
file if it were subject to Section 13 or 15 of the Exchange Act. All such
annual reports shall include the geographic segment financial information
contemplated by Item 101(d) of Regulation S-K under the Securities Act, and
all such quarterly reports shall provide the same type of interim financial
information that, as of the date of this Indenture, is the Company's
practice to provide.
(b) The Company shall also be required (i) to file with the Trustee,
and provide to each Holder, without cost to such Holder, copies of such
reports and documents within 15 days after the date on which the Company
files such reports and documents with the Commission or the date on which
the Company would be required to file such reports and documents if the
Company were so required and (ii) if filing such reports and documents with
the Commission is not accepted by the Commission or is prohibited under the
Exchange Act, to supply at the Company's cost copies of such reports and
documents to any prospective Holder promptly upon request.
SECTION 1010. Repurchase of Notes upon Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder shall have
the right to require the Company to repurchase such Holder's Notes in whole
or in part (the "Change of Control Offer"), at a purchase price (the
"Purchase Price") in cash in an amount equal to 101% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase (subject to the right of Holders of record to
receive interest on the relevant Interest Payment Date) (the "Change of
Control Payment") in accordance with the procedures set forth in paragraphs
(c) and (d) of this Section.
(b) [Reserved]
(c) Within 30 days following any Change of Control, the Company shall
give to each Holder and the Trustee in the manner provided in Section 106 a
notice stating:
(i) that a Change of Control has occurred, that the Change of
Control Offer is being made pursuant to this Section 1010 and that all
Notes validly tendered will be accepted for payment;
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(ii) the circumstances and relevant facts regarding such Change of
Control (including but not limited to information with respect to pro
forma historical income, cash flow and capitalization after giving
effect to such Change of Control);
(iii) the Purchase Price and date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed) (the "Change of Control Payment Date");
(iv) that any Note not tendered will continue to accrue interest
pursuant to its terms;
(v) that, unless the Company defaults in the payment of the Change
of Control Payment, any Note accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest and Liquidated Damages,
if any, on and after the Change of Control Payment Date;
(vi) that Holders electing to have any Note or portion thereof
purchased pursuant to the Change of Control Offer will be required to
surrender such Note, together with the form entitled "Option of the
Holder to Elect Purchase" on the reverse side of such Note completed, to
the Paying Agent at the address specified in the notice prior to the
close of business on the Business Day immediately preceding the Change
of Control Payment Date;
(vii) that Holders shall be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the
third Business Day immediately preceding the Change of Control Payment
Date, a telegram, facsimile transmission or letter setting forth the
name of such Holder, the principal amount of Notes delivered for
purchase and a statement that such Holder is withdrawing his election to
have such Notes purchased; and
(viii) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered; provided that each Note purchased and
each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof.
(d) [Reserved].
(e) On the Change of Control Payment Date, the Company shall:
(i) accept for payment Notes or portions thereof tendered pursuant
to the Change of Control Offer;
(ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee, all Notes
or portions thereof so accepted together with an Officer's Certificate
specifying the Notes or portions thereof accepted for payment by the
Company. The Paying Agent shall promptly mail, to the Holders so
accepted, payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail to such Holders a new Note
equal in principal amount to any unpurchased portion of the Notes
surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof.
The Company shall publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment
Date. For purposes of this Section 1010, the Trustee shall act as Paying
Agent.
The Company shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes a Change of Control Offer
in the manner, at the times and otherwise in compliance with the
requirements applicable to a Change of Control Offer made by the Company
and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The Company shall comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in the event
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that a Change of Control occurs and the Company is required to repurchase
the Notes under this Section 1010.
SECTION 1011. Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that the
Company may Incur Indebtedness if immediately thereafter the ratio of (i)
the aggregate principal amount (or accreted value, as the case may be) of
Indebtedness of the Company and its Restricted Subsidiaries on a
consolidated basis outstanding as of the Transaction Date to (ii) the Pro
Forma Consolidated Cash Flow for the preceding two full fiscal quarters
multiplied by two, determined on a pro forma basis as if any such
Indebtedness had been Incurred and the proceeds thereof had been applied at
the beginning of such two fiscal quarters, would be greater than zero and
less than 5 to 1.
(b) The foregoing limitations of paragraph (a) of this covenant will
not apply to any of the following Indebtedness ("Permitted Indebtedness"),
each of which shall be given independent effect:
(i) Indebtedness of the Company evidenced by the Notes;
(ii) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date;
(iii) Indebtedness of the Company or any Restricted Subsidiary
under one or more Credit Facilities, in an aggregate principal amount at
any one time outstanding not to exceed the greater of (x) $35.0 million
and (y) 80% of Eligible Accounts Receivable at any one time outstanding,
subject to any permanent reductions required by any other terms of this
Indenture;
(iv) Indebtedness of the Company or any Restricted Subsidiary
Incurred to finance the cost (including the cost of design, development,
construction, acquisition, installation or integration) of
Telecommunications Assets;
(v) Indebtedness of a Restricted Subsidiary owed to and held by the
Company or another Restricted Subsidiary, except that (A) any transfer
of such Indebtedness by the Company or a Restricted Subsidiary (other
than to the Company or another Restricted Subsidiary) or (B) the sale,
transfer or other disposition by the Company or any Restricted
Subsidiary of Capital Stock of a Restricted Subsidiary which is owed
Indebtedness of another Restricted Subsidiary shall, in each case, be an
Incurrence of Indebtedness by such Restricted Subsidiary, subject to the
other provisions of this Indenture;
(vi) Indebtedness of the Company owed to and held by a Restricted
Subsidiary which is unsecured and subordinated in right to the payment
and performance to the obligations of the Company under this Indenture
and the Notes, except that the limitations of paragraph (a) of this
Section 1011 shall apply to such Indebtedness at such time as (A) any
transfer of such Indebtedness by a Restricted Subsidiary (other than to
another Restricted Subsidiary) and (B) the sale, transfer or other
disposition by the Company or any Restricted Subsidiary of Capital Stock
of a Restricted Subsidiary which is owed such Indebtedness, subject to
other provisions of this Indenture;
(vii) Indebtedness of the Company or a Restricted Subsidiary issued
in exchange for, or the net proceeds of which are used to refinance
(whether by amendment, renewal, extension or refunding), then
outstanding Indebtedness of the Company or a Restricted Subsidiary,
other than Indebtedness Incurred under clauses (iii), (v), (vi), (viii),
(ix), (xi) and (xii) of this paragraph, and any refinancings thereof in
an amount not to exceed the amount so refinanced or refunded (plus
premiums, accrued interest, and reasonable fees and expenses); provided
that such new Indebtedness shall only be permitted under this clause
(vii) if: (A) in case the Notes are refinanced in part or the
Indebtedness to be refinanced is pari passu with the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made pari passu with, or
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subordinate in right of payment to, the remaining Notes, (B) in case the
Indebtedness to be refinanced is subordinated in right of payment to the
Notes, such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is
issued or remains outstanding, is expressly made subordinate in right of
payment to the Notes at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes and (C) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does
not mature prior to the Stated Maturity of the Indebtedness to be
refinanced or refunded, and the Average Life of such new Indebtedness is
at least equal to the remaining Average Life of the Indebtedness to be
refinanced or refunded; and provided further that in no event may
Indebtedness of the Company be refinanced by means of any Indebtedness
of any Restricted Subsidiary pursuant to this clause (vii);
(viii) Indebtedness of (x) the Company not to exceed, at any one
time outstanding, 2.00 times the Net Cash Proceeds from the issuance and
sale, other than to a Subsidiary, of Common Stock (other than Redeemable
Stock) of the Company (less the amount of such proceeds used to make
Restricted Payments as provided in clause (iii) or (iv) of the second
paragraph of Section 1012) and (y) the Company or Acquired Indebtedness
of a Restricted Subsidiary not to exceed, at one time outstanding, the
fair market value of any Telecommunications Assets acquired by the
Company in exchange for Common Stock of the Company issued after the
Issue Date; provided, however, that in determining the fair market value
of any such Telecommunications Assets so acquired, if the estimated fair
market value of such Telecommunications Assets exceeds (A) $2 million
(as estimated in good faith by the Board of Directors), then the fair
market value of such Telecommunications Assets will be determined by a
majority of the Board of Directors of the Company, which determination
will be evidenced by a resolution thereof, and (B) $10 million (as
estimated in good faith by the Board of Directors), then the Company
shall deliver the Trustee a written appraisal as to the fair market
value of such Telecommunications Assets prepared by a nationally
recognized investment banking or public accounting firm (or, if no such
investment banking or public accounting firm is qualified to prepare
such an appraisal, by a nationally recognized appraisal firm); and
provided further that such Indebtedness does not mature prior to the
Stated Maturity of the Notes and the Average Life of such Indebtedness
is longer than that of the Notes;
(ix) Indebtedness of the Company or any Restricted Subsidiary (A)
in respect of performance, surety or appeal bonds or letters of credit
supporting trade payables, in each case provided in the ordinary course
of business, (B) under Currency Agreements and Interest Rate Agreements
covering Indebtedness of the Company; provided that such agreements do
not increase the Indebtedness of the obligor outstanding at any time
other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder, and (C) arising from agreements
providing for indemnification, adjustment of purchase price or similar
obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case
Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary of the Company (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing
such acquisition), in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary
in connection with such disposition;
(x) Indebtedness of the Company, to the extent that the net
proceeds thereof are promptly (A) used to repurchase Notes tendered in a
Change of Control Offer or (B) deposited to defease all of the Notes
pursuant to Article Thirteen;
(xi) Indebtedness of a Restricted Subsidiary represented by a
Guarantee of the Notes permitted by and made in accordance with Section
1018; and
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(xii) Indebtedness of the Company or any Restricted Subsidiary in
addition to that permitted to be incurred pursuant to clauses (i)
through (xi) above in an aggregate principal amount not in excess of $10
million (or, to the extent not denominated in United States dollars, the
United States Dollar Equivalent thereof) at any one time outstanding.
(l) For purposes of determining any particular amount of indebtedness
under this Section 1011, Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included; provided,
however, that the foregoing shall not in any way be deemed to limit the
provisions of Section 1018. For purposes of determining compliance with
this Section 1011, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the
above clauses, the Company, in its sole discretion may, at the time of such
Incurrence, (i) classify such item of Indebtedness under and comply with
either of paragraph (a) or (b) of this covenant (or any of such
definitions), as applicable, (ii) classify and divide such item of
Indebtedness into more than one of such paragraphs (or definitions), as
applicable, and (iii) elect to comply with such paragraphs (or
definitions), as applicable in any order.
SECTION 1012. Limitation on Restricted Payments.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, (i) (A) declare or pay any dividend or make any
distribution in respect of the Company's Capital Stock to the holders
thereof (other than dividends or distributions payable solely in shares of
Capital Stock (other than Redeemable Stock) of the Company or in options,
warrants or other rights to acquire such shares of Capital Stock) or (B)
declare or pay any dividend or make any distribution in respect of the
Capital Stock of any Restricted Subsidiary to any Person other than
dividends and distributions payable to the Company or any Restricted
Subsidiary or to all holders of Capital Stock of such Restricted Subsidiary
on a pro rata basis; (ii) purchase, redeem, retire or otherwise acquire for
value any shares of Capital Stock of the Company (including options,
warrants or other rights to acquire such shares of Capital Stock) held by
any Person or any shares of Capital Stock of any Restricted Subsidiary
(including options, warrants and other rights to acquire such shares of
Capital Stock) held by any Affiliate of the Company (other than a wholly
owned Restricted Subsidiary) or any holder (or any Affiliate thereof) of 5%
or more of the Company's Capital Stock; (iii) make any voluntary or
optional principal payment, or voluntary or optional redemption,
repurchase, defeasance, or other acquisition or retirement for value, of
Indebtedness of the Company that is subordinated in right of payment to the
Notes; or (iv) make any Investment, other than a Permitted Investment, in
any Person (such payments or any other actions described in clauses (i)
through (iv) being collectively "Restricted Payments") if, at the time of,
and after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing;
(B) the Company could not Incur at least $1.00 of Indebtedness
under paragraph (a) of Section 1011; and
(C) the aggregate amount of all Restricted Payments declared or
made from and after the Closing Date would exceed the sum of:
(1) Cumulative Consolidated Cash Flow minus 200% of Cumulative
Consolidated Fixed Charges;
(2) 100% of the aggregate Net Cash Proceeds from the issue or
sale to a Person, which is not a Subsidiary of the Company, of
Capital Stock of the Company (other than Redeemable Stock) or of debt
securities of the Company which have been converted into or exchanged
for such Capital Stock (except to the extent such Net Cash Proceeds
are used to Incur new Indebtedness outstanding pursuant to clause
(viii) of paragraph (b) of Section 1011); and
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(3) to the extent any Permitted Investment that was made after
the Closing Date is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (i) the cash return of capital with respect
to such Permitted Investment (less the cost of disposition, if any)
and (ii) the initial amount of such Permitted Investment.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with the
foregoing paragraph; (ii) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness that is subordinated in
right of payment to the Notes including a premium, if any, and accrued and
unpaid interest and Liquidated Damages, if any, with the net proceeds of,
or in exchange for, Indebtedness Incurred under clause (viii) of paragraph
(b) of Section 1011; (iii) the repurchase, redemption or other acquisition
of Capital Stock of the Company in exchange for, or out of the Net Cash
Proceeds of a substantially concurrent (A) capital contribution to the
Company or (B) offering of, shares of Capital Stock (other than Redeemable
Stock) of the Company (except to the extent such proceeds are used to incur
new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of
Section 1011); (iv) the acquisition of Indebtedness of the Company which is
subordinated in right of payment to the Notes in exchange for, or out of
the proceeds of, a substantially concurrent (A) capital contribution to the
Company or (B) offering of, shares of the Capital Stock of the Company
(other than Redeemable Stock) (except to the extent such proceeds are used
to incur new Indebtedness outstanding pursuant to clause (viii) of
paragraph (b) of Section 1011); (v) payments or distributions to dissenting
stockholders in accordance with applicable law, pursuant to or in
connection with a consolidation, merger or transfer of assets that complies
with Article Eight; and (vi) other Restricted Payments not to exceed $2
million; provided that, except in the case of clause (i), no Default or
Event of Default shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the immediately
preceding paragraph (other than the Restricted Payment referred to in
clause (ii) thereof) and the Net Cash Proceeds from any capital
contributions to the Company or issuance of Capital Stock referred to in
clauses (iii) and (iv) of the immediately preceding paragraph, shall be
included in calculating whether the conditions of clause (C) of the first
paragraph of this Section 1012 have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital
Stock of the Company are used for the redemption, repurchase or other
acquisition of the Notes, then the Net Cash Proceeds of such issuance shall
be included in clause (C) of the first paragraph of this Section 1012 only
to the extent such proceeds are not used for such redemption, repurchase or
other acquisition of the Notes.
SECTION 1013. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.
So long as any of the Notes are Outstanding, the Company shall not,
and shall not permit any Restricted Subsidiary to, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any Restricted Subsidiary to do
any one of the following:
(i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned
by the Company or any other Restricted Subsidiary;
(ii) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary;
(iii) make loans or advances to the Company or any other Restricted
Subsidiary; or
(iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
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The foregoing provisions shall not restrict any encumbrances or
restrictions:
(i) existing on the Closing Date in this Indenture or any other
agreements or instruments in effect on the Closing Date, and any
extensions, refinancings, renewals or replacements of such agreements;
provided that the encumbrances and restrictions in any such extensions,
refinancings, renewals or replacements are no less favorable in any
material respect to the Holders than those encumbrances or restrictions
that are then in effect and that are being extended, refinanced, renewed
or replaced;
(ii) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if the encumbrance or
restriction applies only in the event of a default with respect to a
financial covenant contained in such Indebtedness or agreement and such
encumbrance or restriction is not materially, more disadvantageous to
the Holders than is customary in comparable financing (as determined by
the Company) and the Company determines that any such encumbrance or
restriction will not materially affect the Company's ability to make
principal or interest payments on the Notes;
(iii) existing under or by reason of applicable law;
(iv) existing with respect to any Person or the property or assets
of such Person acquired by the Company or any Restricted Subsidiary,
existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not
applicable to any Person or the property or assets of any Person other
than such Person or the property or assets of such Person so acquired;
(v) in the case of clause (iv) of the first paragraph of this
Section 1013, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is, or is subject
to, a lease, purchase mortgage obligation, license, conveyance or
contract or similar property or asset, (B) existing by virtue of any
transfer of, agreement to transfer, option or right with respect to, or
Lien on, any property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by this Indenture or (C) arising or
agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract
from the value of property or assets of the Company or any Restricted
Subsidiary in any manner material to the Company or any Restricted
Subsidiary; or
(vi) with respect to a Restricted Subsidiary and imposed pursuant
to an agreement that has been entered into for the sale or disposition
of all or substantially all of the Capital Stock of, or property and
assets of, such Restricted Subsidiary. Nothing contained in this Section
1013 shall prevent the Company or any Restricted Subsidiary from (1)
creating, incurring, assuming or suffering to exist any Liens otherwise
permitted in Section 1016 or (2) restricting the sale or other
disposition of property or assets of the Company or any of its
Restricted Subsidiaries that secure Indebtedness of the Company or any
of its Restricted Subsidiaries.
SECTION 1014.Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary,
directly or indirectly, to issue, transfer, convey, sell, lease or
otherwise dispose of any shares of Capital Stock (including options,
warrants or other rights to purchase shares of such Capital Stock) of such
or any other Restricted Subsidiary (other than to the Company or a wholly
owned Restricted Subsidiary or in respect of any director's qualifying
shares or sales of shares of Capital Stock to foreign nationals mandated by
applicable law) to any Person unless (A) the Net Cash Proceeds from such
issuance, transfer, conveyance, sale, lease or other disposition are
applied in accordance with Section 1017, (B) immediately after giving
effect to such issuance, transfer, conveyance, sale, lease or other
disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and (C) any Investment in such Person remaining after
giving effect to such issuance, transfer, conveyance, sale, lease or other
disposition would have been permitted to be made under Section 1012
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if made on the date of such issuance, transfer, conveyance, sale, lease or
other disposition (valued as provided in the definition of "Investment"
contained in Section 101).
SECTION 1015. Limitation on Transactions with Stockholders and
Affiliates.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or
any Affiliate of such holder) of 5% or more of any class of Capital Stock
of the Company or any Restricted Subsidiary or with any Affiliate of the
Company or any Restricted Subsidiary, unless the following conditions have
been met:
(i) such transaction or series of transactions is on terms no less
favorable to the Company or such Restricted Subsidiary than those that
could be obtained in a comparable arm's-length transaction with a Person
that is not such a holder or an Affiliate;
(ii) if such transaction or series of transactions involves
aggregate consideration in excess of $2 million, then such transaction
or series of transactions is approved by a majority of the Board of
Directors of the Company and is evidenced by a resolution therein; and
(iii) if such transaction or series of transactions involves
aggregate consideration in excess of $10 million, then the Company or
such Restricted Subsidiary shall deliver to the Trustee a written
opinion as to the fairness to the Company or such Restricted Subsidiary
of such transaction from a financial point of view from a nationally
recognized investment banking firm (or, if an investment banking firm is
generally not qualified to give such an opinion, by a nationally
recognized appraisal firm or accounting firm).
The foregoing limitation does not limit, and will not apply to (i) any
transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries; (ii) the payment of reasonable and
customary regular fees to directors of the Company who are not employees of
the Company; (iii) any Restricted Payments not prohibited by Section 1012;
(iv) loans and advances to officers or employees of the Company and its
Subsidiaries not exceeding at any one time outstanding $1.5 million in the
aggregate, made in the ordinary course of business; and (v) arrangements
with TMG, Armstrong and/or its subsidiaries existing on the date of this
Indenture and listed on Schedule A attached thereto as such arrangements
may be extended or renewed; provided that the terms of any arrangement
altered by any such extension or renewal may not be altered in a manner
adverse to the Company or the Holders of the Notes.
SECTION 1016. Limitation on Liens.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, assume or suffer to exist any
Lien (other than Permitted Liens) on any of its assets or properties of any
character (including, without limitation, licenses and trademarks), or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary,
whether owned at the date of this Indenture or thereafter acquired, or any
income, profits or proceeds therefrom, or assign or otherwise convey any
right to receive income thereof, without making effective provision for all
of the Notes and all other amounts ranking pari passu with the Notes to be
directly secured equally and ratably with the obligation or liability
secured by such Lien or, if such obligation or liability is subordinated to
the Notes and other amounts ranking pari passu with the Notes, without
making provision for the Notes and such other amounts to be directly
secured prior to the obligation or liability secured by such Lien.
SECTION 1017. Limitation on Asset Sales.
The Company shall not, and shall not permit any Restricted Subsidiary
to, make any Asset Sale unless (i) the Company or the Restricted
Subsidiary, as the case may be, receives consideration at the time of such
sale or other disposition at least equal to the fair market value of the
assets sold or disposed of as determined by the good faith judgment of the
Board of Directors evidenced by a Board
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Resolution and (ii) at least 80% of the consideration received for such
sale or other disposition consists of cash or cash equivalents or the
assumption of unsubordinated Indebtedness.
The Company shall, or shall cause the relevant Restricted Subsidiary
to, within 270 days after the date of receipt of the Net Cash Proceeds from
an Asset Sale, (i) (A) apply an amount equal to such Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Company or
Indebtedness of any Restricted Subsidiary, in each case owing to a Person
other than the Company or any of its Restricted Subsidiaries, or (B) invest
an equal amount, or the amount not so applied pursuant to clause (A), in
property or assets of a nature or type or that are used in a business (or
in a company having property and assets of a nature or type, or engaged in
a business) similar or related to the nature or type of the property and
assets of, or the business of, the Company and its Restricted Subsidiaries
existing on the date of such investment (as determined in good faith by the
Board of Directors, whose determination shall be conclusive and evidenced
by a Board Resolution) and (ii) apply (no later than the end of the 270-day
period referred to above) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraphs of
this Section 1017. The amount of such Net Cash Proceeds required to be
applied (or to be committed to be applied) during such 270-day period
referred to above in the preceding sentence and not applied as so required
by the end of such period shall constitute "Excess Proceeds".
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as
defined below) totals at least $10 million, the Company must, not later
than the 30th Business Day thereafter, make an offer (an "Excess Proceeds
Offer") to purchase from the Holders on a pro rata basis an aggregate
principal amount of Notes equal to the Excess Proceeds on such date, at a
purchase price equal to 100% of the principal amount of the Notes, plus, in
each case, accrued and unpaid interest and Liquidated Damages, if any, to
the date of purchase (the "Excess Proceeds Payment").
The Company shall commence an Excess Proceeds Offer by mailing a
notice to the Trustee and each Holder stating: (i) that the Excess Proceeds
Offer is being made pursuant to this Section 1017 and that all Notes
validly tendered will be accepted for payment on a pro rata basis; (ii) the
purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is
mailed) (the "Excess Proceeds Payment Date"); (iii) that any Note not
tendered will continue to accrue interest pursuant to its terms; (iv) that,
unless the Company defaults in the payment of the Excess Proceeds Payment
any Note accepted for payment pursuant to the Excess Proceeds Offer shall
cease to accrue interest and Liquidated Damages, if any, on and after the
Excess Proceeds Payment Date; (v) that Holders electing to have a Note
purchased pursuant to the Excess Proceeds Offer will be required to
surrender the Note, together with the form entitled "Option of the Holder
to Elect Purchase" on the reverse side of the Note completed, to the Paying
Agent at the address specified in the notice prior to the close of business
on the Business Day immediately preceding the Excess Proceeds Payment Date;
(vi) that Holders shall be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Excess Proceeds Payment Date, a
telegram, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Notes delivered for purchase and a
statement that such Holder is withdrawing his election to have such Notes
purchased; and (vii) that Holders whose Notes are being purchased only in
part will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered; provided that each Note purchased and
each new Note issued shall be in a principal amount of $1,000 or integral
multiples thereof.
On the Excess Proceeds Payment Date, the Company shall (i) accept for
payment on a pro rata basis Notes or portions thereof tendered pursuant to
the Excess Proceeds Offer; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all
Notes or portions thereof so accepted together with an Officer's
Certificate specifying the Notes or portions thereof accepted for payment
by the Company. The Paying Agent shall promptly mail to the Holders of
Notes so accepted payment in
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an amount equal to the purchase price, and the Trustee shall upon Company
Order promptly authenticate and mail to such Holders a new Note equal in
principal amount to any unpurchased portion of the Note surrendered;
provided that each Note purchased and each new Note issued shall be in a
principal amount of $1,000 or integral multiples thereof. To the extent
that the aggregate principal amount of Notes tendered is less than the
Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. The Company shall publicly announce the results
of the Excess Proceeds Offer as soon as practicable after the Excess
Proceeds Payment Date. For purposes of this Section 1017, the Trustee shall
act as the Paying Agent.
The Company shall comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable, in the event that such Excess Proceeds
are received by the Company under this Section 1017 and the Company is
required to repurchase Notes as described above.
SECTION 1018.Limitation on Issuances of Guarantees of Indebtedness by
Restricted Subsidiaries.
The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company, other than Indebtedness under
Credit Facilities incurred under clause (iii) of paragraph (b) in Section
1011, unless (i) such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture to this Indenture providing for a
Guarantee of the Notes on terms substantially similar to the Guarantee of
such Indebtedness, except that if such Indebtedness is by its express terms
subordinated in right of payment to the Notes, any such assumption,
Guarantee or other liability of such Restricted Subsidiary with respect to
such Indebtedness shall be subordinated in right of payment to such
Restricted Subsidiary's assumption, Guarantee or other liability with
respect to the Notes substantially to the same extent as such Indebtedness
is subordinated to the Notes and (ii) such Restricted Subsidiary waives,
and shall not in any manner whatsoever claim or take the benefit or
advantage of, any rights of reimbursement, indemnity or subrogation or any
other rights against the Company or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its Guarantee.
Notwithstanding the foregoing, any Guarantee by a Restricted
Subsidiary may provide by its terms that it will be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the
Company's and each Restricted Subsidiary's Capital Stock in, or all or
substantially all of the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by this Indenture) or (ii) the
release or discharge of the guarantee which resulted in the creation of
such Guarantee, except a discharge or release by or as a result of payment
under such Guarantee.
SECTION 1019.Business of the Company; Restriction on Transfers of
Existing Business.
The Company shall not, and shall not permit any Restricted Subsidiary
to, be principally engaged in any business or activity other than a
Permitted Business. In addition, the Company and any Restricted Subsidiary
shall not be permitted to, directly or indirectly, transfer to any
Unrestricted Subsidiary (i) any of the licenses, material agreements or
instruments, permits or authorizations used in the Permitted Business of
the Company and any Restricted Subsidiary on the Closing Date or (ii) any
material portion of the "property and equipment" (as such term is used in
the Company's consolidated financial statements) of the Company or any
Restricted Subsidiary used in the licensed service areas of the Company and
any Restricted Subsidiary as they exist on the Closing Date.
SECTION 1020. Limitation on Investments in Unrestricted Subsidiaries.
The Company shall not make, and shall not permit any of its Restricted
Subsidiaries to make, any Investments in Unrestricted Subsidiaries if, at
the time thereof, the aggregate amount of such Investments together with
any other Restricted Payments made after the Closing Date would exceed the
amount of Restricted Payments then permitted to be made pursuant to Section
1012. Any
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Investments in Unrestricted Subsidiaries permitted to be made pursuant to
this covenant (i) shall be treated as the making of a Restricted Payment in
calculating the amount of Restricted Payments made by the Company or a
Subsidiary and (ii) may be made in cash or property (if made in property,
the Fair Market Value thereof as determined by the Board of Directors of
the Company (whose determination shall be conclusive and evidenced by a
Board Resolution) shall be deemed to be the amount of such Investment for
the purpose of clause (i) of this Section 1020).
SECTION 1021. Limitation on Sale-Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any Sale-Leaseback Transaction with respect to
any property of the Company or any of its Restricted Subsidiaries.
Notwithstanding the foregoing, the Company may enter into
Sale-Leaseback Transactions; provided, however, that (a) the Attributable
Value of such Sale-Leaseback Transaction shall be deemed to be Indebtedness
of the Company and (b) after giving pro forma effect to any such Sale-
Leaseback Transaction and the foregoing clause (a), the Company would be
able to incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 1011.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the federal income tax consequences of the
exchange offer and consent solicitation to holders of original FaciliCom notes.
This discussion is general in nature and does not purport to be a complete
analysis of all aspects of federal income taxation that may be relevant to you
in light of your particular circumstances. For example, special rules may apply
to you if you are one of the following types of holders: (i) an insurance
company; (ii) a tax-exempt organization; (iii) an employee stock ownership plan;
(iv) a bank; (v) broker, dealer or financial institution; (vi) a holder that
holds original FaciliCom notes as part of a position in a "straddle" or as part
of a "hedging" or "conversion" transaction for federal income tax purposes;
(vii) a holder that has a "functional currency" other than the United States
dollar; (viii) a holder subject to alternative minimum tax; or (ix) a taxpayer
that is not a citizen or resident of the United States, or that is a foreign
corporation, foreign partnership or foreign estate or trust as to the United
States.
In addition, the discussion does not consider the effect of any foreign,
state, local, or other tax laws, or any tax consequences (for example, estate or
gift tax) other than federal income tax consequences, that may be applicable to
you. Further, this summary assumes that you hold the FaciliCom notes as "capital
assets" (generally, property held for investment) within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the "Code"). This summary
is based on the Code and final, temporary and proposed Treasury regulations
promulgated thereunder, administrative pronouncements and rulings, and judicial
decisions as of the date hereof, all of which are subject to change or differing
interpretations at any time with possible retroactive effect and any such change
could affect the continuing validity of this summary.
World Access has not requested a ruling from the IRS with respect to the
federal income tax consequences of the exchange offer or the consent
solicitation. It is not a condition to either the exchange offer or the consent
solicitation that World Access or FaciliCom receive such a ruling or an opinion
of tax counsel concerning such tax consequences.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO YOU OF THE EXCHANGE OFFER AND
CONSENT SOLICITATION.
TAX CONSIDERATIONS IF YOU EXCHANGE
Receipt of Exchange Consideration. In general, if you tender your original
FaciliCom notes in the exchange offer, the exchange will likely be treated for
federal income tax purposes as either (i) part of our merger with FaciliCom
under Section 368 of the Code, or (ii) a "recapitalization" within the meaning
of Section 368(a)(1)(E) of the Code. If so, then in either case the treatment of
the exchange will be governed under Section 354 of the Code. Under Section 354,
you should not recognize any gain or loss as a result of your receipt of the
exchange notes.
The law is unclear as to how the exchange shares and the cash payment
(collectively referred to in this summary only as the "exchange premium") that
is received by you with respect to your FaciliCom notes exchanged in the
exchange offer should be characterized by the IRS for federal income tax
purposes. World Access believes that such exchange premium should be treated as
additional consideration received by you in the exchange as a premium paid to
retire your FaciliCom notes. In that case, you should not recognize any gain or
loss as a result of your receipt of the exchange shares. However, treatment of
the exchange premium as additional consideration in the exchange will result in
the recognition of gain (but not loss) by you to the extent of the lesser of:
(1) the cash payment received and (2) the gain, if any, realized by you on the
exchange of those FaciliCom notes (i.e., the excess of the "amount realized" on
the exchange, which equals the sum of the "issue price" of the exchange notes,
as determined under either Section 1273 or Section 1274 as discussed below, the
fair market value of the exchange shares and the cash payment over your tax
basis in the FaciliCom notes tendered). Any gain recognized will most likely be
capital gain under Section 356 of the Code, except to the extent of any accrued
market discount on the FaciliCom notes.
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Your basis in the exchange shares and the exchange notes immediately after
the exchange offer will in the aggregate be the same as the basis of your
original FaciliCom notes tendered in the exchange offer, increased by the amount
of gain, if any, you recognized in the exchange offer and decreased by the
amount of the cash payment received (but only if such cash payment is treated as
additional consideration in exchange for your FaciliCom notes as discussed
above). This aggregate basis will be allocated between the exchange notes and
the exchange shares in proportion to the fair market values of such exchange
notes and exchange shares. The holding period of the exchange notes and the
exchange shares you received in the exchange offer will include the period
during which you held your FaciliCom notes tendered in the exchange offer.
It is possible that the IRS could instead take the view that the exchange
premium is (i) a separate payment or fee in order to obtain your consent to the
proposed amendments under the consent solicitation, or (ii) a separate payment
of additional interest on the FaciliCom notes. In either case, this would result
in ordinary income to you in an amount equal to the fair market value of the
exchange shares plus the cash payment received. Your basis for the exchange
shares received as part of the exchange premium would be the fair market value
of such exchange shares upon receipt. Your basis in the exchange notes
immediately after the exchange offer would be the same as the basis of your
original FaciliCom notes tendered in the exchange offer. The holding period for
the exchange shares would begin upon consummation of the exchange offer, while
the holding period for the exchange notes you received in the exchange offer
will include the period during which you held your FaciliCom notes tendered in
the exchange offer.
The first conclusion discussed above that the exchange will likely qualify
as an exchange of debt between parties to our merger with FaciliCom is based on
the likelihood that under the so-called "step transaction doctrine," the IRS
will integrate (i.e., treat as one transaction for federal income tax purposes)
the exchange offer and the consent solicitation with our merger with FaciliCom
under Section 368 of the Code. This is because consummation of the exchange
offer and consent solicitation is conditioned on the closing of the merger, and
vice versa. In this context, and where we understand that none of you are
shareholders of FaciliCom, the IRS published ruling position reflects that the
exchange can qualify as a separate Section 354 exchange occurring pursuant to
our plan of reorganization with FaciliCom under Section 368 of the Code.
This result is also based on the assumption, among others, that the
FaciliCom notes and exchange notes are both "securities" within the meaning of
Section 354 of the Code. Whether a debt instrument constitutes a "security"
depends on the terms, conditions and other facts and circumstances relating to
the instrument. Prominent factors that the IRS and the courts have relied upon
in making this determination include: (a) the term of maturity of the debt; (b)
the collateral securing the debt; (c) the degree of subordination of the debt;
(d) the ratio of debt to equity of the issuer; (e) the riskiness of the business
of the issuer; and (f) the negotiability of the instrument. Generally, notes
with terms to maturity of ten years or more are treated as "securities" under
Section 354. Securities with terms to maturity of five years or less are
generally not treated as "securities" under Section 354. Nevertheless, the IRS
and the courts have taken the position that while the term to maturity is an
important factor, the controlling consideration is an overall evaluation of the
nature of the debt, degree of participation and continuing interest in the
business, the extent of proprietary interest compared with the similarity of the
note to a cash payment, the purposes of the advances, and certain other factors.
Based on all of the factors discussed above, World Access believes that
both the original FaciliCom notes and the exchange notes should be treated as
"securities" under Section 354 and currently expects to report the exchange
offer as a Section 354 exchange for federal income tax purposes on its
consolidated federal income tax return. However, due to the inherently factual
nature of the determination of whether a debt instrument is a security for tax
purposes, the IRS or a court could determine that the original FaciliCom notes
or the exchange notes do not constitute securities.
If either (i) the original FaciliCom notes or the exchange notes are
determined not to be "securities" under Section 354, or (ii) the exchange does
not qualify as an exchange described in Section 354 of the
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Code, then if you participate in the exchange offer you would recognize capital
gain or loss under Section 1001 of the Code equal to the difference between the
"amount realized" on the exchange (i.e., the sum of the "issue price" of the
exchange notes, as determined under either Section 1273 or Section 1274 as
discussed below, the fair market of the exchange shares and the cash payment if
as discussed below, it is determined that the exchange shares and the cash
payment are treated as additional consideration in exchange for your FaciliCom
notes) and your tax basis of the FaciliCom notes tendered. Any gain may be
subject to ordinary income treatment if you acquired the original FaciliCom
notes with "market discount" for federal income tax purposes.
For federal income tax purposes on its consolidated federal income tax
return, World Access currently intends to treat the exchange premium as
additional consideration received by you in the exchange as a premium paid to
retire your FaciliCom notes in the exchange offer. However, no ruling has been
requested from the IRS nor has any opinion of tax counsel been issued regarding
the tax consequences of the receipt of the exchange premium. Thus, no assurance
can be given that the position currently intended to be taken by World Access
described above will be accepted by the IRS.
Accrued Interest. Any portion of the exchange consideration received by
you which is attributable to accrued interest on your FaciliCom notes will be
taxable as ordinary income in accordance with your method of accounting for
federal income tax purposes.
Original Issue Discount. Under Section 1273(b)(3) of the Code and the
Treasury regulations thereunder, if either the FaciliCom notes or the exchange
notes are treated as publicly traded (i.e., is considered "traded on an
established securities market" under the applicable Treasury regulations), then
the exchange notes may be issued with original issue discount ("OID") equal to
the difference between their "issue price" and their stated principal amount.
You would include any OID in income as it accrues on the basis of a constant
yield to the maturity date, and thus would be required to include amounts in
income prior to the date such income is actually paid in cash. Although World
Access understands that the FaciliCom notes are eligible for trading in the
PORTAL market, they are not listed on any securities market. Further, it is
unclear whether there has ever been sufficient trading volume and frequency of
trades of the FaciliCom notes in the PORTAL market in order for such notes to be
considered to be traded on an established securities market. Accordingly, it is
unclear whether the FaciliCom notes are publicly traded.
As for the exchange notes, although they will also be eligible for trading
in the PORTAL market, they too will not be listed on any securities exchange.
Again, it is unclear whether there will be sufficient trading volume and
frequency of trades of the exchange notes in the PORTAL market in order for the
exchange notes to be considered traded on an established securities market.
If the exchange notes are not treated as publicly traded, then under
Section 1274 of the Code and the Treasury regulations thereunder, where neither
the exchange notes or the FaciliCom notes are publicly traded, the issue price
of the exchange notes will be determined (regardless of their actual fair market
value) by reference to their stated principal amount because the exchange notes
will have "adequate stated interest" under Section 1274. Accordingly, if Section
1274 governs, there should be no OID on the exchange notes because there will be
no difference between their issue price and their stated principal amount. The
determination of whether Section 1273(b)(3) or Section 1274 applies cannot be
made until the exchange offer is consummated.
TAX CONSIDERATIONS IF YOU DO NOT EXCHANGE
If you do not exchange your FaciliCom notes in the exchange offer, you
should not recognize gain or loss for federal income tax purposes unless the
second supplemental indenture with respect to the FaciliCom notes becomes
effective and is deemed to constitute a "significant modification" of the
FaciliCom notes under Section 1001 of the Code. Although the changes in the
terms of the FaciliCom notes to be effected by the second supplemental indenture
will likely constitute a significant modification under the applicable Treasury
regulations, and will result in a deemed exchange of an original FaciliCom note
for a " new" FaciliCom note for federal income tax purposes, if you do not
tender your FaciliCom
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notes into the exchange offer, you should not recognize gain or loss on such
deemed exchange since the deemed exchange should also qualify as a
"recapitalization" within the meaning of Section 368(a)(1)(E) of the Code
(assuming that the FaciliCom notes constitute "securities" under Section 354 of
the Code as discussed above). Further, unless the FaciliCom notes are treated as
publicly traded (as discussed above), the deemed reissuance of FaciliCom notes
in such a deemed exchange should not result in the creation of any OID. This is
because like the exchange notes, the reissued FaciliCom notes bear adequate
stated interest under Section 1274 of the Code and as such, their issue price
equals their stated principal amount. If, however, the reissued FaciliCom notes
are treated as publicly traded, then OID will be created upon such deemed
exchange to the extent that their issue price is less than their stated
principal amount.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We must report annually to the IRS and to each holder of FaciliCom notes,
exchange notes and exchange shares the amount of interest paid (including any
OID reportable by such holder) and the dividends paid to such holder,
respectively, and any amount withheld under the backup withholding provisions.
Under the federal income tax backup withholding provisions of the Code and
applicable Treasury regulations, you will be subject to backup withholding at
the rate of 31% with respect to interest and may be subject to backup
withholding at the rate of 31% with respect to the exchange premium received by
you unless you: (a) are a corporation or come within certain other exempt
categories and, when required, demonstrate this fact; or (b) provide a correct
taxpayer identification number to the exchange agent, certify as to no loss of
exemption from backup withholding, and otherwise comply with the applicable
requirements of the backup withholding rules. Any amount withheld under these
rules will be credited against your federal income tax liability. To prevent
backup withholding with respect to the payment of interest, you must complete
and sign a substitute Form W-9, which is included as part of the consent and
letter of transmittal, and return it to the exchange agent. If the exchange
agent is not provided with the correct taxpayer identification number, you may
also be subject to penalties imposed by the IRS. If withholding results in an
overpayment of taxes, a refund may be obtained by you from the IRS provided that
you furnish the required information to the IRS.
WORLD ACCESS
We are a leading provider of international long distance services with
agreements in place to route voice, data and internet traffic throughout the
world. In addition, we are a leading provider of proprietary network equipment
to many of the world's largest telecommunications companies. We market and sell
our services and products to a broad range of customers, including all of the
regional Bell operating companies; other local exchange carriers such as British
Telecom, GTE and ALLTEL; inter-exchange carriers such as MCI WorldCom, AT&T,
Sprint and Cable & Wireless; wireless service providers such as Cellular One,
Comcast Cellular and Price Communications; and other telecommunications service
providers, including competitive access providers, cable television companies
and private network operators. Our revenues and earnings before interest,
expense, income taxes, depreciation and amortization (EBITDA) for the six months
ended June 30, 1999 were $321.3 million and $34.9 million, respectively.
Our telecommunications group provides wholesale and retail international
long distance services through a combination of owned and leased international
network facilities, various international termination relationships and resale
arrangements with other international long distance service providers. Our
digital telecommunications network includes transatlantic cable facilities and
international gateway switches located in Los Angeles, Dallas, Chicago, Newark
and London, England. For the six months ended June 30, 1999, our
Telecommunications Group had revenues and EBITDA of $198.9 million and $9.8
million, respectively.
Our equipment group develops, manufactures and markets network products
that switch and transport voice, data and internet traffic. To support and
complement our product sales, we also provide our customers with a broad range
of network design, engineering, testing, installation and other value-added
services. For the six months ended June 30, 1999, our equipment group had
revenues and earnings before
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interest, expense, income taxes, depreciation and amortization of $122.4 million
and $25.1 million, respectively.
THE MERGER
On August 17, 1999, we announced that we entered into a merger agreement
with FaciliCom, providing that FaciliCom will merge with and into World Access.
Upon consummation of the merger, the separate existence of FaciliCom will cease
and World Access will continue as the surviving corporation. Pursuant to the
terms of the merger agreement, the shareholders of FaciliCom will receive
approximately $436 million in consideration, primarily in the form of
Convertible Preferred Stock, Series C. The Series C Preferred Stock bears no
dividend and is convertible into shares of World Access common stock at a
conversion rate of $20.38 per common share, subject to potential adjustment
under certain circumstances. If the closing trading price of World Access common
stock exceeds $20.38 per share for 60 consecutive trading days, the Series C
Preferred Stock will automatically convert into World Access common stock.
Adoption of the proposed amendments to the FaciliCom indenture is required
to consummate the merger. Accordingly, under the terms of the merger agreement,
the consummation of the merger is conditioned upon the adoption of the proposed
amendments. In addition, the closing of the merger is subject to the approval of
World Access stockholders and certain regulatory agencies. Certain stockholders
of World Access have entered into a voting agreement whereby they have committed
to vote in favor of the merger. The merger is expected to close in the fourth
quarter of 1999 and will be accounted for as a purchase transaction.
We are conducting the exchange offer and consent solicitation in connection
with the merger in order to facilitate the adoption of the proposed amendments.
If the proposed amendments are adopted, we expect that FaciliCom and the trustee
under the indenture for the FaciliCom notes will execute a second supplemental
indenture containing the proposed amendments on the closing date of the merger
that will be effective on that date. We anticipate that the closing of the
exchange offer will occur immediately after the closing of the merger.
BACKGROUND OF THE MERGER
On or about July 16, 1999, Brown Brothers Harriman & Co. was contacted
regarding the possibility of an investment by Brown Brothers Harriman in
FaciliCom. Brown Brothers Harriman, the general partner of The 1818 Fund, which
holds 50,000 shares of World Access Series A preferred stock, was not inclined
to invest in a competitor of World Access, but suggested that FaciliCom and
World Access contact each other directly regarding a potential strategic
alliance. During the week of July 19, 1999, Clifford S. Rees, Executive Vice
President of International Business Development for the World Access
Telecommunications Group, called Walter J. Burmeister, President and Chief
Executive Officer of FaciliCom, to arrange a meeting between members of
management of World Access and FaciliCom.
On the morning of July 26, 1999, John D. Phillips and W. Tod Chmar,
Executive Vice President of World Access, met with Mr. Burmeister and Jeffrey J.
Guzy, Executive Vice President of Sales, Marketing and Product Development of
FaciliCom, at the principal executive offices of FaciliCom in Washington, D.C.
The parties determined that they shared similar views on the outlook for the
international telecommunications industry and the market strategies to be
followed in order to capitalize on the favorable trends expected to occur in the
industry. They also determined that the operating networks and customer bases of
World Access and FaciliCom were complimentary and that the possibility of a
strategic transaction should be explored. Mr. Burmeister indicated that
management of Armstrong Holdings, the indirect controlling stockholder of
FaciliCom, should be contacted and participate in any discussions to be held. At
the request of Mr. Phillips, a meeting between Messrs. Phillips, Chmar and
Burmeister and the senior management of Armstrong Holdings was immediately
scheduled for that afternoon.
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On the afternoon of July 26, 1999, Messrs. Phillips, Chmar and Burmeister
met with Kirby J. Campbell, Chief Executive Officer of Armstrong Holdings, and
Bryan Cipoletti, Vice President of Finance of Armstrong Holdings, at the
principal executive offices of Armstrong Holdings in Butler, Pennsylvania. The
parties discussed the potential advantages of combining the significant
international wholesale, retail and data services revenue base and extensive
carrier-grade European network of FaciliCom with the MCI WorldCom wholesale
carrier service revenues, Equipment Group and financial strength of World
Access. The parties also discussed the advantages of the Equipment Group of
World Access providing funding for the forecasted growth of the combined
companies' services business, the strategy of adding significant retail services
and the expansion of the combined companies' network and future acquisitions in
Europe.
On July 28, 1999, Messrs. Campbell, Cipoletti, Burmeister, Christopher S.
King, Chief Financial Officer of FaciliCom, and representatives of Lehman
Brothers, Inc., financial advisor to FaciliCom, met with Messrs. Phillips and
Chmar and Mark A. Gergel, Executive Vice President and Chief Financial Officer
of World Access, A. Lindsay Wallace, President of the World Access Equipment
Group, and Michael F. Mies, Vice President of Finance and Treasurer of World
Access, at the principal executive offices of World Access in Atlanta, Georgia.
On July 30, 1999, Messrs. Phillips, Chmar and Gergel met with the same
representatives of FaciliCom and Armstrong Holdings in Butler, Pennsylvania and
discussed the relative valuations of World Access and FaciliCom and the
alternative structures of convertible preferred stock to be used as
consideration in a potential merger transaction.
The parties continued to discuss the terms of a possible strategic
transaction during the week of August 2, 1999, and on August 6, 1999 reached a
preliminary understanding on certain principal terms of the merger.
During August 10 through 12, 1999, Messrs. Chmar, Gergel and Mies met with
Messrs. Cipoletti, Burmeister and King, members of FaciliCom's and World Access'
operating management, representatives of Brown Brothers Harriman, including
Lawrence C. Tucker, also a director of World Access, representatives of
Donaldson, Lufkin & Jenrette, financial advisor to World Access, and
representatives of Lehman Brothers at the principal executive offices of
FaciliCom in Washington, D.C. The purpose of these meetings was for each party
to conduct business due diligence and develop a combined business model. In
addition to business due diligence, counsel for World Access reviewed publicly
available documents filed by FaciliCom with the Commission and conducted legal
due diligence on materials provided to it at FaciliCom's Washington, D.C.
offices.
Throughout the week of August 9, 1999, senior management of World Access
had several telephone conferences with each of the members of the World Access
board of directors in order to update the board individually on the discussions
with FaciliCom. On August 13, 1999, the board had a telephonic conference call
during which legal counsel reviewed the terms of a draft of the merger
agreement, which had been provided to the board prior to the call, and advised
the board of its fiduciary duties in the context of the proposed merger.
Donaldson, Lufkin & Jenrette reviewed the preliminary financial terms of the
proposed merger and its analysis thereof. During the call, the members of the
board of directors had extensive discussions regarding the legal and financial
terms of the proposed merger. The board of directors instructed management of
World Access to proceed with its discussions with FaciliCom and FaciliCom
stockholders to finalize the terms of the proposed merger agreement.
On August 16, 1999, the board of directors of World Access met by
telephonic conference call to discuss the terms of the merger, and Donaldson,
Lufkin & Jenrette gave its oral opinion as to the fairness of the consideration
to be paid by World Access pursuant to the merger agreement. Legal counsel
advised the board with respect to, and responded to questions regarding, the
development of negotiations with FaciliCom and certain of the FaciliCom
shareholders. During this conference, the World Access board of directors
unanimously approved the merger agreement and the transactions contemplated by
the merger agreement and unanimously agreed to recommend its adoption to the
stockholders of World Access. On August 17, 1999, Donaldson, Lufkin & Jenrette
forwarded its written opinion regarding the fairness of the consideration to be
paid by World Access pursuant to the merger agreement to the members of the
board of directors of World Access.
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WORLD ACCESS' REASONS FOR THE MERGER
The board of directors of World Access believes that the merger is fair to
and in the best interests of World Access and its stockholders. After
consideration of relevant business, financial, legal and market factors, the
board of directors unanimously approved the merger agreement and the
transactions contemplated by the merger agreement and voted to recommend that
the stockholders of World Access vote for the approval and adoption of the
merger agreement and the transactions contemplated by the merger agreement.
In deciding to approve the merger agreement and to recommend approval and
adoption of the merger agreement by the stockholders of World Access, the World
Access board of directors considered a number of factors, including particularly
the factors listed below. In view of the number and wide variety of factors
considered in connection with its evaluation of the merger, the board of
directors did not consider it practicable to, nor did it attempt to, quantify or
otherwise assign relative weights to the specific factors considered in reaching
its determination. The board of directors viewed its position and recommendation
as being based on the totality of the information and factors presented to and
considered by it. In addition, individual directors may have given different
weight to different information and factors.
The Financial Terms of the Merger. The board of directors of World Access
considered information concerning the business, earnings, operations, financial
condition and prospects of World Access and FaciliCom, both individually and on
a combined basis. The board of directors also considered the financial analyses
and other information with respect to World Access and FaciliCom presented to it
by World Access' financial advisor, as well as the directors' own knowledge of
World Access and FaciliCom and their respective businesses.
FaciliCom's Extensive Facilities-Based International Telecommunications
Network. The board of directors of World Access considered FaciliCom's strong
European presence and the potential for entry into additional deregulating
European countries. The board of directors also considered the technical
capabilities, cost effectiveness and available capacity of FaciliCom's
carrier-grade network in 14 countries and the utilization of this network to
facilitate World Access' global expansion strategy.
Industry Trend Toward Consolidation. The board of directors of World
Access considered the status of the international telecommunications services
industry and the likely trend toward consolidation of service providers. The
board of directors also considered the importance of market position in the
global telecommunications services industry. The board of directors considered
the potential significant cost savings to be achieved as a result of the merger
in order to provide global retail telecommunications services at competitive
rates.
FaciliCom's Established Wholesale Customer Base. The board of directors of
World Access considered the compatibility of FaciliCom's established base of
wholesale customers with World Access' existing wholesale customer base. With
only approximately 20% wholesale customer overlap between World Access and
FaciliCom, the board of directors considered the significant expansion
possibility to be achieved with the addition of approximately 220 wholesale
carrier customers of FaciliCom.
Significant Increase in Offered Services. The board of directors of World
Access considered the additional services offered by FaciliCom, which would be
made available to current and future customers of World Access. Specifically,
the board of directors considered the potential growth opportunities for new
internet and data services.
CLOSING; EFFECTIVE TIME OF THE MERGER
The closing of the merger will take place on the second business day
following the satisfaction or waiver of the conditions to be fulfilled prior to
the closing set forth in the merger agreement, unless another date is agreed to
in writing by World Access, FaciliCom and the FaciliCom stockholders. On the
closing date, World Access and FaciliCom will file a Certificate of Merger with
the Secretary of State of the State of Delaware. We anticipate that, assuming
all conditions are met, the merger will occur prior to December 31, 1999.
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MANAGEMENT OF WORLD ACCESS AFTER THE MERGER
Executive Officers. Following the consummation of the merger, John D.
Phillips, Chairman of the Board, President and Chief Executive Officer of World
Access, and Walter J. Burmeister, President and Chief Executive Officer of
FaciliCom, will share the duties and responsibilities of the President and Chief
Executive Officer of World Access. The parties have not yet determined which
specific offices will be held by each of Messrs. Phillips and Burmeister or the
other current executive officers of FaciliCom. Mr. Burmeister does not have an
employment contract with FaciliCom. For FaciliCom's fiscal year ended September
30, 1997, FaciliCom paid Mr. Burmeister $212,000 in cash compensation. Mr.
Burmeister's compensation arrangements with World Access have not yet been
determined. It is anticipated that the current executive officers of World
Access will continue as executive officers of World Access with their current
duties and responsibilities.
Board of Directors. After the merger, the board of directors of World
Access will consist of twelve members. Six of these twelve are the current
directors of World Access who will continue as directors, and four of these ten
will be designated by the holders of World Access Series C preferred stock. The
current directors of World Access are John D. Phillips, Stephen J. Clearman,
Mark A. Gergel, John P. Imlay, Carl E. Sanders and Lawrence C. Tucker. The
initial designees of the holders of World Access Series C preferred stock to the
board of directors are Dru A. Sedwick, Kirby J. Campbell, Bryan Cipoletti and
Walter J. Burmeister. Of the six continuing directors, The 1818 Fund, as sole
holder of World Access Series A preferred stock, is entitled to designate one
person for recommendation for election by the World Access board of directors to
the stockholders of World Access. Lawrence C. Tucker was so designated by The
1818 Fund. In connection with the closing of the private placement of the $75.0
million of World Access common stock to fund the cash portion of the
consideration payable in the merger and expenses related to the merger, Massimo
Prelz Oltramonti, a Managing Director of Gilbert Global Equity Partners, and
John P. Rigas, Managing Partner of Zilkha Capital Partners, have agreed to join
our board of directors.
Information concerning the six current directors of World Access who will
continue as directors of the World Access after the merger can be found in World
Access' Proxy Statement for its 1999 Annual Meeting held on June 15, 1999. See
"Incorporation of Certain Documents by Reference."
The initial four persons designated by the holders of World Access Series C
preferred stock to be members of the board of directors of World Access after
the merger are as follows:
Walter J. Burmeister (age 60) is one of FaciliCom's co-founders and has
been its Chief Executive Officer, President and one of its directors since it
was founded in 1995. Prior to co-founding FaciliCom, Mr. Burmeister founded
Telecommunications Management Group, a telecommunications consulting firm, and
he has served as its Chairman from 1992 to the present. Before founding this
firm, Mr. Burmeister was Vice President and Chief Financial Officer of Bell
Atlantic International from 1989 to 1992. In these positions, Mr. Burmeister was
responsible for overseeing business development in Central and South America,
the Middle East and Africa, as well as managing that company's financial
affairs. During his 31 years with Bell Atlantic, Mr. Burmeister was Vice
President of Bell of Pennsylvania's and Diamond State Telephone's sales
organization and headed the C&P Telephone Operations Staff. Mr. Burmeister has
served as a director of Skysat Communications Network since 1992.
Kirby J. Campbell (age 52) has served as Treasurer, Vice President and as a
director of FaciliCom since its inception. Since June 1997, Mr. Campbell has
been the Chief Executive Officer of Armstrong Holdings, and since 1993 he has
been Executive Vice President of Armstrong Holdings. Mr. Campbell also holds
various executive and board positions with Armstrong Holdings' affiliated
companies.
Dru A. Sedwick (age 35) has served as Secretary, Vice President and as a
director of FaciliCom since FaciliCom's inception. Since June 1997, Mr. Sedwick
has been President of Armstrong Holdings, and since 1993 he has been Senior Vice
President of Armstrong Holdings. Mr. Sedwick also holds various executive and
board positions with Armstrong Holdings' affiliated companies.
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Bryan Cipoletti (age 39) has been one of FaciliCom's directors since
September 1997. Since 1993, Mr. Cipoletti has been Vice President of Finance of
Armstrong Holdings. Mr. Cipoletti also holds various executive and board
positions with Armstrong Holdings' affiliated companies.
The two people who have agreed to join the World Access board of directors
in connection with the closing of the merger and our private placement of $75.0
million of World Access common stock are as follows:
Massimo Prelz Oltramonti (age 44) is a Managing Director of Gilbert Global
Equity Partners, L.L.C., a private equity firm with a diversified global
investment strategy. He previously served as Managing Director of Advent
International Corporation, the general partner of a series of global private
equity funds. In this capacity, he co-managed the media and telecom investment
activity of Advent International in Europe and was directly responsible for its
investments in Scandinavian Broadcasting Systems SA, Esat Telecom Group plc,
PrimaCom AG, Esaote S.p.A and Jazztel SA. Prior to joining Advent International
in 1991, Mr. Prelz was a partner at Alta Berkeley Associates, a venture capital
group in London. He currently serves as Vice-Chairman of PrimaCom AG and is a
director of Esat Telecom Group plc, Jazztel SA and Iaxis N.V.
John P. Rigas (age 36) is a Managing Partner of Zilkha Capital Partners
L.P., a private equity firm involved in a wide variety of venture capital and
technology investments both in the U.S. and internationally. Mr. Rigas has been
with Zilkha Capital Partners and its predecessor firms for twelve years. He
currently serves as the Chairman of Advanced Interactive Systems Inc. and as a
director of New Colt Holding, Inc. and Omniglo, Inc.
CONSIDERATION TO BE RECEIVED IN THE MERGER
In the merger, the outstanding FaciliCom common stock will be converted
into the right to receive, and certain outstanding options to purchase FaciliCom
common stock will be exchanged for, in the aggregate, (i) an amount of cash
and/or World Access common stock equal in value to $56.0 million, (ii)
approximately 367,400 shares, or $367.4 million in aggregate liquidation
preference, of World Access Series C preferred stock and (iii) approximately
620,000 vested options that each may be exercised for one share of World Access
common stock at an average exercise price of $2.13 per share.
In the event that we are unable to obtain net proceeds from the private
placement of World Access common stock of $56.0 million on or prior to the
closing of the merger, the FaciliCom stockholders and certain of the FaciliCom
optionholders will be entitled to receive, in the aggregate, such number of
shares of World Access common stock as is equal to the cash shortfall divided by
the market price of World Access common stock on the trading day immediately
preceding the closing date plus such number of additional shares of World Access
common stock as will result, upon the resale by such persons of all such shares,
in the aggregate, in net cash proceeds to such persons equal to the cash
shortfall. We have agreed to file a registration statement with the SEC in
connection with the resale of any World Access common stock received by the
stockholders of FaciliCom. We have received commitments from four institutional
investors to purchase $75.0 million of World Access common stock in a private
transaction that is conditioned upon, among other things, and will close
simultaneously with the merger with FaciliCom. We will use the majority of the
proceeds from this private placement to fund the cash portion of the FaciliCom
merger, including related fees and expenses. The World Access common stock to be
issued will be priced at the average trading value of the World Access common
stock during a five day period prior to the closing of the merger, with the
purchase price to be no lower than $13 per share and no higher than $17 per
share. Brown Brothers Harriman & Co. acted as an advisor to us on this
transaction. Descriptions of the World Access Series C preferred stock to be
received by the stockholders of FaciliCom and the treatment of FaciliCom options
in the merger are set forth below.
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Description of World Access Series C Preferred Stock.
Designation. Upon the filing of a Certificate of Designation with the
Secretary of State of the State of Delaware, 367,400 shares of World Access
authorized preferred stock will be designated as "Convertible Preferred Stock,
Series C."
Ranking. The Series C preferred stock will rank, as to dividends, on
parity with the World Access common stock and junior to World Access Series A
preferred stock and Series B preferred stock. The Series C preferred stock will
rank, as to liquidation preference, senior to World Access common stock, on
parity with World Access Series B preferred stock and junior to World Access
Series A preferred stock.
Voting Rights. In addition to any voting rights provided by law, except
with respect to the election of directors, the holders of shares of World Access
Series C preferred stock will be entitled to vote on all matters voted on by the
holders of World Access common stock voting together as a single class with the
holders of World Access common stock, Series A preferred stock, Series B
preferred stock and other shares entitled to vote on those matters. Each holder
of shares of Series C preferred stock will be entitled to cast the number of
votes per share as is equal to the number of votes that such holder would be
entitled to cast had such holder converted its shares of Series C preferred
stock into World Access common stock on the record date for determining the
stockholders eligible to vote on any such matters.
In addition, unless the consent or approval of a greater number of shares
is then required by law, the affirmative vote of the holders of at least 66 2/3%
of the outstanding shares of World Access Series C preferred stock, voting
separately as a single series, will be required to: (i) authorize, increase the
authorized number of shares of or issue any shares of any class or classes of
stock ranking senior to the Series C preferred stock; (ii) authorize, adopt or
approve an amendment to the certificate of incorporation of World Access that
would increase or decrease the par value of the shares of Series C preferred
stock, or alter or change the powers, preferences or special rights of the
shares of Series C preferred stock, or would alter or change the powers,
preferences or special rights of stock ranking senior to the Series C preferred
stock; (iii) amend or alter the certificate of incorporation of World Access so
as to affect the shares of Series C preferred stock adversely and materially;
(iv) authorize or issue any security convertible into, exchangeable for or
evidencing the right to purchase or otherwise receive any shares of any class or
classes of stock ranking senior to the Series C preferred stock; and (v) subject
to certain exceptions set forth in the certificate of designation for the Series
C preferred stock, effect the voluntary liquidation, dissolution, winding up,
recapitalization or reorganization of World Access, or the consolidation or
merger of World Access with or into any other entity (except a wholly-owned
subsidiary of World Access), or the sale or other distribution to another entity
of all or substantially all of the assets of World Access.
Board of Directors Representation. The holders of the outstanding shares
of World Access Series C preferred stock will have the right, voting as a
separate series, to nominate and elect four directors to the board of directors
of World Access, and will not be entitled to vote with respect to the election
of any other directors; provided that on the record date for determining the
stockholders eligible to vote on such matters, at least 15% of the originally
issued shares of Series C preferred stock is outstanding. Notwithstanding the
foregoing, if the World Access common stock issuable upon conversion of the
Series C preferred stock equals less than 20% of the outstanding shares of
capital stock of World Access entitled to vote for the election of directors,
then, so long as the outstanding shares of Series C preferred stock constitute
at least 15% of the originally issued shares of Series C preferred stock, the
holders of Series C preferred stock will have the right to elect, voting as a
separate series, such number of directors which, as a percentage of the total
number of members of the board of directors of World Access, is at least equal
to the percentage of all outstanding shares of capital stock entitled to vote
for the election of directors held by such holders of Series C preferred stock
on an as converted basis.
Conversion Price. The shares of World Access Series C preferred stock will
be convertible into shares of World Access common stock at a conversion rate
equal to one share of World Access common stock per $20.38 of liquidation
preference, subject to adjustment in the event of below market issuances of
World Access common stock, stock dividends, subdivisions, combinations,
reclassifications and other
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distributions with respect to World Access common stock and in certain other
instances specified in the certificate of designation for the Series C preferred
stock.
Mandatory Conversion. If for 60 consecutive trading days the market price,
as defined in the certificate of designation for World Access Series C preferred
stock, of World Access common stock on each such trading day exceeds the
conversion price in effect on each such trading day, then the outstanding shares
of Series C preferred stock will be automatically converted into such number of
shares of World Access common stock as is equal to the number of shares of
Series C preferred stock subject to conversion multiplied by the quotient of the
liquidation preference of the Series C preferred stock divided by the conversion
price in effect on the last trading day of such 60-day period.
In addition, any outstanding shares of Series C preferred stock that have
not been converted into World Access common stock within three years following
the issue date of the Series C preferred stock will automatically be converted
into such number of shares of World Access common stock as is equal to the
number of shares of Series C preferred stock subject to conversion multiplied by
the quotient of the liquidation preference divided by the current market price,
as defined in the certificate of designation for World Access Series C preferred
stock. Notwithstanding the foregoing, the three year conversion price may not be
less than $11.50; if the three year conversion price is less than the market
price on the issue date of the Series C preferred stock and the Nasdaq Composite
Index on the close of business of the three year conversion date is 85% or less
than the Nasdaq Composite Index on the close of business on the issue date of
the Series C preferred stock, then the three year conversion price will be
increased by a percentage equal to that portion in excess of 15%; and the three
year conversion price may not be greater than the conversion price.
Treatment of FaciliCom Stock Options.
FaciliCom 1998 Stock Option Plan. FaciliCom has granted options to
approximately 70 individuals under its 1998 Stock Option Plan, representing
rights to acquire approximately 17,145 shares of non-voting FaciliCom common
stock. Pursuant to the provisions of the FaciliCom 1998 Stock Option Plan, in
the event of a change or exchange of the non-voting FaciliCom common stock, each
share of non-voting FaciliCom common stock subject to each outstanding option
shall be substituted with the number and kind of stock or securities into which
the non-voting FaciliCom common stock is changed or exchanged, with an
appropriate adjustment to the per share option exercise price. In addition,
pursuant to the provisions of the FaciliCom 1998 Stock Option Plan, each
outstanding option granted under that plan shall become fully exercisable upon a
change in control of FaciliCom. For that purpose, the merger will constitute a
change in control of FaciliCom.
In connection with the merger, certain of the options to acquire 17,145
shares of non-voting FaciliCom common stock are expected to be exercised, with
holders receiving merger consideration consistent with other holders of
FaciliCom common stock. We expect the remainder of the options to be exchanged
for cash consideration and/or non-qualified options to acquire approximately
620,000 shares of World Access common stock, based on an appropriate conversion
method to be agreed upon by the parties. The cash consideration and the fair
value of the new options are part of the total consideration to be paid by World
Access in the merger.
FaciliCom 1999 Stock Option Plan. Prior to the consummation of the merger,
FaciliCom will grant stock options under a new FaciliCom 1999 Stock Option Plan
to its employees who are expected to continue with World Access after the
merger. These options will be granted in contemplation of and contingent upon
the merger. Upon consummation of the merger, these options will convert into
non-qualified options to purchase 1,666,667 shares of World Access common stock
at an exercise price of $15.00 per share. These options will become exercisable
in 25% increments on each of the first four anniversaries from the date of
grant. The exercisability will not be accelerated due to the merger.
The exercise of all these options would result in approximately $25.0
million of capital infusion into World Access and may result in significant
income tax benefits for World Access. These options will be granted as
incentives for the FaciliCom employees to continue in their positions following
the merger and
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will not result in a reduction of the number of shares of World Access Series C
preferred stock to be issued in the merger. The value of the 1,666,667 shares of
World Access common stock which may be issued upon exercise of the options is in
addition to the total consideration to be paid by World Access in the merger.
REGULATORY APPROVALS
On September 29, 1999, World Access, the Jud L. Sedwick Grandchildren's
Trust (the ultimate parent entity of FaciliCom) and Walter J. Burmeister (the
ultimate parent entity of BFV Associates, Inc.) each filed a Pre-Merger
Notification and Report Form with the Justice Department and the Federal Trade
Commission pursuant to the Hart-Scott-Rodino Act. Under the Hart-Scott-Rodino
Act, the merger could not have been consummated until at least 30 days after
such filing unless earlier termination of the waiting period was granted. The
Federal Trade Commission granted an early termination of the Hart-Scott-Rodino
Act waiting period, effective October 18, 1999. No further action under the
Hart-Scott-Rodino Act is required so long as the merger is consummated prior to
October 18, 2000. The early termination of the Hart-Scott-Rodino Act waiting
period does not preclude the Justice Department, the Federal Trade Commission or
other parties from seeking actions challenging the merger based on federal
antitrust statutes. We do not anticipate any such challenge.
The transaction also requires notification in certain European countries.
Under the Finnish Competition Act, the merger must be notified and cannot
be consummated until the merger has been approved or certain waiting
periods/investigation periods have expired. The initial waiting period lasts for
30 days from the date that the notification is considered to be complete. If the
Finnish competition authority has not issued its decision prior to the end of
the waiting period, the merger may be consummated. During the initial waiting
period, the Finnish competition authority may decide to open a further
investigation of the transaction. If a further investigation is instituted, the
transaction may not be consummated until a further three month period has
expired, which may be extended to five months in certain cases, or the
transaction has been cleared. Furthermore, the Finnish competition authority may
decide to refer the merger to the Finnish competition council. If the case is
referred to the Finnish competition council, the merger may not be consummated
until the Finnish competition council has issued its decision or a three month
period has expired. The Finnish competition council has the authority to block
the merger. We cannot assure you that a challenge to the merger on competition
law grounds will not be made or that, if such a challenge is made, it would not
be successful in Finland.
Under the German Act Against Restrictions of Competition, the merger must
be notified and cannot be consummated until the merger has been approved or a
one month waiting period has expired without the competition authority deciding
to open further investigation. The waiting period starts from the date that the
notification is considered to be complete. During the initial one month waiting
period, the German competition authority may decide to open a further
investigation of the transaction. If a further investigation is instituted, the
transaction may not be consummated until a further three month period has
expired or the transaction has been cleared. At any time during the period, the
German competition authority may act to block the merger or to impose conditions
upon its consummation. We cannot assure you that a challenge to the merger on
competition law grounds will not be made or that, if such a challenge is made,
it would not be successful in Germany.
The merger must also be notified under the Swedish Competition Act and, if
the merger is notified prior to consummation, it cannot be completed until it
has been approved or a 30 day waiting period has expired. The 30 day waiting
period may be extended if it is decided that the notification was incomplete or
inaccurate. During the waiting period, the Swedish competition authority may
decide to open a further investigation of the merger, in which case the Swedish
competition authority has six months to render a final decision. Swedish law
does not require that notification be completed prior to consummation of the
merger. However, if the filing is delayed and the Swedish competition authority
decides that the merger creates or strengthens a dominant position that would
reduce competition in Sweden, it can declare the merger void with respect to
Sweden or impose conditions. We cannot assure you that a challenge to the
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merger on competition law grounds will not be made or that, if such a challenge
is made, it would not be successful in Sweden.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the World Access board of directors
with respect to the merger, holders of World Access voting stock should be aware
that certain members of World Access' management and board of directors,
including certain of the new directors and executive officers to be appointed by
World Access in connection with the merger, have interests in the merger that
are in addition to the interests of stockholders of World Access in general.
Stock Options Held by John D. Phillips. In connection with the execution
of the merger agreement, Armstrong International Telecommunications, intending
to ensure that John D. Phillips devotes his full time and attention to the
management and operations of World Access, required Mr. Phillips to enter into a
Letter Agreement, dated August 17, 1999, under which Mr. Phillips agreed not to
sell or transfer any of his shares of World Access for a specified period of
time. In consideration for Mr. Phillips' entering into the letter agreement, the
Board of Directors of World Access has agreed to accelerate the exercisability
of currently outstanding options held by Mr. Phillips under the World Access
1998 Stock Option Plan for 1,000,000 shares of World Access common stock at an
exercise price of $12.75 per share. The options were originally scheduled to
vest ratably over a four-year period. Upon consummation of the merger, all of
these options will be immediately exercisable.
Release of Escrowed Shares of World Access Common Stock. In connection
with the acquisition of Cherry U.S. and Cherry U.K. by World Access and related
transactions in December 1998, World Access entered into a Share Exchange
Agreement and Plan of Reorganization, dated as of May 12, 1998, by and among
World Access, WAXS, Inc., Cherry U.K. and Renaissance Partners II pursuant to
which Renaissance Partners II, a Georgia general partnership and the sole
shareholder of Cherry U.K., exchanged all of the issued and outstanding ordinary
shares of Cherry U.K. for 1,875,000 shares of World Access common stock, of
which 1,250,000 shares were placed in escrow and constitute part of the escrowed
shares subject to release or forfeiture based on whether Cherry U.S. and Cherry
U.K. meet certain specified financial performance criteria. These criteria have
not yet been satisfied. Pursuant to the Operating Agreement, dated December 11,
1998, for Resurgens Partners, LLC, of which Renaissance Partners II is the
manager, Renaissance Partners II made a capital contribution to Resurgens
Partners in the form of its interest in 937,500 shares of World Access common
stock, of which 625,000 shares were part of the escrowed shares. Notwithstanding
the performance criteria set forth in the share exchange agreement, the share
exchange agreement provides that all of the escrowed shares shall be released
and shall no longer be subject to forfeiture upon a change of control of World
Access. For the purposes of the share exchange agreement, the merger constitutes
a change of control of World Access.
Mr. Phillips has sole voting and dispositive power over the shares of World
Access common stock owned of record by Renaissance Partners II and Resurgens
Partners. Upon consummation of the merger, Mr. Phillips, and his affiliates, and
Carl E. Sanders and John P. Imlay, Jr., each a director of World Access and each
of whom will be a director of World Access after the merger, will be entitled to
receive the economic benefit of approximately 416,667, 40,000 and 26,667,
respectively, of the released escrowed shares, and Mr. Phillips will have the
sole voting and dispositive power over all of the escrowed shares.
Release of Contingent Shares of World Access Common Stock. In connection
with the acquisition of Cherry U.S. by World Access in December 1998, pursuant
to an Agreement and Plan of Merger and Reorganization, dated May 12, 1998, by
and among World Access, WAXS, Inc., WA Merger Corp. and Cherry U.S., WorldCom
Network Services received 1,310,430 shares of World Access common stock and is
expected to receive an additional 541,902 to 822,986 shares later in 1999 when
all creditor claims against Cherry U.S. are finalized. In addition, 6,250,000
shares of World Access common stock were placed in escrow and constitute part of
the escrowed shares which are subject to release or forfeiture based on whether
Cherry U.K. and Cherry U.S. meet certain specified financial criteria.
Approximately 4,200,000 of these escrowed shares are owned of record by World
Com Network Services. These
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performance criteria have not yet been satisfied. Notwithstanding these
performance criteria, the Cherry merger agreement provides that all of these
escrowed shares shall be released and shall no longer be subject to forfeiture
upon a change of control of World Access. For purposes of the Cherry merger
agreement, the merger constitutes a change of control of World Access, and World
Com Network Services will be entitled to receive approximately 4,200,000 of
these escrowed shares. Lawrence C. Tucker, a director of World Access and a
World Access designee for director of World Access after the merger, is a member
of the board of directors of MCI WorldCom.
While we cannot determine at this time whether the relevant financial
performance criteria for release of the escrowed shares would have been in fact
satisfied, the World Access board of directors, in approving the merger
agreement, considered the release of the escrowed shares in the context of the
overall merger transaction and believed that the relevant performance criteria
would have been satisfied and that the escrowed shares would have been released
in February 2000 and 2001, irrespective of the merger.
FaciliCom Director Designees. The holders of World Access Series C
preferred stock are entitled to elect up to four of the twelve members of the
board of directors of World Access after the merger, subject to maintaining
specified levels of stock ownership. The initial designee directors of the
holders of the Series C preferred stock are Dru A. Sedwick, Kirby J. Campbell,
Bryan Cipoletti and Walter J. Burmeister. Each of Messrs. Sedwick, Campbell and
Cipoletti are executive officers of Armstrong Holdings and hold other executive
and board positions, including on FaciliCom's board of directors, with Armstrong
Holdings affiliated companies and will continue to do so after the consummation
of the merger. Mr. Burmeister is the President and Chief Executive Officer, as
well as a board member, of FaciliCom and will continue to have a significant
management role with the World Access after the merger.
Mr. Burmeister is the beneficial owner of 24,067 shares of FaciliCom common
stock, representing 10.6% of the outstanding FaciliCom common stock, and will be
entitled to receive approximately $5.6 million in cash and/or World Access
common stock and approximately 38,300 shares of World Access Series C preferred
stock pursuant to the merger. Mr. Burmeister also holds FaciliCom stock options
with respect to shares of FaciliCom common stock and, in connection with the
merger, these options are expected to be exchanged for cash, shares of World
Access Series C preferred stock and/or non-qualified options to acquire World
Access common stock.
Management Information Services Agreement Between FaciliCom and Armstrong
Holdings. FaciliCom has an agreement with Armstrong Holdings through which
Armstrong Holdings provides billing and management information support services,
including call collection, processing, rating and reporting for FaciliCom and
its subsidiaries. Armstrong Holdings also provides FaciliCom with access to
experienced management information professionals and computer programmers on an
as-needed basis. This service agreement is expected to continue in effect after
the closing and expires on September 30, 2002. The costs for such services are
as follows:
- professional services are billed at a rate of $65.00 per hour;
- call detail record processing including data center management,
operations and hardware services are billed at a rate per minute of use
dependent upon call volumes;
- AS/400 disk storage services are billed at a rate of $25.00 per gigabyte;
- software applications and direct hardware FaciliCom purchases are billed
at actual cost; and
- telecommunications facilities are billed based on the actual facilities
it uses.
Armstrong Holdings has the right to increase the cost of its services upon
30 days' written notice if there is a change in the underlying cost of providing
these services. During the nine months ended June 30, 1999 and the fiscal years
ended September 30, 1998, 1997 and 1996, FaciliCom paid $2.2 million, $1.5
million, $431,000 and $0, respectively, to Armstrong Holdings for the management
information services Armstrong Holdings provided FaciliCom under this agreement
and an earlier agreement. Armstrong Holdings provides similar services to other
telecommunications companies with
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which it is affiliated. FaciliCom believes that the terms of this agreement with
Armstrong Holdings are competitive with similar agreements offered by other
providers of management information services.
Financial Accounting Services Agreement Between FaciliCom and Armstrong
Holdings. FaciliCom also has an agreement with Judco Management Services, Inc.,
an affiliate of Armstrong Holdings, for Judco to provide certain financial
accounting services to it, such as payroll, accounts payable, human resources
support services and income tax return preparation and compliance services. The
costs for these services are as follows:
- human resources and payroll processing is billed at $6.75 per check;
- accounts payable invoice and check processing is billed at $3.50 per
invoice; and
- income tax return preparation is billed at $80.00 per hour.
Judco has the right to increase the cost of its services upon 30 days'
written notice if there is a change in the underlying cost of providing these
services. Judco provides similar services to other telecommunications companies
with which it is affiliated at comparable prices. FaciliCom believes that the
benefits to it of this agreement with Judco are competitive with similar
agreements offered by providers of comparable financial and accounting services.
This service agreement is expected to continue in effect at the closing. The
agreement expires on September 30, 2000, and shall be automatically renewed for
successive terms of two years unless either party provides written notice of its
intent to terminate the agreement at least 180 days prior to the end of the
original term of any then current term.
FaciliCom's payments under this agreement for the nine months ended June
30, 1999 and for fiscal 1998, fiscal 1997 and fiscal 1996 were $43,818, $30,000,
$8,000 and $7,000, respectively.
Armstrong Holdings Guarantee of FaciliCom Credit Facility and Letters of
Credit. Armstrong Holdings serves as guarantor for any borrowings up to $35.0
million under FaciliCom's credit facility with Key Corporate Capital, Inc. In
addition, an affiliated company of Armstrong Holdings has issued letters of
credit on behalf of FaciliCom totaling approximately $7.2 million as of June 30,
1999. The termination of this guarantee and these letters of credit on terms and
conditions reasonably satisfactory to FaciliCom are conditions to the
obligations of FaciliCom and the FaciliCom stockholders to complete the merger.
FaciliCom Management Relationship with Telecommunications Management
Group. Mr. Burmeister and Juan Carlos Valls, Executive Vice
President -- Business Development of FaciliCom, are the co-founders, sole
stockholders and directors of Telecommunications Management Group, an
international telecommunications consulting company. During 1997, FaciliCom used
the consulting services of Telecommunications Management Group principally for
exploring business development opportunities in Latin America. Since FaciliCom's
inception, Mr. Burmeister has devoted less than 5% of his working time to
performing services for this entity. Prior to January 1, 1998, at which time he
was hired as one of FaciliCom's executive officers, Mr. Valls devoted all of his
working time to performing services for Telecommunications Management Group.
Since January 1, 1998, Mr. Valls has devoted less than 5% of his working time to
performing services for this entity. Since becoming FaciliCom's employees,
neither Mr. Burmeister nor Mr. Valls has provided to FaciliCom any of the
services provided by Telecommunications Management Group. FaciliCom paid
Telecommunications Management Group fees of $0; $60,000; $85,097 and $58,274 in
the nine months ended June 30, 1999 and the fiscal years ended September 30,
1998, 1997 and 1996, respectively. FaciliCom believes that the fees it has paid
to Telecommunications Management Group for its services are competitive with
those charged for comparable services by other companies in the industry.
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RELATED AGREEMENTS
VOTING AGREEMENT
FaciliCom, Armstrong International Telecommunications, BFV Associates,
Inc., Epic Interests, Inc., WorldCom Network Services, The 1818 Fund and John D.
Phillips have entered into a voting agreement, dated August 17, 1999 pursuant to
which each of the World Access shareholders has agreed to vote all of its or his
shares of World Access voting stock, whether owned beneficially or of record, as
well as any other shares such World Access shareholder acquires beneficial
ownership of after the date of the voting agreement, in favor of the merger and
the adoption and approval of the merger agreement and the transactions
contemplated by the merger agreement. Pursuant to the voting agreement, the
World Access shareholders have also agreed to vote against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of World Access
under the merger agreement, and any action or agreement that would materially
impede, interfere with, delay or postpone or that would reasonably be expected
to discourage the merger. The voting agreement, and all rights and obligations
thereunder, terminate upon the first to occur of the consummation of the merger,
the termination of the merger agreement, or February 28, 2000. As of the date of
this prospectus, these World Access shareholders own, beneficially or of record,
shares of World Access voting stock representing approximately 24.1% of the
voting stock of the World Access voting together as a single class.
LETTER AGREEMENT
John D. Phillips and Armstrong International Telecommunications have
entered into a letter agreement, pursuant to which Mr. Phillips has agreed not
to sell or transfer, directly or indirectly, any shares of World Access common
stock held by him, including his personal interest in such shares held by
Renaissance Partners II and Resurgens Partners and any shares received upon
exercise of World Access stock options or warrants, without the prior written
consent of Armstrong International Telecommunications for so long as Armstrong
International Telecommunications or any of its affiliates remains a stockholder
of the World Access. The provisions of the letter agreement terminate upon Mr.
Phillips' death or disability, any decision to remove, or to not reelect, Mr.
Phillips as the Chief Executive Officer of World Access in which at least 50% of
the directors elected by the holders of the Series C Preferred Stock (or, upon
conversion into or other acquisition of World Access common stock, by 50% of the
directors nominated, designated or elected by the FaciliCom shareholders, or
their affiliates) vote in favor of such removal or fail to vote in favor of such
reelection, the 5th anniversary of the closing in the event that Mr. Phillips is
no longer Chief Executive Officer of World Access for any reason, and upon a
change of control of World Access.
REGISTRATION RIGHTS AGREEMENT
World Access has agreed to enter into a registration rights agreement with
certain FaciliCom stockholders pursuant to which World Access will grant certain
rights to such persons to cause World Access to register their shares of World
Access common stock, including World Access common stock issued or issuable upon
conversion of the Series C Preferred Stock and securities issued or issuable
with respect to such shares of World Access common stock by way of dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise.
Demand Registration Rights. At any time after the date of the registration
rights agreement, one or more holders of an aggregate of at least 25% of the
total number of shares of World Access common stock issued or issuable upon
conversion of the Series C Preferred Stock may demand that World Access register
its or their registrable securities under the Securities Act. Other holders of
registrable securities and holders of World Access securities with the right to
participate in a World Access registration statement will have the right to
include their shares in such a demand registration; provided, however, that if
the facilitating broker/dealer or, in an underwritten offering, the lead
managing underwriter advises that marketing factors require a limitation on the
number of shares to be sold, the number of shares to be
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included in the sale or underwriting and registration will be allocated pro rata
among the initiating holders and the holders seeking registration on the basis
of the estimated proceeds from the sale of the securities covered by such
registration. World Access will not be required to effect more than four Demand
Registrations in the aggregate or more than one demand registration within any
12-month period occurring immediately subsequent to the effectiveness of a
demand registration. Notwithstanding the foregoing, a demand registration will
not be deemed to have been effected unless, among other things, (x) a
registration statement with respect thereto has become effective and remains
effective in compliance with the Securities Act until the earlier of (1) such
time as all of such registrable securities covered by the registration statement
have been disposed of and (2) 180 days after the effective date of such
registration with respect to any registration statement filed pursuant to Rule
415 under the Securities Act or (y) if, when effective, it includes fewer than
75% of the number of shares of registrable securities of the initiating holders
which were the subject matter of the demand.
Piggyback Registration Rights. Subject to certain exceptions set forth in
the registration rights agreement, if at any time World Access proposes to
register any shares of World Access common stock or any securities convertible
into World Access common stock under the Securities Act by registration on any
form other than Forms S-4 or S-8, each holder of registrable securities will
have the right to include in such registration statement such number of
registrable securities as it requests. If the managing underwriter of any
underwritten offering informs World Access that the number of registrable
securities requested to be included in such registration would materially affect
such offering, then World Access will include in such offering, to the extent of
the number and type that World Access is advised can be sold in such offering,
and subject to the rights described in section 2.1(f) of the registration rights
agreement, dated as of April 21, 1999, between World Access and The 1818 Fund,
first, all securities proposed to be sold by World Access for its own account,
second, such registrable securities requested to be included in such
registration and securities of other persons who have the right to require that
their securities be included in such registration, pro rata on the basis of the
estimated proceeds from the sale thereof, and third, all other securities
proposed to be registered.
Expenses. World Access will pay all registration expenses, except for
underwriting commissions or discounts, in connection with the first and second
demand registrations. Each holder of registrable securities whose registrable
securities are included in the third and fourth demand registrations will pay
its proportionate share of the registration expenses (including underwriting
commissions or discounts) on the basis of such holder's share of the gross
proceeds from the sale of its registrable securities. World Access will pay all
registration expenses in connection with any piggyback registration.
Expiration of Registration Rights. Registrable securities will cease to be
registrable securities and, therefore, no longer have registration rights
pursuant to the registration rights agreement when (i) a registration statement
with respect to the sale of such securities has become effective under the
Securities Act and such securities have been disposed of in accordance with the
registration statement, (ii) they have been sold as permitted by Rule 144 under
the Securities Act and the purchaser thereof does not receive "restricted
securities" as defined in Rule 144, (iii) they have been otherwise transferred,
new certificates for them not bearing a legend restricting further transfer have
been delivered by World Access and subsequent public distribution of them will
not, in the opinion of counsel for the holders, require registration under the
Securities Act or (iv) they have ceased to be outstanding.
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RELATED TRANSACTIONS
RELEASE OF ESCROWED SHARES
Prior to October 1997, Cherry U.S. and Cherry U.K. were under the
operational and financial direction and control of James R. Elliot, Chairman of
the Board and Chief Executive Officer of Cherry U.S., an 80.1% owner of the
outstanding shares of the common stock of Cherry U.S., and the owner of all the
issued and outstanding capital stock of Cherry U.K.. In the second half of 1997,
Mr. Elliot sought financial assistance from WorldCom Network Services, already a
significant creditor of Cherry U.S. and the owner of the remaining outstanding
shares of Cherry U.S. stock. In October 1997, Cherry U.S., WorldCom Network
Services, Cherry U.K., Mr. Elliot and John D. Phillips entered into a series of
agreements pursuant to which Cherry U.S. retained Mr. Phillips to engineer a
turnaround and reorganization of the financially ailing Cherry U.S. These
agreements also culminated in, among other things, Mr. Phillips obtaining the
right to acquire at least 50% of the total outstanding amount of each of the
Cherry U.K. stock and the Cherry U.S. stock held by Mr. Elliot. In December
1997, Mr. Elliot resigned as director, officer and employee of Cherry U.S. and
exercised his right to have all of his Cherry U.K. stock sold to Mr. Phillips.
As part of the acquisition of Cherry U.S. and Cherry U.K., World Access
entered into the Cherry merger agreement and the share exchange agreement. The
Cherry merger agreement provided that the creditors of Cherry U.S., in
satisfaction of their claims against Cherry U.S., would receive an aggregate of
9,375,000 shares of World Access common stock, of which 6,250,000 shares were to
be held in escrow as part of the escrowed shares and are subject to forfeiture
in the event the combined business of Cherry U.S. and Cherry U.K. failed to meet
certain financial performance criteria. As a creditor of Cherry U.S., WorldCom
Network Services became eligible to receive up to a total of 6,638,096 shares of
World Access common stock. Of that amount, 1,310,430 shares have been issued to
WorldCom Network Services. Upon resolution of the total amount of claims against
Cherry U.S. for which shares of World Access common stock are to be issued,
WorldCom Network Services will receive a minimum of 541,902 and a maximum of
822,986 additional shares. Assuming the full amount of the escrowed shares are
issued to Cherry U.S. creditors, WorldCom Network Services could receive a
minimum of 3,911,172 and a maximum of 4,504,680 shares, depending on the
resolution of the total claims against Cherry U.S. for which shares are to be
issued. At the present time, WorldCom Network Services votes or has the power to
direct the voting of an aggregate of 6,074,372 shares of World Access common
stock.
The share exchange agreement provided that Renaissance Partners II, a
Georgia limited partnership formed by, among others, Mr. Phillips to be the sole
shareholder of Cherry U.K., and the manager of Resurgens Partners, was to
receive an aggregate of 1,875,000 shares of World Access common stock, 625,000
of which were issued upon consummation of the Cherry acquisition and 1,250,000
of which are held in escrow as part of the escrowed shares and are subject to
forfeiture in the event the combined business of Cherry U.S. and Cherry U.K.
fail to meet certain financial performance criteria.
While we cannot determine at this time whether the relevant financial
performance criteria for the release of the escrowed shares would have been in
fact satisfied, the World Access board of directors, in approving the merger
agreement, considered the release of the escrowed shares as a result of the
merger and in the context of the overall merger transaction and believed that
the relevant performance criteria would have been satisfied and that the
escrowed shares would have been released in February 2000 and 2001, irrespective
of the merger.
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PRINCIPAL STOCKHOLDERS
Our only issued and outstanding classes of voting securities are World
Access common stock, Series A preferred stock and Series B preferred stock. As
of the date of this prospectus, there were shares of World Access
common stock issued and outstanding, 50,000 shares of Series A preferred stock
issued and outstanding (convertible into 4,347,826 shares of World Access common
stock) and 23,174 shares of Series B preferred stock issued and outstanding
(convertible into 1,448,375 shares of World Access common stock). The 1818 Fund
and Comm/Net Holding Corporation own 100% of the issued and outstanding Series A
preferred stock and Series B preferred stock, respectively.
The following table sets forth information regarding the beneficial
ownership of World Access common stock as of , 1999 for (i) each
person known by World Access to beneficially own more than 5% of the World
Access common stock, (ii) each director individually, (iii) each executive
officer who would be a "Named Executive Officer" of World Access under Rule 402
of Regulation S-K and (iv) all directors and, Named Executive Officers as a
group.
<TABLE>
<CAPTION>
SHARES UNDER
EXERCISABLE TOTAL SHARES
SHARES OPTIONS AND BENEFICIALLY PERCENTAGE
NAME OWNED(1) WARRANTS(2) OWNED(1) OWNED
---- --------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
WorldCom Network Services, Inc.(3)
500 Clinton Center Drive
Clinton, MS 39056......................... 6,074,372 -- 6,074,372 13.5%
The 1818 Fund III, L.P.(4)
59 Wall Street
New York, NY 10005........................ 4,347,826 1,739,130 6,086,956 11.9
Comm/Net Holding Corporation(5)
2301 Ohio Drive, Suite 285
Plano, TX 75093........................... 1,448,375 -- 1,448,375 3.1
John D. Phillips+++(6)...................... 1,875,000 184,340 2,059,340 4.5
Stephen J. Clearman++....................... 52,210 117,000 169,210 *
Mark A. Gergel+++(7)........................ 26,683 171,500 198,183 *
John P. Imlay, Jr.+......................... 1,900 129,000 130,900 *
Carl E. Sanders+............................ 10,000 129,000 139,000 *
Lawrence C. Tucker+(4)...................... 4,347,826 1,839,130 6,186,956 12.0
A. Lindsay Wallace++(7)..................... 309 122,380 122,689 *
All directors and Named Executive Officers
as a group (9 persons)(8)................. 6,313,928 2,692,350 9,006,278 17.3
</TABLE>
- ---------------
* Less than one percent
+ Director
++ Named Executive Officer
(1) Beneficial ownership has been determined in accordance with Rule 13d-3 under
the Exchange Act. Unless otherwise noted, World Access believes that all
persons named in the table have sole voting and investment power with
respect to all shares of World Access common stock beneficially owned by
them.
(2) Includes shares which may be acquired by the exercise of stock options and
warrants granted by World Access and exercisable on or before
, 1999.
(3) In connection with World Access' acquisition of Cherry U.S., World Access
issued shares of World Access common stock to the creditors of Cherry U.S.,
including WorldCom Network Services, a wholly owned subsidiary of MCI
WorldCom, in satisfaction of their claims against Cherry U.S. WorldCom
Network Services is eligible to receive up to a total of 6,638,096 shares of
World Access common stock. Of this amount, 1,310,430 shares have been issued
to WorldCom Network Services. Upon resolution of the total amount of claims
against Cherry U.S. for which World Access' shares are to be issued,
WorldCom Network Services will receive a minimum of 541,902 and a maximum of
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822,986 shares. This distribution is expected to occur by the end of 1999.
Additional shares of World Access common stock were placed into escrow in
connection with the acquisition and were to be released to Cherry U.S.
creditors in February 2000 and February 2001, subject to the attainment of
certain earnings levels by Cherry U.S. and Cherry U.K. during 1999 and 2000,
respectively. Assuming the full amount of shares held in escrow are issued
to Cherry U.S. creditors, WorldCom Network Services could receive a minimum
of 3,911,172 and a maximum of 4,504,680 shares, depending on the resolution
of the total claims against Cherry U.S. for which shares are to be issued.
At the present time, WorldCom Network Services votes or has the power to
direct the voting of an aggregate of 6,074,372 shares of World Access common
stock. The merger will constitute a "change of control" of World Access
under the Cherry merger agreement and as a result, upon consummation of the
merger, all shares currently held in escrow will be released to Cherry U.S.
creditors.
(4) Represents 4,347,826 shares of World Access common stock issuable upon the
conversion of 50,000 shares of Series A preferred stock owned of record by
The 1818 Fund, a private equity partnership, and 1,739,130 shares of World
Access common stock reserved for issuance upon the conversion of 20,000
shares of World Access Series A preferred stock, which is subject to an
option held by The 1818 Fund. The general partner of The 1818 Fund is Brown
Brothers Harriman. Mr. Tucker, a partner at Brown Brothers Harriman, is
deemed to be the beneficial owner of these shares due to his role as
co-manager of The 1818 Fund.
(5) Represents 1,448,375 shares of World Access common stock issuable upon the
conversion of the 23,174 shares of World Access Series B preferred stock
owned of record by Comm/Net Holding Corporation.
(6) Represents 937,500 shares owned of record by Renaissance Partners II and
937,500 shares owned of record by Resurgens Partners. Renaissance Partners
II is the manager of Resurgens Partners and, as such, has sole voting and
dispositive power over the shares of the World Access common stock owned of
record by Resurgens Partners. Mr. Phillips beneficially owns a majority of
the general partnership interests of Renaissance and, as such, has sole
voting and dispositive power over the shares of the World Access common
stock owned of record by Renaissance Partners II and sole indirect voting
and dispositive power over the shares of the World Access common stock owned
of record by Resurgens Partners. Of the aggregate 1,875,000 shares of World
Access common stock owned of record by Renaissance Partners II and Resurgens
Partners, an aggregate of 1,250,000 shares (625,000 owned of record by each
of Renaissance Partners II and Resurgens Partners) were placed into escrow
in connection with the acquisition of Cherry U.K. and were to be released to
Renaissance Partners II and Resurgens Partners in February 2000 and February
2001, subject to the attainment of certain earnings levels by Cherry U.S.
and Cherry U.K. during 1999 and 2000, respectively. The merger will
constitute a change of control of World Access under the share exchange
agreement and as a result, upon consummation of the merger, all shares
currently held in escrow will be released to Renaissance Partners II and
Resurgens Partners.
(7) Includes the following shares of World Access common stock acquired through
voluntary employee contributions to World Access' 401(k) Plan and
contributed to the 401(k) Plan by World Access under a matching contribution
program offered to all 401(k) Plan participants: Mr. Gergel -- 3,933 shares;
and Mr. Wallace -- 309 shares.
(8) Includes W. Tod Chmar and Dennis E. Bay, two Named Executive Officers of
World Access that currently have no beneficial ownership of World Access
common stock and no stock options or warrants exercisable on or before
, 1999.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements of World Access give
effect to several transactions completed by World Access in 1998 and the pending
merger with FaciliCom. The Unaudited Pro Forma Combined Statements of Operations
give effect to (i) World Access' merger with Telco Systems, Inc. on November 30,
1998, (ii) World Access' merger with Cherry Communications Incorporated, d/b/a
Resurgens Communications Group, and Cherry Communications U.K. Limited, on
December 15, 1998 and (iii) the pending merger of World Access and FaciliCom
including the note exchange as each of these mergers had occurred on January 1,
1998. The Unaudited Pro Forma Combined Balance Sheet gives effect to the pending
merger of World Access and FaciliCom as if it had been completed as of June 30,
1999. Cherry Communications Incorporated and Cherry Communications U.K. are
collectively referred to in these unaudited pro forma financial statements as
Resurgens.
The pro forma financial statements have been prepared to demonstrate how
these combined businesses might have looked if the mergers and merger related
transactions, including a private offering of $75.0 million of World Access
Common Stock, had been completed as of the dates or at the beginning of the
periods presented. We expect that we will have reorganization and restructuring
expenses and potential synergies as a result of combining World Access and
FaciliCom. The unaudited pro forma financial statements do not reflect these
expenses and synergies. The unaudited pro forma financial statements are
preliminary and subject to change based on a final review of the fair values of
FaciliCom's net assets as of the actual merger date.
The pro forma financial statements, while helpful in illustrating
characteristics of the combined company under one set of assumptions, does not
attempt to predict or suggest future results. The pro forma financial statements
do not attempt to show how the combined company would actually have been
combined throughout these periods.
The pro forma adjustments are based upon currently available information
and upon certain assumptions set forth below that we believe are reasonable.
Each of the merger transactions above has been accounted for using the purchase
method of accounting. The adjustments recorded in the Unaudited Pro Forma
Combined Statements of Operations represent our preliminary determination of
these adjustments based upon available information. We cannot assure you that
the actual adjustments will not differ significantly from the pro forma
adjustments reflected in the Unaudited Pro Forma Combined Statements of
Operations.
In connection with the acquisition of Telco, we recorded a $50.3 million
charge, representing the portion of the purchase price allocated to in-process
research and development. Since this charge was directly related to the
acquisition and will not recur, the Unaudited Pro Forma Combined Statement of
Operations for the year ended December 31, 1998 has been prepared excluding this
one-time non-recurring charge.
The unaudited pro forma financial statements are presented for comparative
purposes only and are not intended to be indicative of the actual results had
these transactions occurred as of the dates indicated above nor do they purport
to indicate results which may be attained in the future. The unaudited pro forma
financial statements should be read in conjunction with the historical
consolidated financial statements of World Access, FaciliCom, Telco and
Resurgens which are included herein or incorporated herein by reference.
127
<PAGE> 131
WORLD ACCESS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
WORLD PRO FORMA PRO FORMA
ACCESS(1) FACILICOM(3) ADJUSTMENTS WORLD ACCESS
--------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents.................. $ 98,996 $ 18,696 $ 5,750(6) $ 123,442
Accounts receivable................... 97,342 98,542 -- 195,884
Marketable securities -- restricted... -- 31,755 -- 31,755
Inventories........................... 45,216 -- -- 45,216
Other current assets.................. 54,929 6,067 -- 60,996
-------- -------- -------- ----------
Total Current Assets.......... 296,483 155,060 5,750 457,293
Property and equipment.................. 62,325 185,768 -- 248,093
Goodwill and other intangibles.......... 309,540 13,862 (13,199)(8) 874,204
460,271(5)
103,730(7)
Marketable securities -- restricted..... -- 29,525 -- 29,525
Other assets............................ 24,798 550 -- 25,348
-------- -------- -------- ----------
Total Assets.................. $693,146 $384,765 $556,552 $1,634,463
======== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt....................... $ 12,285 $ 21,837 $ -- $ 34,122
Accounts payable...................... 58,393 126,423 -- 184,816
Other accrued liabilities............. 45,744 38,476 -- 84,220
-------- -------- -------- ----------
Total Current Liabilities..... 116,422 186,736 -- 303,158
Long-term debt.......................... 140,728 304,166 (15,000)(5) 429,894
Noncurrent liabilities.................. 10,204 -- -- 10,204
-------- -------- -------- ----------
Total Liabilities............. 267,354 490,902 (15,000) 743,256
-------- -------- -------- ----------
Stockholders' Equity
Preferred stock....................... 1 -- 4(5) 5
Common stock.......................... 448 2 (2)(4) 512
11(5)
53(6)
Capital in excess of par value........ 544,481 37,658 (37,658)(4) 1,009,828
287,420(5)
103,730(7)
74,197(6)
Stock-based compensation.............. -- 5,546 (5,546)(4) --
Foreign currency translation
adjustment......................... -- (5,819) 5,819(4) --
Accumulated deficit................... (119,138) (143,524) 143,524(4) (119,138)
-------- -------- -------- ----------
Total Stockholders' Equity.... 425,792 (106,137) 571,552 891,207
-------- -------- -------- ----------
Total Liabilities and
Stockholders' Equity........ $693,146 $384,765 $556,552 $1,634,463
======== ======== ======== ==========
</TABLE>
128
<PAGE> 132
WORLD ACCESS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WORLD PRO FORMA PRO FORMA
ACCESS(1) FACILICOM(3) ADJUSTMENTS WORLD ACCESS
--------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Carrier service revenues................... $198,891 $173,257 $ (4,340)(10) $367,808
Equipment sales............................ 122,360 -- -- 122,360
-------- -------- -------- --------
Total Sales.............................. 321,251 173,257 (4,340) 490,168
Cost of carrier services................... 185,232 160,810 (3,690)(10) 342,352
Cost of equipment sold..................... 68,690 -- -- 68,690
Amortization of acquired technology........ 2,400 -- -- 2,400
-------- -------- -------- --------
Total Cost of Sales...................... 256,322 160,810 (3,690) 413,442
-------- -------- -------- --------
Gross Profit............................. 64,929 12,447 (650) 76,726
Research and development................... 8,773 -- -- 8,773
Selling, general and administrative........ 27,486 33,152 -- 60,638
Amortization of goodwill................... 6,369 634 13,470(15) 20,473
Provision for doubtful accounts............ 1,453 2,817 -- 4,270
-------- -------- -------- --------
Operating Income (Loss).................. 20,848 (24,156) (14,120) (17,428)
Foreign exchange loss...................... -- (1,290) -- (1,290)
Interest and other income.................. 1,506 2,762 -- 4,268
Interest expense........................... (4,604) (16,907) (4,540)(9) (26,051)
-------- -------- -------- --------
Income (Loss) From Continuing Operations
Before Income Taxes................... 17,750 (39,591) (18,660) (40,501)
Income taxes (benefits).................... 9,357 (5,576) (2,000)(17) 1,781
-------- -------- -------- --------
Income (Loss) From Continuing
Operations............................ 8,393 (34,015) (16,660) (42,282)
Preferred stock dividends.................. 413 -- -- 413
-------- -------- -------- --------
Income (Loss) From Continuing Operations
Available to Common Stockholders...... $ 7,980 $(34,015) $(16,660) $(42,695)
======== ======== ======== ========
Income (Loss) From Continuing Operations
Per Common Share:
Basic.................................... $ 0.22 $ (0.85)(18)
======== ========
Diluted.................................. $ 0.22 $ (0.85)(18)
======== ========
Weighted Average Shares Outstanding:
Basic.................................... 36,232 50,102(18)
======== ========
Diluted.................................. 38,446 50,102(18)
======== ========
</TABLE>
129
<PAGE> 133
WORLD ACCESS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD PRO FORMA WORLD
ACCESS(1) TELCO(2) RESURGENS(2) FACILICOM(3) ADJUSTMENTS ACCESS
--------- -------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Carrier service revenues..... $ 13,143 $ -- $126,324 $184,246 $ (2,520)(10) $ 321,193
Equipment sales.............. 138,990 96,367 -- -- -- 235,357
--------- -------- -------- -------- -------- ---------
Total Sales................ 152,133 96,367 $126,324 184,246 (2,520) 556,550
Cost of carrier sales........ 12,522 -- 145,043 178,952 (2,140)(10) 333,147
(1,230)(12)
Cost of equipment sold....... 73,842 64,416 -- -- (400)(11) 137,858
Write-down of inventories.... 9,292 --...... -- -- -- 9,292
Amortization of acquired
technology................. 446 -- -- -- 3,900(13) 4,346
--------- -------- -------- -------- -------- ---------
Total Cost of Sales........ 96,102 64,416 145,043 178,952 130 484,643
--------- -------- -------- -------- -------- ---------
Gross Profit............... 56,031 31,951 (18,719) 5,294 (2,650) 71,907
Research and development..... 6,842 15,265 -- -- -- 22,107
Selling, general and
administrative............. 19,984 22,295 38,569 43,599 780(14) 125,227
Amortization of goodwill..... 4,255 800 -- 961 38,010(15) 44,026
In-process research and
development................ 100,300 15,585 -- -- (50,300)(16) 65,585
Goodwill impairment.......... 6,200 -- -- -- -- 6,200
Provision for doubtful
accounts................... 11,332 589 2,294 4,620 -- 18,835
Restructuring and other
charges.................... 17,240 -- -- -- -- 17,240
--------- -------- -------- -------- -------- ---------
Operating Income (Loss).... (110,122) (22,583) (59,582) (43,886) 8,860 (227,313)
Foreign exchange loss........ (391) -- (391)
Interest and other income.... 3,419 2,194 -- 8,943 -- 13,739
Interest and other expense... (6,832) (127) (9,457) (22,612) (19,880)(9) (58,091)
--------- -------- -------- -------- -------- ---------
Loss Before Income Taxes
and Minority Interests... (113,535) (20,516) (69,039) (57,946) (11,020) (272,056)
Income taxes (benefits)...... (1,387) 300 -- (11,351) (8,970)(17) (21,408)
--------- -------- -------- -------- -------- ---------
Loss Before Minority
Interests................ (112,148) (20,816) (69,039) (46,595) (2,050) (250,648)
Minority interests in
earnings of subsidiary..... 2,497 -- -- -- -- 2,497
--------- -------- -------- -------- -------- ---------
Loss From Continuing
Operations............... $(114,645) $(20,816) $(69,039) $(46,595) (2,050) $(253,145)
========= ======== ======== ======== ======== =========
Loss From Continuing
Operations
Per Common Share:
Basic...................... $ (5.19) $ (5.52)(18)
========= =========
Diluted.................... $ (5.19) $ (5.52)(18)
========= =========
Weighted Average Shares
Outstanding:
Basic...................... 22,073 45,897(18)
========= =========
Diluted.................... 22,073 45,897(18)
========= =========
</TABLE>
130
<PAGE> 134
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. These columns represent the historical results of operations and
financial position of World Access. With respect to the information
included in the Unaudited Pro Forma Results of Operations for the year
ended December 31, 1998, the World Access information includes the
results for the following businesses from their respective dates of
acquisition: Advanced TechCom, Inc. -- January 1998; NACT
Telecommunications, Inc. -- February 1998; Telco -- November 1998; and
Resurgens -- December 1998.
2. These columns represent the historical results of Telco for the period
January 1, 1998 to November 29, 1998 and Resurgens for the period
January 1, 1998 to December 14, 1998.
3. These columns represent the historical results of operations and
financial position of FaciliCom. With respect to the information
included in the Unaudited Pro Forma Combined Statements of Operations
for the year ended December 31, 1998 and the six months ended June 30,
1999, the FaciliCom information is for the twelve months ended
September 30, 1998 and the six months ended March 31, 1999,
respectively.
4. Eliminate the historical FaciliCom stockholders' equity accounts.
5. The FaciliCom merger will be accounted for under the purchase method
of accounting. World Access has not determined the final allocation of
the purchase price, and accordingly, the amount ultimately determined
may differ significantly from the amounts shown below.
The preliminary purchase price and goodwill is currently estimated as
follows (in thousands):
<TABLE>
<S> <C>
Purchase price:
Issuance of preferred stock(i)............................ $264,530
Cash...................................................... 56,000
Issuance of common stock(ii).............................. 15,000
Fair value of World Access options issued in exchange for
FaciliCom options(iii)................................. 7,905
Fees and expenses......................................... 12,500
--------
Total estimated purchase price.................... $355,935
--------
Allocation to fair values:
Historical stockholders' deficit.......................... 106,137
Adjust assets and liabilities:
Eliminate historical goodwill and debt issue costs........ 13,199
Discount on World Access 13.25% Senior Notes(iv).......... (15,000)
--------
Preliminary goodwill.............................. $460,271
========
</TABLE>
- ---------------
(i) Represents the fair value of the 367,400 shares of Series C Preferred
Stock to be issued as part of the FaciliCom merger consideration. The
fair value was computed using the Black-Scholes Option Pricing Model
assuming a volatility factor of 45%, a risk free rate of 6% and a 10%
discount for the lack of liquidity in a private security.
(ii) In connection with the merger of World Access and FaciliCom, holders
of the FaciliCom Senior Notes have agreed to tender their notes and
accept in exchange for each $1,000 in principal amount (i) $1,000
principal amount of World Access 13.25% Senior Notes due 2008 (the
World Access Notes) having an aggregate principal amount of $300.0
million (ii) $10 in cash for an aggregate amount of $3.0 million
which represents the fee paid by World Access to obtain the consent
from the FaciliCom note holders waiving their right to put their
notes at 101% of par in connection with the FaciliCom merger, and
(iii) World Access common stock having a market value of $50, as
measured at the time of the exchange for an aggregate amount of $15.0
million. For purposes of these pro forma financial statements,
1,062,000 shares were
131
<PAGE> 135
WORLD ACCESS, INC
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
assumed issued based upon the closing trading price on Nasdaq on
June 30, 1999 for the World Access common stock, which was $14.13.
(iii) Represents the fair value of approximately 620,000 World Access
options, computed using the Black-Scholes Option Pricing Model,
issued in exchange for certain of the FaciliCom options outstanding
prior to the consummation of the FaciliCom merger. The assumptions
used in the Black-Scholes model are: dividend yield 0%, volatility
70%, risk free interest rate of 5.8% and an expected life of 5
years. The World Access options were issued at an average exercise
price of $2.13 per share and will be fully vested upon the
consummation of the FaciliCom merger.
(iv) Represents the discount to face value to be recorded to adjust the
World Access 13.25% Senior Notes exchanged for the FaciliCom Senior
Notes to the estimated fair market value.
6. In connection with the FaciliCom merger, World Access has received
commitments from four investors to purchase $75.0 million of World
Access common stock in a private transaction that is conditioned upon
and will close simultaneously with the FaciliCom merger. World Access
will use the majority of the proceeds from this private placement to
fund the $56.0 million of merger consideration as well as the expenses
of the merger, currently estimated at $12.5 million. The World Access
common stock to be issued will be priced by the Company at the average
trading value of World Access' common stock during a five day period
prior to the closing of the FaciliCom merger, with the purchase price
to be no lower than $13 per share and no higher than $17 per share.
For purposes of these pro forma financial statements, 5,308,000 shares
were assumed issued based upon the closing trading price on Nasdaq on
June 30, 1999 for the World Access common stock, which was $14.13.
7. In December 1998, World Access acquired Resurgens and issued
approximately 7,500,000 restricted shares of World Access Common Stock
which were placed in escrow for future release contingent upon their
future EBITDA performance. The release of these shares is accelerated
in connection with the FaciliCom merger as the FaciliCom merger
qualifies as a "Change in Control" as defined in the Resurgens merger
agreements. The release of the 7,500,000 shares has been accounted for
as an increase in goodwill and stockholders' equity. These shares were
valued based on the average market price on Nasdaq of World Access
common stock for the three days prior and the three days subsequent to
the date economic terms of the FaciliCom merger were announced (August
17, 1999), or $13.83.
8. Eliminate of existing goodwill from prior FaciliCom acquisitions and
debt issue costs associated with the FaciliCom Senior Notes.
9. Represents the adjustment to interest expense related to the exchange
of FaciliCom Senior Notes which bear interest at 10 1/2% for World
Access Notes and the amortization of the $15.0 million debt discount
related to the World Access Notes over a period of eight years.
10. Eliminate inter-company carrier service revenues and related costs.
11. Record an adjustment to depreciation expense related to the write-down
of certain redundant equipment at Telco.
12. Record an adjustment to depreciation expense for the adjustment to fair
value of switching equipment and the adjustment to amortization expense
for the adjustment to fair market values of the license agreements at
Resurgens.
132
<PAGE> 136
WORLD ACCESS, INC
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. Amortization of acquired technology relating to the Telco acquisition
over 8 years.
14. Amortization of trademarks of Telco over 8 years.
15. Amortization of goodwill over an estimated life of 20 years.
16. To eliminate the one-time, non-recurring in-process research and
development charge recorded in connection with the Telco merger.
17. Adjust the tax benefit for the additional tax benefit derived from
certain pro forma adjustments. World Access has not recorded any tax
benefit on a pro forma basis that may be derived from FaciliCom's net
operating losses.
18. Represents pro forma weighted average shares and basic and diluted
earnings from continuing operations per share. The weighted average
shares are computed assuming the issuance of approximately 7,042,000
and 3,687,500 shares of World Access Common Stock for the Telco and
Resurgens mergers, respectively, an aggregate of approximately
5,308,000 shares issued for $75.0 million in connection with the
private placement of World Access Common Stock, an aggregate of
1,062,000 shares issued to the holders of the FaciliCom Senior Notes
and 7,500,000 shares released from escrow related to the acceleration
of the Resurgens earn-out (see Note 7) as of the beginning of the
periods presented. Due to the pro forma loss from continuing operations
for the six months ended June 30, 1999 and the year ended December 31,
1998, potential common stock shares related to stock options, stock
warrants, convertible notes and convertible preferred stock have been
excluded from the diluted loss per share as the inclusion of these
potential common stock shares would be anti-dilutive.
133
<PAGE> 137
FACILICOM'S MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
FaciliCom is a rapidly growing multinational carrier focused on providing
international wholesale telecommunications services to other carriers worldwide.
As a facilities-based carrier, FaciliCom seeks primarily to provide service over
its facilities and international transmission capacity owned or leased on a
fixed-cost basis (commonly referred to as "on-net"). FaciliCom believes that it
is better able to control the quality and the termination costs of on-net
traffic and that increasing the proportion of on-net traffic significantly
improves its gross margins. For the nine months ended June 30, 1999, 41.7% of
FaciliCom's wholesale international traffic was terminated on-net and 58.3% was
terminated by other long distance carriers pursuant to resale and operating
agreements between FaciliCom and such carriers (commonly referred to as
"off-net"). FaciliCom's expanding facility-based network will enable it to
increase the percentage of on-net traffic.
FaciliCom provides its services over a carrier-grade international network
consisting of international gateway switches, transmission capacity owned or
leased on a fixed-cost basis and various multinational termination agreements
and resale arrangements with other long distance providers. FaciliCom began
generating revenues in July 1995 through its acquisition of FCI-Sweden, formerly
Nordiska Tele8 AB. Since that time, FaciliCom has installed or acquired 16
additional international gateway switches in the United States (New York, New
Jersey, Los Angeles and Miami) and Europe (United Kingdom, The Netherlands,
Germany, Finland, Denmark, France, Norway, Switzerland, Italy, Austria, Spain
and Belgium).
FaciliCom's strategy is to invest in network facilities as it expands its
customer base, allowing it to enhance service quality and increase gross margins
on particular routes. However, this approach also causes FaciliCom's gross
margins to fluctuate with changes in network utilization due to FaciliCom's
fixed-cost investment in its network.
Currently, FaciliCom's revenues are generated through the sale of
international long distance services on a wholesale basis to telecommunications
carriers and through the sale of domestic and international long distance
services on a retail basis in Sweden, Denmark, Norway and Finland. FaciliCom
records revenues from the sale of telecommunications services at the time of
customer usage. FaciliCom earns revenues based on the number of minutes it bills
to and collects from its customers. FaciliCom's agreements with its wholesale
customers are short-term in duration and are subject to significant traffic
variability. The rates charged to customers are subject to change from time to
time, generally requiring seven days' notice to the customer.
FaciliCom believes its services are competitively priced in each country in
which it offers its services. Prices for wholesale and retail telecommunications
services in many of FaciliCom's markets have declined in recent years as a
result of deregulation and increased competition. FaciliCom believes that
worldwide deregulation and increased competition are likely to continue to
reduce its wholesale and retail revenues per billed minute of use. FaciliCom
believes, however, that any decrease in wholesale and retail revenues per minute
will be at least partially offset by an increase in billed minutes by its
wholesale and retail customers, and by a decreased cost per billed minute.
FaciliCom has made since its inception, and expects to continue to make,
investments to expand its network. FaciliCom expects increased capital
expenditures in the future to affect its operating results due to increased
depreciation charges and interest expense in connection with borrowings to fund
such expenditures.
134
<PAGE> 138
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
unaudited financial data and related percentage of revenues (dollars in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, YEARS ENDED SEPTEMBER 30,
------------------------------------- ---------------------------------------------------------
1999 1998 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $279,695 100.0% $117,146 100.0% $184,246 100.0% $ 70,187 100.0% $11,891 100.0%
Cost of revenues....... 257,253 92.0 114,473 97.7 178,952 97.1 65,718 93.6 12,742 107.2
-------- ----- -------- ----- -------- ----- -------- ----- ------- -----
Gross Margin........... 22,442 8.0 2,673 2.3 5,294 2.9 4,469 6.4 (851) (7.2)
-------- ----- -------- ----- -------- ----- -------- ----- ------- -----
Operating expenses:
Selling, general and
administrative
(including related
party)............. 40,354 14.5 21,834 18.6 32,797 17.8 13,072 18.6 7,575 63.7
Stock-based
compensation
expense............ 364 0.1 5,706 4.9 6,017 3.3 -- -- -- --
Related party
expenses........... -- -- -- -- 1,550 0.8 439 0.6 7 0.1
Depreciation and
amortization....... 16,895 6.0 5,314 4.5 8,816 4.8 2,318 3.3 1,143 9.6
-------- ----- -------- ----- -------- ----- -------- ----- ------- -----
Total operating
expenses....... 57,613 20.6 32,854 28.1 49,180 26.7 15,829 22.6 8,725 73.4
-------- ----- -------- ----- -------- ----- -------- ----- ------- -----
Operating loss......... (35,171) (12.6) (30,181) (25.8) (43,886) (23.8) (11,360) (16.2) (9,576) (80.6)
-------- ----- -------- ----- -------- ----- -------- ----- ------- -----
Other income (expense):
Interest expense
(including related
party)............. (25,690) (9.2) (14,539) (12.4) (22,612) (12.3) (1,336) (1.9) (312) (2.6)
Interest income...... 3,646 1.3 5,594 4.8 8,152 4.4 -- -- -- --
Gain on settlement
agreement.......... -- -- 791 0.7 791 0.5 -- -- -- --
Foreign exchange
(loss) gain........ (1,346) (0.5) (655) (0.6) (391) (0.2) (1,335) (1.9) 226 1.9
-------- ----- -------- ----- -------- ----- -------- ----- ------- -----
Total other income
(expense)........ (23,390) (8.4) (8,809) (7.5) (14,060) (7.6) (2,671) (3.8) (86) (0.7)
-------- ----- -------- ----- -------- ----- -------- ----- ------- -----
Loss before income
taxes................ (58,561) (21.0) (38,990) (33.3) (57,946) (31.4) (14,031) (20.0) (9,662) (81.3)
Income tax benefit..... 6,682 2.4 6,475 5.5 11,351 6.1 -- -- -- --
-------- ----- -------- ----- -------- ----- -------- ----- ------- -----
Net loss............... $(51,879) (18.6)% $(32,515) (27.8)% $(46,595) (25.3)% $(14,031) (20.0)% $(9,662) (81.3)%
======== ===== ======== ===== ======== ===== ======== ===== ======= =====
</TABLE>
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AS COMPARED TO THE NINE MONTHS ENDED
JUNE 30, 1998
Revenues increased by $162.5 million to $279.7 million for the nine months
ended June 30, 1999, from $117.1 million for the nine months ended June 30,
1998. The growth in revenues resulted primarily from an increase in billed
customer minutes of use generated from an increase in wholesale customers in the
U.S. and Europe. Many of the new wholesale customers relate to newly deployed
and activated switch facilities in Europe. Offsetting the growth in billed
customer minutes of use during this period was a decrease in the price per
billed minute to $0.194 for the nine months ended June 30, 1999, from $0.233 for
the nine months ended June 30, 1998. The unit revenue decrease is the combined
result of increases in the percentage of on-net traffic and increased
competition. For the nine months ended June 30, 1999, U.S. revenues totaled
$121.6 million or 43.5% of FaciliCom's consolidated revenues and European
revenues totaled $158.1 million, or 56.5% of consolidated revenues. Billed
minutes of use increased by 935.3 million, to 1,438.7 million minutes of use for
the nine months ended June 30, 1999, from 503.3 million minutes of use for the
nine months ended June 30, 1998.
Wholesale customers increased by 106, or 93.0%, to 220 wholesale customers
at June 30, 1999 from 114 wholesale customers at June 30, 1998. As of June 30,
1999 FaciliCom had approximately 52,000 retail customers in Sweden, Denmark,
Finland and Norway.
135
<PAGE> 139
Cost of revenues increased by $142.8 million to $257.3 million for the nine
months ended June 30, 1999, from $114.5 million for the nine months ended June
30, 1998. As a percentage of revenues, cost of revenues decreased to 92.0% for
the nine months ended June 30, 1999, from 97.7% for the nine months ended June
30, 1998, primarily as a result of increased minutes of use on FaciliCom's
network, improved efficiencies of network fiber facilities due to higher traffic
volumes and reductions in rates charged by FaciliCom's carrier suppliers.
FaciliCom expects cost of revenues as a percentage of revenues to decrease as a
result of improved efficiencies of network fiber facilities due to higher
traffic volumes as well as from an anticipated increase in the percentage of
on-net traffic.
Gross margin increased by $19.8 million to $22.4 million for the nine
months ended June 30, 1999, from $2.7 million for the nine months ended June 30,
1998. As a percentage of revenues, gross margin increased to 8.0% for the nine
months ended June 30, 1999, from 2.3% for the nine months ended June 30, 1998.
Selling, general and administrative expenses increased by $13.2 million to
$40.7 million for the nine months ended June 30, 1999, from $27.5 million for
the nine months ended June 30, 1998, primarily as a result of FaciliCom's
increased sales and an increase in customer service, billing, collections and
accounting staff required to support revenues growth. Offsetting these increased
expenses was a reduction in stock-based compensation related to FaciliCom's
stock options. As a percentage of revenues, selling, general and administrative
expenses decreased to 14.6% for the nine months ended June 30, 1999, from 23.5%
for the nine months ended June 30, 1998. Bad debt expense was $4.6 million, or
1.6% of revenues for the nine months ended June 30, 1999, compared with $1.8
million, or 1.5% of revenues for the nine months ended June 30, 1998. Although
selling, general and administrative expenses are expected to increase on an
absolute basis in order to support expansion of its operations, FaciliCom
expects that selling, general and administrative expenses as a percentage of
revenues will continue to decrease over time.
Depreciation and amortization increased by $11.6 million to $16.9 million
for the nine months ended June 30, 1999, from $5.3 million for the nine months
ended June 30, 1998, primarily due to increased capital expenditures incurred in
connection with the deployment and expansion of FaciliCom's network.
Interest expense increased by $11.2 million to $25.7 million for the nine
months ended June 30, 1999, from $14.5 million for the nine months ended June
30, 1998, primarily due to interest obligations on the FaciliCom notes which
were issued on January 28, 1998.
Interest income decreased by $1.9 million to $3.6 million for the nine
months ended June 30, 1999, from $5.6 million for the nine months ended June 30,
1998 as the proceeds from the FaciliCom notes offering have been used to service
interest payments and fund capital expenditures.
Foreign exchange loss increased by $0.7 million to $1.3 million for the
nine months ended June 30, 1999, from $655,000 for the nine months ended June
30, 1998.
Income tax benefit of $6.7 million and $6.5 million was recorded for the
nine months ended June 30, 1999 and 1998, respectively, related principally to
the estimated tax benefits utilized by Armstrong Holdings.
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998, AS COMPARED TO THE FISCAL YEAR
ENDED SEPTEMBER 30, 1997
Revenues increased by $114.1 million to $184.2 million for the fiscal year
ended September 30, 1998, from $70.2 million for the fiscal year ended September
30, 1997. The growth in revenue resulted primarily from an increase in billed
customer minutes of use resulting from an increase in wholesale customers in the
U.S. and Europe and an increase in retail customers in Sweden, Denmark and
Finland, as well as usage increases from existing wholesale customers.
Offsetting the growth in revenue during this period was a decrease in the price
per billed minute to $0.225 for the fiscal year ended September 30, 1998, from
$0.278 for the fiscal year ended September 30, 1997, as a result of increased
on-net traffic and competition. For the fiscal year ended September 30, 1998,
U.S. revenues totaled $116.4 million or 63.2%
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of FaciliCom's consolidated revenues and European revenues totaled $67.8
million, or 36.8% of consolidated revenues. Billed minutes of use increased by
568.1 million, to 820.3 million minutes of use for the fiscal year ended
September 30, 1998, from 252.3 million minutes of use for the fiscal year ended
September 30, 1997.
Wholesale customers increased by 86, or 162.3%, to 139 wholesale customers
at September 30, 1998, from 53 at September 30, 1997. As of September 30, 1998
retail customers in Sweden, Denmark and Finland total approximately 43,300.
Cost of revenues increased by $113.3 million, to $179.0 million for the
fiscal year ended September 30, 1998, from $65.7 million for the fiscal year
ended September 30, 1997. As a percentage of revenues, cost of revenues
increased to 97.1% for the fiscal year ended September 30, 1998, from 93.6% for
the fiscal year ended September 30, 1997, primarily as a result of increased
fixed costs associated with expanding inter-switch fiber capacity within the
U.S. and Europe. FaciliCom expects cost of revenues as a percentage of revenues
to decrease as a result of improved efficiencies of network fiber facilities due
to higher traffic volumes as well as from an anticipated increase in the
percentage of on-net traffic.
Gross margin increased by $825,000 to $5.3 million for the fiscal year
ended September 30, 1998, from $4.5 million for the fiscal year ended September
30, 1997. As a percentage of revenues, gross margin decreased to 2.9% for the
fiscal year ended September 30, 1998, from 6.4% for the fiscal year ended
September 30, 1997.
Selling, general and administrative expenses increased by $26.9 million to
$40.4 million for the fiscal year ended September 30, 1998, from $13.5 million
for the fiscal year ended September 30, 1997, primarily as a result of
FaciliCom's increased sales, an increase in customer service, billing,
collections and accounting staff required to support revenue growth, and
approximately $6.0 million of expenses related to stock-based compensation
arrangements. As a percentage of revenues, selling, general and administrative
expenses increased to 21.9% for the fiscal year ended September 30, 1998, from
19.3% for the fiscal year ended September 30, 1997. Bad debt expense was $3.8
million, or 2.0% of revenues for the fiscal year ended September 30, 1998,
compared with $1.3 million, or 1.8% of revenues for the fiscal year ended
September 30, 1997, as a result of increased revenue and new customers.
Depreciation and amortization increased by $6.5 million to $8.8 million for
the fiscal year ended September 30, 1998, from $2.3 million for the fiscal year
ended September 30, 1997, primarily due to increased capital expenditures
incurred in connection with the deployment and expansion of FaciliCom's network.
Interest expense increased by $21.3 million to $22.6 million for the fiscal
year ended September 30, 1998, from $1.3 million for the fiscal year ended
September 30, 1997, primarily due to the offering of the FaciliCom notes.
Interest income for the fiscal year ended September 30, 1998, was $8.2
million and related principally to interest on proceeds from the FaciliCom notes
offering, which were invested in marketable securities and cash and cash
equivalents.
Foreign exchange loss decreased by $944,000 to $391,000 for the fiscal year
ended September 30, 1998, from $1.3 million for the fiscal year ended September
30, 1997.
Income tax benefit of $11.4 million was recorded for the fiscal year ended
September 30, 1998 related mainly to a tax benefit of $12.1 million utilized by
Armstrong Holdings, a $393,000 tax charge related to the change in tax status as
a result of a reorganization of FaciliCom on December 22, 1997 and approximately
$302,000 tax charge for taxes in Finland.
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997, AS COMPARED TO THE FISCAL YEAR
ENDED SEPTEMBER 30, 1996
Revenues increased by $58.3 million to $70.2 million in the fiscal year
ended September 30, 1997, from $11.9 million in the fiscal year ended September
30, 1996. The growth in revenue resulted primarily
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from an increase in billed customer minutes of use resulting from an increased
number of wholesale customers in the U.S., the U.K. and Scandinavia and an
increased number of retail customers in Sweden, as well as usage increases from
existing wholesale customers. Offsetting the growth in revenue during this
period was a decrease in the price per billed minute of 3.5%, to $0.278 for the
fiscal year ended September 30, 1997 from $0.288 for the fiscal year ended
September 30, 1996, as a result of increased competition. In the fiscal year
ended September 30, 1997, U.S. revenues totaled $53.7 million, or 76.5% of
FaciliCom's consolidated revenues, Swedish revenues totaled $15.5 million, or
22.1% of consolidated revenues, and U.K. revenues totaled $1.0 million, or 1.4%
of consolidated revenues.
Wholesale customers increased by 36, or 211.8%, to 53 wholesale customers
at September 30, 1997, from 17 at September 30, 1996. Retail customers in Sweden
increased by 10,750, to 12,365 retail customers at September 30, 1997, from
1,615 at September 30, 1996. Billed minutes of use increased by 211.0 million,
to 252.3 million minutes of use in the fiscal year ended September 30, 1997,
from 41.3 million minutes of use in the fiscal year ended September 30, 1996.
Cost of revenues increased by $53.0 million, to $65.7 million in the fiscal
year ended September 30, 1997, from $12.7 million in the fiscal year ended
September 30, 1996. As a percentage of revenues, cost of revenues declined to
93.6% in the fiscal year ended September 30, 1997, from 107.2% in the fiscal
year ended September 30, 1996, primarily as a result of increased minutes of use
on FaciliCom's network, improved efficiencies of network facilities due to
higher traffic volumes and reductions in rates charged by FaciliCom's carrier
suppliers.
Gross margin increased to $4.5 million in the fiscal year ended September
30, 1997, from ($851,000) in the fiscal year ended September 30, 1996. As a
percentage of revenues, gross margin increased to 6.4% in the fiscal year ended
September 30, 1997, from (7.2%) in the fiscal year ended September 30, 1996.
Selling, general and administrative expenses increased by $5.9 million to
$13.5 million in the fiscal year ended September 30, 1997, from $7.6 million in
the fiscal year ended September 30, 1996, primarily as a result of FaciliCom's
increased sales, and an increase in customer service, billing, collections and
accounting staff required to support revenue growth. Staff levels grew by 30, or
47.6%, to 93 employees at September 30, 1997, from 63 employees at September 30,
1996. As a percentage of revenues, selling, general and administrative expenses
decreased to 19.3% in the fiscal year ended September 30, 1997, from 63.8% in
the fiscal year ended September 30, 1996, as a result of improved efficiencies.
Bad debt expense was $1.3 million for the fiscal year ended September 30, 1997,
or 1.8% of revenues.
Depreciation and amortization expenses increased by $1.2 million to $2.3
million in the fiscal year ended September 30, 1997, from $1.1 million in the
fiscal year ended September 30, 1996, primarily due to increased capital
expenditures incurred in connection with the deployment and expansion of
FaciliCom's network.
Interest expense, net increased by $1.0 million to $1.3 million in the
fiscal year ended September 30, 1997, from $312,000 in the fiscal year ended
September 30, 1996, primarily due to increased levels of vendor financing and
loans from Armstrong International Telecommunications.
Foreign exchange gain (loss) decreased by $1.5 million to ($1.3) million in
the fiscal year ended September 30, 1997, from $226,000 in the fiscal year ended
September 30, 1996.
Income taxes were $0 for both years, as all net operating losses from
foreign subsidiaries were fully reserved.
LIQUIDITY AND CAPITAL RESOURCES
FaciliCom has incurred significant operating losses and negative cash flows
as a result of the development and operation of its network, including the
acquisition and maintenance of switches and undersea fiber optic capacity.
FaciliCom has financed its growth primarily through equity, a credit facility
provided by Armstrong, credit facilities with two equipment vendors, capital
lease financing, the proceeds from the $300 million offering of the FaciliCom
notes and proceeds from a line of credit.
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Net cash provided by (used in) operating activities was ($30.3) million for
the nine months ended June 30, 1999 due principally to a net loss of $51.9
million offset in part by depreciation and amortization expense of $16.9
million.
Net cash provided by (used in) investing activities was ($18.2) million for
the nine months ended June 30, 1999. Net cash used in investing activities in
this period resulted from an increase in capital expenditures to expand
FaciliCom's network offset in part by the sale of marketable securities.
Net cash provided by (used in) financing activities was ($742,000) for the
nine months ended June 30, 1999. Net cash used in financing activities for the
nine months ended June 30, 1999 resulted from payments on existing long-term
debt and capital leases offset in part by proceeds from FaciliCom's line of
credit bank facility.
In May 1999, FaciliCom obtained a one-year, $35 million credit facility
with Key Corporate Capital, Inc. FaciliCom uses the proceeds of this credit
facility for working capital and for general corporate purposes. At June 30,
1999, FaciliCom had $10.0 million in borrowings under this credit facility.
Non-cash financing activities for the nine months ended June 30, 1999
resulted from the financing of fiber circuits provided by Qwest Communications
Corporation.
FaciliCom's business strategy contemplates aggregate capital expenditures
of approximately $100 million during fiscal year 1999. Such capital expenditures
are expected to be used primarily for international gateway switches, points of
presence, transmission equipment, undersea and international fiber circuits
(including indefeasible right of use and minimum assignable ownership units for
new and existing routes and other support systems.
In May 1998, FaciliCom entered into a Memorandum of Understanding with
Qwest. The agreement provides Qwest with international direct dial termination
service to various destinations and provides FaciliCom an indefeasible right of
use for domestic and international fiber optic capacity. The indefeasible right
of use is for twenty-five years, for which FaciliCom has agreed to pay $24
million within three years of delivery of the fiber optic capacity. Delivery of
the three capacity segments occurred during the twelve months ended September
30, 1999.
In addition, FaciliCom has entered into an agreement that provides it with
an indefeasible right of use for international fiber optic capacity for the
Pacific Rim. Delivery of the capacity under the agreement is expected prior to
April 2000. The indefeasible right of use is for 15 years, for which FaciliCom
has agreed to pay $20.0 million through September 30, 2002, of which $2.5
million has already been paid as a deposit and an additional $2.5 million is
expected to be paid on April 30, 2000.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measuring those instruments at fair value, with the potential effect on
operations dependent upon certain conditions being met. The statement (as
amended by SFAS No. 137) is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. FaciliCom has yet to determine any impact the
implementation of the standard will have on its financial position or results of
operations.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define the applicable year, resulting in
date-sensitive software having the potential, among other things, to recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities, which could have
material adverse operational and financial consequences. Currently, FaciliCom
believes that a disruption in the operation of its networks, billing system and
financial and accounting systems
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and/or an inability to access interconnections with other telecommunications
carriers, are the major risks associated with the inability of systems and
software to process Year 2000 data correctly. If the systems of other companies
on whose services FaciliCom depends, including Armstrong Holdings, or with whom
its systems interface are not Year 2000 compliant, there could be a material
adverse effect on FaciliCom's business, financial position and results of
operations.
State of Readiness
FaciliCom, in conjunction with Armstrong Holdings, formed a task team in
February 1998. The task team's program comprised three phases: (1) assessment of
Year 2000 compliance of FaciliCom's equipment, software and systems, (2) a
detailed inventory of these items and (3) building and implementing a workplan
and contingency plan, which includes assessing the cost in dollars and the
necessary manpower, upgrading or replacing the item, and scheduling the date of
compliance. As of September 30, 1999, FaciliCom had completed all phases of the
program. Included in the task team's assessment was a review of the year 2000
compliance efforts of FaciliCom's key suppliers. Below is a more detailed
breakdown of their efforts.
Internal Issues
Network elements -- FaciliCom's main concern is the switching equipment and
peripherals, and other vendor components that are time and date sensitive.
FaciliCom has upgraded all of its networks with the compliant software, except
for one switch in Finland, which it plans to replace with a new year 2000
compliant switch by October 31, 1999. In addition, FaciliCom has completed the
software upgrade for its passport equipment which allows it to compress its
traffic thereby allowing more traffic to be carried over a single fiber optic
cable. FaciliCom's transmission equipment is currently year 2000 "friendly",
which means the manufacturer has represented that the software releases will not
experience any service-affecting issues upon rollover into the new millennium.
Although FaciliCom expects that it will be able to resolve year 2000 problems
with workarounds, it cannot assure you that such workarounds will be successful.
Billing System and Accounting System -- FaciliCom's billing system was
developed by Armstrong Holdings' programmers and operates on an IBM AS400.
FaciliCom believes that the billing system and the IBM AS400 are year 2000
compliant. However, the production of accurate and timely customer invoices
depends upon the generation of accurate and timely underlying data by
FaciliCom's switches. Though the switch manufacturer has represented that
FaciliCom's switches are year 2000 compliant, there can be no assurance that
such billing problems will not occur. FaciliCom is in the process of converting
its accounting system. The manufacturer has represented that this system is year
2000 compliant and its implementation is expected to be completed by December
31, 1999.
Information Systems -- FaciliCom's upgrade of its information systems is in
progress. FaciliCom believes that all of its hardware equipment, including the
equipment it relies upon at Armstrong Holdings, is year 2000 compliant. All of
FaciliCom's software products are year 2000 compliant. Substantially all
software applications have been modified or upgraded for year 2000 compliance.
Additionally, all of FaciliCom's workstations and laptops have been upgraded for
year 2000 compliance.
Third Party Issues
Vendor Issues -- In general, FaciliCom's product vendors have made
available either year 2000 compliant versions of their products or new compliant
products as replacements for discontinued offerings. In most cases, statements
made by FaciliCom herein as to the degree of compliance of the products in
question are based on vendor-provided information, which remains subject to
FaciliCom's testing and verification activities. Testing and verification will
be ongoing through December 31, 1999. FaciliCom is in the process of requesting
information from utilities and similar service providers.
Customer Issues -- FaciliCom's customers are interested in the progress of
FaciliCom's year 2000 efforts, and FaciliCom anticipates increased demand for
information, including detailed testing data and company-specific responses.
When requested by customers, FaciliCom provides year 2000 compliance
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information. At this time, FaciliCom has not performed an analysis of its
potential liability to customers in the event of year 2000 related problems.
Interconnecting Carriers -- FaciliCom's network operations interconnect
with domestic and international networks of other carriers. If one of these
interconnecting carriers should fail or suffer adverse consequences due to a
year 2000 problem, FaciliCom's customers could experience impairment of
services. In addition, since many of these interconnecting carriers are also
FaciliCom's customers, a year 2000 problem by one of these customers could
result in a loss of revenues due to its inability to send traffic to its
network. FaciliCom is in the process of sending correspondence to its major
interconnecting carriers to determine the status of their year 2000 compliance
review.
Costs
Although it cannot precisely estimate total costs to implement the plan,
FaciliCom has not incurred costs to date in excess of those normally associated
with business planning and implementation. FaciliCom anticipates that future
costs will not be material, in as much as it began to acquire products after the
year 2000 issue was identified and manufacturers had begun to remediate the
problem. However, FaciliCom cannot assure you that material costs will not be
incurred. FaciliCom cannot estimate the future cost related to the
interoperability of third party products. These costs will be expensed as
incurred, unless new systems are purchased that should be capitalized in
accordance with generally accepted accounting principles.
Risks
The failure to correct a material year 2000 problem could cause an
interruption or failure of certain of FaciliCom's normal business functions or
operations, which could have a material adverse effect on its business,
financial position and results of operations. Due to the uncertainty inherent in
other year 2000 issues that are ultimately beyond FaciliCom's control,
including, for example, the year 2000 readiness of its suppliers, customers and
interconnecting carriers, FaciliCom is unable to determine at this time the
likelihood of a material impact on its business, financial position and results
of operation, due to such year 2000 issues. However, based upon risk assessment
work conducted thus far, FaciliCom believes that the most reasonably likely
worst case scenario of the failure by it, its suppliers or other
telecommunications carriers with which FaciliCom interconnects to resolve year
2000 issues would be an inability by it
- to provide telecommunications services to its customers,
- to route and deliver telephone calls originating from or terminating with
other telecommunications carriers, and
- to timely and accurately bill its customers.
In addition to lost earnings, these failures could also result in loss of
customers due to service interruptions and billing errors, substantial claims by
customers and increased expenses associated with year 2000 litigation,
stabilization of operations and executing mitigation and contingency plans.
While FaciliCom believes that it is taking appropriate measures to mitigate
these risks, it cannot assure you that such measures will be successful.
Contingency Plan
FaciliCom has a contingency plan for Year 2000 issues.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Although FaciliCom's reporting currency is the U.S. dollar, FaciliCom
expects to derive an increasing percentage of its revenues from international
operations. Accordingly, changes in currency exchange rates may have a
significant effect on FaciliCom's results of operations. For example, the
accounting rate under operating agreements is often defined in monetary units
other than U.S. dollars, such as "special drawing
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rights" or "SDRs." To the extent that the U.S. dollar declines relative to units
such as special drawing rights, the dollar equivalent accounting rate would
increase. In addition, as FaciliCom expands into foreign markets, its exposure
to foreign currency rate fluctuations is expected to increase. Although
FaciliCom does not currently engage in exchange rate hedging strategies, it may
choose to limit such exposure by purchasing forward foreign exchange contracts
or other similar hedging strategies. FaciliCom's board of directors periodically
reviews and approves the overall interest rate and foreign exchange risk
management policy and transaction authority limits. Specific hedging contracts,
if any, will be subject to approval by certain specified officers of FaciliCom
acting within its board of directors' overall policies and limits. FaciliCom
intends to limit its hedging activities to the extent of its foreign currency
exposure. FaciliCom cannot assure you that any currency hedging strategy would
be successful in avoiding currency exchange-related losses.
Also, FaciliCom is exposed to interest rate risk. FaciliCom maintains both
fixed rate and variable rate long-term debt. FaciliCom manages its interest rate
risk in order to balance its exposure between fixed and variable rates while
attempting to minimize its interest costs.
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BUSINESS OF FACILICOM
OVERVIEW
FaciliCom is a rapidly growing multinational, facilities-based
telecommunications carrier. FaciliCom provides international long distance
services to other carriers worldwide and offers international and domestic long
distance voice, internet access, data and other value-added services to business
and residential customers in select European markets. FaciliCom provides these
services over its carrier-grade international network which consists of 17
gateway switches and 18 additional points of presence in the U.S. and in 13
European countries, as well as a satellite earth station in Malmo, Sweden.
FaciliCom's network is connected primarily by fiber optic cable capacity which
it owns, together with additional fiber capacity that it leases, including
capacity that it leases from Hermes, CIRCE and Qwest. In addition to its
facilities, FaciliCom has 12 interconnection agreements, ten of which are with
the dominant national carriers in FaciliCom's markets, and 21 operating
agreements, 16 of which are with the dominant national carriers in these
markets. FaciliCom believes that its facilities-based network is one of the most
extensive independent telecommunications networks serving the international long
distance market in the U.S. and Europe. This network and FaciliCom's
interconnection and operating agreements enable it to offer competitively
priced, high-quality voice and data services to over 220 wholesale carriers and
approximately 52,000 retail customers.
FaciliCom believes that its multinational, facilities-based approach and
established licensed carrier status in the U.S. and in 13 European countries
provide it with significant competitive advantages. These advantages include:
- reduced termination and network costs resulting in higher gross margins;
- increased flexibility to introduce new products and services such as
internet access, data and other value-added services;
- improved transmission quality; and
- the ability to offer high-quality local sales and customer service.
Since January 1998, FaciliCom has focused on entering key deregulating
markets, accumulating a critical mass of wholesale telecommunications traffic to
support investments in carrier-grade telecommunications facilities and migrating
customer traffic onto FaciliCom's international network. During this period,
FaciliCom has entered nine new countries, installed 14 gateway switches in 12
countries, acquired capacity in 12 additional fiber systems, and entered into 10
new interconnection and six new operating agreements. As of June 30, 1999,
FaciliCom had invested approximately $211.0 million in network facilities.
As a result of FaciliCom's infrastructure investments, it has been able to
increase the traffic volume delivered over its network (commonly referred to as
"on-net traffic") from 26.5% for the nine months ended June 30, 1998 to 41.7%
for the nine months ended June 30, 1999, and FaciliCom's gross margin increased
from 2.3% during the nine month period ended June 30, 1998, to 8.0% during the
nine month period ended June 30, 1999.
FaciliCom was founded in May 1995 to capitalize on opportunities for
facilities-based carriers in the international telecommunications services
industry. FaciliCom has targeted deregulating markets in order to benefit from
the significant demand for international long distance services in those markets
and the relatively favorable competitive conditions there. FaciliCom expects
that worldwide demand for high-quality international telecommunications services
will continue to grow as a result of:
- the globalization of the world's economies and the worldwide trend toward
deregulation of the telecommunications sector;
- declining prices and a wider selection of products and services driven by
greater competition as a result of deregulation;
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- technological advances, which have substantially increased the
transmission capacity and reduced the cost of fiber capacity;
- increased demand for internet access, data and other value-added
services; and
- increased telephone accessibility resulting from greater investment in
telecommunications infrastructure, including the deployment of wireless
networks.
In addition, FaciliCom's industry continues to evolve away from the
traditional pricing and operations model for exchanging telecommunications
traffic between international carriers, known as the international accounting
rate mechanism. As the international accounting rate mechanism model is
abandoned, FaciliCom will be able to pass cost savings to its customers, which
it believes will further increase demand for these services.
STRENGTHS
FaciliCom is positioning itself to become a leader in the rapidly growing
global market for international long distance voice, internet access, data and
other value-added services. FaciliCom enjoys competitive advantages which it
believes serve as a model for its continued successful growth as a diversified
telecommunications company, including:
Extensive Facilities-Based International Telecommunications Network. Since
1995, FaciliCom has built a carrier-grade network in 14 countries, including the
U.S. and the top 10 Western European international long distance markets.
FaciliCom is in negotiations to complete interconnection agreements with
additional carriers. FaciliCom believes that its early entrant approach
implemented through its local management and operations has allowed it to enter
into interconnection agreements more readily than companies without these
resources and provides it with a lower cost structure than its competitors
serving these regions who do not have these agreements. FaciliCom's network has
been designed and built to allow it to offer high-quality services, control its
termination and network costs and cost-effectively expand its service offerings.
By adding relatively inexpensive routers to its asynchronous transfer mode
network, FaciliCom can further expand its dial-up internet access services with
little additional investment. FaciliCom believes that its existing network gives
it an early entrant advantage and positions it to continue to increase its
revenues and improve gross margins.
Strong European Presence. FaciliCom has developed a strong European
presence, with 56.5% of FaciliCom's revenue for the nine month period ended June
30, 1999 originating from FaciliCom's European operations as compared to 31.1%
for the nine month period ended June 30, 1998. FaciliCom's European focus
enables it to capitalize on the higher prices associated with traffic
originating in Europe as compared to the U.S. Because FaciliCom's network is
concentrated in the leading European markets, it is able to take advantage of
increasing opportunities to carry cross-border European traffic on its network,
realize greater economies of scale in network management and sales and
marketing, and capitalize on strategic opportunities to build fiber systems such
as FCI One. In addition, this geographic concentration favorably positions
FaciliCom for entry into other deregulating European markets, such as Poland,
Portugal and the Czech Republic, on a more cost-effective basis, by adding a new
source of traffic which can be terminated throughout FaciliCom's network and by
reducing termination costs of network traffic entering these newly-deregulated
markets.
Established Customer Base. FaciliCom has established a wholesale customer
base of over 220 carriers in the U.S. and 13 European countries, including a
majority of the first-tier and emerging carriers, European wireless carriers and
seven of the ten largest global international carriers. This significant
customer base enables FaciliCom to rapidly and cost-effectively build traffic
volumes as it expands its network. Because many of its customers are also
high-quality carriers, FaciliCom is able to use their facilities on favorable
terms to carry traffic on routes where it has no facilities, thereby lowering
its network costs.
Successful Retail Operations in Scandinavia. Since its initial investment
in its Swedish subsidiary in 1995, FaciliCom has increased its retail customer
base from fewer than 2,000 to approximately 52,000
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small- to medium-sized business, and residential retail customers in Sweden,
Denmark, Norway and Finland. This customer base generated 5.0% of FaciliCom's
consolidated revenues for the nine month period ended June 30, 1999.
Proven Record of Strong Internal Growth. FaciliCom was established in May
1995 and has since rapidly increased its revenues and network traffic. For the
fiscal years ended September 30, 1996, 1997 and 1998, and the nine month period
ended June 30, 1999, FaciliCom's revenues were $11.9 million, $70.2 million,
$184.2 million and $279.7 million, respectively. In addition, for the fiscal
years ended 1996, 1997 and 1998, and the nine month period ended June 30, 1999,
FaciliCom's network carried 41.3 million, 252.3 million, 820.3 million and 1.4
billion minutes of traffic, respectively. FaciliCom's growth has been derived
mainly from internal expansion. FaciliCom has managed this rapid growth in a
manner that has permitted it to increase its customer base efficiently while
maintaining high standards of network quality and customer service.
Strong Management Team. FaciliCom has a highly experienced senior
management team with, on average, over 23 years of experience in the
telecommunications industry, including experience with such industry leaders as
Bell Atlantic, British Telecom, Cable & Wireless, Global One, Sprint, GTE, Viag
Interkom and NorTel Networks. Additionally, in each country in which FaciliCom
operates, it employs a local management team that is familiar with local legal
and regulatory issues, business practices, and cultural norms that affect
FaciliCom's business. The members of FaciliCom's team have proven their ability
to obtain licenses, recruit experienced staff, negotiate for interconnection
agreements with dominant national carriers, construct and operate a high-quality
network and provide superior customer service. FaciliCom believes that
experience that it has gained from operating in Europe over the last four years
provides it with a distinct advantage over newer entrants to these markets.
OPERATING MARKETS
FaciliCom currently terminates traffic through a combination of
interconnection and operating agreements, transit, refiling, resale and
international simple resale to over 200 countries worldwide and originate
traffic in Austria, Belgium, Denmark, Finland, France, Germany, Italy, The
Netherlands, Norway, Spain, Sweden, Switzerland, the U.K., and the U.S.
FaciliCom estimates that it has a market share of less than 1.0% of each of
these markets.
Austria. Austria has a population of approximately 8.1 million. By 1997,
the government had completed a 10-year privatization program of the
telecommunications industry. In December 1997, licenses for providing wireline
voice telephone services were issued to eight companies. At the same time, the
Supervisory Board of Post & Telekom Austria AG approved the separation of its
telecommunications operations from the national mail and bus services. The new
telecommunications company was named Telekom Austria AG, and Telecom Italia
purchased a 25% stake as its strategic partner.
Belgium. The population of Belgium is approximately 10.2 million. Although
Belgium liberalized its telecommunications services in accordance with the EU
directive on January 1, 1998, some barriers to entry still persist, including
significant interconnection charges that foreign carriers pay to Belgacom, the
Belgium dominant national carrier.
Denmark. With a population of approximately 5.2 million, Denmark has a
telecommunications market that generated approximately $3.6 billion in revenues
in 1996 according to the International Telecommunications Union. The Danish
Parliament approved legislation in May 1997 to liberalize its telecommunications
industry. The new law allows carriers to provide public voice services and to
build and lease networks. Most services, including voice telephony, may be
provided under a general class license. The telecommunications market in Denmark
has been historically dominated by the primary national carrier of Denmark, Tele
Denmark, which, according to TeleGeography 1999, accounted for 82.0% of
Denmark's international outgoing minutes in 1997. Since privatization, 12
companies providing facilities-based service have entered the Danish market. Key
European companies in Denmark's telecommunications service sector include Telia
(Sweden) and French Mobilix (a subsidiary of France Telecom).
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Finland. With a population of approximately 5.2 million, Finland's
telecommunications services market generated approximately $2.5 billion in
revenues in 1998, according to an estimate by the U.S. Department of State.
Finland fully liberalized the provision of voice telephony services in 1994, and
has recently eliminated its licensing requirements for the construction of fixed
telecommunications networks. Since deregulation, eight companies providing
facilities-based service have entered the Finnish market. According to
TeleGeography 1999, in 1997, the primary national carrier of Finland, Sonera
Ltd., accounted for 58.9% of Finland's international outgoing minutes, while
Finnet Group and Telia accounted for 28.2% and 9.3%, respectively.
France. The population of France is approximately 58.8 million. As of
January 1998, all telecommunications services were open to competition in
France, including the provision of public voice telephony. Since liberalization,
33 companies have entered the French market and compete with the national
carrier, France Telecom. Restrictions on market entry include a foreign equity
limit of 20%.
Germany. With a population of approximately 81.8 million, the German
telecommunications market is the third largest in the world with an estimated
$39 billion in revenues according to an estimate by the U.S. Department of
State. Germany is Europe's largest telecommunications market, accounting for
23.4% of the total market. Under German law, all telecommunications services,
both national and international, including public voice telephony, became open
to competition in Germany on January 1, 1998. Until January 1998, the German
national carrier, Deutsche Telekom A.G., operated the German telephony market
under a monopolistic regime. A number of new competitors have recently entered
the market. As of November 1998, Deutsche Telekom A.G. held approximately 80% of
the market for long distance services (including international calls).
Italy. With a population of approximately 57.3 million, the total 1999
telecommunications market in Italy, including both equipment and services, is
estimated at $32 billion, according to an estimate by the U.S. Department of
State. The market was liberalized on January 1, 1998, which allowed the
authorization of five new fixed-line carriers.
The Netherlands. With a population of approximately 15.9 million, the
Dutch telecommunications services market generated approximately $9.0 billion in
revenues in 1998 from public voice telephony, network and mobile telephony
services, according to the European Commission. The Dutch telecommunications
infrastructure, public switched voice telephony and telex markets were
liberalized on July 1, 1997. Since liberalization, more than 25 companies have
entered the Dutch market. The Dutch national carrier, KPN, accounted for
approximately 95% of The Netherlands' market for international outgoing minutes
in 1997, according to TeleGeography 1999.
Norway. Norway has a population of approximately 4.4 million. The
Norwegian telecommunications market for data transmission, voice telephony,
paging and other mobile services and satellite communications has been fully
liberalized since January 1, 1998. Until the liberalization in 1998, the
Norwegian national carrier, Telenor AS, accounted for 100% of Norway's market
for international outgoing minutes.
Spain. Spain has a population of approximately 39.8 million. Spain
liberalized its telecommunications market in December 1998. Prior to that time,
the government had phased in competition in basic telephony through licenses
granted to recently privatized Spanish second operator, Retevision, and to a
third operator, Lince (France Telecom), in addition to the incumbent operator
Telefonica.
Sweden. With a population of approximately 8.9 million, Sweden has a
telecommunications market that generated approximately $6.0 billion in revenues
in 1996 according to the International Telecommunications Union. Since Sweden
fully liberalized its telecommunications market in January 1998, more than 12
companies providing facilities-based service have entered the Swedish market.
Telia AB, the Swedish national carrier, and Tele-2 AB accounted for
approximately 66.0% and 22.0%, respectively, of Sweden's market for
international outgoing minutes in 1997, according to TeleGeography
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1999. Telia AB is a member of the Unisource consortium and is also authorized
to provide facilities-based services between the U.S. and Sweden.
Switzerland. Switzerland has a population of approximately 7.4 million. In
1997, the Swiss Parliament enacted legislation to liberalize and privatize the
Swiss telecommunications sector, opening the market to investment and
competition from foreign firms. This liberalization took effect on January 1,
1998. According to the WTO Agreement, the Swiss government has committed to
complete liberalization of basic telecom services (facilities-based and resale,
public and non-public) for all market segments.
United Kingdom. With a population of approximately 58.9 million, the U.K.
has a telecommunications market that generated approximately $32.8 billion in
1998, according to an estimate by the British Office of Telecommunications
("Oftel"). According to Oftel, the U.K.'s international and domestic long
distance services market accounted for approximately $6.6 billion in revenues
for the year ended March 31, 1997, with international outgoing calls generating
$2.4 billion in revenue. The U.K. has substantially liberalized its
telecommunications market. However, the U.K. has applied to the EU for an
extension to the EU's requirements that require member states to introduce
pre-selection by January 2000. According to TeleGeography 1999, British Telecom
held 54.9% of the U.K.'s market for international outgoing minutes in 1997, and
Cable &Wireless Communications held 30.3%. In addition to British Telecom and
Cable & Wireless Communications, there are over 50 foreign carriers in the U.K.
that currently hold licenses authorizing them to interconnect with the dominant
national carrier.
United States. With a population of approximately 272.6 million, the U.S.
has a telecommunications services market that generated revenues of
approximately $231.2 billion in 1997, according to the FCC. The United States
has committed to open markets for essentially all basic telecommunications
services (facilities-based and resale) for all market segments. The U.S. long
distance market is highly deregulated and is the largest in the world. According
to the FCC, in 1997 long distance telephone revenues were approximately $100.8
billion, including approximately $17.7 billion from international services,
representing 17.5% of the total market. According to TeleGeography 1999, AT&T is
the largest international long distance carrier in the U.S. market, with
approximately 45.3% of the U.S. international outgoing minutes in 1997, while
MCI, Sprint and WorldCom had market shares of 26.0%, 12.2% and 6.2%,
respectively. AT&T, MCI WorldCom and Sprint are generally regarded as first-tier
carriers in the U.S. long distance market. Other large long distance companies
with more limited ownership of transmission capacity, including Frontier and
Qwest, are generally regarded as second-tier carriers. The remainder of the U.S.
long distance market comprises several hundred smaller companies, largely
resellers, which are generally regarded as the third-tier carriers.
NETWORK
General. FaciliCom has an extensive facilities-based international network
comprised of gateway switches, additional points of presence, an asynchronous
transfer mode transmission backbone, owned and leased fiber capacity and a
satellite earth station. FaciliCom's facilities-based network permits it to
terminate an increasing percentage of traffic on-net, allowing it to better
control both the quality and cost of telecommunications services that FaciliCom
provides to its customers. To provide high-quality telecommunications services,
FaciliCom's network employs digital switching and fiber technologies, uses
advanced signaling protocols and is supported by comprehensive monitoring and
technical services.
FaciliCom carries international traffic historically carried between U.S.
and foreign international long distance carriers over its own network. In
addition, FaciliCom's gateway switches and European points of presence allow it
to terminate traffic within countries, ensuring quality and lowering termination
costs. FaciliCom has also established interconnection and operating agreements
with national carriers in the markets where it has facilities.
Gateway Switches. FaciliCom currently operates 15 NorTel and two Ericsson
gateway switches in the U.S. (New York, New Jersey, Los Angeles and Miami) and
in Europe (Austria, Belgium, Denmark, Finland, France, Germany, Italy,
Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom).
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Asynchronous Transfer Mode Transmission Backbone. FaciliCom currently
operates a high-capacity asynchronous transfer mode transmission backbone
between certain of its U.S. and European gateway switch locations. FaciliCom's
asynchronous transfer mode backbone enables it to combine switched voice,
private line and data traffic, including frame relay and internet protocol, on
the same international circuits. FaciliCom believes that its existing
asynchronous transfer mode backbone provides a competitive networking advantage
because it is able to combine these forms of traffic onto the same network,
thereby eliminating the need to purchase capacity and related equipment for
different types of traffic. In addition, the switching technology used in an
asynchronous transfer mode system is more efficient than traditional
circuit-switched technology because an asynchronous transfer mode network,
unlike a circuit-based network, does not require a fixed amount of bandwidth to
be reserved for each phone call or data transmission. This allows voice and data
calls to be pooled, which enables it to carry more calls with the same amount of
bandwidth. This greater efficiency creates network cost savings that can be
passed on to FaciliCom's customers in the form of lower rates, and provides an
immediate cost advantage for connection from FaciliCom's nearest point of
presence to the chosen internet backbone interconnect point.
Fiber. FaciliCom seeks to obtain ownership interests in fiber systems
where it believes that its customers' demand will justify the investment in
those fixed assets. FaciliCom can generally earn a higher gross margin on
traffic routed through its network's owned fiber rather than traffic routed
through its network's leased fiber. However, when it is more cost effective to
do so, FaciliCom will lease fiber capacity on a short term basis on specific
routes.
FaciliCom currently has acquired fiber capacity on an indefeasible rights
of use or minimum assignable membership units basis in 18 fiber cable systems
(including Hermes, CIRCE, Flag, Qwest, CANTAT, ODIN and Southern Cross).
FaciliCom believes that no single agreement that it has relating to
indefeasible rights of use or to minimum assignable ownership units is material
to its financial condition or its business operations. With the passage of time,
an increasing amount of fiber capacity is becoming available, and the cost of
this capacity is expected to continue to decline rapidly. As a result, FaciliCom
believes that, when one or more of these agreements expires, it would be able to
replace, at similar costs and within reasonable time periods, similar capacity
on alternative competing fiber systems through purchases of minimum assignable
ownership units or indefeasible rights of use.
Ownership and Operation of Fiber Capacity/FCI One. FaciliCom purchases
fiber capacity on existing cable systems as demand for FaciliCom's services
justifies this investment. When fiber capacity is not available at reasonable
prices, FaciliCom may instead install and operate its own fiber cables.
FaciliCom's initial effort in this area consisted of FCI One, a 24-pair fiber
submarine cable that it owns and operates between Copenhagen, Denmark and Malmo,
Sweden. Currently, FaciliCom is only using one such fiber pair with a configured
capacity of STM-16.
Before Denmark granted licenses to additional facilities-based carriers,
Tele Denmark, the incumbent dominant carrier, possessed the exclusive right to
build international cables into Denmark, and fiber capacity into Denmark was
generally available only at high prices. When FaciliCom became licensed to
operate in Denmark as a facilities-based carrier, it also obtained the right to
build international cables. Given its current and forecasted capacity
requirements, FaciliCom determined it was more cost effective to build FCI One
than to lease capacity from Tele Denmark at high rates. FCI One became
operational in May 1999. In addition to cost savings on capacity that it uses,
FaciliCom can sell or lease excess capacity or swap capacity on FCI One for
capacity it requires on other routes. Since May 1999, FaciliCom has sold a
portion of the capacity on FCI One and is in discussions to sell or swap
additional capacity.
Points of Presence. In addition to its switch centers, FaciliCom has
installed a number of transmission points of presence in its network that
provide additional geographic locations for FaciliCom's customers and the local
public switched telephone network to interconnect with FaciliCom's network. In
the U.S., FaciliCom operates points of presence in Washington, D.C., Tampa,
Florida, New York, New York, and in Germany it operates points of presence in
Stuttgart, Hamburg, Dusseldorf and seven other cities. FaciliCom also operates
points of presence in London, England, Helsinki, Finland, and in
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Stockholm and two other cities in Sweden. These points of presence allow
FaciliCom to reduce its costs for delivering traffic to public networks and make
it easier for customers with local networks to deliver traffic to FaciliCom's
network.
Interconnection and Operating Agreements. FaciliCom enters into
interconnection agreements with the national carrier in each of the countries
where it has operating facilities so that it can originate and terminate traffic
in that country. Interconnection agreements enable FaciliCom to terminate
traffic in a country by connecting the local network of that country with
FaciliCom's network. Interconnection agreements typically allow FaciliCom to
terminate traffic in the countries in which it has these agreements at the
lowest available access cost, and to originate traffic from these countries when
a customer dials FaciliCom's carrier access code.
FaciliCom has entered into 12 interconnection agreements, including
agreements with the dominant national carrier in Austria, Denmark, Finland,
Germany, Italy, The Netherlands, Norway, Sweden, Switzerland and the U.K.
FaciliCom is currently negotiating for additional interconnection agreements
with the dominant national carriers in other European countries.
FaciliCom also has operating agreements with 16 national carriers and five
emerging carriers. An operating agreement provides for the exchange of
international long distance traffic between correspondent international long
distance providers that own facilities in different countries.
Satellite Facilities. FaciliCom owns and operates the Swedish
International Teleport, a 13-meter satellite earth station in Malmo, Sweden that
transmits to an INTELSAT satellite over the Indian Ocean. FaciliCom's status as
a member of INTELSAT enables it to easily expand its geographic coverage
worldwide through the acquisition of additional satellite transmission capacity
on a preferential basis. The earth station and INTELSAT satellite, which provide
coverage to Africa and most of Asia, currently connect customers on the Indian
subcontinent with locations in Europe and North America on a private line basis.
FaciliCom uses this facility to provide connectivity with carriers in developing
countries before international cable capacity becomes available there, and on
low-volume international routes. FaciliCom is also negotiating agreements with
several Asian carriers to interconnect with Sweden to transmit public
switched-voice traffic through FaciliCom's earth station.
Signaling Network. Modern carrier networks use standard protocols of the
International Telecommunications Union (CCITT-C7 and SS-7) to signal between
switches in order to set up connections and monitor call status. Most small
carriers use one channel of each trunk group to signal other carriers on what is
designated as an "F Link." This F Link signaling is adequate for call setup but
is subject to failure because it does not provide for any redundancy. If the F
Link fails the entire trunk group cannot be used. F Link signaling also does not
provide many network management features because its signal capability is
limited to one link between two switches. To overcome the drawbacks of F Link
signaling, more advanced network operators install modern and sophisticated
packet signaling switches called signal transfer points that enable their
switches to communicate with other switches in their network and with customer
and carrier networks. These signaling networks include redundant links to paired
signal transfer points and are virtually failsafe. FaciliCom has installed a
pair of redundant signal transfer points in Frankfurt and London and another
pair of signal transfer points in New Jersey and New York. As a result,
FaciliCom's network is more robust, and it is able to provide signaling services
to other carriers.
Network Reliability. FaciliCom's resilient network has diverse switching
and routing capabilities. For example, on the high-volume North America to
Europe routes, FaciliCom splits customer traffic between its U.S.-based gateway
switches, over three transatlantic cable routes and over each of its
European-based gateway switches. All of FaciliCom's gateway switches have backup
power systems, and each fiber cable has built-in redundancies that reroute
traffic in the event of an interruption in cable service. FaciliCom's paired
signal transfer points network with redundant signal paths also provides an
additional level of network integrity.
Network Monitoring and Technical Support. FaciliCom has technical staff
located in the U.S. and throughout its markets in Europe who provide support for
FaciliCom's network. FaciliCom's technical staff
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located in Europe provides network management and operations support for
FaciliCom's gateway switches. In addition, to support its NorTel switches,
FaciliCom has implemented GTE's support system. This system provides FaciliCom
with integrated proactive network operations, network message management and a
customer contact system. FaciliCom fully supports all network management and
operations and functions 24 hours a day, seven days a week from a central
location in Washington, D.C.
FaciliCom's network operations center in Washington, D.C. monitors all of
the switches and transmission links in FaciliCom's network and receives
immediate signals alerting it to any abnormal network condition. Through this
facility, FaciliCom has the capability to reroute traffic if there is a cable
cut or an equipment failure. This center also monitors the quality of any
carriers FaciliCom uses to route off-net traffic and removes any of them from
its routing if they fall below FaciliCom's performance standards.
SERVICES
FaciliCom offers high-quality international telecommunications services
over its own international network and by interconnecting its network with the
networks of other carriers. FaciliCom provides primarily wholesale international
telecommunications voice services and internet access, data and other
value-added services in select European markets. FaciliCom recently expanded its
retail services in Scandinavia, and it is offering "dial around" or "casual
dialing" service in Finland and Sweden under the brand name Call One. For the
fiscal years ended September 30, 1997 and 1998, and the nine month period ended
June 30, 1999, wholesale services represented approximately 94.6%, 92.5% and
95.0%, respectively, of FaciliCom's consolidated revenues, and retail services
represented approximately 5.4%, 7.5% and 5.0%, respectively, of FaciliCom's
consolidated revenues.
Wholesale Services. FaciliCom provides wholesale international long
distance voice services to carrier customers located in the 14 countries in
which it operates. Other carriers interconnect with FaciliCom's network by
direct circuit connections from their networks to one of FaciliCom's gateway
switches. FaciliCom also provides service to switchless resellers by enabling
their customers to access FaciliCom's network from the national public switched
telephone network by dialed access through carrier access codes. FaciliCom
provides wholesale termination to over 200 countries using a mix of owned and
leased facilities, and interconnection, operating and resale agreements.
FaciliCom also offers to certain customers internet protocol and frame relay
services over FaciliCom's asynchronous transfer mode backbone.
Retail Services. FaciliCom provides international and domestic long
distance voice services to retail customers in Scandinavia. Retail customers
either subscribe to FaciliCom's services or access the services on a call by
call basis by dialing FaciliCom's carrier access code. In addition, FaciliCom
offers internet access and international private line service to business and
residential customers.
Voice. FaciliCom's retail customers may access its long distance voice
services in the following ways:
Direct Access. The telephone equipment used by subscribers is
directly connected to FaciliCom's switches through a private line and,
unless bill payments are overdue, the subscriber is allowed to make calls
up to a predetermined credit limit. Subscribers to this service do not have
to dial FaciliCom's access code in order to connect to FaciliCom's network.
The private line connections for FaciliCom's direct access services may be
leased from the public switched telephone network. In addition, these
connections may be radio links or digital subscriber lines. Direct access
customers are primarily small-to medium-sized businesses.
Casual Dialing. Any telephone in FaciliCom's markets which is
connected to the public switched telephone network can be used to dial
FaciliCom's access code and place domestic long distance or international
calls. The telephone user does not have to apply in advance to be
recognized as a customer. FaciliCom's gateway switch receives the calling
number from the public network and screens it in order to determine whether
it should be denied service for any reason, such as a failure to make
payments in the past. Casual dialing customers are primarily residential
users.
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Indirect Access. To utilize this service, the telephone number of a
customer who satisfies FaciliCom's credit requirements is added to a list
in FaciliCom's switches. Unless the customer's payments are overdue, the
customer may place calls that have a cost up to a predetermined credit
limit. Users of this method of access must dial FaciliCom's access code to
connect to FaciliCom's network through the public switched telephone
network. If the customer is a heavy user, such as a small business,
FaciliCom may equip its telephones with an automatic dialer that will
insert FaciliCom's access code whenever the customer seeks to make a long
distance or international call. This service is available in countries that
do not require equal access.
Equal Access. This method of access resembles the service that
FaciliCom provides to customers with indirect access. However, customers
can choose to subscribe to FaciliCom's network for all of their long
distance services and do not have to dial FaciliCom's access code in order
to connect to FaciliCom's network through the public switched telephone
network. Instead, the local operator will automatically route the
customer's calls to FaciliCom's network. The 13 European countries in which
FaciliCom operates are all scheduled to require equal access service within
the next three years.
Data. The retail data services that FaciliCom presently offers in
Scandinavia are as follows:
Internet Access. FaciliCom offers internet access service to
FaciliCom's retail customers in Finland. FaciliCom uses its own facilities
to connect customers to an internet backbone interconnect point. FaciliCom
bundles these services with its long distance and international voice
services to provide a single communications package for certain of its
customers.
Unlike in the U.S., where most local calls are free, dominant national
carriers in Europe charge retail local calling rates of as much as $0.10
per minute for a dial-up connection to an internet service provider.
FaciliCom believes that this situation has inhibited the growth of the use
of the internet in Europe. FaciliCom believes that companies like it will
stimulate internet usage by offering internet access services at lower
costs. FaciliCom's interconnection agreements allow any telephone line
where it has these agreements to dial FaciliCom's access code and be
connected with FaciliCom's network. FaciliCom pays the operator of the
public switched telephone network very low wholesale transport charges to
connect these calls to FaciliCom's network. Once the call is connected to
its network, FaciliCom can connect it to the internet through its own data
routers and its own asynchronous transfer mode backbone. This enables
FaciliCom to provide high-quality and low-cost dial-up internet access to
any home or business.
Private Data Lines. Another data service that FaciliCom provides is
private line connectivity for business customers, other data providers and
for video conferencing. These services are targeted to businesses that have
offices or operations in more than one country, and that require voice and
data connections between their locations. FaciliCom provides frame relay,
internet protocol and bandwidth connectivity between points on FaciliCom's
backbone network. Customers pay for the effective amount of bandwidth (64
kbps, 256 kbps, 2 mbps, etc.) that they purchase.
Voice Over Internet Protocol (VOIP). Technology has been developed
that enables origination and termination of voice traffic over internet
protocol networks. This is commonly referred to as VOIP. The initial
concept was to use the internet to transport this traffic for free. In
actual practice, the quality of voice transported over the internet varies
from acceptable to poor because of packet delays during high traffic
periods. It is possible to improve the voice quality of internet protocol
by routing the traffic over a dedicated intranet that utilizes private data
lines instead of the internet. FaciliCom provides VOIP intranet service on
its network. FaciliCom believes that business customers and residential
early technology adopters that have invested in technology based upon
internet protocol will be attracted to this service. No uniform approach to
VOIP's regulatory treatment has been developed, and FaciliCom cannot
predict the manner in which VOIP may be regulated in the future or the
impact of such regulation on FaciliCom's operations.
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CUSTOMERS
Wholesale Customers. FaciliCom's target wholesale customer base consists
primarily of dominant national carriers, other first-tier carriers, emerging
carriers and wireless carriers with international traffic. National carriers and
other first-tier carriers generally have their own international networks, but
use carriers such as FaciliCom for overflow traffic and in order to route
traffic at lower rates. Emerging and wireless carriers are rapidly growing
industry segments that generally rely on national carriers and wholesale
carriers like FaciliCom to provide international connectivity. As of June 30,
1999, FaciliCom provided service to over 220 carriers, including seven of the
ten largest global international carriers, and 40 multinational carriers that
originate traffic in more than one of FaciliCom's existing markets, together
with five wireless carriers. For the fiscal year ended September 30, 1998,
FaciliCom's five largest customers accounted for 21.9% of FaciliCom's
consolidated revenues. For the nine month period ended June 30, 1999,
FaciliCom's five largest customers accounted for 18.4% of FaciliCom's
consolidated revenues. FaciliCom anticipates that the percentage of revenues
attributable to FaciliCom's largest customers will decrease as FaciliCom's
customer base grows. FaciliCom's agreements with its customers do not currently
establish minimum term or usage requirements.
FaciliCom uses a comprehensive credit screening process when identifying
new wholesale customers. For the fiscal years ended September 30, 1997 and 1998,
and for the nine month period ended June 30, 1999, FaciliCom's bad debt expenses
represented 1.8%, 2.0% and 1.6%, respectively, of FaciliCom's consolidated
revenues. FaciliCom rates its potential customers' creditworthiness based on
several factors, including:
- traditional bank and trade reports, such as Dun & Bradstreet reports;
- internal assessments of FaciliCom's exposure based on the costs of
terminating international traffic in certain countries and the capacity
requested by the proposed carrier; and
- references provided by potential customers.
Depending on the results of FaciliCom's credit analysis, a customer's
payment terms and/or billing cycle may be adjusted to shorten the length of time
that FaciliCom's receivables are outstanding. In addition, FaciliCom may require
a customer to post collateral in the form of a security deposit or an
irrevocable letter of credit.
Retail Customers. FaciliCom's target retail customer base consists
primarily of small- to medium-sized businesses, and high volume residential
users of international telecommunications services. In July 1995, FaciliCom
began its retail operations in Sweden. Since that time, FaciliCom has grown its
retail customer base from fewer than 2,000 retail customers in Sweden to
approximately 52,000 retail customers in Scandinavia. Retail distribution not
only leverages FaciliCom's existing facilities but also improves profitability
through the sale of higher-margin services.
SALES AND MARKETING
Wholesale. FaciliCom's approach to marketing and selling wholesale
services consists of local sales staff, who are responsible for day-to-day
relationships with local carrier representatives and who have experience in the
industry and long standing relationships with such carriers. Additionally,
because FaciliCom has several international carrier customers which use it to
transport traffic from multiple locations, FaciliCom has a multinational global
account group, which coordinates sales to major international accounts in
multiple locations and is responsible for client relationships at the senior
management level. FaciliCom focuses on hiring and retaining experienced
marketing and sales people with extensive knowledge of the telecommunications
industry and who have existing relationships with decision makers at carrier
customers.
Retail. Although FaciliCom's main focus has been on international
wholesale service, FaciliCom has been serving retail customers since the middle
of 1995. FaciliCom reaches its retail customers through a variety of marketing
channels that are tailored to specific markets. FaciliCom targets small- to
medium-
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sized businesses in industry segments with high international telecommunications
needs, as well as high-volume residential users.
MANAGEMENT INFORMATION SYSTEMS
The need to bill customers timely and accurately, and to monitor and manage
network traffic profitability, requires the accurate operation of management
information systems. To meet these needs, FaciliCom contracts with Armstrong
Holdings for its billing and other management information services. Armstrong
Holdings, through its subsidiary Armstrong, owns 84.0% of the outstanding
capital stock of FaciliCom.
Subsidiaries of Armstrong Holdings provide billing, financial accounting
and specialized information technology services to its subsidiary companies,
including FaciliCom, from its data processing center located in Butler,
Pennsylvania. Armstrong Holdings's subsidiaries include independent
telecommunications companies and international telecommunications companies.
Based on its knowledge of billing in the telecommunications industry, Armstrong
Holdings has developed customized systems to provide call detail record
collection, processing, rating, reporting and bill rendering. These systems
enable FaciliCom to:
- analyze accurately its traffic, revenues and margins by customer and by
route on a daily basis;
- validate carrier settlements; and
- monitor least cost routing of customer traffic.
FaciliCom believes that contracting with Armstrong Holdings for these
customized systems gives it a strategic advantage over many emerging carriers
because FaciliCom receives timely and accurate reporting of its customer
traffic, revenues and margins without incurring the significant costs associated
with developing and maintaining its own data center. The Armstrong Holdings data
center utilizes IBM mainframe systems with full disaster recovery and back-up
facilities and provides 24 hours per day, seven days per week data center
support. Armstrong Holdings provides FaciliCom with experienced professionals
and programmers to further customize and support FaciliCom's growing and
changing needs for management information services. To date, FaciliCom has not
experienced any significant delays in billing customers. FaciliCom attempts to
bill its customers within five business days after a billing cycle has been
completed. FaciliCom believes that its arrangement with Armstrong Holdings
enables it to effectively and efficiently manage FaciliCom's growing
requirements relating to information technologies.
Armstrong Holdings has agreed to provide billing and management information
systems support for FaciliCom and FaciliCom's subsidiaries on terms that
FaciliCom believes are competitive with similar services offered in the
industry. This contract extends through September 30, 2002.
In consultation with Armstrong Holdings's staff, FaciliCom is currently
implementing a management information system to further enhance its ability to
monitor its growing operations. FaciliCom has engaged Perot Systems to develop a
data warehouse that will combine and store data from a number of information
systems and facilitate the presentation of data for management decision making.
FaciliCom uses its information technology and software for the following
purposes:
Call Detail Record Preprocess. When a customer initiates a call
through FaciliCom's network, each switch used to complete the call records
the details of the call. These details include the time of initiation, the
calling and called numbers, the type of call, called party answer and the
time of disconnect. These call detail records are sent to the Armstrong
Holdings data center, where they are preprocessed. Copies of the call
detail records and summary information regarding the volumes of traffic are
stored in the data warehouse.
Wholesale Billing. On a predetermined billing schedule, call detail
records for completed calls are rated, and wholesale bills are generated at
the Armstrong Holdings data center. Based on customer preference, the bills
are sent to customers in either a paper or an electronic format.
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Retail Billing. FaciliCom's retail billing in Scandinavia is
currently handled by locally-developed billing software. The billing system
in Finland receives call detail records directly from FaciliCom's switch in
Helsinki, Finland. Billing data for other Scandinavian countries is
preprocessed in the Armstrong Holdings data center and sent to Malmo,
Sweden in order to produce customer bills. Retail billing data is sent in
electronic format to local billing companies that bill and collect.
Customer Service. FaciliCom has developed customer service systems
that record and track customer trouble reports. FaciliCom is in the process
of installing an industry standard customer service system that will allow
customers to report service failures and other technical difficulties over
the internet.
Network Management. FaciliCom has installed software developed by GTE
that monitors the status of its network components and displays network
conditions in its network operations center. This system provides real time
information that FaciliCom's staff members can use to reroute traffic and
perform corrective action, and to analyze and repair network hardware or
software problems.
Inventory and Provisioning. FaciliCom has developed software that
keeps track of the status and condition of its network hardware components.
FaciliCom's staff members use this system to assign equipment to customer
or carrier circuits and to instruct FaciliCom's staff members abroad on the
proper connection of these circuits.
In addition, all of FaciliCom's administrative and technical locations
are connected by a corporate wide area network that runs over the backbone
network FaciliCom has constructed to handle customer traffic. An authorized
user with a personal computer at any of FaciliCom's offices can access all
of FaciliCom's corporate systems and databases. FaciliCom controls access
to this network through the use of firewalls, password protection and other
customary security measures.
FaciliCom has also installed mediation devices and software that were
part of a network monitoring system designed by GTE. These devices are
located in each of FaciliCom's switch centers and interface with major
network components, such as FaciliCom's gateway switches. These devices
gather data from the network in real time and transport it over FaciliCom's
corporate wide access network to its network operations center and to
Armstrong Holdings's data center.
COMPETITION
The international telecommunications industry is intensely competitive and
is significantly affected by regulatory changes, marketing and pricing decisions
of the larger industry participants and the introduction of new services made
possible by technological advances. FaciliCom competes in the international
telecommunications market on the basis of price, customer service, transmission
quality and breadth of service offerings, and its carrier customers are
especially price sensitive. FaciliCom's competitors include:
- large, facilities-based, multinational carriers, and smaller
facilities-based long distance service providers that have emerged as a
result of deregulation;
- switch-based resellers of international long distance services; and
- global alliances among some of the world's largest telecommunications
carriers.
Competition in the U.S. The U.S.-based international telecommunications
services market is dominated by AT&T, MCI WorldCom, Qwest and Sprint. FaciliCom
also competes in the U.S. with second-tier international carriers, including IDT
Corporation, Pacific Gateway Exchange, Inc., Primus Telecommunications Group,
Inc. and STAR Telecommunications, Inc. Several of these companies have
considerably greater financial and other resources and more extensive domestic
and international communications networks than FaciliCom does. In addition, the
FCC's order implementing the U.S.'s open market commitments to the WTO may make
it easier for some foreign carriers to enter the U.S. market, which would
increase FaciliCom's competition.
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Competition in Europe. In many international markets, a single carrier,
which is often a government-owned or a former monopoly carrier, controls access
to the local networks, enjoys better brand name recognition and customer loyalty
and possesses significant operational economies. These advantages include a
larger backbone network and operating agreements with other dominant national
carriers. These carriers generally have competitive advantages over FaciliCom
because of their close ties with the national regulatory authorities of their
home countries that may be reluctant to act in a way that fosters increased
competition for the local dominant provider. As a result, FaciliCom's ability to
increase its market share in these countries may be extremely limited.
Competition has begun to increase in the EU telecommunications markets in
connection with the deregulation of the telecommunications industry in most EU
countries, which began in January 1998. This increase in competition could
adversely affect revenue per minute and gross margins as a percentage of
revenues.
FaciliCom competes in 13 European markets by offering competitively priced
wholesale services, and it intends to offer competitively priced stand-alone and
bundled telecommunications services to retail customers. The principal
competitor in each of these markets is the dominant national carrier, such as
British Telecom, Deutsche Telekom, France Telecom, KPN (The Netherlands),
Swisscom, Tele Denmark and Telia (Sweden). Other competitors include: Cable and
Wireless, Cellnet Group, Colt, Energis, Esprit Telecom Group, RSL Communications
and Volaphone in the U.K.; O.tel.o Communications, Mannesmann ARCOR, VIAG
Interkom, MCI WorldCom in Germany; Enertel, MCI WorldCom and Telfort in The
Netherlands; diAx and Sunrise in Switzerland; and Mobilix and Telia in Denmark.
Additionally, FaciliCom may also face competition from other licensed public
telephone operators that are constructing their own facilities-based networks,
cable companies and switch-based resellers.
Competition from Global Alliances and Consolidation in the
Telecommunications Industry. FaciliCom anticipates that it will face additional
competition from global alliances among large long distance telecommunications
providers. In addition, consolidation in the telecommunications industry may
create even larger competitors with greater financial and other resources. The
effect of these proposed mergers and alliances could create increased
competition in the telecommunications services market and reduce the number of
customers that purchase wholesale international long distance services from
FaciliCom.
LICENSES AND REGULATION
United States. In the U.S., the provision of telecommunications common
carrier services is subject to the provisions of the Communications Act, the FCC
regulations promulgated thereunder and the applicable laws and regulations of
the various states administered by the relevant state public service
commissions. The FCC and the state commissions continue to regulate ownership of
transmission facilities, provision of services and the terms and conditions
under which such services are provided. Non-dominant carriers are required by
federal and state law and regulations to file tariffs listing the rates, terms
and conditions of the services they provide. The FCC and some state agencies
also impose prior approval requirements on transfers of control.
Regulatory requirements imposed on U.S. telecommunications service
providers will continue to evolve as a result of the WTO Agreement, federal
legislation, court decisions and new and revised policies of the FCC and state
commissions. The FCC continues to refine its international service rules to
promote competition, reflect and encourage liberalization in foreign countries
and reduce international accounting rates toward cost. As noted above, the FCC
adopted new lower accounting rate benchmarks that became effective January 1,
1998. More recently, the FCC adopted an order eliminating its international
settlements policy on competitive routes and as applied to arrangements between
U.S. carriers and foreign carriers that lack market power. Although the new
rules are not yet effective, FaciliCom expects them to decrease its regulatory
burden.
International Service Regulation. International common carriers, such as
FaciliCom, are required to obtain authority under Section 214 of the
Communications Act and file a tariff containing the rates, terms
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and conditions applicable to their services before initiating international
telecommunications services. FaciliCom has obtained "global" Section 214
authority from the FCC to use, on a facilities and resale basis, various
transmission media for international switched and private line services.
Non-dominant international carriers, such as FaciliCom, must file their
international tariffs and any revisions with one day's notice. FaciliCom has
filed international tariffs for switched and private line services with the FCC.
Additionally, international telecommunications service providers are required to
file copies of their contracts with other carriers, including foreign carrier
operating agreements, with the FCC within 30 days of execution. FaciliCom has
filed each of its foreign carrier agreements with the FCC. The FCC's rules also
require that FaciliCom periodically file a variety of reports regarding the
volume of its international traffic and revenues and use of international
facilities. FaciliCom has filed the required reports. Failure to comply with
these requirements could result in the imposition of fines or other penalties,
including, in an extreme case, the revocation of FaciliCom's authorizations.
FaciliCom's FCC authorization also permits it to resell international
private lines interconnected to the public switched telecommunications networks
for the provision of switched services between the U.S. and:
- WTO member countries that have been found by the FCC to offer equivalent
opportunities to U.S. carriers or in which the settlement rate for at
least 50% of the settled U.S.-billed traffic on the route in question is
at or below the settlement rate benchmark; and
- non-WTO member countries if the settlement rate for at least 50% of the
settled U.S.-billed traffic on the route in question is at or below the
settlement rate benchmark and that have been found by the FCC to offer
equivalent opportunities to U.S. carriers.
To date, the FCC has found that appropriately licensed U.S. carriers may
provide such services to 20 foreign markets including Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong (data and
facsimile services only), Iceland, Ireland, Israel, Italy, Japan, Luxembourg,
The Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland and the U.K.
The FCC has also simplified the process by which carriers may obtain FCC
approval to offer international simple resale to particular destinations.
Carriers may now petition the FCC to authorize the services using a streamlined
procedure if the petition clearly demonstrates that the destination is a WTO
member country and that settlement rates for more than 50% of the settled
U.S.-billed traffic on that route are at or below the FCC's benchmark settlement
rate. Once a carrier makes such a showing and the FCC approves international
simple resale on a route, all carriers holding a global Section 214
authorization will be permitted to offer international simple resale on that
route. FaciliCom anticipates that these new opportunities to engage in
international simple resale will result in reduced costs and prices, increased
competition and increased demand on these routes.
The FCC currently imposes certain restrictions upon the use of FaciliCom's
private lines between the U.S. and the countries in which international simple
resale has been authorized. FaciliCom may not route traffic to or from the U.S.
over a private line between the U.S. and one of these countries if the traffic
originates or terminates in a third country, the third country has not been
found by the FCC to offer equivalent resale opportunities and the traffic is not
routed to or from the third country and the approved country via a publicly
available service (i.e., "switched hubbing").
The FCC's Policies on Transit and Refile. FaciliCom may engage in the
practice whereby a carrier routes, through its facilities in a third country,
traffic originating from one country and destined for another country. The FCC
has permitted third country calling where all countries involved consent to the
routing arrangements. This arrangement is referred to as "transiting." Under
arrangements referred to as "refiling" or "reorigination," the carrier in the
destination country does not consent to receiving traffic from the originating
country and does not realize that the traffic it receives from the third country
is actually originating from a different country. Although this practice is
inconsistent with FCC polices, to date, the FCC has not enforced its policies
with respect to carriers engaging in refiling.
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Domestic Service Regulation. FaciliCom does not currently provide domestic
interstate or intrastate telecommunication services within the U.S., although it
plans to offer such services in the future. When FaciliCom offers such services,
its provision of such services will be subject to regulation by the FCC and
relevant state commissions, which regulate interstate and intrastate rates,
respectively. The majority of the states require FaciliCom to register or apply
for certification before initiating long-distance telecommunications services
within a single state. Fines and other penalties may be imposed for violations
of these rules.
Europe. In Europe, each country regulates its telecommunications industry.
The member states of the EU are obligated to implement legislation issued by the
European Commission, which is responsible for creating pan-European policies and
developing a regulatory framework to ensure an open, competitive
telecommunications market.
In 1990, the European Commission issued the services directive requiring
each member state of the EU to abolish existing monopolies in telecommunications
services with the exception of voice telephony. The intended effect of the
services directive was to permit the competitive offering of all services, other
than voice telephony, including value-added services and voice services to
closed user groups. However, as a result of local implementation of the services
directive through the adoption of national legislation, there are differing
interpretations of the definition of prohibited voice telephony and permitted
value-added and closed user group services. Voice services accessed by customers
through leased lines are permissible in all member states of the EU. The
European Commission has generally taken a narrow view of the services classified
as voice telephony, declaring that voice services may not be reserved to the
national carriers if:
- dedicated customer access is used to provide the service;
- the service confers new value-added benefits on users, such as
alternative billing methods; or
- calling is limited by a service provider to a group having legal,
economic or professional ties.
In March 1996, the EU adopted the full competition directive containing two
provisions which required EU member states to allow the creation of alternative
telecommunications infrastructures by July 1, 1996, and which reaffirmed the
obligation of EU member states to abolish the national carriers' monopolies in
voice telephony by 1998. The full competition directive encouraged EU member
states to accelerate liberalization of voice telephony. Some EU countries may
delay the abolition of the voice telephony monopoly based on exemptions
established in the full competition directive. These countries include Portugal
and Ireland (January 1, 2000) and Greece (December 31, 2000). However,
Luxembourg, Spain and Ireland have already implemented the full competition
directive in whole or in part.
Each EU member state in which FaciliCom currently conducts or plans to
conduct business has a different regulatory regime, and these differences are
expected to continue. The requirements for FaciliCom to obtain necessary
approvals vary considerably from country to country and are likely to change as
competition is permitted in new service sectors.
Asia, Pacific Rim and Latin America. The extent and timing of
liberalization, and the scope and nature of regulation varies among the Pacific
Rim, Asian and Latin American countries. FaciliCom's ability to provide voice
telephony services is restricted in some Asian, Pacific Rim and Latin American
countries. For example, China remains largely closed to competition. FaciliCom
has a pending application to provide international telecommunications services
in Hong Kong, where the local authorities have encouraged limited competition.
On July 1, 1997, the People's Republic of China resumed sovereignty over Hong
Kong, and FaciliCom cannot be certain that China will continue the existing
licensing regime with respect to the Hong Kong telecommunications industry. In
New Zealand, regulation of FaciliCom's proposed provision of telecommunications
services is relatively permissive, and FaciliCom has been granted registration
as an international services operator.
FaciliCom's services in Japan are subject to regulation by the Ministry of
Post and Telecommunications under the Telecommunications Business Law. In Japan,
FaciliCom must obtain a license as a Type I facilities-based business before it
may provide telecommunications services over its own
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facilities. FaciliCom must register as a Special Type II business before it
provides telecommunications services over international circuits leased from
another carrier, or provides domestic service in Japan over leased circuits if
the volume of traffic exceeds a set amount. A registered Special Type II
business may provide over leased lines value-added or basic telecommunications
services, or services to closed user groups. FaciliCom must notify the Japanese
ministry as a General Type II business only if it provides domestic service in
Japan over leased circuits and does not exceed the traffic threshold that would
require Special Type II. Although the Japanese government until recently
prohibited greater than 33.0% foreign ownership of a Type I business, as well as
the resale of international private lines interconnected to the public switched
telephone network at both ends, the Japanese ministry is now awarding
authorizations to foreign-affiliated carriers to provide telecommunications
services using their own facilities and to resell interconnected international
private lines. The Japanese ministry also regulates the interconnection charges
imposed by Type I businesses, and must approve intercarrier agreements between
Type I carriers or between Type I and Special Type II carriers. FaciliCom has
also filed an application in Japan requesting a Type I telecommunications
license requesting authorization to allow it to construct and operate its own
network facilities, as well as to originate and terminate traffic over resold
lines. The Type I license process is onerous and involves extensive consultation
with the Japanese ministry.
Licenses. Consistent with its global strategy, FaciliCom or one of
FaciliCom's local operating subsidiaries has received facilities-based and
resale authorization to provide telecommunications services in Austria, Canada,
Sweden, Denmark, The Netherlands, Germany, El Salvador, Finland, France, Italy,
Norway, Guatemala, Spain, Switzerland and the U.K. FaciliCom also participates
in the numbering plans of Sweden, Denmark, Finland, The Netherlands, Norway,
Switzerland and the U.K. FaciliCom is also licensed in Belgium as a provider of
non-reserved services, including voice services for closed user groups and
value-added services, and it has requested additional authorization to provide
international simple resale. FaciliCom has been awarded access codes in El
Salvador, Denmark, Finland, France, Guatemala, Italy, Norway, Sweden,
Switzerland and the U.K. to allow it to operate as a facilities-based provider
of international telecommunications services. FaciliCom has been granted
registration by the New Zealand Ministry of Commerce as an operator under the
Telecommunications (International Services) Regulation 1994. FaciliCom has
pending applications for various authorizations in Hong Kong.
In the U.S., FaciliCom has obtained international facilities and resale
licenses from the FCC. In addition, FaciliCom is certified or registered to
provide intrastate interexchange telecommunications services or may provide such
services based upon FaciliCom's unregulated status in 45 states. Applications
for certification are pending in five states. State issued certificates of
authority to provide intrastate interexchange telecommunications services
generally can be conditioned, modified, canceled, terminated or revoked by state
telecommunications commissions for failure to comply with state law or the
rules, regulations and policies of the state commissions.
EMPLOYEES
As of September 30, 1999, FaciliCom had 293 employees. None of FaciliCom's
U.S. employees are covered by a collective bargaining agreement; however,
certain of FaciliCom's European employees are members of labor unions. FaciliCom
believes that its relationship with its employees is good. On October 1, 1999,
as part of a corporate restructuring, FaciliCom reduced its total number of
employees to 251.
INTELLECTUAL PROPERTY
FaciliCom owns the registered service mark FaciliCom International for
international long distance telecommunications services, as well as other marks
that are used to provide some of FaciliCom's retail services in specific
countries.
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PROPERTIES
FaciliCom leases office space, including its principal headquarters in
Washington, D.C., and switch location space under operating leases and subleases
that expire at various dates through January 2009. The principal properties that
FaciliCom leased or subleased as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE LEASE EXPIRATION
<S> <C> <C>
Malmo, Sweden (Sales Office)................................ 9,218 December 1999
Oslo, Norway (Switch Location).............................. 42 February 2000
New York, NY (Switch Location).............................. 1,500 August 2000
Jersey City, NJ (Switch Location)........................... 2,404 September 2000
Sornaisten, Finland (Switch Location)....................... 1,130 June 2001
Amsterdam, The Netherlands (Sales Office)................... 3,379 December 2001
Malmo, Sweden (Switch Location)............................. 1,584 January 2002
Frankfurt, Germany (Sales Office)........................... 2,956 February 2002
London, U.K. (Switch Location).............................. 888 April 2002
Geneva, Switzerland (Sales Office).......................... 2,428 June 2002
Los Angeles, CA (Switch Location)........................... 5,350 November 2002
London, U.K. (Sales Office)................................. 3,839 January 2003
Frankfurt, Germany (Switch Location)........................ 2,798 February 2003
Amsterdam, The Netherlands (Switch Location)................ 1,161 May 2003
London, U.K. (Switch Location).............................. 546 September 2003
Helsinki, Finland (Sales Office and Switch Location)........ 3,769 October 2003
Malmo, Sweden (Sales Office and Switch Location)............ 18,458 November 2003
Milan, Italy (Sales Office and Switch Location)............. 6,297 July 2004
Paris, France (Sales Office and Switch Location)............ 5,438 January 2007
Brussels, Belgium (Sales Office and Switch Location)........ 10,253 March 2007
Copenhagen, Denmark (Sales and Switch Location)............. 6,104 August 2007
Miami, FL (Switch Location)................................. 3,578 November 2007
Washington, D.C. (Corporate Headquarters)................... 49,602 March 2008
Zurich, Switzerland (Sales Office and Switch Location)...... 7,603 June 2008
Madrid, Spain (Sales Office and Switch Location)............ 9,979 July 2008
Vienna, Austria (Sales Office and Switch Location).......... 9,775 July 2008
New York, NY (Switch Location).............................. 10,709 January 2009
</TABLE>
FaciliCom's leases typically contain provisions that enable it to renew
them for additional terms beyond their scheduled termination date.
LEGAL PROCEEDINGS
FaciliCom makes routine filings and is a party to regulatory proceedings
with the FCC relating to its operations that FaciliCom believes are customary
for its industry. FaciliCom is not a party to any lawsuit or proceeding which,
in its opinion, is likely to have a material adverse effect on its business.
CAPITAL STOCK
The authorized capital stock of FaciliCom consists of 300,000 shares of
common stock, par value $.01 per share, including 275,000 shares of voting stock
and 25,000 shares of non-voting stock. As of the date hereof, there were
shares of voting FaciliCom common stock and 1,182 shares of non-voting
FaciliCom common stock issued and outstanding. There is no established public
trading market for the FaciliCom common stock. No dividends have been declared
or paid on the FaciliCom common stock since October 1, 1996.
Holders of shares of voting FaciliCom common stock are entitled to one vote
per share on all matters to be voted upon by the stockholders and are entitled
to receive such dividends as FaciliCom's board of
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directors may declare in its discretion out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of FaciliCom, the
holders of shares of FaciliCom common stock are entitled to a distribution of
any remaining assets of FaciliCom. Holders of shares of FaciliCom common stock
have no cumulative voting or preemptive rights. All outstanding shares of
FaciliCom common stock are fully paid and nonassessable.
LEGAL MATTERS
Long Aldridge & Norman LLP, Atlanta, Georgia, has passed upon certain
corporate legal matters on our behalf with respect to the World Access notes.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedules included in our Annual Report on Form 10-K/A
for the year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement of which this prospectus forms a part. Our financial statements and
schedules are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
The financial statements of World Access, Inc. as of December 31, 1997 and
for each of the two years in the period ended December 31, 1997 incorporated in
this prospectus by reference to the Annual Report on Form 10-K/A of World
Access, Inc. for the year ended December 31, 1998 have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
dated March 5, 1998, except for the discontinued operations described in Note D,
which are as of April 9, 1999, given on the authority of that firm as experts in
auditing and accounting.
Ernst & Young LLP, independent auditors, have audited the combined
financial statements of Cherry Communications Incorporated (d/b/a Resurgens
Communications Group) and Cherry Communications U.K. Limited at December 31,
1997 and for the year then ended, included in our Current Report on Form 8-K
filed on July 27, 1998, as amended by Amendment No. 1 on Form 8-K/A filed on
September 4, 1998, and Amendment No. 2 on Form 8-K/A filed on September 25,
1998, as set forth in their report (which contains an explanatory paragraph
describing conditions that raise substantial doubt about the company's ability
to continue as a going concern as described in note 2 to the combined financial
statements) which is incorporated by reference in this prospectus and elsewhere
in the registration statement of which this prospectus forms a part. These
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
Grant Thornton LLP, independent auditors, have audited the combined
financial statements of Cherry Communications Incorporated (d/b/a Resurgens
Communications Group) and Cherry Communications U.K. Limited at December 31,
1996 and 1995 and for the years then ended, included in our Current Report on
Form 8-K filed on July 27, 1998, as amended by Amendment No. 1 on Form 8-K/A
filed on September 4, 1998, and Amendment No. 2 on Form 8-K/A filed on September
25, 1998, as set forth in their report, which is incorporated by reference in
this prospectus and elsewhere in the registration statement of which this
prospectus forms a part. These financial statements are incorporated by
reference in reliance on Grant Thornton LLP's report, given on their authority
as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of Telco Systems, Inc. at August 30, 1998 and August 31,
1997, and for each of the three years in the period ended August 30, 1998
included in our Registration Statement on Form S-4 filed on November 10, 1998,
as set forth in their report, which is incorporated by reference in this
prospectus and elsewhere in the registration statement of which this prospectus
forms a part. These financial statements are incorporated by reference in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
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The consolidated financial statements of FaciliCom International, Inc. and
subsidiaries as of September 30, 1998 and 1997 and for each of the three years
in the period ended September 30, 1998 included in this World Access prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and has been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities laws require us and FaciliCom to file information with
the Securities and Exchange Commission concerning our business and operations.
Accordingly, we and FaciliCom file annual, quarterly and special reports, proxy
statements and other information with the Commission. You can inspect and copy
this information at the public reference facility maintained by the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
You can also do so at the following regional offices of the Commission:
New York Regional Office
Seven World Trade Center
Suite 1300
New York, New York 10048
Chicago Regional Office
Northwest Atrium Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661
You can get additional information about the operation of the Commission's
public reference facilities by calling the Commission at 1-800-SEC-0330. The
Commission also maintains a web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding companies that,
like us, file information electronically with the Commission. You can also
inspect information about us at the offices of the Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006.
This prospectus is part of a registration statement that we filed with the
Commission and omits certain information contained in the registration statement
as permitted by the Commission. Additional information about World Access and
our common stock is contained in the registration statement on Form S-4 of which
this prospectus forms a part, including certain exhibits and schedules. You can
obtain a copy of the registration statement from the Commission at the street
address or Internet site listed above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered part of this prospectus, and later information that we file with the
Commission will automatically update and supersede this information. We
incorporate by reference documents listed below and any future filings made with
the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
prior to the completion of this exchange offer.
We have filed the following documents with the Commission:
- Our Current Report on Form 8-K filed on August 19, 1999 (event date:
August 17, 1999) (File Number 0-29782);
- Our Current Report on Form 8-K filed on July 14, 1999 (event date: June
30, 1999) (File Number 0-29782);
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- Our Current Report on Form 8-K filed on May 3, 1999 (event date: April
21, 1999) (File Number 0-29782);
- Our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
(File Number 0-29782);
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
as amended by Form 10-Q/A filed on August 31, 1999 (File Number 0-29782);
- Our Annual Report on Form 10-K for the year ended December 31, 1998, as
amended by Form 10-K/A filed on August 31, 1999 (File Number 0-29782);
- Our definitive proxy materials on Schedule 14A for our special meeting of
stockholders to be held , 1999, as filed with the Commission on
;
- The combined financial statements of Cherry Communications Incorporated
(d/b/a/ Resurgens Communications Group) and Cherry Communications U.K.
Limited included in WA Telcom's Current Report on Form 8-K filed on July
27, 1998 (event date: July 20, 1998), as amended by Amendment No. 1 on
Form 8-K/A filed on September 4, 1998, and Amendment No. 2 on Form 8-K/A
filed on September 25, 1998;
- The consolidated financial statements of Telco Systems, Inc. included in
our Registration Statement on Form S-4 (No. 333-67025), as filed with the
Commission on November 10, 1998.
- Our description of the common stock included in the Registration
Statement on Form S-4 (No. 333-67025), as filed with the Commission on
November 10, 1998.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
World Access, Inc.
945 E. Paces Ferry Road
Suite 2200
Atlanta, Georgia 30326
Attention: Mr. Mark A. Gergel
Chief Financial Officer
Telephone: (404) 231-2025
TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THIS INFORMATION NO LATER THAN
, 1999.
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on the front of the respective document.
We have not authorized anyone, including brokers and dealers, to give any
information or make any representation not contained in this prospectus and, if
given or made, such information or representation must not be relied upon as
having been authorized by us or any other person.
This prospectus does not constitute an offer to sell or solicitation of any
offer to buy any of the securities offered hereby in any jurisdiction in which
it is unlawful to make such offer or solicitation.
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<PAGE> 166
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
FACILICOM INTERNATIONAL, INC.
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of June 30, 1999
(Unaudited), September 30, 1998 and 1997............... F-3
Consolidated Statements of Operations and Comprehensive
Loss for the nine months ended June 30, 1999
(Unaudited) and 1998 (Unaudited) and each of the three
years in the period ended September 30, 1998........... F-4
Consolidated Statements of Capital Accounts for the nine
months ended June 30, 1999 (Unaudited) and each of the
three years in the period ended September 30, 1998..... F-5
Consolidated Statements of Cash Flows for the nine months
ended June 30, 1999 (Unaudited) and 1998 (Unaudited)
and each of the three years in the period ended
September 30, 1998..................................... F-6
Notes to Consolidated Financial Statements................ F-8
CHERRY COMMUNICATIONS INCORPORATED
The combined unaudited financial statements of Cherry
Communications Incorporated (d/b/a Resurgens
Communications Group) and Cherry Communications U.K.
for the nine months ended September 30, 1998 and
1997................................................... F-23
Combined balance sheets as of September 30, 1998 and
December 31, 1997...................................... F-23
Combined statements of operations for the three months
ended September 30, 1998 and 1997 and for the nine
months ended September 30, 1998 and 1997............... F-24
Combined statements of cash flows for the nine months
ended September 30, 1998 and 1997...................... F-25
Combined statement of net stockholders' deficiency as of
September 30, 1998 and December 31, 1997............... F-26
Notes to combined unaudited financial statements.......... F-27
</TABLE>
F-1
<PAGE> 167
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
FaciliCom International, Inc.:
We have audited the accompanying consolidated balance sheets of FaciliCom
International, Inc. and subsidiaries (formerly FaciliCom International, LLC)
("FaciliCom") as of September 30, 1998 and 1997, and the related consolidated
statements of operations and comprehensive loss, capital accounts and cash flows
for each of the three years in the period ended September 30, 1998. These
financial statements are the responsibility of FaciliCom's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of FaciliCom International, Inc. and
subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1998 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
December 9, 1998
F-2
<PAGE> 168
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, -------------------
1999 1998
(UNAUDITED) 1997
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 18,696 $ 68,129 $ 1,016
Accounts receivable -- net of allowance for doubtful
accounts of $7,862 (Unaudited), $4,620 and $161 at June
30, 1999, September 30, 1998 and 1997, respectively..... 98,542 59,915 19,485
Marketable securities ($31,755 (Unaudited) at June 30,
1999 and $31,394 at September 30, 1998 restricted)...... 31,755 70,092 --
Prepaid expenses and other current assets................. 6,067 6,060 1,737
--------- -------- --------
Total current assets................................ 155,060 204,196 22,238
--------- -------- --------
Property and Equipment:
Transmission and communications equipment................. 121,838 97,849 16,593
Transmission and communications equipment-leased.......... 69,178 17,162 5,419
Furniture, fixtures and other............................. 19,874 11,154 1,266
210,890 186,165 23,278
Less accumulated depreciation and amortization............ (25,122) (10,417) (3,034)
--------- -------- --------
Net property and equipment.......................... 185,768 115,748 20,244
--------- -------- --------
Other Assets:
Intangible assets, net of accumulated amortization of
$2,846
(Unaudited), $1,673 and $583 at June 30, 1999, September
30, 1998 and 1997, respectively........................ 4,949 5,630 1,535
Debt issue costs, net of accumulated amortization of
$1,527
(Unaudited) and $744 at March 31, 1999 and September 30,
1998, respectively..................................... 8,913 9,696 --
Advance to affiliate...................................... 550 490 --
Marketable securities-restricted.......................... 29,525 43,124 --
--------- -------- --------
Total other assets.................................. 43,937 58,940 1,535
--------- -------- --------
Total Assets........................................ $ 384,765 $378,884 $ 44,017
========= ======== ========
LIABILITIES AND CAPITAL ACCOUNTS
Current Liabilities:
Accounts payable.......................................... $ 95,269 $ 63,802 $ 24,205
Accounts payable -- transmission equipment................ 29,344 24,668 --
Accounts payable -- related party......................... 1,810 332 389
Accrued interest.......................................... 14,938 7,109 331
Other current obligations................................. 23,538 12,610 5,924
Line of credit............................................ 10,000 -- --
Capital lease obligations due within one year............. 11,490 3,407 573
Long-term debt due within one year........................ 347 394 1,043
--------- -------- --------
Total current liabilities........................... 186,736 112,322 32,465
--------- -------- --------
Other Liabilities:
Capital lease obligations................................. 4,004 4,791 1,723
Long-term debt............................................ 300,162 300,346 13,000
Loans from owners......................................... -- -- 6,250
--------- -------- --------
Total other liabilities............................. 304,166 305,137 20,973
--------- -------- --------
Commitments and Contingencies
Capital Accounts:
Common stock, $.01 par value -- 300,000 shares authorized;
226,923 and 225,741 issued and outstanding at June 30,
1999 (Unaudited) and September 30, 1998, respectively... 2 2 --
Additional paid-in capital................................ 37,658 36,534 --
Class A initial capital................................... -- -- 180
Class B initial capital................................... -- -- 60
Excess capital contributions -- Class A................... -- -- 16,296
Stock-based compensation.................................. 5,546 6,305 --
Accumulated other comprehensive (loss) income:
Holding gain on marketable securities................... -- 24 --
Foreign currency translation adjustments................ (5,819) 3,450 684
Accumulated deficit....................................... (143,524) (84,890) (26,641)
--------- -------- --------
Total capital accounts.............................. (106,137) (38,575) (9,421)
--------- -------- --------
Total liabilities and capital accounts.............. $ 384,765 $378,884 $ 44,017
========= ======== ========
</TABLE>
See notes to the consolidated financial statements.
F-3
<PAGE> 169
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30 YEARS ENDED SEPTEMBER 30,
------------------- -----------------------------
1999 1998 1998 1997
(UNAUDITED) 1996
<S> <C> <C> <C> <C> <C>
Revenues..................................... $279,695 $117,146 $184,246 $ 70,187 $11,891
Cost of revenues........................... 257,253 114,473 178,952 65,718 12,742
-------- -------- -------- -------- -------
Gross margin (deficit)..................... 22,442 2,673 5,294 4,469 (851)
-------- -------- -------- -------- -------
Operating expenses:
Selling, general and administrative..... 38,073 20,917 32,797 13,072 7,575
Stock-based compensation expense........ 364 5,706 6,017 -- --
Related party expense................... 2,281 917 1,550 439 7
Depreciation and amortization........... 16,895 5,314 8,816 2,318 1,143
-------- -------- -------- -------- -------
Total operating expenses........... 57,613 32,854 49,180 15,829 8,725
-------- -------- -------- -------- -------
Operating loss............................. (35,171) (30,181) (43,886) (11,360) (9,576)
-------- -------- -------- -------- -------
Other income (expense):
Interest expense-related party.......... -- (195) (195) (462) (26)
Interest expense........................ (25,690) (14,344) (22,417) (874) (286)
Interest income......................... 3,646 5,594 8,152 -- --
Gain on settlement agreement............ -- 791 791 -- --
Foreign exchange (loss) gain............ (1,346) (655) (391) (1,335) 226
-------- -------- -------- -------- -------
Total other expense................ (23,390) (8,809) (14,060) (2,671) (86)
-------- -------- -------- -------- -------
Loss before income taxes................... (58,561) (38,990) (57,946) (14,031) (9,662)
Income tax benefit......................... 6,682 6,475 11,351
-------- -------- -------- -------- -------
Net loss................................... (51,879) (32,515) (46,595) (14,031) (9,662)
Other comprehensive (loss) income:
Foreign currency translation
adjustment............................ (9,269) 561 2,766 929 4
-------- -------- -------- -------- -------
Total comprehensive loss........... $(61,148) $(31,954) $(43,829) $(13,102) $(9,658)
======== ======== ======== ======== =======
</TABLE>
See notes to the consolidated financial statements.
F-4
<PAGE> 170
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
HOLDING
COMMON STOCK ADDITIONAL CLASS A CLASS B EXCESS CAPITAL STOCK- LOSS ON
--------------- PAID-IN INITIAL INITIAL CONTRIBUTIONS BASED MARKETABLE
SHARES AMOUNT CAPITAL CAPITAL CAPITAL CLASS A COMPENSATION SECURITIES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995........ -- $ -- $ -- $ 180 $ 60 $ 2,594 $ -- $ --
Net loss.......................... -- -- -- -- -- -- -- --
Contributions..................... -- -- -- -- -- 7,083 -- --
Guaranteed return................. -- -- -- -- -- -- -- --
Contribution to excess
capital -- guaranteed return.... -- -- -- -- -- 499 -- --
Foreign currency translation
adjustments..................... -- -- -- -- -- -- -- --
--- ---- ------- ----- ---- -------- ------ ----
Balance, September 30, 1996........ -- -- -- 180 60 10,176 -- --
Net loss.......................... -- -- -- -- -- -- -- --
Converted loans from owners....... -- -- -- -- -- 5,396 -- --
Guaranteed return................. -- -- -- -- -- -- -- --
Contribution to excess
capital -- guaranteed return.... -- -- -- -- -- 724 -- --
Foreign currency translation
adjustments..................... -- -- -- -- -- -- -- --
--- ---- ------- ----- ---- -------- ------ ----
Balance, September 30, 1997........ -- -- -- 180 60 16,296 -- --
Net loss.......................... -- -- -- -- -- -- -- --
Contributions..................... -- -- -- -- -- 13,750 -- --
Converted loans from owners....... -- -- -- -- -- 6,250 -- --
Reorganization.................... 226 2 36,534 (180) (60) (36,296) -- --
Utilization of tax benefit of the
Company's operating loss by
AHI............................. -- -- -- -- -- -- -- --
Stock options granted............. -- -- -- -- -- -- 5,706 --
Phantom unit exchange............. -- -- -- -- -- -- 599 --
Holding gain on marketable
securities...................... -- -- -- -- -- -- -- 24
Foreign currency translation
adjustments..................... -- -- -- -- -- -- -- --
--- ---- ------- ----- ---- -------- ------ ----
Balance, September 30, 1998........ 226 2 36,534 -- -- -- 6,305 24
Net loss (Unaudited).............. -- -- -- -- -- -- -- --
Utilization of tax benefit of the
Company's operating loss by AHI
(Unaudited)..................... -- -- -- -- -- -- -- --
Stock options granted/exercised
(Unaudited)..................... 1 1,124 (759)
Holding loss on marketable
securities (Unaudited).......... (24)
Foreign currency translation
adjustments (Unaudited)......... -- -- -- -- -- -- -- --
--- ---- ------- ----- ---- -------- ------ ----
Balance, June 30, 1999
(Unaudited)....................... 227 $ 2 $37,658 $ -- $ -- $ -- $5,546 $ --
=== ==== ======= ===== ==== ======== ====== ====
<CAPTION>
FOREIGN
CURRENCY TOTAL
TRANSLATION ACCUMULATED CAPITAL
ADJUSTMENTS DEFICIT ACCOUNTS
<S> <C> <C> <C>
Balance, September 30, 1995........ $ -- $ (1,725) $ 1,109
Net loss.......................... -- (9,662) (9,662)
Contributions..................... -- -- 7,083
Guaranteed return................. -- (499) (499)
Contribution to excess
capital -- guaranteed return.... -- -- 499
Foreign currency translation
adjustments..................... (245) -- (245)
------- --------- ---------
Balance, September 30, 1996........ (245) (11,886) (1,715)
Net loss.......................... -- (14,031) (14,031)
Converted loans from owners....... -- -- 5,396
Guaranteed return................. -- (724) (724)
Contribution to excess
capital -- guaranteed return.... -- -- 724
Foreign currency translation
adjustments..................... 929 -- 929
------- --------- ---------
Balance, September 30, 1997........ 684 (26,641) (9,421)
Net loss.......................... -- (46,595) (46,595)
Contributions..................... -- -- 13,750
Converted loans from owners....... -- -- 6,250
Reorganization.................... -- -- --
Utilization of tax benefit of the
Company's operating loss by
AHI............................. -- (11,654) (11,654)
Stock options granted............. -- -- 5,706
Phantom unit exchange............. -- -- 599
Holding gain on marketable
securities...................... -- -- 24
Foreign currency translation
adjustments..................... 2,766 -- 2,766
------- --------- ---------
Balance, September 30, 1998........ 3,450 (84,890) (38,575)
Net loss (Unaudited).............. -- (51,879) (51,879)
Utilization of tax benefit of the
Company's operating loss by AHI
(Unaudited)..................... -- (6,755) (6,755)
Stock options granted/exercised
(Unaudited)..................... 365
Holding loss on marketable
securities (Unaudited).......... (24)
Foreign currency translation
adjustments (Unaudited)......... (9,269) -- (9,269)
------- --------- ---------
Balance, June 30, 1999
(Unaudited)....................... $(5,819) $(143,524) $(106,137)
======= ========= =========
</TABLE>
See notes to the consolidated financial statements.
F-5
<PAGE> 171
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
JUNE 30, SEPTEMBER 30,
-------------------- ------------------------------
1999 1998 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $(51,879) $ (32,515) $ (46,595) $(14,031) $(9,662)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............. 16,895 5,314 8,816 2,318 1,143
Non-cash stock-based compensation.......... 364 5,706 6,017 -- --
Non-cash income tax benefit................ (6,753) (6,569) (11,654) -- --
Amortization of bond discount.............. (1,789) 762 237 -- --
Loss on disposal of property and
equipment............................... -- -- -- 130 --
Changes in operating assets and
liabilities:
Accounts receivable..................... (38,627) (19,881) (40,107) (14,260) (4,356)
Prepaid expenses and other current
assets................................ (7) (7,595) (3,792) (810) (770)
Accounts payable and other current
liabilities........................... 50,224 30,720 51,510 17,903 8,731
Accounts payable -- related party....... 1,478 (228) (57) 389 --
Advance to affiliate.................... (196) (2,018) (490) -- (499)
-------- --------- --------- -------- -------
Net cash used operating activities............. (30,290) (26,304) (36,115) (8,361) (5,413)
-------- --------- --------- -------- -------
Cash flows from investing activities:
Purchase of investments in subsidiaries...... -- (4,652) (4,652) -- --
Purchase of investments in available-for-sale
securities................................. (7,407) (64,234) (77,820) -- --
Maturities of available-for-sale
securities................................. 13,378 1,769 30,582 -- --
Sales of available-for-sale securities....... 32,798 4,037 7,046 -- --
Purchase of investments in held-to-maturity
securities................................. (1,164) (86,549) (87,683) -- --
Maturities of held-to-maturity securities.... 16,120 -- 14,446 -- --
Purchases of property and equipment.......... (72,288) (35,877) (66,487) (1,897) (2,004)
Other........................................ 331 44 (124) 233 930
-------- --------- --------- -------- -------
Net cash used in investing activities........ (18,232) (185,462) (184,692) (1,664) (1,074)
-------- --------- --------- -------- -------
Cash flows from financing activities:
Advances from owners......................... -- -- -- 9,726 2,029
Excess capital contributions................. -- 13,750 13,750 -- 7,083
Proceeds from debt issuance.................. -- 300,000 300,000 -- --
Proceeds from line of credit................. 10,000 -- -- -- --
Payments of long-term debt and capital
leases..................................... (10,742) (12,823) (18,156) (1,812) (540)
Payment of debt issuance costs............... (10,305) (10,440)
-------- --------- --------- -------- -------
Net cash provided by financing activities.... (742) 290,622 285,154 7,914 8,572
-------- --------- --------- -------- -------
Effect of exchange rate changes on cash........ (169) 561 2,766 929 4
-------- --------- --------- -------- -------
Increase (decrease) in cash and cash
equivalents.................................. (49,433) 79,417 67,113 (1,182) 2,089
Cash and cash equivalents, beginning of
period....................................... 68,129 1,016 1,016 2,198 109
-------- --------- --------- -------- -------
Cash and cash equivalents, end of period....... $ 18,696 $ 80,433 $ 68,129 $ 1,016 $ 2,198
======== ========= ========= ======== =======
Supplemental cash flow information:
Interest paid................................ $ 17,861 $ 1,181 $ 15,834 $ 747 $ 201
======== ========= ========= ======== =======
</TABLE>
- ------------------------------
NONCASH TRANSACTIONS:
(a) For the nine months ended June 30, 1998 and the fiscal year ended September
30, 1998, the majority owner converted $6,250 of loans into capital and a
$162 receivable was forgiven as part of the purchase of minority interest
which reduced prepaid expenses and other current assets and increased
goodwill.
(b) FCI received $480 in FCI-Sweden convertible debentures during the year
ended September 30, 1997 to satisfy an advance to affiliate, which reduced
advance to affiliate and advances from owners.
F-6
<PAGE> 172
(c) During the year ended September 30, 1997, the majority owner converted
$5,396 of loans and accrued interest into capital.
(d) FCI received property and equipment under capital leases and financing
agreements, which increased property and equipment and long-term
obligations $17,807 (Unaudited) and $10,755 (Unaudited) in the nine months
ended June 30, 1999 and 1998, respectively, and $10,755, $10,385 and $6,400
in the fiscal years ended September 30, 1998, 1997 and 1996, respectively.
In addition, for the nine months ended June 30, 1999 and 1998 and for the
fiscal year ended September 30, 1998, FCI received equipment which
increased property and equipment and accounts payable transmission
equipment by $4,676 (Unaudited), $25,744 (Unaudited) and $24,668,
respectively (of which $15,331 was not yet placed in service as of
September 30, 1998).
(e) FCI recognized a tax benefit of $6,755 (Unaudited) and $6,569 (Unaudited)
for the nine months ended June 30, 1999 and 1998, respectively, and $11,654
for the fiscal year ended September 30, 1998. In accordance with the tax
sharing agreement with AHI entered into on December 22, 1997, FCI recorded
a dividend to AHI for the amount of the benefit to be realized by AHI (See
Note 5 to the consolidated financial statements).
See notes to the consolidated financial statements.
F-7
<PAGE> 173
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
Organization. FaciliCom International, LLC ("FCI, LLC") is a Delaware
limited liability company that was formed on May 5, 1995 to engage in various
international telecommunications businesses. On December 22, 1997, the owners of
FCI, LLC entered into an Investment and Shareholders Agreement ("Agreement").
Under the Agreement, the owners of FCI, LLC transferred all of their respective
units in FCI, LLC and FCI (GP), LLC, a Delaware limited liability company, to
FaciliCom International, Inc. ("FCI"), a Delaware corporation, and additionally
Armstrong International Telecommunications, Inc. ("AIT") contributed $20,000,000
(in cash and assignment of indebtedness) to FCI, all in exchange for 225,741
shares of FCI's common stock. FCI was incorporated on November 20, 1997, and has
300,000 authorized shares of common stock. Since the reorganization was a
combination of entities under common control, it was accounted for by combining
the historical accounts of FCI, LLC, FCI (GP), LLC and FCI in a manner similar
to a pooling of interests. FCI is authorized by the Federal Communications
Commission (the "FCC") to provide global facilities-based services as well as
switched international services through resale of the services and facilities of
other international carriers. In addition, FCI has worldwide authorization for
private line resale of noninterconnected private line services and authorization
to resell interconnected private lines for switched services to Canada, the
United Kingdom, Sweden, and New Zealand. FCI, LLC was and FCI is a
majority-owned subsidiary of AIT, which is a wholly owned subsidiary of
Armstrong Holdings, Inc. ("Armstrong" or "AHI").
On July 21, 1995, FCI acquired 66.5% of the outstanding capital stock of
both Nordiska Tele8 AB ("Tele8" or "FCI-Sweden") and FGC, Inc. ("FGC"), entities
related through common ownership. Subsequently, FCI acquired up to 99% of
FCI-Sweden and sold all of its interest in FGC. The additional interest in
FCI-Sweden was the result of three separate transactions (see Note 8). On March
14, 1997, $1,600,000 of FCI-Sweden convertible debentures were converted into
7,400 shares of FCI-Sweden common stock, on May 15, 1997, FCI paid $3,600,000
for 14,400 shares of FCI-Sweden common stock and on October 23, 1997, FCI paid
$750,000 for substantially all of the minority interest outstanding and recorded
$750,000 of goodwill. Also, on October 23, 1997, FCI sold all of its interest in
FGC for $100 and recorded a loss of approximately $79,000 on the transaction.
FCI-Sweden is a corporation organized under the laws of Sweden to provide
national and international telecommunications services. These acquisitions were
accounted for as purchase transactions with the purchase price being allocated
to the assets and liabilities acquired based on their fair values as of the date
of acquisition. The excess of the purchase price over the fair value of the net
assets acquired was recorded as goodwill and is being amortized over five years.
The following summarizes the allocation of the original 1995 purchase price
to the major categories of assets acquired and liabilities assumed (in
thousands):
<TABLE>
<S> <C>
Current assets.............................................. $ 343
Property and equipment...................................... 1,760
Excess of cost over net assets of businesses acquired....... 1,715
Other intangibles........................................... 32
------
3,850
Less liabilities assumed.................................... 3,010
------
Cash paid......................................... $ 840
======
</TABLE>
On April 27, 1998, FCI entered into an agreement to purchase 100% of the
issued and outstanding capital stock of Oy Teleykkanen AB ("Tele 1" or
"FCI-Finland"), a corporation formed under the laws of Finland, for $4.0 million
in cash. FCI Finland is a Finnish provider of local and long distance
international telecommunication services and has a carrier agreement to exchange
customer traffic with Telecom Finland, the dominant carrier in Finland. This
acquisition was accounted for using the purchase method of
F-8
<PAGE> 174
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounting. The excess of the purchase price over the fair value of the net
assets acquired was recorded as goodwill and is being amortized over five years.
The results of operations for Tele 1 were included in consolidated results of
operations since the date of acquisition.
The following summarizes the allocation of the purchase price to the major
categories of assets acquired and liabilities assumed (in thousands):
<TABLE>
<S> <C>
Current assets.............................................. $1,017
Property and equipment...................................... 976
Excess of cost over net assets of businesses acquired....... 3,911
Other assets................................................ 126
------
6,030
Less liabilities assumed.................................... 1,966
------
Cash paid......................................... $4,064
======
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Basis of Presentation. The accompanying consolidated financial
statements include the accounts of FCI and its majority owned and wholly owned
subsidiaries (together, "FaciliCom"). All intercompany transactions and balances
have been eliminated in consolidation. Because losses applicable to the minority
interest exceeded the minority interest in the equity capital and the minority
stockholder was not obligated to provide additional funding with respect to the
losses incurred, such losses were recorded by FaciliCom prior to the purchase of
the minority interest.
b. Cash and cash equivalents. FaciliCom considers its investments with an
original maturity of three months or less to be cash equivalents. Cash
equivalents are stated at cost plus accrued interest and are highly liquid debt
instruments of the U.S. government and commercial corporations and money market
funds.
c. Property and Equipment. Property and equipment is stated at cost.
Depreciation is provided for financial reporting purposes using the
straight-line method. Depreciation expense includes the amortization of capital
leases. The estimated useful lives of property and equipment are as follows:
<TABLE>
<S> <C>
Transmission and communications equipment................... 5 to 25 years
Transmission and communications equipment-leased............ 5 to 25 years
Furniture, fixtures and other............................... 5 to 7 years
</TABLE>
FaciliCom capitalizes the costs of software and software upgrades purchased
for use in its transmission and communications equipment. FaciliCom expenses the
costs of software purchased for internal use. Maintenance and repairs are
expensed as incurred. Replacements and betterments are capitalized.
Depreciation expense for the fiscal years ended September 30, 1998, 1997
and 1996 was $7,383,000, $2,053,000 and $863,000.
FaciliCom periodically evaluates its long-lived assets to confirm that the
carrying values have not been impaired using the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 121.
d. Intangible Assets. Intangible assets, consisting primarily of goodwill,
are amortized using the straight-line method over 5 years.
FaciliCom periodically evaluates its intangible assets to confirm that the
carrying values have not been impaired using the provisions of SFAS No. 121.
F-9
<PAGE> 175
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
e. Income Taxes. FCI, LLC is a limited liability company and is not
subject to income tax, while FaciliCom International, Inc., incorporated on
November 20, 1997 as a Delaware corporation is subject to income taxes.
FaciliCom accounts for income taxes under the liability method in
accordance with the provisions set forth in SFAS No. 109, "Accounting for Income
Taxes," whereby deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. In assessing
realization of deferred tax assets, FaciliCom uses judgment in considering the
relative impact of negative and positive evidence. The weight given to the
potential effect of negative and positive evidence is commensurate with the
extent to which it can be objectively verified. Based on the weight of evidence,
both negative and positive, including the lack of historical earnings, if it is
more likely than not that some portion or all of a deferred tax asset will not
be realized, a valuation allowance is established.
f. Initial and Excess Capital Contributions. Excess capital contributions
were the amounts of capital an owner had contributed in excess of the owner's
initial capital commitment. The owners were credited with a guaranteed return
through September 30, 1997 for the use of their capital, and profits and losses
were allocated, in accordance with the provisions in the FCI LLC Limited
Liability Company Agreement ("LLC Agreement").
The guaranteed return was calculated as simple interest at a rate per annum
equal to the lowest rate of interest available to AIT or any of its affiliates
from time-to-time under any of their respective existing credit facilities. Upon
liquidation of FCI LLC, allocations of annual net profits are allocated first to
the Class A and Class B owners to the extent required to adjust capital
accounts, then to the extent of cumulative net losses previously allocated in
accordance with certain capital contribution priorities set forth in the LLC
Agreement and thereafter 75% to Class A and 25% to Class B owners. Allocations
of annual net losses are allocated to the extent of cumulative net profits
previously allocated and then to the extent of owner's capital contributions and
thereafter to the Class A owner. Net losses allocated to the Class B owner may
not cause such owner's account to result in a deficit. FaciliCom may make
distributions after first paying any unpaid guaranteed return and then in
accordance with the owner's respective capital contributions and thereafter 75%
to the Class A owner and 25% to the Class B owner. Upon dissolution, the LLC
Agreement provides for liquidation of FCI LLC's assets and any distribution to
owners will be in accordance with the balance of their respective capital
accounts. Following distribution of assets, owners having a capital account with
a deficit balance shall be required to restore the account. The LLC Agreement
provides that FCI LLC shall terminate on December 31, 2025. In consideration of
all capital contributions made through September 30, 1997, the Class A and Class
B owners owned 15,390,000 and 3,610,000 membership interests in FCI LLC,
respectively, representing 81% and 19%, respectively, of such interests.
g. Foreign Currency Translation. For non-U.S. subsidiaries, the functional
currency is the local currency. Assets and liabilities of those operations are
translated into U.S. dollars using year-end exchange rates; income and expenses
are translated using the average exchange rates for the reporting period.
Translation adjustments are reported as a separate component of other
accumulated comprehensive income (loss). Exchange losses and gains resulting
from foreign currency transactions are included in the results of operations
based upon the provisions of SFAS No. 52, "Foreign Currency Translation."
h. Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
F-10
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FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
i. Revenue Recognition. FaciliCom records revenues from the sale of
telecommunications services at the time of customer usage based upon minutes of
traffic processed at contractual fees. FaciliCom has entered into, and continues
to enter into, operating agreements with telecommunications carriers in several
foreign countries under which international long distance traffic is both
delivered and received. Under these agreements, the foreign carriers are
contractually obligated to adhere to the policy of the FCC, whereby traffic from
the foreign country is routed to U.S. based international carriers, such as
FaciliCom, in the same proportion as traffic carried into the country. Mutually
exchanged traffic between FaciliCom and foreign carriers is settled through a
formal settlement policy at an agreed upon rate which allows for the offsetting
of receivables and payables with the same carrier (settlement on a net basis).
Although FaciliCom can reasonably estimate the revenue it will receive under the
FCC's proportional share policy, there is no guarantee that FaciliCom will
receive return traffic and FaciliCom is unable to determine what impact changes
in future settlement rates will have on net payments made and revenue received.
Accordingly, FaciliCom does not record this revenue until the service is
provided and the minutes of traffic are processed. FaciliCom recognizes revenues
from prepaid calling cards when earned.
j. Cost of Revenues. Cost of revenue includes network costs which consist
of access, transport and termination costs. Such costs are recognized when
incurred in connection with the provision of telecommunication services,
including costs incurred under operating agreements.
k. Interim Financial Information. The interim financial data as of June
30, 1999, and for the nine month periods ended June 30, 1999 and 1998, is
Unaudited. The information reflects all adjustments consisting only of normal,
recurring adjustments that, in the opinion of management, are necessary to
present fairly the financial position and results of operations of FaciliCom for
the periods indicated. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the full year.
l. Stock-Based Compensation. FaciliCom accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion ("APBO") No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost is
measured as the excess, if any, of the market price of FaciliCom's stock at the
date of grant (determined by a valuation report) over the amount an employee
must pay to acquire the stock.
m. Financial Instruments. FaciliCom has financial instruments, which
include cash and cash equivalents, marketable securities and long-term debt
obligations. The carrying values of these instruments in the balance sheets,
except for certain marketable securities and 10 1/2% Senior Notes due 2008 (the
"Notes") (see Note 4), approximated their fair market value. See Note 16 for
disclosure of fair market value for marketable securities. The estimated fair
value of FaciliCom's Notes at September 30, 1998 was $261.0 million and was
estimated using quoted market prices.
The fair values of the instruments were based upon quoted market prices of
the same or similar instruments or on the rate available to FaciliCom for
instruments of similar maturities.
n. Fiber Optic Cable Arrangements. FaciliCom obtains capacity on certain
fiber optic cables under three types of arrangements. The Indefeasible Right of
Use ("IRU") basis provides FaciliCom the right to use a fiber optic cable, with
most of the rights and duties of ownership, but without the right to control or
manage the facility and without any right to salvage or duty to dispose of the
cable at the end of its useful life. Because of this lack of control and an IRU
term approximates the estimated economic life of the asset, FaciliCom accounts
for such leases as leased transmission and communications equipment and as
capital leases. The Minimum Assignable Ownership Units ("MAOU") basis provides
FaciliCom an ownership interest in the fiber optic cable with certain rights to
control and to manage the facility. Because of the ownership features, FaciliCom
records these fiber optic cables as owned transmission and communications
equipment and as long-term debt. The Carrier Lease Agreement basis involves a
shorter
F-11
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FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
term agreement which provides FaciliCom the right to use capacity on a cable but
without any rights and duties of ownership. FaciliCom accounts for such leases
as operating leases.
o. Impact of Recently Issued Accounting Standards. In June 1997 the FASB
issued SFAS No. 130, "Reporting Comprehensive Income," which (i) establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements, and (ii) requires an enterprise to report a total for
comprehensive income in condensed financial statements of interim periods.
FaciliCom adopted SFAS No. 130 in fiscal 1999 and has elected to display the
components of Comprehensive Income within the Consolidated Statements of
Operations and Comprehensive Loss. Prior period amounts have been appropriately
disclosed.
In June 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. The statement is effective for fiscal years beginning after
December 15, 1997. In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measuring those
instruments at fair value, with the potential effect on operations dependent
upon certain conditions being met. The statement (as amended by SFAS No. 137) is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The implementation of SFAS No. 131 is not expected to have a material impact on
FaciliCom's financial position or results of operations. FaciliCom has not
determined the impact that implementing SFAS No. 133 will have on FaciliCom's
financial position or results of operations.
p. Reclassifications. Certain amounts in the September 30, 1997 and 1996
consolidated financial statements have been reclassified to conform with the
presentation of the September 30, 1998 consolidated financial statements.
3. OPERATING DEFICIT AND MANAGEMENT'S PLANS:
FaciliCom had a net loss of approximately $46.6 million for the year ended
September 30, 1998. On January 28, 1998, FaciliCom issued $300 million aggregate
principal amount of the Notes. FaciliCom believes that the net proceeds from the
offering of the Notes, together with cash provided by operating activities and
vendor financing, will provide FaciliCom with sufficient capital to fund planned
capital expenditures and anticipated losses and to make interest payments on the
Notes through at least September 30, 1999.
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
Long-Term Debt. During 1997, FCI entered into an Equipment Loan and
Security Agreement with NTFC Capital Corporation ("NTFC") to finance up to
$5,000,000 for the purchase of transmission and communications equipment.
Interest was payable quarterly and was calculated based upon the London
Interbank Offering Rate ("LIBOR") plus 4%. Quarterly principal payments were to
commence on June 30, 1999. The loan was collateralized by the related equipment
purchased under such agreement. FaciliCom used a portion of the proceeds from
the offering of Notes to pay off the indebtedness under the Equipment Loan and
Security Agreement and the agreement was terminated.
During 1995, FCI entered into an equipment financing agreement with
Ericsson I.F.S. to purchase certain equipment. The original agreement was
amended and restated on December 30, 1996, to increase the borrowing limit to
$7,000,000 and certain terms were further revised on June 12, 1997 and
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FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
November 21, 1997. Interest was calculated based upon LIBOR plus 4%. Quarterly
principal payments were to commence on June 30, 1998. The loan was
collateralized by the related equipment purchased under the financing agreement.
FaciliCom used a portion of the proceeds from the offering of Notes to pay off
the indebtedness under the equipment financing agreement and the agreement was
terminated.
On January 28, 1998, FCI issued $300 million aggregate principal amount of
Notes bearing interest at 10 1/2% due 2008 pursuant to an Indenture (the
"Offering"). The Notes are unsecured obligations of FCI and interest on the
Notes is payable semiannually in arrears on January 15 and July 15 of each year,
commencing on July 15, 1998.
The Notes are redeemable at the option of FCI, in whole or in part at any
time on or after January 15, 2003, at specified redemption prices plus accrued
and unpaid interest. In addition, at any time prior to January 15, 2001, FCI,
may redeem from time to time up to 35% of the originally issued aggregate
principal amount of the Notes at the specified redemption prices with the net
cash proceeds (as defined in the Indenture) of one or more public equity
offerings. In the event of a change in control of ownership of FCI, Inc., each
holder of the Notes has the right to require FCI, to purchase all or any of such
holder's Notes at a purchase price in cash equal to 101% of the aggregate
principal amount.
FCI used approximately $86.5 million of the proceeds from the Offering to
purchase investments consisting of U.S. Government Obligations, which are
pledged as security and restricted for the first six scheduled interest payments
on the Notes (see Note 16).
The Notes require maintenance of certain financial and nonfinancial
covenants, including limitations on additional indebtedness, restricted payments
including dividends, transactions with affiliates, liens and asset sales.
Long-term debt at September 30, 1998 and 1997 consists of the following
(dollars in thousands):
<TABLE>
<CAPTION>
INTEREST RATE 1998 1997
<S> <C> <C> <C>
Indenture notes, due 2008.......................... 10.5% $300,000 $ --
NTFC debt.......................................... LIBOR + 4% -- 7,116
Ericsson debt...................................... LIBOR + 4% -- 5,094
Cable capacity debt, due 2001...................... LIBOR + 4.5% 740 1,134
Other.............................................. Various -- 699
-------- -------
Sub-total.......................................... 300,740 14,043
Less: Current portion of long-term debt............ (394) (1,043)
-------- -------
$300,346 $13,000
======== =======
</TABLE>
The LIBOR rate was 5.3% and 5.8% on September 30, 1998 and 1997,
respectively.
Capital Leases. FaciliCom leases certain fiber optic cables under
agreements permitting the use of the cables over periods up to 25 years with
payment requirements over periods not exceeding five years. Payments are made
quarterly and interest is calculated at LIBOR plus 4% to 4.5%.
F-13
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FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments on long-term debt and capital lease obligations at
September 30, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES
<S> <C> <C>
1999........................................................ $ 394 $4,195
2000........................................................ 346 4,065
2001........................................................ -- 650
2002........................................................ -- 221
2003........................................................ -- --
Thereafter.................................................. 300,000 --
-------- ------
Total future minimum payments............................... $300,740 9,131
========
Less: Amount representing interest (using September 30, 1998
LIBOR rate)............................................... (933)
------
$8,198
======
</TABLE>
5. INCOME TAXES:
At September 30, 1998, FaciliCom has approximately $2.6 million of
cumulative net operating losses ("NOLs") to offset future U.S. federal taxable
income and approximately $25.3 million of NOLs to offset future foreign taxable
income for those subsidiaries taxed in foreign jurisdictions. The U.S. NOLs
expire in fifteen years, while the foreign NOLs do not expire. A valuation
allowance was established for the deferred assets related to the NOLs at
September 30, 1998.
Deferred tax assets of approximately $3,130,000 at September 30, 1997 were
related to the NOL carryforwards of foreign subsidiaries taxed in foreign
jurisdictions totaling approximately $11,100,000. A valuation allowance was
established for the amount of deferred tax assets at September 30, 1997.
On December 22, 1997, FaciliCom adopted a tax sharing agreement with AHI,
whereby FaciliCom is obligated to file a consolidated federal income tax return
with AHI and subsidiaries. Under the Agreement, FCI is obligated to pay, with
certain exceptions, its share of the consolidated tax liability to AHI and FCI
will not be paid by AHI for tax benefits realized in the consolidated tax
return. At December 31, 1997, FCI had approximately $1,018,000 of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and amounts used for income tax purposes that amounted to
approximately $393,000 and was recorded as a deferred tax liability and deferred
income tax expense for the change in tax status for the year ended September 30,
1998.
From December 23, 1997 through September 30, 1998, the period after the
change in tax status, FCI recorded a tax benefit of $12.1 million based upon
FaciliCom's losses expected to be utilized by AHI. The net benefit recorded was
passed through to AHI.
The components of loss before income taxes for the periods ended September
30, 1998, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Domestic................................................... $43,432 $ 6,978 $3,009
Foreign.................................................... 14,514 7,053 6,653
------- ------- ------
Total............................................ $57,946 $14,031 $9,662
======= ======= ======
</TABLE>
F-14
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FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the income tax provision for the years ended September
30, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax-asset foreign NOLs............................. $ 2,010 $ 1,120
Valuation allowance......................................... (2,010) (1,120)
------- -------
$ -- $ --
======= =======
</TABLE>
A reconciliation of the total tax benefit with the amount computed by
applying the statutory federal income tax rate to the loss before taxes for the
year ended September 30, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
1998
<S> <C>
Loss applying statutory rate................................ $19,700
Permanent differences....................................... (3,693)
Foreign country taxes....................................... (302)
Change in tax status........................................ (393)
State taxes................................................. 226
Valuation allowance......................................... (4,187)
-------
Income tax benefit.......................................... $11,351
=======
</TABLE>
There are no pro forma income tax amounts presented giving effect to the
change in tax status for the statements of operations presented as FaciliCom
would have been a stand alone taxpaying entity and a valuation allowance would
have been established for any net deferred tax benefit related to net operating
losses.
The components of deferred tax assets and liabilities at September 30, 1998
and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax asset -- foreign NOLs.......................... $ 7,718 $ --
Deferred tax asset -- domestic NOLs......................... 1,065 3,130
Property and equipment...................................... 600 --
Stock-based compensation.................................... 2,522 --
Valuation allowance......................................... (11,905) (3,130)
-------- -------
$ -- $ --
======== =======
</TABLE>
F-15
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FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OPERATING LEASES:
FaciliCom leases office facilities and certain fiber optic cables and
switching facilities under noncancelable operating leases. Rental expense for
the fiscal years ended September 30, 1998, 1997, and 1996 was $21.9 million,
$4.7 million and $1.4 million, respectively, of which $19.2 million, $3.8
million and $1.1 million relates to fiber optic cable leases, which are
generally for less than one year. Future minimum lease payments under
noncancelable operating leases as of September 30, 1998 are as follows (in
thousands):
<TABLE>
<S> <C>
1999........................................................ $ 3,864
2000........................................................ 3,733
2001........................................................ 3,599
2002........................................................ 3,247
2003........................................................ 2,955
Thereafter.................................................. 13,659
-------
Total....................................................... 31,057
Less: Subleases............................................. (1,087)
-------
$29,970
=======
</TABLE>
7. BORROWINGS FROM OWNERS:
At September 30, 1996, FaciliCom had outstanding interest-bearing working
capital advances from Armstrong totaling $1,549,000. On November 1, 1996, FCI
entered into a Convertible Line of Credit Agreement with Armstrong. The
outstanding advances were converted into borrowings under the line of credit
agreement. Under such agreement, FCI had a $15,000,000 credit facility of which
$5,000,000 was available in cash and $10,000,000 was available for letter of
credit needs. Armstrong had the right, at any time on or before October 31,
1999, to convert the entire principal amount of the cash loan into a maximum of
3.1% of additional ownership and convert the letter of credit balance
outstanding into a maximum additional 4.44% ownership. In 1997, Armstrong
converted the outstanding balance of $5,396,000 under the cash portion of the
agreement into an ownership interest.
At September 30, 1997, FCI had $10,000,000 for letter of credit needs of
which it had outstanding letters of credit of $6,136,000 under the Convertible
Line of Credit Agreement.
In 1997, FCI entered into a Bridge Loan Agreement with Armstrong in which
FCI could borrow up to $10,000,000. Interest was calculated based upon prime
plus 1%. The prime rate was 8.5% at September 30, 1997. The loan was due on
October 1, 1998. The outstanding balance at September 30, 1997 was $6,250,000.
During the year ended September 30, 1998, Armstrong converted the outstanding
balance of $6,250,000 into an ownership interest (see Note 1).
Additionally, as of September 30, 1996, FCI-Sweden had outstanding
convertible debentures in the amount of $480,000 to a minority stockholder of
both FCI-Sweden and FGC (the "Minority Stockholder"). Such convertible
debentures accrued interest at LIBOR plus 4%. Interest was payable annually on
September 30, with the full principal amount due on September 30, 2003. In
December 1996, these convertible debentures were assigned to FCI (see Note 8).
FCI's total interest expense under the above borrowings was $195,000,
$462,000 and $26,000 for the years ended September 30, 1998, 1997 and 1996,
respectively.
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FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. OTHER RELATED PARTY TRANSACTIONS:
As of September 30, 1996, FCI had an outstanding advance to the Minority
Stockholder of $499,000.
As of September 30, 1996, FCI and the Minority Stockholder held $1,120,000
and $480,000, respectively, of FCI-Sweden debentures totaling $1,600,000 which
earned interest at LIBOR plus 4%. The holder of the debentures had the right to
convert the outstanding principal balance into FCI-Sweden common stock at a
predetermined price ranging from $200 to $250 per share.
On December 23, 1996, the Minority Stockholder assigned its right, title
and interest in the FCI-Sweden convertible debentures to FCI to satisfy the
outstanding advance due to FCI from the Minority Stockholder. On March 14, 1997,
FCI converted all of its FCI-Sweden convertible debentures into 7,400 shares of
FCI-Sweden common stock. On May 15, 1997, FCI-Sweden issued 14,400 additional
shares of common stock to FCI for consideration of $3,600,000. Such transactions
increased FCI's ownership in FCI-Sweden to 89.6%.
In March 1996, Tele8 Kontakt, a subsidiary of FCI at that time, was awarded
a license agreement from the Swedish government for certain rights relating to
communications systems and technology. During October 1996, FCI distributed its
rights under such license agreement to its owners.
FCI has contracted with AHI, since its inception, for the performance of
certain services by AHI for FCI, including but not limited to financial
accounting, professional and billing services. In May 1998, an agreement was
entered into for such services. The agreement expires on September 30, 2002.
Expenses related to such contracted services of approximately $1.6 million,
$439,000 and $7,000 are included in the statements of operations for the years
ended September 30, 1998, 1997 and 1996, respectively.
The terms of the agreements include professional services billed at hourly
rates, check processing at an amount per check and data center services based on
usage and disk storage space. FaciliCom believes that the terms of the
agreements are competitive with similar services offered in the industry.
As of September 30, 1998 an affiliate of AHI had issued letters of credits
on behalf of FaciliCom totaling $9.4 million.
9. BENEFIT PLANS:
Foreign Operations. Various foreign subsidiaries contribute to their
respective government pension funds, social insurance, medical insurance and
unemployment charters for their employees. The total contribution was $1.3
million, $781,000 and $563,000 for the years ended September 30, 1998, 1997 and
1996, respectively.
401(k). Employees of FCI may participate in a salary reduction (401(k)
plan administered by AHI. All contributions represent employee salary
reductions.
10. CONCENTRATION OF RISK:
Financial instruments that potentially subject FaciliCom to concentration
of credit risk are accounts receivable. Four of FaciliCom's customers accounted
for approximately 13.0% and 31.0% of gross accounts receivable as of September
30, 1998 and 1997, respectively. FaciliCom performs on-going credit evaluations
of its customers and in certain circumstances requires collateral to support
customer receivables. However, many of FaciliCom's customers, including these
four, are suppliers to whom FaciliCom has accounts payable that mitigate this
risk.
In addition, FaciliCom is dependent upon certain suppliers for the
provision of telecommunication services to its customers. FaciliCom has not
experienced, and does not expect, any disruption of such services.
F-17
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FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Approximately 24% and 41% of FaciliCom's revenues for the years ended
September 30, 1997 and 1996, respectively, were derived from two customers each
with percentages in excess of 10%. No one customer represented 10% or more of
FaciliCom's revenues for the year ended September 30, 1998.
11. COMMITMENTS:
Equipment. At September 30, 1998, FaciliCom had outstanding commitments to
purchase certain switching equipment for approximately $15 million.
In May 1998, FaciliCom entered into a Memorandum of Understanding ("MOU")
with Qwest. The MOU incorporates agreements to provide Qwest with international
direct dial termination service to various destinations and provides FaciliCom
an indefeasible right of use ("IRU") for domestic and international fiber optic
capacity. Deliveries of capacity under the IRU began in March 1999. The IRU is
for twenty-five years, for which FaciliCom has agreed to pay $24 million.
Delivery of two of the capacity segments occurred during the nine month period
ended June 30, 1999. The delivery of the remaining capacity is expected by
September 30, 1999. FaciliCom has recorded a liability related to the two
capacity segments that were delivered during the nine month period ended June
30, 1999. In addition, during a three-year period, Qwest has the right of first
refusal pursuant to additional capacity purchases made by FaciliCom.
FaciliCom has also entered into two agreements that provide FaciliCom with
IRU's for international fiber optic capacity for Europe and the Pacific Rim.
Deliveries of the capacity under the agreements are expected prior to November
1999. The IRU's are for ten to fifteen years, for which FaciliCom has agreed to
pay approximately $41.6 million through September 30, 2002, of which $2.5
million has already been paid as a deposit and an additional $24.1 million is
expected to be paid in the fiscal year ended September 30, 1999.
Subsequent to September 30, 1998, FaciliCom agreed to acquire additional
capacity in Europe and Scandinavia for $8.6 million. Deliveries and payment of
the capacity under these agreements are expected by September 30, 1999.
12. CONTINGENCIES AND LITIGATION:
FaciliCom is involved in various claims and possible actions arising in the
normal course of its business. Although the ultimate outcome of these claims
cannot be ascertained at this time, it is the opinion of FaciliCom's management,
based on its knowledge of the facts and advice of counsel, that the resolution
of such claims and actions will not have a material adverse effect on
FaciliCom's financial condition or results of operations.
In August 1997, FaciliCom entered into a settlement agreement relating to
litigation arising from a certain 1996 FCI-Sweden international telephone
services agreement and related billing, collection and factoring agreements with
third parties. For the fiscal year ended September 30, 1996, selling, general
and administrative expenses includes approximately $708,000 of losses relating
to the settlement of which $500,000 represents a reserve on advances, paid at
the time of the settlement agreement, on behalf of the telephone service
company. Under the settlement agreement all of the above amounts were paid to
fully satisfy any amounts which may be owing from FaciliCom and the telephone
services company to a company under a factoring agreement. At the date of
settlement, the management of FaciliCom believed the amounts advanced to the
telephone services company were uncollectible. The settlement agreement also
provides for the factoring company to assign to FaciliCom any and all receivable
claims the factoring company may have against the billing and collection agent
("Agent"). FaciliCom filed a complaint against the Agent for breach of contract
and related claims pursuant to an agreement between FaciliCom and the
F-18
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FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Agent. The Agent placed in escrow the sum of $1,431,324. On May 8, 1998, the
balance of the escrow account was distributed among various entities. FaciliCom
received $791,000.
13. STOCK-BASED COMPENSATION:
Through December 22, 1997, certain employees and directors were eligible to
participate in a Performance Unit Plan established by FaciliCom, under which a
maximum of 1,254,000 units could have been granted. A unit is a right to receive
a cash payment equal to the excess of the fair market value of a unit on its
maturity date over the initial value of a unit. Fair market value of a unit as
determined by the management committee of FaciliCom. At September 30, 1997 and
1996, 484,500 and 152,000 units had been granted, respectively. Participants
vested in their units over a period not to exceed two years and were entitled to
receive cash compensation equivalent to the value of the units at the time a
participant retires provided the participant had 10 years of continuous service
or, if earlier, upon the occurrence of certain events, including a change in
control of FaciliCom. FaciliCom accrued to expense over the participant's
service vesting period (10 years) amounts based on the value of the unit at year
end. Amounts charged to expense for this plan for the year ended September 30,
1997 was $288,000. No amounts were expensed in prior years.
On December 22, 1997, the Board of Directors adopted the 1997 Phantom Stock
Rights Plan (the "Phantom Stock Plan"). The Phantom Stock Plan provided for the
granting of phantom stock rights ("Phantom Shares") to certain directors,
officers and key employees of FaciliCom and its subsidiaries. The total number
of Phantom Shares eligible for grant pursuant to the Phantom Stock Plan was
6,175, subject to adjustments for stock splits and stock dividends.
All of the units granted under FaciliCom's Performance Unit Plan were
exchanged for equivalent phantom rights with equivalent terms under the new
phantom rights plan. Accordingly, 4,845 Phantom Shares had been granted of which
3,182 had vested. All of the provisions of the Phantom Stock Plan including
vesting, forfeiture and cash settlement mirror the provisions of FaciliCom's
Performance Unit Plan.
On March 31, 1998, the Board of Directors adopted the FaciliCom
International, Inc. 1998 Stock Option Plan (the "1998 Stock Option Plan"). By
resolution of the Board of Directors on March 31, 1998, FaciliCom's Certificate
of Incorporation was amended to create 25,000 shares of a non-voting class of
common stock. At September 30, 1998, FaciliCom has 300,000 authorized shares, of
which 275,000 are a voting class of common stock.
The 1998 Stock Option Plan provides for the grant of options to purchase
shares of FaciliCom's non-voting common stock to certain directors, officers,
key employees and advisors of FaciliCom. The aggregate number of options that
may be granted under the 1998 Stock Option Plan is 22,574 and no option may be
granted after March 31, 2008. No option is exercisable within the first six
months of grant and options expire after ten years.
Also on March 31, 1998, all of the Phantom Shares previously granted to
employees of FaciliCom under FaciliCom's Phantom Stock Plan were converted to
options under the 1998 Stock Option Plan, and FaciliCom granted additional
options to purchase 6,448 shares of non-voting common stock to employees,
directors and advisors under the 1998 Stock Option Plan. The exchange of
employees' Phantom Shares for options resulted in additional compensation cost
for the incremental value of the new option amortized over the vesting period of
the option that is shorter than the service period of the Phantom Shares. Total
unrecognized compensation cost approximated $1,672,375 at time of conversion.
F-19
<PAGE> 185
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the stock option activity at September 30, 1998 is as follows:
<TABLE>
<CAPTION>
OPTION SHARES OPTION SHARES OPTION SHARES OPTION SHARES
(EXERCISE (EXERCISE PRICE (EXERCISE PRICE (EXERCISE PRICE
PRICE $1) $263) $500) $1,000)
<S> <C> <C> <C> <C>
Options granted March 31, 1998..... 9,918 670 705 --
Options granted June 1, 1998....... -- -- 30 --
Options granted July 1, 1998....... -- -- -- 200
----- --- --- ---
Options outstanding at September
30, 1998......................... 9,918 670 735 200
===== === === ===
Options exercisable at September
30, 1998......................... 9,490 380
===== ===
</TABLE>
All of the options outstanding at September 30, 1998 have a 10-year life
and an option price range from $1.00 to $1,000 per option share. The options
vest over a period up to 5 years and at September 30, 1998 there were 8,826
options granted that vested immediately. FaciliCom recognized compensation cost
of $5,706,000 as of September 30, 1998 relating to options granted and
recognized compensation cost of $311,592 for the year ended September 30, 1998
relating to FaciliCom's Phantom Stock plan. For the year ended September 30,
1998 compensation cost includes $2,112,640 for 3,401 options with an exercise
price of $1.00 granted to certain non-employee directors and advisors related to
certain directors of FaciliCom.
The fair value of options granted at September 30, 1998 was as follows:
<TABLE>
<CAPTION>
OPTION SHARES OPTION FAIR VALUE
EXERCISE PRICE AT DATE OF GRANT
<S> <C>
$ 1.................................................... $640
$ 263..................................................... $423
$ 500..................................................... $306
$1,000.................................................... $135
</TABLE>
The fair value of the option grant is estimated on the date of grant using
the Black-Scholes option pricing model. The assumptions used in the
Black-Scholes model are: dividend yield 0%, volatility 30%, risk free interest
rate of 6%, assumed forfeiture rate of 0% and an expected life of 3 to 5 years.
If FaciliCom would have recorded compensation cost for FaciliCom's stock
option plan consistent with the fair value-based method of accounting prescribed
under SFAS No. 123 it would have had an immaterial effect on the net loss of
FaciliCom for the fiscal year ended September 30, 1998.
On October 1, 1998, FaciliCom granted options to purchase 1,702 shares at
exercise prices ranging from $1 to $950. The options vest over 1 to 5 years and
are exercisable for 10 years. Approximately $589,000 of compensation expense
will be recorded for the options.
14. VALUATION AND QUALIFYING ACCOUNTS:
Activity in FaciliCom's allowance accounts for the periods ended September
30, 1998, 1997 and 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
DOUBTFUL ACCOUNTS
ADDITIONS
---------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT
PERIOD EXPENSE OTHER ACCOUNTS DEDUCTIONS END OF PERIOD
<S> <C> <C> <C> <C> <C>
1996......................... $ -- $ -- $ -- $ -- $ --
1997......................... $ -- $1,263 $ -- $(1,102) $ 161
1998......................... $161 $3,771 $745 $ (57) $4,620
</TABLE>
F-20
<PAGE> 186
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DEFERRED TAX ASSET VALUATION
--------------------------------
CHARGED TO
BALANCE AT COSTS AND BALANCE AT
BEGINNING OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD
<S> <C> <C> <C> <C>
1996................................ $ -- $1,120 $ -- $ 1,120
1997................................ $1,120 $2,010 $ -- $ 3,130
1998................................ $3,130 $8,221 $ -- $11,351
</TABLE>
15. GEOGRAPHIC DATA:
FaciliCom operates as a provider of international long-distance
telecommunications services. FaciliCom is a multinational company operating in
many countries including the United States, the United Kingdom, Sweden, Denmark,
France, Germany and The Netherlands. Sales between geographic areas represent
the providing of services through carrying and ultimately termination of
customer traffic originated in the other geographic area and are accounted for
based on established sales prices. In computing operating loss for foreign
operations, no allocations of certain general corporate expenses have been made.
Summary information with respect to FaciliCom's geographic operations is as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------
1998 1997 1996
<S> <C> <C> <C>
NET REVENUE
North America........................................ $ 142,126 $ 56,315 $ 8,363
Europe............................................... 112,392 24,187 7,347
Eliminations......................................... (70,272) (10,315) (3,819)
--------- -------- -------
Total........................................ $ 184,246 $ 70,187 $11,891
========= ======== =======
OPERATING LOSS
North America........................................ $ (29,553) $ (6,337) $(2,936)
Europe............................................... (14,333) (5,023) (6,640)
--------- -------- -------
Total........................................ $ (43,886) $(11,360) $(9,576)
========= ======== =======
ASSETS
North America........................................ $ 488,649 $ 25,035 $ 9,431
Europe............................................... 150,992 21,824 13,042
Eliminations......................................... (260,757) (2,842) (1,465)
--------- -------- -------
Total........................................ $ 378,884 $ 44,017 $21,008
========= ======== =======
</TABLE>
16. MARKETABLE SECURITIES:
In accordance with SFAS 115, FaciliCom's debt securities are considered
either held-to-maturity or available-for-sale. Held-to-maturity securities
represent those securities that FaciliCom has both the positive intent and the
ability to hold to maturity, and are carried at amortized cost. This
classification includes those securities purchased and pledged for payment of
interest on the Notes. Available-for-sale securities represent those securities
that do not meet that classification of held-to-maturity, are not actively
traded and are carried at fair value. Unrealized gains and losses on these
securities are excluded from earnings and are reported as a separate component
of capital accounts until realized.
F-21
<PAGE> 187
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated fair value of the marketable securities
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Held-to-Maturity
U.S. Government Securities Maturing in 1
year or less............................. $ 31,394 $ 79 $ -- $ 31,473
Maturing between 1 and 3 years.............. 43,124 546 -- 43,670
-------- ------- ---- --------
Total held-to-maturity.............. 74,518 625 -- 75,143
-------- ------- ---- --------
Available-for-sale
Commercial paper............................ 6,887 -- -- 6,887
Government backed securities................ 31,787 24 -- 31,811
-------- ------- ---- --------
Total available-for-sale............ 38,674 24 -- 38,698
-------- ------- ---- --------
Total marketable securities......... $113,192 $ 649 $ -- $113,841
-------- ------- ---- --------
AS REPORTED SEPTEMBER 30, 1998 (IN THOUSANDS):
Current Assets:
Held-to-maturity (at amortized cost)................... $31,394
Available-for-sale (at fair value)..................... 38,698
-------
Total current assets........................... $70,092
=======
Noncurrent Assets:
Held-to-maturity (at amortized cost)................... $43,124
=======
Capital Accounts:
Holding gain on marketable securities.................. $ 24
=======
</TABLE>
At June 30, 1999, there were no available-for-sale securities.
17. OTHER EVENTS (UNAUDITED):
Revolving Credit Facility. On May 24, 1999, FaciliCom entered into a $35.0
million revolving credit facility (the "Credit Facility"), which is scheduled to
terminate on May 23, 2000. As of June 30, 1999, FaciliCom had $10.0 million
outstanding under the Credit Facility. The Credit Facility contains interest
rate options based upon LIBOR or Prime, plus applicable margin percentages. The
Credit Facility contains certain restrictive covenants.
Subsequent to June 30, 1999, FaciliCom replaced certain switching equipment
with newer equipment. As such, in the 4th quarter of fiscal year ending
September 30, 1999, FaciliCom will record approximately a $3.8 million
write-down for the remaining net book value of the replaced equipment.
F-22
<PAGE> 188
CHERRY COMMUNICATIONS INCORPORATED
(D/B/A RESURGENS COMMUNICATIONS GROUP)
AND CHERRY COMMUNICATIONS U.K. LIMITED
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,043 $ 4,347
Accounts receivable, net.................................. 5,411 1,757
Prepaid expenses.......................................... 2,073 1,838
Other..................................................... 1,856 648
--------- ---------
Total current assets.............................. 11,383 8,590
Property and equipment, net................................. 48,314 54,958
Deposits and other assets, net.............................. 453 295
--------- ---------
Total assets...................................... $ 60,150 $ 63,843
========= =========
Current liabilities not subject to compromise:
Accounts payable.......................................... $ 21,752 $ 8,761
Accrued expenses.......................................... 16,951 1,719
Debtor in possession facility............................. 22,000 7,250
Current portion of capitalized lease obligations.......... 6,734 3,630
--------- ---------
Total current liabilities......................... 67,437 21,360
Liabilities subject to compromise........................... 334,154 336,751
Long-term obligations not subject to compromise
Capitalized lease obligations, less current portion......... 25,315 30,820
Total liabilities................................. 426,906 388,931
Net stockholders' deficiency:
Common stock -- Resurgens................................. 1 1
Common stock -- Cherry U.K. .............................. 84 84
Additional paid-in-capital................................ 61,467 61,467
Accumulated deficit....................................... (428,308) (386,640)
--------- ---------
Net stockholders' deficiency...................... (366,756) (325,088)
--------- ---------
Total liabilities and net stockholders'
deficiency...................................... $ 60,150 $ 63,843
========= =========
</TABLE>
F-23
<PAGE> 189
CHERRY COMMUNICATIONS INCORPORATED
(D/B/A RESURGENS COMMUNICATIONS GROUP)
AND CHERRY COMMUNICATIONS U.K. LIMITED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
1998 1997 1998 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................................. $ 39,622 $ 18,673 $ 50,000 $ 148,739
Cost of services..................................... 45,477 64,822 72,505 228,962
-------- -------- -------- ---------
Gross margin......................................... (5,855) (46,149) (22,505) (80,223)
Operating expenses:
Selling, general and administrative expenses....... 3,070 11,245 10,375 26,518
Depreciation and amortization...................... 1,491 1,809 4,587 3,828
Provision for doubtful accounts.................... 397 1,836 399 19,397
-------- -------- -------- ---------
Total operating expenses................... 4,958 14,890 15,361 49,743
Operating loss....................................... (10,813) (61,039) (37,866) (129,966)
Other income (expense):
Interest expense................................... (1,461) (4,406) (4,093) (8,178)
Other.............................................. (801) 892 (802) 1,148
-------- -------- -------- ---------
Total other income (expense), net.......... (2,262) (3,514) (4,895) (7,030)
Loss before reorganization costs..................... (13,075) (64,553) (42,761) (136,996)
Reorganization items................................. 681 -- 1,093 --
-------- -------- -------- ---------
Net loss................................... $(12,394) $(64,553) $(41,668) $(136,996)
======== ======== ======== =========
</TABLE>
F-24
<PAGE> 190
CHERRY COMMUNICATIONS INCORPORATED
(D/B/A RESURGENS COMMUNICATIONS GROUP)
AND CHERRY COMMUNICATIONS U.K. LIMITED
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
<S> <C> <C>
Operating activities:
Net loss.................................................. $(41,668) $(136,996)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Provision for doubtful accounts........................ 399 19,397
Depreciation and amortization.......................... 4,587 3,828
Changes in operating assets and liabilities:
Accounts receivable.................................. (5,261) 31,264
Prepaid expenses and other........................... (235) (1,202)
Accounts payable..................................... 12,991 (65,350)
Accrued expenses and other liabilities............... 15,232 1,202
-------- ---------
Net cash used in operating activities before
reorganization items............................. (13,955) (147,857)
Decrease in liabilities subject to compromise............. (2,598) --
-------- ---------
Net cash used in operating activities..................... (16,553) (147,857)
Investing activities:
Fixed asset acquisitions.................................. 2,058 (13,687)
Deposits and other assets................................. (159) 1,952
-------- ---------
Net cash used in investing activities............. 1,899 (11,735)
Financing activities:
Proceeds from debtor-in-possession financing.............. 14,750 --
Proceeds from long-term debt.............................. -- 155,988
Payments on capitalized lease obligations................. (2,400) (1,232)
-------- ---------
Net cash provided by (used in) financing
activities....................................... 12,350 154,756
Net decrease in cash and cash equivalents................... (2,304) (4,836)
Cash and cash equivalents, beginning of year................ 4,347 4,836
-------- ---------
Cash and cash equivalents, end of year...................... $ 2,043 $ --
======== =========
</TABLE>
F-25
<PAGE> 191
CHERRY COMMUNICATIONS INCORPORATED
(D/B/A RESURGENS COMMUNICATIONS GROUP)
AND CHERRY COMMUNICATIONS U.K. LIMITED
COMBINED STATEMENT OF NET STOCKHOLDERS' DEFICIENCY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CHERRY
COMMUNICATIONS CHERRY U.K.
INC. LIMITED
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
--------------- --------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997... 1,249 $ 1 50,000 $84 $61,467 $(386,640) $(325,088)
Net loss (unaudited)........... (41,668) (41,668)
----- --- ------ --- ------- --------- ---------
Balance September 30, 1998
(unaudited).................. 1,249 $ 1 50,000 $84 $61,467 $(428,308) $(366,756)
===== === ====== === ======= ========= =========
</TABLE>
F-26
<PAGE> 192
CHERRY COMMUNICATIONS INCORPORATED
(D/B/A RESURGENS COMMUNICATIONS GROUP)
AND CHERRY COMMUNICATIONS U.K. LIMITED
NOTES TO COMBINED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION:
The accompanying unaudited combined financial statements include the
accounts of Cherry Communications Incorporated (d/b/a Resurgens Communications
Group) ("RCG") and Cherry Communications U.K. Limited ("Cherry U.K."). Cherry
U.K.'s financial statements are prepared on a March 31 fiscal year-end. For
combination purposes, March 31, 1998 financial statements of Cherry U.K., which
were previously included in the combined entity as of December 31, 1997, have
been combined with the March 31, 1998 financial statements of RCG. Therefore,
the statement of net stockholders' deficiency and statement of cash flows
reflect an adjustment for Cherry U.K. which was previously included in fiscal
year 1997. For combination purposes, the nine months ended September 30, 1998 of
Cherry U.K. have been combined with the nine months ended September 30, 1998 for
RCG.
These financial statements do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the results
of the interim periods covered have been included. For further information,
refer to the audited combined financial statements and footnotes included
elsewhere in this Proxy.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
period. Actual results could differ from those estimates.
The results of operations for the nine months ended September 30, 1998 are
not necessarily indicative of the results expected for the full year. Certain
reclassifications have been made to the prior period's financial information to
conform with the presentations used in 1998.
F-27
<PAGE> 193
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[WORLD ACCESS, INC., LOGO]
EXCHANGE OFFER AND CONSENT SOLICITATION
OUTSTANDING 10 1/2% SERIES B SENIOR NOTES DUE 2008
OF
FACILICOM INTERNATIONAL, INC.
EXCHANGED FOR
13.25% SENIOR NOTES DUE 2008 AND COMMON STOCK
OF
WORLD ACCESS, INC. AND CASH
-----------------------------------------------------
PROSPECTUS
AND
CONSENT SOLICITATION
-----------------------------------------------------
The Exchange Agent for the Exchange Offer is:
FIRST UNION NATIONAL BANK
1525 West W.T. Harris Boulevard
363 NC-1153
Charlotte, North Carolina 28262
By Facsimile:
(704) 590-7628
For Confirmation and/or Information Call:
(704) 590-7408
The Co-Dealer Managers for the Exchange Offer are:
<TABLE>
<S> <C>
DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS
2121 Avenue of the Stars Liability Management Group
Los Angeles, CA 90067 3 World Financial Center
Attention: Mike Connolly 200 Vesey Street, 9(th) Floor
(310) 282-6169 (Call Collect) New York, New York 10285
or Attention: Ray Kahn
Call Toll Free (800) 237-5022 (212) 578-7581 (Call Collect)
or
Call Toll Free (800) 438-3242
</TABLE>
Any questions concerning the terms of the Exchange Offer may be directed to
the Co-Dealer Managers.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell any securities or our
solicitation of your offer to buy any securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of World Access
or FaciliCom have not changed since the date hereof.
- --------------------------------------------------------------------------------
<PAGE> 194
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the Delaware General Corporation Law ("DGCL") allows a
corporation to eliminate or limit the personal liability of directors of a
corporation to the corporation or to any of its security holders for monetary
damages for a breach of fiduciary duty as a director, except (i) for breach of
the director's duty of loyalty, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
certain unlawful dividends and stock repurchases, or (iv) for any transaction
from which the director derived an improper personal benefit.
Section 145 of the DGCL provides that in the case of any action other than
one by or in the right of the corporation, a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
in such capacity on behalf of another corporation or enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Section 145 of the DGCL provides that in the case of an action by or in the
right of a corporation to procure a judgment in its favor, a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any action or suit by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation in such capacity on behalf of another corporation
or enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted under standards similar to those set forth in the
preceding paragraph, except that no indemnification may be made in respect of
any action or claim as to which such person shall have been adjudged to be
liable to the corporation unless a court determines that such person is fairly
and reasonably entitled to indemnification.
Articles X and XI of the World Access, Inc. Restated Certificate of
Incorporation provide for indemnification of directors, officers and employees
to the fullest extent permissible under the DGCL.
Officers and directors of World Access are presently covered by insurance
which (with certain exceptions and with certain limitations) indemnifies them
against any losses or liabilities arising from any alleged "wrongful act"
including any alleged breach of duty, neglect, error, misstatement, misleading
statement, omissions or other act done or wrongfully attempted. The cost of such
insurance is borne by World Access as permitted by the DGCL.
World Access has entered into separate indemnification agreements with its
directors and non-director officers at the level of Vice President and above.
These indemnification agreements provide as follows:
- there is a rebuttable presumption that the director or officer has met
the applicable standard of conduct required for indemnification;
- World Access will advance litigation expenses to a director or officer at
his request provided that he undertakes to repay the amount advanced if
it is ultimately determined that he is not entitled to indemnification
for such expenses;
- World Access will indemnify a director of officer for amounts paid in
settlement of a derivative suit;
- in the event of a determination by the disinterested members of the board
of directors or independent counsel that a director or officer did not
meet the standard of conduct required for indemnification, the director
or officer may contest this determination by petitioning a court or
II-1
<PAGE> 195
commencing any arbitration proceeding conducted by a single arbitrator pursuant
to the rules of the American Arbitration Association to make an independent
determination of whether such director or officer is entitled to indemnification
under his indemnification agreement; and
- World Access will reimburse a director or officer for expenses incurred
enforcing his rights under his indemnification agreement.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits. The following exhibits are filed as part of this
registration statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<C> <C> <S>
2.1 -- Agreement and Plan of Merger, dated as of August 17, 1999,
among World Access, Inc., FaciliCom International, Inc.,
Armstrong International Telecommunications, Inc., Epic
Interests, Inc. and BFV Associates, Inc. (incorporated by
reference to Appendix A to World Access' Proxy Statement
dated relating to the Special Meeting of Stockholders
to be held on ).
3.1 -- Certificate of Incorporation of World Access and Amendments
to Certificate of Incorporation (incorporated by reference
to Exhibit 3.1 to World Access' Form S-4 filed October 6,
1998, Registration No. 333-65389, Amendment to Certificate
of Incorporation incorporated by reference to Exhibit 3.2 of
WA Telcom Products Co., Inc.'s ("Old World Access") Form 8-K
filed October 28, 1998).
3.2 -- Amendment to Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to World Access' Form 10-K for the
year ended December 31, 1998, filed April 9, 1999).
3.3 -- Bylaws of World Access (incorporated by reference to Exhibit
34.2 to World Access' Form S-4 filed October 6, 1998, No.
333-65389).
4.1 -- Indenture dated as of October 1, 1997 by and between World
Access, Inc. and First Union Bank, as trustee (incorporated
by reference to Exhibit 4.1 to Old World Access Form 8-K,
filed October 8, 1997).
4.2 -- First Supplemental Indenture dated October 28, 1998 between
World Access, Inc., WA Telcom Products Co., Inc. and First
Union Bank, as Trustee (incorporated by reference to Exhibit
4.1 to World Access' Form 8-K filed October 28, 1998).
4.3* -- Indenture between FaciliCom International, Inc. and State
Street Bank and Trust Company dated January 28, 1998.
4.4* -- First Supplemental Indenture, dated as of April 26, 1999, to
FaciliCom Indenture.
4.5* -- Form of Second Supplemental Indenture to FaciliCom
Indenture.
4.6* -- Form of Indenture between World Access, Inc. and First Union
National Bank, as Trustee.
4.7* -- Form of Collateral Pledge Agreement between World Access,
Inc. and First Union National Bank.
4.8* -- Agreement to Exchange and Consent, dated as of October 12,
1999 by and among World Access, FaciliCom and certain
holders of FaciliCom notes.
4.9* -- Voting Agreement, dated August 17, 1999 by and among
FaciliCom, Armstrong International Telecommunications, Inc.,
BFV Associates, Inc, Epic Interests, Inc., WorldCom Network
Services, The 1818 Fund and John D. Phillips.
4.10* -- Stock Purchase Agreement, dated as of October 13, 1999, by
and among World Access, Inc., Gilbert Global Equity
Partners, L.P., Gilbert Global Equity Partners (Bermuda)
L.P. and GGEP/GECC Equity Partners, L.P.
4.11* -- Stock Purchase Agreement, dated as of October 13, 1999, by
and between World Access, Inc. and Zilkha Capital Partners,
L.P.
4.12* -- Stock Purchase Agreement, dated as of October 13, 1999, by
and among World Access, Inc., Erie Indemnity Company and
Erie Insurance Exchange.
4.13* -- Stock Purchase Agreement, dated as of October 13, 1999, by
and between World Access, Inc. and Geocapital V, L.P.
</TABLE>
II-2
<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<C> <C> <S>
4.14* -- Stock Purchase Agreement, dated as of October 13, 1999, by
and between World Access, Inc. and Ezra K. Zilkha.
5.1* -- Opinion of Long Aldridge & Norman LLP regarding legality of
notes and common stock.
10.1 -- World Access, Inc. 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.1 to Amendment No. 1 to Old World
Access' Registration Statement on Form S-8, filed on July
25, 1991, No. 33-41255-A).
10.2 -- Amendment to World Access, Inc. 1991 Stock Option Plan
(incorporated by reference to Exhibit 10.2 to Old World
Access' Form 10-K for the year ended December 31, 1993,
filed March 31, 1994).
10.3 -- Second Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.3 to Old World Access' Form 10-K for
the year ended December 31, 1993, filed March 31, 1994).
10.4 -- Third Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.26 to Old World Access' Form S-2,
Amendment No. 2, filed on February 14, 1995, No. 33-87026).
10.5 -- World Access, Inc. Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.40 to Old World
Access' Form 10-K for the year ended December 31, 1995,
filed April 10, 1996).
10.6 -- Directors' Warrant Incentive Plan (incorporated by reference
to Exhibit 10.41 to Old World Access' Form 10-K for the year
ended December 31, 1995, filed April 10, 1996).
10.7 -- Fourth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.32 to Old World Access' Form 10-K
for the year ended December 31, 1996, filed April 11, 1997).
10.8 -- Fifth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.33 to Old World Access' Form 10-K
for the year ended December 31, 1996, filed April 11, 1997).
10.9 -- Amendment One to Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.33 to Old World
Access' Form 10-K for the year ended December 31, 1996,
filed April 11, 1997).
10.10 -- Amendment One to Directors' Warrant Incentive Plan
(incorporated by reference to Exhibit 10.31 to Old World
Access' Form 10-K for the year ended December 31, 1996,
filed April 11, 1997).
10.11 -- Amendment Two to Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.21 to Old World
Access' Form 10-K for the year ended December 31, 1997,
filed April 15, 1998).
10.12 -- Amendment Two to Directors' Warrant Incentive Plan
(incorporated by reference to Exhibit 10.22 to Old World
Access' Form 10-K for the year ended December 31, 1997,
filed April 15, 1998).
10.13 -- Sixth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.22 to Old World Access' Form 10-K
for the year ended December 31, 1997, filed April 15, 1998).
10.14 -- Severance Protection Agreement dated November 1, 1997 by and
between World Access, Inc. and Steven A. Odom (incorporated
by reference to Exhibit 10.33 to Old World Access' Form 10-K
for the year ended December 31, 1997, filed April 15, 1998).
10.15 -- Severance Protection Agreement dated November 1, 1997 by and
between World Access, Inc. and Hensley E. West (incorporated
by reference to Exhibit 10.33 to Old World Access' Form 10-K
for the year ended December 31, 1997, filed April 15, 1998).
10.16 -- Severance Protection Agreement dated November 1, 1997 by and
between World Access, Inc. and Mark A. Gergel (incorporated
by reference to Exhibit 10.33 to Old World Access' Form 10-K
for the year ended December 31, 1997, filed April 15, 1998).
10.17 -- License Agreement dated July 1, 1996, by and between
International Communication Technologies, Inc., World Access
and Eagle Telephonics, Inc. (incorporated by reference to
Exhibit 10.36 to Old World Access' Form 10-K for the year
ended December 31, 1996, filed April 11, 1997).
</TABLE>
II-3
<PAGE> 197
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<C> <C> <S>
10.18 -- Agreement and Plan of Merger between and among World Access,
Inc. and CIS Acquisition Corp. and Thomas R. Canham; Brian
A. Schuchman; and Cellular Infrastructure Supply, Inc. (with
exhibits thereto) (incorporated by reference to Exhibit Z to
Old World Access' Form 8-K, filed April 10, 1997).
10.19 -- Registration Rights Agreement dated October 1, 1997 by and
between World Access, Inc., BT Alex Brown Incorporated and
Prudential Securities Incorporated (incorporated by
reference to Exhibit 10.2 to Old World Access' Form 8-K,
filed October 8, 1997).
10.20 -- Agreement and Plan of Merger by and among World Access,
Inc., Cellular Infrastructure Supply, Inc., Advanced
TechCom, Inc. and Ernest H. Lin dated as of December 24,
1997 (incorporated by reference to Exhibit 2.1 to Old World
Access' Form 8-K, filed February 13, 1998).
10.21 -- Amendment Three to Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.21 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.22 -- Executive Employment Agreement between World Access, Inc.
and Steven A. Odom dated as of December 14, 1998
(incorporated by reference to Exhibit 10.22 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.23 -- Executive Employment Agreement between World Access, Inc.
and Mark A. Gergel dated as of December 14, 1998
(incorporated by reference to Exhibit 10.23 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.24 -- Letter Agreement with Hensley E. West, dated as of December
14, 1998 (incorporated by reference to Exhibit 10.24 to
World Access' Form 10-K for the year ended December 31,
1998, filed April 9, 1999).
10.25 -- World Access, Inc. 1998 Incentive Equity Plan, as amended
(incorporated by reference to Exhibit 10.25 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.26 -- Assignment and Assumption Agreement dated October 29, 1998
between World Access, Inc. and WA Telcom Products Co., Inc.
(incorporated by reference to Exhibit 10.1 to World Access'
Form 8-K filed October 28, 1998).
10.27 -- Form of Indemnification Agreement with directors and
officers (incorporated by reference to Appendix H to World
Access' Joint Proxy Statement/Prospectus dated November 10,
1998 relating to the Special Meeting of Stockholders held on
November 30, 1998).
10.28 -- Schedule of all officers and directors who have signed an
Indemnification Agreement referred to in Exhibit 10.27
(incorporated by reference to Exhibit 10.28 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.29 -- Credit Agreement dated as of December 30, 1998 between Telco
Systems, Inc., World Access Holdings, Inc. and NationsBank,
N.A. as Administrative Agent and Fleet National Bank as
Syndication Agent and Bank Creditanstalt Corporate Finance,
Inc. (incorporated by reference to Exhibit 10.29 to World
Access' Form 10-K for the year ended December 31, 1998,
filed April 9, 1999).
10.30 -- Guaranty dated as of December 30, 1998 between World Access,
Telco, World Access Holdings, Inc., NationsBank, N.A. as
Administrative Agent and the lenders party to the Credit
Agreement referred to in Exhibit 10.29 (incorporated by
reference to Exhibit 10.30 to World Access' Form 10-K for
the year ended December 31, 1998, filed April 9, 1999).
10.31 -- Pledge Agreement dated as of December 31, 1998 by World
Access in favor of NationsBank, N.A. as Administrative Agent
and the lenders party to the Credit Agreement referred to in
Exhibit 10.29 (incorporated by reference to Exhibit 10.31 to
World Access' Form 10-K for the year ended December 31,
1998, filed April 9, 1999).
10.32 -- Security Agreement dated as of December 31, 1998 by World
Access in favor of NationsBank, N.A. as Administrative Agent
and the lenders party to the Credit Agreement referred to in
Exhibit 10.29 (incorporated by reference to Exhibit 10.32 to
World Access' Form 10-K for the year ended December 31,
1998, filed April 9, 1999).
</TABLE>
II-4
<PAGE> 198
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<C> <C> <S>
10.33 -- Disbursement Agreement dated as of December 14, 1998 by and
among World Access, Cherry Communications Incorporated
(d/b/a Resurgens Communications Group) and William H.
Cauthen, Esq. (incorporated by reference to Exhibit 10.33 to
World Access' Form 10-K for the year ended December 31,
1998, filed April 9, 1999).
10.34 -- Agreement and Plan of Merger and Reorganization by and among
World Access, Inc., WAXS INC., WA Merger Corp. and Cherry
Communications Incorporated (d/b/a Resurgens Communications
Group) dated as of May 12, 1998, as amended (incorporated by
reference to Appendix A to World Access' Proxy Statement
dated November 12, 1998 relating to the Special Meeting of
Stockholders held on December 14, 1998).
10.35 -- Share Exchange Agreement by and among World Access, Inc.,
WAXS INC., Cherry Communications U.K. Limited and
Renaissance Partners II, dated as of May 12, 1998
(incorporated by reference to Appendix B to World Access'
Proxy Statement dated November 12, 1998 relating to the
Special Meeting of Stockholders held on December 14, 1998).
12.1 -- Computation of Ratio of Earnings to Fixed Charges for World
Access.
12.2 -- Computation of Ratio of Earnings to Fixed Charges for
FaciliCom.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Long Aldridge & Norman LLP (included in Exhibit
5.1).
23.2 -- Consent of Ernst & Young LLP with respect to the financial
statements of World Access, Inc.
23.3 -- Consent of Deloitte & Touche LLP with respect to the
financial statements of FaciliCom International, Inc.
23.4 -- Consent of PricewaterhouseCoopers LLP with respect to the
financial statements of World Access, Inc.
23.5 -- Consent of Ernst & Young LLP with respect to the financial
statements of Cherry Communications Incorporated (d/b/a
Resurgens Communications Group) and Cherry Communications
U.K. Limited.
23.6 -- Consent of Grant Thornton LLP with respect to the financial
statements of Cherry Communications Incorporated (d/b/a
Resurgens Communications Group) and Cherry Communications
U.K. Limited.
23.7 -- Consent of Ernst & Young LLP with respect to the financial
statements of Telco Systems, Inc.
24.1 -- Power of Attorney of World Access (included in the signature
pages hereto).
25.1* -- Statement of eligibility of trustee of Exchange Notes.
99.1* -- Form of Letter of Transmittal.
99.2* -- Form of Notice of Guaranteed Delivery.
99.3* -- Form of Exchange Agency Agreement.
99.4* -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.5* -- Form of Letter to clients.
</TABLE>
- ---------------
* To be filed by amendment.
(B) Financial Statement Schedule. The financial statements schedule that
is required by Regulation S-X is incorporated herein by reference to our Annual
Report on Form 10-K for the year ended December 31, 1998.
ITEM 22. UNDERTAKINGS
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 Section 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
II-5
<PAGE> 199
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.
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 Securities Act
of 1933 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 director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of 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 of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through 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.
The registrant undertakes that every prospectus: (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 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 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.
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, 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.
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-6
<PAGE> 200
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on October 20, 1999.
WORLD ACCESS, INC.
(formerly known as "WAXS INC.")
By: /s/ JOHN D. PHILLIPS
------------------------------------
John D. Phillips
Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints John D. Phillips and Mark A. Gergel, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated as of October 20, 1999.
<TABLE>
<CAPTION>
SIGNATURES TITLE
<C> <S>
/s/ JOHN D. PHILLIPS Chairman, President and Chief Executive
- --------------------------------------------- Officer (Principal Executive Officer)
John D. Phillips
/s/ MARK A. GERGEL Director, Executive Vice President and Chief
- --------------------------------------------- Financial Officer (Principal Financial
Mark A. Gergel Officer)
/s/ MARTIN D. KIDDER Vice President and Corporate Controller
- --------------------------------------------- (Principal Accounting Officer)
Martin D. Kidder
/s/ STEPHEN J. CLEARMAN Director
- ---------------------------------------------
Stephen J. Clearman
/s/ JOHN P. IMLAY, JR. Director
- ---------------------------------------------
John P. Imlay, Jr.
/s/ CARL E. SANDERS Director
- ---------------------------------------------
Carl E. Sanders
/s/ LAWRENCE C. TUCKER Director
- ---------------------------------------------
Lawrence C. Tucker
</TABLE>
II-7
<PAGE> 201
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<C> <C> <S>
2.1 -- Agreement and Plan of Merger, dated as of August 17, 1999,
among World Access, Inc., FaciliCom International, Inc.,
Armstrong International Telecommunications, Inc., Epic
Interests, Inc. and BFV Associates, Inc. (incorporated by
reference to Appendix A to World Access' Proxy Statement
dated relating to the Special Meeting of stockholders
to be held on ).
3.1 -- Certificate of Incorporation of World Access and Amendments
to Certificate of Incorporation (incorporated by reference
to Exhibit 3.1 to World Access' Form S-4 filed October 6,
1998, Registration No. 333-65389, Amendment to Certificate
of Incorporation incorporated by reference to Exhibit 3.2 of
WA Telcom Products Co., Inc.'s ("Old World Access") Form 8-K
filed October 28, 1998).
3.2 -- Amendment to Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to World Access' Form 10-K for the
year ended December 31, 1998, filed April 9, 1999).
3.3 -- Bylaws of World Access (incorporated by reference to Exhibit
34.2 to World Access' Form S-4 filed October 6, 1998, No.
333-65389).
4.1 -- Indenture dated as of October 1, 1997 by and between World
Access, Inc. and First Union Bank, as trustee (incorporated
by reference to Exhibit 4.1 to Old World Access Form 8-K,
filed October 8, 1997).
4.2 -- First Supplemental Indenture dated October 28, 1998 between
World Access, Inc., WA Telcom Products Co., Inc. and First
Union Bank, as Trustee (incorporated by reference to Exhibit
4.1 to World Access' Form 8-K filed October 28, 1998).
4.3* -- Indenture between FaciliCom International, Inc. and State
Street Bank and Trust Company dated January 28, 1998.
4.4* -- First Supplemental Indenture, dated as of April 26, 1999, to
FaciliCom Indenture.
4.5* -- Form of Second Supplemental Indenture to FaciliCom
Indenture.
4.6* -- Form of Indenture between World Access, Inc. and First Union
National Bank, as Trustee.
4.7* -- Form of Collateral Pledge Agreement between World Access,
Inc. and First Union National Bank.
4.8* -- Agreement to Exchange and Consent, dated as of October 12,
1999 by and among World Access, FaciliCom and certain
holders of FaciliCom notes.
4.9* -- Voting Agreement, dated August 17, 1999 by and among
FaciliCom, Armstrong International Telecommunications, Inc.,
BFV Associates, Inc, Epic Interests, Inc., WorldCom Network
Services, The 1818 Fund and John D. Phillips.
4.10* -- Stock Purchase Agreement, dated as of October 13, 1999, by
and among World Access, Inc., Gilbert Global Equity
Partners, L.P., Gilbert Global Equity Partners (Bermuda)
L.P. and GGEP/GECC Equity Partners, L.P.
4.11* -- Stock Purchase Agreement, dated as of October 13, 1999, by
and between World Access, Inc. and Zilkha Capital Partners,
L.P.
4.12* -- Stock Purchase Agreement, dated as of October 13, 1999, by
and among World Access, Inc., Erie Indemnity Company and
Erie Insurance Exchange.
4.13* -- Stock Purchase Agreement, dated as of October 13, 1999, by
and between World Access, Inc. and Geocapital V, L.P.
4.14* -- Stock Purchase Agreement, dated as of October 13, 1999, by
and between World Access, Inc. and Ezra K. Zilkha.
5.1* -- Opinion of Long Aldridge & Norman LLP regarding legality of
notes and common stock.
10.1 -- World Access, Inc. 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.1 to Amendment No. 1 to Old World
Access' Registration Statement on Form S-8, filed on July
25, 1991, No. 33-41255-A).
</TABLE>
II-8
<PAGE> 202
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<C> <C> <S>
10.2 -- Amendment to World Access, Inc. 1991 Stock Option Plan
(incorporated by reference to Exhibit 10.2 to Old World
Access' Form 10-K for the year ended December 31, 1993,
filed March 31, 1994).
10.3 -- Second Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.3 to Old World Access' Form 10-K for
the year ended December 31, 1993, filed March 31, 1994).
10.4 -- Third Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.26 to Old World Access' Form S-2,
Amendment No. 2, filed on February 14, 1995, No. 33-87026).
10.5 -- World Access, Inc. Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.40 to Old World
Access' Form 10-K for the year ended December 31, 1995,
filed April 10, 1996).
10.6 -- Directors' Warrant Incentive Plan (incorporated by reference
to Exhibit 10.41 to Old World Access' Form 10-K for the year
ended December 31, 1995, filed April 10, 1996).
10.7 -- Fourth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.32 to Old World Access' Form 10-K
for the year ended December 31, 1996, filed April 11, 1997).
10.8 -- Fifth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.33 to Old World Access' Form 10-K
for the year ended December 31, 1996, filed April 11, 1997).
10.9 -- Amendment One to Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.33 to Old World
Access' Form 10-K for the year ended December 31, 1996,
filed April 11, 1997).
10.10 -- Amendment One to Directors' Warrant Incentive Plan
(incorporated by reference to Exhibit 10.31 to Old World
Access' Form 10-K for the year ended December 31, 1996,
filed April 11, 1997).
10.11 -- Amendment Two to Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.21 to Old World
Access' Form 10-K for the year ended December 31, 1997,
filed April 15, 1998).
10.12 -- Amendment Two to Directors' Warrant Incentive Plan
(incorporated by reference to Exhibit 10.22 to Old World
Access' Form 10-K for the year ended December 31, 1997,
filed April 15, 1998).
10.13 -- Sixth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.22 to Old World Access' Form 10-K
for the year ended December 31, 1997, filed April 15, 1998).
10.14 -- Severance Protection Agreement dated November 1, 1997 by and
between World Access, Inc. and Steven A. Odom (incorporated
by reference to Exhibit 10.33 to Old World Access' Form 10-K
for the year ended December 31, 1997, filed April 15, 1998).
10.15 -- Severance Protection Agreement dated November 1, 1997 by and
between World Access, Inc. and Hensley E. West (incorporated
by reference to Exhibit 10.33 to Old World Access' Form 10-K
for the year ended December 31, 1997, filed April 15, 1998).
10.16 -- Severance Protection Agreement dated November 1, 1997 by and
between World Access, Inc. and Mark A. Gergel (incorporated
by reference to Exhibit 10.33 to Old World Access' Form 10-K
for the year ended December 31, 1997, filed April 15, 1998).
10.17 -- License Agreement dated July 1, 1996, by and between
International Communication Technologies, Inc., World Access
and Eagle Telephonics, Inc. (incorporated by reference to
Exhibit 10.36 to Old World Access' Form 10-K for the year
ended December 31, 1996, filed April 11, 1997).
10.18 -- Agreement and Plan of Merger between and among World Access,
Inc. and CIS Acquisition Corp. and Thomas R. Canham; Brian
A. Schuchman; and Cellular Infrastructure Supply, Inc. (with
exhibits thereto) (incorporated by reference to Exhibit Z to
Old World Access' Form 8-K, filed April 10, 1997).
10.19 -- Registration Rights Agreement dated October 1, 1997 by and
between World Access, Inc., BT Alex Brown Incorporated and
Prudential Securities Incorporated (incorporated by
reference to Exhibit 10.2 to Old World Access' Form 8-K,
filed October 8, 1997).
</TABLE>
II-9
<PAGE> 203
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<C> <C> <S>
10.20 -- Agreement and Plan of Merger by and among World Access,
Inc., Cellular Infrastructure Supply, Inc., Advanced
TechCom, Inc. and Ernest H. Lin dated as of December 24,
1997 (incorporated by reference to Exhibit 2.1 to Old World
Access' Form 8-K, filed February 13, 1998).
10.21 -- Amendment Three to Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.21 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.22 -- Executive Employment Agreement between World Access, Inc.
and Steven A. Odom dated as of December 14, 1998
(incorporated by reference to Exhibit 10.22 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.23 -- Executive Employment Agreement between World Access, Inc.
and Mark A. Gergel dated as of December 14, 1998
(incorporated by reference to Exhibit 10.23 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.24 -- Letter Agreement with Hensley E. West, dated as of December
14, 1998 (incorporated by reference to Exhibit 10.24 to
World Access' Form 10-K for the year ended December 31,
1998, filed April 9, 1999).
10.25 -- World Access, Inc. 1998 Incentive Equity Plan, as amended
(incorporated by reference to Exhibit 10.25 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.26 -- Assignment and Assumption Agreement dated October 29, 1998
between World Access, Inc. and WA Telcom Products Co., Inc.
(incorporated by reference to Exhibit 10.1 to World Access'
Form 8-K filed October 28, 1998).
10.27 -- Form of Indemnification Agreement with directors and
officers (incorporated by reference to Appendix H to World
Access' Joint Proxy Statement/Prospectus dated November 10,
1998 relating to the Special Meeting of Stockholders held on
November 30, 1998).
10.28 -- Schedule of all officers and directors who have signed an
Indemnification Agreement referred to in Exhibit 10.27
(incorporated by reference to Exhibit 10.28 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.29 -- Credit Agreement dated as of December 30, 1998 between Telco
Systems, Inc., World Access Holdings, Inc. and NationsBank,
N.A. as Administrative Agent and Fleet National Bank as
Syndication Agent and Bank Creditanstalt Corporate Finance,
Inc. (incorporated by reference to Exhibit 10.29 to World
Access' Form 10-K for the year ended December 31, 1998,
filed April 9, 1999).
10.30 -- Guaranty dated as of December 30, 1998 between World Access,
Telco, World Access Holdings, Inc., NationsBank, N.A. as
Administrative Agent and the lenders party to the Credit
Agreement referred to in Exhibit 10.29 (incorporated by
reference to Exhibit 10.30 to World Access' Form 10-K for
the year ended December 31, 1998, filed April 9, 1999).
10.31 -- Pledge Agreement dated as of December 31, 1998 by World
Access in favor of NationsBank, N.A. as Administrative Agent
and the lenders party to the Credit Agreement referred to in
Exhibit 10.29 (incorporated by reference to Exhibit 10.31 to
World Access' Form 10-K for the year ended December 31,
1998, filed April 9, 1999).
10.32 -- Security Agreement dated as of December 31, 1998 by World
Access in favor of NationsBank, N.A. as Administrative Agent
and the lenders party to the Credit Agreement referred to in
Exhibit 10.29 (incorporated by reference to Exhibit 10.32 to
World Access' Form 10-K for the year ended December 31,
1998, filed April 9, 1999).
10.33 -- Disbursement Agreement dated as of December 14, 1998 by and
among World Access, Cherry Communications Incorporated
(d/b/a Resurgens Communications Group) and William H.
Cauthen, Esq. (incorporated by reference to Exhibit 10.33 to
World Access' Form 10-K for the year ended December 31,
1998, filed April 9, 1999).
</TABLE>
II-10
<PAGE> 204
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<C> <C> <S>
10.34 -- Agreement and Plan of Merger and Reorganization by and among
World Access, Inc., WAXS INC., WA Merger Corp. and Cherry
Communications Incorporated (d/b/a Resurgens Communications
Group) dated as of May 12, 1998, as amended (incorporated by
reference to Appendix A to World Access' Proxy Statement
dated November 12, 1998 relating to the Special Meeting of
Stockholders held on December 14, 1998).
10.35 -- Share Exchange Agreement by and among World Access, Inc.,
WAXS INC., Cherry Communications U.K. Limited and
Renaissance Partners II, dated as of May 12, 1998
(incorporated by reference to Appendix B to World Access'
Proxy Statement dated November 12, 1998 relating to the
Special Meeting of Stockholders held on December 14, 1998).
12.1 -- Computation of Ratio of Earnings to Fixed Charges for World
Access.
12.2 -- Computation of Ratio of Earnings to Fixed Charges for
FaciliCom.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Long Aldridge & Norman LLP (included in Exhibit
5.1).
23.2 -- Consent of Ernst & Young LLP with respect to the financial
statements of World Access, Inc.
23.3 -- Consent of Deloitte & Touche LLP with respect to the
financial statements of FaciliCom International, Inc.
23.4 -- Consent of PricewaterhouseCoopers LLP with respect to the
financial statements of World Access, Inc.
23.5 -- Consent of Ernst & Young LLP with respect to the financial
statements of Cherry Communications Incorporated (d/b/a
Resurgens Communications Group) and Cherry Communications
U.K. Limited.
23.6 -- Consent of Grant Thornton LLP with respect to the financial
statements of Cherry Communications Incorporated (d/b/a
Resurgens Communications Group) and Cherry Communications
U.K. Limited.
23.7 -- Consent of Ernst & Young LLP with respect to the financial
statements of Telco Systems, Inc.
24.1 -- Power of Attorney of World Access (included in the signature
pages hereto).
25.1* -- Statement of eligibility of trustee of Exchange Notes.
99.1* -- Form of Letter of Transmittal.
99.2* -- Form of Notice of Guaranteed Delivery.
99.3* -- Form of Exchange Agency Agreement.
99.4* -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.5* -- Form of Letter to clients.
</TABLE>
- ---------------
* To be filed by amendment.
II-11
<PAGE> 1
Exhibit 12.1
World Access, Inc.
Schedule of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Year
Ended Six Months Ended
December 31 June 30
1994 1995 1996 1997 1998 1998 1999
------- ----- -------- ------- --------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss), excluding
minority interest in pre-tax
earnings of subsidiaries,
before income taxes from
continuing operations $(2,079) $(389) $(1,155) $13,142 $(117,695) $(21,273) $17,750
Interest expense 523 449 40 1,040 6,832 2,958 4,604
Amortization of debt issue costs 48 48 57 226 409 413 529
Portion of rents representative
of an interest factor 70 130 231 353 630 191 551
------- ----- ------- ------- --------- -------- -------
Total earnings $(1,438) $ 238 $ (827) $14,761 $(109,824) $(17,711) $23,434
======= ===== ======= ======= ========= ======== =======
Fixed Charges:
Interest expense $ 523 $ 449 $ 40 $ 1,040 $ 6,832 $ 2,958 $ 4,604
Amortization of debt issue costs 48 48 57 226 409 413 529
Portion of rents representative
of an interest factor 70 130 231 353 630 191 551
------- ----- ------- ------- --------- -------- -------
Total fixed charges $ 641 $ 627 $ 328 $ 1,619 $ 7,871 $ 3,562 $ 5,684
======= ===== ======= ======= ========= ======== =======
Ratio of Earnings to Fixed
Charges 9.1 4.1
======= =========
Deficiency of Earnings
to Fixed Charges $(2,079) $(389) $(1,155) $(117,695) $(21,273)
======= ===== ======= ========= ========
</TABLE>
<PAGE> 1
EXHIBIT 12.2
FACILICOM INTERNATIONAL, INC.
SCHEDULE OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM JANUARY 1,
MAY 5, 1995 1995
NINE MONTHS ENDED JUNE 30, YEAR ENDED SEPTEMBER 30, TO TO JUNE 30,
-------------------------- ----------------------------- SEPTEMBER 30, 1995
1999 1998 1998 1997 1996 1995 (PREDECESSOR)
---- ---- ---- ---- ---- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Actual:
Loss before income
taxes............... $(58,561) $(38,990) $(57,946) $(14,031) $(9,662) $(1,725) $(1,341)
Consolidated fixed
charges............. 26,942 15,234 23,539 1,532 390 94 67
-------- -------- -------- -------- ------- ------- -------
Earnings............... $(31,619) $(23,756) $(34,407) $(12,499) ($9,272) $(1,631) $(1,274)
======== ======== ======== ======== ======= ======= =======
Consolidated Fixed
Charges:
Interest Expense....... $ 25,690 $ 14,539 $ 22,612 $ 1,336 $ 312 $ 80 $ 44
Rental Expenses........ 1,252 695 927 196 78 14 23
-------- -------- -------- -------- ------- ------- -------
Consolidated Fixed
Charges............. $ 26,942 $ 15,234 $ 23,539 $ 1,532 $ 390 $ 94 $ 67
======== ======== ======== ======== ======= ======= =======
Deficiency of Earnings to
Fixed Charges.......... $(58,561) $(38,990) $(57,946) $(14,031) $(9,662) $(1,725) $(1,341)
======== ======== ======== ======== ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
WA Telcom Products Co., Inc., a Delaware corporation
Telco Systems, Inc., a Delaware corporation
World Access UK, Ltd., a corporation organized under the laws of England
and Wales
World Access Holdings, Inc., a Delaware corporation
Telco Systems Asia/Pacific Ltd., a Hong Kong corporation
Telco Indemnity Limited, a Bermuda corporation
Telco Technology, Inc., a Massachusetts corporation
Telco Security Corporation, a Massachusetts corporation
World Access Investment Corp., a Delaware corporation
Galaxy Personal Communications Services, Inc., a Delaware corporation
Galaxy Technical Services, Inc., a Delaware corporation
Cellular Infrastructure Supply, Inc., a Delaware corporation
Restor - AIT, Inc., a Delaware corporation
Westec Communications, Inc., a Delaware corporation
World Access Telecommunications Group, Inc., an Illinois corporation
World Access Telecommunications Group Limited, a corporation organized under the
laws of England and Wales
NACT Telecommunications, Inc., a Delaware corporation
Sunrise Sierra, Inc., a Delaware corporation
World Access Capital Corp., a Delaware corporation
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statements on Form S-4 and related Prospectus of World Access, Inc.
and subsidiaries for the registration of $300,000,000 13.25% Senior Notes
due 2008 and $15,000,000 of its common stock and to the incorporation by
reference therein of our report dated March 26, 1999, with respect to the
consolidated financial statements and schedules of World Access, Inc. and
subsidiaries included in its Annual Report (Form 10-K/A Amendment No. 2)
for the year ended December 31, 1998, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Atlanta, Georgia
October 20, 1999
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of World Access, Inc.
on Form S-4 of our report, dated December 9, 1998, on the consolidated financial
statements of FaciliCom International, Inc. and subsidiaries, appearing in the
Prospectus, which is part of this Registration Statement and to the reference
to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
October 20, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of our report dated March 5, 1998, except for the
discontinued operations reclassifications in the Consolidated Statements of
Operations and Note D, which are as of April 9, 1999, relating to the financial
statements and financial statement schedules of World Access, Inc. for each of
the two years in the period ended December 31, 1997, which appears in World
Access, Inc.'s Annual Report on Form 10-K, as amended, for the year ended
December 31, 1998. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers, LLP
Atlanta, Georgia
October 20, 1999
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 and related Prospectus of World Access, Inc.
and subsidiaries for the registration of $300,000,000 13.25% Senior Notes due
2008 and $15,000,000 of its common stock and to the incorporation by reference
therein of our report dated June 5, 1998, with respect to the combined financial
statements of Cherry Communications Incorporated (d/b/a Resurgens Communications
Group) and Cherry Communications U.K. Limited for the year ended December 31,
1997 included in WA Telecom Current Report on Form 8-K dated July 27, 1998, as
amended by Amendment No. 1 on Form 8-K/A dated September 4, 1998 and Amendment
No. 2 on Form 8-K/A dated September 25, 1998.
/s/ Ernst & Young LLP
Atlanta, Georgia
October 20, 1999
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated July 11, 1997, except for Notes 2 and 10 as
to which the date is July 24, 1997, accompanying the combined financial
statements of Cherry Communications Incorporated and Cherry Communications U.K.
Limited for each of the two years in the period ended December 31, 1996 included
in the WA Telecom Current Report on Form 8-K dated July 17, 1998, as amended by
Amendment No. 1 on Form 8-K/A dated September 4, 1998, as amended by Amendment
No. 2 on Form 8-K/A dated September 25, 1998. We consent to the incorporation by
reference of the aforementioned report in the Registration Statement on Form S-4
of World Access, Inc. and to the use of our name as it appears under the caption
"Experts."
/s/ GRANT THORNTON LLP
Chicago, Illinois
October 20, 1999
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 and related Prospectus of World Access, Inc.
and subsidiaries for the registration of $300,000,000 13.25% Senior Notes due
2008 and $15,000,000 of its common stock and to the incorporation by reference
therein of our report dated November 4, 1998, with respect to the consolidated
financial statements and schedule of Telco Systems, Inc. for the year ended
August 30, 1998 included in World Access, Inc.'s Registration Statement on Form
S-4 dated November 10, 1998, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Boston, Massachusetts
October 20, 1999
