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As filed with the Securities and Exchange Commission on November 5, 1999
Registration No. 333-79097
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-3
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 58-2398004
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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: From time
to time after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(c) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT 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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PROSPECTUS
WORLD ACCESS LOGO
WORLD ACCESS, INC.
473,060 SHARES OF WORLD ACCESS, INC.
COMMON STOCK
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TERMS OF SALE
This prospectus relates to the resale by their holders of shares of common
stock of World Access, Inc. The common stock is listed on the Nasdaq National
Market under the trading symbol "WAXS." On November 3, 1999, the last reported
sale price of the common stock on the Nasdaq National Market was $13.19 per
share.
The principal executive offices of World Access are located at 945 East
Paces Ferry Road, Suite 2200, Atlanta, Georgia 30326, and its telephone number
is (404) 231-2025.
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THE COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Dated November 5, 1999.
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY.......................................... 3
RISK FACTORS................................................ 3
Risk Factors Related to Us............................. 3
Risk Factors Related to Our Equipment Group............ 6
Risk Factors Related to Our Telecommunications Group... 7
Risk Factors Related to Our Common Stock............... 10
Forward-Looking Statements............................. 10
RECENT DEVELOPMENTS......................................... 11
USE OF PROCEEDS............................................. 15
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS................................................ 16
SELLING SECURITY HOLDERS.................................... 26
PLAN OF DISTRIBUTION........................................ 28
LEGAL MATTERS............................................... 29
EXPERTS..................................................... 29
WHERE YOU CAN FIND MORE INFORMATION......................... 30
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 31
FINANCIAL STATEMENTS OF CHERRY COMMUNICATIONS INCORPORATED
AND CHERRY COMMUNICATIONS U.K. LIMITED.................... F-1
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PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU.
FOR A MORE COMPLETE UNDERSTANDING OF THIS OFFERING, WE ENCOURAGE YOU TO READ
THIS PROSPECTUS IN ITS ENTIRETY, INCLUDING ANY DOCUMENTS INCORPORATED BY
REFERENCE IN THIS PROSPECTUS.
WORLD ACCESS, INC.
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 network
facilities, various international routing relationships and resale arrangements
with other international long distance service providers. Our World Access
Equipment Group develops, manufactures and markets network products that switch
and transport voice, data and Internet traffic.
THE COMMON STOCK
SECURITIES OFFERED. 473,060 shares of common stock of World Access offered
for resale for the account of holders of common stock.
TRADING. The common stock trades on the Nasdaq National Market under the
symbol "WAXS."
PLAN OF DISTRIBUTION
The holders of the shares of common stock offered by this prospectus may
offer and sell them from time to time pursuant to this prospectus by any of the
following methods:
- through registered broker dealers on applicable exchanges or automated
interdealer quotation systems at market prices prevailing at the time of
the sale;
- through privately negotiated transactions; or
- through other methods described in this prospectus.
The broker dealers may receive compensation in the form of commissions or
otherwise in such amounts as may be negotiated between the selling security
holders and the broker dealers. As of the date of this prospectus, the selling
security holders have not reached any agreements for the resale of securities
under this prospectus or the amount of any compensation to be paid to broker
dealers in connection therewith.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the securities. Rather,
the selling security holders will receive all proceeds, less any compensation
payable by the selling security holders to broker dealers in the form of
commissions or otherwise.
RISK FACTORS
You should carefully consider the following factors, in addition to the
other information contained in this prospectus, in evaluating an investment in
the common stock.
RISK FACTORS RELATED TO US
OUR INABILITY TO INTEGRATE ACQUIRED COMPANIES COULD RESULT IN SUBSTANTIAL
COSTS AND MAY DAMAGE OUR RELATIONSHIPS WITH OUR KEY CUSTOMERS AND EMPLOYEES. An
element of our growth strategy is to acquire companies that complement or expand
our existing business. If we are unable to successfully integrate acquired
businesses, we may not be able to realize anticipated cost efficiencies,
operational and other benefits in a timely manner, and we may incur substantial
costs and delays or other operational, technical or financial problems. In
addition, the failure to successfully integrate acquisitions may divert
management's attention from our existing business and may damage our
relationships with our key customers and employees.
FUTURE ACQUISITIONS MAY SIGNIFICANTLY DECREASE OUR STOCKHOLDERS' PERCENTAGE
OWNERSHIP IN WORLD ACCESS, 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 in World Access 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.
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WE MAY BE UNABLE TO MANAGE EFFECTIVELY OUR RAPID GROWTH, WHICH MAY
MATERIALLY ADVERSELY AFFECT THE QUALITY OF OUR PRODUCTS AND SERVICES AND OUR
ABILITY TO RETAIN KEY PERSONNEL. Our rapid growth from recent acquisitions and
the expansion of our operations has placed significant demands on our resources.
If we are unable to manage our growth effectively, the quality of our products
and services and our ability to retain key personnel could be materially
adversely affected. To successfully manage our growth, we will need to continue
to improve our operational, financial and management information systems and to
motivate and effectively manage our employees.
WE MAY SUSTAIN MATERIAL LIABILITY AS A RESULT OF STOCKHOLDER SUITS AGAINST
US. Following our announcement in January 1999 regarding our earnings
expectations for the quarter and year ended December 31, 1998 and the subsequent
decline in the price of our 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.
RESTRICTIONS UNDER OUR CREDIT FACILITY MAY REQUIRE US TO MAKE BUSINESS
DECISIONS THAT ARE ADVERSE TO OUR LONG TERM INTERESTS AND THE INTERESTS OF OUR
STOCKHOLDERS. Restrictions under our $75.0 million revolving line of credit
facility may require us to make business decisions that are adverse to our long
term interests and to the interests of the holders of our common stock,
including the holders of the shares purchased pursuant to this prospectus. For
example, we generally must obtain the lenders' consent and sometimes prepay a
portion of the outstanding debt under the credit facility before we can issue
securities, enter into acquisitions for cash or securities, dispose of our
assets or incur additional debt. We also must maintain certain operating ratios
and achieve specified financial thresholds.
Upon a default under our credit facility, the lenders may require us to
immediately repay the entire amount outstanding under the credit facility. If we
cannot repay these borrowings, we may need to seek the protection of the federal
bankruptcy laws to continue operating our business. Even if we were able to
repay all amounts owed under the credit facility, our business, financial
condition and results of operations would be materially adversely affected due
to the resulting loss in liquidity. In addition, in the event of a default under
the credit facility that we do not cure, the lenders could foreclose on the
collateral securing our obligations, which would result in the lenders owning
and having effective control over our operations.
AS A HOLDING COMPANY, OUR LIQUIDITY COULD BE ADVERSELY AFFECTED IF OUR
SUBSIDIARIES ARE UNABLE TO DISTRIBUTE MONEY TO US. As a holding company without
significant income from operations, we are dependent upon the income from our
operating subsidiaries to meet our operating expenses. If our operating
subsidiaries are unable to pay dividends or otherwise distribute amounts to us
sufficient to cover our operating expenses, then we may be subject to liquidity
problems, even if, on a consolidated basis, our operating subsidiaries are
profitable.
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.
IF WE ARE UNABLE TO PROTECT AND MAINTAIN THE COMPETITIVE ADVANTAGE OF OUR
INTELLECTUAL PROPERTY RIGHTS, WE MAY INCUR SIGNIFICANT LICENSING COSTS OR BE
PRECLUDED FROM MANUFACTURING OR SELLING OUR PRODUCTS. We rely on contractual
rights, trade secrets, trademarks and copyrights to establish and
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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.
WE MAY INCUR SUBSTANTIAL COSTS IF A THIRD PARTY CLAIMS THAT ANY OF OUR
PRODUCTS INFRINGE UPON ITS PATENTS. 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
patents are asserted against us in the future.
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.
IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED MANAGEMENT AND TECHNICAL
PERSONNEL, WE MAY NOT BE ABLE TO SUCCESSFULLY OPERATE OUR BUSINESS. We are
highly dependent on the services of several key executive officers and technical
employees, particularly John D. Phillips, our Chief Executive Officer. In
addition, we will need to hire additional skilled personnel to support the
continued growth of our business. The market for skilled personnel, especially
those with the technical abilities we require, is currently very competitive,
and we must 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 and other key management and technical personnel or to
attract such personnel in the future, we may not be able to successfully operate
our business.
GOVERNMENT REGULATORY POLICIES MAY INCREASE PRICING PRESSURES IN OUR
INDUSTRY AND DECREASE DEMAND FOR OUR SERVICES AND PRODUCTS. We expect that
government regulatory policies, including the Telecommunications Act of 1996,
are likely to continue to have a major impact on the pricing of both existing
and new public network services and possibly accelerate the entrance of new
competitors and consolidation of the industry. These trends may decrease demand
for our services and products that support these services. Tariff rates, whether
determined autonomously by telecommunications service providers or in response
to regulatory directives, may affect the cost effectiveness of deploying public
network services. User uncertainty regarding future policies may also decrease
demand for our telecommunications products and services.
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.
International sales represented approximately 10.1% of our total sales in the
six months ended June 30, 1999 and 14.8% of our total sales in the year ended
December 31, 1998. We intend to increase our international sales, which are
subject to inherent risks, including:
- unexpected changes in regulatory requirements, tariffs or other barriers;
- difficulties in staffing and managing foreign operations;
- longer payment cycles;
- unstable political and economic environments;
- greater difficulty in accounts receivable collection;
- potentially adverse tax consequences;
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- dependence on foreign partners; and
- fluctuations in foreign currency values.
WE MAY FACE LIABILITY UNDER THE FOREIGN CORRUPT PRACTICES ACT. The
international operations of our Telecommunications Group 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 the knowledge of our
Telecommunications Group by agents, strategic partners and other intermediaries.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS 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 and
our restated bylaws could discourage unsolicited acquisition proposals or delay
or prevent a change in control resulting in our stockholders receiving a lower
premium for their shares in any such attempt or in our market price per share
and the voting and other rights of our stockholders being adversely affected.
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 150,000,000 shares of common stock and up to
10,000,000 shares of preferred stock, with the Board having the authority to
designate the rights, preferences and limitations of the preferred stock.
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:
- We may experience 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;
- We and companies on which we rely may suffer serious system failures that
may require significant efforts by us, our customers and our suppliers to
prevent or alleviate material business disruptions; and
- We may experience a significant loss of revenues or incur a significant
amount of unanticipated expenses.
RISK FACTORS RELATED TO OUR EQUIPMENT GROUP
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. 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
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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 Federal Communications Commission, as
well as with standards established by Bell Communications Research.
Internationally, our products and services must comply with standards
established by telecommunications authorities in various countries, as well as
with recommendations of the International Telecommunications Union.
RISK FACTORS RELATED TO OUR
TELECOMMUNICATIONS GROUP
OUR TELECOMMUNICATIONS GROUP MAY LOSE SOME EXISTING AND POTENTIAL CUSTOMERS
BECAUSE OF COMPETITION AND CONSOLIDATION. A majority of the U.S.-based
international telecommunications services revenue is currently generated by AT&T
and Sprint Corporation. Our 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 telecommunication services
originating outside of their respective in-region states. Many of these
competitors have considerably greater financial and other resources and more
extensive domestic and international communications networks than our
Telecommunications Group. Our business would be materially adversely affected to
the extent that a significant number of such customers limit or cease doing
business with our Telecommunications Group for competitive or other reasons.
Consolidation in the telecommunications industry could not only create even
larger competitors with greater financial and other resources, but could also
adversely affect us by reducing the number of
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potential customers for our Telecommunications Group's services.
TERMINATION OF OUR CARRIER SERVICE AGREEMENT WITH WORLDCOM NETWORK SERVICES
COULD MATERIALLY ADVERSELY AFFECT OUR REVENUES. Our Telecommunications Group
has entered into a Carrier Service Agreement with WorldCom Network Services,
Inc., a wholly owned subsidiary of MCI WorldCom pursuant to which WorldCom
Network Services purchases international long distance services on a wholesale
basis. WorldCom Network Services presently provides a significant portion of our
service revenues. Termination of the Service Agreement, or any reduction in
services provided thereunder, could materially decrease our revenues. WorldCom
Network Services is obligated to purchase from our Telecommunications Group at
least $25 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 service
agreement is for a one-year term but automatically renews each month, subject to
a one year termination notice. Revenues attributable to the Service Agreement
for the first six months of 1999 comprised approximately 70% of total revenues
of our Telecommunications Group 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 Telecommunications
Group's ability to process and substantiate customer billings. Components of our
Telecommunications Group's network have failed in the past which have had a
material adverse effect on our Telecommunications Group's operating results.
There can be no assurance that similar or other failures will not occur in the
future.
LIMITED LONG-TERM PURCHASE AND RESALE AGREEMENTS AND PRICING PRESSURES FOR
TRANSMISSION CAPACITY COULD ADVERSELY AFFECT OUR GROSS MARGINS. A substantial
portion of transmission capacity used by our Telecommunications Group is
obtained on a variable, per minute and short-term basis, subjecting our
Telecommunications Group to the possibility of unanticipated price increases and
service cancellations. Since our Telecommunications Group does 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 Telecommunications Group's gross margins are subject to significant
fluctuations over short periods of time. Our Telecommunications Group's gross
margins also may be negatively impacted in the longer term by competitive
pricing pressures.
FOREIGN GOVERNMENTS MAY ATTEMPT TO PREVENT OUR TELECOMMUNICATIONS GROUP
FROM CONDUCTING ITS BUSINESS. 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
competitors of our Telecommunications Group or companies, such as national
telephone companies, upon which our Telecommunications Group 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 Telecommunications Group's operations. In highly
regulated countries in which our Telecommunications Group is not dealing
directly with the dominant local exchange carrier, the dominant carrier may have
the ability to route service to our Telecommunications Group 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 our Telecommunications Group
is dealing with an alternative operator, foreign laws may prohibit or impede new
operators from offering services in these markets.
We currently plan to expand our Telecommunications Group's 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 our Telecommunications Group with practical
opportunities to compete in the near future, or at all, and we may
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not be able to take advantage of any such liberalization in a timely manner.
CERTAIN OF OUR TELECOMMUNICATIONS GROUP'S ARRANGEMENTS WITH FOREIGN
OPERATORS MAY BE INCONSISTENT WITH FCC POLICIES AND COULD SUBJECT US TO MONETARY
PENALTIES OR TERMINATION OF NONCOMPLIANT AGREEMENTS. The FCC could determine,
by its own actions or in response to a third party's filing, that certain of our
Telecommunications Group's services, service arrangements, agreements with
foreign carriers, network-based or resale services or reports do not or did not
comply with FCC policies and rules. If this occurred, the FCC could order us to
terminate noncompliant arrangements, fine us or revoke our authorizations.
RECENT FCC ACTIONS MAY ADVERSELY AFFECT OUR TELECOMMUNICATIONS GROUP 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. Increased competition may
increase pricing pressures, reduce our margins and decrease demand for our
services.
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 Telecommunications
Group's 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 settlement rates at or below the prescribed benchmarks. Any future
FCC intervention could disrupt our Telecommunications Group's transmission
arrangements to certain countries or require our Telecommunications Group to
modify its existing arrangements.
AN FCC ORDER CURRENTLY UNDER REVIEW MAY AFFECT OUR ABILITY TO PRICE OUR
SERVICE OFFERINGS. The Telecommunications Act of 1996 permits the FCC to forbear
enforcement of the tariff provisions in such 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 domestic services. However,
subject to the court's decision, the FCC may forbear its current tariff rules
for U.S. international carriers, such as our Telecommunications Group, or order
these carriers to de-tariff their services. In that event, our
Telecommunications Group would have greater flexibility in pricing its service
offerings and to compete, although any such FCC action likely would grant other
non-dominant international carriers equivalent freedom. The FCC 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.
REGULATION OF CUSTOMERS MAY MATERIALLY ADVERSELY AFFECT OUR REVENUES BY
DECREASING THE VOLUME OF TRAFFIC OUR TELECOMMUNICATIONS GROUP RECEIVES FROM
MAJOR CUSTOMERS. Our Telecommunications Group's customers are also subject to
actions taken by domestic or foreign regulatory authorities that may affect the
ability of customers to deliver traffic to our Telecommunications Group.
Regulatory sanctions have been imposed on certain of our Telecommunications
Group'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.
9
<PAGE> 11
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 the Nasdaq National
Market. 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.
In addition, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market price for many
technology companies and that have often been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of our common stock.
SIGNIFICANT VARIANCE IN OUR QUARTERLY OPERATING RESULTS COULD 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 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.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this
prospectus contain certain information regarding our plans and strategies that
are "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934. When used
in this prospectus or in the documents incorporated by reference, the words
"may," "could," "should," "would," "believe," "anticipate," "estimate,"
"expect," "intend," "plan" and similar terms and/or expressions are intended to
identify forward-looking statements. These statements reflect our assessment of
a number of risks and uncertainties and our actual results could differ
materially from the results anticipated in these forward-looking statements. Any
forward-looking statement speaks only as of the date of this prospectus or the
documents incorporated by reference, and we undertake no obligation to update
any forward-looking statements to reflect events or circumstances after the date
on which such statement is made or to reflect the occurrence of an unanticipated
event.
10
<PAGE> 12
RECENT DEVELOPMENTS
FACILICOM MERGER
On August 17, 1999 we announced that we had entered into a definitive
merger agreement with FaciliCom International, Inc., a privately owned company
that is a leading facilities-based provider of European and U.S. originated
international long-distance voice, data and Internet services. Pursuant to the
terms of the agreement, the shareholders of FaciliCom will receive the following
consideration:
- an amount of cash and/or our common stock equal in value to $56.0
million;
- approximately 369,400 shares of our Convertible Preferred Stock, Series
C, which has a fair value of $266.0 million; and
- approximately 520,000 vested options that each may be exercised for one
share of our common stock at an average exercise price of $3.06 per
share.
Once this transaction has been completed, former FaciliCom shareholders will
hold approximately 24% of our common stock on an as-converted basis. The
Preferred Stock bears no dividend and is convertible into shares of our common
stock at a conversion rate of $20.38 per common share, subject to adjustment in
the event of below market issuances of our common stock, stock dividends,
subdivisions, combinations, reclassifications and other distributions with
respect to our common stock. If the closing trading price of our common stock
exceeds $20.38 per share for 60 consecutive trading days, the Preferred Stock
will automatically convert into common stock. Initially, the holders of the
Preferred Stock will be entitled to elect four new directors to our Board of
Directors. Except for the election of directors, the holders of the Preferred
Stock will vote on an as-converted basis with the holders of our common stock.
The closing of the transaction is conditioned upon a majority of the
holders of FaciliCom 10 1/2% Series B Senior Notes due 2008 agreeing to waive
put rights and defaults triggered by the merger and amend the indenture
governing the FaciliCom notes to provide additional flexibility under the
limitation on indebtedness and limitation on asset sales covenants of the
indenture. 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. Under
the terms of the exchange offer, each $1,000 principal amount of FaciliCom notes
will be exchanged for:
(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
at a price of 100% of the principal amount with the cash proceeds from
any individual asset sale that exceeds $15.0 million;
- 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) such number of shares of our common stock having an aggregate market
value of $50; and
(3) a cash payment of $10.
11
<PAGE> 13
The transaction is also subject to the following conditions:
- approval of our shareholders;
- expiration of applicable 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% of the current voting power
of our common stock, have entered into a Voting Agreement whereby they have
committed 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.
On October 13, 1999 we announced that we received commitments from a group
of institutional and sophisticated investors to purchase $75.0 million of our
common stock in a private transaction that is conditioned upon, among other
things, and will close simultaneously with our pending merger with FaciliCom. We
intend to issue this common stock pursuant to the exemption from registration
requirements provided by Section 4(2) of the Securities Act as a transaction not
involving a public offering. Promptly after the closing of this private
placement and our merger with FaciliCom, we expect to register the $75.0 million
of common stock for resale by the investors under the Securities Act. 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 common
stock to be issued will be priced at the average trading value of our common
stock during a five day period prior to the closing of the FaciliCom merger,
with the purchase price to be no lower than $13.00 per share and no higher than
$17.00 per share.
12
<PAGE> 14
WORLD ACCESS FISCAL THIRD QUARTER RESULTS
On October 28, 1999, we announced the financial results of our third
quarter of 1999. The unaudited financial information of World Access presented
below, 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 the periods presented (in
thousands, except per share data).
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF CONTINUING OPERATIONS DATA:
Carrier service revenues.................................... $130,470 $ 629 $329,361 $ 1,892
Equipment sales............................................. 72,569 35,619 194,929 92,303
-------- ------- -------- --------
Total Sales........................................ 203,039 36,248 524,290 94,195
Cost of carrier services.................................... 112,508 590 287,777 1,631
Cost of services network.................................... 4,006 38 13,969 114
Cost of equipment sold...................................... 42,234 18,395 110,924 47,748
Amortization of acquired technology......................... 1,200 -- 3,600 --
-------- ------- -------- --------
Total Cost of Sales................................ 159,948 19,023 416,270 49,493
-------- ------- -------- --------
Gross Profit....................................... 43,091 17,225 108,020 44,702
Research and development.................................... 4,509 1,778 13,282 4,256
Selling, general and administrative......................... 15,596 4,938 43,105 11,493
Amortization of goodwill.................................... 3,346 927 9,715 2,402
Provision for doubtful accounts............................. 1,410 166 2,840 410
In-process research and development......................... -- -- -- 35,400
Restructuring and other charges............................. -- -- -- 590
-------- ------- -------- --------
Operating Income (Loss)............................ 18,230 9,416 39,078 (9,849)
Gain on sale of securities.................................. 8,704 -- 8,704 --
Interest and other income................................... 1,123 857 2,629 2,827
Interest expense............................................ (2,790) (1,641) (7,394) (4,599)
-------- ------- -------- --------
Income (Loss) From Continuing Operations Before
Income Taxes and Minority Interests.............. 25,267 8,632 43,017 (11,621)
Income taxes................................................ 11,013 3,473 20,370 9,379
-------- ------- -------- --------
Income (Loss) From Continuing Operations Before
Minority Interests............................... 14,254 5,159 22,647 (21,000)
Minority interests in earnings of subsidiary................ -- 1,090 -- 2,623
-------- ------- -------- --------
Income (Loss) From Continuing Operations(1)........ 14,254 4,069 22,647 (23,623)
Net income (loss) from discontinued operations.............. (49) 2,962 (702) 2,922
Write-down of discontinued operations to net realizable
value..................................................... -- -- (13,662) --
-------- ------- -------- --------
Net Income (Loss).................................. 14,205 7,031 8,283 (20,701)
Preferred stock dividends................................... 784 -- 1,197 --
-------- ------- -------- --------
Net Income (Loss) Available to Common
Stockholders..................................... $ 13,421 $ 7,031 $ 7,086 $(20,701)
======== ======= ======== ========
Income (Loss) Per Common Share:
Basic:
Continuing Operations................................... $ 0.37 $ 0.19 $ 0.59 $ (1.16)
Discontinued Operations................................. -- 0.14 (0.39) 0.14
-------- ------- -------- --------
Net Income (Loss)....................................... $ 0.37 $ 0.33 $ 0.20 $ (1.02)
======== ======= ======== ========
Diluted:
Continuing Operations(1)................................ $ 0.33 $ 0.19 $ 0.56 $ (1.16)
Discontinued Operations................................. -- 0.13 (0.35) 0.14
-------- ------- -------- --------
Net Income (Loss)....................................... $ 0.33 $ 0.32 $ 0.21 $ (1.02)
======== ======= ======== ========
Weighted Average Shares Outstanding:
Basic 36,509 21,249 36,245 20,346
======== ======= ======== ========
Diluted 43,491 25,144 40,048 20,346
======== ======= ======== ========
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
ASSETS
Current Assets:
Cash and equivalents...................................... $107,841 $ 55,176
Accounts receivable....................................... 123,382 70,485
Inventories............................................... 40,337 48,591
Other current assets...................................... 55,041 58,566
-------- --------
Total Current Assets.............................. 326,601 232,818
Property and equipment...................................... 63,390 63,602
Goodwill and other intangibles.............................. 306,930 298,780
Other assets................................................ 30,683 18,612
-------- --------
Total Assets...................................... $727,604 $613,812
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt........................................... $ 13,755 $ 17,989
Accounts payable.......................................... 75,438 36,418
Other accrued liabilities................................. 47,595 52,825
-------- --------
Total Current Liabilities......................... 136,788 107,232
Long-term debt.............................................. 140,926 137,864
Noncurrent liabilities...................................... 7,986 8,133
-------- --------
Total Liabilities................................. 285,700 253,229
-------- --------
Stockholders' Equity........................................ 441,904 360,583
-------- --------
Total Liabilities and Stockholders' Equity........ $727,604 $613,812
======== ========
</TABLE>
- ---------------
(1) Income from continuing operations for the three and nine months ended
September 30, 1999 includes a one-time net gain of approximately $5.3
million or $0.12 per diluted share from the sale of securities.
FACILICOM FISCAL FOURTH QUARTER RESULTS
On November 4, 1999, FaciliCom announced the results of their fourth
quarter of fiscal 1999. The unaudited financial information of FaciliCom
presented below, in the opinion of FaciliCom management, include all the
significant normal and recurring adjustments necessary for fair presentation of
the financial position and results of operations for the periods presented (in
thousands).
14
<PAGE> 16
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ----------------------
1999 1998 1999 1998
-------- -------- ----------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $124,071 $ 67,100 $403,766 $184,246
Cost of revenues...................................... 111,325 64,479 368,578 178,952
-------- -------- -------- --------
Gross margin........................................ 12,746 2,621 35,188 5,294
Selling, general and administrative................... 14,676 12,514 55,030 34,347
Staff restructuring expense........................... 634 -- 634 --
Stock-based compensation expense...................... 3,247 311 3,611 6,017
Depreciation and amortization......................... 12,863 3,502 29,758 8,816
-------- -------- -------- --------
Operating loss...................................... (18,674) (13,706) (53,845) (43,886)
Interest expense...................................... (8,717) (8,073) (34,407) (22,612)
Interest income....................................... 710 2,558 4,356 8,152
Other income.......................................... -- -- -- 791
Exchange gain (loss).................................. (244) 264 (1,590) (391)
-------- -------- -------- --------
Loss before income taxes............................ (26,925) (18,957) (85,486) (57,946)
Income tax benefit.................................... 4,313 4,877 10,995 11,351
-------- -------- -------- --------
Net loss............................................ $(22,612) $(14,080) $(74,491) $(46,595)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1999 1998
----------- --------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, equivalents and investments........................... $ 61,323 $181,345
Property and equipment, gross............................... 215,599 126,165
Total assets................................................ 370,166 378,884
Total long-term obligations (net of current portion)........ 328,421 305,137
Stockholders' equity (deficit).............................. (126,830) (38,575)
</TABLE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of the securities offered by
this prospectus. Rather, all proceeds will be payable solely to the selling
security holders, less any compensation payable by the selling security holders
to broker dealers in the form of commissions or otherwise.
15
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements of World Access give
effect to several transactions we completed in 1998 and our pending merger with
FaciliCom, the $75.0 million private placement of World Access common stock, and
the exchange offer. The Unaudited Pro Forma Combined Balance Sheet gives effect
to our pending merger with FaciliCom and related transactions noted previously,
as if they had been completed as of June 30, 1999. The Unaudited Pro Forma
Combined Statements of Operations give effect to the following transactions as
if each had been completed as of January 1, 1998:
- our acquisition of a majority interest in NACT Telecommunications, Inc.
on February 27, 1998 and subsequent merger with NACT on October 28, 1998;
- our merger with Telco Systems, Inc. on November 30, 1998;
- our merger with Cherry Communications Incorporated, d/b/a Resurgens
Communications Group, and Cherry Communications U.K. Limited on December
15, 1998 (these companies are collectively referred to as Resurgens in
the pro forma financial statements); and
- our pending merger with FaciliCom and related transactions.
We have prepared the pro forma financial statements to demonstrate how
these combined businesses might have looked if the mergers and related
transactions had been completed as of the dates or at the beginning of the
periods presented. The pro forma financial statements, while helpful in
illustrating characteristics of the combined company under one set of
assumptions, do not attempt to predict or suggest future results. The 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. Upon final review of the fair value of FaciliCom's assets and liabilities,
it is likely that certain tangible and intangible assets such as international
licenses and foreign carrier operating agreements may be recognized which
generally have lives ranging from 5-10 years. Although we do not expect these
final adjustments to be significant, they would increase the amortization
expense reflected in the unaudited pro forma financial statements as these
intangible assets would be amortized over a shorter life than goodwill.
Each of the merger transactions above has been accounted for using the
purchase method of accounting. In connection with our acquisitions of NACT and
Telco, we recorded charges of $44.6 million and $50.3 million, respectively,
representing the portion of the purchase price allocated to in-process research
and development. Since these charges were directly related to the acquisitions
and will not recur, the Unaudited Pro Forma Combined Statement of Operations for
the year ended December 31, 1998 has been prepared excluding these one-time
non-recurring charges.
Upon the completion of our merger with FaciliCom, we expect to record a
one-time restructuring charge for the estimated costs of (i) consolidating
certain of our United States gateway switching centers and related technical
support functions into existing FaciliCom operations; (ii) consolidating our
United Kingdom operations into existing FaciliCom operations; (iii)
consolidating the administrative functions of our Telecommunications Group into
FaciliCom's operations; and (iv) eliminating other redundant operations and
assets as a result of combining our Telecommunications Group's and FaciliCom's
operations. The restructuring charge is expected to include the write-down of
our switching and transmission equipment taken out of service, the write-off of
certain leasehold improvements, a provision for lease commitments remaining on
certain facilities and equipment taken out of service and employee termination
benefits. Although we have not yet finalized the restructuring program, it is
expected to be approved in its final form and adopted immediately following the
FaciliCom merger, communicated to our employees at that time and completed
within three months. We have not yet determined the actual
16
<PAGE> 18
restructuring charge to be recorded but estimate that it will be in excess of
$20.0 million. This one-time charge has been excluded from the pro forma
financial statements.
As a result of the FaciliCom merger and the restructuring program discussed
above, we expect the combined company to realize significant operational and
financial synergies. These synergies are expected to include cost reductions
resulting from traffic routing changes made to take advantage of each company's
least cost routes, elimination of redundant leased line costs, elimination of
redundant switching centers and consolidation of certain administrative
functions. We currently estimate that these annualized cost savings, which have
been excluded from the pro forma financial statements, will range from $20.0
million to $35.0 million.
The 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 pro forma financial
statements should be read in conjunction with the historical consolidated
financial statements of World Access, NACT, Telco, Resurgens and FaciliCom,
which are included herein or incorporated herein by reference.
17
<PAGE> 19
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) 874,149
460,216(5)
103,730(7)
Marketable securities -- restricted..... -- 29,525 -- 29,525
Other assets............................ 24,798 550 -- 25,348
-------- -------- -------- ----------
Total Assets.................. $693,146 $384,765 $556,497 $1,634,408
======== ======== ======== ==========
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) 1,009,773
287,365(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) 571,497 891,152
-------- -------- -------- ----------
Total Liabilities and
Stockholders' Equity........ $693,146 $384,765 $556,497 $1,634,408
======== ======== ======== ==========
</TABLE>
18
<PAGE> 20
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................... 185,232 169,243 (3,690)(10) 350,785
Cost of equipment sold..................... 68,690 -- -- 68,690
Amortization of acquired technology........ 2,400 -- -- 2,400
-------- -------- -------- --------
Total Cost of Sales...................... 256,322 169,243 (3,690) 421,875
-------- -------- -------- --------
Gross Profit............................. 64,929 4,014 (650) 68,293
Research and development................... 8,773 -- -- 8,773
Selling, general and administrative........ 27,486 24,719 -- 52,205
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>
19
<PAGE> 21
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) NACT(2) TELCO(2) RESURGENS(2) FACILICOM(3) ADJUSTMENTS ACCESS
--------- ------- -------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Carrier service
revenues................. $ 13,143 $1,160 $ -- $126,324 $184,246 $ (2,520)(10) $ 322,353
Equipment sales.......... 138,990 1,175 96,367 -- -- -- 236,532
--------- ------- -------- -------- -------- -------- ---------
Total Sales............ 152,133 2,335 96,367 126,324 184,246 (2,520) 558,885
Cost of carrier sales.... 12,522 1,050 -- 145,043 184,989 (2,140)(10) 340,234
(1,230)(12)
Cost of equipment sold... 73,842 925 64,416 -- -- (400)(11) 138,783
Write-down of
inventories............ 9,292 -- -- -- -- -- 9,292
Amortization of acquired
technology............. 446 -- -- -- -- 4,360(13) 4,806
--------- ------- -------- -------- -------- -------- ---------
Total Cost of Sales.... 96,102 1,975 64,416 145,043 184,989 590 493,115
--------- ------- -------- -------- -------- -------- ---------
Gross Profit
(Deficit)............ 56,031 360 31,951 (18,719) (743) (3,110) 65,770
Research and
development............ 6,842 504 15,265 -- -- -- 22,611
Selling, general and
administrative......... 19,984 1,265 22,295 38,569 37,562 780(14) 120,455
Amortization of
goodwill............... 4,255 39 800 -- 961 34,530(15) 40,585
In-process research and
development............ 100,300 -- 15,585 -- -- (94,900)(16) 20,985
Goodwill impairment...... 6,200 -- -- -- -- -- 6,200
Provision for doubtful
accounts............... 11,332 104 589 2,294 4,620 -- 18,939
Restructuring and other
charges................ 17,240 -- -- -- -- -- 17,240
--------- ------- -------- -------- -------- -------- ---------
Operating Income
(Loss)............... (110,122) (1,552) (22,583) (59,582) (43,886) 56,480 (181,245)
Foreign exchange loss.... -- -- -- -- (391) -- (391)
Interest and other
income................. 3,419 -- 2,194 -- 8,943 -- 14,556
Interest and other
expense................ (6,832) -- (127) (9,457) (22,612) (19,880)(9) (58,908)
--------- ------- -------- -------- -------- -------- ---------
Loss Before Income
Taxes and Minority
Interests............ (113,535) (1,552) (20,516) (69,039) (57,946) 36,600 (225,988)
Income taxes
(benefits)............. (1,387) (620) 300 -- (11,351) (8,440)(17) (21,498)
--------- ------- -------- -------- -------- -------- ---------
Loss Before Minority
Interests............ (112,148) (932) (20,816) (69,039) (46,595) 45,040 (204,490)
Minority interests in
earnings of
subsidiary............. (2,497) -- -- -- -- 2,497 --
--------- ------- -------- -------- -------- -------- ---------
Loss From Continuing
Operations........... $(114,645) $ (932) $(20,816) $(69,039) $(46,595) $ 47,537 $(204,490)
========= ======= ======== ======== ======== ======== =========
Loss From Continuing
Operations
Per Common Share:
Basic.................. $ (5.19) $ (4.22)(18)
========= =========
Diluted................ $ (5.19) $ (4.22)(18)
========= =========
Weighted Average Shares
Outstanding:
Basic.................. 22,073 48,460(18)
========= =========
Diluted................ 22,073 48,460(18)
========= =========
</TABLE>
20
<PAGE> 22
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 -- February
1998; Telco -- November 1998; and Resurgens -- December 1998.
2. These columns represent the historical results of NACT for the period
January 1, 1998 to February 27, 1998; 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. Depreciation and amortization related to network
operations has been reclassified to costs of carrier sales to conform
with the World Access presentation.
4. Elimination of 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 from the amounts shown below.
Under the terms of the Agreement and Plan of Merger dated as of August
17, 1999 and based on the valuation of the Series C Preferred Stock
and World Access common stock at that time, the purchase price was
determined as follows (in thousands):
<TABLE>
<S> <C>
Purchase price:
Issuance of preferred stock(i)............................ $266,000
Cash...................................................... 56,000
Issuance of common stock(ii).............................. 15,000
Fair value of World Access options issued in exchange for
FaciliCom options(iii)................................. 6,380
Estimated fees and expenses............................... 12,500
--------
Total purchase price.............................. 355,880
--------
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)
--------
Estimated goodwill................................ $460,216
========
</TABLE>
- ---------------
(i) Represents the fair value of the approximately 369,400 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. 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 of World Access common stock, subject
to adjustment in the event of below market issuances of World Access
common stock, stock dividends, subdivisions, combinations,
reclassifications and other distributions with respect to World
Access common stock. 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. Initially, the holders of the Series C
Preferred Stock will be entitled to
21
<PAGE> 23
WORLD ACCESS, INC
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
elect four new directors to the World Access Board of Directors.
Except for the election of directors, the holders of the Series C
Preferred Stock will vote on an as-converted basis with the holders
of World Access common stock.
(ii) In connection with the merger of World Access and FaciliCom, holders
of a majority of the aggregate principal amount of FaciliCom's
10 1/2% Series B Senior Notes due 2008 (the FaciliCom 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) (ii) $10 in
cash and (iii) World Access common stock having a market value of
$50, as measured at the time of the exchange. These pro forma
statements assume that all holders of FaciliCom Notes will exchange
their notes for World Access Notes, and that therefore (i) $300.0
million aggregate principal amount of the World Access Notes will be
issued (ii) an aggregate amount of $3.0 million cash will be paid to
holders of the FaciliCom Notes (which represents the fee paid by
World Access to obtain the consent from the FaciliCom noteholders
waiving their right to put their notes at 101% of par in connection
with the FaciliCom merger) and (iii) World Access common stock equal
in value to an aggregate amount of $15.0 million will be issued to
the holders of the FaciliCom Notes. For purposes of these pro forma
financial statements, 1,062,000 shares of World Access common stock
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 per
share.
(iii) Represents the fair value of approximately 520,000 options to
acquire World Access common stock to be issued in exchange for
certain options outstanding to acquire FaciliCom common stock. The
fair value has been determined using the Black-Scholes Option
Pricing Model with the following assumptions: dividend yield 0%,
volatility 70%, risk free interest rate of 5.8% and an expected life
of 5 years. The World Access options are expected to be issued at an
average exercise price of $3.06 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 Notes to their estimated fair value. The estimated fair
value was based on the quoted market price of debt with similar
characteristics. The terms of the World Access Notes were structured
to provide fair value equal to 95% of the principal amount.
6. In connection with the FaciliCom merger, World Access has received
commitments from a group of institutional and sophisticated 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 cash
portion of the merger consideration, as well as fees and expenses to
be incurred in connection with the merger. The World Access common
stock to be issued will be priced 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 $13.00 per share and no higher than $17.00 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 per
share.
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
22
<PAGE> 24
WORLD ACCESS, INC
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 per share.
8. Elimination of existing goodwill from prior FaciliCom acquisitions and
debt issue costs associated with the FaciliCom Notes.
9. Represents the adjustment to interest expense related to the exchange
of FaciliCom Notes (10 1/2% coupon) for World Access Notes (13.25%
coupon) and the amortization of the $15.0 million debt discount
related to the World Access Notes over a period of eight years. The
FaciliCom Notes were issued on January 28, 1998 and were outstanding
for approximately eight months in fiscal 1998. The pro forma
adjustment to interest expense was computed as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
---------------- -----------------
<S> <C> <C>
Interest expense on World Access Notes........... $ 19,875 $ 39,750
Debt issue cost amortization on World Access
Notes.......................................... 940 1,875
Historical FaciliCom Note interest expense....... (15,750) (21,000)
Historical FaciliCom debt issue cost
amortization................................... (525) (745)
-------- --------
$ 4,540 $ 19,880
======== ========
</TABLE>
10. Elimination of inter-company carrier service revenues and related
costs.
11. Adjustment to depreciation expense related to the write-down of certain
redundant equipment at Telco.
12. Adjustment to depreciation and amortization expense for the adjustment
to fair value of switching equipment and license agreements at
Resurgens.
13. Amortization of acquired technology relating to the NACT and Telco
acquisitions over 8 years.
14. Amortization of trademarks of Telco over 8 years.
15. Amortization of goodwill over an estimated life of 20 years. The pro
forma adjustment to goodwill for the six months ended June 30, 1999 was
computed as follows (in thousands):
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA GOODWILL PRO FORMA
GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENTS
-------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
FaciliCom (see Note 5)............... $460,216 $11,510 $(634) $10,876
Escrowed shares (see Note 7)......... 103,730 2,594 -- 2,594
------- ----- -------
$14,104 $(634) $13,470
======= ===== =======
</TABLE>
23
<PAGE> 25
WORLD ACCESS, INC
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma adjustment to goodwill for the year ended December 31,
1998 was computed as follows (in thousands):
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA GOODWILL PRO FORMA
GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENT
-------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
FaciliCom (see Note 5)............... $460,216 $ 23,010 $ (961) $22,049
Escrowed shares (see Note 7)......... 103,730 5,186 -- 5,186
NACT................................. 92,668 4,630 (2,107) 2,523
Telco................................ 39,418 1,970 (964) 1,006
Resurgens............................ 78,625 3,930 (164) 3,766
-------- ------- -------
$ 38,726 $(4,196) $34,530
======== ======= =======
</TABLE>
16. Elimination of the one-time, non-recurring in-process research and
development charges recorded in connection with the NACT and Telco
mergers.
17. Adjustment 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 (i) approximately
1,430,000, 2,790,000, 7,042,000 and 3,687,500 shares of World Access
common stock for the acquisition of a majority interest in NACT, NACT
merger, Telco merger and Resurgens merger, respectively; (ii) an
aggregate of approximately 5,308,000 shares issued for $75.0 million in
connection with the private placement of World Access common stock;
(iii) an aggregate of 1,062,000 shares issued to the holders of the
FaciliCom Notes; and (iv) 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.
19. In October 1999, FaciliCom granted stock options (contingent upon the
consummation of the merger) to its employees who are expected to
continue with the surviving corporation after the merger with World
Access. These options, which were granted under a new FaciliCom 1999
Stock Option Plan, will have a four year vesting period. Upon
consummation of the merger, these options will convert into
non-qualified options to purchase approximately 1.9 million shares of
World Access common stock at an exercise price of $15.00 per share.
Given that the conversion of the options is contingent upon the merger,
any resulting compensation expense to be recorded over the vesting
period will be determined at the time of the merger based on the
intrinsic value of the options. As a result, no effect for these
options has been included in the pro forma financial statements.
24
<PAGE> 26
WORLD ACCESS, INC
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
20. In connection with the execution of the FaciliCom merger agreement,
John D. Phillips was required to enter into a letter agreement, dated
August 17, 1999, under which he 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 1.0 million 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. Since acceleration of the options is
contingent upon consummation of the merger, and given its one time
nature, its effects have not been included in the pro forma financial
statements.
25
<PAGE> 27
SELLING SECURITY HOLDERS
World Access issued the shares of common stock offered by this prospectus
in private placement transactions with the holders named below in transactions
exempt from the registration requirements of the Securities Act. The selling
security holders may from time to time offer and sell any or all of these shares
pursuant to this prospectus. For purposes of this prospectus, the term selling
security holder includes the holders named below, the beneficial owners of these
shares and their transferees, pledgees, donees or other such successors.
The following table sets forth information with respect to the selling
security holders as of November 3, 1999 and the shares beneficially owned by
them that they may offer pursuant to this prospectus. We have obtained this
information from the selling security holders.
<TABLE>
<CAPTION>
SHARES OF SHARES OF PERCENTAGE OF
COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED SHARES OF BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO COMMON STOCK UPON COMPLETION UPON COMPLETION
SELLING SECURITY HOLDERS OFFERING(1) OFFERED HEREBY OF OFFERING OF OFFERING
- ------------------------ ------------------ -------------- ------------------ ------------------
<S> <C> <C> <C> <C>
James E. Bennett.................. 65,797 35,797 30,000 *
Paul G. Blaser(2)................. 21,037 6,429 14,608 *
Thomas R. Canham(3)............... 221,822 96,000 125,822 *
Drew H. Davis(4).................. 8,114 3,199 4,915 *
Eagle Telephonics, Inc............ 114,946 114,946 -- *
Forbes Enterprises, L.P.(5)....... 158,590 33,256 125,334 *
Joseph W. Forbes, Jr.(6).......... 214,464 50,797 163,667 *
Moore Family Holdings Ltd.(7)..... 20,251 12,010 8,241 *
Lewis L. Roberts, Jr.(8).......... 9,077 3,197 5,880 *
Brian A. Schuchman(9)............. 221,822 96,000 125,822 *
Robert E. Schwartz(10)............ 5,351 3,173 2,178 *
Wolfpack Holdings, Inc............ 18,256 18,256 -- *
--------- ------- -------
Totals.................. 1,079,527 473,060 606,467
========= ======= =======
</TABLE>
- ---------------
* Less than one percent.
(1) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act. Unless otherwise noted, we believe that all persons
named in the table have sole voting and investment power with respect to
the shares beneficially owned by them.
(2) Includes (a) 2,942 shares which were placed in escrow in connection with
World Access' acquisition of Galaxy Engineering Services, Inc. in August
1997 which will be released to Mr. Blaser upon Galaxy's realization of
certain levels of profitability during 1999 and 2000 and (b) 5,666 shares
pledged to World Access to secure a promissory note due March 31, 2000. Mr.
Blaser is the Vice President of U.S. Operations for Galaxy.
(3) Includes 85,000 shares which were placed in escrow in connection with World
Access' acquisition of Desert Installation Systems, Inc. in February 1999.
These shares will be released to Mr. Canham if World Access realizes
certain levels of profitability from the operations of Desert during 1999
and 2000. Mr. Canham is an Executive Vice President of Cellular
Infrastructure Supply, Inc., a wholly-owned subsidiary of World Access.
(4) Includes (a) 1,474 shares which were placed in escrow in connection with
the acquisition of Galaxy and (b) 2,857 shares pledged to secure a
promissory note due March 31, 2000. Mr. Davis is the Director of
Engineering for Galaxy.
(5) Includes 31,594 shares which were placed in escrow in connection with the
acquisition of Galaxy.
(6) Includes 31,592 shares which were placed in escrow in connection with the
acquisition of Galaxy. Mr. Forbes is the President of Galaxy.
(7) Includes 5,494 shares which were placed in escrow in connection with the
acquisition of Galaxy. Roy J. Moore, a former principal of Galaxy, is the
general partner of Moore Family Holdings Ltd.
26
<PAGE> 28
(8) Includes (a) 1,452 shares which were placed in escrow in connection with
the acquisition of Galaxy and (b) 2,928 shares pledged to secure a
promissory note due March 31, 2000. Mr. Roberts is the Director of Advanced
Technology for Galaxy.
(9) Includes 85,000 shares which were placed in escrow in connection with the
acquisition of Desert. Mr. Schuchman is the President of Cellular
Infrastructure.
(10) Includes 1,452 shares which were placed in escrow in connection with the
acquisition of Galaxy. Mr. Schwartz is the former Controller of Galaxy.
Except as noted above, none of the selling security holders has, or within
the past three years has had, any position, office or other material
relationship with World Access or any of our predecessors or affiliates. The
selling security holders identified above may have sold, transferred or
otherwise disposed of all or a portion of their shares, in transactions exempt
from the registration requirements of the Securities Act, since the date on
which they provided the information regarding their shares. If required, we may
identify and provide additional selling security holders and information with
respect to them in one or more prospectus supplements.
27
<PAGE> 29
PLAN OF DISTRIBUTION
The selling security holders may offer all or part of the shares included
in this prospectus from time to time in transactions on applicable exchanges or
automated interdealer quotation systems, in privately negotiated transactions,
through the writing of options on the securities offered by this prospectus, or
a combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Each selling security holder
will act independently of us in making decisions with respect to the timing,
manner and size of each sale. The methods by which the selling security holders
may resell their shares include, but are not limited to, the following:
- a cross or block trade in which the broker or dealer engaged by a selling
security holder will attempt to sell the securities as agent but may
position and resell a portion of the block as principal to facilitate the
transaction;
- purchases by a broker or dealer as principal and resale by such broker or
dealer for its account;
- an exchange distribution in accordance with the rules of such exchange;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- privately negotiated transactions;
- short sales or borrowing, returns and reborrowings of the shares pursuant
to stock loan agreements to settle short sales;
- delivery in connection with the issuance of securities by issuers, other
than us, that are exchangeable for (whether on an optional or mandatory
basis), or payable in, such shares (whether such securities are listed on
a national securities exchange or otherwise) or pursuant to which such
shares may be distributed; and
- a combination of any such methods of sale or distribution.
In effecting sales, brokers or dealers engaged by a selling security holder
may arrange for other brokers or dealers to participate in such sales. Brokers
or dealers may receive commissions or discounts from a selling security holder
or from the purchasers in amounts to be negotiated immediately prior to the
sale. A selling security holder may also sell the shares in accordance with Rule
144 or Rule 144A under the Securities Act or pursuant to other exemptions from
registration under the Securities Act.
If the securities offered by this prospectus are sold in an underwritten
offering, the underwriters may acquire them for their own account and may
further resell these securities from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The names of the underwriters
with respect to any such offering and the terms of the transactions, including
any underwriting discounts, concessions or commissions and other items
constituting compensation of the underwriters and broker-dealers, if any, will
be set forth in a prospectus supplement relating to such offering. Any public
offering price and any discounts, concessions or commissions allowed or
reallowed or paid to broker-dealers may be changed from time to time. Unless
otherwise set forth in a prospectus supplement, the obligations of the
underwriters to purchase the securities will be subject to certain conditions
precedent and the underwriters will be obligated to purchase all the securities
specified in such prospectus supplement if any such shares are purchased.
Brokers who borrow the securities to settle short sales of securities and who
wish to offer and sell the securities under circumstances requiring use of the
prospectus or making use of the prospectus desirable may use this prospectus.
From time to time the security holders may engage in short sales, short
sales against the box, puts, calls and other transactions in our securities, or
derivatives thereof, and may sell and deliver the shares offered by this
prospectus in connection therewith.
28
<PAGE> 30
We will not receive any of the proceeds from the sales of the securities by
the security holders pursuant to this prospectus. We will, however, bear certain
expenses in connection with the registration of the securities being offered by
the selling security holders, including all costs incident to the offering and
sale of the securities to the public other than any commissions and discounts of
underwriters, dealers or agents and any transfer taxes.
Our common stock is listed for trading on the Nasdaq National Market, and
the shares offered by this prospectus have been approved for quotation on
Nasdaq.
In order to comply with the securities laws of certain states, the selling
security holders may only sell the securities through registered or licensed
brokers or dealers. In addition, in certain states, the selling security holders
may only sell the securities if they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirements of such state is available and is complied with.
A selling security holder, and any broker dealer who acts in connection
with the sale of shares hereunder, may be deemed an underwriter within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
them and profit on any resale of the securities as principal might be deemed
underwriting discounts and commissions under the Securities Act. We have agreed
to indemnify the selling security holders, any underwriters and certain other
participants in an underwriting or distribution of the securities and their
directors, officers, employees and agents against certain liabilities including
liabilities arising under the Securities Act. Because the selling security
holders may be deemed underwriters within the meaning of Section 2(11) of the
Securities Act, the selling security holders will be subject to the prospectus
delivery requirements of the Securities Act.
We will use our best efforts to keep the registration statement of which
this prospectus is a part effective for a period of one year from its initial
effective date. We are permitted to suspend the use of this prospectus in
connection with the sales of securities by selling security holders upon the
happening of certain events. These include the existence of any fact that makes
any statement of material fact made in this prospectus untrue or that requires
the making of additions to or changes in this prospectus in order to make the
statements herein not misleading. The suspension will continue until such time
as we advise the selling security holders that use of the prospectus may be
resumed, in which case the period of time during which we are required to
maintain the effectiveness of the registration statement shall be extended.
World Access will bear the expense of preparing and filing the registration
statement and all post-effective amendments.
LEGAL MATTERS
Long Aldridge & Norman LLP, Atlanta, Georgia, has passed upon certain legal
matters regarding the securities offered by this prospectus.
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. 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.
29
<PAGE> 31
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. 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. 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. 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.
The consolidated financial statements of FaciliCom International, Inc. and
subsidiaries incorporated in this World Access prospectus by reference from the
FaciliCom International, Inc. Annual Report on Form 10-K for the year ended
September 30, 1998 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and has been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The consolidated financial statements of NACT Telecommunications, Inc. as
of September 30, 1997, and for each of the years in the three-year period ended
September 30, 1997, included in our Registration Statement on Form S-4 filed on
October 6, 1998, as amended by Amendment No. 1 to Form S-4 filed on October 7,
1998, and Amendment No. 2 to Form S-4 filed on October 7, 1998, have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities laws require us to file information with the
Securities and Exchange Commission concerning our business and operations.
Accordingly, we 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
30
<PAGE> 32
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 the Company and our
common stock is contained in the registration statement on Form S-3 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
until the selling security holders sell all their shares offered by this
prospectus.
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), as amended by Form 8-K/A filed on October 5, 1999 (File Number
0-29782);
- 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, as
amended by Form 10-Q/A filed on October 7, 1999 and Amendment No. 2 on
Form 10-Q/A filed on November 4, 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 Amendment No. 1 on Form 10-K/A filed on August 31, 1999,
Amendment No. 2 on Form 10-K/A filed on October 7, 1999 and Amendment No.
3 on Form 10-K/A filed on November 4, 1999. (File Number 0-29782);
- The consolidated financial statements of FaciliCom International, Inc.
included in FaciliCom's Annual Report on Form 10-K for the year ended
September 30, 1998 (File Number 333-48371);
- The consolidated financial statements of FaciliCom International, Inc.
included in FaciliCom's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (File Number 333-48371);
31
<PAGE> 33
- 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;
- The consolidated financial statements of NACT Telecommunications, Inc.
included in our Registration Statement on Form S-4 (No. 333-65389), filed
with the Commission on October 6, 1998, as amended by Amendment No. 1 to
Form S-4 filed on October 7, 1998, and Amendment No. 2 to Form S-4 filed
on October 7, 1998;
- The consolidated financial statements of NACT Telecommunications, Inc.
included in NACT's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997 (File Number 000-22017); and
- 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:
945 E. Paces Ferry Road
Suite 2200
Atlanta, Georgia 30326
Attention: Mr. Mark A. Gergel
Chief Financial Officer
Telephone: (404) 231-2025
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. The selling security holders can
not offer any of these shares in any state where the offer is not permitted. 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.
32
<PAGE> 34
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The combined unaudited financial statements of Cherry
Communications Incorporated (d/b/a Resurgens Communications
Group) and Cherry U.K. for the nine months ended September
30, 1998 and 1997
Combined balance sheets as of September 30, 1998 and
December 31, 1997...................................... F-2
Combined statements of operations for the three months and
nine months ended September 30, 1998 and 1997.......... F-3
Combined statements of cash flows for the nine months
ended September 30, 1998 and 1997...................... F-4
Combined statement of net stockholders' deficiency as of
September 30, 1998 and December 31, 1997............... F-5
Notes to combined unaudited financial statements.......... F-6
</TABLE>
F-1
<PAGE> 35
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-2
<PAGE> 36
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-3
<PAGE> 37
CHERRY COMMUNICATIONS INCORPORATED
(D/B/A RESURGENS COMMUNICATIONS GROUP)
AND CHERRY COMMUNICATIONS U.K. LIMITED
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1998 1997
-------- ---------
(UNAUDITED)
<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-4
<PAGE> 38
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-5
<PAGE> 39
CHERRY COMMUNICATIONS INCORPORATED
(D/B/A RESURGENS COMMUNICATIONS GROUP)
AND CHERRY COMMUNICATIONS U.K. LIMITED
NOTES TO COMBINED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 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."). 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. 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. Certain reclassifications have been made to the prior period's
financial information to conform with the presentations used in 1998.
F-6
<PAGE> 40
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 1,501
Nasdaq Additional Listing Fee............................... 9,461
Accounting Fees and Expenses................................ 75,000
Legal Fees and Expenses..................................... 50,000
Printing and Mailing Expenses............................... 10,000
Miscellaneous Expenses...................................... 4,038
--------
Total............................................. $150,000
========
</TABLE>
The foregoing items, except for the SEC Registration Fee and the Nasdaq
Additional Listing Fee, are estimated. We will pay all of the above expenses.
The selling security holders will pay their own expenses, including expenses of
their own counsel, broker or dealer fees, discounts and expenses, and all
transfer and other taxes on the sale of the shares of common stock offered by
this prospectus.
ITEM 15. 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.
II-1
<PAGE> 41
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
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 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS. The following exhibits are filed as part of this
registration statement.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
5.1 -- Opinion of Long Aldridge & Norman LLP.
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.
23.8 -- Consent of KPMG LLP with respect to the financial statements
of NACT Telecommunications, Inc.
24.1* -- Power of Attorney of World Access.
</TABLE>
- ---------------
* Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES. The financial statement schedules that
are required by Regulation S-X are incorporated herein by reference to our
Annual Report on Form 10-K for the year ended December 31, 1998.
II-2
<PAGE> 42
ITEM 17. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (1) (i) and (1) (ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information
required to be included in the post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrants pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrants hereby undertake 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 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
registrants pursuant to the foregoing provisions, or otherwise, the registrants
have 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
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrants 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 registrants 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.
II-3
<PAGE> 43
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Atlanta, state of Georgia, on November 4, 1999.
WORLD ACCESS, INC.
BY: /s/ JOHN D. PHILLIPS
------------------------------------
John D. Phillips
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment has been
signed by the following persons in the capacities indicated as of November 4,
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/ * Director
- --------------------------------------------
Stephen J. Clearman
/s/ * Director
- --------------------------------------------
John P. Imlay, Jr.
/s/ * Director
- --------------------------------------------
Carl E. Sanders
Director
- --------------------------------------------
Lawrence C. Tucker
*By: /s/ MARK A. GERGEL
- --------------------------------------------
Mark A. Gergel,
Attorney-in-fact
</TABLE>
II-4
<PAGE> 44
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <C>
5.1 -- Opinion of Long Aldridge & Norman LLP.
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.
23.8 -- Consent of KPMG LLP with respect to the financial statements
of NACT Telecommunications, Inc.
24.1* -- Power of Attorney of World Access.
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
LONG ALDRIDGE & NORMAN LLP EXHIBIT 5.1
303 Peachtree Street, N.E.
Suite 5300
Atlanta, Georgia 30308
November 4, 1999
World Access, Inc.
945 E. Paces Ferry Road
Suite 2200
Atlanta, GA 30326
Re: World Access, Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to World Access, Inc., a Delaware corporation
(the "Company"), in connection with the preparation of a Registration Statement
on Form S-3 (the "Registration Statement") and the filing thereof with the
Securities and Exchange Commission for the registration of certain securities of
the Company owned of record by certain stockholders (the "Selling
Stockholders"). Pursuant to the Registration Statement, the Company intends to
register under the Securities Act of 1933, as amended, 473,060 shares (the
"Shares") of common stock, par value $.01 per share, of the Company.
The opinion hereinafter set forth is given to the Company pursuant to
Item 16 of Form S-3 and Item 601(b)(5) of Regulation S-K. The only opinion
rendered by this firm consists of the matter set forth in numbered paragraph (1)
below (our "Opinion"), and no opinion is implied or to be inferred beyond such
matter. Additionally, our Opinion is based upon and subject to the
qualifications, limitations and exceptions set forth in this letter.
Our Opinion is furnished for the benefit of the Company solely with
regard to the Registration Statement, may be relied upon by the Company only in
connection with the Registration Statement and may not otherwise be relied upon,
used, quoted or referred to by or filed with any other person or entity without
our prior written permission.
In rendering our Opinion, we have examined such agreements, documents,
instruments and records as we deemed necessary or appropriate under the
circumstances for us to express our Opinion. In making all of our examinations,
we assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to the original documents of all
documents submitted to us as copies, and the due execution and delivery of all
documents by any persons or entities where due execution and delivery by such
persons or entities is a prerequisite to the effectiveness of such documents.
<PAGE> 2
World Access, Inc.
May 21, 1999
Page 2
As to various factual matters that are material to our Opinion, we have
relied upon the factual statements set forth in a certificate of an officer of
the Company and a certificate of a public official. We have not independently
verified or investigated, nor do we assume any responsibility for, the factual
accuracy or completeness of such factual statements.
Members of this firm are admitted to the Bar of the State of Georgia
and are duly qualified to practice law in that state. Because the Company is
organized under, and the subject of our Opinion therefore is governed by, the
General Corporation Law of the State of Delaware (the "Delaware Code"), we do
not herein express any opinion concerning any matter respecting or affected by
any laws other than the laws set forth in the Delaware Code that are now in
effect and that, in the exercise of reasonable professional judgment, are
normally considered in transactions such as those described in the Registration
Statement. The Opinion hereinafter set forth is based upon pertinent laws and
facts in existence as of the date hereof, and we expressly disclaim any
obligation to advise you of changes to such pertinent laws or facts that
hereafter may come to our attention.
Based upon and subject to the foregoing, we are of the Opinion that:
(1) The Shares are validly issued, fully paid and nonassessable.
This Opinion supercedes in its entirety our earlier Opinion dated May
21, 1999 regarding the matters discussed herein.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement.
Very truly yours,
LONG ALDRIDGE & NORMAN LLP
By: /s/ Thomas Wardell
--------------------------------
Thomas Wardell
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 3 to the Registration Statements on Form S-3 and related Prospectus of World
Access, Inc. and subsidiaries for the registration of 473,060 shares 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. 3) for the year ended December 31, 1998, filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Atlanta, Georgia
November 2, 1999
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 3 to
Registration Statement No. 333-79097 of World Access, Inc. on Form S-3 of our
report, dated December 9, 1998, on the consolidated financial statements of
FaciliCom International, Inc. and subsidiaries, appearing in the Annual Report
on Form 10-K of FaciliCom International, Inc. for the year ended September 30,
1998, and to the reference to us under the heading "Experts" in the Prospectus,
which is part of such Registration Statement.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
November 2, 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-3 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
November 2, 1999
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 3 to the Registration Statement on Form S-3 and related Prospectus
of World Access, Inc. and subsidiaries for the registration of 473,060 shares 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 date July 27, 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.
/s/ Ernst & Young LLP
Atlanta, Georgia
November 2, 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 27, 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 Amendment No. 3 to the Registration
Statement of Form S-3 and related Prospectus of World Access, Inc. and
subsidiaries and to the use of our name as it appears under the caption
"Experts."
/s/ GRANT THORNTON LLP
Chicago, Illinois
November 2, 1999
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 3 to the Registration Statement on Form S-3 and related Prospectus
of World Access, Inc. and subsidiaries for the registration of 473,060 shares 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.
/s/ Ernst & Young LLP
Boston, Massachusetts
November 2, 1999
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(No. 333-79097) on Form S-3 of World Access, Inc. of our report dated December
4, 1997, relating to the consolidated balance sheets of NACT Telecommunications,
Inc. and subsidiary as of September 30, 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended September 30, 1997, which report appears in the
Registration Statement on Form S-4 filed on October 6, 1998, as amended by
Amendment No. 1 to Form S-4 filed on October 7, 1998, and Amendment No. 2 to
Form S-4 filed on October 7, 1998, and to the reference to our firm under the
heading "Experts" in the prospectus.
/s/ KPMG LLP
Salt Lake City, Utah
November 2, 1999
